Republicans Aim to Roll Back Consumer Protection Rules on Overdraft Fees and Payment Apps

Legislative Efforts Target Biden Administration's Regulatory Changes

Republican lawmakers are actively pursuing the repeal of significant consumer protection regulations as part of their effort to dismantle some of the last-minute initiatives implemented during the Biden administration. Recently, GOP leaders initiated steps to eliminate a $5 cap on bank overdraft fees, a rule that faced fierce criticism and legal challenges from the financial services sector. Additionally, they announced plans to revoke a regulation that would impose stricter oversight on major digital payment applications, such as Venmo and Apple Pay.

The Consumer Financial Protection Bureau (CFPB) finalized both rules in the waning days of the Biden administration, a move that was met with resistance from Republican lawmakers who warned against what they deemed "midnight rulemakings." Utilizing the Congressional Review Act, which permits Congress to overturn recently enacted regulations with a joint resolution, Republicans are working to formally undo these measures.

The Trump administration had already effectively halted the CFPB’s regulatory and enforcement activities as officials sought to dismantle the agency’s authority. By overturning these rules, Congress would ensure that they could not be reimplemented in a similar form should a future Democratic administration attempt to revive them.

The implications of these actions for consumers are significant.

Increased Overdraft Fees
The CFPB estimated that the new overdraft rule would save consumers around $5 billion annually by capping fees imposed by large banks at either $5 or the actual cost of providing the service. Currently, overdraft charges average approximately $27 per incident. Banks justify these fees by asserting that they provide customers with a short-term financial cushion when unexpected expenses arise. However, many consumers have reported feeling blindsided by these fees after inadvertently exceeding their account balances. A 2023 poll indicated that a slight majority of Americans believe the government should encourage banks to eliminate overdraft charges altogether.

In response to public pressure, several major banks, including Bank of America, Citibank, and Capital One, have either drastically reduced their overdraft fees or eliminated them entirely in recent years. Between 2019 and 2023, the CFPB found that revenue from overdraft and insufficient funds fees dropped by more than 50%, falling to just under $6 billion. The newly proposed rule aimed to further diminish this revenue stream, drawing ire from the banking industry, which has launched lawsuits to block its implementation. Congressional Republicans have criticized the CFPB's actions, claiming they represent government overreach. Recently, House Financial Services Committee Chair French Hill and Senate Banking Committee Chair Tim Scott introduced a joint resolution to nullify the rule, stating, "The CFPB’s actions on overdraft is another form of government price controls that hurt consumers who deserve financial protections and greater choice."

Reduced Oversight for Digital Payment Apps
The potential repeal of the CFPB's regulation concerning digital wallets and payment applications may have a less immediate impact on consumers, yet it would result in significantly reduced scrutiny of tech companies that have ventured into financial services. This rule, finalized in November, would have allowed the CFPB to supervise payment platforms not operated by traditional banks, enhancing its capacity to ensure compliance with consumer protection laws and safeguard users from fraud.

The regulation was aimed at a select group of apps that process at least 50 million transactions annually, including widely used platforms like Apple Pay, Google Pay, and PayPal. While large banks generally supported the oversight, arguing that it would subject tech companies to similar scrutiny that they have long faced, Republicans contended that the regulation was unnecessary and excessively broad. There were doubts about the GOP’s willingness to dedicate legislative time to overturn the rule, especially in light of existing legal challenges from tech companies. However, on Thursday, House Majority Leader Steve Scalise added it to a list of regulations that Republicans might target through the Congressional Review Act.

Should the rule be overturned, federal regulators would still retain the ability to pursue legal action against payment applications that fail to manage fraud or protect consumers adequately, as evidenced by the CFPB’s previous actions against Cash App and the organization behind Zelle. Nevertheless, the absence of supervisory authority would prevent consistent oversight of how these large payment platforms conduct their business.