Dozens of state AGs urge House to reject overdraft repeal

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Twenty-four state attorneys general urged House members to vote against a Congressional Review Act resolution that, if passed, would overturn a Consumer Financial Protection Bureau rule capping overdraft fees imposed by large banks on customers. 

"Overturning this rule will only do one thing: help big banks profit at your expense," said New York Attorney General Letitia James, one of the signatories, in a release announcing the letter addressed to leaders in the House Financial Services Committee. "The CFPB took action to protect consumers from outrageous overdraft fees, and Congress should do the same. At a time when working families are struggling to make ends meet, our leaders should be protecting Americans' wallets, not empowering big banks to charge junk fees."

The House is scheduled to vote on CRA resolutions to nullify the CFPB's overdraft and larger participant rules today. The Republican-controlled Senate passed the resolution — known as House Joint Resolution 59 — in March by a slim 52 to 48 margin. CRA resolutions only require a simple majority to pass each chamber of Congress. Sen. Josh Hawley, R-Mo., was the sole Republican to vote against the measure, arguing that opposing the rule constitutes prioritizing the interests of big banks over the American people. The House must also approve the measure and the president must sign it to repeal the rule. 

The Consumer Financial Protection Bureau finalized its regulation capping overdraft fees to $5 in December. While the rule applies to only about 175 financial institutions, banks and credit unions with more than $10 billion in assets cover the majority of bank consumers. 

Banking trade groups — including the Consumer Bankers Association, the American Bankers Association, America's Credit Unions —  sued almost immediately in an attempt to block the rule on administrative legal grounds. 

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Former CFPB Director Rohit Chopra justified the cap by dubbing overdrafts as "junk fees" and said they should be treated like credit, noting that the only reason they are exempt from Truth in Lending Act requirements is because of a 1969 carve-out. The act normally requires banks to disclose the terms of their loans. Under the rule, if a bank seeks to generate profits from covering overdrafts, it would be required to treat the coverage as it would a loan, and associated overdraft fees would be treated as interest subject to disclosures under TILA.

The banking lobby has applauded the CRA resolution, saying that limiting banks' use of overdraft fees would lead them to pull back from the programs and could drive Americans to seek nonbanks and other companies which are less regulated. Proponents of the rule also point out that overdrafts constitute a major line of business for banks and that on average, the rule would save consumer households $225 every year. 

The attorneys general said in the Wednesday letter that arguments that have been made in favor of discarding the rule aren't convincing. 

"The banking industry claims that, without the ability to extract profits through exorbitant fees, the convenience of overdraft protection would disappear," the letter says. "But many banks — including Citigroup, Capital One, and Ally Bank — have already eliminated overdraft fees altogether, while still providing overdraft protection."