In December, the lame-duck Biden administration’s Consumer Financial Protection Bureau (CFPB) announced rules to curb overdraft penalties, which experts say is an example of government overreach that hurts low-income Americans. told the Daily Caller News Foundation.

CFPB — that’s the agency. considered The brainchild of Democratic Massachusetts Sen. Elizabeth Warren, the rules were finalized just weeks before President-elect Donald Trump took office. The goal is to force banks to cap overdraft fees, or lower them to $5, which is below the cap on overdraft fees. average $35or offering overdrafts as a form of credit rather than a penalty. While the goal of the policy is said to be to increase transparency and protect U.S. depositors, experts have warned the DCNF that the policy will force banks to adopt stricter rules regarding bank accounts. He said it would limit access to credit and financial services for low-income Americans and encourage more borrowers to repay. to payday lenders who typically charge much higher interest rates. (Related article: Major IT companies secure work visas for tens of thousands of foreigners while hunting down existing employees)

“This is a classic case of government overreach by regulators who have no understanding of how private business works,” said E. J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Herman Center on the Federal Budget. ” he told DCNF. “These new regulations will eliminate certain services and impose stricter rules on bank accounts held primarily by low-income people, who are unable to meet their immediate expenses. If you don’t have enough money and need a credit extension, you may end up using payday loans, which are more expensive.”

Typical credit cards have annual interest rates of 15% to 30%, and personal loans are even lower, while payday lenders often have annual interest rates of 300% to 500%. According to To Mayo Employees Federal Credit Union. In 2022, 17% of households with a checking account reported that they or someone in their household opened an account. paid Households with overdraft fees and incomes of less than $30,000 are twice as likely to report at least one overdraft than households with incomes of $100,000 or more.

U.S. household debt reached a record high of nearly $18 trillion at the end of the third quarter of 2024, an increase of nearly $4 trillion from when President Joe Biden took office in the first quarter of 2021. . According to to the Federal Reserve Bank of New York. Credit card balances have also skyrocketed since the coronavirus pandemic, with American households carrying $1.17 trillion in credit card debt by the third quarter of 2024. above That’s up from $770 billion in Q1 2021.

.@Senator TimScottStatement regarding @CFPBFinal rule capping overdraft fees: pic.twitter.com/cwg3hrLPqk

— U.S. Senate Banking Committee Republicans (@BankingGOP) December 12, 2024

CFPB claims it has legal authority to enforce regulations because overdrafts are loans, not penalties—Eric’s argument Jaffea partner at law firm Scherr | Jaffe LLP, described DCNF as a “stretch.”

“The CFPB has been given the authority to regulate certain consumer lending situations. As a result, the question is whether a checking account overdraft qualifies as a short-term loan,” Jaffe told DCNF. Ta. “That seems pretty unreasonable. Banks charge customers overdraft fees. The fee is not interest because the amount you repay does not change depending on how long it takes to repay. Interest has a time component. It’s not like banks are taking the time to give money to customers with overdrafts. They’re just having the courtesy of not bothering their customers by denying the charges.”

Jaffe also pointed to the contradiction that the CFPB is attempting to reclassify overdrafts as a form of lending while at the same time allowing banks to impose overdraft penalties as long as they are below a certain amount. Regulating overdrafts is done by treating it as a loan, so why regulate the amount of penalties? If they grant a penalty, it is within their power Not. There is an internal contradiction here. ”

The overdraft rules sparked an immediate legal backlash from the American Bankers Association (ABA) after they were finalized. filing Jaffe suggested that legal challenges like the ABA’s could be successful, especially after the Supreme Court voted 6-3 in June to overturn Chevron’s deference. This legal theory gave unelected officials great freedom to interpret legal ambiguities.

“We are no longer subject to government agencies when they say, ‘If you really squint, this law means I can do whatever I want,'” Jaffe told DCNF. ” he said. “This CFPB rule sounds a little like that. The agency says, ‘If you look closely, overdrafts look like loans, so they have the authority to regulate overdrafts.’ It seems so. The court will decide for itself whether this is the most natural interpretation and will likely conclude that it is not. ”

Outside the courtroom, Republican lawmakers took aim at the rule, saying it restricts access to credit and is an example of “midnight rulemaking” by the outgoing Biden administration.

Incoming Senate Banking Committee Chairman Tim Scott (North Carolina) said, “As we have said many times, legal and contractually agreed payment incentives promote financial discipline and responsibility and support critical financial services.” It protects access.” I wrote With the rules finalized on December 12, there is just over a month left until the next government takes office. [Rohit] Mr. Chopra should never have finalized this rule in the first place, and he looks forward to working with the next CFPB director to advance policies that prioritize consumers over political issues. ”

Incoming House Financial Services Committee Chairman French Hill of Arkansas echoed Scott’s sentiments in a Dec. 23 speech. statement: “We told federal agencies, including the CFPB, to ‘put down their pens’ and cease all late-night rulemaking. Chopra said by finalizing this rule, we would make our demands come true. Blatantly ignored. Capping overdraft services is another form of government price control that harms consumers who deserve financial protection and greater choice.”

Chopra is a longtime ally of Democratic Massachusetts Sen. Elizabeth Warren and supports her. establish The CFPB was established following the passage of the Dodd-Frank Financial Reform Act in 2010. Warren was instrumental in establishing the CFPB with former President Barack Obama. description Agency as “Elizabeth’s Idea”.

“I also want to thank Elizabeth Warren for her extraordinary accomplishments over the past year in launching new government agencies, but also for her years of passionate leadership and commitment to the simple belief that ordinary people deserve to be treated fairly. “I also want to thank you for fiercely defending your ideas and being honest in your financial dealings,” President Obama said in a July 2011 speech touting the then-nascent agency. “This institution is Elizabeth’s idea, and through sheer force of will, intelligence, and bottomless wellspring of energy, she has brought, and will continue to bring, profound positive change to our nation.”

Peter Earle, senior economist at the National Bureau of Economic Research, told DCNF that the rule is the latest in years of “regulatory overreach” by the Biden administration.

“Capping regulated fiat overdraft fees interferes with pricing mechanisms that reflect the cost and risk of providing overdraft services and is an example of regulatory overreach by the Biden administration,” Earl said. Ta. “This is the first time so far that an outgoing administration has undermined the spontaneous and cooperative commerce that fosters competition and innovation by assuming that government knows better than private business, consumers, and the price system. isn’t it.”

The CFPB and Warren’s office did not respond to requests for comment.

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