The House of Representatives voted on Wednesday to overturn a regulation that would have capped bank overdraft fees at $5. This action followed the Senate's move to dismantle the rule, which the Biden administration estimated would have saved consumers billions of dollars. The resolution, which passed the House with a vote of 217-211, will now be sent to the White House for the President's signature.

Republicans argued that the regulation, issued near the end of President Biden's term, was "disastrous." They claimed it would have forced banks to eliminate overdraft protection and hinder Americans' access to credit. A key argument from Republicans was that competition and innovation, rather than government intervention, are the best ways to ensure consumers have access to affordable financial products.

Currently, the largest banks in the nation collect approximately $8 billion annually in overdraft fees. There is currently no limit on the amount banks can charge for these fees. Banks and banking groups had previously challenged the rule in court, asserting it would push consumers toward less regulated and potentially riskier financial services. Republicans utilized the Congressional Review Act, a 1996 law allowing Congress to overturn recently adopted regulations, to undo the rule.

Democrats strongly opposed the effort, arguing the rule would protect consumers struggling to afford these fees. They highlighted public frustration with such fees and the need for control. The rule, set to take effect in October, was part of a broader effort to reduce fees impacting consumers, including those related to banking services. The Consumer Financial Protection Bureau (CFPB) estimated the rule would have saved consumers around $5 billion annually in overdraft fees, or about $225 per household typically affected.

The fees, which can reach $35 per transaction, were described as "exploitative" by President Biden. Consumer advocates point out that these fees disproportionately affect banks' most financially vulnerable customers. When a bank temporarily covers a customer's expenses after their account balance is zero, the customer is responsible for repaying the overdrawn amount plus an additional fee, which can exceed the original charge.

Overdraft fees originated during a time when checks were more frequently used. Banks steadily increased these fees in the 2000s. According to the CFPB, a majority of overdrafts, about 70%, are charged to customers with average account balances between $237 and $439.

charge a flat $5 overdraft fee, charge a fee covering their costs and losses, or charge any fee as long as they disclosed the terms of the overdraft loan like any other loan, typically expressed as an annual percentage rate (APR). The rule applied to banks and credit unions with over $10 billion in assets, encompassing the nation's largest institutions. Banks had previously sued the CFPB over these rules and caps on credit card late fees.