Op-Ed: Gerard Scimeca: Three cheers for overdraft fees

Like the sanitation crew in the aftermath of an outdoor music festival, the Trump administration and Congressional Republicans are now investing a generous portion of their energies cleaning up the mess left by Joe Biden’s army of activist bureaucrats.

A month after America roundly rejected Biden’s policies at the polls, the outgoing administration published its Fall 2024 Unified Agenda that included a swarm of 11th hour regulatory rules and bureaucratic proposals. A whopping 53 regulations met the definition of “economically significant” for having an impact of $200 million or more on the economy.

The regulations showered down on D.C. with an intensity that would have made Pharaoh release the Israelites. Thankfully, many of these rules were never finalized, meaning Trump appointees can happily let them die on the vine. The rest leave Congress a mere 60 days from their enactment to either let stand or erase from the books through the Congressional Review Act (CRA).

One regulation of priority to the GOP House is the Consumer Financial Protection Bureau (CFPB) rule mandating banks cap overdraft fees at $5.00, an action as absurdly beyond the bureau’s authority as the Coast Guard regulating pet groomers. Compounding the absurdity is that this cap will directly harm the people it is most purported to help.

Opting for overdraft protection is entirely voluntary, like buying avocados. If one thinks avocados are too expensive the option always exists not to purchase them; no bureaucratic rule need be proposed. Millions of bank customers could just as easily forgo overdraft protection yet choose it because they value the convenience it provides, offering a lifeline during a short-term financial crunch and preventing bounced check fees charged by merchants.

The price of this service, like haircuts, or wristwatches, or cat toys, should be set by the market, between buyer and seller to reflect its market value. The CFPB ignores mountains of historical evidence showing price caps not only lead to a reduced supply of the product or service capped, but create a ripple effect forcing businesses to raise prices or cut services elsewhere. And with the certainty of a Nancy Pelosi stock tip, these higher costs and reduced banking services will prove most devastating to lower-income Americans.

In a House Financial Services Committee hearing this month, Chairman French Hill (R., Ark.) noted a report from the Central Reserve Bank of New York that concluded that “overdraft fee caps hinder financial inclusion. When constrained by fee caps, banks reduce overdraft coverage, and deposit supply, causing more returned checks and a decline in account ownership in low-income households.”

If the CFPB overdraft cap stands, Americans facing a minor shortfall or full blown financial emergency will have the proverbial teller window slammed on their fingers. They may be the lucky ones, as high credit-risk customers may lose access to free checking services entirely. Still, it is beyond question that alternatives to overdraft protection are few, potentially punitive, and far more expensive than even the heftiest overdraft fee.

The CFPB’s overdraft rule further collides with the reality that aggregate overdraft fees are falling faster than the asking price of a Hunter Biden painting, down over 62 percent since 2019.

Part of this massive decline in overdraft charges is due to consumers writing fewer checks amidst the rise of peer-to-peer payment apps like Venmo, Zelle, and Apple Pay. But the overwhelming savings are coming from banks themselves, reducing or eliminating fees during the financial hardship of COVID, then making these changes permanent in a competitive market.

Thankfully the Committee passed H.J. Res 59, which sets the stage for repeal. The clock is ticking to get a bill on President Trump’s desk before the 60-day window expires.

Far from preying on the poor, overdraft protection is one of the few safe harbors left for cash-strapped consumers. Axing a rule that reduces banking convenience, hinders consumer choice, and pushes the financially vulnerable closer to the edge is an ideal place to start in cleaning up Biden’s regulatory mess.

Gerard Scimeca is chairman and general counsel for CASE, Consumer Action for a Strong Economy, a free-market oriented consumer organization he co-founded.