In an effort to defend consumers from the weight of high overdraft fees, Attorney General Mayes, joined by attorneys general from 22 other states, pressed the U.S. House of Representatives to uphold a rule curbing these charges by the nation's largest banks. As reported by the Arizona Attorney General's Office, the bipartisan group sent a letter to the House leadership and the Financial Services Committee, advising them to vote against a resolution that would nullify the Consumer Financial Protection Bureau’s (CFPB) 2024 regulation that reins in overdraft fees.
The rule targets banks with assets exceeding $10 billion, prohibiting them from charging overdraft fees that are considered excessive and harmful to financially vulnerable customers. Its purpose is to treat these fees as interest on a short-term loan, since they are often repaid within a few days, leading to extremely high annual interest rates. Notably, with most overdraft fees being settled in under three days, the rule highlights how a typical $35 fee on a $26 overdraft can equate to an annual interest rate of approximately 16,000 percent.
The CFPB's regulation came under threat as the Senate, late last month, narrowly passed its version of the resolution to overturn the CFPB’s rule with a 52-48 vote count, according to the press release. The decision faced bipartisan opposition, with Republican Senator Josh Hawley aligning with Senate Democrats to vote against the resolution. The House is now set to vote on a similar resolution, House Joint Resolution 59, which aims to achieve the same outcome.
It was emphasized that these fees, averaging around $35, primarily affect those least able to afford them, contributing to a revenue stream for banks that generated approximately $5.8 billion in 2023. However, as Mayes and the coalition point out in their letter, these fees frequently result in negative outcomes, such as unintended account closures, damage to credit, and the potential exclusion of customers from the banking system.
Support for the CFPB's rule is strengthened by the example set by major financial institutions like Citigroup, Capital One, and Ally Bank, which have eliminated overdraft fees while still offering overdraft protection. A coalition of attorneys general from states across the country—including California, Colorado, and New York—along with the District of Columbia, have come together to advocate for maintaining the CFPB's 2024 rule, emphasizing its importance for the financial well-being of their constituents.
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