Good news rarely comes out of Capitol Hill, but last week’s
Senate vote to reject a Biden-era Consumer Financial Protection Bureau proposal marked a welcome exception. Lawmakers blocked a plan to impose price controls, taking an important step toward reviving the Trump administration’s efforts to rein in the agency. Those efforts included directing CFPB employees to stop developing new regulations.
The House is scheduled to vote on its version of the resolution on Wednesday.
The overdraft cap may be the latest counterproductive mandate from the CFPB, but it’s far from the first. Given its track record, the next step shouldn’t be reform but repeal.
Despite centuries of evidence that price controls often backfire, the Biden administration made them a central part of its economic agenda. From rent regulations to the so-called “war on junk fees,” the White House consistently pushed for caps and mandates.
The CFPB’s rule to limit overdraft fees — finalized just as the Bidens prepared to leave for Delaware — followed that same pattern.
The rule would impose a $5 fee limit on banks’ and credit unions’ overdraft charges. Yet as with most price control schemes, it is the very people it claims to help — lower-income Americans — who stand to lose the most.
The Senate,
led by Sen. Tim Scott (R-S.C.), who introduced the resolution, voted to repeal the cap, recognizing it for what it is: a performative policy that distracts from the inflation that has devastated family budgets. Scott noted that the rule changes the conversation, not consumers’ realities.
Whether covering a car repair, rent, or a medical bill, overdraft protection enables people to bridge temporary shortfalls without bouncing checks, defaulting on bills, or incurring additional late fees. It’s used most frequently, not by the reckless, but by responsible people in tight spots.
A flat government-imposed $5 cap on overdraft charges is both economically unworkable and fundamentally unfair. Banks incur actual costs when they provide this service. They must process the transaction, front the money, and take on the risk that the overdraft won’t be repaid.
When those costs can’t be recovered, businesses eliminate the service altogether or pass the costs on to other customers in other ways. In this case, that would mean millions of consumers losing access to a widely used and valued program. And that’s not just theory — previous attempts to regulate overdraft fees have led to similar consequences, including fewer banks offering overdraft coverage or more restrictive account terms.
Lower-income families aren’t the only ones who will suffer. Midsized and regional banks, many of which serve rural and working-class populations, would be forced to reassess whether they can afford to offer overdraft protection at all. That’s a problem because many rural communities are lucky to have even one bank.
Add it all up, and it’s clear this rule doesn’t punish Wall Street. It squeezes the very Americans the Biden administration claimed to champion — the forgotten men and women.
The CFPB’s proposed rule would set a troubling precedent. Once price controls take hold in one area of consumer finance, they become easier to expand into others.
History shows what happens when the government imposes arbitrary price limits: supply drops, access declines, and the people most in need — especially those on the margins — suffer the most.
As Milton Friedman put it, “There is no such thing as a free lunch.” A $5 cap on overdraft fees may sound appealing, but it carries real costs.
The House must now follow the Senate’s lead and repeal this flawed regulation. And Congress shouldn’t stop there.
The overdraft cap may be the latest counterproductive mandate from the CFPB, but it’s far from the first. Free-market advocates can’t point to a single action by the agency they support.
Given its track record, the next step shouldn’t be reform but repeal.
Since the Trump administration began reining in the CFPB, several Republican lawmakers have introduced bills to dismantle it entirely. Congress should bring those proposals to a vote and keep the political will to finish the job. This debate is long overdue.
Joe biden, Donald trump, Consumer financial protection bureau, Overdraft fees, Banking, Credit card debt, Banks, Wall street, Regulations, Opinion & analysis