AG James Fights High Overdraft Fees

Overdraft Fee Showdown: House Faces Pressure to Uphold or Overturn Biden-Era Rule

April 10, 2025

NEW YORK – A coalition of 23 attorneys general, led by New York Attorney general Letitia James, is mounting a fierce defense of a Consumer Financial Protection Bureau (CFPB) rule designed to curb excessive overdraft fees.In a letter to House leadership and the House Financial Services committee, the attorneys general urged lawmakers to reject a resolution that would dismantle the 2024 regulation.

The CFPB rule, which applies to banks with over $10 billion in assets, aims to set reasonable limits on overdraft fees. These fees, frequently enough around $35 per transaction, can quickly add up, disproportionately impacting low-income individuals and families already struggling to make ends meet. Consumer advocates argue that these fees are exploitative, turning a minor miscalculation into a major financial burden.

The battle over overdraft fees highlights a fundamental debate about the role of financial institutions in society: Are they primarily profit-driven entities, or do they have a responsibility to protect their customers’ financial well-being?

“overturning this rule will only do one thing: help big banks profit at your expense,”

attorney General James

Attorney General James emphasizes the importance of the rule, stating, “Accidentally overdrawing your checking account by a few dollars shouldn’t result in an outrageous fee. The CFPB took action to protect consumers from outrageous overdraft fees, and Congress should do the same. At a time when working families are struggling to make ends meet,our leaders should be protecting Americans’ wallets,not empowering big banks to charge junk fees.”

The Congressional Tug-of-War

house Joint Resolution 59 seeks to nullify the CFPBS 2024 rule. The Senate narrowly passed its version of the resolution, 52-48, revealing a deep partisan divide on the issue. Notably, Republican Senator Josh Hawley sided with Senate Democrats in opposing the resolution.

The House vote is expected to be equally contentious, with intense lobbying efforts from both sides. Financial industry groups argue that the CFPB’s rule infringes on their ability to manage risk and provide convenient services to customers. consumer advocacy groups,on the other hand,contend that the rule is a necessary safeguard against predatory practices.

The potential overturning of the CFPB rule raises concerns about a return to the pre-2024 landscape, were consumers faced the risk of accumulating significant overdraft fees from even small transactions. This outcome could exacerbate financial instability for vulnerable populations and undermine efforts to promote financial inclusion.

The High Cost of Overdrafts: A Closer Look

The average overdraft fee hovers around $35, often eclipsing the amount of the overdraft itself. These fees contribute significantly to banks’ bottom lines, generating an estimated $5.8 billion in revenue in 2023.

Critics argue that overdraft fees are essentially short-term loans with exorbitant interest rates. As Attorney General James and the coalition highlighted, a $35 fee on a $26 overdraft repaid in three days translates to an annual interest rate of approximately 16,000 percent. This staggering figure underscores the predatory nature of these fees, particularly for those living paycheck to paycheck.

Overdraft Fee Component	Amount
Average Overdraft Fee	$35
Average Overdraft Amount	$26
equivalent Annual Interest Rate	~16,000%

Beyond the numbers: the Human Impact

The consequences of excessive overdraft fees extend beyond mere financial inconvenience. They can trigger a cascade of negative effects,including:

• Account Closures: Unpaid overdraft fees can lead to involuntary account closures,making it tough for individuals to manage their finances and access essential banking services.
• Damaged Credit Scores: Overdraft fees that go unpaid can negatively impact credit scores, hindering access to loans, mortgages, and even employment opportunities.
• Exclusion from the Banking System: The accumulation of debt from overdraft fees can drive individuals out of the formal banking system altogether, forcing them to rely on alternative financial services with even higher costs and risks.

A Path Forward: Alternatives to Overdraft Fees

The debate over overdraft fees also raises the question of whether they are truly necessary. Several financial institutions, including Citigroup, Capital One, and Ally Bank, have already eliminated overdraft fees while still offering overdraft protection to their customers.

These banks have demonstrated that it is possible to provide responsible banking services without relying on punitive fees. They often offer alternative solutions such as:

• Overdraft Lines of Credit: Allows customers to link their checking accounts to a line of credit that covers overdrafts.
• Account Alerts: Sends notifications to customers when their balances are low, giving them a chance to avoid overdrafts.
• Linking to Savings Accounts: transfers funds automatically from a linked savings account to cover overdrafts.

The success of these fee-free or low-fee models suggests that the industry as a whole can adopt more consumer-friendly practices without sacrificing profitability.

Enforcement and Consumer Protection: Attorney General James’ Track Record

Attorney General James has been a vocal advocate for consumer protection, taking action against companies engaged in predatory lending practices and illegal fee schemes. Recent examples include:

• January 2025: Secured more than $1 million from Netspend corporation for charging illegal fees on reloadable debit and payroll cards.
• August 2024: sued predatory lender Acima for misleading consumers about the cost of financing, including usurious “rental” fees.
• february 2024: Obtained a $77 million judgment against merchant cash advance companies for charging usurious interest rates and undisclosed fees.

A Nation Divided: The Coalition of Attorneys General

Joining attorney General James in the effort to uphold the CFPB rule are the attorneys general of:

• Arizona
• California
• Colorado
• Connecticut
• Delaware
• Hawaii
• Illinois
• Maine
• Maryland
• Massachusetts
• Michigan
• minnesota
• Nevada
• New Jersey
• New Mexico
• North Carolina
• oregon
• Rhode Island
• Vermont
• Washington
• Wisconsin
• District of Columbia

The Hawaii Office of consumer Protection also joined the coalition, demonstrating a wide-ranging commitment to protecting consumers from exploitative financial practices.

Do you believe the CFPB rule offers adequate consumer protection?

overdraft Fee Showdown: Archyde News Interview with Financial Analyst Sarah Chen on the CFPB Rule

Introduction

Archyde News Editor: Welcome to Archyde News.Today, we’re diving deep into the ongoing battle over overdraft fees and the Consumer financial Protection Bureau (CFPB) rule designed to curb them. Joining us today is Sarah Chen, a leading financial analyst specializing in consumer banking. Sarah, thanks for being hear.

Sarah Chen: Thanks for having me.

Understanding the CFPB Rule and its Impact

Archyde News Editor: The article highlights the CFPB rule and the pushback it’s facing. can you break down the core of the rule and why it’s generating such controversy?

Sarah Chen: Certainly. The CFPB rule, primarily targeting banks with over $10 billion in assets, aims to regulate overdraft fees. The core issue is these fees, often around $35 per transaction, which can quickly accumulate and disproportionately affect those with lower incomes. The rule is designed to make overdraft fees more transparent and potentially limit their usage.

Archyde News Editor: The article mentions a $35 fee on a $26 overdraft translating to an astronomical interest rate. How does this outlook help explain the issue?

Sarah Chen: Exactly. That highlights the core problem: the extraordinarily high cost of what is essentially a short-term loan. It emphasizes the predatory nature of these fees, especially for those living paycheck to paycheck, whose finances are already strained. The CFPB rule is designed to address this financial vulnerability.

The Congressional and Industry debate

Archyde News Editor: We see a deep partisan divide in the senate regarding this ruling. What are the key arguments from each side in this Congressional tug-of-war?

Sarah Chen: On the one hand, some financial industry groups argue the rule infringes on their ability to manage risk and offer services. Those groups often try to provide convenient services the way they have always been provided. Consumer advocates, however, see it as a necessary guard against exploitative practices.This is the essential debate: Profit versus consumer protection; a common battleground.

Archyde News Editor: This all raises larger questions about the role of banks – do they have a obligation to protect customers’ financial well-being, or are they simply profit-driven?

Sarah Chen: Absolutely. That’s the crux of the matter.The debate forces us to consider this. As you mentioned in the article, some institutions, like Citigroup, Capital One, and Ally Bank, have eliminated overdraft fees, revealing viable alternatives do exist.

Looking Ahead: Alternatives and Consequences

Archyde News Editor: What are some of the alternatives banks are employing, and how effective are they?

Sarah Chen: Banks are offering options such as overdraft lines of credit, account alerts, and linking to savings accounts.In many cases, these fee-free models have been triumphant, indicating that consumer-friendly practices can coexist with profitability.The challenge, of course, is broad industry adoption.

Archyde News Editor: If the CFPB rule is overturned,what are the potential consequences for consumers?

Sarah Chen: A return to the pre-2024 landscape would mean a higher risk of accumulating overdraft fees,especially for those in vulnerable groups. This could exacerbate financial instability, damage credit scores, and potentially drive individuals out of the formal banking system entirely.

Archyde News Editor: Sarah, your insights are invaluable. Thank you for adding clarity to a complex issue.

Sarah Chen: My pleasure.

Reader Engagement

archyde News editor: What are your thoughts on the future of overdraft fees? Do you believe the CFPB rule offers adequate consumer protection? Share your views in the comments!