Albert Einstein once quipped that insanity is "doing the same thing over and over again and expecting different results." He wasn't speaking of the Consumer Financial Protection Bureau (CFPB) when he made this quip, but he could have been.
Since its inception in 2011, the CFPB has produced a relentless torrent of policies so disconnected from economic reality that it punishes the very people it's supposed to help — the most financially vulnerable.
For the last decade, its heavy-handed rules have inflated costs, limited consumer options, and left families with fewer choices. Yet, the CFPB continues to try to deny the fundamental laws of economics, hoping for a different result.
Thankfully, last week, the U.S. Senate, led by Sen. Tim Scott, R-S.C., voted to repeal its latest initiative — a government-imposed price cap on overdraft fees. This textbook repetition of mistakes destined to backfire was finalized in the last days of the Biden presidency. The House of Representatives will vote on the same repeal measure on April 2.
The Bureau argues that these fees are a "junk fee," but they aren't. Charged by banks when customers spend beyond their account balances, overdraft fees serve as a form of short-term credit that banks extend to cover transactions for customers who would otherwise be stranded.
The Biden administration similarly seemed to have thought this price control would only hurt big banks and large financial institutions, but frequent overdrafts occur in low-income households, who rely on this short-term credit as a lifeline, not a luxury. As with any form of credit, for millions of Americans — such as families juggling rent or commuters facing an unexpected car repair — this service, albeit expensive, keeps the lights on and the gas tank filled.
By allowing consumers to borrow in emergencies, overdraft services prevent them from resorting to more costly forms of lending, such as credit cards, payday lenders, or even the local loan shark. Imposing a cap on the fees won't help consumers; it will instead eliminate their access to overdraft services. History offers a glaring warning.
After the 2010 Durbin Amendment capped debit card interchange fees, banks didn't quietly eat the cost. A Federal Reserve study found that 75% of banks eliminated free checking accounts, and monthly fees for basic accounts spiked. Low-income customers lost access to no-cost banking or faced new charges elsewhere. The overdraft fee cap promises a rerun of this fiasco.
An American Bankers Association analysis predict banks will again offset losses by hiking maintenance fees, raising minimum balance requirements, or cutting overdraft services entirely. In other words, a single mom struggling to make ends meet might dodge a $35 overdraft fee only to face a $10 monthly account charge (accounting for $120 a year).
Even worse, she might find that her debit card has been declined at the checkout line or that her check has bounced, resulting in fees from both the bank and the merchant that are in excess of what the overdraft would have cost.
The CFPB conveniently ignores these ripple effects, insisting that price controls will force banks to compete more fairly. But, like gravity, ignoring basic economics doesn't make its consequences disappear — it only ensures a harder landing when reality happens.
Overdraft fees aren't arbitrary; they reflect the risk banks take when they cover transactions for customers with empty accounts. Cap that revenue and banks will either pass their costs on elsewhere or stop offering a service that provides lifeline for millions who rely on overdrafts to bridge paycheck-to-paycheck gaps.
Strip that away without a viable replacement, and those families don't get relief — they get desperation.
House Financial Services Committee Chairman French Hill, R-Ark., has promised that Sen. Scott's bill repealing the measure will hit the House floor this week. The House should quickly send the measure to President Donald Trump for signature. Make no mistake: He will sign it quickly.
The White House is well aware of how counterproductive the CFPB has been since it was founded and has already moved to shut it down. So, the overdraft fee rule will hopefully be the last of a 14-year reign of economic folly. It's past time to end the insanity, but until the CFPB can be closed for good, this rule should be repealed as an interim measure.
Travis Korson is the Director of Public Policy for Frontiers of Freedom, and is a political veteran of politics with years of experience in campaigns, communications, and public policy. He served the Bush White House and has also served the Heritage Foundation, Americans for Prosperity, and the Faith and Freedom Coalition. He is a graduate of the George Washington University. His specialties include global affairs with a focus on international economics. Read Travis Korson's Reports — More Here.
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