Congressional Actions Against CFPB Overdraft, Digital Payments Rules May Spur Financial Services Innovation

Wednesday’s (March 5) actions in Congress against two Consumer Financial Protection Bureau (CFPB) rules — one governing digital payments providers, the other focused on bank overdraft fees — open up a new front against the embattled agency.

But the joint resolutions of disapproval, part of the Congressional Review Act’s “fast track” to overturn those rules, also pave the way for banks and Big Tech to innovate within payments.

Nonbanks would move more fully to offer banking services; the banks would maintain at least some revenue streams that are used to fund other parts of the business, expanding credit and even basic financial services and beefing up fraud defenses.

Null and Void

As PYMNTS reported, the Senate voted Wednesday to approve a joint resolution disapproving of the “Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications” rule submitted by the CFPB. That action requires House approval — and approval would render the rule essentially null and void.

Separately, the House Financial Services Committee approved a resolution Wednesday disapproving of the “Overdraft Lending: Very Large Financial Institutions” rule submitted by the CFPB. The rule will move to the House for a vote by the full chamber. A matching resolution by the Senate is awaiting a vote — and approval will take away the $5 caps that banks with more than $10 billion in assets would apply to overdraft fees.

The $5 cap would have come at a time when banks were already pulling back on some overdraft fees. The CFPB’s own research as far back as 2023 had noted that among banks with $10 billion in assets — the ones that would have been affected by the new rules — 97% of NSF (which includes overdrafts) fee revenue had been eliminated.

For the banks, the “remainder” of this revenue stream is a way to do two things 1) offset risk and 2) cover transactions that in effect help consumers meet the urgency of certain purchases, some of which may be essential. In addition, there’s the specter of reduced credit and basic financial services available to the wider pool of customers, especially for riskier accounts.

The Impact of Fee Caps

Indeed, the New York Fed found in this study that “in the absence of fee caps, national banks raised overdraft fees but also expanded overdraft credit. Relative to state banks, national banks increased their fees by 10% and their provision of overdraft credit by 20%. Second, the rate at which checks were returned due to insufficient funds declined by 15% … Third, national banks exempted from overdraft fee caps expanded deposit account supply by lowering minimum balance requirements 30% or more relative to state banks … the share of low-income households with a checking account rose by 10%.”

More deposits and increased activity across those accounts also help banks fund anti-fraud operations. As for the financial lifeline, PYMNTS Intelligence and Sezzle have found that consumers living paycheck to paycheck are six time more likely to use overdrafts than their more financially stable peers.

The rule governing digital payment apps would apply to firms processing more than 50 million transactions a year, and among other things would require on-site compliance exams stretching out over a period of weeks, and would apply federal banking laws to those providers.

In a suit challenging the rule last year, tech industry trade groups said that the new supervisory requirements place “enormous burdens on a supervised company, diverts financial and personnel resources, and inhibits innovation and the roll-out of new products and features. Congress accordingly left regulation of nonbanks to state agencies except where necessary and as clearly and expressly authorized.”