Congressional Republicans have set their sights on financial deregulation
The House Financial Services Committee recently sent a series of letters to key financial regulatory agencies outlining ways in which regulators can help strengthen the economy. Led by Chair French Hill (R-Ark.), Subcommittee Chair Andy Barr (R-Ky.), and other Republicans, the letters include a plethora of deregulatory policy changes designed to benefit the economy. This full-spectrum effort to undo the Biden administration’s financial regulatory agenda includes proposals that roll back or dismantle numerous regulatory hurdles ranging from overdraft fee disclosures to climate-scenario analysis.
The proposed changes address some of the R Street Institute’s top focus areas.
Regulation II Debit Card Interchange
One key proposal concerns Regulation II, which establishes debit card interchange fees. In a letter to Federal Reserve Chairman Jerome Powell, Republicans argue that the current rules, which cap fees at 21 cents per transaction for most debit card payments, disproportionately harm small community banks and credit unions. The letters urge the Federal Reserve to consider adjustments to this regulation, advocating for a revision that better supports the profitability and sustainability of smaller financial institutions. These moves reflect the broader Republican stance that excessive regulation stifles competition and innovation, particularly in the banking sector.
Basel III Endgame
Another significant focus of the letters is the Basel III endgame proposal. A global regulatory framework aimed at strengthening bank capital requirements, Basel III was designed to reduce the risk of financial crises. However, Republicans have expressed concerns that its final phase could overburden American banks with excessive capital requirements. This, they argue, could limit the ability of banks to lend and impede economic growth. The letters suggest that U.S. regulators should reconsider or scale back some of Basel III’s final components to avoid these unintended consequences.
Overdraft Fee Rule
In a letter to the acting director of the Consumer Financial Protection Bureau (CFPB), the committee also recommended revisiting the overdraft fee rule. The rule, which limits the circumstances under which financial institutions can charge overdraft fees, has drawn strong opposition from Republicans. The rule has since been rescinded via the Congressional Review Act (CRA), a move supported by the R Street Institute.
Credit Card Late Fee Rule
Criticized by Republicans as overly restrictive and detrimental to the financial industry, the CFPB’s Credit Card Late Fee Rule imposes limits on late fees charged by credit card companies. Tied up in litigation, a judge recently ordered the CFPB to settle the suit—a good outcome for opponents. R Street has detailed the harms likely to come to consumers because of the rule.
The CFPB and Its Role
Republicans also criticized the CFPB more broadly, accusing the agency of overstepping its authority and acting without sufficient oversight—a consistent issue under the leadership of former director and Biden appointee Rohit Chopra. Specifically, their letters urge the CFPB to rescind any rules that bypassed the Administrative Procedure Act, a procedural safeguard that ensures public participation in rulemaking. Interestingly, the letters do not call for dismantling the CFPB entirely; instead, they advocate for a more balanced approach that fosters competition and innovation for the benefit of American consumers. The authors suggest that the agency should focus on transparent rulemaking and impact analyses rather than imposing restrictive rules that limit consumer choice.
This is just one of the latest in a series of moves by congressional Republicans to dismantle, rescind, or otherwise scale back many of the over-burdensome financial regulations that came out of the Biden administration. In addition to the CRA on overdraft fees, the Senate Banking committee, headed by Chairman Tim Scott (R-S.C.), held a hearing on debanking that heavily scrutinized the role of prudential regulators and the “reputational risk” standard. Further, Sen. Scott introduced the Financial Integrity and Regulation Management Act, a bill that would prohibit the consideration of reputational risk among bank regulators. This followed President Donald J. Trump’s comments to the World Economic Forum, in which he criticized banks for participating in debanking.
Meanwhile, other Republicans in Congress seek to introduce more regulation with their misguided credit card interest rate cap legislation, making clear their intent to cement themselves as populists. The contrasting push for deregulation showcases the dueling ideological agendas that weave throughout today’s Republican party. Ultimately, should the president decide to opine on any of these financial matters as he did with debanking, we will likely see increased movement in Congress to make major changes.