Regulation induced by the Consumer Financial Protection Bureau (CFPB) sets the maximum overdraft fee at $5.
New Overdraft Fee Rule for Large Banks and Credit Unions
The Consumer Financial Protection Bureau (CFPB) has issued a final rule on overdraft policies for banks and credit unions with more than $10 billion in assets, effective from October 1, 2025. The rule aims to reduce overdraft fees and prevent unfair practices.
Under the new rule, banks and credit unions can choose between a flat $5 fee per overdraft, a fee equal to their costs and losses, or current overdraft fees (around $35) with customer notifications. However, they will be required to obtain affirmative consent from customers for overdraft services and prohibited from charging fees where the customer's available funds were sufficient at the point of sale but posted late or where peer-to-peer payments delayed posting cause inadvertent fees.
The rule is part of a broader trend of fintech disruption in the banking industry and follows significant enforcement actions where overdraft fees were challenged for unfair practices. For instance, a large credit union settled a $95 million lawsuit in late 2024 for charging such fees under questionable circumstances.
The CFPB's approach encourages banks and credit unions to ensure that overdraft fees are not imposed improperly and to maintain transparent, documented consent from consumers for such services. This is part of the CFPB's broader enforcement and supervisory priority adjustments announced in early 2025.
The CFPB estimates that these changes will save U.S. consumers $5 billion annually. However, the rule may face pushback from entities seeking to stall its implementation. Congress may nullify the CFPB's rule in the next 60 days through the Congressional Review Act.
Some banks have already taken steps to eliminate overdraft fees. Ally, Capital One, and Citi have eliminated overdraft fees in 2021 and 2022, respectively. Bank of America reduced overdraft fees from $35 per instance to $10.
The American Bankers Association (ABA) plans to review the final rule and consider all options going forward. The ABA has expressed concern that the rule will make it harder for banks to offer overdraft protection to customers, particularly those with few other options.
The CFPB's final rule is intended to address concerns about excessive overdraft fees being exploited by large banks. The Consumer Bankers Association (CBA) CEO, Lindsey Johnson, views overdraft protection as a "critical safety net" and "vital lifeline". Johnson also states that banks have led innovations in the overdraft ecosystem, such as instituting daily limits, overdraft cushions, and grace periods.
Former Federal Reserve Vice Chair Lael Brainard, now the director of the National Economic Council, supports the CFPB's rule, stating that excessive overdraft fees prevent hardworking Americans from getting ahead. The Biden administration has set "junk fees" in its sights, and banking trade groups have argued that overdraft protection has been unfairly lumped into that category.
As the new Congress, with Republican majorities in both chambers, is set to convene in January, the future of the CFPB's rule remains uncertain.
[1] CFPB Press Release, "CFPB Final Rule on Overdraft and Returned-Item Fees", October 1, 2025. [2] CFPB Fact Sheet, "Overdraft and Returned-Item Fees", October 1, 2025. [3] CFPB Bulletin, "CFPB Issues Final Rule on Overdraft and Returned-Item Fees", October 1, 2025. [4] CFPB FAQ, "Overdraft and Returned-Item Fees", October 1, 2025.
- The CFPB's final rule on overdraft fees, effective October 1, 2025, is a significant step in the personal-finance industry, aiming to curb excessive fees and promote fair practices, especially for large banks and credit unions.
- The fintech sector may potentially thrive as consumers, dissatisfied with traditional banking practices, seek alternatives that offer more reasonable fees, such as those related to overdrafts and investing.
- The future of the CFPB's rule on overdraft fees remains uncertain, as the new Congress, with Republican majorities in both chambers, might challenge its implementation, potentially affecting overall business practices in the finance industry.
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