In a significant move to protect consumers from excessive banking fees, the Consumer Financial Protection Bureau (CFPB) has announced new rules that could dramatically reduce overdraft charges for millions of Americans. The changes, which could save consumers approximately $5 billion annually, represent a major shift in how banks can charge for overdraft services.
How we got here: the evolution of overdraft fees
When a bank covers a purchase even though you don’t have enough money in your account, they will charge what’s known as an overdraft fee. The cost of these fees vary by bank but they’re estimated at around $35 per transaction – which can quickly turn a small purchase into an expensive mistake.
The banking industry’s overdraft fees originally began as a courtesy service to help customers with delayed check processing but have since evolved into a major profit center.
Overdraft fees generated $5.8 billion in revenue for banks in 2023. The impact has been severe: many Americans have not only paid excessive fees but have also lost access to crucial banking services and faced negative credit reporting.
CFPB Director Rohit Chopra has accused banks of exploiting a regulatory loophole that exempted these fees from standard lending protections. ‘
Now, the CFPB is taking action to close this loophole and require banks to be more transparent about their overdraft charges.
What’s changing?
Under the new CFPB rule, which is scheduled to come into effect on October 1, 2025, big banks and credit unions (those with over $10 billion in assets) must pick one of three approaches:
- Set a simple $5 cap on overdraft fees – the CFPB estimates this covers what it typically costs banks to provide this service.
- Charge only what it costs to provide the service – If banks want to offer overdrafts as a convenience rather than for profit.
- Treat overdrafts like regular loans – If banks want to make overdraft services profitable, they must treat them like lending products. This means giving customers the choice to opt in, offering clear terms, interest rates, clear disclosures for comparison shopping, and more.
Who will this affect?
The rule applies to approximately 180 of the largest financial institutions in America. If you bank with major institutions like Bank of America, Wells Fargo, or similar large banks, you’re likely to be affected by these changes.
However, smaller banks and credit unions with assets under $10 billion won’t be subject to these new regulations.
What this means for your wallet
The CFPB estimates that American households that pay overdraft fees could save approximately $225 per year under the new rule, with total consumer savings reaching $5 billion annually. This relief could be particularly significant for lower-income consumers, who are often most affected by overdraft fees.
Industry pushback and legal challenges
The banking industry has strongly opposed these changes. The Consumer Bankers Association filed a lawsuit immediately after the rule’s announcement, challenging the CFPB’s authority to implement these changes.
Banking groups argue that the rule will make it harder for banks to offer overdraft services to customers who need them and could potentially force customers to turn to less-regulated, non-banking services.
While legal challenges may pose some uncertainty, it’s fair to say the banking industry is already evolving. Several major banks have already voluntarily reduced or eliminated overdraft fees in response to consumer pressure and regulatory scrutiny.
Taking action now to protect yourself from overdraft fees
While the new rule won’t take effect until October 2025 (and potentially faces ongoing legal challenges), here are several strategies you can implement now to avoid paying overdraft fees.
Set up account alerts: Enable notifications for when your balance drops below a certain threshold. Most institutions offer this service through their mobile apps or online banking.
Create a financial buffer: Maintain a minimum balance cushion in your checking account. Even a small buffer of $100-200 can help prevent accidental overdrafts.
Link your accounts: Some institutions allow you to link up multiple accounts, like a checking account to a savings account, to opt-in for overdraft protection. While there may be a small transfer fee, it’s typically much lower than standard overdraft fees.
Track your pending charges: Remember that your available balance may not reflect pending transactions or scheduled automatic payments. Keep a running tally of expected debits.
Choose no-overdraft options: Consider opting out of overdraft coverage entirely. While your card may be declined if you have insufficient funds, you’ll avoid costly overdraft fees.
Learn more
Opt for 0% interest cash advances instead of overdraft fees
If you need money between paychecks, earned wage access services let you access wages you’ve already worked for ahead of your regular payday. These services verify your income directly and then advance you a portion of your earned wages for a small fee.
MoneyLion’s Instacash®, for example, features no interest, no credit check, and no mandatory fees. Only an opt-in fee for optional cash delivery in minutes or free delivery options
