In 2025, overdraft fees are once again making national headlines, not because they’re going away, but because efforts to rein them in may be getting reversed.

In a controversial move, the U.S. House and Senate both voted to repeal a Consumer Financial Protection Bureau (CFPB) rule that would have limited overdraft fees charged by large banks to as little as $5 per transaction. If signed into law, the repeal would eliminate protections that could have saved consumers an estimated $5 billion per year - or $225 per affected household.

For families already navigating inflation, wage stagnation, and rising living costs, this decision could have serious ripple effects. Let’s break down what’s happening, how it impacts your money, and what steps you can take to protect yourself.

What Are Overdraft Fees?

Overdraft fees occur when your bank allows a transaction to go through even though you don’t have enough money in your account — and then charges you for that "courtesy." These fees typically cost $30–$35 each time, even when the overdraft is for something as small as a $3 coffee.

Most overdrafts are repaid within days, but the equivalent interest rate can reach an eye-watering 16,000% APR, according to the CFPB.

Who Gets Hit the Hardest?

Overdraft fees disproportionately affect low- to middle-income Americans and communities of color:

• People making less than $65,000 a year are far more likely to be charged.

• Black and Hispanic consumers are 60–70% more likely to pay these fees than white consumers.

• A majority of overdraft fees come from just 9% of account holders - often the most financially vulnerable.
  
  

What Did the CFPB Try to Do?

In late 2024, the CFPB issued a rule targeting large financial institutions (those with over $10 billion in assets). These banks would have to choose one of three options:

1. Cap overdraft fees at $5.

2. Charge a fee based on actual costs or losses.

3. Treat overdrafts as loans, requiring disclosure of interest rates and terms (like with credit cards).

This rule would have closed a decades-old regulatory loophole dating back to the check-mailing days of the 1960s and brought overdraft lending under modern consumer lending protections.

What Just Happened - And What’s Next?

In April 2025, Congress voted to repeal the CFPB's new rule before it could take effect in October. The repeal is now on President Trump’s desk for final approval.

If signed, it will restore banks’ ability to charge uncapped overdraft fees without disclosing costs like traditional lenders. Consumer advocates warn this would strip away essential protections and allow continued price gouging under the guise of convenience.

Why This Matters for You

If you're working to stay on top of income, bills, credit, or financial goals, here’s how unregulated overdraft fees can interfere:

1. Budget Disruption

One unexpected fee can cascade into a missed bill, an overdraft on another account, or a negative balance that causes further penalties.

2. Missed Payments = Damaged Credit

A fee-induced shortfall can cause a bounced loan payment or unpaid credit card minimum — which may harm your credit score or lead to collection activity.

3. Savings Goals Set Back

Every dollar spent on fees is a dollar not saved toward an emergency fund, down payment, or debt payoff.

4. Disputes Get More Complicated

Unclear or unfair fees can lead to disputes with your bank — and getting a refund or correction often requires time, documentation, and persistence.

What You Can Do Right Now

While legislation is in flux, you can still take control:

• Opt out of overdraft coverage. Your bank must let you decline this service for debit and ATM transactions, meaning those transactions will simply be declined instead of triggering fees.

• Switch to a fee-free or transparent bank. Credit unions, online banks, and fintech apps often offer better overdraft terms or none at all.

• Link to a backup account. Use overdraft protection by linking your checking account to savings or a line of credit - often cheaper than an overdraft fee.

• Set up low balance alerts. Most banking apps let you get notified when your balance dips near zero.

• Track bills and income. Tools like Copiafy or budgeting apps can help you avoid overdraft scenarios before they happen.
  
  

Overdraft fees started as a courtesy. They’ve become a billion-dollar business. Whether or not the CFPB’s rule survives, the message is clear: the current system is outdated and unfairly penalizes people trying to stay afloat.

Until broader reform is secured, your best defense is education combined with choosing banks, services, and financial tools that help you build — not drain — your wealth.