What Happened to the Overdraft Fees Rule?
In a pivotal 217-211 vote, the House of Representatives has voted to overturn a Biden-era rule that would have capped bank overdraft fees at $5. The Senate previously passed a similar resolution, and the legislation now heads to President Donald Trump, who is expected to sign it into law.
This move marks a major reversal of consumer financial protections finalized by the Consumer Financial Protection Bureau (CFPB) under President Joe Biden. The now-overturned rule was scheduled to take effect in October 2025 and was estimated to save U.S. consumers nearly $5 billion per year.
What Were Overdraft Fees & Why Were They Capped?
Overdraft fees are charges imposed when banks cover transactions that exceed a customer’s account balance. Historically tied to check processing, these fees have evolved into a major profit stream — costing Americans an average of $35 per overdraft, often more than the transaction itself.
The CFPB rule sought to limit these fees for banks holding over $10 billion in assets, allowing them to:
- Charge a flat $5 overdraft fee, or
- Charge based on actual cost, or
- Treat the overdraft as a loan with clearly disclosed APR (Annual Percentage Rate)
Under current practices, a $3 coffee can balloon into a $38 expense, disproportionately affecting low-balance customers. Data shows that 70% of overdraft fees are paid by consumers whose average balances range between $237 and $439.
Why Did Republicans Overturn the Rule?
Republicans argued the rule would eliminate overdraft protection altogether, forcing consumers toward riskier, less-regulated lending options.
“Competition and innovation, not government price caps, are the best way to protect consumers,” said Rep. French Hill (R-AR), chair of the House Financial Services Committee.
Banking industry groups also sued to block the rule, citing potential harm to credit access and increased compliance burdens. The Congressional Review Act, a 1996 law allowing Congress to reverse recent regulations, enabled Republicans to push the resolution through.
Democratic Opposition: “This Helps Big Banks, Not People”
Democrats and state attorneys general blasted the repeal as a win for big banks and a loss for working families.
“Americans are fed up with these junk fees,” said Rep. Maxine Waters (D-CA). “This was about saving people money — not protecting bank profits.”
New York Attorney General Letitia James led a coalition of 23 attorneys general opposing the repeal. They warned that high overdraft fees disproportionately impact vulnerable consumers, often leading to account closures, credit damage, and even exclusion from the banking system.
James highlighted that some major banks — including Citigroup, Ally Bank, and Capital One — have already eliminated overdraft fees while maintaining consumer protections.
Why the Rule Mattered: $35 on a $26 Overdraft = 16,000% APR
According to CFPB data:
- Banks earned $5.8 billion from overdraft fees in 2023 alone.
- A $35 fee on an average $26 overdraft repaid in 3 days equals a 16,000% annual interest rate.
- The rule would have required banks to treat overdraft fees like loans with disclosed terms — bringing transparency and fairness.
What’s Next for Consumers and Banks?
With the Biden-era rule all but repealed, the status quo remains — banks can continue to charge unregulated overdraft fees, potentially as high as $35 per transaction.
Consumers should:
- Review account agreements carefully
- Opt out of overdraft programs if possible
- Consider switching to banks with no-fee policies, like Capital One or Ally
Meanwhile, advocates and state officials vow to keep pushing for reforms through litigation and policy pressure.
Conclusion: Overdraft Fees Stay High as Consumer Protections Rolled Back
With the House vote and expected Trump signature, banks retain the ability to impose steep overdraft fees — a move consumer advocates call a setback for financial fairness. As Americans face rising living costs, critics argue this decision does little to support those already struggling to stay afloat.
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