Senate vote on bank overdraft fees: What consumers need to know
Earlier this year, both branches of Congress and President Trump approved a resolution blocking a rule that would have limited banking overdraft fees to $5. The rule would have become effective on Oct. 1, 2025. It cannot now go into effect without further Congressional action.
Banking industry groups applauded the move to get rid of the rule capping overdraft fees. Consumer advocates warned the action could cost bank and credit union customers $5 billion a year in fees.
Why did the government kill the proposed rule? It’s important for consumers to understand the arguments on both sides of the issue because the outcome may affect what you pay for bank or credit union checking accounts.
Better yet, even with the cap on overdraft fees cancelled, there are steps you can take to protect yourself from these fees.
Congress votes to overturn new overdraft rules
In late 2024, the Consumer Financial Protection Bureau (CFPB) announced a change in rules governing overdraft fees. Had they gone into effect, the rules would have capped the amount that large banks and credit unions could charge when customers overdraft their checking accounts.
The process to stop the new CFPB rules from going into effect started with a resolution in the Senate to overturn the new rules. The resolution was sponsored by Tim Scott, a Republican Senator from South Carolina. The Senate vote on overdraft fees passed the resolution 52-48 in late March of 2025, with Senator Josh Hawley of Missouri being the only Republican to cross party lines and vote that the overdraft fee cap should go into effect.
Following the Senate vote to block the new CFPB overdraft rules, the House of Representatives took up a similar resolution in April of 2025. This was introduced by French Hill, a Republican representative from Arkansas. Like the Senate vote on overdraft fees, the House resolution passed pretty much along party lines, 217-211. Representative Ryan Mackenzie from Pennsylvania was the only Republican to vote against the resolution.
A few weeks later President Trump signed off on the resolution, formally repealing the CFPB’s rule change.
What was the rule change that Republican lawmakers were so eager to overturn?
The new CFPB overdraft rules that the government blocked
When customers write checks or make debit card transactions for more money than they have in their account, it’s called an overdraft.
Rather than denying the transaction or causing the check to bounce, many banks temporarily cover the overdrawn amount. In return for this service, they charge a fee. It’s those overdraft fees that were the focus of the proposed CFPB rules.
While banks positioned overdraft protection as a service for customers, over time, it grew to be a big money maker. A MoneyRates study on bank fees found the average overdraft fee was more than $30 per occurrence. The CFPB estimated that these fees were costing consumers more than $5 billion per year.
To lower these costs to consumers, the CFPB made a rule limiting the amount banks could charge for overdrafts. The new rule said banks could only charge a fee for overdrafts under one of the following conditions:
- The fee did not exceed $5 per occurrence
- The fee did exceed the institution’s cost for covering the overdraft
- The cost of the fee was disclosed to the customer in accordance with lending regulations
These new rules would have applied only to banks and credit unions with over $10 billion in assets. These large institutions have a dominant share of U.S. deposit customers.
The CFPB approved the rule in Dec. of 2024, and it would have gone into effect on Oct. 1, 2025. Before that could happen, though, Congress stepped in.
How did Congress overturn the overdraft fee limit?
The CFPB is one of several government agencies with the power to make rules governing the specific activities of the industries they oversee. Granting agencies this authority allows rule-making to adapt more swiftly and appropriately to changing business practices.
However, Congress retains the power to overturn these rules. The Congressional Review Act allows agency rules to be blocked if both houses pass a resolution to do so, and the President signs off. That’s exactly what happened in this case.
Now, the CFPB rule is cancelled. Not only that, but the CFPB is barred from issuing a similar rule without Congressional approval. State rules may still apply in some cases, but the national cap on overdraft fees is essentially dead for the time being.
The financial impact of bank overdraft fees
To understand why Congress acted so quickly to overturn the rule, you only have to go back to the CFPB estimate that overdraft fees account for $5 billion in revenues to big banks and credit unions. Anything involving that much money is bound to attract legislative attention.
For financial institutions, overdraft fees evolved from a service for customers to a major source of revenue. However, as overdraft fees grew, they also became a target of criticism by consumer advocates.
The CFPB found that the average household that incurred overdraft fees paid $225 per year in these fees. In reality, the burden often fell much more heavily on some households. One CFPB study found that 75% of overdraft fees were incurred by just 8% of bank customers. These customers with frequent overdrafts were often from poorer households with lower bank balances, making them more prone to overdrafts.
The CFPB also found that while overdraft fees frequently exceeded $30, the average amount of a debit card transaction causing an overdraft was just $24. In other words, the fee can often be far out of proportion with the size of the overdraft.
Differing perspectives on overdraft fees: banks vs. consumers
Naturally, consumers and banks view the overdraft issue differently. To understand how the fight over these fees has evolved and where it might go from here, it helps to consider both perspectives.
What consumers think about bank overdraft fees
Consumers value overdraft protection. A survey on behalf of the American Bankers Association found that 70% of Americans value that protection. Sixty-eight percent think it’s reasonable for banks to charge a fee for that service.
Where consumers start to have a problem is when it comes to the size of overdraft fees. A survey by the Pew Charitable Trusts found 75% thought a $10 overdraft fee would be reasonable. However, 71% thought a $35 fee was unreasonable. Since $35 is much closer to the actual average, this suggests that consumers think overdraft fees are too high.
In short, consumers don’t want overdraft protection to go away. In fact, by law, banks can only charge overdraft fees when consumers opt for this protection. The issue is that consumers don’t want to pay so much for that protection.
Banking industry position on overdraft regulations
When a customer overdrafts an account, they’re actually borrowing money from the bank. That costs the bank money, plus there’s a risk that the customer won’t be able to repay the money. Banks charge overdraft fees to compensate for that.
If banks did not charge for overdrafts, it wouldn’t make financial sense for them to cover those overdrafts. That would leave them with a few choices:
- They could deny any debit card transaction that would overdraft the account. That could embarrass customers, as well as leave them in a tight spot if they’re without cash and really need to buy something – like enough gas to get home, for example.
- They could cause checks to bounce if there’s not enough money in the account. Again, there would be some embarrassment to the customer associated with this. The customer could also face fees and potential legal action from the merchant who received the bad check.
- If banks covered overdrafts without compensation, it would be financially unsustainable – especially for accounts that customers frequently overdraft. That would force banks to close down those accounts. This would potentially leave some poorer customers shut out from the banking system.
The common ground between consumers and banks is that, for the most part, both parties agree that overdraft protection is valuable and that it’s reasonable to charge a fee for it. However, there is sharp disagreement about the size of those fees.
Are overdraft fees legal? Understanding the regulatory framework
Overdraft fees are permitted due to an exception to the Truth in Lending Act of 1968.
The Truth in Lending Act requires financial institutions to disclose certain information when lending money to customers. This information includes the cost and repayment terms of the loan. Those institutions also have other obligations, such as assessing the customer’s ability to repay the loan.
Overdrafts are a form of loan in that the bank extends money that the customer is obligated to repay. However, recognizing that overdrafts are often unintentional on the part of the customer and occur without prior notice to the bank, in 1969, the Federal Reserve granted an exception to the Truth in Lending Act when it came to overdrafts.
This exception allowed banks to charge a fee for overdrafts without the normal Truth in Lending Act disclosures. Over the years, the exception allowed overdraft fees to become a huge profit source for banks. The size of these profits and the resulting cost to consumers led the CFPB to seek to end the exception with its proposed rule limiting overdraft fees. The recent resolution passed by the federal government means that the exception will remain in place.
One other important legal development occurred in 2010. That year, a new Federal Reserve rule came into effect, requiring customers to actively opt into having overdraft protection. In other words, instead of being a default feature of bank accounts, customers had to choose to sign up for overdraft protection. In practice, though, many consumers seem to be confused about what they agreed to when opening an account.
Over time, the CFPB has taken a variety of legal actions against individual banks for practices that led to excessive overdraft fees. These legal actions sometimes resulted in consumer refunds, but they had to be pursued on a case-by-case basis. The CFPB sought more widespread overdraft fee relief with the rule proposed in late 2024. Now the Congress has blocked that effort.
How banks have responded to overdraft fee scrutiny
Even before the CFPB’s proposed rule, heightened attention to overdraft fees in recent years has led some banks to revise their policies.
A 2022 CFPB review of the top 20 banks found that many had adopted customer-friendly policies, such as:
- Eliminating overdraft fees on some or all types of transactions
- Charging significantly below-average overdraft fees, such as $10 to $15
- Putting a daily limit on the number of overdraft fees that could be charged
- Creating a dollar amount “cushion” that would prevent very small overdrafts from triggering a fee
- Giving a one-day grace period before overdraft fees are charged
The CFPB found that from the first quarter of 2019 to the first quarter of 2022, total overdraft fee revenues fell by 20.1%. Some of that may have been due to lower transaction volumes due to the pandemic, but at least part of the drop in overdraft charges was due to policy changes such as those listed above.
Will the trend towards lower overdraft fees continue?
It should be noted that the adoption of more customer-friendly overdraft policies occurred during a period where there was high-profile criticism of overdraft policies and the threat of stricter regulation of those fees. Banks may have been trying to self-regulate to head off onerous new rules.
By blocking the CFPB’s limits on overdraft fees, the government has effectively eliminated the threat of stricter regulation for the time being. This may slow the momentum towards more customer-friendly overdraft policies. It might even reverse that trend.
It should be noted that even while banks were easing their overdraft fee policies in recent years, they were making up for it with other fees. Some banks showed significant increases in things such as maintenance and ATM fees, which offset falling overdraft fees.
Ultimately, overdrafts are a cost, and banks are in the business of making a profit. If one source of profits is restricted, they will look for other ways to replace those profits. That leaves it up to consumers to make choices that minimize bank fees.
How to avoid bank overdraft fees: Consumer strategies
Here are some ways you can avoid, or at least minimize, overdraft fees:
- Look for a bank with little or no overdraft fees
- Choose a bank that offers a dollar amount cushion before overdraft fees can be charged
- Find a bank that limits how many overdraft fees can be charged on a single day
- Maintain a larger cushion in your account – in the long run, this will strain your finances a lot less than paying overdraft fees
- Use online banking to monitor balances and transactions closely
- Get a checking account with no monthly maintenance fees – the timing of those fees can cause you to overdraft your account
- Sign up for low balance alerts on your bank’s mobile app
- Link to another account, such as a savings account, to replenish your checking account when its balance runs low
- Opt out of overdraft protection – this may cause other problems, but it will make you more aware of your banking habits
- Use a prepaid debit card instead of one linked to your checking account – but make sure the fees involved aren’t worse than what you’d pay in overdraft charges
What’s next now that Congress has overturned overdraft fees?
With the joint resolution to block limits on overdraft fees, the CFPB is now barred from issuing the same type of rules without further Congressional action.
That’s somewhat academic anyway, since this is largely a political issue now. Under Democratic leadership, the CFPB sought to limit overdraft fees. A Republican Congress reversed those efforts, and under a Republican President, the priorities of the CFPB have changed.
Just as the political environment changed before, it may change again in the future. In the meantime, though, Congress has sent a message that consumers should not expect regulatory relief on overdraft fees anytime soon. Also, under reduced political pressure, some banks may feel freer to raise overdraft fees.
What this means for banking customers
The joint resolution by Congress won’t spark an immediate change for consumers, simply because the proposed CFPB rule never went into effect. However, it may mean a reversal of the downward trend in overdraft charges that occurred over the past few years. That trend seemed to be spurred by the threat of regulatory action on overdraft fees. With that threat now abated for the time being, banks may be less motivated to ease overdraft fees.
The saving grace is that banking is a competitive market. There are over 4,000 FDIC-insured banks in the United States, and a similar number of credit unions. While most are only available in limited geographic areas, in most areas there’s a plentiful amount of choices for consumers. Online banking has expanded the reach of banks and the information available to consumers, making it easier to find an institution with favorable overdraft policies.
A 2024 CFPB study of the 20 largest U.S. banks found that 18 of them charged overdraft fees. Among those that did, the average overdraft fee was $28, but the range was from $10 to $37 per transaction. So, consumers do have some options for avoiding high overdraft fees.
The important thing is to use that choice. Compare fee policies when shopping for a bank. Also, develop banking habits that will allow you to minimize overdrafts. Besides the direct cost of overdrafts, when you overdraft your account, it can cause you missed opportunities and the inability to complete certain transactions. If you do it often enough, your bank might cancel your account.
Conclusions and resources
Until the political environment changes, it doesn’t look as though consumers are going to get any new regulatory protection from high overdraft fees. That leaves it up to you to protect yourself with smart choices:
- Look for a bank with favorable overdraft policies. This means low fees, a cap on the number of fees they can charge per day, and grace periods or dollar cushions that reduce the likelihood of a transaction triggering an overdraft fee.
- Develop banking habits that help you avoid overdrafts. Things like keeping a closer track of your account balance and leaving more of a cushion in your account could save you a lot of money in fees. These habits can also ensure that you’ll have money available when you need it.
To see what options you have, there is an FDIC search tool that can help you find banks in your area. There’s also an NCUA search tool that can help you perform a similar search for credit unions. You can also find information about specific types of accounts on banking sites like MoneyRates.com.
The recent action by Congress on overdraft fees was a setback for consumers who regularly overdraft their accounts. Fortunately, you don’t have to rely on Congress to protect you. Some smart shopping and responsible banking habits can help you minimize those fees or even eliminate them altogether.
