The Consumer Financial Protection Bureau (CFPB) has finalized a rule that aims to limit overdraft fees charged by banks and credit unions, expecting this measure will save U.S. consumers approximately $5 billion annually.

According to the new regulations, financial institutions can charge either a fixed fee of $5 or an amount that covers their costs. In most cases, this represents a significant reduction from the current average overdraft fee of $35. Additionally, the rule requires lenders to disclose all associated interest rates and fees when treating overdraft loans similarly to credit cards.

CFPB Director Rohit Chopra stated, For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts. The CFPB is taking action against these excessive junk fees and demanding transparency from big banks regarding overdraft loan interest rates.”

Substantial Pushback

The regulation is set to take effect in October 2025, applying to banks and credit unions with assets of at least $10 billion. Although many larger institutions have already reduced the frequency or amount of overdraft fees—or eliminated them entirely—there has been considerable opposition to the CFPB’s regulations since they were proposed earlier this year.

Rob Nichols, President and CEO of the American Bankers Association, noted that the proposal would significantly limit banks’ ability to provide overdraft protection to customers, including those who have few other means to access necessary liquidity. The CFPB is effectively proposing to remove this safety net from consumers who want and need it.”

A Safety Net

Without the safety net of overdraft protection, many in the banking industry argue that consumers facing medical emergencies or unexpected expenses may be forced to rely on less desirable alternatives such as payday loans.

There are also concerns among smaller banks and credit unions that, even though the rule only affects larger institutions, they might face competitive pressure to adopt similar standards.