On December 12, 2024, the Consumer Financial Protection Bureau (CFPB) announced its final rule, redefining overdraft fees as finance charges in order to limit overdraft fees. The final rule seeks to regulate how overdraft fees are charged and collected in an effort to save consumers money. The CFPB believes the new rule will save consumers $5 billion annually. The final rule marks another step in the CFPB’s efforts to eliminate “junk fees,” though its ultimate impact on consumers remains uncertain. 

Overdraft fees have been exempt from the definition of “finance charge” under the Truth in Lending Act (TILA) for over 50 years. The CFPB explained there was formerly a need for the exception when checks were the primary form of payment because of mail and deposit delays. However, the CFPB now views this exception as a highly profitable loophole for financial institutions. The CFPB believes removing the exception for overdraft fees under TILA is necessary because the exception no longer serves its intended purpose.

The CFPB estimates that financial intuitions have made over $280 billion in revenue from overdraft fees since 2000. According to the CFPB’s study, 68% of very large financial institutions charge between $30 and $37 per overdraft transaction, with more than half charging $35. Additionally, the CFPB found that most financial institutions’ policies allow consumers to incur multiple overdraft fees per day. The CFPB stated these fees far exceed the amount necessary to cover a financial institution’s actual cost and losses due to an overdraft.

CFPB’s New Overdraft Rule

With this final rule, the CFPB hopes consumers will be more informed on financial institutions’ overdraft credit policies so they are better able to compare institutions’ policies, as with any other type of credit.

Under the final rule, financial institutions now have three options regarding overdraft fees:

1. Cap Overdraft Fees at $5 Per Day – Financial institutions may choose to charge a maximum of $5 in overdraft fees per day, which the CFPB estimates is a “breakeven” fee that will allow banks to recover their costs for the overdraft program.
2. Cap Fees at an Amount Sufficient to Cover Costs and Losses – Financial institutions may choose to charge costumers the actual cost and losses incurred by the financial institution in connection with the overdraft.
3. Disclose Overdraft Loan Terms Like Any Other Loan – Financial institutions may continue to charge any amount so long as the financial institution discloses the terms of the overdraft credit as a form of “overdraft lending” in compliance with Regulation Z. This would require TILA disclosures, an ability to repay determination, and periodic statements.

The final rule further restricts banks from automatically withdrawing overdraft fees from consumer accounts. Under the final rule, financial institutions are required to offer consumers the option of either: 

• Automatic Withdrawal – Consumers have the option of opting into automatic withdrawal of the overdraft fees on a periodic basis; or
• Manually Repay – Consumers have the right to pay the overdraft fees manually.

The final rule applies only to financial institutions with at least $10 billion in assets or what the CFPB has defined as “very large financial institutions.” 

Final Thoughts

While the final rule does not take effect until October 1, 2025, the fate of the rule is already unclear. The rule was immediately challenged in a lawsuit filed in the United States District Court for the Southern District of Mississippi by notable industry groups, including the American Bankers Association, the Consumer Bankers Association, and America’s Credit Unions. The complaint alleges the CFPB has overstepped its authority and that the rule “will harm the very consumers the CFPB purports to benefit.” And President-elect Trump may likely work to rescind the rule, as he has typically opposed CFPB Director Rohit Chopra’s initiatives, and Congress may also attempt to rescind the rule through the Congressional Review Act.

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