Overdraft fees are here to stay. These 5 banks rolled them back.
Fed chair says no agency outside CFPB tasked with consumer protection
No U.S. regulator other than the Consumer Financial Protection Bureau is tasked with ensuring that banks abide by rules guarding against deceptive practices regarding consumers, the head of the Federal Reserve said.
A mere four months ago, the Biden administration capped bank overdraft fees at $5. There was just one catch: The cap wouldn’t take effect until October 2025.
It now appears the cap will never take hold. The House of Representatives struck it down Wednesday, on a largely party-line vote, with Democrats dissenting. The resolution already has Senate approval, so it heads now to President Trump’s desk.
Federal regulators proposed the $5 cap because overdraft fees represent almost pure profit to banks. Protecting a bank account against overdraft doesn’t cost very much. And yet, the average overdraft fee inched up to $27.08 in 2024, Bankrate reports.
Overdraft fees peaked at $33.58 in 2021. Many banks voluntarily reduced or eliminated them under pressure from the Biden administration in its campaign against “junk fees.”
Much of the pressure came from the Consumer Financial Protection Bureau, or CFPB, the federal watchdog.
“For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts,” said Rohit Chopra, then director of the federal agency, in December.
Regulators said the rule would generate up to $5 billion a year in overdraft-fee savings, or $225 per household that pays them.
Now, both overdraft fees and the CFPB are under attack
But now, the CFPB itself is under attack. The incoming Trump administration ordered the agency to halt its work and shut its doors, although it remains open for now. Elon Musk, the billionaire Beltway budget-cutter, penned a February tweet that read, “CFPB RIP,” along with a tombstone emoji.
The banking industry has applauded Republican lawmakers for reversing the cap on overdraft fees. Industry groups contend, in effect, that banks will stop protecting accountholders from overdrafts if they are not allowed to profit from them.
The $5 cap “would force many banks to limit or eliminate overdraft protection as we know it,” said Rob Nichols, CEO of the American Bankers Association, in a March statement.
Industry leaders point to a March survey, commissioned by the banker group, that showed 70% of consumers found overdraft protection “valuable.”
Other surveys tell a different story. Research by Pew Charitable Trusts found that seven in 10 Americans think a $35 overdraft fee is unfair. And most “overdrafters” said they would rather have their ATM and debit transactions declined than pay a hefty fee.
The vast majority of overdraft fees “come from the same set of households,” mostly lower-income, said Greg McBride, chief financial analyst, personal finance, at Bankrate. “It becomes a viable form of credit, or a lifeline, in those months where the bills keep coming but the paychecks don’t.”
Banking experts say the $5 cap is probably history. With that in mind, here are some expert tips on how to avoid even higher fees.
Link a savings account to your checking account
Many financial institutions allow customers to link a savings account to a checking account to cover overdrafts. You can also link to a line of credit, or a credit card.
The bank may charge a fee when it transfers money into your account to cover an overdraft. But it’s usually less than what you would pay for overdrawing the account.
Opt out of overdraft protection on ATM and debit transactions
You can often tell your bank not to cover some types of overdrafts, such as those involving debit-card or ATM transactions.
A declined transaction at a lunch counter is embarrassing. But “you don’t want that $35 fee when you’re going to grab lunch on a busy workday,” McBride said.
Set up automatic notifications
Banking customers can set up email or text alerts when a checking account balance falls below a set amount: say, $100.
The alerts might get annoying, but it’s a good way to know when you need to shore up your account.
Be careful with automatic payments
Utility companies are always prodding you to sign up for automatic payments. But if you aren’t making the payment yourself, you’re less likely to know it’s coming.
The broader point here: Keep track of your account balance and pending transactions, especially the ones that haven’t hit your account.
Keep a cushion in your checking account
This recommendation comes from the American Bankers Association, which offers seven other tips to avoid overdrafts. If you regularly top off your checking account at $1,000, you’re not likely to incur overdrafts.
Change banks
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