Trump and Congress Scrap CFPB’s Overdraft Fee Cap

President Trump recently signed a Congressional resolution that officially blocks the Consumer Financial Protection Bureau’s (CFPB) proposed rule capping overdraft fees at $5 for large banks and credit unions. The rule, which was expected to take effect this October, aimed to reduce costly fees that critics say disproportionately harm low-income and unbanked consumers. Instead, banks can continue charging much higher fees, often upwards of $30 per overdraft.

What Was the CFPB’s Overdraft Rule About?

The CFPB’s rule was designed to curb excessive overdraft fees while still allowing banks to charge for covering shortfalls. It proposed three options for financial institutions:

• Charge a flat $5 overdraft fee per transaction
  
  

• Use a cost-based fee calculated on actual expenses incurred by the bank
  
  

• Maintain current fee structures but provide clearer, more transparent disclosures to consumers
  
  

The CFPB estimated these measures could cut bank overdraft fee revenue by around $5 billion annually, easing financial strain on vulnerable consumers.

Why Did the Rule Face Such Fierce Opposition?

Several key reasons fueled backlash from banks and lawmakers:

• Revenue Concerns: Many banks, especially community banks, depend heavily on overdraft fees as a critical source of income. Eliminating or drastically reducing fees threatened their profitability.
  
  

• Claims of Overreach: Republican leaders, including Senate Banking Committee Chair Sen. Tim Scott (R-SC), argued the rule represented government interference that could reduce credit access for consumers.
  
  

• Legal Challenge: The American Bankers Association (ABA) and other industry groups filed lawsuits within 24 hours of the rule’s release, alleging the CFPB exceeded its authority.
  
  
  

How Did Congress and the President Act?

Congress used the Congressional Review Act—a legislative tool allowing Congress to overturn recent federal regulations quickly—to repeal the overdraft fee cap. After swift bipartisan action, President Trump signed the repeal into law, nullifying the rule before it ever took effect.

In the same move, Trump rolled back another CFPB regulation aimed at overseeing large digital payment companies like PayPal and Cash App for compliance with electronic fund transfer laws. Both rules had been enacted in the final days of the Biden administration.

What Does This Mean for Banks and Consumers?

• Banks: Traditional banks maintain a lucrative revenue stream from overdraft fees without the need to overhaul their practices.
  
  

• Consumers: Without the cap, many consumers—especially low-income and unbanked individuals—will likely continue facing high overdraft charges.
  
  

• Fintechs: Fintech companies offering low-fee or no-fee overdraft alternatives lose regulatory support but still compete strongly by attracting fee-conscious customers.
  
  
  

What About Transparency and Compliance?

While the federal cap is gone, transparency remains crucial. Banks must clearly disclose fees to maintain trust and avoid backlash. Failure to do so could result in:

• Increased scrutiny from state regulators
  
  

• Consumer complaints and negative publicity
  
  

• Class action lawsuits targeting deceptive or unfair fee practices
  
  
  

The Road Ahead: State Regulations and Consumer Advocacy

States may step in where the federal government steps back. Several states are already considering or have passed laws to regulate overdraft fees and protect consumers. Consumer advocates continue pushing for reforms and legal action.

Final Thoughts

The repeal of the CFPB’s overdraft fee cap marks a significant win for traditional banks but raises concerns about financial fairness for consumers. Even without federal limits, clear communication and ethical fee practices will define which institutions earn—and keep—consumer trust in the evolving financial landscape.