Overdraft Protection Law: Opt-In Rule, CFPB Repeal, and State Caps

Overdraft protection law in the United States rests on one core federal rule: a bank cannot charge you a fee for covering an ATM withdrawal or a one-time debit card purchase that overdraws your account unless you have separately agreed, in advance, to that service. Beyond that opt-in requirement, federal law sets no dollar cap on overdraft fees. A 2024 Consumer Financial Protection Bureau rule that would have limited fees to $5 at the largest banks was repealed by Congress in May 2025 before it took effect, so limits on the size of the fee now come almost entirely from state laws and individual bank policies.

The Opt-In Rule for Debit and ATM Overdrafts

The main consumer protection is an amendment to Regulation E, which implements the Electronic Fund Transfer Act. It took effect July 1, 2010, and prohibits banks from charging overdraft fees on ATM withdrawals and one-time debit card transactions unless the customer has affirmatively opted in.¹ Before the rule, banks could enroll customers automatically and charge a fee every time a swipe or withdrawal pushed the balance negative.

Consent has to be real. The bank must give you a clear, standalone notice describing the service and its fees, and you have to agree separately. Pre-checked boxes or language folded into the general account agreement do not count. Customers who decline get the same account terms as those who accept. If you have not opted in, the bank can still choose to pay the transaction, but it cannot charge you for doing so.²

You can revoke your consent at any time, and the bank has to act on the revocation as soon as reasonably practicable. On a joint account, either holder can opt in or opt out for the whole account.²

One boundary matters: the opt-in rule reaches ATM and one-time debit card transactions only. It does not cover checks or recurring ACH payments. Banks can charge overdraft or nonsufficient funds fees on those without prior consent, provided the fees are disclosed in the account agreement.³

No Federal Cap on the Fee Itself

Regulation E makes banks disclose their fee amounts, the maximum they will charge, and how many fees they can hit an account with in a single day. It does not limit those numbers.² A charge of about $35 per transaction has been common at large banks, and some institutions have historically stacked multiple fees a day plus “sustained” or “extended” fees when the account stayed negative.⁴

The Repealed CFPB $5 Cap

On December 12, 2024, the CFPB finalized a rule titled “Overdraft Lending: Very Large Financial Institutions” that would have applied only to banks and credit unions with more than $10 billion in assets. About 97% of insured depository institutions were below that threshold and exempt.⁵ It was set to take effect October 1, 2025.

Covered banks would have had three choices: charge a $5 benchmark fee the CFPB said approximated the cost of processing an overdraft, charge a higher amount if they could document costs justifying it, or treat overdrafts as a line of credit subject to the Truth in Lending Act, with interest disclosures and an ability-to-repay assessment.⁶ The bureau estimated savings of roughly $5 billion a year, about $225 for each household that pays overdraft fees.⁷

The American Bankers Association, joined by 52 state banking associations, called the rule illegal and pushed Congress to repeal it, arguing overdraft services are not “credit” under TILA and that the CFPB was imposing unauthorized price controls.⁸⁹ Congress used the Congressional Review Act to nullify the rule: the Senate voted 52 to 48 on March 27, 2025, and the House followed 217 to 211 on April 9, 2025.¹⁰¹¹ President Trump signed the resolution on May 9, 2025, as Public Law 119-10.¹²

Because the repeal came through the Congressional Review Act, the CFPB is barred from issuing a substantially similar rule without new authorization from Congress.¹³ The rest of Regulation E, including the opt-in rule, is unaffected.¹⁴

State Laws Filling the Gap

With the federal cap gone and the CFPB blocked from returning to the topic, state legislatures and financial regulators are now where new fee limits are being written.

New York’s Department of Financial Services proposed regulations in January 2025 that would apply to state-chartered banks. The proposal would ban overdraft fees on amounts under $20, prohibit a fee larger than the overdraft itself, cap fees at three per day, ban sustained daily fees on negative balances, and prohibit a fee when the account had sufficient funds at the time the transaction was initiated.¹⁵

California enacted SB 1075 in September 2024. It requires credit unions to notify members every time an overdraft or NSF fee is charged, and starting January 1, 2026, it caps those fees at $14 for credit unions.¹⁶ A separate 2023 California law requires state-chartered banks and credit unions to report annual overdraft and NSF revenue to the Department of Financial Protection and Innovation.¹⁷

Some states have older limits still on the books. A 1994 survey noted Indiana capping overdraft penalties at the greater of $20 or 5% of the check amount (up to $250), Massachusetts limiting overdraft fees on accounts held by minors and seniors to $5, and New York capping bounced-check charges at $15.¹⁸ Many of those numbers have not been updated in decades.

Two Products Both Called Overdraft Protection

The phrase “overdraft protection” covers two different services, and knowing which is which changes what you pay.

The first is standard overdraft coverage, sometimes marketed as “courtesy pay.” The bank decides, transaction by transaction, whether to pay something that would overdraw the account, then charges a flat fee for doing so (often around $35). This is the service the Regulation E opt-in rule governs on debit and ATM transactions.⁴

The second is a formal overdraft protection plan that links your checking account to a backup source: a savings account or a line of credit. When the checking account runs short, funds transfer automatically. A savings-linked transfer usually carries a smaller fee than a courtesy-pay charge, and a line of credit charges interest on the borrowed balance instead of a flat fee.¹⁹ These plans are almost always cheaper than repeated courtesy-pay fees, though not every bank offers them or highlights them.

What Big Banks Actually Charge Now

Even without a federal cap, competitive and reputational pressure has moved fees down at many of the largest banks. Capital One and Citibank eliminated both overdraft and NSF fees. Ally Bank eliminated overdraft fees in June 2021. Bank of America dropped its NSF fee, cut its overdraft fee to $10, and stopped charging on ATM overdrafts. JPMorgan Chase, Wells Fargo, U.S. Bank, and TD Bank all eliminated NSF fees and added grace periods that give customers until the end of the next business day to bring the account positive. Chase, U.S. Bank, and TD Bank also added $50 negative-balance cushions, so no fee applies unless the account is more than $50 in the red.²⁰²¹

Total industry overdraft and NSF revenue peaked around $15.5 billion in 2019 and had fallen by about half by 2023.²² After Congress repealed the CFPB rule in 2025, some of the biggest banks reported the numbers turning back up. JPMorgan Chase reported $815 million in overdraft fee income over the first nine months of 2025, roughly 8% higher than a year earlier. TD Bank collected $190 million, up nearly 14%. Citizens Financial Group reported about $91 million, up 17%. Banks attributed the increases to greater consumer use rather than changes in fee schedules.²³ Industry-wide overdraft and NSF revenue topped $12 billion in 2025.²⁴

A few institutions still charge no overdraft fees at all: Capital One, Citibank, Ally, and American Express. None of the 20 largest banks charge NSF fees.²⁴ More than 200 banks and credit unions offer Bank On certified checking accounts, which cannot charge overdraft or NSF fees.²⁵

How to Avoid Overdraft Fees

The rules give you four practical levers.

Opt out of debit and ATM overdraft coverage. If you have not opted in, or you revoke your consent, the bank cannot charge a fee on those transactions; they will simply be declined at the register or the ATM when the balance is short.²

Link a savings account or line of credit for the transactions the opt-in rule doesn’t cover. Checks and recurring ACH payments can still trigger fees without your consent, so the cheaper backup usually pays for itself the first time it’s used.⁴

Read the required fee disclosure before signing. Look for the per-item fee, the daily maximum, any sustained-negative-balance fee, and whether the bank offers a grace period or a small-dollar cushion.

If your bank charges high fees, consider one that does not. A short list of large institutions charge nothing for overdrafts, and Bank On certified accounts at hundreds of banks and credit unions are prohibited from charging overdraft or NSF fees at all.²⁵

1
Federal Reserve. Federal Reserve Announces Final Rules Prohibiting Institutions From Charging Fees for Overdrafts
2
Consumer Financial Protection Bureau. Regulation E Section 1005.17 – Requirements for Overdraft Services
3
FDIC. Overdraft and Account Fees
4
Consumer Financial Protection Bureau. Know Your Overdraft Options
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Consumer Financial Protection Bureau. Overdraft Lending: Very Large Financial Institutions Final Rule
6
Consumer Financial Protection Bureau. CFPB Closes Overdraft Loophole to Save Americans Billions in Fees
7
Consumer Reports. Senate Votes to Repeal CFPB Limits on Excessive Bank Overdraft Fees
8
American Bankers Association. State Bankers Letter Urging Congress to Repeal Overdraft Rule
9
American Bankers Association. Lawsuit: CFPB Overdraft Final Rule
10
United States Senate. Roll Call Vote 153, S.J.Res. 18
11
Clerk of the U.S. House of Representatives. Roll Call 96, S.J.Res. 18
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Senate Banking Committee. President Trump Signs Chairman Scott’s Resolution Overturning Biden Overdraft Rule
13
ABA Banking Journal. With Trump Signing Repeal of CFPB Overdraft Rule, ABA to Drop Lawsuit
14
Consumer Financial Protection Bureau. Overdraft Lending: Very Large Financial Institutions – Compliance Resources
15
New York Department of Financial Services. DFS Proposes Regulations on Overdraft and NSF Fees
16
Digital Democracy. SB 1075 – California 2023-2024 Session
17
California DFPI. Income From Fees on Nonsufficient Funds and Overdraft Charges
18
Connecticut General Assembly. OLR Research Report on State Overdraft Fee Regulations
19
American Bankers Association. Understanding Overdraft Services
20
Consumer Financial Protection Bureau. Data Spotlight: Overdraft/NSF Revenue in 2023
21
Ally Bank. No Overdraft Fees
22
St. Louis Federal Reserve. Is the Era of Overdraft Fees Over?
23
American Banker. Overdraft Fee Income Is on the Rise at These Big Banks
24
National Consumer Law Center. Overdraft and NSF Fees Rise Above $12 Billion
25
Consumer Reports. How to Choose a Bank Account Without Overdraft Fees