Banks that spent 2024 bracing for a $5 federal cap on overdraft fees have instead spent the past year and a half free of any federal ceiling at all, after Congress voted to erase the rule before it ever applied to a single transaction. The Consumer Financial Protection Bureau finalized the $5 overdraft-fee cap in December 2024 for the country’s largest financial institutions, but President Trump signed a resolution killing it on May 9, 2025, months before its scheduled October 2025 start date. More than a year later, banks remain free to set overdraft fees however they choose, and the Bureau is legally barred from writing a substantially similar rule again.
The $5 Overdraft Cap That Never Took Effect
The rule, formally titled “Overdraft Lending: Very Large Financial Institutions,” would have required the country’s largest banks to pick one of three paths: cap the overdraft fee at a flat $5, charge a fee tied to the institution’s actual cost of covering the shortfall, or treat the overdraft as an extension of credit and comply with the Truth in Lending Act disclosures that apply to loans. The Consumer Financial Protection Bureau published the final rule on December 30, 2024, with an effective date of October 1, 2025.
The rule targeted only the largest banks and credit unions, the institutions the CFPB classified as very large financial institutions under its rulemaking authority, leaving smaller community banks and credit unions outside its reach regardless of what they charged. A Congressional Research Service summary of the rule and its repeal confirms the regulation never took effect anywhere, because Congress moved to block it before the October 2025 date arrived.
In finalizing the rule, the Bureau said the $5 figure reflected what regulators judged many large banks’ actual cost of covering a shortfall, and it argued that a flat fee well above that cost functioned more like a short-term loan than a service charge, which is why the rule offered banks the alternative of complying with standard lending disclosures instead of capping the price outright. That reasoning never faced a court test, since Congress repealed the rule through the legislative process rather than through litigation over its merits.
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Congress Used a Rarely Invoked Power to Kill the Rule Before It Started
Senator Tim Scott of South Carolina introduced S.J.Res.18, a joint resolution disapproving the CFPB’s overdraft rule under the Congressional Review Act, a statute that lets Congress overturn a recently finalized federal regulation with a simple majority vote in each chamber rather than the 60 votes normally needed to move most legislation past a Senate filibuster. The Senate passed the resolution 52-48, with every Republican but Missouri’s Josh Hawley voting to repeal the rule and every Democrat voting to keep it, and the House later passed its own companion measure.
President Trump signed the resolution into law on May 9, 2025, and it was enacted as Public Law No. 119-10. Under the Congressional Review Act, a rule killed this way does more than simply disappear: the disapproved regulation is treated as though it had never taken effect, and the issuing agency is barred from adopting any new rule that Congress judges “substantially similar,” a restriction with no fixed expiration date.
That second feature separates a Congressional Review Act repeal from an ordinary court challenge or a change of position by new agency leadership. A court ruling can be appealed, and an agency can simply write a new rule once litigation ends, but the Bureau cannot reissue anything resembling the $5 overdraft cap without Congress first passing new authorizing legislation.
What Overdraft Fees Look Like Now, More Than a Year Later
Since the May 2025 repeal, no federal rule has replaced the $5 cap, and none is pending that would revive it in its earlier form. Large depository institutions remain free to set overdraft fees at whatever level they determine, subject only to their own disclosure practices and to any state-level rules that might separately apply to state-chartered institutions.
The repeal reaches only the federal rule for very large financial institutions; it does not preempt a state from setting its own overdraft-fee limits for the banks and credit unions it charters. The Congressional Review Act resolution addressed a single federal regulation, so any state-level policy on overdraft pricing that existed before the rule was finalized, or that a state might adopt in the future, sits outside the scope of what Congress repealed this year.
The CFPB’s own rulemaking history for the overdraft rule now shows the case closed: a final rule published, an effective date that was set and then legislatively erased before it ever arrived, and a permanent bar on the agency trying the same approach again. For a consumer checking whether an overdraft fee on a recent statement is legal, the relevant fact is not the $5 figure that made headlines in 2024, but that no federal ceiling on that fee currently exists at all.
Overdraft Fees Are Only Part of Managing a Vulnerable Account
With no federal cap on overdraft fees, a single missed transaction can trigger a fee large enough to cascade into further overdrafts on the same account, particularly for anyone living on a fixed monthly deposit. The same account also faces separate risks that have nothing to do with fee schedules, including collectors targeting a balance and confusion over which funds in an account are actually protected from seizure.
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This article was researched and drafted with the assistance of AI and reviewed by The Money Overview editorial team.
