Smaller Fees and More: Big Changes Are Coming To Overdraft Protection – Technologist

If you’ve been following the sage advice of money expert Clark Howard for any length of time, you know that he has long railed against overdraft fees and so-called “overdraft protection” that the big banks pitch to customers.

“If your bank pitches you or has already conned you into signing up for overdraft protection, I want you to ‘un-protect’ yourself,” Clark says.

New Rules: Overdraft Reforms for Big Banks

The Consumer Financial Protection Bureau (CFPB) is on the same page as Clark. The agency recently announced that it has closed a loophole that allowed big banks to charge unreasonable overdraft fees as a finance charge. The new regulations apply to financial institutions with $10 billion+ in assets.

Here are some things you need to know about the overdraft reforms:

1. Are Overdraft Fees Going Away?

No, overdraft fees are not going away, but they are being curtailed. Instead of being charged anywhere from $25 to $35 for a bank overdraft, the most money you’ll be out of is $5. Keep reading to find out why as well as other changes.

The CFPB says that overdraft fees have contributed to an untold number of bank customers being charged billions of dollars annually as well as negative credit reporting that has hurt their credit profiles.

2. What Are the New Overdraft Rules?

Here are the new rules, which are expected to add up to $5 billion in annual overdraft fee savings to consumers – or $225 per household –  according to the CFPB:

The big banks now have the following options to manage their respective overdraft programs:

• They can choose to charge $5. This simple option is what the agency says it typically costs to handle overdraft cases administratively.
• They can offer overdraft protection as a courtesy for a minimal fee. “For banks that wish to offer overdraft as a convenient service rather than as a profit center, the final rule allows financial institutions to set their fee at an amount that covers their costs and losses,” the CFPB says in the release.
• They can treat overdraft protection as a typical loan and disclose the terms beforehand such as interest rates, periodic statements, “and giving consumers a choice of whether to pay automatically or manually,” says the agency.

3. When Do the New Overdraft Rules Take Effect?

The overdraft final rule will take effect on October 1, 2025, according to the CFPB. 

That gives consumers plenty of time to get their banking options in order, preferably choosing those that are transparent about how they handle overdrafts.

4. What If I Want To Stop Overdraft Protection Altogether?

As always, you can stop overdraft protection at your financial institution once and for all. Many banks allow you to do this online, once you log in.

As an alternative, you can choose to contact a banking representative over the phone or even drop in for a visit at a physical location. In all cases, let the bank know that when it comes to being “protected” from overdrafting your account, you want out!

Read our guide on how to stop overdraft protection and fees.

Final Thoughts

We cheered when Capital One announced that they were doing away with overdraft fees, but not enough big banks have followed suit. Now with the CFPB’s efforts to restrict overdraft fees, consumers can save up to $5 billion a year.

Overdraft fees are just one of several reasons why Clark is not a fan of the big banks. 

“If you have money in a savings account or a CD at any of the giant monster mega-banks or even a big regional bank, it means you hate yourself. Something happened to you as a child that makes you punish yourself. Do. Not. Do. It,” Clark say

In contrast, when it comes to online banks, which typically have no or low fees. Clark is all in – and you should be, too.

Check out our guide on the best online banks.

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