Financial institutions and trade organizations seek court intervention to halt implementation of the CFPB's overdraft rule
The Consumer Financial Protection Bureau's (CFPB) overdraft rule, set to take effect on October 1, 2025, has encountered a significant challenge in the form of a legal battle. This challenge stems from the CFPB's recent retreat from enforcement against overdraft fee practices, most notably with the withdrawal of a settlement with Navy Federal Credit Union[1][2][3].
The CFPB's initial settlement, reached in November 2024, alleged that Navy Federal overcharged overdraft fees. However, in July 2025, the CFPB dropped this settlement and the accompanying consent order, effectively reversing the requirement for Navy Federal to return funds to affected servicemembers[1][2][3]. This move has sparked criticism from consumer advocates, who view it as a departure from the CFPB's duty to protect consumers harmed by unfair overdraft fees.
The CFPB's overdraft rule, which caps overdraft fees at $5 for banks with $10 billion or more in assets, has been met with resistance from several banks and financial trade groups. They argue that the rule could limit the access to liquidity through overdraft services for those who need it the most[1]. The groups also allege that the CFPB's rule requires banks to underwrite consumers under unconventional methods, which could harm Americans in need[1].
Moreover, the groups claim that the CFPB's recent interpretation of overdraft fees as "credit" is a radical reinterpretation of the 1968 Truth in Lending Act (TILA)[1]. They assert that the CFPB exceeded its authority under TILA in implementing this rule. The American Bankers Association (ABA), alongside other groups, made these arguments in a preliminary injunction filed in Mississippi federal court, aiming to halt the implementation of the CFPB's overdraft rule[1].
The CFPB's overdraft rule categorizes overdraft fees as "credit," a stance that conflicts with the Federal Reserve Board's longstanding view that discretionary overdraft services lack a credit feature[1]. Although the Federal Reserve Board has not issued a direct statement on the matter, it is known that the Federal Reserve tends to view overdraft services as beneficial when offered transparently and responsibly, emphasizing consumer access and choice rather than strict caps[1].
The 63-page preliminary injunction filed by banks and financial trade groups requests a reprieve for financial institutions from preparing for the rule in the interim[1]. As the litigation proceeds, it remains to be seen how this legal challenge will shape the future of overdraft fee practices in the United States.
[1] Source: Reuters, "Banks, trade groups sue CFPB over overdraft rule, seek preliminary injunction," July 15, 2025. [2] Source: American Banker, "CFPB drops overdraft settlement with Navy Federal," July 22, 2025. [3] Source: National Consumer Law Center, "CFPB's Retreat from Enforcement Against Overdraft Fee Practices," July 27, 2025.
- The American Bankers Association and other financial trade groups have filed a preliminary injunction in Mississippi federal court, aiming to halt the implementation of the Consumer Financial Protection Bureau's (CFPB) overdraft rule, which they believe conflicts with the Federal Reserve Board's view on overdraft services and exceeds the CFPB's authority under the 1968 Truth in Lending Act (TILA).
- The legal challenge against the CFPB's overdraft rule, which includes the banking-and-insurance sector and several businesses, opposes the rule's potential impact on access to liquidity through overdraft services, unconventional underwriting methods, and the rule's categorization of overdraft fees as "credit."
