Why the Overdraft Pause Changes the Fee Income Conversation
For much of the past decade, overdraft and NSF fees have been a reliable, if increasingly controversial, source of noninterest income. That model was jolted in late 2024 when the Consumer Financial Protection Bureau finalized a rule that would have sharply curtailed overdraft fees by treating them as a form of credit. The rule never took hold. In 2025, Congress repealed it under the Congressional Review Act, a move that effectively bars the CFPB from issuing a substantially similar regulation absent new legislation.
As reported by American Banker, the immediate impact has been measurable. Several large banks have already reported a rebound in overdraft income, though totals remain well below pre-reform highs. The regulatory pause has given institutions breathing room, but not carte blanche. As noted in the regulatory analysis of Cooley LLP, the repeal does nothing to prevent states from stepping in, and New York regulators have already floated their own caps and limits overdraft and NSF fees.
The takeaway for bank leaders is clear. Overdraft fees are back in play, but only for institutions willing to manage them strategically and defensibly.
Why Fee Income Now Carries More Weight in Bank Earnings
This moment arrives as banks continue to wrestle with margin pressure, muted loan growth in some markets, and higher operating costs. In that environment, preprovision net revenue (PPNR) has regained prominence as a measure of institutional resilience. Fee income, including deposit-related fees, plays an outsized role in sustaining PPNR when interest income alone cannot carry the load.
According to analysis published by Travillian Next, bank management teams are once again refocusing diversified noninterest revenue as a stabilizing force in earnings conversations with boards and investors. Overdraft fees may represent a smaller slice of the pie than they once did, but they still matter, particularly for community and regional banks that lack scale in wealth management or capital markets businesses.
The strategic question is no longer whether overdraft fees belong in the mix, but how they are positioned within a broader, more durable fee-income framework.
Rethinking Overdraft Fees Through a Relationship Lens
One of the quiet lessons of the past several years is that blanket overdraft pricing models are increasingly hard to justify, both politically and commercially. Research cited by American Banker shows that a small percentage of customers consistently account for a disproportionate share of overdraft revenue. That reality invites a more nuanced approach.
Banks that are revisiting overdraft strategies are increasingly framing them through the lens of customer relationships rather than transactions. Instead of treating overdrafts as a penalty, some institutions are repositioning them as a discretionary service, with pricing that reflects account tenure, product depth, or demonstrated financial behavior. This narrative shift matters. It allows banks to defend fee structures as part of a value exchange, rather than a revenue grab.
In parallel, banks are expanding the use of linked accounts, low-balance buffers, and grace periods. These features reduce the frequency of fees while preserving the ability to generate income when customers genuinely need short-term liquidity.
How Technology Helps Defend and Redefine Fee Strategy
Even with federal pressure temporarily eased, the reputational risk surrounding overdraft fees remains real. Consumer advocates continue to frame them as “junk fees,” and state regulators are signaling they are willing to act independently. In that context, banks are leaning more heavily on technology to demonstrate good faith.
As legal experts have noted in Cooley’s coverage of emerging state proposals, institutions that can show proactive efforts to help customers avoid overdrafts are better positioned in supervisory conversations. Real-time balance alerts, predictive warnings before transactions post, and mobile prompts that offer lower-cost alternatives are increasingly standard. These tools do more than reduce complaints; they create a documented record that the bank is prioritizing transparency and customer outcomes.
The added benefit is that these same tools often deepen digital engagement, thereby strengthening primary-account relationships and opening the door to cross-selling opportunities that generate other forms of fee income.
Why State Regulators May Shape the Next Overdraft Chapter
While the CFPB’s authority has been blunted for now, the regulatory story is far from over. Cooley sources once again report that state-level initiatives are gaining momentum. New York’s Department of Financial Services has proposed limits on the size and frequency of overdraft and NSF fees, and coalitions of state attorneys general have urged lawmakers to revive federal restrictions.
For banks operating across multiple states, this patchwork risk reinforces the need for flexible fee systems and close coordination between compliance, finance, and product teams. Institutions that treat the current pause as permanent risk being caught flat-footed when the next wave of regulation emerges.
Building a More Durable Fee-Income Mix Beyond Overdrafts
Perhaps the most important lesson of the past several years is that overdraft fees cannot carry the weight they once did. Even with regulatory pressure eased, they are unlikely to return to historic levels. Forward-looking banks are using this moment to accelerate broader fee-income strategies that feel more aligned with customer expectations.
Subscription-based checking, enhanced payments services, digital treasury tools for small businesses, and selective fintech partnerships are all gaining traction. Institutions that blend traditional fee sources with modern, value-driven offerings are better positioned to stabilize earnings without inviting regulatory scrutiny. institutions that blend traditional fee sources with modern, value-driven offerings are better positioned to stabilize earnings without inviting regulatory scrutiny.
A Limited Window to Reset Fee-Income Strategy
The repeal of the CFPB’s overdraft rule has reopened a door that many banks assumed was closed for good. But it is a narrow opening, not a return to the past. Institutions that treat overdraft fees as one component of a thoughtful, customer-aware fee-income playbook can strengthen PPNR while maintaining credibility with regulators and customers alike. Those that chase short-term revenue without adjusting the narrative or the mechanics risk finding themselves back in the crosshairs sooner than they expect.
