Originally published at thehill.com on September 8, 2025.
Overdraft protection has become Washington’s latest punching bag. Sens. Elizabeth Warren (D-Mass.), Bernie Sanders (I-Vt.), and Richard Blumenthal (D-Conn.) are again criticizing banks, credit unions and financial service providers for charging what they call “predatory” overdraft and non-sufficient funds fees. In their telling, these fees are little more than “junk,” a cynical profit scheme designed to trap the poor in a cycle of debt.
That narrative ignores what overdraft protection really is: a specialized form of short-term, high-risk loan. Like any high-risk loan, it comes at a higher price.
Originally published at thehill.com on September 8, 2025.
When a consumer overdraws his or her account, the bank instantly extends unsecured credit with no collateral, no underwriting, and no repayment guarantee. The institution assumes risk on the spot. This is not free. It is risk-based lending at its purest form — an instant loan made in real-time to cover groceries, gas or rent. The price is higher precisely because the risk is higher.
Warren’s hostility toward overdraft fees specifically and banking generally reflects a failure to grasp a fundamental principle of finance: Risk and price are inextricably linked. Pretending otherwise may win headlines, but it is disastrous policy.
Consider the alternatives. If overdrafting were eliminated or capped at $5, as these senators propose, banks would simply stop offering it. Consumers would not magically avoid financial shortfalls. Instead, they would just be denied the ability to complete critical transactions. The family at the grocery store whose debit card gets declined would leave without food. The worker filling up his gas tank might not be able to make it to work the next day. The landlord would still cash the rent check, but it would bounce, resulting in late fees and an increased risk of eviction.
Removal of supply does not eliminate demand. And in many cases, a $35 overdraft fee is cheaper than the consequences.
The modern reality is that mobile banking apps now send low-balance alerts, offer overdraft grace periods or provide small-dollar credit substitutes. These innovations are the product of consumer demand and market adaptation, not federal micromanagement. And they encourage consumers to avoid the high cost of emergency credit.
A straw man, the senators claim overdraft fees lead to account closures, contributing to “debanking.” However, the real debanking threat is not about overdrafts — it is about political conformity. We have already seen high-profile examples, such as the financial blacklisting of John Eastman by Bank of America and USAA. The former Trump attorney’s accounts were not closed due to overdraft usage or fraud, but because of his political affiliations.
Banks are being pushed into playing gatekeeper, deciding not only who is financially viable but who is politically acceptable.
If overdraft protection becomes uneconomic under federal price controls, it will simply disappear. And when banks start closing accounts, who is to say the closures will stop at customers who cannot meet minimum balances? Once financial services become a tool for enforcing political orthodoxy, debanking becomes a weapon. That is the real danger, and it makes the senators’ talking points seem insignificant.
We have seen this story before. Price controls on small-dollar loans in Illinois and New Mexico have eliminated legitimate credit options, forcing borrowers to turn to literal loan sharks. The Durbin Amendment’s cap on debit interchange fees was sold as a consumer protection measure, but it actually eliminated free checking for millions. Every time politicians impose price controls, they claim to be helping the poor. Every time, the poor end up worse off.
If policymakers genuinely want to reduce overdraft costs, they should focus instead on three proven solutions. First, prioritize transparency so consumers clearly understand the cost of overdraft and the alternatives available. Disclosure, not prohibition, is the foundation of informed choice. Second, foster competition by allowing banks, credit unions and fintechs to innovate with lower-cost products, thereby allowing consumers to reward the institutions that best meet their needs. Finally, strengthen financial literacy so households have the tools to budget effectively, build savings, and reduce reliance on emergency credit.
These measures would do far more to protect consumers than another round of political grandstanding.
Overdraft and non-sufficient funds fees are neither “junk” nor “predatory.” They are the price of risk in a system that provides instant, unsecured, uncollateralized loans at the exact moment consumers need them most. Politicians who vilify these products reveal their misunderstanding of how risk-based lending works.
Could it be because they’ve never had to use risk-based financial products themselves? Maybe. Has Warren ever had a balance so low that she’s paid an overdraft fee? Doubtful.