Congress Gave Banks Permission to Charge 85,000% APR

Overdraft a checking account by $5. Keep it overdrawn for three days. Pay the $35 fee your bank charges.

That's an annualized interest rate of 85,167%.

The Consumer Financial Protection Bureau knew this. They capped overdraft fees at $8 — the amount their analysis found it actually costs a bank to process an overdraft. Congress killed the cap last year. Banks' overdraft revenue is climbing again.

Here's what that looks like across common overdraft scenarios at the standard $35 fee:

For comparison: payday loans — which are regulated and capped in most states — typically run 300–400% APR. Overdraft fees are higher than payday loans at every amount under $500 and every duration under a week. They just aren't called loans, so they aren't regulated as loans.

Who Actually Overdrafts

The bank's position is that customers choose to overdraft — they could opt out of overdraft coverage and simply have their card declined. That's technically true and practically dishonest.

The customers who overdraft aren't careless. They're managing cash flow gaps. A paycheck arrives Wednesday. Rent cleared Tuesday. The $35 fee is the cost of a one-day timing difference on money that exists.

For small businesses the dynamic is worse. A vendor invoice clears before a client payment arrives. Payroll goes out Friday morning; a large receivable hits Friday afternoon. Eight employee checks clear against an account that's $800 short for two days. That's $280 in overdraft fees — one fee per item, not per incident.

$280 in fees on $800 for two days: 6,387% APR.

The business owner did nothing wrong. They have the money. It arrived four hours late.

The Policy Choice That Made This Possible

The CFPB's $8 cap was based on the actual cost of service. Processing an overdraft is automated. It costs banks roughly $3. The $35 fee is not a cost-recovery mechanism — it's a margin extraction on customers who have no alternative in that moment.

The banks argued the cap would force them to eliminate overdraft coverage entirely, leaving customers with declined transactions instead. This is the same argument the payday lending industry makes when facing rate caps. The evidence from states that have capped fees suggests the opposite: banks adapt, products adjust, and customers don't lose access to credit.

Congress killed the cap anyway. Overdraft revenue at major banks runs to billions annually. The lobbying math is straightforward.

Why This Is a Small Business Problem

Large businesses don't overdraft. They have revolving lines of credit, treasury management systems, and CFOs whose job is to ensure cash never runs short at the transaction level. When a large business has a cash flow timing gap, they draw on a credit line at 7% and repay it in 30 days.

Small businesses use checking accounts. When the timing gap hits, they absorb a fee that — annualized — exceeds the rate charged by every regulated lending product in the country.

This is the mechanism by which regulatory capture disadvantages small businesses systematically. It isn't that the rule was written to hurt small businesses — it's that the rule was written to benefit banks, and small businesses are the ones who pay it.

Capitalism depends on small businesses. They are where competition actually lives — where new entrants challenge incumbents, where local ownership keeps money circulating in communities, where the economic mobility that justifies the system gets produced. When policy consistently extracts from small operators to benefit large institutions, the result isn't a free market. It's an oligopoly that carries none of the accountability that either genuine capitalism or genuine public ownership would impose.

The $35 overdraft fee is a small thing. But small things applied consistently across millions of small business accounts, every time payroll timing is imperfect, add up to a structural transfer from the operators who create economic dynamism to the institutions that have captured the rules.

The CFPB knew the number: $8. That's what it costs. The rest is policy.

What to Do About It

The overdraft fee is a symptom of a financing gap. Small businesses that rely on checking accounts for cash flow management are using the wrong tool — but often because the right tools are either unavailable or too slow to access.

A revolving line of credit, properly structured, costs 7–12% annually and can cover timing gaps without fee exposure. Invoice financing can unlock receivables within 24 hours. Merchant cash advances are expensive but often faster than waiting for a bank line of credit to be approved.

FundScout exists because the financing options that eliminate overdraft exposure aren't well understood and aren't easy to access. The information asymmetry between what banks charge and what alternatives cost is the same gap we cover across commercial lending.

The cap that Congress killed would have saved small businesses billions. Until it comes back — if it comes back — the answer is getting off the product that's extracting from you.

Related: The Friction Is the Product — overdraft fees are one layer. The ISO channel, the MCA jungle, and the data harvest are the same architecture at different scales.

Sources: Why Some Banks Still Charge High Overdraft Fees — NYT; CFPB Overdraft Rule — Consumer Financial Protection Bureau