If a firm's customers are overconfident, and the firm sets prices to take advantage of this, does it necessarily follow that the firm will earn higher profits?

No. In a competitive market, it is possible that the real winners will be the more rational consumers. Banks can charge excessive overdraft fees, but they also have cash-back arrangements (e.g. if you make monthly salary deposits). If people were all overconfident and ran up 100 per year in excess overdraft charges, then in a competitive banking market, we'd expect the cash-back payments to be something like 100 per year. But if only half of customers are overconfident, then the cash-back will only be 50 - the overconfident consumers are effectively subsidising the others.

Please explain this cash pay back system etc