CFPB wants to ban NSF fees for “instantaneously declined transactions”

COMMENT CALL:   The CFPB has announced a new proposed rule that would bar all banks, credit unions and peer-to-peer payment companies from charging fees when certain transactions are immediately declined due to insufficient funds.
 
This comes on the heels of another proposal the CFPB issued last week. As explained in This Compliance Courier, that earlier proposal would cap overdraft protection fees for the largest U.S. banks and credit unions.
 
The new CFPB proposal would bar nonsufficient funds fees or other fees for ATM withdrawals, debit card purchases, peer-to-peer payments or other transactions that are declined “instantaneously or near-instantaneously.” The CFPB says that it believes such fees are barred by the federal Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices (UDAAP).
 
It’s all part of the agency’s ongoing fight against what it labels “junk fees.”

While last week’s overdraft fee proposal would only apply to the biggest institutions, the new NSF proposal has no asset-size threshold. Instead, it would borrow the term “covered financial institutions” as defined by Reg. E and therefore would apply to banks and credit unions of any size and depositories as well as non-depositories.
 
The proposal acknowledges that NSF fees are rarely charged on transactions that take place instantaneously, although the CFPB said that it recently found through its market monitoring that some large banks with more than $10 billion in assets are still charging NSF fees with a median fee of $32. The ban is meant to prevent the practice from becoming widespread. “As technological advancements may eventually make instantaneous payments ubiquitous, the CFPB believes that is important to proactively set regulations to protect consumers from abusive practices,” the CFPB said.
 
The agency described its reasoning this way: 

When a consumer tries to make a payment, but does not have enough money in their account, generally one of two things happens. One outcome is overdraft – the financial institution extends credit to cover the difference and permits the transaction to go through. Generally, the institution charges a fee for the overdraft loan. The other outcome is that the financial institution simply declines the transaction for insufficient funds. Generally, the institution only charges a fee for insufficient funds transactions that are processed and then declined – i.e., checks or electronic authorizations, like Automated Clearing House transactions.
 
Financial institutions almost never charge fees for transactions that are declined in real time at the swipe, tap, or click. For example, a $100 grocery purchase with a debit card may be declined in real time because the account only has $90. These types of transactions are not processed like Automated Clearing House transactions, and are generally not assessed fees.
 
The CFPB is taking proactive steps to ensure that financial institutions do not impose these fees, which can occur for a host of reasons that are out of the consumer’s control. Specifically, as technology advances, financial institutions may be able to decline more transactions right at the swipe, tap, or click. These transactions include ATM, debit or prepaid card, online transfer, in-person bank teller, and certain person-to-person transactions. 

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