NEWS: The CFPB has withdrawn a proposed rule that would have barred credit unions and other financial institutions from charging nonsufficient funds (NSF) fees when a consumer’s payment transaction is declined instantaneously or near-instantaneously. The rule would have applied to transactions involving debit cards, ATMs, or certain person-to-person payment apps, but it would not have covered NSF fees charged for check and ACH transactions. This Compliance Courier has more details about what was in the proposed rule.
This seems like a win for credit unions, but in withdrawing the rule, the CFPB indicated that it just wants to consider whether to propose an even broader rule.
[A] number of comments highlighted that NSF fees for transactions not covered by the rule could also be abusive, such as fees for recurring … ACH … transactions. These fees are much more common under current market conditions than fees on instantaneous payments. Some comments suggested that the proposed abusive conduct analysis be extended to transactions not covered by the proposed rule.
In light of the comments received and upon further consideration, the CFPB has reason to believe that practices involving the charging of NSF fees on other types of transactions may also be abusive for reasons similar to those discussed in the proposal. However, the prevalence, nature, and extent of harms from these non-instantaneous NSF fees were outside of the scope of the proposal and were not the focus of the proposed rule’s evidence or analysis. Accordingly, the CFPB has determined that it would be a prudent use of its rulemaking and market monitoring resources to withdraw this rulemaking and to consider whether consumers similarly lack understanding of other NSF fees to determine whether a broader rulemaking would be appropriate.
In March 2024, The League filed a comment letter on behalf of Wisconsin’s credit unions®, opposing the rule. We questioned three aspects of the rulemaking process:
- The proposal’s unwarranted expansion of the CFPB’s interpretation of “abusive” acts under federal law;
- The CFPB’s mischaracterization of NSF fees as “junk fees” that are imposed on consumers without their knowledge, when in fact, such fees are disclosed up front and agreed upon by consumers; and
- The lack of a Small Business Regulatory Enforcement Fairness Act review.
In withdrawing the rule, the CFPB replied to commenters (like The League) who argued that the Bureau misinterpreted what constitutes an “abusive” act under federal law. The CFPB defended its analysis and wrote that it “continues to operate” with its broad interpretation of the “abusive conduct standard.”