NEWS: Today, The League filed a comment letter on behalf of Wisconsin’s credit unions®, opposing a rule that would prohibit 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 prohibition would cover transactions involving debit cards, ATMs, or certain person-to-person payment apps. The rule would not cover NSF fees charged for check and ACH transactions.
The rule would declare that charging such fees is an abusive practice under the Consumer Financial Protection Act (CFPA).
In its proposal, the CFPB acknowledges that “financial institutions rarely charge NSF fees on covered transactions” and, thus, the “CFPB is proposing this rule primarily as a preventive measure.” The CFPB wants to “preempt imposition of new fees that would harm consumers in the future.” That seems accurate. As one of our credit unions executives pointed out to us, “I am not aware of anyone that actually charges a fee for declined transactions.”
Regardless, the proposal, and the CFPB’s approach to creating it, concerns us. Our letter questions three aspects of this rulemaking process:
First, our letter stressed our worry that the CFPB is using this proposal to expand its interpretation of what an “abusive” practice is. We wrote:
The implications of this expansion are alarmingly broad, since the CFPB could deem as “abusive” any fee that it determines provides little to no consumer benefit. If finalized as proposed, this “gateway” rule could be cited as precedent and applied to all NSF fees in future rulemaking, allowing the CFPB great latitude to label any practice it does not like as “abusive.”
Second, we pointed out that any fees a credit union may choose to charge for NSF transactions would be clearly disclosed and agreed upon by the member:
[T]he CFPB’s analysis ignores the facts (1) most consumers have readily available access to their bank account balances online, by telephone, through mobile apps, or at ATMs; (2) NSF fees are already disclosed to consumers, as required by existing federal regulations; and (3) consumers contractually agree to pay such fees. Under the CFPB’s proposed interpretation, consumers can choose to remain blissfully ignorant about account balances, disclosures, and their personal responsibilities under binding contracts. That interpretation is beyond unreasonable.
Third, we challenged the CFPB’s decision not to initiate a Small Business Regulatory Enforcement Fairness Act (SBREFA) review of its NSF proposal – something we believe federal law requires:
Even if the CFPB is right – that this rule would have limited impact on current financial industry practices ‐ it might certainly have a significant impact on future practices. As the CFPB has said, its goal in proposing this rule is to “preempt imposition of new fees.” Since this rule would proactively stop small financial institutions from even considering NSF fees for covered transactions, shouldn’t the CFPB have gathered input from a SBREFA panel to better understand the extent of the rule’s likely impact going forward?
The League will alert credit unions when the CFPB takes further action on its NSF fee proposal.
Help us comment on a related overdraft proposal
In the coming week, we’ll draft a comment letter on another pending CFPB rule that would limit overdraft fees – fees charged to cover a transaction that would otherwise overdraw an account – at the largest U.S. banks and credit unions. The proposal, which would not take effect until at least late 2025, would apply only to banks and credit unions with $10 billion or more in assets.
However, The League anticipates that smaller credit unions would feel market pressure to conform to the new rule’s standards and cap their overdraft protection fees.
The rule would give covered institutions two options for setting fees when they pay a transaction that would otherwise overdraw a consumer’s account:
- They could charge a break-even fee — based on their costs — or a benchmark fee determined by the CFPB. The agency has proposed to set a benchmark fee of either $3, $6, $7 or $14, which would not require financial institutions to calculate their own costs and losses for providing overdraft services. The CFPB calculated how much it would cost to cover costs and losses based on data collected from various financial institutions, resulting in those four proposed benchmarks. The CFPB is seeking comment on which of the benchmarks is appropriate.
- Alternatively, they could treat overdraft protection as a line of credit, subject to the same consumer protections as credit cards under Truth in Lending Act, including disclosures of annual percentage rates.
For more information, please see this League Compliance Courier.
The League will comment in opposition to the CFPB’s proposal, but we need your help. Please take some time to review the proposal and share your feedback with us. What would you like the CFPB to know about the impact this rule might have on your operations and on your members? The more specific you can be, the more influence our comments will have. Please share your thoughts with Paul Guttormsson ASAP, so that our comment letter (which is due April 1) can reflect your views.