CFPB Proposes Rule Limiting Banks’ Ability to Charge NSF Fees on Instantaneously-Declined Transactions

The Consumer Financial Protection Bureau (CFPB) recently proposed a new rule to prevent banks and financial institutions from charging non-sufficient funds (NSF) fees on transactions that are declined in real time, like declined debit card purchases, ATM withdrawals, and some peer-to-peer payments.

“Over the years, large banks and their consultants have concocted new junk fees for fake services that cost almost nothing to deliver,” said CFPB Director Rohit Chopra in a press release. “Banks should be competing to provide better products at lower costs, not innovating to impose extra fees for no value.”

The Bureau’s proposal is part of the Biden administration’s campaign to eliminate junk fees, which regulators estimate could save consumers nearly $2 billion each year. The CFPB noted that the average NSF fee charged by banks with over $10 billion in assets is $32, according to Bloomberg Law, although many large banks have completely eliminated NSF fees.

The proposal recognized that as technology develops, banks could have the capability to decline more transactions in real time, so the CFPB aims to prevent the imposition of those fees. The rule would not apply to NSF fees that are charged on paper check or Automated Clearinghouse (ACH) transactions, since they are not instantaneous.

The CFPB’s proposal comes a week after the agency issued a proposal to limit the overdraft fees that banks can charge consumers, which would apply to banks with over $10 billion in assets. Some banks raised concerns that the Bureau’s focus on instant or near-instant transaction denials is a departure from its previous statements concerning NSF fees.

“We will work with our members to understand what, if any, business practices would actually be impacted by the Bureau’s rulemaking,” said Lindsey Johnson, President and CEO of the Consumer Bankers Association.