CFPB Continues War on Junk Fees for Instantaneously Declined Transactions

On January 24, 2024, the Consumer Financial Protection Bureau (“CFPB”) proposed a new rule, which would expand its crackdown on junk fees. In February 2023, almost a year ago, we wrote about the CFPB’s initial effort to curb excessive credit card late fees. Nearly one year later, the CFPB’s war on junk fees has turned a new page by proposing this new rule. 

This proposed rule, if it goes into effect, would deem non-sufficient funds fees (“NSF Fees”) illegal. The Bureau draws an important distinction between fees that are charged for instantaneously declined transactions (NSF fees), and fees charged for transactions that are actually covered by the financial institution, i.e., overdraft fees.

According to the proposed rule, “[c]harging such fees [for instantaneously declined transactions] would constitute an abusive practice under the Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices.”

The proposed rule applies to “covered financial institutions,” which means a “financial institution” as defined by Regulation E, 12 CFR 1005.2(i). Thus, a “covered financial institution” would mean a bank, savings association, credit union, or any other person that directly or indirectly holds an account belonging to a consumer, or that issues an access device and agrees with a consumer to provide electronic fund transfer services. (emphasis added).

We will be closely monitoring this proposed rule and will send out further regulatory alerts as information and updates become available.