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CFPB Proposes Banning NSF Fees on Declined Real-Time Payments

The Consumer Financial Protection Bureau proposed a new rule to prevent banks and other financial institutions from charging non-sufficient funds fees on transactions declined in real time.

Under the proposed rule, financial institutions would be prohibited from charging NSF fees on transactions such as declined debit card purchases, ATM withdrawals and some peer-to-peer payments, the CFPB said in a Wednesday (Jan. 24) press release.

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

The CFPB’s proposed rule covers banks, credit unions and certain peer-to-peer payment companies, according to the release.

Currently, when a consumer attempts a payment but lacks sufficient funds, the financial institution either allows the transaction to go through with an overdraft loan and charges a fee, or declines the transaction due to insufficient funds and charges a fee for checks or electronic authorizations, the release said.

Fees are rarely charged for transactions declined in real time at the swipe, tap or click, per the release.

The proposed rule recognizes that as technology advances, financial institutions may have the capability to decline more transactions in real time, according to the release. Therefore, it aims to prevent the imposition of these fees, which can occur for reasons beyond the consumer’s control.

“The CFPB will continue to rid the market of junk fees today and prevent new junk fees from emerging in the future,” Chopra said in the release.

The deadline for comments on the proposed rule is March 25, per the release.

The announcement of this proposed rule comes a week after the CFPB issued a proposal to limit the overdraft fees banks can charge customers. That proposal would apply to banks with more than $10 billion in assets — a group that covers the 175 largest financial institutions in the United States — and would cap fees at $3.

The proposed rule on overdraft fees has drawn opposition from banking organizations. Lindsey Johnson, the president of the Consumer Bankers Association, told The Washington Post, “We don’t believe it is something that needs to be regulated or legislated.

Johnson also noted CFPB’s proposed ban on NSF fees deviates from the agency’s past disclosures.

“The CFPB’s proposed rule is a marked departure from the agency’s previous disclosures about the rulemaking, in that the proposal would only impact transactions that are declined ‘instantaneously or near-instantaneously.’ It would explicitly not cover check and ACH transactions,” Johnson said, according to a statement email to PYMNTS. “Accordingly, we will work with our members to understand what, if any, business practices would actually be impacted by the Bureau’s rulemaking.”