CFPB Proposes to Limit Imposition of "NSF" Fees
Commentary by Steven Lofchie
The CFPB proposed a rule to prohibit covered financial institutions from charging fees, such as nonsufficient funds ("NSFs") fees, when consumers initiate payment transactions that are instantaneously declined. The rule proposal was published in the Federal Register.
According to the CFPB, charging such fees would constitute an abusive practice under the Consumer Financial Protection Act's prohibition on unfair, deceptive, or abusive acts or practices. Transactions subject to the rule would be those where a consumer attempts to withdraw, debit, pay, or transfer funds from their account, which is then declined immediately or very quickly because of insufficient funds. The proposal would prohibit financial institutions from engaging in this practice across all instantaneously declined transactions, regardless of transaction method (debit card, ATM, person-to-person).
According to the CFPB, the combined costs of overdraft and NSF fees constitute a higher cost to consumers than the combined costs of periodic maintenance fees and ATM fees. The CFPB also stated that NSF fees tend to be incurred by consumers with lower incomes and credit scores.
Comments must be received by March 25, 2024.
Commentary
A few questions for the CFPB to consider:
- Assuming that an NSF fee of over $30 is too high for an automatically declined transaction, is "no fee" too low?
- If "no fee" is too low, does the fee prohibition discourage banks from taking on lower income consumers?
- Are there any costs inherent to the rejection of the transaction that it would be reasonable for the bank to pass to the consumer?
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