CFPB Proposes Rule to Prohibit Fees on Declined NSF Transactions

The CFPB proposed a new rule prohibiting financial institutions from imposing fees on nonsufficient funds ("NSF") transactions that are instantly, or nearly instantly, declined.

In newly proposed Rule 1042.2("Definitions"), the CFPB stated that charging NSF fees by financial institutions in these cases is deemed an abusive practice under the Consumer Financial Protection Act, which bars unfair, deceptive or abusive acts or practices. The CFPB highlighted that NSF fees disproportionately impact financially vulnerable populations, including those with lower incomes and credit scores. The CFPB found that a small percentage of accounts pay a large percentage of these fees and that the median NSF fee among large institutions was between $32 - $34. The CFPB noted that credit unions with over $10 billion in assets were the most aggressive in imposing NSF fees.

Comments on the proposal rule are due by March 25, 2024.