CFPB Proposes Ban of Non-Sufficient Funds Fees

The Consumer Finance Protection Bureau (CFPB) has continued its effort to crack down on junk fees with a proposed rule to prohibit non-sufficient funds fees on transactions.

The new regulation would ban banks and other financial institutions from charging fees when consumers initiate payment transactions that are instantaneously declined.

This type of transaction includes instances when consumer’s debit card purchases, ATM withdrawals or peer-to-peer payments are declined in real time because it exceeds the available funds in their account.

The CFPB’s proposed rule would consider fees for transactions declined in real time to be unlawful under the Consumer Financial Protection Act.

Institutions typically only charge a fee for insufficient funds transactions that are processed and then declined, including bounced checks and electronic authorizations such as Automated Clearing House transactions.

Even though the CFPB acknowledges financial institutions almost never charge fees for transactions that are declined in real time, it aims to proactively ensure that banks do not impose these fees.

This is particularly important as technological advancements may enable financial institutions to decline more transactions at the point of a swipe, tap or click, according to the CFPB.

Rohit Chopra, director of CFPB, said: “Banks should be competing to provide better products at lower costs, not innovating to impose extra fees for no value. The CFPB will continue to rid the market of junk fees today and prevent new junk fees from emerging in the future.”

The proposed regulations forms part of the CFPB’s increased action to eliminate junk fees, such as the recent proposal of a rule to curb overdraft fees.