WASHINGTON— The Consumer Financial Protection Bureau (CFPB) has unveiled its long-awaited proposal around junk fees, saying the intention is to block banks and other financial institutions from one potential source of new junk fee revenue – fees on transactions declined right at the swipe, tap, or click. According to the CFPB, the proposed rule would prohibit non-sufficient funds (NSF) fees on transactions that financial institutions decline in real time, and its proposed rule would consider fees for transactions declined in real time to be unlawful under the Consumer Financial Protection Act.
“These types of transactions include declined debit card purchases and ATM withdrawals, as well as some declined peer-to-peer payments,” the Bureau said.
The CFPB’s added the proposal is part of its “proactive approach” to protect consumers, and it would cover banks, credit unions, and certain peer-to-peer payment companies.
‘Concocted Junk Fees’
“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 a statement. “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.”
While credit union leaders are familiar with the terms, in its announcement, the CFPB offered its definition of the two different responses that typically take place when a consumer has insufficient funds to cover an attempted payment.
“One outcome is overdraft – the financial institution extends credit to cover the difference and permits the transaction to go through. Generally, the institution charges a fee for the overdraft loan,” the CFPB said. “The other outcome is that the financial institution simply declines the transaction for insufficient funds. Generally, the institution only charges a fee for insufficient funds transactions that are processed and then declined – i.e., checks or electronic authorizations, like Automated Clearing House transactions.”
‘Proactive Steps’
The Bureau noted financial institutions almost never charge fees for transactions that are declined in real time at the swipe, tap, or click. “The CFPB is taking proactive steps to ensure that financial institutions do not impose these fees, which can occur for a host of reasons that are out of the consumer’s control,” the CFPB said. “Specifically, as technology advances, financial institutions may be able to decline more transactions right at the swipe, tap, or click. These transactions include ATM, debit or prepaid card, online transfer, in-person bank teller, and certain person-to-person transactions.”
Unlawful Under CFPA
The CFPB said its proposed rule would consider fees for transactions declined in real time to be unlawful under the Consumer Financial Protection Act.
The CFPB said its latest proposal is part of its “multi-front work” to protect consumers from unlawful NSF and other junk fees. In early 2022, the CFPB launched an initiative to scrutinize junk fees.
“Following the CFPB’s junk fee work, many banks and other financial institutions have reduced or eliminated excessive NSF fees. The CFPB expects consumers to save $2 billion annually from these changes,” the CFPB said.
Overdraft Proposal
The junk fee proposal follows by a week another proposal from the CFPB that would limit overdrafts, which the Bureau called a “junk fee harvesting machine.’ Details on that proposal are available in CUToday.info here.
CUToday.info also has coverage of one expert cautioning that the overdraft proposal won’t just affect CUs of more than $10 billion in assets, but all credit unions.