WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) proposed today 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. The proposed rule would prohibit non-sufficient funds (NSF) fees on transactions that financial institutions decline in real time. These types of transactions include declined debit card purchases and ATM withdrawals, as well as some declined peer-to-peer payments. The CFPB’s proposal is part of the agency’s proactive approach to protect consumers, and it would cover banks, credit unions, and certain peer-to-peer payment companies.
“Over the years, large banks and their consultants have concocted new junk fees for fake services that cost almost nothing to deliver,” said CFPB Director Rohit Chopra. “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.”
When a consumer tries to make a payment, but does not have enough money in their account, generally one of two things happens. 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 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.
Financial institutions almost never charge fees for transactions that are declined in real time at the swipe, tap, or click. For example, a $100 grocery purchase with a debit card may be declined in real time because the account only has $90. These types of transactions are not processed like Automated Clearing House transactions, and are generally not assessed fees.
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. 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.
Banks have previously increased fees when technology provided an opportunity. Overdraft fees are a prime example, and last week, the CFPB proposed a rule to close the overdraft loophole that had allowed banks to capitalize on technological changes and charge consumers billions of dollars in overdraft fees every year.
Today’s Proposed Rule and the CFPB’s Junk Fee Efforts
The CFPB’s proposed rule would consider fees for transactions declined in real time to be unlawful under the Consumer Financial Protection Act.
The proposed rule is also just one part of the CFPB’s multi-front work on protecting 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 has also taken more direct action against unlawful NSF fees. In July 2023, the CFPB ordered Bank of America to pay more than $100 million for, among other unlawful behavior, double-dipping on NSF fees. Also in 2023, the CFPB’s supervisory work resulted in financial institutions returning $120 million in illegal overdraft and NSF fees to consumers. The CFPB will continue using its range of tools and authorities to eliminate unlawful NSF fees and take action against lawbreakers.
Read the proposed rule.
Comments must be received on or before March 25, 2024.
Read more about the CFPB’s work on junk fees.
Read consumer complaints about NSF fees.
Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).
Employees who believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to whistleblower@cfpb.gov.
The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit www.consumerfinance.gov.
FAQs
The proposed rule would prohibit non-sufficient funds (NSF) fees on transactions that financial institutions decline in real time. These types of transactions include declined debit card purchases and ATM withdrawals, as well as some declined peer-to-peer payments.
What is the CFPB proposed rule on junk fees? ›
The CFPB's latest proposal would consider NSF fees on transactions that are declined instantly—such as those involving debit cards, ATMs, and some person-to-person platforms—unlawful under UDAAP because the practice takes “unreasonable advantage of a consumer's lack of understanding of the material risks, costs, or ...
What is the new proposal of the CFPB? ›
On January 24, 2024, the Consumer Financial Protection Bureau (“CFPB”) launched the latest salvo in its war against so-called “junk fees” by issuing a proposed rule that would prohibit financial institutions from charging consumers insufficient funds fees on transactions that are instantaneously, or nearly ...
What is the new CFPB rule? ›
CFPB Bans Excessive Credit Card Late Fees, Lowers Typical Fee from $32 to $8. WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) finalized a rule today to cut excessive credit card late fees by closing a loophole exploited by large card issuers.
What does the CFPB consider junk fees? ›
The term “junk fee” is not defined under federal law, but the CFPB has focused on factors such as whether the fee would be unexpected to or take advantage of a reasonable consumer, the amount of the fee compared to the cost of providing the associated service, and a lack of clarity about the fee.
What is the junk fee rule? ›
The Proposed Rule contains two general requirements that would apply broadly across all businesses. It would keep businesses from misrepresenting the nature of any fees. Businesses generally would be prohibited from misrepresenting the total costs of goods or services by omitting any mandatory fees.
What are examples of junk fees? ›
Common Junk Fees
- Service charges for event tickets.
- Resort fees at hotels.
- Late payment fees for credit cards.
- Airline family seating fees.
- Termination fees for phone or internet service.
- Document preparation fees for financial transactions.
- Out-of-network ATM fees.
- Checking account overdraft fees.
In January 2024, the CFPB proposed two new rules: one restricting overdraft fees and the other prohibiting NSF fees on certain declined transactions. The proposals are among the CFPB's latest moves in furtherance of the Biden Administration's “junk fees” agenda.
Why is CFPB funding unconstitutional? ›
It held that the CFPB's funding structure violated the Appropriations Clause because the CFPB has unilateral discretion to determine its own funding level and the funds it receives are insulated from Congress's control.
What is the CFPB fee proposal? ›
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 7-in-7 rule explained
Collectors are permitted to place a call to the consumer about a particular debt seven (7) times within a period of seven (7) consecutive days, so long as no contact is made with the consumer in any of the attempts.
What is the CFPB 3 day rule? ›
Pre-consummation or account opening waiting period.
A creditor must furnish § 1026.32 disclosures at least three business days prior to consummation for a closed-end, high-cost mortgage and at least three business days prior to account opening for an open-end, high-cost mortgage.
What is the 1033 rule of the CFPB? ›
Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act states that, “[s]ubject to rules prescribed by the Bureau, a covered person shall make available to a consumer, upon request, information in the control or possession of the covered person concerning the consumer financial product or service ...
What is a hidden junk fee? ›
Junk fees are fees that are mandatory but not transparently disclosed to consumers. [1] Consumers are lured in with the promise of a low price, but when they get to the register, they discover that price was never really available.
What is a tip to avoid paying unnecessary banking fees? ›
Ask your financial institution about overdraft protection or a line of credit on your account to give yourself an extra layer of protection. Overdraft protection allows you to overdraw your account without incurring insufficient fund fees.
How much does the average person pay on bank fees? ›
Monthly Service Fees
A monthly service fee is a fee you pay each month to maintain your account, and many checking accounts charge them. These fees typically run between $5 and $15 per month. Premium checking accounts with more banking perks may cost $25 per month or more.
What is the Junk fee Prevention Act? ›
This bill establishes requirements related to the fees charged by specified covered businesses, including those providing short-term lodging, ticketing services, internet service, mobile service, or video programming. It also requires air carriers to seat each young child next to an accompany adult during flights.
What is the CFPB proposed rule for late fees? ›
On March 5, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) issued a Final Rule that would significantly restrict late fees that consumer credit card issuers may charge from $30 or $41, in most cases, to a mere $8.
What is the proposed rule for NSF fees? ›
Under the Proposed Rule, covered institutions would be required to eliminate NSF fees for instantaneous transactions, or transactions where the charge, withdraw, or transfer of funds is declined immediately because of insufficient funds.
What is the CFPB finding regarding pricing exceptions? ›
The CFPB again raised concerns with pricing exception practices in their Supervisory Highlights published in the Fall 2021 Supervisory Highlights and Summer 2023 Supervisory Highlights, finding that mortgage lenders violated ECOA and Regulation B by discriminating in the incidence of granting pricing exceptions across ...
