Fees for Instantaneously Declined Transactions

CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Part 1042</CFR> <DEPDOC>[Docket No. CFPB-2024-0003]</DEPDOC> <RIN>RIN 3170-AB16</RIN> <SUBJECT>Fees for Instantaneously Declined Transactions</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Consumer Financial Protection Bureau. <HD SOURCE="HED">ACTION:</HD> Proposed rule; request for public comment. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Consumer Financial Protection Bureau (CFPB) is proposing to prohibit covered financial institutions from charging fees, such as nonsufficient funds fees, when consumers initiate payment transactions that are instantaneously declined. Charging such fees would constitute an abusive practice under the Consumer Financial Protection Act's prohibition on unfair, deceptive, or abusive acts or practices. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before March 25, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by Docket No. CFPB-2024-0003 or RIN 3170-AB16, by any of the following methods: • <E T="03">Federal eRulemaking Portal: https://www.regulations.gov.</E> Follow the instructions for submitting comments. A brief summary of this document will be available at <E T="03">https://www.regulations.gov/docket/CFPB-2024-0003.</E> • <E T="03">Email: 2024-NPRM-NSF@cfpb.gov.</E> Include Docket No. CFPB-2024-0003 or RIN 3170-AB16 in the subject line of the message. • <E T="03">Mail/Hand Delivery/Courier:</E> Comment Intake—2024 NPRM Fees for Instantaneously Declined Transactions, c/o Legal Division Docket Manager, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. <E T="03">Instructions:</E> The CFPB encourages the early submission of comments. All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to <E T="03">https://www.regulations.gov.</E> All submissions, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Proprietary information or sensitive personal information, such as account numbers or Social Security numbers, or names of other individuals, should not be included. Submissions will not be edited to remove any identifying or contact information. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Pavitra Bacon, Joseph Devlin, Lawrence Lee, or Michael G. Silver, Senior Counsels, Office of Regulations, at 202-435-7700 or <E T="03">https://reginquiries.consumerfinance.gov/.</E> If you require this document in an alternative electronic format, please contact <E T="03">CFPB_Accessibility@cfpb.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED"> SUPPLEMENTARY INFORMATION: </HD> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. Rulemaking Goals</HD> When a consumer's attempted withdrawal, debit, payment, or transfer transaction amount exceeds the available funds in their account, currently, a financial institution might decline the transaction and charge the consumer a fee, often called a nonsufficient funds (NSF) fee. NSF fees might be charged on transactions that the financial institution declines within seconds after the payment request is initiated, as well as on transactions that are rejected hours or days after the initial request to pay is made. As discussed below, many financial institutions in recent years have stopped charging NSF fees. To the extent they continue to be charged currently, however, NSF fees are almost always charged only on check or Automated Clearing House (ACH) transaction declinations, which do not occur instantaneously. In contrast, NSF fees are rarely charged on Automated Teller Machine (ATM) or point-of-sale (POS) debit transaction declinations, which do occur instantaneously. The CFPB is aware of limited instances where such fees might be charged on the latter set of transactions (for example, in connection with prepaid accounts and transactions declined at ATMs that are outside the depository institution's ATM network). <SU>1</SU> <FTREF/> To a similarly limited extent, the CFPB has also observed such fees being charged in connection with other types of transactions (such as online transfer and in-person bank teller transactions). <SU>2</SU> <FTREF/> <FTNT> <SU>1</SU>   <E T="03">See</E> Trevor Bakker et al., Consumer Fin. Prot. Bureau, <E T="03">Data Point: Checking account overdraft,</E> at 20 tbl. 8 (July 2014), <E T="03">https://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf</E> (CFPB 2014 Data Point). </FTNT> <FTNT> <SU>2</SU>   <E T="03">Id.</E> </FTNT> The CFPB is proposing to prohibit covered financial institutions from charging NSF fees on transactions that are declined instantaneously or near-instantaneously. <SU>3</SU> <FTREF/> As technological advancements may eventually make instantaneous payments ubiquitous, the CFPB believes that is important to proactively set regulations to protect consumers from abusive practices. <FTNT> <SU>3</SU>  As explained below, covered transactions would include transactions that are declined “instantaneously” or “near-instantaneously.” The discussion below describes the difference in terminology. For ease of reference, the proposal sometimes refers jointly to these two terms as “instantaneously.” </FTNT> <HD SOURCE="HD2">B. High-Level Summary of the Proposed Rule</HD> To prevent abusive practices related to NSF fees on instantaneously declined transactions, as detailed below in part IV (Discussion of Proposed Rule), the CFPB proposes to prohibit covered financial institutions from charging such fees. The CFPB preliminarily concludes that charging NSF fees in these circumstances would constitute an abusive practice under the Consumer Financial Protection Act's prohibition on unfair, deceptive, or abusive acts or practices. The proposal would prohibit financial institutions from engaging in this practice across all instantaneously declined transactions, regardless of transaction method ( <E T="03">e.g.,</E> debit card, ATM, person-to-person). <HD SOURCE="HD2">C. NSF Fees in the Market</HD> Today, 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. <SU>4</SU> <FTREF/> Although overdraft and NSF fees are distinct, many publications discuss them together, <SU>5</SU> <FTREF/> and, in recent decades, a financial institution's NSF fee has typically been the same amount as any per-transaction overdraft fee it may charge. <SU>6</SU> <FTREF/> The amount of an NSF fee is typically not pegged to the transaction's processing cost  <SU>7</SU> <FTREF/> or the transaction's amount;  <SU>8</SU> <FTREF/> institutions generally charge a fixed amount per declined transaction. <SU>9</SU> <FTREF/> The CFPB's research found that in 2012, the median NSF fee among 33 large institutions sampled was $34. <SU>10</SU> <FTREF/> While many institutions have opted to stop charging NSF fees within the last two years, <SU>11</SU> <FTREF/> the CFPB recently found through its market monitoring that, among institutions above $10 billion in assets still charging such fees, the median fee is $32. <FTNT> <SU>4</SU>   <E T="03">See, e.g.,</E> Consumer Fin. Prot. Bureau, <E T="03">Data Point: Overdraft/NSF Fee Reliance Since 2015—Evidence from Bank Call Reports,</E> at 2-3 (Dec. 2021), <E T="03">https://files.consumerfinance.gov/f/documents/cfpb_overdraft-call_report_2021-12.pdf</E> (CFPB December 2021 Data Point); <E T="03">see generally</E> Fed. Fin. Insts. Examination Council, <E T="03">Central Data Repository's Public Data Distribution, https://cdr.ffiec.gov/public/ManageFacsimiles.aspx</E> (last visited Jan. 17, 2024). </FTNT> <FTNT> <SU>5</SU>  Generally, an overdraft fee is charged when a transaction (debit, payment, transfer, or withdrawal) that exceeds the consumer's account balance is paid (covered) by the accounting-holding financial institution. An NSF fee is charged when a transaction (debit, payment, transfer, or withdrawal) that would exceed the account balance if it were paid is instead returned <E T="03">unpaid</E> by the account-holding financial institution. Despite this distinction, the CFPB believes that surveys, reports, and studies often group these two types of fees together. This is in part because banks with over $1 billion in assets report overdraft and NSF fees together within the “consumer overdraft-related service charges” category ( <E T="03">see</E> Fed. Fin. Insts. Examination Council, FFIEC 031 and 041, <E T="03">Instructions for Preparation of Consolidated Reports of Condition and Income,</E> at RI 36, <E T="03">https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_202303_i.pdf</E> (last updated Mar. 2023)). In addition, either of these fees can be charged when a consumer's available balance is insufficient to cover a transaction, and there is substantial overlap in the population of consumers who incur overdraft and NSF fees. <E T="03">See</E> Consumer Fin. Prot. Bureau, <E T="03">A Closer Look: Overdraft and the Impact of Opting-In</E> (Jan. 19, 2017), <E T="03">https://files.consumerfinance.gov/f/documents/201701_cfpb_Overdraft-and-Impact-of-Opting-In.pdf</E> (CFPB Closer Look); Consumer Fin. Prot. Bureau, <E T="03">Overdraft and NSF Practices at Very Large Financial Institutions</E> (Jan. 2024), <E T="03">https://files.consumerfinance.gov/f/documents/cfpb_overdraft-nsf-practices-very-large-financial-institutions_2024-01.pdf</E> (Overdraft and NSF Report). </FTNT> <FTNT> <SU>6</SU>   <E T="03">See,</E> Consumer Fin. Prot. Bureau, <E ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 180k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━