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CFPB Introduces Regulation to Prevent Additional Unnecessary Charges on Bank Accounts.

Updated: Feb 1


CFPB is actively working to prevent financial institutions from burdening consumers with fees that are beyond their control. With advancements in technology, banks now have the ability to decline transactions instantly, whether it's through a swipe, tap, or click.



The Consumer Financial Protection Bureau (CFPB) proposed 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 attempts to make a payment but lacks sufficient funds in their account, there are typically two possible outcomes. One scenario is an overdraft, where the financial institution provides credit to cover the shortfall and allows the transaction to proceed. In such cases, the institution usually imposes a fee for the overdraft loan.


The other possibility is that the financial institution simply rejects the transaction due to insufficient funds. In this situation, the institution typically charges a fee only for transactions that are processed and then declined, such as checks or electronic authorizations like Automated Clearing House transactions.


It is worth noting that financial institutions rarely impose fees for transactions that are declined in real time, such as when a debit card is swiped, tapped, or clicked for a $100 grocery purchase but the account balance is only $90. These types of transactions are not processed in the same way as Automated Clearing House transactions and are generally not subject to fees.


The CFPB is actively working to prevent financial institutions from burdening consumers with fees that are beyond their control. With advancements in technology, banks now have the ability to decline transactions instantly, whether it's through a swipe, tap, or click.


This includes various types of transactions such as ATM withdrawals, debit or prepaid card payments, online transfers, in-person bank teller transactions, and certain person-to-person transfers.


In the past, banks have taken advantage of technological advancements to increase fees, as seen with overdraft fees. However, the CFPB is taking a stand against this by proposing a rule to close the overdraft loophole. This loophole has allowed banks to profit from technological changes and charge consumers billions of dollars in overdraft fees annually.



According to the bureau, today's Proposed Rule and the CFPB's Fight Against Unfair Fees:


The Consumer Financial Protection Bureau (CFPB) is making a stand against unfair fees with its proposed rule. According to this rule, any fees charged for transactions that are declined in real time would be considered unlawful under the Consumer Financial Protection Act.


But this proposed rule is just one piece of the puzzle. The CFPB has been working tirelessly on multiple fronts to protect consumers from unfair NSF (non-sufficient funds) and other junk fees. Earlier this year, they launched an initiative specifically targeting these fees. And the results have been promising.


Thanks to the CFPB's efforts, many banks and financial institutions have already started reducing or even eliminating excessive NSF fees. This is great news for consumers, as the CFPB estimates that these changes will save them a whopping $2 billion every year.

But the CFPB hasn't stopped there. They have also taken direct action against those who continue to charge unlawful NSF fees. In fact, just last year, they ordered Bank of America to pay over $100 million for engaging in double-dipping with NSF fees, among other illegal practices. Additionally, their supervisory work led to financial institutions returning $120 million in illegal overdraft and NSF fees to consumers.


The CFPB is determined to put an end to these unfair fees once and for all. They will continue to use all the tools and authorities at their disposal to eliminate unlawful NSF fees and hold those who break the law accountable.



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