CFPB Proposes a New Rule on NSF Fees When Consumers Are Denied Fund Withdrawals

On January 24, the Consumer Financial Protection Bureau (CFPB) issued a new proposed rule in its ongoing campaign against so-called “junk fees.”  The proposed rule specifically targets nonsufficient funds (NSF) fees charged by financial institutions when a consumer attempts to overdraw an account and the withdrawal request is declined in real time. 

As proposed, the rule would prohibit a covered financial institution[1] from “assess[ing] a nonsufficient funds fee in connection with any” transaction in which a consumer attempts to “withdraw, debit, pay, or transfer funds from their account that is declined instantaneously or near-instantaneously . . . due to insufficient funds.”  Any NSF fee charged in violation of this prohibition would be treated as an abusive practice under the Consumer Financial Protection Act of 2010 and thus subject to enforcement action.

The CFPB makes clear that the purpose of the proposed rule is not to eliminate NSF fees entirely.  For example, the rule would not apply in instances when a financial institution permits a consumer’s transaction to go through and extends credit to cover the withdrawal. 

The comment period for the rule proposal lasts until March 25, 2024.

[1] A covered “financial institution” includes “a bank, savings association, credit union, or any other person that directly or indirectly holds an account belonging to a consumer, or that issues an access device and agrees with a consumer to provide electronic fund transfer services,” with limited exceptions. See Regulation E, 12 C.F.R. § 1005.2(i).