CFPB Proposes to Prohibit Fees on Instantaneously Declined Transactions

On January 24, 2024, the Consumer Financial Protection Bureau (CFPB) proposed a rule to forbid banks from charging non-sufficient fund fees on transactions that are declined with “no significant perceptible delay” to the consumer, as part of CFPB’s mission to reduce “junk fees” imposed on consumers. 

The CFPB proposes to classify fees charged on these near-instantaneously declined transactions as an “abusive practice” under the Consumer Financial Protection Act. The prohibition would apply to banks, saving associations, credit unions, and other “covered financial institutions.” However, the rule is likely to have limited impact: The rule does not apply to overdraft fees, charged when the consumer does not have sufficient funds but the transaction is not declined; nor to transactions that are not declined immediately; and only a few financial institutions charge fees that fall within the scope of the proposed rule. 

Practice Pointer: Financial institutions implicated under this proposed rule should update their policies to avoid charging the fees immediately after an instantaneously or near instantaneously declined  transaction. The comment period for this rule ends March 25, 2024. 

For more information, please contact Christopher R. Rahl or Natalie C. Gibson.