CFPB targets fees on real-time transaction declines

In essence, the proposed rule would categorise fees for transactions declined in real time as unlawful under the Consumer Financial Protection Act. Regarding this new development, CFPB representatives emphasised concerns about financial institutions introducing fees for declined transactions, characterising them as unwarranted charges for services that entail minimal costs. The CFPB aims to prevent the emergence of such fees and eliminate existing ones in the market. 

Typically, when consumers lack sufficient funds for a payment, financial institutions either facilitate overdrafts by extending credit, accompanied by an overdraft fee, or decline the transaction due to insufficient funds, accompanied by an

 insufficient funds fee. However, fees for transactions declined in real-time, such as those occurring at the point of swipe, tap, or click, are uncommon according to consumerfinance.gov. 

The CFPB is proactively addressing the potential escalation of such fees as technological advancements enable financial institutions to decline transactions in real-time across various channels, including ATMs, debit or prepaid cards, online transfers, in-person bank teller transactions, and certain person-to-person payments.

Previous efforts from the CFPB

This proposal aligns with the CFPB's broader efforts to curb excessive fees, particularly in the sector of NSF charges. In early 2022, the CFPB initiated an examination of such fees, resulting in several financial institutions reducing or eliminating excessive NSF charges, leading to an estimated annual consumer savings of USD 2 billion. 

Furthermore, the CFPB has previously taken direct action against unlawful NSF fees, exemplified by a 2023 order against Bank of America to pay over USD 100 million for, among other infractions, double-charging NSF fees. In the same year, supervisory efforts led financial institutions to reimburse consumers USD 120 million in illegal overdraft and NSF fees. 

In October 2023, the CFPB proposed a Personal Financial Data Rights rule set to expedite the shift to Open Banking in the US and jumpstart competition. The proposed Personal Financial Data Rights rule aimed to challenge the industry to compete for customers by forbidding financial institutions from hoarding a person’s data and requiring companies to share data with other companies. 

The goal was to protect customers from excessive surveillance, and help people walk away from bad service, while concomitantly banning companies that receive data from misusing or wrongfully monetising sensitive personal financial data. 

The CFPB has expressed its commitment to leveraging the tools and authorities at its disposal to dispose of unlawful NSF fees, ensuring consumer protection and taking punitive action against entities engaging in unlawful practices.