Banks Warn All Fees at Risk in CFPB Rule on Scant Customer Funds

Banking groups said the Consumer Financial Protection Bureau is moving toward a harmful standard of declaring all bank fees to be “abusive” if customers don’t understand them.

The groups slammed a CFPB proposal, released early this year, to bar lenders from charging consumers who don’t have enough money in their accounts, known as non-sufficient fund fees.

The CFPB says such fees—imposed on transactions that are declined instantaneously or near-instantaneously due to a customer’s lack of funds—can be abusive, in part because consumers may not understand they can be charged for failed transactions.

The CFPB estimates its NSF proposal could save US consumers $2 billion a year, as part of the Biden administration’s campaign against so-called junk fees. The agency rule capping credit card late fees finalized earlier this month and a January proposal to limit overdraft fees are also part of that effort, which has seen sustained pushback and litigation from banks, credit card companies, and others.

All financial regulators have the power to go after unfair and deceptive acts and practices. The 2010 Dodd-Frank Act, enacted after the subprime mortgage meltdown, gave the CFPB the unique authority to bring claims that companies acted in an abusive manner toward consumers, in addition to traditional unfairness and deceptiveness claims.

Now, banks say the agency is going too far with its broad definition of abusive acts and practices in the NSF fee rulemaking.

“It is unclear how any disclosed fee is protected from future Bureau action,” the Independent Community Bankers of America said in a comment letter to the CFPB on March 25, the comments deadline. “All disclosures—even the model disclosures created by the Bureau—may be misunderstood by some consumers.”

Preventive Measure

The CFPB characterizes its NSF rule as a necessary prophylactic measure to prevent banks from attempting to recover revenue lost through the agency’s other “junk fee” rules.

Most banks—two-thirds of those with at least $10 billion in assets, and all banks with at least $75 billion in assets—had already eliminated NSF fees by the end of March 2023, the CFPB has noted.

Despite that, recent increases in banking transaction speed make it more likely for consumers to lose track of how much money they have in their accounts, raising the risk of incurring NSF fees, the CFPB said. The proposal also applies to credit unions and peer-to-peer payment companies.

Banking trade groups said the CFPB wrote a rule to address hypothetical situations that don’t exist.

“Instead of addressing a real problem, the proposal appears to be a means for the Bureau to advance an aggressive, overreaching interpretation of its authority to prohibit abusive acts or practices,” the American Bankers Association said in a comment letter.

‘Absolutist Approach’

Leading consumer advocacy groups said the CFPB is right to push for tighter restrictions on NSF fees because current disclosures don’t provide adequate notice for all consumers.

In most instances, consumers learn they could be hit with NSF fees only when they open an account, sometimes years before they actually incur the fee, according to a joint comment letter from the Consumer Federation of America, the Center for Responsible Lending, the National Consumer Law Center, Public Citizen, and other groups.

Banks and other companies charging NSF fees are taking advantage of customers “primarily because there is no benefit to the consumer whatsoever in initiating the transaction—the purchase is declined and they incur a penalty,” the consumer advocates’ letter said.

But banks said the CFPB is wrong to treat fees as abusive based solely on the potential for customers to misunderstand a disclosure. The CFPB could instead determine such practices are unfair or deceptive under its Dodd-Frank powers, lenders said, which could mean smaller penalties for banks.

The CFPB’s proposed definition of an abusive practice in the NSF rule is part of a broader campaign to expand the definition of such activities, banking groups said.

They also cited an April 2023 policy statement laying out how consumer misunderstanding plays a role when the agency finds certain practices to be abusive.

The CFPB’s efforts could rope in all fees that the agency determines lack proper disclosures, the Consumer Bankers Association warned in a comment letter. That means banks could be charged with violating the Truth in Savings Act and other federal laws that mandate account feature disclosures.

“The Bureau’s absolutist approach to consumer awareness suggests that disclosed fees and practices could be viewed as abusive,” the CBA said.