On Jan. 24, 2024, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule prohibiting financial institutions from charging non-sufficient funds (NSF) fees when consumer-initiated transactions are immediately declined. The 68-page proposed rule would treat NSF fees on immediately declined transactions as abusive and a violation of the Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices (UDAAP). The proposal would prohibit financial institutions from assessing NSF fees across all instantaneously declined transactions, regardless of transaction method.

The proposal uses the term “covered transaction.” A covered transaction means an attempt by a consumer to withdraw, debit, pay or transfer funds from their account that is declined instantaneously or near-instantaneously by a covered financial institution due to insufficient funds. A declination occurs instantaneously or near-instantaneously when the transaction is processed in real-time and there is no significant perceptible delay to the consumer when attempting the transaction. Transactions declined or rejected due to insufficient funds hours or days after the consumer’s attempt would not be covered by the proposal. Based on this proposed definition, checks and ACH transactions would not be covered.

The proposal provides that “nonsufficient funds fee or NSF fee” means a charge that is assessed by a covered financial institution for declining an attempt by a consumer to withdraw, debit, pay or transfer funds from their account due to insufficient funds. The proposed definition also would clarify that the name used by the financial institution for a fee is not determinative of whether it is considered a “nonsufficient funds fee.”

Note, that unlike the recently released CFPB proposal on overdraft programs, this proposal applies to all financial institutions, and not just large ones.

Our dedicated regulatory compliance pros are actively keeping an eye on the proposal outcome to keep clients informed on how this impacts their organization.