CFPB Issues Proposal To Eliminate Fees On Instantaneously Declined Transactions

On January 24, 2024, the Consumer Financial Protection Bureau (CFPB) issued a notice of proposed rulemaking that would prohibit financial institutions from charging fees on transactions that are declined instantaneously or near-instantaneously. The rule states that assessing a nonsufficient funds (NSF) fee in connection with such covered transactions would be considered an "abusive" practice under the Consumer Financial Protection Act's prohibition on unfair, deceptive, or abusive acts or practices, meaning that it takes advantage of consumers' lack of understanding of the material risks, costs, or conditions of a consumer financial product or service.

The proposal would apply to all instantaneously declined transactions, regardless of the transaction method. While many institutions have eliminated or reduced NSF fees for all transactions, the proposed rule would not apply to NSF fees charged on paper check or automated clearinghouse (ACH) transactions, as those