A new rule proposed by the Consumer Financial Protection Bureau (CFPB) would block banks and other financial institutions from instituting junk fees on transactions declined at the swipe, tap or click.
The new rule would prohibit Non-Sufficient funds (NSF) fees on transactions that are declined in real time, the CFPB said, including transactions involving declined debit card purchases and ATM withdrawals, as well as some declined peer-to-peer payments. The agency said the proposed rule is part of its proactive approach to protecting consumers.
“Over the years, large banks and their consultants have concocted new junk fees for fake services that cost almost nothing to deliver,” CFPB Director Rohit Chopra said. “Banks should be competing to provide better products at lower costs, not innovating to impose extra fees for no value. The CFPB will continue to rid the market of junk fees today and prevent new junk fees from emerging in the future.”
When a consumer attempts to pay for something but doesn’t have enough money in their account, either the bank extends credit to cover the difference and lets a transaction go through resulting in an overdraft, or the financial institution simply declines the transaction. Generally, in an overdraft, the institution charges a fee for the overdraft loan. CFPB said institutions may also charge a fee for insufficient funds transactions that are processed and then declined, like a check or electronic authorization.
But financial institutions almost never charge fees for transactions that are declined in real time – like when a purchase is declined when a debit card is used to purchase groceries, but there is not enough money in the account to cover it. CFPB said they were proposing the rule to proactively prevent financial institutions from taking that step and imposing those fees which can occur for a number of reasons that are out of the consumer’s control. The bureau said banks have previously increased fees when technology provided an opportunity to do so, and their move was to close that junk fee avenue before it happened.