Cindy Sarpomaa-Nyarko
Associate Editor
Loyola University Chicago School of Law, JD 2026
On January 24, 2024, the Consumer Financial Protection Bureau (CFPB proposed a rule that would block non-sufficient funds (NSF) fees on debit card, ATM, and peer-to-peer payment transactions that are declined instantaneously or nearly instantaneously. The proposal of this rule arose from a variety of initiatives under the CFPB of the Biden administration to crack down on “junk fees” charged by banks and other financial institutions. However, on January 14, 2025 the CFPB issued notice to withdraw their proposed rule regarding NSF fees.
Non-sufficient funds fees and the CFPB response
NSF fees refer to charges imposed by financial institutions when a customer attempts to make a payment or withdrawal but does not have sufficient funds in their account to cover the transaction, which causes the transaction to decline. Usually, NSF fees are charged on check or Automated Clearing House (ACH) transactions. Financial institutions, like banks and credit unions, have implemented the fees on such transactions based on the theory that the fee would deter consumers from intentionally attempting to make payments that they know will be declined. This prevents them from obtaining a product or service from a merchant before the actual payment is declined by the financial institution. However, the practices of different financial institutions, like non-bank prepaid card providers, have changed over time, resulting in a significant number of these financial institutions charging NSF fees on instantaneous or nearly instantaneous transactions that have already declined. Previously financial institutions would not charge NSF fees on declined instantaneous or nearly instantaneous transactions, like those involving ATM withdrawals and debit card payments, because there wouldn’t be a similar risk that the consumer would be able to take advantage of the system. As such, financial institutions using NSF fees on instantaneous transactions lack meaningful justifications for the fees.
In response to this practice involving NSF fees and instantaneous transactions, the CFPB, under the Biden administration, issued a proposed rule targeting the practice. In the CFPB’s rationale for the proposed rule, they concluded that such fees are categorized as abusive conduct prohibited under the Consumer Financial Protection Act (CFPA). The CFPB supported this conclusion by emphasizing that financial institutions use these NSF fees to take unreasonable advantage of consumers’ consumers’ lack of understanding of the material “risks, costs, or conditions of their accounts at the time they are initiating covered transactions.” Furthermore, the CFPB determined that consumers typically do not anticipate being charged NSF fees when a transaction is immediately declined and that this lack of understanding constitutes an abusive practice. Overall, this proposed rule was a part of the Biden administration’s broader campaign against so-called “junk fees,” defined as fees designed to either confuse or deceive consumers, exploit their limited options, or hide the true cost of a product or service, often by being mandatory, surprise, exploitative, or fraudulent. Despite this initial broader commitment to attack junk fees, like NSF fees on instantaneous transactions, the CFPB has decided to withdraw their proposal which garnered both support and opposition.
Proposed rule withdrawal and its future
The CFPB decided to withdraw their proposed rule largely because of concerns that it was not effectively addressing the broader scope of NSF fees. The agency acknowledged that despite the initial support for the rule, the proposal was limited in scope and they would consider whether NSF fees on other types of transactions, such as recurring Automated Clearing House (ACH) payments, could also be abusive. Supporters of the proposed rule, like consumer advocates and think tanks, hailed the proposal to prohibit these NSF fees on instantaneous transactions, arguing that such fees are based on consumers’ unawareness of their account balance. They viewed the proposed rule as being the long-awaited fix to protect consumers. Conversely, trade associations, banks, and credit unions argued that the statutory authority which the CFPB cited as the basis for the rule was being misinterpreted. Ultimately, the CFPB decided to rescind the proposal, leaving open the possibility of a broader rule that might extend to other kinds of fees.
The future reissuance of the proposal or the incorporation of the comments may be halted based on the policy position of the new Trump administration toward the CFPB’s regulatory approach. Under this administration, it is anticipated that the CFPB’s aggressive rulemaking agenda, particularly regarding junk fees, will be scaled back. While the agency will still enforce consumer protection laws, a shift towards less stringent regulations, as seen during previous Republican-led administrations, may delay or even reverse such consumer-centric proposals. This transition into the new administration calls for ongoing vigilance from consumers, urging the CFPB to remain attentive to predatory fee practices.