In ‘proactive step,’ bureau proposes rule to ban rare fees at swipe, tap or click for non-sufficient funds

Prohibiting non-sufficient funds fees on transactions declined at the same time a user swipes, taps or clicks debit or ATM cards is the aim of a “proactive” new rule proposed Wednesday by the federal consumer financial protection agency.

The rule, according to the Consumer Financial Protection Bureau (CFPB), targets what the agency calls “new junk fees on bank accounts.” The CFPB said in a release that its proposal would prohibit non-sufficient funds (NSF) fees on transactions that financial institutions decline in real time, including declined debit card purchases and ATM withdrawals, and some declined peer-to-peer payments.

The proposal, the agency said, covers banks, credit unions, and certain peer-to-peer payment companies.

“When a consumer tries to make a payment, but does not have enough money in their account, generally one of two things happens,” CFPB said in its release. “One outcome is overdraft – the financial institution extends credit to cover the difference and permits the transaction to go through. Generally, the institution charges a fee for the overdraft loan. The other outcome is that the financial institution simply declines the transaction for insufficient funds. Generally, the institution only charges a fee for insufficient funds transactions that are processed and then declined – i.e., checks or electronic authorizations, like Automated Clearing House transactions.”

The agency conceded that financial institutions “almost never charge fees for transactions that are declined in real time at the swipe, tap, or click.” It said that, for example, a $100 grocery purchase with a debit card may be declined in real time because the account only holds $90. These transactions are not processed like Automated Clearing House (ACH) transactions and are generally not assessed fees, CFPB said.

The bureau termed its action a “proactive step” to prevent financial institutions from imposing the fees.

“Specifically, as technology advances, financial institutions may be able to decline more transactions right at the swipe, tap, or click,” CFPB said. “These transactions include ATM, debit or prepaid card, online transfer, in-person bank teller, and certain person-to-person transactions.”

CFPB Proposes Rule to Stop New Junk Fees on Bank Accounts