CFPB and NCUA focus on "junk fees."

Overdraft and other fees are a hot topic in 2024. In January, the CFPB proposed a rule, Overdraft Lending: Very Large Financial Institutions, which would rein in excessive overdraft fees charged by very large financial institutions by amending Regulations E and Z. These amendments would close an outdated loophole that exempts overdraft lending services from longstanding provisions of the Truth in Lending Act and other consumer financial protection laws. Under this proposal, extensions of overdraft credit would be required to adhere to “consumer protections required of similarly situated products” or the fee imposed must be a small amount that only recovers applicable costs and losses. The CFPB has proposed fees ranging from $3 to $14. This proposed rule applies only to financial institutions with assets over $10 billion. However, the CFPB has stated the goal of this rule will allow consumers to better comparison shop across credit products. This result is likely to impact financial institutions of all sizes as market forces increase competition and drive fee costs down.

This proposed rule was closely followed by another, the Nonsufficient Funds (NSF) Fees for Instantaneously Declined Transactions. The proposed rule would prohibit NSF fees on transactions that are declined instantaneously or near-instantaneously—that is, those declined with no significant perceptible delay after the consumer initiates the transaction. This prohibition would cover transactions involving the use of debit cards, ATMs, or certain person-to-person apps. The proposed rule would declare that charging such fees would constitute an abusive practice under the Consumer Financial Protection Act. While the proposed rule does not define “instantaneous or near-instantaneous” it does provide some details on what does not fall under the rule, including transactions declined or rejected due to insufficient funds hours or days later.

One key point here is that the NSF Fees rule applies to “covered financial institutions” as defined by Regulation E. This means that would cover all financial institutions as well as other non-depositories that issue access devices.

In addition to the CFPB’s proposed rules, the NCUA will also have an increased focus on these fees. We know from the NCUA’s 2024 Supervisory Priorities that Consumer Financial Protection is third on the list. During a recent speech at the Brookings Institute, NCUA Chairman Todd Harper reiterated that overdraft and NSF fees are a key component of the NCUA’s review, and credit unions should expect to see expanded reviews in this area. During a Q & A session following his speech, Chairman Harper stated that the NCUA may soon be requiring credit unions with $1 billion or more in assets to report data on both overdraft and NSF fees separately to the NCUA. The logical follow-up to this data collection is regulatory action.

Both CFPB proposed rules are in a comment period. Comments on the Overdraft rule are due April 1, and the implementation date for the final rule is expected to be October 1, 2025. Comments on the NSF rule are due March 25, with a final rule expected to come out sometime after the comment period closes.

If you have any questions or would like assistance in drafting a comment, please reach out to our office.

Jenn Winston