The CFPB recently proposed two rules on its continuing war on so-called junk fees.
The first rule, proposed on January 17, target's bank overdraft programs. Currently, financial institutions that extend overdraft loans are exempt from certain disclosure and underwriting requirements under TILA. This exemption was intended to allow banks to provide limited overdraft services as a courtesy to customers who inadvertently overdrew on their accounts. The Bureau now claims that fees generated from these overdraft credit products are excessive and harmful to consumers.
- Lower Overdraft Fees. Under the proposed rule, financial institutions with over $10 billion in assets would have to comply with TILA's disclosure requirements for overdraft products unless the products were provided at or below costs. The Bureau is considering defining "at cost" fees at $3, $6, $7, or $14, significantly lower than the $35 fee that many financial institutions currently charge.
- Eliminating Linked Account Fees. The rule also seeks to eliminate fees that financial institutions charge for overdraft protection by way of linked accounts (e.g., funds from a consumer's savings account is used to protect against checking account overdrafts).
While banks could still charge fees in excess of the proposed "at cost" fee, doing so would trigger certain TILA requirements for overdraft protection products (e.g., account opening disclosures, periodic statements, and advertising rules). Comments on the rule are due April 1, 2024.
The second rule, proposed on January 24, blocks banks and other financial institutions from charging non-sufficient fund fees on transactions that financial institutions decline in real time. These types of transactions include declined debit card purchases and ATM withdrawals, as well as some declined peer-to-peer payments. The proposed rule would also declare that charging such fees would constitute an abusive practice under the Consumer Financial Protection Act.
In its press release, the Bureau acknowledges that even though financial institutions almost never charge fees for instantly declined transactions, it is taking a "proactive step" to prohibit the practice.
Putting it into Practice: The Bureau's war on fees continues (see our previous blog posts here, here, here, here, and here). The issue continues to be a top priority in the Chopra administration and shows no sign of abating. In fact, the Bureau has now moved to proactive disallowing fees that are not currently being charged. Financial institutions that charge any type of fees should carefully review them to ensure they are compliant with the most recent regulatory guidance, and should also consider the Bureau's proactive steps to ban fees that have not been widely adopted.
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