America’s Credit Unions: CFPB NSF Proposal is Unclear, Politically Motivated
Consumer groups say NSF proposed rule would protect consumers
The Consumer Financial Protection Bureau’s proposed rule governing Nonsufficient Fund Fees (NSF) on transactions denied in real time lacks clarity and appears to be politically motivated, America’s Credit Unions charged this week.
“The appearance of a campaign to score political points through regulations that impact financial institutions, particularly smaller community-based ones like credit unions, underscores the need for a more nuanced approach,” James Akin, the trade group’s senior regulatory affairs counsel, argued in a comment letter submitted to the agency. “It is crucial that regulatory actions are grounded in the realities of current practices and designed to address genuine problems.”
In January, the CFPB proposed to ban credit unions and banks from imposing NSF fees on transactions that they deny in real time. The proposal included declined debit card purchases and ATM withdrawals, as well as some declined peer-to-peer purchases.
The Biden Administration has been cracking down on what it calls “junk fees.” Administration officials have lumped into that category everything from surcharges on tickets purchased for concerts and sports events to credit card late fees.
At the time the NSF proposal was issued, agency Director Rohit Chopra conceded that most financial institutions do not charge such fees but added that he wanted to deliver a warning that they should not begin to do so.
Akin blasted the agency for issuing a rule to prohibit a fee that few credit unions charge. “The practice of assessing NSF fees on instantaneously declined transactions is generally not prevalent among credit unions,” he wrote. He accused the CFPB of engaging in “stunning mental gymnastics” to absolve consumers of any responsibility for how they conduct business with financial institutions.
“The Bureau refuses to acknowledge that human beings take risks and can be irrational,” he wrote. “The Bureau also refuses to acknowledge that a consumer could fully understand the material risks, costs, and conditions, and still decide to initiate the transaction knowing that there is a chance they lack sufficient funds and might be assessed a fee.”
The trade group also said that the agency has not defined what constitutes an “abusive act or practice,” the standard on which the proposed rule is based. “The proposed rule on NSF fees brings this issue into sharper focus, revealing a troubling interpretation of abusive conduct that does not account for situations where consumers' lack of understanding might be unreasonable or where they knowingly accept a risk,” Akin wrote.
Ronald McLean, president/CEO of the Cooperative Credit Union Association, also disputed the notion of “junk fees.” “We do not agree that such fees are “junk fees” consumers are unaware of or cannot protect themselves against” he wrote, adding that credit union members are well-informed about the possibility of those fees because financial institutions disclose them.
McLean said that, if finalized, the rule would be an unreasonable interpretation of the agency’s powers. The Cooperative Credit Union Association represents credit unions in Massachusetts, New Hampshire, Delaware, and Rhode Island.
Not every credit union trade group opposed the CFPB’s proposal.
“The proposed rule is a thoughtful and proactive approach that supports financial inclusion and considers the evolving landscape of financial technology, which may eventually make instantaneous payments ubiquitous,” Alexis Iwanisziw, senior vice president of policy and communications at Inclusiv, wrote in a letter to the agency. Inclusiv is the trade group that represents credit unions that are Community Development Financial Institutions.
A coalition of consumer advocacy groups endorsed the proposal and said that NSF fees often hurt people who least can afford to pay them and serve no purpose other than to punish them.
“When a transaction is instantly declined, there is no justifiable basis to support these NSF fees,” the groups, including Americans for Financial Reform, the Center for Responsible Lending, the National Consumer Law Center, and the Consumer Federation of America, wrote in a comment letter. “There is likely no cost when an electronic system immediately declines a transaction and no basis to impose a fee.”