cfpb 36794 by Ted Eytan is licensed under CC BY-SA 2.0

On March 24, 2024, Americans for Tax Reform submitted a comment letter responding to the Consumer Financial Protection Bureau’s (CFPB) proposed rule entitled “Fees for Instantaneously Declined Transactions.” ATR requested the CFPB withdraw the rule upon finding it to be a thinly veiled arbitrary exercise of power exceeding the agency’s statutory authority. The letter can be read here.

If finalized, the rule will eliminate banks, credit unions, and other financial institutions’ ability to charge certain non-sufficient funds (NSF) fees. The CFPB’s basis for proposing the rule hinged on its perception of consumer sentiment toward financial institutions. Not a modicum of evidence was provided to back the assertion that removing NSF fees would improve consumer banking service coverage. Instead, the CFPB relied on peripherally relevant statistics to argue its case. The CFPB did not consider how intervening in price mechanisms would affect financial institutions providing critical banking services. If banks cannot source revenue to fund operations from NSF fees, the shortfall would be rectified through other fee channels, backfiring on the very consumers the CFPB purports to serve.

The letter discusses how the CFPB failed to analyze how eliminating certain NSF fees would affect the market:

A 2021 FDIC study found that 81% of Americans are “fully banked.” Consumer perceptions are not sufficient evidence to warrant an economically significant rule restricting what fees banks can charge. The CFPB fails to show tangible statistical evidence to support this claim, let alone explain how prohibiting NSF fees would directly ameliorate consumer banking inaccessibility. Moreover, the proposal fails to analyze how eliminating NSF fees would affect the distribution and size of additional fees charged by financial institutions to consumers. The elimination of NSF fees could lead to an increase in minimum balance requirements or checking account fees. Instead of mitigating the fee burden on consumers, the CFPB would only be shifting to other operations and services.

The letter also critiqued the CFPB’s portrayal of NSF fees as a practice exploiting consumers’ lack of knowledge and understanding of the fee regimes set by banks and credit unions. A review of Regulation E invalidates this claim. The opt-in requirements delineated in Regulation E require consent from customers to qualify for services that would incur irregular charges if used:

Provisions in the rule claim the CFPB possesses the statutory authority to implement the rule citing CFPA section 1031(d)(2) stating “that an act or practice is abusive when it takes unreasonable advantage of a consumer’s lack of understanding of the material risks, costs, or conditions of the product or service.”13 This assertion unjustly characterizes standard banking practices as exploitative, without adequately considering the transparency measures and consumer education efforts undertaken by financial institutions to inform customers about fee structures and account management. It also neglects the responsibility of consumers to manage their finances and account balances, placing undue regulatory burdens on businesses instead. Additionally, the CFPB points out that ATM and debit card transactions “are subject to the requirements of Regulation E’s opt-in requirements.”14 If consumers opt-in to these services that fall under the NSF fee prohibition, then they are acknowledging their understanding of the fees and conditions that come with those services. This appears to conflict with the assertion that NSF fees take advantage of consumer’s “lack of understanding.”

The CFPB also dismisses court precedent applicable to the rule. West Virginia v. EPA limits the jurisdiction of agency rulemaking from wading into matters of significant economic and political consequence without specific authorization from Congress:

The U.S. Supreme Court’s ruling in West Virginia v. Environmental Protection Agency reinforces the necessity for regulatory agencies to operate strictly within the bounds of their congressionally granted authority, especially when addressing issues of significant economic and political importance. 13 This precedent underscores the principle that agencies cannot empower themselves with broad regulatory powers over significant sectors of the economy without explicit congressional directives. The proposed NSF fee rule alters a longstanding commercial banking practice without a clear statutory mandate. It introduces a regulatory intervention of considerable economic impact based on a debatable interpretation of the CFPB’s authority to address “abusive” practices, without the explicit, targeted legislative directive that the Supreme Court has made clear is required for such significant regulatory actions.

The CFPB attempts to justify its crusade against financial institutions under the guise of protecting consumer interests. In reality, the drive is a strategy to expand the agency’s power and deepen its reach within the financial services industry. Micromanaging which fees a bank and credit union can and cannot charge will distort market mechanisms and backfire on consumers because financial institutions will find ways to source revenue to offset operational expenses and loss of revenue. NSF fees serve as a deterrent against financially irresponsible behavior. If the CFPB genuinely aims to enhance consumer well-being, it must stop suggesting solutions for problems that do not demonstrably exist in the first place.