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Financial Services Law Insights and Observations

House questions CFPB's rules on NSF fees and impact on small businesses

Federal Issues CFPB NSF Fees Agency Rule-Making & Guidance Fees

Federal Issues

On May 9, the House Committee on Small Business expressed concerns in a letter addressed to CFPB Director, Rohit Chopra, on a proposed rule that would ban charging insufficient fund fees (NSF fees) on declined transactions (covered by InfoBytes here). The Committee argued this proposed rule could unduly complicate existing UDAAP regulations and impose additional burdens on small financial institutions.

The letter stated the CFPB did not convene a Small Business Advocacy Review (SBAR) panel and questioned the CFPB’s claims that the rule would not significantly affect a substantial number of small businesses. The Committee suggested that the CFPB’s analysis, which minimizes the impact of NSF fees on small institutions’ revenue, might be flawed and that the rule could have a significant economic impact in terms of reporting requirements and compliance, warranting a review by an SBAR panel. The Committee also challenges the CFPB’s assertion that NSF fees for certain transactions are inherently “abusive,” arguing that the CFPB is overstepping its authority by attempting to ban “business practices” altogether rather than limiting abusive practices. Finally, the Committee requests information from the CFPB on several fronts, including the number of small financial institutions affected by the rule, the compliance burden, the CFPB’s methodology for identifying UDAAP, and the CFPB's stance on disclosures compared to other financial regulations and the FTC's approach.