House Committee on Small Business: CFPB Proposed Rule, May 9, 2024

Summary

A letter dated May 9, 2024 from the House Committee on Small Business to CFPB Director Rohit Chopra about the bureau's proposed rule on nonsufficient funds (NSF) fees for instantaneously declined transactions, 89 Fed. Reg, 6031. Signed by Chairman Roger Williams and Members Pete Stauber, Beth Van Duyne, Jake Ellzey and Aaron Bean, it states the Committee's concern that the CFPB did not convene a Small Business Advocacy Review panel and relied on an estimate that only 2 percent of small financial institutions' revenue comes from these fees. It questions the rule's treatment of such fees as abusive under UDAAP even when disclosed. The letter requests six categories of information by May 23, 2024, including the number of small institutions affected and estimated compliance hours.

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                                                   May 9, 2024

The Honorable Rohit Chopra
Director
U.S. Consumer Financial Protection Bureau
1700 G Street NW
Washington, DC 20552

Dear Director Chopra:

        The House Committee on Small Business writes to discuss the Consumer Financial
Protection Bureau’s (CFPB) proposed rule prohibiting the charging on nonsufficient funds (NSF)
fees on instantaneously declined transaction. 1 This rule threatens to further complicate Unfair,
Deceptive, or Abusive Act or Practice (UDAAP) law and adds to the myriad of burdens being
placed on small financial institutions. The Committee is concerned that the CFPB may not have
sufficiently considered the needs of small financial institutions when drafting this rule.

        CFPB is one of the three agencies currently required to convene a Small Business
Advocacy Review (SBAR) panel prior to proposing rules that would have a significant economic
impact on a substantial number of small entities. However, they certified that this proposed rule
did not have a significant impact on a substantial number of small entities and did not convene
this panel.2 The CFPB limited their analysis of the impacts this rule would have on small
businesses by stating that only 2 percent of revenue to small financial institutions comes from
NFS fees. Unfortunately, that appears to be an inaccurate assessment of the true cost of
complying with this rule. The likelihood that this rule could indeed result in a substantial impact
on the wellbeing of these small financial institutions should have at the very least triggered a
SBAR panel.3 Yet, the CFPB failed to consider additional costs such as reporting requirements
and manhours needed for compliance resulting in an inaccurate estimate.

        Additionally, this rule stipulates that NSF fees on instantaneously declined transactions
are inherently “abusive” under UDAAP law because they “take unreasonable advantage of
consumers' lack understanding of the material risks, costs, or conditions associated with their



1
   Fees for Instantaneously Declined Transactions, 89 Fed. Reg, 6031 (Jan. 31, 2024) (to be Codified at 12 C.F.R. §
1042).
2
  Id.; Letter from Major L. Clark, III, et al., Deputy Chief Counsel, U.S. Small Bus. Admin. Office of Advocacy, to
Rohit Chopra, Director, U.S. Consumer Fin. Protection Bureau (Mar. 25, 2024).
3
   Letter from Major L. Clark, III, et al., Deputy Chief Counsel, U.S. Small Bus. Admin. Office of Advocacy, to
Rohit Chopra, Director, U.S. Consumer Fin. Protection Bureau (Mar. 25, 2024).
The Honorable Rohit Chopra
May 9, 2024
Page 2 of 3

deposit accounts.”4 Despite claiming this practice is abusive due to how uninformed a customer
may be, the rule explicitly states that disclosing this fee, either at account formation or during a
transaction, would still not be sufficient because it would not stop the practice all together.5 This
appears to be a leap in both logic and authority by the CFPB. To this Committees knowledge, the
CFPB was not given the authority to prohibit NSF fees themselves, but rather to prohibit abusive
practices. Here the CFPB claims that NSF fees are abusive due to a potential lack of knowledge
by customers, but also finds that informing the customers is insufficient to mitigate the “abuse.”
This rationale is not logically consistent and appears that the CFPB is granting itself the authority
to prohibit business practices at will.

       Notwithstanding the Committee’s concerns that this rulemaking is an improper exercise
of authority, this action goes further than prohibiting an abusive practice but prohibits a practice
which could be done in a non-abusive manner. Categorizing fees, even when they are disclosed
in advance, as “abusive” suggests that the CFPB’s understanding of what is unfair, deceptive, or
abusive amounts to things which may not be ideal. Managing UDAAP compliance is already a
substantial burden particularly on small businesses, America’s small financial institutions don’t
need UDAAP further complicated and watered down based on the whims of the CFPB.

       It is important for agencies to correctly evaluate small businesses interests—which make
up 99.9 percent of all businesses in the United States—when passing any new rule. America’s
small businesses deserve to have their voices heard and considered. We therefore request the
following information as soon as possible but no later than May 23, 2024:

    1. The number of small financial institutions will be subject to the CFPB’s NSF Fee rule.
       Please include all factors considered in this determination and the weight given to each
       factor.

    2. The estimated number of hours the CFPB’s NSF Fee Rule will require from small
       businesses to comply with. Please include all factors considered in this determination and
       the weight given to each factor.

    3. In the CFPB’s criticism of NSF fees, it notes that the fee charged is not related to any
       cost incurred by a financial institution. Would a financial institution be permitted to
       charge a fee on instantaneously declined transactions when the fee is tied to an actual
       cost, such as the amount it costs banks to process failed transactions?

    4. A copy of the training documents or policies and procedures followed by CFBP staff to
       determine what constitutes an unfair, deceptive, or abusive practices.

    5. In the rule the CFPB seemed to stipulate that disclosures are insufficient to warn
       customers about risks. How did the CFPB determine that the risks here are different than

4
  Fees for Instantaneously Declined Transactions, 89 Fed. Reg, 6031, 6038 (Jan. 31, 2024) (to be Codified at 12
C.F.R. § 1042).
5
  Id.
The Honorable Rohit Chopra
May 9, 2024
Page 3 of 3

         other financial rules which permit disclosures as a form of compliance (Truth in Lending,
         Military Lending Act, etc.)?

      6. The Federal Trade Commission’s (FTC) junk fee rule specifically states that fees must be
         disclosed clearly in advance of any transaction, the CFPB’s NSF fee rule indicates that
         disclosures may not be sufficient to warn a customer of a fee. How do you reconcile the
         CFPB’s view with the FTC’s view on the sufficiency of disclosing fees?

        To schedule the delivery of responsive documents or ask any related follow-up questions,
please contact the Committee on Small Business Majority Staff at (202) 225-5821. The
Committee on Small Business has broad authority to investigate “problems of all types of small
business” under House Rule X. Thank you in advance for your cooperation with this inquiry.

                                         In God We Trust,



_________________________                            _________________________
Roger Williams                                       Pete Stauber
Chairman                                             Member of Congress
Committee on Small Business                          Committee on Small Business




_________________________                            _________________________
Beth Van Duyne                                       Jake Ellzey
Member of Congress                                   Member of Congress
Committee on Small Business                          Committee on Small Business




_________________________
Aaron Bean
Member of Congress
Committee on Small Business


cc:      The Honorable Nydia M. Velazquez, Ranking Member
         Committee on Small Business


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