Legislative & Regulatory Update

CFPB proposed ban on NSF fees for instantly declined transactions; NCUA announces operating fee hike; extension for feedback on interchange fee proposal; and more. 

by John Alexander, Director of Legislative & Regulatory Affairs

CFPB Proposes Ban on NSF Fees for Instantly Declined Transactions
The Consumer Financial Protection Bureau (CFPB) has proposed a new rule to prohibit the charging of nonsufficient funds (NSF) fees on transactions that are instantaneously declined. Released yesterday, January 24, 2024, this proposal aims to address practices considered unfair and abusive under the Consumer Financial Protection Act.

The rule targets NSF fees charged on any transaction instantly declined due to insufficient funds. This includes various transaction methods like debit cards, ATMs, and person-to-person transfers. Such fees are relatively rare in current financial practices, however, the CFPB views this rule as a proactive step in regulating NSF fees, especially as instant payment technologies become more widespread. Unlike the overdraft proposal by the CFPB, this rule does not have an asset-based exemption and applies to all credit unions. Stakeholders have until March 25, 2024, to submit comments on the proposed rule.

For credit unions, the impact of this proposed rule is expected to be minimal due to the rarity of NSF fees on instantly declined transactions. However, credit unions currently charging such fees will need to review and possibly revise their fee structures and internal policies to align with the new regulations. The rule offers guidance to credit unions on practices considered abusive under the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) standards. A complete summary of the proposed rule can be found here.

NCUA Announces Operating Fee Hike for 2024
In a significant financial development for federal credit unions, the National Credit Union Administration (NCUA) Board has finalized its decision to raise operating fees by an average of 16.36% in 2024. This increase, approved in the December 2023 meeting, comes as a response to the agency's growing operating and capital budget requirements.

The NCUA's operating budget, which experienced a combined growth of approximately 7% between 2023 and 2024, is the primary driver behind this fee increase. Interestingly, the agency had previously applied credits to the operating fee charges for 2022 and 2023. These credits were made possible due to unspent fees collected in 2021 and 2022, largely a result of decreased travel expenses during the COVID-19 pandemic. However, with a rebound in travel-related expenditures in 2023, the NCUA found itself without adequate surplus to extend such credits into 2024.

In a move that may provide some relief, the NCUA has also adjusted the operating fee exemption threshold. Previously set at $1 million, the threshold now stands at $2 million. This means federal credit unions with a four-quarter average of $2 million or less in total assets will not be subject to the operating fee.

This fee increase is a notable event for credit unions, as it will impact their financial planning and budgeting for the upcoming year. It underscores the NCUA's effort to balance its budgetary needs with the operational realities of credit unions, especially in a post-pandemic economic environment where many financial institutions are still stabilizing. Credit unions are advised to review the detailed letter by the NCUA to fully understand the implications of these changes and adjust their financial strategies accordingly.

Supreme Court Reviews Chevron Doctrine Potentially Reshaping Federal Regulatory Power
In a pivotal moment for the balance of power in Washington, D.C., the Supreme Court on Wednesday heard arguments in two cases that could significantly alter the landscape of federal regulatory authority. The cases, Relentless v. Department of Commerce and Loper Bright Enterprises v. Raimondo, hinge on the potential repeal of a 1984 decision known as the Chevron doctrine, which currently grants broad interpretive authority to federal agencies.

The controversy centers on the work of commercial fishermen in New Jersey and Rhode Island. These fishermen contend that the federal government, under the Magnuson-Stevens Act, incorrectly required them to bear the cost of onboard monitors who oversee fishing activities. The lower courts, invoking Chevron v. Natural Resources Defense Council, sided with federal agencies, citing their broad discretion to interpret ambiguous laws.

The stakes of the Chevron debate are high, with implications extending far beyond the immediate cases. If the Supreme Court issues broad rulings in favor of the fishermen and overturns Chevron, it could dramatically reshape regulatory enforcement across various industries. This decision could make it more challenging for federal agencies to justify rules related to environmental protection, health care, religious freedom, and more, unless these rules are clearly delineated in the legislation passed by Congress. Such a shift would represent a significant realignment of regulatory power, potentially requiring more detailed legislative guidance for agency action.

Supporters of the Chevron doctrine, including members of the Biden administration, argue that federal agencies need the flexibility to interpret laws' broad language to effectively address emerging challenges. On the other hand, critics, including the fishermen and some conservative justices, argue that Chevron has allowed agencies too much leeway, leading to overreach and insufficient checks on their power.

The debate extends beyond the specifics of fishery regulation, touching on broader concerns about the administrative state's role and the separation of powers between Congress, the judiciary, and executive agencies.
A ruling in favor of the fishermen could demand more explicit guidance from Congress on regulatory matters, potentially leading to a shift in power dynamics. Senator Mike Lee (R-Utah) and others see this as an opportunity to reassert legislative control and curb what they view as unchecked regulatory power.

During Wednesday's oral arguments, conservative justices seemed open to reconsidering Chevron, while liberal justices expressed concerns about the judiciary becoming an inadvertent policymaker in the absence of clear administrative guidelines. The Supreme Court's decision, expected before the end of June, could have far-reaching implications for how federal agencies operate and for the future of regulatory governance in the United States.

Federal Reserve Grants Extension for Feedback on Interchange Fee Proposal
The Federal Reserve has announced an extension of the comment period for its proposed changes to Regulation II, which governs interchange fees. Stakeholders now have until May 12 to submit their input, marking a significant 90-day extension beyond the original February 12 deadline.

The Federal Reserve's proposal aims to update the interchange fee cap under Regulation II. This cap is a critical component in the financial operations of debit card issuers, impacting the fees charged for debit card transactions. The proposal is based on the latest data reported to the Federal Reserve Board by large debit card issuers, reflecting recent changes and trends in the market.

Jim Nussle, President/CEO of America’s Credit Unions, welcomed the extended deadline, stating, “We welcome the additional time to analyze data provided by the Fed and gather current and historical data to support our very serious issues with this proposal.” He expressed strong opposition to any regulatory or legislative moves that would impose more government control over the current interchange system. According to Nussle, the data will substantiate their concerns about the proposed changes.

In addition to extending the deadline, the Federal Reserve has also released additional data related to the interchange fee cap. This data includes information on costs and transaction volumes, which are essential for understanding the impact of any proposed changes. The data was collected from issuers as part of the Debit Card Issuer Survey, a key tool in assessing the state of the market.

As always, don’t hesitate to contact me with any legislative or regulatory concerns.