As regulators move to clamp down on stealthy junk fees, banks are desperately trying to preserve one of their most predatory charges—non-sufficient funds (NSF) fees.

In January, the Consumer Financial Protection Bureau (CFPB) introduced a new proposal to ban NSF fees on any transaction that’s declined on the spot. The ban would cover denied transactions involving debit cards, ATMs, and certain peer-to-peer payment apps.

While the ban might sound reasonable, banking lobby groups are already crying foul, claiming that the proposed rule “is a marked departure from the agency’s previous disclosures” about rulemaking, according to Lindsey Johnson, the president of the Consumer Bankers Association (CBA), which represents various companies including JPMorgan, Wells Fargo, and Capital One.

“We don’t believe it is something that needs to be regulated or legislated” beyond existing laws, she told The Washington Post.

The CBA lobby appears to have a few lawmakers on its side, with Republican congressmen Patrick McHenry and Andy Barr stating: “The proposed rule issued [...] by the CFPB would undermine the Bureau’s consumer protection mission.”

“The Biden administration’s attempts to mandate one-size-fits-all consumer financial products and services diminish financial inclusion, limit consumer choice, stifle innovation, and ultimately raise the cost of banking for all consumers,” they said.

A more cynical take offered by Jacobin magazine suggests banks want to maintain NSF fees to recoup profits lost from mandatory reductions in other junk fees, such as credit card late fees and overdraft charges.

As Creditnews recently reported, the CFPB is finalizing a new rule that would lower credit card late fees by 75%, putting $220 back into the pockets of ordinary Americans each year. That’s on top of President Biden’s proposed 90% reduction in overdraft fees.

Despite lobbyists’ best efforts, mounting regulatory and public pressure is forcing banks to backtrack on their most exploitive fees, including NSF charges. In fact, the notable progress so far means any regulatory changes might just be icing on the cake.

Banks see the writing on the wall

According to the CFPB’s research, nearly two-thirds of banks with more than $10 billion in assets have eliminated NSF charges already. Among the banks that generated the most overdraft or NSF fee revenue in 2021, nearly three-quarters have eliminated NSF charges.

The larger the bank, the more likely it is that they’ve removed NSF fees. According to the CFPB, all banks with more than $75 billion in assets have stopped collecting these fees.

On the other hand, most major credit unions, which typically charge lower fees than the larger banks, still collect NSF fees.

After crunching the numbers, the federal bureau said Americans are poised to save nearly $2 billion annually now that the aforementioned banks eliminated NSF fee collection.

Some may see this as “self-regulation,” but the more likely explanation is that banks see the writing on the wall. In addition to the new proposal, the CFPB has penalized the likes of TD Bank, Regions Bank, and TCF Bank for charging sneaky overdraft and processing fees.

While the reduction or elimination of junk fees will surely sting, it’ll likely amount to peanuts in the grand scheme of things. According to Fed data, the U.S. commercial banking sector generated nearly $557 billion in revenue in 2022, up 45% over the previous decade.

But the added savings could surely help cash-strapped Americans who are struggling to manage their household budgets.

The squeezing of the American budget

High interest rates, rising costs, and overwhelming debt burdens are squeezing household budgets like never before.

As Creditnews reported, Americans are now paying just as much interest on non-mortgage debt as they are on mortgage interest payments—a shocking development considering that housing is the largest expense for most households.

Clamping down on junk fees is just one way American budgets could have a little more wiggle room each month. According to the Council of Economic Advisers, an agency under the president, the top ten most exploitive junk fees cost Americans a whopping $90 billion a year, or more than $650 per household.

“That’s high enough to deserve a line item in family budgets, equal to about a fifth of the average household’s entertainment spending,” reads a White House brief dated March 5.

That $650 is almost enough to cover the average auto loan payment, according to LendingTree. It’s more than enough to satisfy Americans’ average monthly credit card payment.

These exorbitant charges, which are often hidden, mean “American families are paying fees they do not expect, even when they have access to cheaper forms of credit,” according to CFPB director Rohit Chopra.