Biden Administration Proposes Banning Bank Fees for Declined Transactions
Overview
On February 26, 2024, the Biden administration unveiled a proposal to outlaw a specific type of bank fee known as the “declined transaction fee.” This fee is typically levied when a customer attempts to make a purchase, withdraw funds, or initiate an immediate payment, but the transaction is denied due to insufficient account balance. The proposal marks the second major initiative by the Consumer Financial Protection Bureau (CFPB) aimed at curbing excessive fees commonly encountered by consumers in banking.
Background
The CFPB’s proposal targets a narrower scope of transactions compared to its earlier announcement to reduce overdraft fees. Overdraft fees are charged when a customer’s account balance goes negative after a transaction is approved, while declined transaction fees are charged when a transaction is denied at the point of attempt due to lack of sufficient funds.
The CFPB’s research indicates a significant decline or elimination of non-sufficient-funds fee revenue in recent years among banks with assets exceeding $10 billion. Non-sufficient-funds fees, also known as “bounced check fees,” are incurred when a pre-approved transaction, such as a gym membership or utility bill payment, is declined due to insufficient funds.
Proposal Details
The CFPB’s proposed regulations would prohibit banks and credit unions, including small banks, from charging declined transaction fees. This ban would apply to all banks and credit unions, unlike the overdraft fee regulations, which were solely targeted at larger banks with assets exceeding $10 billion.
The proposal seeks to eliminate a fee that the CFPB estimates to average around $34. This fee is often charged when a customer attempts to withdraw or debit an amount exceeding their available funds.
Rationale and Objectives
CFPB Director Rohit Chopra emphasized the need for banks to focus on providing better products at lower costs rather than introducing additional fees that offer no tangible value to consumers. The bureau’s efforts to combat unnecessary fees and exploitative practices by banks align with President Biden’s goal of eliminating “junk fees” as part of his administration’s economic agenda.
Industry Reaction
The banking industry, represented by the American Bankers Association, expressed concerns about the CFPB’s decision to regulate this specific fee. Rob Nichols, the association’s president and CEO, questioned the necessity of the proposal, arguing that few banks, if any, currently charge such fees. He also criticized the CFPB for engaging in politically motivated actions instead of fulfilling its role as an independent regulator.
Conclusion
The Biden administration’s proposal to ban declined transaction fees represents a continuation of its efforts to address unnecessary fees and exploitative practices within the banking industry. While the industry has expressed skepticism, the proposal reflects the administration’s commitment to protecting consumers and promoting fair and transparent banking practices.