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Regulators target fees for consumers who are denied a purchase for insufficient funds

A credit card is placed into a machine for processing payments on Sept. 11 in La Puente, Calif.
Frederic J. Brown
AFP via Getty Images
A credit card is placed into a machine for processing payments on Sept. 11 in La Puente, Calif.

The Biden administration wants to stop financial institutions from charging fees to customers who try to make purchases without enough money in their accounts and are immediately denied.

It's the latest salvo in the government's campaign against so-called "junk fees," which President Biden said last year harm "working folks" and drive up costs for consumers.

The Consumer Financial Protection Bureau announced Wednesday that it was proposing a rule to bar banks, credit unions and other institutions from immediately denying a customer's transaction for insufficient funds to cover it and then levying a fee on top of that.

"Banks should be competing to provide better products at lower costs, not innovating to impose extra fees for no value," CFPB Director Rohit Chopra said in a statement.

Some financial institutions allow customers to "overdraft" their accounts, meaning the customer spends more money than they have on hand. The bank lends them the extra cash and charges an overdraft fee.

The CFPB wants to stop financial institutions from charging the customer a fee after denying a transaction for insufficient funds.

Regulators said companies almost never charge such fees, but emphasized that they were proposing the rule proactively to prevent such fees from becoming more mainstream in the future.

Critics in the financial sector who have pushed back against the Biden administration's war on "junk fees" questioned why the CFPB would attempt to bar a fee that's uncommon.

"Today's CFPB press release conjures up a bank fee that the Bureau itself concedes few – if any – banks charge and proposes a rule to prevent banks from charging this mysterious fee in the future," said Rob Nichols, president and CEO of the American Bankers Association.

"As an independent regulator, the Bureau should leave politics to the campaign trail," Nichols added.

Earlier this month, the CFPB announced a plan to lower overdraft fees to as low as $3 or allow banks to charge higher fees if they showed regulators their cost data.

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