CFPB seeks comments on ‘junk fees’ – are new regulations coming? | Adams and Reese LLP
On January 26, 2022, the Consumer Financial Protection Bureau (CFPB) issued a request for public comment regarding “unwanted fees” that consumers may be subject to when engaging in financial services.
So what is a “junk fee” in consumer finance? This is a good question, and one that remains very open to discussion. In its request for public comment, the CFPB describes the concept as something similar to a resort fee at a hotel that is added at check-out, a service charge that was not included in the displayed ticket price of individual’s concert, or that mysterious charge that somehow sneaks into a phone or internet bill. All of these fees have in common that they hide the true cost of a product or service. The CFPB says the concept of “junk fees” can also obscure price transparency in the consumer financial services industry.
In its request for comment, the CFPB specifically listed some of the following examples of what may be considered undesirable charges in consumer credit because these charges are not “significantly avoidable or negotiable at the time” by the consumer. :
- late fee,
- overdraft fees,
- insufficient funds (NSF) charges,
- payment processing convenience fees,
- minimum balance fee,
- the cost of returning the item,
- stop payment charges,
- check image fees, and
- inactivity fees.
Interestingly, in the weeks and months leading up to the publication of this request for information by the CFPB, many major financial institutions changed their policies regarding some of the items on this list – of their own volition. For example, many large financial institutions have announced significant revisions to their overdraft fee policies ranging from a significant increase in the applicable threshold for incursion fees to the complete elimination of fees. Many of these institutions acknowledged the impact that policy changes can have on their revenues, but stressed the importance of consumer-friendly practices.
Following the actions taken by large financial institutions and now this request for public comment from the CFPB, one cannot help but wonder about the potential implications for smaller and community financial institutions that may not have not be the luxury of giving up income in the same fashion as some of their larger counterparts. For example, the CFPB recently announced that overdraft and NSF fees topped $15.4 billion in 2019. For many banks, these fees represent a large portion of revenue, and these banks are already charging as little as possible.
Comments should be sent to the CFPB no later than March 31, 2022.
It is unclear whether the CFPB’s request for public information is a sign that the CFPB will undertake formal regulation regarding unwanted charges. Rather, this call for public comment is more like a policy statement regarding its enforcement priorities. In fact, when asked directly if he expected a rule, CFPB Director Rohit Chopra told The Washington Post on February 10, 2022:
We expect us to refine our prudential oversight of institutions that are dependent on these fees. We will obviously see if the development of rules will increase competition in the market and create more initial prices. I think all options are on the table.
In recent years, there have been some policy changes at the CFPB. Although the CFPB’s supervisory jurisdiction directly covers banks, savings and credit unions with assets over $10 billion and their affiliates, the CFPB’s demand for adverse charges is not narrowly adapted to target only these institutions; demand casts a very wide net. This could be an indicator that the agency is wondering how to start regulating various non-traditional financial services and products in the market now that weren’t as prevalent a decade ago when Dodd-Frank was enacted.
Certainly, financial institutions should expect to receive a higher volume of consumer complaints this year centering on fees associated with their consumer credit products. While the comment period for this request ends at the end of March 2022, the CFPB’s online consumer complaint database is open year-round, and recent press from the CFPB related to these “unwanted charges” has likely raised awareness. consumers at the expense in general.
In its Request for Comments, the CFPB presents a series of questions and asks for experiences from individuals with unexpected charges for products or services. The CFPB also includes some of the following questions that commentators, including financial institutions, can answer:
- What are the barriers, if any, to incorporating fees into the initial prices for which consumers buy? How can this vary depending on the type of fee?
- What data and evidence exists that suggests consumers do or do not understand fee structures disclosed in fine print or boilerplate contracts?
As the old saying goes, these times are changing. Financial institutions must be ready to make transitions in the future. Now is a good time to review your institution’s policies on post-consumer charges, such as late fees, NSF charges, and payment processing fees, and make sure they comply with the laws. existing federal laws such as the Truth in Lending Act, Regulation E, the Real Estate Settlement Procedures Act and other applicable laws.