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CFPB Crackdown on 'Junk Fees' Smacks of Price Controls

  • Written by Kate Berry

The CFPB proposal to crack down on alleged “junk fees” gets pushback from 51 state bankers' associations, including Puerto Rico. The bankers claimed the CFPB inquiry is regulatory overreach and smacks of price-fixing. CFPB Director Rohit Chopra told lawmakers last week he intends to reopen past rules to examine late fees on credit cards and potentially on other products, clarifying the extent of the request for information in January after he grabbed headlines saying, “exploitative junk fees produce billions in income for financial institutions." The bureau plans to review the 19 statutes it inherited at its inception from the Federal Reserve Board to determine if changes to any laws need to be made regarding fees. The agency said it plans to use the information it collects in its supervisory and enforcement work to identify financial institutions that may be engaged in illegal practices. The American Bankers Association calls the CFPB’s request about fees “deeply flawed” and “erroneous,” objecting to the claim most fees are hidden, markets are not competitive and consumers cannot switch institutions to avoid the fees. Several large banks cut overdraft fees or eliminated them. Many have lowered or eliminated late fees and non-sufficient fund fees. 

The CFPB’s position that “junk fees” are a significant source of complaints from consumers is based on 2.6 million comments the CFPB received on its public request for information that ended April 11. The bankers counter that the majority of comments were one-paragraph form letters signed by individual consumers, many at the request of consumer advocates. Former deputy assistant director at the CFPB, Kitty Ryan weighed in, saying, “As the Bureau well knows, Congressionally-mandated disclosure frameworks require detailed, upfront cost and fee disclosures for virtually all consumer financial products and services.” Ryan, now serves as the ABA’s vice president and senior counsel. “The Bureau’s own testing and reports show that consumers understand these disclosures and appreciate the products and services provided even if they have to pay fees for them,” Ryan wrote.

Consumer advocates say add-on fees can be difficult to spot, requiring consumers to scour fine print to get information. Banks charge roughly $15 billion a year in overdraft and insufficient funds fees. Of the $23.6 billion fees charged by card issuers in 2019, $14 billion came from late fees alone, the CFPB found.

Though the CFPB says some fees are excessively high due to a lack of competition, fintechs the Financial Technology Association says many of their members launched businesses "to target costly fees that drain tens of billions of dollars from American households.” The associations members include San Francisco data network Plaid, $649.3 million-asset Varo Bank in Draper, Utah, and the $4.3 billion-asset LendingClub Bank.

Norbert Michel, a vice president and director at the Cato Institute’s Center for Monetary and Financial Alternatives, claimed in a blog post that the CFPB’s request implies other financial regulators have been “asleep at the wheel for years.” “The Bureau’s request implies that financial firms charge ‘hidden back‐​end fees’ that ‘lure consumers’ into making purchases based on lower prices, and that ‘exploitative junk fees charged by banks and non‐​bank financial institutions have become widespread,’” Michel wrote. “It is infinitely more likely, though, that the Bureau is really after something else: price controls.” To read more click here.