CFPB targets ‘junk fees’ – what does this mean for your financial institution?

The Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) recently issued a series of press releases and blog posts focusing on the issue of so-called “junk fees” that consumers pay to their banks, credit unions and other financial institutions. Several of the nation’s largest banks have recently announced that they will either dramatically reduce the overdraft and insufficient funds (“NSF”) fees they charge for consumers, or eliminate them altogether. However, the vast majority of financial institutions have understandably expressed concern over these developments given their inability to absorb the loss of significant fee income with the same ease as some of the “mega-banks” might be able to. To understand what this means for your financial institution, it is important to first know what the Bureau is doing in this area.

On December 1, 2021, the Bureau issued a press release titled “CFPB Research Shows Banks’ Deep Dependence on Overdraft Fees. Penalties for overdraft and insufficient funds accounted for two-thirds of reported fee income.1 Director Chopra commented in the release, “Rather than competing on quality of service and attractive interest rates, many banks have become addicted to overdraft fees to fuel their profit model. . .. We will take steps to restore meaningful competition in this market . » The press release also noted, “The CFPB will strengthen its supervisory and enforcement control of banks that highly dependent on overdraft fees. . . . Consumers seeking assistance with overdraft and NSF charges can file a complaint with the CFPB. Tips for managing bank accounts and avoiding fees are available on the CFPB website.

Then last month, the Bureau significantly broadened the scope of its focus on financial institution fees with a press release announcing a request for information (“RFI”) on so-called “unwanted fees” titled “Consumer Financial Protection Bureau launches initiative to save Americans billions in unwanted fees. The agency is seeking public comment on fees on bank accounts, credit cards and other financial products. »2 In this press release, Director Chopra noted, “Many financial institutions hide the true price of their services by enticing customers with enticing offers and then charging excessive fees. . . .By promoting competition and ridding the marketplace of illegal practices, we hope to save Americans billions. The RFI is seeking public input on people’s experiences with fees associated with their bank, credit union, prepaid or credit card account, mortgage, loan or payment transfer, including:

  • Fees for things that people thought were covered by the base price of a product or service;
  • unexpected charges for a product or service;
  • Charges that seemed too high for the purported service; and
  • Charges for which it was not clear why they were charged

Then, on February 2, 2022, the CFPB published a blog post titled “The Hidden Cost of Junk Fees”.3 The blog post begins by targeting fees that are not even subject to Bureau oversight, including hotel resort fees, ticket service fees, and cable television fees, but then focuses on fees of financial services. The author notes, “Many Americans have also encountered unwanted fees in the CFPB-regulated consumer credit industry, and the fees are easy to get used to as part of our day-to-day experience with financial products and services. They take many different forms, including fees for late penalties, overdrafts, returns, out-of-network ATM use, money transfers, inactivity, and more. In many cases, the charges are mysterious and can leave an individual unsure of the purpose. With overdraft fees, a cup of coffee can range from $3 to $35. When a person needs help, they may even be charged a fee to speak to a real person. And some companies charge you to pay your bill over the phone or other methods.

This series of press releases, blogs and the RFI leave no doubt that the Bureau intends to move aggressively to develop a regulatory framework designed to limit, if not eliminate, many of the fees that financial institutions have spent years integrating it into their business models. However, despite the apparent eagerness of a handful of major financial institutions to eliminate legitimate fees, an overwhelming majority of the financial services industry appears to oppose the move. Although the Office’s actions in this area have so far been limited to press releases and blog posts, it would seem short-sighted not to consider what the loss of fee revenue from several of the identified fees in the DDR could mean for your institution.

The extent to which financial institutions will be forced to make changes to their business models will largely depend on the response to the RFI and feedback provided by the industry to elected officials. One thing remains certain, fee income of all kinds will remain under regulatory scrutiny for the foreseeable future, and financial institutions will need to assess what the loss of these fees might mean for their net income projections in the years to come.

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