On January 26, 2022, the Consumer Financial Protection Bureau (CFPB) issued a request for public comment relating to “junk fees” consumers may be subjected to when engaging in financial services.
So what exactly is a “junk fee” in the consumer financial industry? That’s a good question, and one that remains very much open for discussion. In its request for public comment, the CFPB describes the concept as something similar to a resort fee at a hotel that gets added on at checkout time, a service fee that was not included in the sticker price of an individual’s concert ticket, or that mysterious fee that somehow sneaks into a phone or internet bill. What all these fees have in common is that they obscure the actual cost of a product or service. The CFPB states that the concept of “junk fees” can obscure the transparency of prices in the consumer financial industry, too.
In its request for comment, the CFPB specifically listed some of the following examples of what can be considered junk fees in consumer finance because these fees are not “meaningfully avoidable or negotiable in the moment” by the consumer:
- late fees,
- overdraft fees,
- non-sufficient funds (NSF) fees,
- convenience fees for processing payments,
- minimum balance fees,
- return item fees,
- stop payment fees,
- check image fees, and
- inactivity fees.
Interestingly, in the weeks and months before the CFPB issued this request for information, many large financial institutions altered their policies regarding some of the items on that list – on their own volition. For example, many larger financial institutions announced significant revisions to their overdraft fee policies ranging from significantly increasing the applicable threshold for incursion of the fee to eliminating the fee altogether. Many of these institutions have acknowledged the impact the policy changes may have on their revenue but stressed the importance of consumer-friendly practices.
In the wake of actions taken by large financial institutions and now this request by the CFPB for public comment, one cannot help but wonder about the potential implications on smaller and community-based financial institutions that may not have the luxury to forgo revenue in the same fashion as some of their larger counterparts. For example, the CFPB announced recently that overdraft and NSF fees exceeded $15.4 billion in 2019. For many banks, these fees consist of a large portion of revenue, and these banks are already charging the least amount they feasibly can.
Comments must be received by the CFPB on or before March 31, 2022.
It is unclear whether the CFPB’s request for information from the public is a sign that the CFPB is going to undertake a formal rulemaking regarding junk fees. Rather, this call for public comment is more akin to a policy statement regarding its enforcement priorities. In fact, when directly asked whether he expects a rule, Rohit Chopra, Director of the CFPB, told the Washington Post on February 10, 2022:
We do expect that we are going to sharpen our supervisory scrutiny of institutions that are addicted to these fees. We obviously are going to look to see if rulemaking will increase competition in the market and create more up front pricing. I think all options are on the table.
Over the past few years, there have been some policy shifts at the CFPB. Although the CFPB’s supervisory jurisdiction directly covers banks, thrifts, and credit unions with assets of over $10 billion and their affiliates, the CFPB’s junk fees request is not narrowly tailored to target only those institutions; the request casts a very broad net. This might be an indicator that the agency is grappling with how to start regulating various non-traditional financial services and products on the market now that were not as prevalent a decade ago when Dodd-Frank was passed.
For certain, financial institutions should expect to receive a higher volume of consumer complaints focused on the fees associated with their consumer credit products this year. While the comments period for this request closes at the end of March 2022, the CFPB’s online consumer complaint database is open year-round, and the CFPB’s recent press related to these “junk fees” has likely raised consumer awareness around fees in general.
Within its request for comment, the CFPB presents a series of questions and asks for individuals’ experiences with unexpected fees for products or services. The CFPB also includes some of the following questions that commenters, including financial institutions, may answer:
- What obstacles, if any, are there to building fees into up-front prices consumers shop for? How might this vary based on the type of fee?
- What data and evidence exist that suggest that consumers do, or do not, understand fee structures disclosed in fine-print or boilerplate contracts?
As the old adage goes, these times, they are a changin’. Financial institutions need to be prepared to make transitions going forward. Now is a good time to review your institution’s policies on post-consummation fees, like late fees, NSF fees, and payment processing fees, and ensure they are compliant with already-existing federal statutes like the Truth In Lending Act, Regulation E, the Real Estate Settlement Procedures Act, and other applicable statutes.