CFA News

CFAnews Update – December 20, 2022

Overview: Financial Services Conference

Overview: 50th Anniversary Awards Celebration

Junk Fee Blog Series Part 3: The Consumer Financial Protection Bureau Takes on Junk Fees

Overview: Financial Services Conference

On December 7, CFA hosted its 35th Annual Financial Services Conference. This year’s agenda offered a variety of facilitated panel discussions about timely financial issues impacting consumers, including credit reporting, payment fraud, and complex investment products.

Keynote speakers included a panel discussion with CFPB General Counsel Seth Frotman and state consumer chiefs Eleanor Blume (CA), Steven Kaufmann (CO), and Nicholas Smyth (PA) focused on their work to stop fraud, price gouging, foreclosures and evictions, and their continued enforcement work. University of California Merced Professor Charlie Eaton and Student Borrower Protection Center Director of Advocacy and Civil Rights Counsel Katherine Welbeck conversed about the student debt crisis, racial equity and the economy. Cathy O’Neil, author of Weapons of Math Destruction and NPR Marketplace Correspondent Nancy Marshall-Genzer delved into issues about industry use of algorithms and their impact on consumer fees and costs, and former Federal Deposit Insurance Corporation Chair and children’s author Sheila Bair gave the closing keynote address about the regulation of fintech and cryptocurrencies.

The previous day, state and local advocates joined the 19th Annual High Cost Lending Summit. Participants listened to a variety of panels and keynotes on state and national efforts to end predatory lending and increase financial security.

Thanks to everyone who joined the High Cost Lending Summit and the Financial Services Conference! You can watch the full Financial Services Conference here.

Overview: 50th Anniversary Awards Celebration

After two years of virtual awards events, CFA hosted its 50th Anniversary Awards Celebration fully in-person on December 8.

This year CFA honored three consumer champions whose commitment, leadership, and effective advocacy on behalf of consumers deserved special recognition. DC Attorney General Karl Racine received the Philip Hart Public Service Award, National Association of Consumer Advocates Executive Director Ira Rheingold received the Esther Peterson Award, and CFA’s own Rachel Weintraub received the Consumer Champion Award.

We thank all our awardees for their decades of service to the consumer community, and we hope you all join us next year!

Junk Fee Blog Series Part 3: The Consumer Financial Protection Bureau Takes on Junk Fees

By: Rachel Gittleman, Financial Services Outreach Manager and Erin Witte, Director of Consumer Protection

Fees are prolific across financial products and services. Whether it is credit card late fees, overdraft, and nonsufficient fund (NSF) fees, or mortgage servicing fees, junk fees have become far too commonplace in our financial marketplace. Junk fees can inflate the price of banking and credit products, obscure the true cost of these products making comparisons nearly impossible, and prove particularly challenging and damaging for certain consumers.

Junk fees in the financial services marketplace drain tens of billions of dollars per year from American households. The Consumer Financial Protection Bureau (CFPB) found that credit card companies imposed $12 billion in late fee penalties on consumers in 2020 and financial institutions charged consumers more than $15 billion in overdraft and NSF fees in 2019. As discussed in our first blog post in this series, these fees disproportionately harm consumers of color and low-income consumers, and prove particularly challenging for limited English proficient consumers. In addition, by obscuring price transparency for consumers, junk fees diminish consumer choice and impede competition.

Penalty and late fees often cost the consumer far more than the expense the provider incurs to cover the service provided and have increasingly become a profit center for financial services providers. For example, overdraft fees accounted for two-thirds of reported fee revenue for financial institutions that charged them in 2019, and credit card late fees account for 99 percent of penalty fee volume on credit cards. Lucrative penalty fee revenue entices providers to manipulate and create systems that set consumers up to fail. The true cost of penalty fees is often hidden from consumers, hindering price comparison and competition.

Although the CFPB has a long history of fighting exploitative and harmful fee practices in the financial marketplace, it launched a new junk fees initiative in early 2022— with the goal of saving American households billions of dollars per year. The initiative began with a Request for Information (RFI) about junk fees, and specifically consumer and small business experiences with:

  • Fees considered to be a part of the baseline price of a product or service
  • Unexpected fees for a product or service
  • Inflated fees beyond the cost to the provider
  • Opaque or hidden fees, where the purpose of the fee is unclear

In response to this RFI, Consumer Federation of America worked with the National Consumer Law Center, Center for Responsible Lending, and Americans for Financial Reform Education Fund on lengthy comments. The comments affirmed that the CFPB has clear and robust authority to regulate these fees and outlined the many junk fees that proliferate in our financial services marketplace:

  • Deposit account fees, including overdraft and nonsufficient fund fees; prepaid card and banking app evasions of consumer protection laws;
  • Credit card and open-end credit fees, including late fees, fees excluded from APR, fee harvester credit cards, and the varied Buy Now, Pay Later fees;
  • Earned Wage Advance fees, including inflated expedite fees and hidden, multiplying fees;
  • Nonbanking and cash advance apps fees, including “tips,” inflated expedite fees, and monthly or subscription fees;
  • Junk fees related to insurance;
  • Mortgage servicing fees, including property inspection, bankruptcy, foreclosure, and attorneys’ fees;
  • Auto financing fees, including add-ons, early termination fees for leases, doc fees, prep fees, delivery and handling fees;
  • Pay-to-pay, also sometimes dubbed as “convenience” fees across marketplaces;
  • Remittance fees, including undisclosed third-party fees, inflated exchange rates, and
  • Junk fees in debt collection.

The CFPB received at least 50,000 public comments in response to their RFI. Although there is plenty more work to be done to protect consumers from often exploitative junk fees, the CFPB has taken many important steps in the right direction.

  • Rulemaking:
    • After the CFPB found that credit card companies drained $12 billion from consumers in late fee penalties, it published an Advanced Notice of Proposed Rulemaking (ANPR), signaling a review of penalty policies across the marketplace. CFA again joined forces with the National Consumer Law Center and Americans for Financial Reform Education Fund in to file comments in response to the ANPR.
  • Advisory Opinions and Guidance:
    • Pay-to-pay fees, often dubbed by industry as “convenience fees,” are charged to consumers who opt to pay their bill in a certain way (i.e. by phone or by mailing a check). The CFPB issued an advisory opinion clarifying that pay-to-pay fees charged by debt collectors are illegal. In an interpretation of the Fair Debt Collection Practices Act (FDCPA), the CFPB affirmed that debt collectors are prohibited from “collecting any amount that is not expressly authorized by the underlying agreements.”
    • The CFPB issued guidance on facially false data in consumer credit reports, affirming the credit reporting companies’ obligation to take sufficient action to detect and remove consumer credit report data that are inconsistent or impossible. The CFPB laid out common examples of facially false data, including inconsistent account information like a bill that is shown as both paid in full and having a balance, and impossible information like a tradeline preceding the consumer’s birth date.
    • Surprise Depositor fees (often $10 to $19) are charged to a consumer that tries to deposit a check that bounces. In contrast, surprise overdraft fees (often as high as $36) are charged to consumers who cannot reasonably anticipate them. Both of these fees are unavoidable for consumers, even when the consumer does everything in their ability to do so. The CFPB’s guidance affirmed that both of these fees more than likely violate the Consumer Financial Protection Act, and laid out how financial institutions can ensure that their practices follow the law.
  • Research:
    • Over the last two years, the CFPB has issued various research on overdraft and nonsufficient (NSF) fees, showing that financial institutions rely heavily on this revenue. The 2021 research found that consumers were charged an estimated $15.47 billion in 2019, which accounted for two-thirds of reported fee revenue. This research accompanied earlier reports finding that under 9% of accountholders were burdened with 80% of all overdraft revenue. Along with continued pressure on the marketplace from advocates and Congressional leaders, the CFPB’s research proved helpful in spurring market changes to overdraft and NSF fee policies. These voluntary changes, wherein banks eliminated or lowered their overdraft fees, will save about $3 billion annually; however, many banks and credit unions still charge inflated overdraft fees. Enforcement actions like the one against Regions Bank (discussed below) illustrate that financial institutions continue to employ deceptive practices and charge exorbitant overdraft fees in order to maximize profits. We have encouraged the CFPB to utilize its rulemaking authority to enact long-term, positive marketplace reform.
    • In addition, the CFPB issues an annual report to Congress on College Banking and Credit Card Agreements. This year’s report found that 668,000 students paid almost $15.5 million for bank accounts offered in partnership with their colleges and universities. Students were charged monthly service fees, overdraft fees, inactivity fees, and out-of-network ATM fees. The prevalence of fees among college student accounts again illustrates the need for widespread, legally binding reform.
  • Supervision and Enforcement:
    • Regions Bank: An Alabama-based repeat offender, Regions Bank was ordered to pay $50 million towards the victims relief fund and to refund at least $141 million to harmed consumers. Regions exploited consumers with overdraft fees by manipulating systems and creating obstacles for consumers to anticipate and, thus, avoid overdraft fees. Overdraft fees were also authorized when consumers had a positive balance in their account and therefore would not reasonably expect to be charged an overdraft fee (commonly referred to as an authorized positive fee). In 2015, Regions Bank was ordered to refund $49 million to consumers and pay $7.5 million into the civil penalties fund for charging overdrafts to consumers who had opted out of overdraft coverage.
    • ACTIVE Network: The CFPB sued the ACTIVE network for tricking consumers into its annual subscription discount club and signing up for other events. The network operates a payment system that is used by charity races and YMCA camps, among others. The CFPB alleges that the ACTIVE network used dark patterns to hammer consumers with fee increases and hidden charges, as well as to trick consumers into club memberships. The CFPB’s action followed enforcement actions and settlements in Iowa and Vermont.
    • The CFPB’s semiannual report of Supervisory Highlights revealed that mortgage servicers had charged costly pay-to-pay fees to consumers who had opted to pay over the phone. The servicers were required to reimburse those fees they had failed to disclose properly.

The actions outlined above are essential steps towards limiting exploitative junk fees in the financial marketplace. We look forward to working with the CFPB on all of its future endeavors towards ensuring a fair, transparent marketplace.

Read part 1 and part 2 of our Junk Fees blog series.