On Jan. 26, the Consumer Financial Protection Bureau issued a “Request for Information Regarding Fees Charged by Providers of Consumer Financial Products or Services.” In a simultaneous statement, CFPB Director Rohit Chopra described the request for information as the start of a “new effort to help American families save billions of dollars in junk fees in their financial lives.” The request for information seeks public comment on how these “garbage charges” are affecting individuals (particularly the elderly, students, military personnel, people of color and low-income consumers) and seeks feedback from social service, consumer rights and advocacy organizations Aid Attorneys, Academics and researchers, small businesses, financial institutions, and state and local government officials.
As part of the request for information, the CFPB identified the following key areas:
- If you are a consumer, please tell us about your experience with charges associated with your bank, credit union, prepaid card account, credit card, mortgage loan, or money transfer, including: (a) Charges for things you believe in that they cover the base price of a product or service; (b) unexpected charges for a product or service; (c) charges that appeared excessive for the alleged service; and (d) charges for which it was unclear why they were charged.
- What types of financial product or service fees obscure the true cost of the product or service by not including them in the upfront price?
- Which fees exceed the costs to the company that the fee purports to cover? For example, is the amount charged for NSF fees necessary to cover the cost of processing a returned check and the associated losses to the custodian?
- Which companies or markets generate significant revenue from back-end fees or consumer costs that are not factored into the sticker price?
- What barriers, if any, are there to building fees into the upfront pricing that consumers shop for? How can this vary depending on the type of fee?
- What data and evidence is there on how consumers view back-end fees both inside and outside of financial services?
- What data and evidence indicates that consumers do or do not understand the fee structures disclosed in fine print or model contracts?
- What data and evidence suggests that consumers make decisions based on fees or not, even when they are well disclosed and understood?
- What oversight and/or policy tools should the CFPB use to combat the escalation of excessive fees or fees that divert revenue away from the front-end price?
The request for information originally provided for a deadline for comments to be submitted by March 31.
However, on March 25, the CFPB extended the deadline to April 11 and announced that it had already received 25,000 comments.
In a Feb. 2 blog post, the CFPB described “garbage fees” as fees that “take many different forms, including fees for late penalties, overdrafts, returns, use of an off-network ATM, money transfers, inactivity, and more. The blog post more specifically identified the following “common junk fees”:
- Shortage Fees (Overdraft Fees and NSF Fees);
- late fees;
- Fees for paying your bill (Fees);
- prepaid card fees; and
- Closing costs and home purchase fees.
In the supplemental information provided as part of the request for information, the CFPB characterized the charging of “hidden back-end fees” that are “mandatory or quasi-mandatory” as an anti-competitive tactic designed to “induce consumers to make purchasing decisions.” entice based on a perceived lower price.” In support of its position, the CFPB noted that:
- Overdraft and NSF fees topped $15.4 billion in 2019 compared to just $1 billion in account maintenance fees;
- Fees account for about 20% of total credit card costs (including $14 billion in late fees);
- Convenience charges remain common, despite a 2017 bulletin from the CFPB on unfair, deceptive and abusive acts or practices (and violations of the Fair Debt Collection Practices Act) relating to telephone payment charges; and
- In the context of residential mortgage transactions, “monthly property inspection fees, new title fees, attorney’s fees, appraisals and appraisals, broker price reports, compulsory insurance, foreclosure fees, and various unspecified ‘business advances’ can price a homeowner out of a home.”
While the request for information focuses on credit cards, home mortgages, and fees charged by financial institutions in connection with deposit accounts, it is clear that the CFPB’s area of interest is much broader. The CFPB specifically states that it is “interested in other lending and loan servicing fees, including for student loans, auto loans, installment loans, payday loans, and other types of loans.” Although sales finance companies and installment lenders are not the immediate focus of the CFPB’s investigation into fees charged in connection with financial services, we believe such lenders should expect the CFPB to address such practices and future origination and processing fee regulations scrutiny by creditors of all types. The RFI also shows, as expected, that Director Chopra plans to use the CFPB’s extensive oversight and review capabilities to aggressively regulate creditors and their financial products.