Compliance Blog

On January 26, 2022, the Consumer Financial Protection Bureau (CFPB) issued a statement announcing that it had launched an initiative to reduce what it calls “junk fees.” The CFPB explained that junk fees can disguise a product’s true cost, which hinders a competitive market. The CFPB noted that, in 2019, there were over $14 billion in punitive late fees charged to customers by the major credit card companies. The CFPB also noted that, in 2019, overdraft and non-sufficient funds (NSF) fees contributed to over $15 billion in bank revenue.

In tandem with the statement, the CFPB filed a Request for Information (RFI). The CFPB is requesting comments regarding fees not subject to “competitive processes that ensure fair pricing.” The RFI provides the following examples of products and markets that it considers subject to junk fees.

Deposit Accounts

The CFPB notes that while the amount of NSF and overdraft fees exceeded $15 billion in 2019, account maintenance fees only made up around $1 billion in fees. One of the CFPB’s concern here is that while a customer understands what they will be paying in account maintenance fees when they open an account, the customer will not understand how much they will end up paying in overdraft and NSF fees.

Credit Cards

According to the CFPB, in 2019, credit card issuers charged over $23 billion in fees, almost $14 billion of which were late fees. The CFPB notes that nearly all banks charge the same amount for late fees.

Remittances and Payments

The CFPB notes that “convenience fees” are commonly charged by financial institutions when a customer attempts to make a payment transfer or pay a bill online. The CFPB notes that while it issued a Compliance Bulletin in 2017 regarding pay by phone fees, these type of fees remain common and a concern to the CFPB.

Prepaid Accounts

The CFPB is concerned that while many prepaid products disclose any applicable monthly rates, these rates are often overshadowed by “add-on” fees. Such “add-on” fees include inactivity fees, transaction fees, and balance-inquiry fees, among others.

Mortgages

With mortgages, the CFPB notes that various mortgage related fees can inhibit homeownership and the use of refinancing by existing homeowners. According to advocates, these fees may not be subject to competitive forces. Furthermore, the CFPB is concerned that these fees can prevent homeowners, who are experiencing a financial hardship, from catching up on their loan payments.

Other Loans

Beyond mortgages, the CFPB is concerned about origination and servicing fees for various types of loans, such as auto loans, payday loans, student loans, and more. The CFPB specifically mentions fees for rescheduling payments, for making online/phone payments, application fees, and for receiving loan proceeds expeditiously.

Credit unions should note that this request for information does not impose any rules or restrictions on credit unions that charge fees related to any of the above products or any other types of fees that the CFPB would consider “junk.” However, credit unions may want to review their products and services to determine whether they may charge fees that the CFPB may consider “junk.” It may be prudent for credit unions to look for alternative revenue streams in case the CFPB does use its rulemaking or enforcement authority to limit fees.

Credit unions should note that NAFCU is reviewing the RFI and will be soliciting member feedback to incorporate in its comments to the CFPB.