Bankers cry foul over CFPB crackdown on 'junk fees'

A proposal by the Consumer Financial Protection Bureau to crack down on so-called junk fees has raised the ire of bankers, credit unions and lenders that claim the request smacks of price fixing and regulatory overreach.

Bankers have raised a flurry of objections to CFPB Director Rohit Chopra’s request for information in January on what the agency called “exploitative junk fees” that produce billions in income for financial institutions.

Chopra told lawmakers this week that he intends to reopen past rules to examine late fees on credit cards — and potentially on other products — setting the stage for a showdown with major banks, trade groups and their lobbyists.

Debra Stamper, general counsel of the Kentucky Bankers Association, said there is no data to support the CFPB’s position that “junk fees” are a significant source of complaints from consumers. She joined others who objected to the CFPB's broadly lumping all fees on consumer financial products as junk fees given that roughly 5% of the agency's complaints in 2021 concerned checking and savings accounts.

Bloomberg News

“What consumer is going to write that they love being charged a fee?” Stamper wrote in a comment letter opposing the broad request. “With all due respect to Director Chopra, banks are different. Banks are highly regulated.”

Her comment was one of 85,000 that the CFPB received on its public request for information that ended April 11.

The American Bankers Association called the premise of the CFPB's request about fees “deeply flawed” and “erroneous,” claiming it implies that most fees are hidden, that markets are not competitive and that consumers cannot switch institutions to avoid paying the charges.

“As the Bureau well knows, congressionally-mandated disclosure frameworks require detailed, upfront cost and fee disclosures for virtually all consumer financial products and services,” wrote Kitty Ryan, the ABA’s vice president and senior counsel and a former deputy assistant director at the CFPB. The ABA’s letter was signed by 51 state bankers associations, including Puerto Rico’s. 

Most fair lending laws, beginning with the Truth in Lending Act of 1968, focus almost exclusively on the “clear and conspicuous” disclosure of fees.

“The Bureau's own testing and reports show that consumers understand these disclosures and appreciate the products and services provided even if they have to pay fees for them,” Ryan wrote.  

Consumer advocates have claimed for years that comparing fees across financial institutions is difficult and that the true cost of many fees is not clearly disclosed. Advocates want more scrutiny of account maintenance and inactivity fees, fees charged consumers to cash a bank’s own check, and fees to get a paper statement.

“While consumers can, in theory, take fees into account when choosing financial service providers, it is highly difficult to fully research and anticipate the wide range of fees that might be charged in the course of using a particular financial product,” wrote Chuck Bell, program director at Consumer Reports in Yonkers, New York, with Syed Ejaz, the group’s policy analyst. “The reality is that add-on fees can be difficult to spot, requiring consumers to click through multiple web pages or scour fine print to get the information.”

Amber Barnes Garcia, a vice president and compliance officer at the $162.3 million-asset Colfax Banking Co. in Colfax, Louisiana, said that in over 20 years in the banking industry she had never once received a complaint about fees. 

“My bank goes through a rigorous schedule of exams performed by the FDIC and the State of Louisiana to ensure that my bank does not ‘obscure the true price of their services by luring customers with enticing offers and then charging them excessive junk fees,’ as quoted by Director Chopra,” Garcia wrote. “Do not prohibit banks from being competitive and offering more diverse and creative products and services. Do not take away the ability for the banks to be profitable as well.”

The CFPB’s authority to impose substantive price restrictions is limited, and bankers repeatedly said the evidence does not support additional regulation of fees.

Bankers overwhelmingly objected to the agency’s definition of junk fees as fees that “obscure the trust cost of a product or service” or “that seem too high for the purported service.” 

Though the CFPB has alleged that some fees are excessively high due to a lack of competition, fintechs alleged that vigorous competition has forced banks to compete by abandoning fees.

“Competition from fintech companies is upending the status quo in traditional financial services, prioritizing consumer outcomes over expensive junk fees,” wrote Penny Lee, CEO of the Financial Technology Association, a fintech trade group. “Many of our members launched their businesses to target costly fees that drain tens of billions of dollars from American households.”

Still, the CFPB’s scrutiny of banks’ overdraft practices has yielded concrete results in leading a dozen large banks to cut overdraft fees or ditch them entirely. Many have lowered or eliminated late fees and nonsufficient-funds fees as well. Banks charge roughly $15 billion a year in overdraft and insufficient funds fees. Of the $23.6 billion fees charged by card issuers in 2019, $14 billion came from late fees alone, the CFPB found.

Meanwhile, credit card chief executives are monitoring the CFPB’s actions but do not think there will be much impact. 

Capital One Financial Chairman and CEO Richard Fairbank said on a first-quarter call with analysts that the McLean, Virginia-based lender is focused on making fee disclosures "clear and very simple."

Synchrony Financial President and CEO Brian Doubles told analysts in January that the company's late fees are "completely compliant" with current CFPB guidance and in line with competitors' charges.

The bureau plans to review the 19 statutes it inherited at its inception from the Federal Reserve Board to determine if changes to any laws need to be made regarding fees. The agency said it plans to use the information it collects in its supervisory and enforcement work to identify financial institutions that may be engaged in illegal practices.

Some experts advocated for the CFPB to update its remittance rule, in particular, to require disclosures showing the total cost for cross-border payments that would include both the exchange rate margin and upfront fees.

Norbert Michel, a vice president and director at the Cato Institute’s Center for Monetary and Financial Alternatives, claimed in a blog post that the CFPB’s request implies other financial regulators have been “asleep at the wheel for years.”

“The Bureau’s request implies that financial firms charge 'hidden back‐​end fees' that 'lure consumers' into making purchases based on lower prices, and that 'exploitative junk fees charged by banks and non‐​bank financial institutions have become widespread,' ” Michel wrote. “It is infinitely more likely, though, that the Bureau is really after something else: price controls.”