Recently, the CFPB published a “Request for information regarding fees charged by providers of consumer financial products or services.” Comments on the RFI must be submitted by March 31, 2022.
On February 17, 2022, from 2:30-3:30 p.m. ET, Ballard Spahr will host a webinar titled “The CFPB’s Investigation into ‘Unwanted Fees’: What It Means for Consumer Financial Service Providers.” »
The CFPB RFI press release bills it as “an initiative to save households billions of dollars a year by reducing unwanted operating costs charged by banks and financial firms” and “a chance for the public to share information that will help shape the agency’s regulatory and guidance agenda, as well as its enforcement priorities in the months and years ahead.
The CFPB describes the charges that the RFI focuses on as “charges that are not subject to competitive processes that ensure fair pricing” and calls them “unwanted operator charges.” According to the CFPB, these fees are “hidden” because they “are mandatory or quasi-mandatory charges added at some point in a transaction after a consumer has chosen the product or service based on an initial price.” As a result, they “may induce customers to make buying decisions based on a perceived lower price.” Further, the CFPB is “concerned about charges that exceed the marginal cost of the services they are intended to cover, implying that companies are not just passing costs on to consumers, but rather profiting from a relationship captivates with the consumer to generate additional profits”. .”
The CFPB indicates that these “excessive and abusive charges” can take several forms, including:
penalty fees such as late fees, overdraft fees, insufficient funds (NSF) fees, payment processing convenience fees, minimum balance fees, return item fees, chargeback fees, check image fees, paper statement fees, card replacement fees, out-of-network ATM fees, foreign transaction fees, ACH fees, wire transfer fees, account closure, inactivity fees, fees to investigate fraudulent activity, [and] incidental costs in the mortgage closing process.
The RFI includes the following examples for “certain products and markets”:
- Deposit Accounts. Overdraft and NSF fees which, according to the CFPB, make up the majority of the total revenue banks derive from deposit accounts
- Credit card. Late fees, with the CFPB noting that “almost all banks charge the same fees for late fees – the maximum allowed by law of $30 for the first late payment and $41 for subsequent late payments
- Discounts and Payments. “Convenience Fee” on payment transfers, return item fees, chargeback fees, check image fees, online or telephone bill payment fees
- Prepaid Accounts. “Additional” fees for regular activities such as transaction fees, cash top-up fees, balance inquiry fees, inactivity fees, monthly service fees and card cancellation fees
- Application and closing fees, fees for making payments over the phone or online, fees for a repairman’s bill payment service, delinquency-related fees such as monthly property inspection fees, new title fees, appraisals and appraisals, broker pricing opinions, forced insurance, foreclosure fees and “unspecified company advances”
- Other loans (including student loans, car loans, installment loans, payday loans). Fees for rescheduling payment dates, fees for making online or telephone payments. (Curiously, with respect to “other loans,” the CFPB says it’s also interested in origination fees such as application fees and fees to receive loan proceeds on an expedited basis.)
The RFI includes a list of specific questions on which the CFPB seeks information. Among the CFPB’s questions are the types of fees that hide the true cost of products or services by not being built into the original price, what fees exceed the costs to the entity that the fees are intended to cover, and what businesses or markets get significant revenue. back-end fees.
In addition to the CFPB’s general approach to labeling post-opening or post-account opening fees as “undesirable” and “operating and excessive” fees, it should be noted that the CFPB does not recognize that the authorized amounts many fees are established by federal and state law. In addition, federally chartered banks have the right to anticipate state limits on certain charges, and a bank’s exercise of this right to charge a higher amount does not mean that the bank charges an “abusive” amount. and excessive.
Further, the suggestion that fees are “hidden” appears to ignore the detailed disclosure rules promulgated and administered by the CFPB. For example, the DD Regulation requires disclosure, upon request and before a consumer opens a deposit account, of the amount of overdraft fees or NSF charges imposed in connection with the account. Regulation Z also requires the disclosure, on or with the application or solicitation of a credit card account, of any late payment charges. In the case of prepaid accounts, Regulation E requires disclosure, before a consumer acquires an account, of all transaction fees per purchase, cash top-up fees, balance inquiry fees, customer service charges, inactivity fees, and all monthly and other recurring charges. Even when a customer acquires a prepaid account in person at a point of sale, these fees must be disclosed and visible through any packaging material.
We are particularly intrigued by the CFPB’s apparent suggestion that credit card issuers charge excessive late fees by charging $30 for the first late payment and $41 for subsequent late payments. The provisions of Regulation Z that implement the CARD Act require that late payment fees charged by credit card issuers be reasonable and commensurate with the breach of account terms. They provide safe harbors that allow a card issuer in 2022 (as recently adjusted for changes to the Consumer Price Index) to impose a $30 fee for a late first payment and $41 for later late payment. (Regulation Z also allows an issuer who can demonstrate that higher fees are justified as a reasonable proportion of its internal costs to impose penalty fees above the Safe Harbor fee.) Accordingly, issuers card companies charging $30 for the first late payment and $41 for subsequent late payments charge a reasonable fee commensurate with the violation under federal law.
As confusing is Statement from Director Chopra that “when buying a home, there’s a whole host of fees added to the closing that borrowers feel cheated on”. The TILA/RESPA built-in disclosure rule severely limits a lender’s ability to add or increase fees at closing, so it’s unclear how lenders can add a host of fees at closing.
Despite the fact that many of the CFPB’s objections to various fees are unwarranted, there is no doubt that incidental fees of all kinds will be considered by the CFPB during reviews and will eventually be the subject of enforcement investigations. Therefore, we believe the time is right for banks and other consumer financial service providers to undertake a thorough review of their ancillary fees charged across all of their consumer financial services and products to ensure that the charges are legal under federal and state laws and are clearly and visibly disclosed. We assist several clients in this examination.
Not surprisingly, industry trade groups reacted to the RFI with criticism. The following statement on RFI has been issued by the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Credit Union National Association, Financial Services Forum, Independent Community Bankers of America, National Association of Federally-Insured Credit Unions and the National Bankers Association:
The CFPB’s new fee inquiry is a misguided effort that paints a distorted and misleading picture of our country’s highly competitive financial services market. Several federal laws and the CFPB’s own rules already require banks, credit unions and other consumer financial service providers to disclose terms and fees in a clear and visible manner, and our members do so every day. . Consumers in this country know they have a wide range of choices when it comes to financial services products, and these companies compete with each other every day, including on fees. We look forward to responding to this request for information with facts and perspective sadly missing from today’s announcement.