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Financial Services Law Insights and Observations

CFPB seeks input on “junk fees”

Federal Issues CFPB Agency Rule-Making & Guidance Consumer Finance Fees Overdraft

Federal Issues

On January 26, the CFPB announced an initiative requesting comments from the public on fees that are associated with consumers’ bank accounts, prepaid or credit card accounts, mortgages, loans, payment transfers, and other financial products and that are allegedly not subject to competitive processes that ensure fair pricing. Bureau research found that back-end fees often hide a product’s true cost and can undermine a competitive market. The agency cited statistics showing that in 2019, major credit card companies charged more than $14 billion annually in punitive late fees, and that banks’ revenue from overdraft and non-sufficient funds fees exceeded $15 billion during this same time period. In a measure to reduce these “junk fees” the Bureau’s request for information (RFI) seeks input on (i) fees charged to consumers that they believed were covered by a product or service’s baseline price; (ii) unexpected fees charged for a product or service; (iii) fees that seemed high for the purported service; and (iv) fees that were unclear. The RFI also asks for examples of companies or markets that obtain significant revenue from these types of fees and seeks to explore, among other things, whether consumers understand fee structures disclosures and what “oversight and/or policy tools should be used to address the escalation of excessive fees or fees that shift revenue away from the front-end price[.]” The Bureau also asks small businesses, non-profit organizations, legal aid attorneys, academics and researchers, state and local government officials, and financial institutions, including small banks and credit unions, to submit feedback as well. The comment period opened February 4 and closes on March 31.

CFPB Director Rohit Chopra added that information gathered from the RFI will be used to (i) “issue new rules and guidance to spur competition and transparency” (the Bureau also intends to review some of the rules inherited from the Federal Reserve Board); (ii) identify reasons why financial institutions allegedly do not compete on certain types of fees and features; and (iii) create new rules to provide consumers more control over their data and more opportunities to move their money.

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