Senate Banking Committee holds hearing on account fees
On July 26, the Senate Banking Committee held a hearing regarding “fees and tactics impacting Americans’ wallets” in relation to financial services and the role of the CFPB in addressing harmful fees. Leading the hearing, Senator Raphael Warnock (D-GA), chairman of the committee, explained that some “excessively high” and unclear fees do not serve an economic value, referring to these as “junk fees.” Senator Warnock shared that 1/3 of households that do not use banks cite high fees as their reason for continuing without a bank account. Senator Thom Tillis (R-N.C.) criticized the CFPB’s attempts at avoiding the oversight of the Administrative Procedures Act in the rule-making process by mislabeling its actions. Tillis added that after the 2008 financial crisis, regulators emphasized the importance of overdraft revenue as, “an appropriate tool for ensuring the stability of the bank’s balance sheets.” He then criticized the shift in guidance, as the CFPB looks to reprimand banks who follow “the established prudential standards for the crime of listening to their previous federal regulators.” He also claimed that the Bureau does not have proper jurisdiction, resources, or staff to make such decisions.
Pennsylvania Attorney General Michelle Henry testified about recent enforcement actions she has taken, including a recently filed suit against a Wall Street private equity-owned installment lender, who allegedly charged consumers “junk fees” for low-value or valueless add-on products. Henry also mentioned entering into a settlement relating to a bank charging “junk fees” in connection with auto finance products. Brian Johnson, a financial regulatory compliance specialist and former deputy director of the CFPB, claimed that the agencies and the White House have failed to provide a consistent definition for the “junk fees” that could subject institutions to scrutiny, and criticized the CFPB, saying that it does not follow its own regulations and laws governing how agencies make rules by publishing interpretive rules as policy statements in bulletins. A final topic raised by Senator Tina Smith (D-MN) regarded land contracts and lease-to-purchase or rent-to-own agreements that she claimed can be exploitative towards underserved communities. Smith noted that such contacts are “designed to fail,” noting that more than 80 percent of the time, people lose all their equity because they do not make it to the last payment of the contract.