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  • Business groups sue the CFPB over credit card late fee rule

    Courts

    On March 7, several business groups (plaintiffs) sued the CFPB rule in the U.S. District Court for the Northern District of Texas over its announced credit card late fee rule. As previously covered by InfoBytes, the Bureau’s new final rule limited most credit card late fees to $8, among other actions, and was met immediately with criticism from banks and legislators.

    The plaintiffs’ complaint claimed the CFPB completed the rule hastily to implement a pledge made by President Biden around his State of the Union Address to reduce credit card late fees by 75 percent. The complaint further asserted the CFPB skipped necessary steps, made economic miscalculations, and otherwise breached the Administrative Procedure Act. As alleged, the Bureau likely understated “the volatility of card issuers’ cost-to-fee ratios pertaining to late fees” and improperly relied on data which does not allow for the recovery of a “reasonable and proportional” penalty fee. On the Bureau’s use of the Y-14M data, the complaint alleged the new rule ignored peer-reviewed studies and instead opted to base the rule on an internal study using confidential data that was not available for examination during the period allocated for public comment. The plaintiffs argued the final rule would incur “substantial compliance costs” by amending printed disclosures, using the cost-analysis provisions, and notifying consumers of changes in interest rates to recoup costs, among other problems. The complaint also cited TILA’s effective-date provisions and the Bureau’s embattled funding structure to support the argument that the final rule would cause irreparable harm.

    Courts Federal Issues CFPB Litigation Credit Cards Agency Rule-Making & Guidance Fees Consumer Finance Consumer Protection

  • CFPB blog post tackles mortgage closing costs, seeks consumer feedback

    Federal Issues

    On March 8, the CFPB published a blog post seeking consumer input on experiences with the closing process of consumer mortgages, and in particular, closing costs. The blog post posited that closing costs significantly impact a borrower’s financial commitment and, potentially, monthly payments and identified a “noticeable increase” in closing costs, with median total loan expenses on home purchase loans increasing by 21.8 percent between 2021 and 2022. In particular, the Bureau singled out title insurance fees and credit reporting fees. It labeled title insurance as a fee that borrowers are charged and for which they have no control over the cost, alleging that “the amount that borrowers pay for lender’s title insurance is often much greater than the risk.” With respect to credit reports, the Bureau remarked that the highly concentrated industry dictates the price of credit reports, citing anecdotal evidence of cost increases of 25 to 400 percent.

    The blog post also indicated that borrowers with smaller mortgages, including those with lower incomes, first-time homebuyers, and individuals residing in Black and Hispanic communities, are often disproportionately affected by closing costs, because they are typically fixed costs and do not change based on the size of the loan. The Bureau requested that consumers provide input on their experience with mortgage or closing costs, signaling that it will continue to analyze and if necessary “issue rules and guidance to improve competition, choice, and affordability.”

    Federal Issues CFPB Junk Fees Mortgages Mortgage Origination Title Insurance Discount Points Fees Credit Report Competition Consumer Finance

  • Agencies adjust civil money penalties for 2024

    Agency Rule-Making & Guidance

    Recently, the CFPB, NCUA, FDIC, FTC, and OCC provided notice in the Federal Register of adjustments to the maximum civil money penalties due to inflation pursuant to the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996 and further amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. Each notice or final rule (see CFPB here, FDIC here, OCC here, FTC here, and NCUA here) adjusts the maximum civil money penalties available and documents the inflation-adjusted maximum amounts associated with the penalty tiers for each type of violation within a regulator’s jurisdiction. For violations occurring on or after November 2, 2015, the OCC’s adjusted maximum penalties go into effect as of January 8; the CFPB and FDIC’s adjustments go into effect January 15; and the FTC and NCUA’s adjustments go into effect January 10.

    Agency Rule-Making & Guidance Federal Issues Bank Regulatory OCC CFPB Assessments Fees Civil Money Penalties

  • Large bank agrees to proposed settlement agreement; to be decided in February

    Courts

    On November 27, 2023, a large Canadian bank agreed to pay $15.9 million to accountholders in a proposed settlement agreement stemming from a class action suit in which the bank allegedly charged improper non-sufficient fund (NSF) fees. NSF fees are charges by a financial institution when they decline to make a payment from an accountholder’s account after determining the account lacks sufficient funds. Plaintiffs alleged that from February 2, 2019, to November 27, 2023, the bank charged accountholders multiple NSF fees on a single attempted transaction. In the agreement, the bank continues to deny liability. While an agreement has been reached between the two parties, the agreement has yet to be approved by the courts. A hearing has been scheduled for February 13, 2024, in the Ontario Superior Court of Justice to approve the settlement and award the payouts. Accountholders will receive their payouts, “estimated to be in the range of approximately $88 CAD,” deposited directly to their account with the bank. Under the proposed settlement agreement, the representative plaintiff will receive an honorarium of $10,000. As previously covered by InfoBytes, the FDIC warned that supervised financial institutions that charge multiple NSF fees on re-presented unpaid transactions may face increased regulatory scrutiny and litigation risk.

    Courts Banking Canada Of Interest to Non-US Persons Settlement Class Action Enforcement NSF Fees Fees

  • CFPB reports on consumers’ experience with overdraft, NSF fees

    Federal Issues

    On December 19, the CFPB released a report titled Overdraft and Nonsufficient Fund Fees: Insights from the Making Ends Meet Survey and Consumer Credit Panel, a report providing insight into consumers’ experience with overdraft/NSF activity. The CFPB stated that the report is based on data from the 2023 Making Ends Meet survey (covered by InfoBytes here) and the CFPB’s Consumer Credit Panel. Among other findings, the report found that roughly a quarter of consumers reside in households that were charged an overdraft or NSF fee in the past year. The report additionally found that 43 percent of consumers charged an overdraft fee were surprised by their most recent account overdraft, while only 22 percent expected it. The report noted that this trend is more pronounced among those who experience infrequent overdrafts (15 percent) as opposed to those who have been charged multiple overdraft fees (56 percent).

    The CFPB additionally highlighted most households incurring overdraft and NSF fees have available credit on a credit card, adding that “among consumers in households charged 0, 1-3, 4-10, and more than 10 overdraft fees in the past year, the shares with no credit available on a credit card are 19 percent, 32 percent, 38 percent, and 49 percent, respectively.”

    Federal Issues CFPB Overdraft NSF Fees Fees Consumer Finance

  • CFPB reports on consumers’ experience with overdraft, NSF fees

    Federal Issues

    On December 19, the CFPB released a report titled Overdraft and Nonsufficient Fund Fees: Insights from the Making Ends Meet Survey and Consumer Credit Panel, a report providing insight into consumers’ experience with overdraft/NSF activity. The CFPB stated that the report is based on data from the 2023 Making Ends Meet survey (covered by InfoBytes here) and the CFPB’s Consumer Credit Panel. Among other findings, the report found that roughly a quarter of consumers reside in households that were charged an overdraft or NSF fee in the past year. The report additionally found that 43 percent of consumers charged an overdraft fee were surprised by their most recent account overdraft, while only 22 percent expected it. The report noted that this trend is more pronounced among those who experience infrequent overdrafts (15 percent) as opposed to those who have been charged multiple overdraft fees (56 percent).

    The CFPB additionally highlighted most households incurring overdraft and NSF fees have available credit on a credit card, adding that “among consumers in households charged 0, 1-3, 4-10, and more than 10 overdraft fees in the past year, the shares with no credit available on a credit card are 19 percent, 32 percent, 38 percent, and 49 percent, respectively.”

    Federal Issues CFPB Overdraft NSF Fees Fees Consumer Finance

  • NY state court granted decision to continue its new check cashing fee methodology

    State Issues

    On December 7, the Supreme Court of the State of New York granted a motion to dismiss a challenge made to NYDFS’s check cashing regulation and ruled in favor of NYDFS. As previously covered in InfoBytes, the January regulation’s methodology capped the maximum percentage check cashing fee for most check types (social security, unemployment, emergency relief, veterans’ benefits) at 2.2 percent or $1, whichever is greater, and eliminated automatic fee increases based on CPI every year that had been in place since 2005.

    Shortly after the rule took effect in June, several plaintiffs sued NYDFS alleging that the amended regulation was arbitrary and capricious, violated the purpose of the banking law, and was an unconstitutional property deprivation. The NY Supreme Court found that the amended regulation had a rational basis and was supported by the administrative record. Because NYDFS neither violated the NY state banking law nor the Administrative Procedures Act, the court further declared that the “amended regulation did not constitute a deprivation of property in the absence of either procedural or substantive due process.” Because the court dismissed the petition entirely in NYDFS’s favor, the court denied the plaintiffs’ motion for preliminary injunction as merely “academic.” 

    State Issues Courts Check Cashing Fees Consumer Finance NYDFS CPI

  • Fed seeks comment on lowering the interchange fee for debit card issuers

    On October 25, the Fed announced a proposed rule that would lower the maximum interchange fee that a debit card issuer with at least $10 billion in total consolidated assets can receive for a debit card transaction and would also establish a regular process for updating the maximum fee amount every other year going forward. Moreover, the Board approved the release of its latest biennial report which sets forth data collected from larger debit card issuers on interchange fees, issuer costs, and fraud related to debit card transactions.

    Under the Dodd-Frank Act, the Fed is required to establish standards for assessing whether the amount of any interchange fee received by a debit card issuer is reasonable and proportional to the costs incurred by the issuer for the applicable transaction, which results in the Fed setting an interchange fee cap. The FRB developed the fee cap in 2011 using data provided by large debit card issuers with $10 billion or more in assets. But since that time, the Fed has found that certain costs incurred by such debit card issuers have declined dramatically, yet the interchange fee cap has remained the same. As such, the Fed (i) proposes to update the interchange fee cap based on the latest data reported to the Board by large debit card issuers, and (ii) proposes to update the fee cap every other year by linking the fee cap to data from the Fed’s biennial report of large debit card issuers.

    The comment period will close 90 days after the proposal is published in the Federal Register.

    Bank Regulatory Agency Rule-Making & Guidance Federal Reserve Fees Interchange Fees Dodd-Frank Fraud Federal Register

  • CFPB report reveals high credit card costs, growing debt, digital shift in 2022

    Federal Issues

    On October 25, the CFPB released its biennial report on the credit card market pursuant to the Credit Card Act. The report found that credit card companies charged consumers more than $105 billion in interest and $25 billion in fees, with the bulk of the fees being late fees. According to the 175-page report, consumers are rolling balances month to month, and more consumers are falling into debt over time, while credit card companies’ profit margins remain high. The CFPB highlighted additional trends, including how: (i) the profits of major credit card companies have increased, surpassing pre-pandemic levels, which the CFPB suggests could indicate a lack of competition in the industry; (ii) annual Percentage Rates (APRs) for credit cards continue to rise; (iii) many cardholders with subprime credit scores paid a significant percentage of their average balance in interest and fees; (iv) late fees charged to cardholders have risen to pre-pandemic levels, and more consumers are delinquent; (v) credit card debt reached a record $1 trillion by the end of 2022, and annual spending on credit cards increased, returning to pre-pandemic levels; (vi) consumers who roll debt from month to month are paying a significant portion of interest and fees but earning only a small percentage of rewards. The report also notes a rise in digital communication—around 80 percent of cardholders, especially those under 65, use mobile apps for card management, which exhibits a shift in how consumers and financial institutions interact in the credit card industry.

     

    Federal Issues Credit Cards Consumer Finance Fees Interest

  • CFPB report reveals high credit card costs, growing debt, and digital shifts led to consumers’ revolving debts in 2022

    Federal Issues

    On October 25, the CFPB released a report on credit card interest rates and fees in 2022 highlighting the impact of the cost to consumers. The report found that credit card companies charged consumers more than $105 billion in interest and $25 billion in fees, with the bulk of the fees being late fees.

    According to the 175-page report, consumers are rolling balances month-to-month, falling into debt, while credit card companies’ profit margins remain high. The CFPB highlighted additional trends, including how (i) the profits of major credit card companies have increased, surpassing pre-pandemic levels, which could indicate a lack of competition in the industry, with a few dominant players; (ii) Annual Percentage Rates (APRs) for credit cards continue to rise above the cost of offering credit (meaning cardholders are paying more in interest); (iii) many cardholders with subprime credit scores paid a significant percentage of their average balance in interest and fees; (iv) late fees charged to cardholders have risen to pre-pandemic levels, and more consumers are delinquent; (v) credit card debt reached a record $1 trillion by the end of 2022, and annual spending on credit cards increased, returning to pre-pandemic levels; and (vi) consumers who roll debt from month to month are paying a significant portion of interest and fees but earning only a small percentage of rewards. The report also notes a rise in digital communication—around 80 percent of cardholders, especially those under 65, use mobile apps for card management, which exhibits a shift in how consumers and financial institutions interact in the credit card industry.

    Federal Issues CFPB Credit Cards Consumer Finance Fees Interest

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