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Democratic senators pen letter to trade org. that brought suit against CFPB’s credit card late fee rule
On April 14, two Democratic senators, Sen. Elizabeth Warren (D-MA) and Sen. Sheldon Whitehouse (D-RI), wrote a letter to the head of a commercial trade organization that brought a lawsuit against the CFPB, challenging the CFPB’s rule capping credit card late fees. As previously covered by InfoBytes, the trade organization and other business groups sued the CFPB, challenging its recent final rule limiting most credit card late fees to $8. The senators wrote that the trade organization’s decision to sue was “outrageous and unwarranted” as the senators sought an explanation for the opposition.
The senators stated that the lawsuit was “frivolous,” and argued that the trade organization neglected “Main Street businesses” and instead was “doing the dirty work of its big bank members” who charged these high fees. Bolstering their position that the rule would cover large credit card issuers only, the senators noted that the rule would be expected to apply to less than one percent of the 4,000 financial institutions offering credit cards. Further, the senators argued that this lawsuit was a pattern of the trade organization representing the interests of large corporations, citing a report that found that only 23 of the 28 million small businesses in the U.S. benefited from the trade organization’s litigation. In seeking an explanation, the senators requested answers to a series of questions, including “How did [the trade organization] reach the decision to sue the CFPB to stop the agency from putting this rule in place?” and “Has the [trade organization] conducted an economic analysis of how the CFPB proposal would impact its members?”
5th Circuit reverses District Court’s decision to transfer credit card late fee case
On April 5, the U.S. Court of Appeals for the Fifth Circuit held that the U.S. District Court for the Northern District of Texas lacked jurisdiction to transfer a case challenging a CFPB rulemaking to the U.S. District Court for the District of Columbia. The 5th Circuit’s decision did not examine whether the transfer order was proper, but rather whether the court had jurisdiction to enter it. As previously covered by InfoBytes, the U.S. District Court for the Northern District of Texas granted the CFPB a change of venue on March 28 because only one of the six plaintiffs resided in Fort Worth. The 5th Circuit found that the lower court erred by granting the CFPB’s motion to change venues instead of ruling on the plaintiffs’ motion for preliminary injunction. The plaintiffs filed a writ of mandamus and argued the lower court “abused its discretion” by transferring the case while the plaintiffs’ appeal was outstanding, and that the lower court did not have jurisdiction to order the transfer. The 5th Circuit agreed and ruled that once a party appeals a district court’s decision, the district court “has zero jurisdiction to do anything” to change the case. The 5th Circuit granted the plaintiffs’ petition of mandamus, vacated the district court’s transfer order, and ordered the district court to reopen the case.
This case has been brought by multiple trade organizations to challenge the CFPB’s attempt to alter the structure and amount of credit card late fees through its alleged authority under the CARD Act, as covered by InfoBytes here.
FTC to hold an informal hearing on its proposed “junk fee” rules
On March 27, the FTC published a notice in the Federal Register informing the public of its decision to hold an informal hearing on its proposed rule prohibiting “junk fees.” As previously covered by InfoBytes, the FTC released a notice of proposed rulemaking (“NPRM”) titled “Rule on Unfair or Deceptive Fees” and extended the comment period last October. In the NPRM, the FTC presented the opportunity for any party to present their positions orally. The FTC announced that 17 commenters requested to partake in the informal hearing by presenting oral statements and an administrative law judge for the FTC will serve as the presiding officer. The informal hearing will be presented virtually on April 24 at 10:00 a.m. Eastern time. The hearing will be presented live to the public on the FTC’s website, and a recording will be placed in the rulemaking record.
CFPB wins approval to move credit card late fee case to Washington, D.C.
On March 28, the U.S. District Court for the Northern District of Texas granted the CFPB’s motion to transfer a case to the U.S. District Court for the District of Columbia after identifying several concerns regarding litigating the case in the Texas venue. This case has been brought by multiple trade organizations to challenge the CFPB’s attempt to alter the structure and amount of credit card late fees under its alleged authority under the CARD Act, covered by InfoBytes here. The court agreed to transfer the case after finding that both defendants, along with three of the six plaintiffs, resided in Washington where the rule at issue was promulgated; comparatively, only one of the six plaintiffs resided in Fort Worth.
The court analyzed both private- and public-interest factors. On private-interest factors, the court agreed that Washington was a more practical venue, noting that eight of the ten attorneys representing the parties list offices in Washington, while only one plaintiff was headquartered in Texas. The court concluded that plaintiffs also have not identified any substantial or practical issues with this case being held in Washington. On public interest factors, the court weighed the comparative dockets and noted that, on average, a case in Washington would be resolved faster than in Texas. The court also reasoned that there was a strong interest in having the case decided in Washington. “The Rule at issue in this case was promulgated in Washington D.C., by government agencies stationed in Washington D.C., and by employees who work in Washington D.C. Most of the Plaintiffs in this case are also based in Washington D.C. and eighty percent of the attorneys in this matter work in Washington D.C. Thus, the [U.S. District Court for the District of Columbia] has a stronger interest in resolving this dispute, as it is the epicenter for these types of rules and challenges thereto.”
White House targets “junk fees” in higher education with several new initiatives
On March 15, the White House issued a fact sheet on proposed measures aimed at curbing or eliminating alleged “junk fees” in higher education, citing that it found college students incurred “billions in fees” when having to pay for services they may not want. The first action the Biden Administration highlighted was a FY 2025 budget proposal that would eliminate student loan origination fees. The White House found that seven million student loan borrowers pay origination fees somewhere between one and four percent of their student loans. The second item the Biden Administration sought to end was college banking “junk fees,” citing a recent report by the CFPB on this issue (covered by InfoBytes here). To address this issue, the Dept. of Education has proposed a rule on college banking products that cannot include harmful fees. Third, the White House supports another proposed rulemaking from the Dept. of Education that would end automatic billing on tuition for textbooks, allowing students to shop around for better prices. Last, the Dept. of Education is considering a rulemaking that would stop colleges from pocketing leftover meal plan “dollars,” and instead will return the balance to students. The Biden Administration noted these were just a few items meant to help student initiatives, including increasing the transparency of college costs and preventing schools from withholding transcripts. These rules will go into effect on July 1.
State of the Union Address: President Biden addresses the banking industry
On March 7, President Biden delivered his 2024 State of the Union Address, where he highlighted how his administration is actively working to reduce costs for consumers by addressing issues such as corporate price gouging and alleged “junk fees.” According to a related White House Fact Sheet, the Biden Administration was focusing on corporate practices that may contribute to high prices, urging companies to lower their prices in line with decreasing input costs and stabilize supply chains. Biden highlighted the CFPB’s proposed rule on overdraft fees and the final rule on credit card late fees as progress in reducing alleged “junk fees.”
Furthermore, the fact sheet highlighted the CFPB’s scrutiny of alleged practices by branded retailers and airline credit cards of devaluing points and miles and luring in consumers with misleading deferred interest products.
CFPB blog post tackles mortgage closing costs, seeks consumer feedback
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.”
FTC bans student loan “scammers” from debt relief industry
On February 6, the FTC announced two orders (here and here) that will ban a group of student loan debt relief “scammers” (defendants) from the debt relief industry. As previously covered by InfoBytes, defendants allegedly misled consumers by charging them for services that are free through the Department of Education, claiming consumers needed to pay fees or make payments to access federal student loan forgiveness. As a consequence, the FTC filed a temporary restraining order resulting in an asset freeze, among other things.
As a result of the FTC’s action, and subject to court approval, defendants are banned from operating in the debt relief industry, as well as prohibited from making false statements about financial products or services and from using deceptive tactics to gather consumers’ financial information. Moreover, the proposed orders include a monetary judgment of $7.4 million, with a significant portion suspended due to financial constraints. Defendants must surrender personal and business assets, and if any of them materially misrepresent their finances, the entire monetary judgment will become immediately payable.
CFPB proposes new rule on overdraft lending, opens comment period
On January 17, the CFPB issued a proposed new rule to restrict overdraft fees charged by financial institutions. Historically, the Federal Reserve Board exempted banks from credit disclosure requirements when an overdraft was needed to honor checks (for a fee). The proposed rule would recharacterize overdrafts as extensions of credit, which would extend the consumer credit protections in TILA that apply to other forms of credit to overdraft credit.
According to the related Fact Sheet, the proposed rule would only apply to financial institutions with assets of $10 billion or more. The CFPB offered financial institutions two options on deciding how much to charge customers. First, a financial institution may adopt a “breakeven standard,” charging a fee needed to offset losses for written off overdrawn account balances and direct costs traceable to the provision of courtesy overdrafts. Second, a financial institution may employ a “benchmark fee,” of either $3, $6, $7, or $14, derived by the CFPB from analyzing charge-off losses and cost data. Comments to the rule must be received on or before April 1, 2024. In addition, the proposal would prohibit requiring the customer to use preauthorized electronic fund transfers for repayment of covered overdraft fees by these institutions. The final overdraft rule is expected to go into effect on October 1, 2025.
Mass AG proposes legislation to combat “junk fees”
On November 30, the Massachusetts Attorney General’s office proposed regulations to combat so-called “junk fee” practices and make business payment methods more transparent, according to this press release
The purpose of the new rules is to help define unfair and deceptive practices for imposing fees as well as establishing standards for automatic renewal or continuous service contracts. Under the proposed regulations, the following acts performed by a business would be considered an “unfair and deceptive practice”: failing to disclose the total price of a product; failing to disclose any fees, interest, charges, or other expenses related to a product; and failing to disclose the total price before requiring a consumer to provide any personal information. The proposed regulations also state that, for recurring fees and trial offers, companies must provide a means of contact so that a consumer may cancel and must offer a way for a consumer to terminate a trial period in the same way it was entered.
The AG’s office will be holding a public hearing on the proposal on December 20 and is accepting public comments until then. If enacted, Massachusetts would be only the second state (following California) to issue a rule specifically targeting “junk fees.”