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CFPB report targets cash-back fees at retailers
On August 26, the CFPB published a report regarding cash-back fees that some retailers charge for consumers to access cash via the consumers’ debit or prepaid cards. According to the CFPB, such fees have become more prevalent due to bank mergers, branch closures and out-of-network ATM fees, which reduced the availability of free cash access points for consumers. The CFPB’s report overviewed consumers’ use of cash back, the benefits and costs of such transactions to merchants, and the practices of market participants that do not charge cash-back fees.
The Bureau concluded that, while cash back at some retailers is free, other retailers charged for this service, and that consumers with lower incomes or fewer banking choices — including those in small, rural towns, communities of color, and low-income communities — were more likely to encounter cash-back fees. The report sampled eight large retail companies and found that three of them charged cash-back fees. The Bureau estimated this practice costs consumers over $90 million a year, asserting that “some retailers provide cash back as a helpful service to their customers, while other retailers may be exploiting these conditions by charging fees to their consumers for accessing their cash.” The CFPB noted that it “will continue to monitor developments related to the fees consumers pay for accessing cash, and work with agencies across the federal government to ensure people have fair and meaningful access to the money that underpins our economy.”
FTC proposes fines, bans based on alleged credit repair scheme
On August 5, the FTC announced proposed court orders that would require a defendant credit repair operation, its owners and associated companies (collectively, defendants) to pay more than $12 million to resolve allegations related to their credit repair products. As previously covered by InfoBytes, defendants allegedly targeted consumers with low credit scores, promising that the company’s products could remove all negative information from consumers’ credit reports and significantly increase their credit scores. Defendants also allegedly charged consumers upfront for the service. Additionally, the FTC claimed that the defendants sought to recruit consumers to participate in a “pyramid scheme” by representing that consumers could make tens of thousands of dollars recruiting others into the service. The operation allegedly violated the FTC Act, the Credit Repair Organizations Act, and the Telemarketing Sales Rule. The proposed settlements will result in over $12 million being turned over to the FTC for consumer refunds, and also impose conduct prohibitions on individual defendants, including industry bans.
Congressional Progressive Caucus opposes bill against CFPB credit card late fee rule
On July 17, 54 members of the Congressional Progressive Caucus sent a letter addressed to the Speaker of the U.S. House of Representatives, Mike Johnson, discussing the upcoming House consideration of H.J. Res. 122 (the “Act”) relating to credit card penalty fees. The Act aimed to invalidate the CFPB’s rule on credit card late fees by amending Regulation Z, which aims to reduce the maximum late fees charged by credit card companies to $8 from the typical $32 (covered by InfoBytes here). The letter indicated that all Republicans on the House Financial Services Committee supported the bill, while all Democrats opposed it. The letter’s authors expressed their view that the Republican majority supports “junk fees.”
The letter argued that the CFPB’s rule would provide substantial financial relief to Americans, estimating an annual savings of $10 billion and an average individual savings of $220 per year for over 45 million people. The letter’s authors affirmed their support for the Biden Administration’s efforts to lower costs for Americans and combat unfair business practices in the banking industry.
5th Circuit keeps CFPB credit card late fee case in Texas
Recently, the U.S. Court of Appeals for the Fifth Circuit issued an opinion directing the lower court to vacate a transfer order, and keeping a challenge to the CFPB’s credit card late fee rule in Texas. In its unanimous ruling, a three-judge panel noted the complex series of procedural events, including two changes of venue ordered by the district court. However, during the first venue transfer (covered by InfoBytes here), a different panel issued a writ of mandamus, reversing the transfer decision because the district court lacked jurisdiction over the case at that time. This was due to the fact that an appeal concerning the preliminary injunction motion was already pending before the 5th Circuit (covered by InfoBytes here). Because the 5th Circuit’s decision to issue the writ of mandamus was based on jurisdictional grounds, they did not have a reason to evaluate whether the district court's decision to transfer venue was appropriate under 28 U.S.C. § 1404(a). Now, the court said, they do. The panel found that the transfer order misapplied the controlling standard for transferring cases and “was a clear abuse of discretion.” Therefore, the 5th Circuit dissolved its administrative stay, granted plaintiffs’ petition for a writ of mandamus, and directed the district court to vacate its transfer order.
Illinois enacts Interchange Fee Prohibition Act within state budget
Recently, the Governor of Illinois signed into law the state’s new budget (the “budget”) which will include a provision cited as the Interchange Fee Prohibition Act (the “Act”). The Act’s language was originally proposed as an amendment to a separate act, HB 4951, but the language was instead inserted in the state budget.
The Act will ban credit card issuers and any other entity that facilitates or processes electronic payments from charging an interchange fee on the tax or gratuity of a transaction. The Act defines an interchange fee as a fee “established, charged, or received” by a payment card network as compensation for its involvement in a transaction. The Act specified that it will be a merchant’s responsibility to bifurcate the tax/gratuity surcharges from the good’s subtotal. Alternatively, a merchant may submit tax information to the issuer’s bank no later than 180 days after the transaction for reimbursement. A credit card issuer cannot change the composition of its interchange fees to offset the amount that will be saved by merchants under this Act. A violation of the Act will result in a civil penalty of $1,000 per transaction, and the issuer must refund the merchant any interchange fees collected on taxes or gratuities.
Sen. Dick Durbin (D-IL) welcomed the Act’s passage claiming it would “bring down costs and eliminate fees” in electronic transactions. The Act will go into effect on July 1, 2025.
CFPB releases RFI on mortgage closing costs
On May 30, the CFPB announced a request for information (RFI) regarding mortgage “junk fees” and their impact on borrowers and lenders. The CFPB identified an increase of over 36 percent in median total loan costs for home mortgages from 2021 to 2023 in its analysis, with median mortgage closing costs of $6,000 in 2022. The Bureau argued these fees and costs, many of which are fixed, can reduce home equity and may undercut home ownership.
The RFI requested public input on whether the fees are subject to competition, how fees are set, who profits from them, and how fee changes, if any, impact consumers and the mortgage market. The CFPB was particularly interested in the factors driving fee increases, such as hard-pull tri-merge credit report costs, and how such fees are affecting housing affordability and access to homeownership. The CFPB also highlighted the potential impact of title insurance and mortgage origination fees.
The RFI included nine specific questions related to
(i) whether there are fees that are particularly problematic or burdensome for consumers;
(ii) whether there are unnecessary fees charged for loan closure;
(iii) whether and to what extent consumers compare closing costs across lenders;
(iv) whether and to what extent consumers shop for closing costs across settlement providers;
(v) the determination of fees, the beneficiaries, and lenders’ influence over third-party costs;
(vi) which fees have increased, and what are their causes;
(vii) factors contributing to rising closing, credit report, and credit score costs, the roles of various entities in the credit report chain, competitive pressures on these costs, and their consumer impact;
(viii) lenders’ ability to negotiate closing costs more effectively than consumers; and
(ix) the potential impact of closing costs on housing affordability, homeownership access, or home equity.
Comments in response to the RFI must be received by August 2.
Minnesota amends list of deceptive practices to include hidden fees
On May 20, the Governor of Minnesota approved HF 3438 (the “Act”) which rewrote two sections of Minnesota’s statutes to 1) redefine the scope of engaging in a deceptive trade practice, and 2) indemnify certain exemptions. Under the revised statute, in Minnesota, a person will engage in a deceptive trade practice when it lists the price of a good or service but does not include all mandatory fees or surcharges. Further, a mandatory fee will include, but is not limited to, a fee that must be paid in order to purchase the goods or services advertised, was not reasonably avoidable by the consumer, or that would be reasonably expected in the purchase of a good or service. A mandatory fee would not include taxes imposed by a government entity. When a consumer would complete a purchase on a delivery platform, the delivery platform must display “in a clear and conspicuous manner” any additional flat fees or percentages which are charged for that purchase. Upon checkout, the delivery platform must display the subtotal and any additional fees added to the total cost. The second amended section referred to exemptions related to lawful fees in association with the purchase or lease of an automobile from a dealership. The Act will go into effect on January 1, 2025.
CFPB’s credit card late fee rule stayed
On May 10, the U.S. District Court for the Northern District of Texas entered an opinion and order granting the plaintiffs, comprising several trade organization, its motion for preliminary injunction and placed a stay on the CFPB’s credit card late fee rule. As previously covered by InfoBytes, a suit was filed against the CFPB by multiple trade organizations to challenge the Bureau’s final rule to amend Regulation Z and limit most credit card late fees to $8.
The court decided not to address the plaintiffs’ arguments regarding the CARD Act, TILA, and APA violations due to the Court of Appeals for the Fifth Circuit opinion that the CFPB's funding structure was unconstitutional; therefore, any regulations promulgated by the CFPB would be unconstitutional. For that reason, due to the CFPB’s unconstitutional structure found by the 5th Circuit, the District Court decided that all factors weighed in favor of issuing a preliminary injunction and thus staying the final rule.
Maryland enacts new powers for regulators to examine third parties
On May 9, the Governor of Maryland approved HB 250 (the “Act”) which will authorize the Commissioner of Financial Regulation to examine third parties that service entities under the supervision of the state’s Office of Financial Regulation (OFR). Such licensed entities include both depository and non-depository financial institutions. Currently, the OFR lacks the authority to examine third parties until the Act goes into effect. The Act will define third-party service providers as a “person who performs activities relating to financial services on behalf of a regulated entity for that regulated entity’s customers,” and include data processing centers, activities that support financial services, and internet-related services. On enforcement, the Act will authorize the OFR to enforce the law against any third party that refuses to submit to an examination, refuses to pay a fee, or engages in “unsafe or unsound” behaviors as determined by the OFR. The Act will outline several authorities of the OFR, including notifying the licensed person, which information the OFR can access, and levying fees. Following a notice and hearing, the Commissioner may issue a cease-and-desist order, suspend or revoke a violator’s license, or issue a penalty of up to $10,000 for the first violation and up to $25,000 for each subsequent violation. The Act takes effect on October 1.
House questions CFPB's rules on NSF fees and impact on small businesses
On May 9, the House Committee on Small Business expressed concerns in a letter addressed to CFPB Director, Rohit Chopra, on a proposed rule that would ban charging insufficient fund fees (NSF fees) on declined transactions (covered by InfoBytes here). The Committee argued this proposed rule could unduly complicate existing UDAAP regulations and impose additional burdens on small financial institutions.
The letter stated the CFPB did not convene a Small Business Advocacy Review (SBAR) panel and questioned the CFPB’s claims that the rule would not significantly affect a substantial number of small businesses. The Committee suggested that the CFPB’s analysis, which minimizes the impact of NSF fees on small institutions’ revenue, might be flawed and that the rule could have a significant economic impact in terms of reporting requirements and compliance, warranting a review by an SBAR panel. The Committee also challenges the CFPB’s assertion that NSF fees for certain transactions are inherently “abusive,” arguing that the CFPB is overstepping its authority by attempting to ban “business practices” altogether rather than limiting abusive practices. Finally, the Committee requests information from the CFPB on several fronts, including the number of small financial institutions affected by the rule, the compliance burden, the CFPB’s methodology for identifying UDAAP, and the CFPB's stance on disclosures compared to other financial regulations and the FTC's approach.