Recently, the CFPB issued a “Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products or Services.”  Comments on the RFI must be submitted by March 31, 2022.

On February 17, 2022, from 2:30 p.m. to 3:30 p.m. ET, Ballard Spahr will hold a webinar, “The CFPB’s Inquiry into “Junk Fees”: What It Means for Consumer Financial Services Providers.” 

The CFPB’s press release about the RFI frames it as “an initiative to save households billions of dollars a year by reducing exploitative junk fees charged by banks and financial companies” and “a chance for the public to share input that will help shape the agency’s rulemaking and guidance agenda, as well as its enforcement priorities in the coming months and years.”

The CFPB describes the fees on which the RFI is focused as “fees that are not subject to competitive processes that ensure fair pricing” and refers to them as “exploitative junk fees.”  According to the CFPB, such fees are “hidden” because they “are mandatory or quasi-mandatory fees added at some point in a transaction after a consumer has chosen the product or service based on a front-end price.”  As a result, they “can lure customers into making purchasing decisions based on a perceived lower price.” In addition, the CFPB is “concerned about fees that exceed the marginal cost of the services they purport to cover, implying that companies are not just shifting costs to consumers, but rather, taking advantage of a captive relationship with the consumer to draft extra profits.”

The CFPB indicates that these “excessive and exploitative fees” can take many forms, including:

penalty fee such as late fees, overdraft fees, non-sufficient funds (NSF) fees, convenience fees for processing payments, minimum balance fees, return item fees, stop payment fees, check image fees, fees for paper statements, fees to replace a card, fees for out-of-network ATMs, foreign transaction fees, ACH fees, wire transfer fees, account closure fees, inactivity fees, fees to investigate fraudulent activity, [and] ancillary fees in the mortgage closing process.

The RFI includes the following examples for “select products and markets”:

• Deposit accounts.  Overdraft and NSF fees which, according to the CFPB, make up the majority of total revenue banks derive from deposit accounts
• Credit cards.  Late fees, with the CFPB noting that “nearly every bank charges the same for late fees—the maximum allowed by law of $30 for the first late payment and $41 for subsequent late payment
• Remittances and payments. “Convenience fees” on payment transfers, return item fees, stop payment fees, check image fees, online or telephone bill pay fees
• Prepaid accounts .  “Add-on” fees for regular activities such as transaction fees, cash reload fees, balance inquiry fees, inactivity fees, monthly service fees, and card cancellation fees
• Application fees and closing costs, fees for making phone or online payments, fees for a servicer’s bill pay service, delinquency-related fees such as monthly property inspection fees, new title fees, appraisals and valuations, broker price opinions, force-placed insurance, foreclosure fees, and “unspecified corporate advances”
• Other loans (including student loans, auto loans, installment loans, payday day loans).  Fees to reschedule  payment dates, fees to make online or phone payments. (Curiously, in connection with “other loans,” the CFPB says it is also interested in origination fees such as application fees and fees to receive loan proceeds in an expedited manner.)

The RFI includes a list of specific questions on which the CFPB is seeking information.  Among the CFPB’s questions is what types of fees obscure the true cost of products or services by not being built into the upfront price, what fees exceed the costs to the entity that the fee purports to cover, and what companies or markets are obtaining significant revenue from back-end fees.

In addition to the CFPB’s broad-brush approach to labeling post-origination or post-account opening fees as “junk fees” and “exploitative and excessive,” it is notable that the CFPB does not acknowledge that the permissible amounts of many fees are established by federal and state law.  In addition, federally-chartered banks have the right to preempt state limits on certain fees and a bank’s exercise of that right to charge a greater amount does not mean the bank is charging an amount that is “exploitative and excessive.”

Moreover, the suggestion that fees are “hidden” seemingly ignores the extensive disclosure rules promulgated and administered by the CFPB.  For example, Regulation DD requires disclosure, on request and before a consumer opens a deposit account, of the amount of any overdraft fee or NSF fee imposed in connection with the account.  Regulation Z similarly requires disclosure, on or with in application or solicitation for a credit card account, of any late payment fee.  In the case of prepaid accounts, Regulation E requires disclosure, before a consumer acquires an account, of any per-purchase transaction fees, cash reload fees, balance inquiry fees, customer service fees, inactivity fees, and all monthly and other periodic fees.  Even when a customer acquires a prepaid account in person at a retail location, these fees have to be disclosed and visible through any packing material.

We are particularly puzzled by the CFPB’s apparent suggestion that credit card issuers are charging excessive late fees by charging $30 for the first late payment and $41 for subsequent late payments.  The provisions of Regulation Z that implement the CARD Act require that the late payment fees imposed by credit card issuers be reasonable and proportional to the violation of the account terms.  They provide safe harbors that allow a card issuer in 2022 (as recently adjusted based on changes to the Consumer Price Index) to impose a fee of $30 for a first late payment and $41 for a subsequent late payments. (Regulation Z also permits an issuer that can demonstrate that a higher fee is justified as a reasonable proportion of its internal costs to assess a penalty fee that is higher than the safe harbor fees.)  Accordingly, card issuers charging $30 for the first late payment and $41 for subsequent late payments are charging fees that are reasonable and proportional to the violation as a matter of federal law.

Also puzzling is Director Chopra’s statement that “when buying a home, there’s a whole host of fees tacked on at closing where borrowers feel gouged.”  The TILA/RESPA Integrated Disclosure Rule significantly limits the ability of a lender to add or increase fees at closing, so it is not clear how lenders can tack on a host of fees at closing.

Despite the fact that many of the CFPB’s objections to various fees are unwarranted, there is no doubt that ancillary fees of all kinds will be scrutinized by the CFPB during examinations and possibly become the subject of enforcement investigations.  As a result, we believe that this is a propitious time for banks and other consumer financial services providers to undertake a thorough review of their ancillary fees charged on all of their consumer financial services and products to ensure that the charges are lawful under applicable federal and state laws and that they are clearly and conspicuously disclosed.  We are assisting several clients in this review.

It is not surprising that industry trade groups have reacted to the RFI with criticism.  The following statement on the RFI was issued by the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Credit Union National Association, Financial Services Forum, Independent Community Bankers of America, National Association of Federally-Insured Credit Unions and National Bankers Association:

The CFPB’s new Request for Information on fees is a misguided effort that paints a distorted and misleading picture of our country’s highly competitive financial services marketplace.  Multiple federal laws and the CFPB’s own rules already require banks, credit unions and other providers of consumer financial services to disclose terms and fees in a clear and conspicuous manner, and our members do so each and every day.  Consumers in this country know they have a wide range of choices when it comes to financial services products, and those businesses compete every day, including on fees.  We look forward to responding to this Request for Information with facts and perspective sadly lacking from today’s announcement.

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