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(From CUCollaborate) – President Biden announced a government-wide crackdown on “junk fees,” including new efforts by the CFPB to eliminate bank charges that catch consumers by surprise.
“These so called ‘junk fees’ are not just an irritant—they can weaken market competition, raise costs for consumers and businesses, and hit the most vulnerable Americans the hardest,” the administration said, in a fact sheet outlining its effort.
Biden discussed the initiative on October 26.
“Each year—but each year, these “junk fees,” in addition, that companies charge cost Americans tens of billions of dollars, weighing down family budgets and making it harder for people to pay their bills,” he said.
The President added, “They’re unfair, and they hit marginalized Americans the hardest, especially low-income folks and people of color. They benefit big corporations, not consumers, not working families.”
Background and Credit Union Stance
When the CFPB earlier this year sought comment on the fees charged by financial institutions, credit union trade groups strongly objected to them being called “junk.”
“The CFPB’s gross mischaracterization of fees that are subject to substantial federal and state laws, contracted for by the financial institution and the consumer, and clearly and conspicuously disclosed upfront before transactions are completed, as “junk fees” merely stokes fear and further misunderstanding of the financial services marketplace and the resources available to consumers to guide them through the purchase of the products and services they need,” NAFCU wrote, in a letter to the agency.
In announcing the crackdown, the administration included airline baggage and change fees, as well as “hidden” cable TV charges and fees charged by auto dealers in its list of “junk fees.”
“They can be defined as fees designed either to confuse or deceive consumers or to take advantage of lock-in or other forms of situational market power,” the administration said.
In response to President Biden’s call to action, it was announced that all members of the administration’s Competition Council are seeking ways to reduce “junk fees.”
CFPB Involvement
The CFPB is a member of the council and on Wednesday announced its own new initiative to crack down on fees charged by financial institutions.
“Americans are willing to pay for legitimate services at a competitive price but are frustrated when they are hit with junk fees for unexpected or unwanted services that have no value to them,” said Bureau Director Rohit Chopra. “We are providing guidance on existing law that will help law-abiding businesses seeking to fairly compete and the families they serve.”
The CFPB added that overdraft and depositor fees likely violate federal law when consumers cannot reasonably avoid them. And further, the agency said financial institutions should not charge a fee to the depositor of a check that bounces, adding that this also likely violates federal law.
Additionally, the bureau said an overdraft fee can become a surprise fee when the consumer does not reasonably expect their actions to cause the overdraft, and specifically that, “Enforcers should closely scrutinize whether and when charging overdraft fees may contravene Federal consumer financial law.”
Pushback From Credit Union Groups
On Wednesday, NAFCU President and CEO B. Dan Berger said the CFPB policy statement was non-binding, adding that it had not gone through a public comment period.
“The CFPB should not rely on scare tactics and legally non-binding guidance to delineate the bounds of its regulatory and supervisory authority,” Berger stated. “NAFCU supports greater transparency and accountability for the CFPB, especially in following the congressionally mandated notice-and-comment rulemaking process.”
Earlier this year, CUNA, in responding to the request for information said that characterizing a broad range of common fees as “junk” obscures the true cost of financial services.
What Happens Next?
By appearing with Chopra, Biden was indirectly giving support to the beleaguered agency. The Fifth Circuit Court of Appeals last week ruled that because the agency is not funded through the appropriations process, it is unconstitutional.
The ruling is only binding in the Fifth Circuit states of Texas, Mississippi and Louisiana. However, if other courts follow suit, it could render all actions taken by the bureau illegal.
Discussing the “junk fee” guidance Wednesday, Sen. Pat Toomey, R-Pa., the ranking member on the Senate Banking Committee, noted that the agency was relying on its power to police Unfair, Deceptive, or Abusive Acts or Practices.
“Today’s guidance is yet another reminder that the CFPB has never defined UDAAP through a transparent rulemaking process,” he said. “It’s no surprise that an out-of-control and unaccountable agency—which the Fifth Circuit recently ruled is unconstitutional—has chosen to sidestep the congressionally mandated rulemaking process to change the rules of the road.”