CFPB Launches Crackdown on ‘Junk’ Fees

The canary didn’t make it. Less than a week after publishing a blog post noting that consumers spend $120 billion annually on credit card interest and fees every year, the Consumer Financial Protection Bureau yesterday announced it had published a Request for Information on what it calls “exploitative junk” fees charged by banks and financial services companies.

A copy of the RFI can be accessed by clicking here.

“Many financial institutions obscure the true price of their services by luring customers with enticing offers and then charging excessive junk fees,” said CFPB Director Rohit Chopra, in a statement. “By promoting competition and ridding the market of illegal practices, we hope to save Americans billions.”

In announcing the initiative, the CFPB disclosed that credit card companies charge more than $14 billion a year in “punitive” late fees and that banks and financial services companies earned more than $15 billion in revenue from overdraft and non-sufficient funds (NSF) fees. Fees account for about 20% of the total cost of credit cards, according to the CFPB’s research.

What constitutes a “junk” fee? Examples provided by the CFPB include hotels offering low rates for rooms and then adding on “resort” fees and “service” fees, or other products and services adding on processing fees. The accounts receivable management industry dealt with this years ago when it charged convenience fees to individuals who wished to pay via debit or credit card. The Bureau noted in its RFI that these kinds of fees are still “common.”

Among the situations that the CFPB is looking to uncover are:

  • Fees for things people believed were covered by the baseline price of a product or service
  • Unexpected fees for a product or service
  • Fees that seemed too high for the purported service
  • Fees where it was unclear why they were charged

Other questions the CFPB is seeking answers to are:

  • What types of fees for financial products or services obscure the true cost of the product or service by not being built into the upfront price?
  • What fees exceed the cost to the entity that the fee purports to cover? For example, is the amount charged for NSF fees necessary to cover the cost of processing a returned check and associated losses to the depository institution?
  • What companies or markets are obtaining significant revenue from back-end fees, or consumer costs that are not incorporated into the sticker price?
  • What obstacles, if any, are there to building fees into up-front prices consumers shop for? How might this vary based on the type of fee?
  • What data and evidence exist with respect to how consumers consider back-end fees, both inside and outside of financial services?
  • What data and evidence exist that suggest that consumers do, or do not, understand fee structures disclosed in fine-print or boilerplate contracts?
  • What data and evidence exist that suggest that consumers do or do not make decisions based on fees, even if well disclosed and understood?
  • What oversight and/or policy tools should the CFPB use to address the escalation of excessive fees or fees that shift revenue away from the front-end price

Comments must be filed by March 31.

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