In February, the Consumer Financial Protection Bureau (CFPB) launched a request for information from the public about the impact that “junk fees” are having on consumers. In April, the agency closed the consultation after receiving a staggering 80,000 comments.
Last Wednesday (April 27), CFPB Director Rohit Chopra gave testimony in Congress, where lawmakers questioned him about the scope of the investigation.
Mickey Marshall, director of regulatory legal affairs at the Independent Community Bankers of America (ICBA), told PYMNTS that the main problem with the investigation is that the “bureau is really casting a wide net.” The agency included a lot of different fees from different parts of the financial services industry in this request for information, from credit cards to payment fees, overdraft fees or resort fees.
Part of the reason to cast such a wide net, probably is to receive as wide of a range of comments as possible, Marshall said. Many of the comments are customer complaints about fees, because “nobody really likes paying fees at all,” but they are a necessary part of the business, and this investigation is probably trying to cast a broad net and then it will narrow down its scope to the fees that really could be considered “junk fees,” he explained.
Still the question remains, as some lawmakers made clear on Wednesday, why put all the fees in the same basket? For Marshall there is not a clear explanation for this decision as some of these fees are subject to different disclosure requirements or regulations. One of the first explanations that Chopra gave when this investigation started was that “junk fees” are hidden fees. However, food delivery or ticket fees for a concern are not subject to the same detailed regulatory regime and disclosure requirements as overdraft fees.
On Wednesday, Chopra gave another definition of “junk fees,” saying, “The way I define it is when there is a fee that is often not subject to the full competitive process, and specifically for services you may have never asked for or its cost is way in excess of what a competitive market would offer.”
This new definition relies more on how competitive the market is than on whether the fees are hidden or not. This is an interesting new approach because it opens the door to prove that some fees are competitive. Marshall cited the example of overdraft fees: in December the CFPB put out a report on overdraft fees where it found considerable variance in the overdraft and found that larger institutions charged higher fees than smaller ones, around 20% more. The differences in fees and the fact that some banks are reducing or removing overdraft fees could be seen as a sign of competition in the market.
The CFPB could also consider following closer those banks that charge higher fees through enforcement actions. According to Marshall the bureau has tools like the unfair, deceptive and abusive Act to pursue enforcement actions, but it isn’t likely to see many of these actions. A ban fee outright isn’t likely either given how the Bureau’s legal authority is structured. But more in terms of requiring disclosure is a possibility, Marshall argues. This is despite the disclosure regime that is already in place affecting many of these fees.
Once the CFPB concludes the investigation, the agency may face a challenge about how to craft the right remedy, if any. The problem with targeting overdraft fees, card fees or resort fees this week is that financial institutions and companies may change their policies next week and come up with another fee somewhere else or higher interest rates on loans. “If you do crack down on one thing, it may indeed pop up somewhere else, that’s just a reality,” said Marshall.
Read more: CFPB’s Chopra Hints at Credit Card Rule Changes in Congress Hearing
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