Insights

The Consumer Financial Protection Bureau (CFPB) recently announced that the agency will be examining so-called “junk fees” and “sharpening its supervisory scrutiny” over these types of fees. On February 2, 2022, the CFPB published a request for public comment in the Federal Register that invites the public to comment on how junk fees have impacted individuals’ lives. The CFPB stated that the use of hidden back-end fees, “lures consumers into making purchasing decisions based on a perceived lower price.” According to the CFPB, these fees “exceed the marginal scope of the services they purport to cover.” In its notice, the CFPB has stated that it has grown increasingly concerned that consumer finance has become a part of this “fee economy,” undermining competition for financial services. The Agency called out the “widespread exploitative junk fees charged by both banks and non-bank financial institutions,” and how these fees can obscure the true price of consumer financial products and services.

Further, in its request for public comment, the CFPB explained the various ways that these “junk fees” can appear in various products including deposit accounts, credit cards, remittances and payments, prepaid accounts, mortgages, and other loans. Such fees may take the form of “penalty fees, late fees, overdraft fees, non-sufficient funds (NSF) fees, convenience fees, ancillary fees in the mortgage process, and more.” The CFPB highlighted that many of these fees like overdraft fees and NSF fees account for a substantial portion of the revenue for many financial institutions. As related to mortgages, the CFPB stated that these fees are a “financial hardship on borrowers who may find themselves unable to catch up due to the plethora of fees related to mortgage delinquency.

Additionally, the CFPB has made it clear that the agency is interested in information concerning “loan origination and servicing fees which includes loans like payday loans, auto loans, installment loans, and more. The Agency specifically stated that “many of these services charge fees to make online payments, application fees, and even charge loan proceeds in an expedited manner.

The CFPB has urged stakeholders to provide stories, data, and information about fees in response to the following questions-

1. If you are a consumer, please tell us about your experiences with fees associated with your bank, credit union, prepaid or credit card account, credit card, mortgage, loan, or payment transfers?
2. 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?
3. What fees exceed the cost to the entity that the fee purports to cover?
4. What companies or markets are obtaining significant revenue from back-end fees, or consumer costs that are not incorporated into the sticker price?
5. 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?
6. What data and evidence exist with respect to how consumers consider back-end fees, both inside and outside of financial services?
7. What data and evidence exist that suggest that consumers do, or do not, understand fee structures disclosed in fine-print or boilerplate contracts?
8. What data and evidence exist that suggest that consumers do or do not make decisions based on fees, even if well disclosed and understood?
9. 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 received by the CFPB on or before March 31, 2022.

Read more at the Federal Register.