Consumer Finance Protection Bureau (CFPB) Director Rohit Chopra made clear his intentions to crack down on “junk fees” charged by financial institutions (FIs) again last week, saying that “people are sick and tired of this fee creep that is all over the economy.”
In an interview with The Washington Post, Chopra said “more and more line items that are being added to bills that essentially obscure the upfront price of a product.” He added that “in many cases, these are fees where there’s not even a service provided or where the bank or financial institution doesn’t even do any work.”
These remarks came the same day the CFPB published a report comparing overdraft fees across banks in the U.S. The report highlighted the overdraft and non-sufficient fund (NSF) fees banks charged, listing FIs by name for a nine-month period from January to September 2021.
Chopra said the aim of this report is to examine how competitive financial markets are, and to prevent some FIs from using certain fees that seek to “take advantage of a captive relationship with the consumer to drive excess profits.”
“What we really need to understand is, are financial institutions competing on an upfront price and can consumers shop for it, or are all these junk fees essentially being packed in later in the process?” Chopra said in the interview.
The CFPB requested input from the public to learn more about these “junk fees” and to determine what the next steps could be, which may include new regulations.
The problem with the term “junk fee” used by the CFPB is that it includes very different types of fees, some of which may be difficult for a company to define but others with a clearly defined purpose. For example, the public inquiry and Chopra’s interview start referring to “junk fees” to resort fees added to hotel bills and serve fees added to concert ticket prices. These are easy for consumers to identify and sometimes difficult for a company to explain.
However, the CFPB is also inquiring about deposits accounts, credit cards or payment transactions. This includes NSF fees and overdraft fees, but it also includes account maintenance fees, ATM fees or late fees in the case of credit cards. While the CFPB doesn’t suggest that all these fees aren’t associated to a given service or that they should be banned, it is nonetheless surprising to find all of them under the same umbrella of “junk fees.”
Furthermore, if the CFBP finds that a fee is abusive, nothing prevents a company from scrapping that fee and adding a similar one somewhere else. Banning a fee may not make the market more competitive overnight.
Nonetheless, for the moment, Chopra’s advocacy efforts have rendered some results as banks have been announcing changes to their overdraft programs. These changes include eliminating NSF fees charged when transactions bounce, reducing the size of the overdraft fee or providing a grace period to bring the account back to positive before charging an overdraft fee.
As any potential regulation in this area would still take months, if it happens at all, the CFPB’s best strategy against “junk fees” is probably what is doing, namely, strong advocacy deterrence. The CFPB will collect information until March 31.
Read more: CFPB Opens Inquiry Against ‘Junk Fees’
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