CFPB Says Unneeded Fees Drain Public Benefit Payments

America’s financial watchdog says unnecessary fees are cheating retirees out of their benefits.

In its latest salvo against unwanted fees, the Consumer Financial Protection Bureau (CFPB) on Wednesday (March 1) warned that the financial products used to deliver Social Security and unemployment payments can often include high surcharges that eat away at people’s benefits.

“When cash assistance programs are drained by unnecessary fees and poor customer service, it hurts individual recipients and taxpayers,” CFPB Director Rohit Chopra said in a news release.

“The CFPB will continue to ensure that companies delivering public benefits obey federal consumer financial laws and continue to work with federal and state officials to make public benefits delivery more effective.”

The bureau outlined a number of problems with the system including the fact that some prepaid cards can charge a host of fees — maintenance, balance inquiry, customer service, or ATM fees that “can quickly erode the amount of available funds.”

The release cites figures from the Federal Reserve showing that in 2020 administrators of prepaid cards collected $1.3 billion in transaction fees on $409 billion in public benefits.

The CFPB also argues that fees can lead to uneven access to benefits from state to state. Temporary Assistance for Needy Families and Unemployment are administered at the state or county level, leading to a variety of program structure and a variety of fees.

“For example, unemployment prepaid card users in some states pay up to $2 for out-of-network ATM withdrawals or up to $14 for replacements cards, while recipients in other states pay nothing for those same services,” the release said.

The CFPB has in the last year called for action against what it terms junk fees on a number of fronts, including last month’s proposal to cap credit card late fees.

The planned cap would lower the typical late fee from around $30 to $8, thereby saving consumers up to $9 billion a year.

“Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” Chopra said in February. “Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”

The proposals come as the CFPB is facing an existential threat in the form of a Supreme Court case that examines the constitutionality of the agency’s funding. That case is set to be heard by the court in October, with a decision expected next year.