Online banking apps, “buy now, pay later” services and other fintech innovations will push banks to reduce or eliminate “unwanted fees” even if the CFPB waives new regulations, industry groups have said. financial trade to the regulator.
The Consumer Financial Protection Bureau is conducting a regulatory review of what it calls “abusive junk fees” that banks and financial service providers often attach to checking accounts, credit cards and other products. , hiding their true costs.
The comment period on the CFPB review ended on April 11, with the fintech industry pushing the bureau to promote competition which, in turn, would reduce or eliminate fees.
The CFPB is already crafting a rule that could boost competition by making it easier for consumers to switch banks and other financial service providers, but some limits on its authority could hamper its ability to directly challenge fees.
“Many of our member firms have launched their activities to target these fees, increase price transparency, and promote consumer-centric fairness and competition,” the Financial Technology Association said in a comment letter.
Banks have pointed out that the CFPB gives a misleading picture of their fees. Banks already comply with laws like the Truth in Lending Act that require the disclosure of fees to consumers. They said they also operate in a highly supervised environment, unlike some fintechs.
But there’s no doubt that established banks face increased competition from fintech startups touting lower fees and other consumer benefits.
Online banking apps like Chime have increased pressure on banks to reduce or eliminate overdrafts and other fees, the Fintech Technology Association said. Earned pay access products – which allow people to access portions of their paychecks sooner – have made it easier for users to smooth monthly cash flow and avoid arrears, overdrafts and other costs, the group said.
Meanwhile, the rapid growth of buy-it-now and pay-later services at major retailers like Amazon.com and Walmart has provided fierce competition for credit cards, allowing consumers to avoid interest payments and potentially pushing banks to lower late fees, according to the FTA letter. .
The bureau recently released reports distinguishing between overdrafts and credit card late fees, indicating that these sources of revenue could be in the CFPB’s crosshairs.
The fintech industry is also not immune to CFPB scrutiny. The bureau is also carrying out an ongoing review of buy-now, pay-later products, amid concerns about the lack of consistent disclosures about late fees, loan repayments and other issues. The CFPB is also believed to be looking into earned wage access products.
The fintech association urged the CFPB to foster an environment that enables “greater competition, fairness and fintech innovation”.
The bureau is currently working on regulations required by Dodd-Frank Section 1033 that would give consumers more rights to control their personal financial data and make it easier to switch to a new service provider if they don’t like them. fees or other terms.
Besides bank charges, the CFPB also lists resort fees and service charges attached to concert and sports tickets as junk fees. But the bureau’s ability to pursue those charges is unclear.
Banks are crying foul
The banks say they are unfairly targeted by the CFPB.
The Truth in Lending Act and other consumer protection laws and regulations have created a highly supervised environment in which consumers know clearly what they are paying for, said the Bank Policy Institute, a banking trade group, in a letter to the CFPB.
“Banks compete aggressively for consumer business, and all fees they charge are disclosed pursuant to a congressionally mandated regime administered by the CFPB,” said BPI President and CEO. , Greg Baer, in a statement.
The clear information banks are required to provide to customers, along with competition from fintechs and other challengers, has benefited consumers, the Consumer Bankers Association said in its letter to the CFPB.
“Fees that prove unpopular in connection with these accounts – such as monthly fees or cashier access fees – are often reduced or eliminated by competition,” said CBA General Counsel David Pommerehn, in a letter. “In recent years, this same dynamic has led and continues to lead many institutions to eliminate or significantly reduce overdraft fees.”
Bank of America Corp., Wells Fargo & Co., Truist Financial Corp. and other banks announced measures to ease overdraft fees and drop NSF fees. Citigroup Inc. in February became the first major US bank to completely eliminate overdraft fees.
The banks also questioned the data used by the CFPB in its discussion of unwanted charges. The bureau’s information request said a “substantial amount” of banking revenue comes from fees, including $15.4 billion in overdraft and insufficient funds fees, $1 billion in account maintenance fees and $14 billion in credit card late fees in 2019.
The American Bankers Association said overall fee income accounted for about 4% of banks’ revenue in 2019. During that year, banks earned $705 billion in interest income and $264 billion in income. other than interest from sources such as commerce and payments and remittances, the industry says the group.
There are questions about what the CFPB can do to address fees it considers undesirable. The bureau is not authorized to set fee or interest rate caps, but it can use its Dodd-Frank Act powers to prosecute unfair, deceptive, and abusive acts and practices (UDAAPs) to address costs that he considers problematic.
But industry groups say such a move would violate Congressional intent.
“The CFPB should not attempt to rely on its general UDAAP authority to impose substantive limitations on fees, but should defer to the judgment of Congress as to when, if at all, particular fees should be submitted. to substantive regulation under federal consumer finance laws,” a letter from 11 professional banking and credit union groups, including the American Bankers Association, the Consumer Bankers Association and the Bank Policy Institute.
Focus on credit cards
Although the CFPB cannot eliminate fees directly, the Credit Cards Act 2009 gave it oversight of late fees. Under the law, credit card issuers are only allowed to charge late fees “reasonable and proportionate” to a violation of a card’s terms.
The law also gave the CFPB the power to set a “safe harbor” for late fees that can serve as a de facto limit. Currently, the Safe Harbor rate is set at $30 for the first late payment and $41 for subsequent late payments within six billing cycles.
The bureau could lower those limits, and Chopra indicated that might be in sight.
Banks could choose to go beyond the CFPB’s fee thresholds by arguing that higher fees are “reasonable and proportionate” under the CARD Act, said Jeff Sovern, a professor at the College of Law. ‘St. John’s University.
But it might not be worth the fight, he said
“As a result, credit card issuers would likely reduce their late fees to what the Bureau lists as the safe harbor amount,” Sovern said.