What is an “unwanted charge?” CFPB investigation sparks backlash from industry


Director of the Consumer Financial Protection Bureau, Rohit Chopra, aroused anger by launching a wide investigation last week in so-called “junk fees” charged on common financial products such as loans, mortgages and credit cards.

“Service charges inflate ticket prices, resort fees increase our costs of staying in hotels, and our phone bills are often loaded with mysterious charges,” Copra said in a Jan. 26 press call. . “These unwanted fees make it harder for us to choose the best product or service because the true cost is hidden. The bank is no different.”

But this initiative has bankers, consumers and policy experts wondering what exactly makes a commission a “junk fee?” » Many bankers and lenders insist that the fees they charge relate to specific types of work or services performed, and existing laws and regulations already prohibit excessive fees, so it is not not clear what problem the survey is designed to solve.

The Consumer Financial Protection Bureau’s recent investigation into unwanted charges has lenders wondering what charges are being reviewed, given that existing laws already prohibit arbitrary and usurious charges.


“Nobody likes fees – and when you call them junk fees, you like them even less.” said Pete Mills, senior vice president of residential policy at the Mortgage Bankers Association.

Existing consumer protection laws, including the Truth in Lending Act of 1968, already regulate fees. This law, known as TILA, protects consumers from inaccurate and unfair billing practices and requires all lenders and creditors to disclose specific terms such as the annual percentage rate on a loan in advance. The Credit Card Accountability, Liability and Disclosure Act, passed in 2009, virtually eliminated penalty fees, reduced late fees and set general limits on credit card fees, studies showed.

“I am surprised by the extent of the CFPB’s request for information given that the Truth in Lending Act actually regulates these fees,” said Amy Hanna Keeney, partner at Adams and Reese LLP in Atlanta. “If you’re a credit card issuer, bank, or traditional creditor, Truth in Lending really limits what you can and can’t charge, and there has to be a reasonable relationship between what you charge and what it actually costs to provide this service.

The CFPB has listed about 25 different fees ranging from balance inquiry fees to card cancellation fees to inactivity fees, in its request. Chopra already had reprimand the largest credit card issuers last month claiming they are engaging in unfair or anti-competitive practices because just eight companies control 70% of the market.

“Unfair, undesirable fees charged by banks and non-bank financial institutions have become widespread, with the potential effect of shielding substantial parts of the true price of consumer financial products and services from competition,” the CFPB said in its application. .

Mortgage lenders in particular object to the word “trash” being associated in any way with fees that are built into the cost of a home loan. Mills and others note that mortgage lenders invested heavily to comply with the CFPB’s 2015 integration of TILA with the Property Settlement Procedures Act, known as TRID. Most fees on home loans are third-party fees, including state and local property taxes, registration fees, home inspection fees, and homeowners insurance.

In this regulation, the CFPB sought to address the “surprises” that borrowers faced when taking out a home loan by creating clearer information and fee estimates. The disclosures were specifically designed to help consumers clearly compare the fee structure of one lender to another by showing how much each fee was, what it was for, and what fees are charged by lenders versus third parties.

Borrowers currently receive a three-page loan estimate with a breakdown of fees when applying for a loan for the first time, and a final disclosure that ensures most lenders’ fees remain locked in and cannot increase by more than 10%. In addition, certain fees such as title insurance are regulated by the state and therefore fall outside the jurisdiction of the CFPB.

Still, many experts believe the CFPB will seek to take legal action against companies if it finds the fees disproportionately affect low- and middle-income consumers or minority groups. The bureau would likely use its authority to regulate “unfair, deceptive and abusive acts and practices” – known as UDAAP – to address issues such as misleading advertising.

“The bureau is challenging these charges should be based on its UDAAP authority, in the same way it previously attacked products it believed were unsuitable for consumers,” said Scott Pearson, partner and head of consumer financial services at Manatt, Phelps. & Phillips LLP.

In his request, the CFPB urges consumers to provide feedback on their experiences with fees – for example, whether they think the fee is too high considering the cost of the product or service, or whether they “believe” the fee are transparent and have clear information. But asking consumers to weigh in on the fees has reignited concerns among creditors that the CFPB’s complaints database will become a Yelp.com-like repository of negative reviews for financial firms.

“Which consumer is going to write that they like being charged a fee?” asked Joann Needleman, an attorney at Clark Hill who represents debt collectors. “No one is sure to pay fees.”

The CFPB is particularly interested in fees that have a “hidden cost,” such as being charged to maintain a prepaid card or to pay a bill, the office said in a Feb. 2 statement. blog post. Some suggest that Chopra’s investigation into unwanted charges is tied to the CFPB’s upcoming proposal on consumers’ right to control their own financial data. The bureau is drafting a rule, required by Dodd-Frank Section 1033, that would give consumers access to their banking transaction data. Some observers have suggested the rule could lead to greater competition based on costs and fees.

“This is another area where a 1033 regulation has the potential to provide more and better choices for consumers,” said John Pitts, chief policy officer at San Francisco data aggregator Plaid and former deputy deputy director of the CFPB. “Transparency and choice drive competition that’s good for consumers and supports honest businesses, especially those looking to deliver services to more people at lower cost.”

Since taking the reins of the CFPB in October, Chopra has assuaged much of his anger over bank overdraft fees. Yet even as bank after bank reduced overdraft fees as low as $10, Chopra continued to excoriate the practice. Beyond overdraft, the CFPB targets late fees and NSF fees. But no matter what the CFPB decides to do with a fee, an unwanted fee, meanwhile, Chopra has put lenders on their heels simply by coining the term.

“The director believes that the bullying pulpit is one of the most effective tools he has,” Pearson said.


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