CFPB chief ratchets up 'junk fee' rhetoric

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Banks will be put under the microscope as part of the Consumer Financial Protection Bureau’s initiative to get rid of so-called junk fees, Director Rohit Chopra warned Thursday.

The levying of gratuitous fees has expanded to all parts of the economy — from hotel fees to surcharges on concert tickets to nonsufficient funds fees imposed by banks, Chopra said. The proliferation of line-item charges on bills is obscuring the true price of products and services, making it harder for consumers to shop around based on price, he said.

“People are getting sick and tired of this fee creep that is all over the economy,” Chopra said during an online discussion with The Washington Post that was open to the public. “Banking is a bastion of many of these fees, and consumers want to know what is going on with this. 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.”

Scrutiny of bank fees is expected to ratchet up on the supervisory front. It is still unclear whether the CFPB plans to propose a rule to rein in such fees.

“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 into later in the process?” Chopra asked. “We're still looking at all of our options on this. We do expect that we are going to sharpen our supervisory scrutiny of institutions that are addicted to these fees. I think all options are on the table.”

Chopra also offered a limited compliment to the dozen large and midsize banks that have dropped or curbed overdraft fees — or pledged in recent weeks to do so.

“I think a lot of institutions realize that for the long term they need to transition away from being dependent on these fees,” he said. “Some of it we’re already seeing. Honest actors out there are already staying ahead of the game, and I expect that others will follow. This is a small step in the right direction.”

Banks collected roughly $15.5 billion in overdraft and nonsufficient funds fees in 2019, though the percentage of fee revenue has been dropping for years, according to the CFPB.

Richard Hunt, the president and CEO of the Consumer Bankers Association, accused Chopra of making unsubstantiated claims about fees in his latest attack on the banking industry. The association claims the crackdown on fees is unwarranted.

“The bureau should be focused on seeking feedback from and working in tandem with [bankers] — the very people on the front lines interacting with customers everyday — to recognize the value these products and services have in the lives of the people we are all working to serve,” Hunt said in a press release.

Asked about cryptocurrency, Chopra spoke generally about consumers needing a real person to speak with at a company when something goes wrong.

“Right now most of its use really is in speculative trading,” Chopra said. “I think there's a big question that a lot of individuals ask me when we're talking or thinking about crypto, and one of the things that they wonder is who do they go to when something goes wrong?”

During the crypto discussion, Chopra reiterated his concerns that large technology companies are angling to gain too much control of the financial system.

“More and more firms are tracking us, harvesting our data and monetizing it. And I really question what these giant tech companies are doing,” he said. “That is a worry when it comes to how Big Tech is swallowing up more and more power in this country.”

In December, the CFPB launched an inquiry into buy now/pay later installment loans, which have become a $100 billion market. Chopra said the bureau is trying to understand how the business model works and what its adoption means for younger consumers in particular.

“There are questions that we have asked about how is this data that is being collected used, and how does credit reporting work with all of this,” he said.

In a blog post Thursday, the CFPB published a list of the top 20 banks based on overdraft and nonsufficient fund fee revenue for the nine months ended Sept. 30.

Last year, Wells Fargo topped the list by earning $1 billion in fee revenue, followed by JPMorgan Chase with $924 million and Bank of America earned $823 million. TD Bank came in a distant fourth with $347 million in fee revenue.

Rebecca Borne, the CFPB’s senior engagement and policy fellow, and Amy Zirkle, a CFPB payments and deposits program manager, wrote in the blog that the CFPB is working to reduce banks’ reliance on overdraft and nonsufficient funds fees as part of its larger initiative to reduce junk fees to save consumers billions of dollars.

Still, the vast majority of bank fees are covered, if not prescribed, by existing statutes including the Truth in Lending Act of 1968 and the Credit Card Accountability Responsibility and Disclosure Act of 2009.

The CFPB also is looking closely at auto lending and credit card markets to gauge whether interest rates are competitive.

“I'm very concerned that consumers don't always face a competitive market when it comes to interest rates on their credit card,” Chopra said. “So this is something we're looking at across the board.”