Rohit Chopra, the director of the Consumer Financial Protection Bureau, has launched a sweeping review of fees charged by banks, credit unions, mortgage lenders and fintechs as part of an effort to spur competition for financial services .
Chopra said Wednesday that in many cases the total fees exceed the cost to financial institutions to provide the underlying service, indicating that companies are not just passing the costs on to consumers, but are taking advantage of a captive relationship to increase their profits.
Chopra specifically called on banks to raise billions in revenue each year by charging so-called “junk fees” that include penalties for late payments, insufficient funds and account maintenance.
“The big banks take huge sums in fees from retail customers,” Chopra said in a call with reporters. “When markets become dependent on these management fees, it is more difficult for families to realize the benefits of competition. Today, with our request for public comment on junk fees, we are beginning the process of breaking banks’ reliance on these operating revenue streams and clarifying pricing and features from the start. »
The CFPB cited its own research from 2019 which found that major credit card issuers charged more than $14 billion in late fee, while the bank revenues of discovered and insufficient fund charges reached $15.5 billion in the same year. Chopra also identified the closing costs and title insurance charged to homebuyers as ripe for scrutiny.
“When buying a home, there’s a whole host of closing costs where borrowers just feel ripped off,” he told reporters.
The American Bankers Association, Bank Policy Institute, Credit Union National Association and five other trade groups called the CFPB request “a misguided effort that paints a distorted and misleading picture” of the market.
The groups cited several federal laws and the CFPB’s own rules that “already require banks, credit unions and other providers of consumer financial services to disclose terms and fees in a clear and prominent manner.”
Richard Hunt, president and CEO of the Consumer Bankers Association, called on the CFPB initiative “fuzzy math at best and political theater at worst.”
“The bureau has a responsibility to communicate with clarity and precision — not with overblown rhetoric to attack an industry,” Hunt said in a press release.
He also pushed back against Chopra’s claims that banks rely heavily on fees to boost revenue, countering that overdraft fees accounted for less than 2% of banks’ overall revenue in 2019.
Banks and credit card issuers are required to comply with the Credit Card Accountability and Disclosure Act 2009, which caps late fees and other charges. Fintechs, however, are not held to the same standards as banks, Hunt said.
The CFPB has broad authority under the Dodd-Frank Act to prosecute financial firms that engage in unfair, deceptive, and abusive acts and practices, known as UDAAP violations. The bureau also has broad power under its enabling statutes to ensure markets are “fair, transparent and competitive,” according to the law.
Chopra said the CFPB plans to use the information it collects from the public in its normal monitoring and enforcement work to identify financial institutions that may be engaging in illegal practices. The information will also be used to issue rules and guidance.
The office plans to review the 19 statutes it inherited at its inception from the Federal Reserve Board to determine if changes need to be made, Chopra said. The office will also coordinate its efforts with other regulators, a senior CFPB official told reporters.
In addition, the CFPB hopes to know what fees are charged by new market entrants, which will help inform a upcoming regulations on consumers’ right to control their own financial data.
Jenny Lee, a partner at Arent Fox and a former CFPB enforcement attorney, said the bureau could take legal action depending on how much the fee is, how it is reported or collected.
“It would cover banks and non-banks, including buy-now/pay-later products and new forms of fintech credit,” Lee said. “It’s very broad covering any type of consumer credit product, including student loans, mobile apps, mortgage banks and brokers.”
She said the CFPB also has authority at the federal level to take action under the Truth in Lending Act, the Electronic Funds Transfer Act and the Fair Debt Collection Practices Act. .
“There are several outcomes that can come from this effort, including rulemaking, enforcement, public guidance, bulletins and other market research,” Lee said.
Lucy Morris, partner and president of government investigations and enforcement at law firm Hudson Cook, said many of the fees that Chopra called “unwanted fees” are actually contract fees that a consumer accepts when subscribing to a financial product. or service.
“Chopra really focuses on the issue of competition and uses the bully pulpit to drive competition,” Morris said. “In the past, the CFPB could bring complaints to fight against illegal practices, but I don’t know if these practices are illegal or undesirable charges. They try to get the market to make prices more transparent and clear so that consumers can shop and compare.
The ABC’s Hunt disputed Chopra’s view that banks are not competitive, given that there are nearly 5,000 banks in the United States. He suggested that the CFPB partner with the banks rather than attack them.
“The office should focus on seeking feedback and working in tandem with banks – the very people on the front lines who interact with customers every day – to recognize the value these products and services have in the lives of the people we serve. all working to serve,” Hunt said.
In addition to late fees, overdraft fees, and insufficient funds fees, the CFPB’s RFI lists an assortment of other fees, including ATM fees, ACH transfer fees, balance inquiry fees, cancellation of card, cash top-up, check image and inactivity fees.
Public comments on the RFI are open until March 31.