May 31, 2023

Podcast - Junk Fees: It's a Political Issue

Clearly Conspicuous Podcast Series

In this episode of his "Clearly Conspicuous" podcast series, "Junk Fees: It’s a Political Issue," consumer protection attorney Anthony DiResta continues the discussion of the Federal Trade Commission's (FTC) interest in hidden fees. This episode focuses on the Consumer Financial Protection Bureau's (CFPB) actions and concerns, focusing on surprise overdraft fees.

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It's a privilege to be with you today. Today, we continue our conversation on the flat involving hidden fees. As we discussed in our last session, junk fees is a political issue. In his State of the Union address, President Biden talked about eliminating or limiting junk fees. The centerpiece of his remarks was the Junk Fees Prevention Act, which is designed to target those hidden fees and surcharges many industries use. Specifically the act on hidden fees in four areas: airlines, hotels and resorts, termination fees for cell phone television, internet providers and entertainment tickets like sporting events or concerts. As the last session reveals, it's not just a political issue facing Congress. It's of high interest to the regulators. In our last podcast, we focused on the proposed rulemaking by the FTC concerning hidden fees.

History of the CFPB's Interest in Fees

Today's topic is the action by the Consumer Financial Protection Bureau, the CFPB. The bureau's interest in fees has an extended history, so let's consider the chronology of the events to better understand the depth of the bureau's concerns and attention. In December of 2021, the CFPB released research showing banks' dependence on overdraft fees and stated that overdraft and non-sufficient bank penalties make up two thirds of reported fee revenue. Then in January of 2022, just a month later, the CFPB launched an initiative to scrutinize back end junk fees, and the CFPB announced a rulemaking proceeding on credit card late fees. Then a month later, in February 2022, the CFPB issued a request for information, and the focus was on junk fees once again and centered around advertised price versus giving back in fees. As the bureau stated in its RFI, quote, "The CFPB is concerned about fees that far exceed the marginal cost of the service they purport to cover." The focus of the request was on deposit accounts, credit cards, convenience fees, prepaid accounts where there's a monthly rate only to find out that there are add-on fees for regular activities such as transaction fees, balance inquiry fees, monthly service fees and card cancellation fees. The focus is also on mortgages, including application fees and closing costs and loan origination and loan servicing fees. Then, a few months later, in September of 2022, the CFPB took formal action against Regions Bank for charging surprise overdraft fees known as authorized positive things. Then a month later, in October of 2022, the CFPB issued guidance on what they called illegal junk fees on deposit accounts.

CFPB's Current Focus on Surprise Overdraft Fees

At the center of this guidance is what the CFPB calls surprise overdraft fees, when consumers have enough money in their account to cover a debit charge at the time the bank authorizes it, which is referred to as "authorized, positive, subtle, negative, ASPN." An overdraft occurs when consumers have insufficient funds in the accounts to cover a transaction, but the financial institution nevertheless pays it. Clearing an overdraft transaction is extending a loan that can create credit risks for the financial institution. But even when the available balance on a consumer's account is sufficient to cover a debit card transaction at the time the consumer initiates it, the balance on the account may not be sufficient to cover it at the time the debt settled. So depositor fees charging consumer fees, who deposited to check the balance's policy, there is charging a fee to the depositor who penalizes the person did not anticipate that the check would bounce. So the CFPB instructs that overdraft and depositor fees violate the Consumer Financial Protection Act. And we are specifically aware, as defense counsel here at home tonight, of the CFPB taking action against banks who have these types of things.

Key Takeaways

So in conclusion, here's the key takeaway. The CFPB is serious about junk fees. Very serious, especially on fees that deposit accounts, which they declared to be illegal. Therefore, take action now to avoid scrutiny for sure, given what we've discussed in the past two podcasts. So take action now to look at any hidden fees you may be charging. Ask the simple question: What else is added to the advertised price that may cause surprise to the consumer? And let me state that again, because this is the real core practical question. What else is added to the advertised price that may cause surprise to the consumer or customer? Stay tuned to further programs as we identify and address the key issues and developments in consumer protection and provide you with strategies for success. As always, I wish you continued success and a meaningful day.

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