The Consumer Financial Protection Bureau (CFPB) is closing today, Monday 11, its deadline to submit comments on its public consultation on “junk fees” after receiving more than 25,000 comments in three months.
The agency launched in January an initiative to reduce “junk fees,” which may include “resort fees,” “service fees” and other fees that seemed too high for the service provided or aren’t linked to any service. The problem with the term “junk fee” used by the CFPB is that it includes very different types of fees: non-sufficient fund (NSF) fees and overdraft fees, account maintenance fees, ATM fees or late fees in the case of credit cards.
This broad definition of “junk fees” has raised concerns among some lawmakers who questioned the legitimacy of the CFPB to intervene. “There is no legal authority for the CFPB to define the term ‘junk fee’ . . . and even less authority for the CFPB to act as a price setter in the consumer financial market,” said Rep. Blaine Luetkemeyer (R-Mo) during a House Financial Services Subcommittee hearing last week.
However, other lawmakers have used this inquiry to add pressure on banks to reduce or scrap certain fees. Last month, a group of U.S. Senate Democrats, including Senate Banking Chairman Sherrod Brown, sent a letter to seven large banks to scrap or reduce overdraft and other fees. Additionally, last week, New York Attorney General Letitia James asked J.P. Morgan Chase, Bank of America, US Bancorp and Wells Fargo to end consumer overdraft fees by the summer.
Pressure from regulators and lawmakers has brought results as some of these lenders have stopped charging NSF fees and, in some instances, have also changed their policies on charging overdraft fees.
The CFPB hasn’t publicly said what the next steps are after this consultation, but the last sentence of the CFPB’s press release in this inquiry left the door open for any action in the future. In particular, the agency said, “public input will help shape the agency’s rulemaking and guidance agenda and enforcement priorities by providing valuable insights into the most pressing needs and concerns, including uncovering potential illegal practices or fees.”
This open-ended statement would enable the agency to follow different routes for different products. For instance, the CFPB could use rulemaking for some types of fees and enforcement actions for others, if the agency found specific evidence against some lenders. According to Reuters, citing people with direct knowledge of the matter, the CFPB could be considering a combination of both, rewriting some rules and taking a tougher line on enforcement.
One of the changes may affect credit card late fees. The current rules contain a legal safe harbor which allows lenders to charge late fees provided they do not exceed a “reasonable and proportional” regulatory cap, which is set annually by the CFPB; it currently stands at $30 for a first late payment and $41 for each subsequent violation within the next six billing cycles. According to Reuters, the CFPB may be considering rewriting the rules on how it calculates that threshold.
The agency could rewrite these rules, or maybe lower the cap for late fees, but recent data released by the Bureau on credit card fees may cast some doubts about the effectiveness of this measure. The data provided by the Bureau shows that while some of the top 20 card issuers contracted a maximum late fee at or near the safe harbor in 2020, the most common maximum late fee charged in agreements submitted to the CFPB was $25.