The Consumer Financial Protection Bureau (CFPB) recently launched a series of press releases and blog posts focused on fees consumers pay their banks, credit unions, and other financial institutions. One category of fees that has become the focus of scrutiny by the Bureau includes late fees, overdrafts, and non-sufficient funds fees.
In a press release titled, “CFPB Research Shows Banks’ Deep Dependence on Overdraft Fees” released in December 2021, Director Chopra commented, “Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model…We will be taking action to restore meaningful competition to this market.” As a result, several of the largest institutions in the country have recently announced that they will either significantly reduce the amount of overdraft and non-sufficient funds (NSF) fees they charge consumers, or even eliminate them all together. Understandably, however, most financial institutions have expressed concern over these statements due to their inability to absorb the loss of important fee revenue with the same ease as “mega-institutions.” Many consider these fees justified as they are disclosed to the consumer prior to establishing the banking relationship at account opening.
Then, last month, the Bureau significantly expanded the scope of their focus on fees with a press release announcing a request for information about so-called “junk-fees.” The CFPB is interested in hearing about people’s experiences with fees associated with their bank, credit union, prepaid or credit card account, mortgage, loan, or payment transfers. According to the CFPB, “junk fees” occur where:
- Fees for things people believed were covered by the baseline price of a product or service;
- Unexpected fees for a product or service;
- Fees that seemed too high for the purported service; and
- Fees where it was unclear why they were charged.
Director Chopra stated, “Many financial institutions obscure the true price of their services by luring customers with enticing offers and then charging excessive junk fees…by promoting competition and ridding the market of illegal practices, we hope to save Americans billions.” Given the language in the CFPB’s request for information and the bulletin, it is possible the Bureau may go after consumer finance fees, even when such fees are well disclosed, if it perceives a strong disconnect between the amount of the fee and cost of the service resulting in the fee.
Many fees such as those charged for settlement services in connection with mortgage loans, for example, are already governed by RESPA to prevent creditors and settlement service providers from charging “unearned” fees and keeping settlement costs at a fair market value compared to fees charged by similar service providers in the market area. Specifically, RESPA Section 8 (12 CFR 1024.14(c)) prohibits any person from accepting any portion, split, or percentage of any charge made or received for providing a settlement service in connection with a federally related mortgage except for services actually performed. Nevertheless, the series of press releases, blogs, and the request for information leaves no doubt that the CFPB intends to maintain their focus on fees charged to consumers by financial institutions.
The extent to which financial institutions will be required to make changes to their existing fee structure and business model will ultimately depend on the feedback from the industry. While it is hard to determine what type of regulatory framework may be implemented to limit, or even eliminate fees charged by financial institutions, the Compliance Advisory team at Temenos will remain tuned into the industry to keep you informed on any regulatory changes on the horizon. Meanwhile, it is important to consider now what the loss of certain fee income will mean for your business.
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