CFPB and OCC Tag Major Bank for $100s of Millions - "Junk Fees"
The Consumer Financial Protection Bureau continues its campaign against what it labels “junk fees”, this time in connection with the Office of the Comptroller of the Currency. This time the agencies allege that a major bank imposed illegal “junk fees” in the form of overdraft fees, accounts opened without customer consent, and reward withholdings on credit cards. The agencies assert these actions were illegal and ordered the bank to pay more than $100 million to customers and the government.
The CFPB consent order asserts the bank gained "hundreds of millions of dollars" from charging $35 fees for non-sufficient funds multiple times on a single transaction. (When a check is returned, or an ACH transfer fails to clear for non-sufficient funds, the transaction is often resubmitted after being initially declined, and each new presentation of the transaction incurred the NSF fee.) The bank must now reimburse customers at least $80.4 million for this practice. (The order indicates that the bank ceased assessing NSF fees in early 2022.)
The CFPB states the bank also will pay $150 million in penalties: $90 million to the CFPB, and $60 million to the OCC.
This enforcement action, announced July 11, is part of a trend. The Biden administration has made it a priority to crack down on "junk fees," as we've written about both earlier this year and last year.
"Junk fee" is not well-defined. One main feature seems to be a surprise to the consumer. The agency might allege an illegal junk fee where a customer pays a fee to terminate a service where the fee was not clearly disclosed up front. Or when a customer comparison shops for different products online, and a mandatory fee remains invisible until checkout. Banks may face increased scrutiny, especially for overdraft fees, which tend to hit the most vulnerable consumers. These fees also can be alleged to be excessive, such as a $35 overdraft fee on a $2 overdraw, or when a customer has enough funds in an account to cover a debit purchase, but overdrafts based on the timing of other charges.
The CFPB alleges that fees generate considerable revenue: bank customers paid approximately $15.5 billion in overdraft and NSF fees in 2019. We find no statement from the agency regarding how much overdrafting and NSF issues cost the banks in work, disruption, uncertainty, etc. We have not seen that data. But providing such information, if accurately measured, would give more credibility on the issue. The CFPB also makes no statement regarding the moral hazard of prohibiting fees imposed on people who pay bills late. The agency is playing with fire. It will scorch the people the CFPB claims to want to help.
In his most recent State of the Union address, the president called for a Junk Fee Prevention Act, which has been introduced in Congress. While rife with problems, and not focusing on financial services, the Act would at least require some legal standard for companies. Meanwhile, the CFPB is proposing rules that would limit credit card late fees to $8, and weighing other proposed reforms.
What You Need to Do: Keep in mind the CFPB’s hostility to so-called junk fees, and the agency’s “I know one when I see one” standard.
The CFPB tends to go after low-hanging fruit. Hang your fruit high.
For more information on this matter, contact Troy Garris at troy@garrishorn.com.
