The Biden administration today released a guide for state legislatures and attorneys general on how they can take action against what it has labeled “junk fees”—a broad category of business fees that includes fees banks charge for services such as overdraft protection. The Consumer Financial Protection Bureau also released a new Supervisory Highlights report alleging to have uncovered a range of “unlawful junk fees,” including “surprise” overdraft fees charged by banks.
The White House guide cited several examples of alleged junk fees across multiple industries, including hotel resort fees, rental car fees, event ticketing fees, and cable and internet fees. Among the examples was “the banking industry’s excessive and unfair reliance on banking junk fees,” with the administration pointing to several examples of banks ending fees for overdraft protection amid regulatory pressure. In a video conference with state lawmakers that same day, CFPB Director Rohit Chopra and other administration officials urged to attendees scrutinize state laws regarding unfair, deceptive and abusive practices.
In the Supervisory Highlights report, the agency said that its examiners have found that institutions have engaged in unfair acts or practices by charging consumers multiple non-sufficient funds (NSF) fees when the same transaction is presented multiple times for payment against insufficient funds in the customer’s account. The FDIC has scrutinized this same practice but has cited banks for deception under section 5 of the FTC Act, not for unfairness. The American Bankers Association has criticized the FDIC for applying new supervisory expectations regarding NSF fees retrospectively without warning and without an opportunity for the public to provide feedback.
The CFPB also stated that its examiners have cited banks for UDAAP findings for overdraft fees resulting from “authorize positive, settle negative” transactions. Under this fact pattern, a first transaction is authorized on positive funds. Then, a second transaction authorizes and posts, lowering the available balance. When the first transaction posts, it posts against negative funds, and the customer is assessed an overdraft fee.
CFPB issues misleading statements on bank fees
In a recent speech and social media posts, CPFB officials have misrepresented legal fees for bank services as illegal “junk fees” and urged consumers to report financial institutions to the agency for allegedly violating consumer protection laws.
The CFPB claimed in a February post on LinkedIn and other social media sites that many banks “rely on junk fees as part of their core business model,” which include “fees for late penalties, overdrafts, returned payments, using an out-of-network ATM, money transfers, inactivity and more.” Users were then told that if they were “hit with an illegal fee,” they should file a complaint with the agency. CFPB Deputy Director Zixta Martinez continued to mischaracterize legal fees as unlawful in a March 3 speech, adding that the agency’s rulemaking push to implement Section 1033 of the Dodd-Frank Act—which requires businesses to make available to consumers their financial data—would empower “people to break up with the banks that provide bad service.”
“We are going to continue to identify the practices that enable unlawful junk fees and the reasons financial institutions implement these processes instead of choosing to compete on fair terms,” Martinez said.
ABA has raised concerns about the CFPB’s misrepresentations with the agency, noting that a federal regulator shouldn’t spread false and misleading information, and that its statements about banks charging “illegal” fees undermine efforts to bring more people into the banking system. ABA also noted that the CFPB is using government resources to generate consumer complaints and comments in support of its own regulatory proposals.
