Update: U.S. Consumer Watchdog Opens Broad Review Of Consumer Financial Product Fees

January 28, 2022
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The Consumer Financial Protection Bureau has issued a request for information on fees charged by banks and financial services companies, including credit card and payments fees.

The Consumer Financial Protection Bureau (CFPB) has issued a request for information (RFI) on fees charged by banks and financial services companies, including credit card and payments fees.

The RFI seeks information from the public on how so-called “junk fees,” those fees that are exploitative, back-end, hidden, or excessive, have affected consumers.

“Many financial institutions obscure the true price of their services by luring customers with enticing offers and then charging excessive junk fees,” said CFPB director Rohit Chopra.

These fees could include anything from penalty fees such as late fees, overdraft fees, non-sufficient funds fees, convenience fees for processing payments, return item fees, stop payment fees, check image fees, fees for paper statements, fees to replace a card, fees for out-of-network ATMs, foreign transaction fees, ACH transfer fees, wire transfer fees, minimum balance fees, account closure fees, inactivity fees, fees to investigate fraudulent activity, and ancillary fees in the mortgage closing process.

The CFPB said its review is aimed at strengthening competition in consumer finance and it will use its authority to reduce excessive and hidden fees.

Submissions to the information request will inform future activities of the consumer watchdog in various ways, Chopra said in his prepared remarks.

For instance, the CFPB, which is responsible for implementing open banking rules in the U.S., hopes that the information obtained during the inquiry will help the agency to better understand new market entrants’ practices towards their customers.

“This will help us as we craft new rules that will give consumers more control of their data and more opportunities to move their money,” Chopra explained.

“If our banking system can become more open and decentralized, we can all benefit,” he added.

The submissions will also inform the CFPB in its work to review old rules and issue new regulations and guidance that spur competition and transparency, and could also advise its supervision and enforcement work by revealing illegal practices in consumer financial products.

The RFI, which listed almost all of the consumer fees alongside the category of "junk fees," received a harsh response from industry bodies.

A group of seven industry associations, including the American Bankers Association (ABA), labelled the RFI as a “misguided effort that paints a distorted and misleading picture of our country's highly competitive financial services marketplace.”

They argue terms and fees of consumer financial products are disclosed in a clear and conspicuous manner.

“We look forward to responding to this Request for Information with facts and perspective sadly lacking from today's announcement."

Original story: Open Banking To Fix U.S. Credit Card Market

The Consumer Financial Protection Bureau (CFPB) is turning its eye to the credit card market to uncover anti-competitive practices and is planning to rely on its open banking regulatory power to address this.

The CFPB will investigate the U.S. credit card market over unfair anti-competitive practices by using its open banking rulemaking authority to increase competition and scrutinize credit card fees, the consumer watchdog said in a blog post last week (January 19).

Credit cards are one of the most popular non-cash payment methods in the U.S. and one of the largest sources of consumer debt.

Although the pandemic has had some modest impact on credit and debit card payments, credit cards accounted for 23 percent of all cashless transactions in the U.S in 2021, VIXIO estimates.

Meanwhile, CFPB data shows that more than 175m Americans have at least one credit card and the agency estimates they paid roughly $120bn per year in credit card interest and fees between 2018 and 2020.

“That works out to about $1,000 per year for every American household,” the CFPB notes.

However, high rates are not the only concern of the agency. The credit card market is relatively consolidated, with eight big financial players accounting for around 70 percent of total outstanding balances.

To ensure that consumers are duly protected, the CFPB is turning its focus on three areas that it hopes will bring “a more fair, transparent, and competitive credit card market.”

To address concerns related to the consolidation of the market, the CFPB will be looking at what it considers unfair practices by large market players that may hinder the ability of their rivals to compete with them.

Previously in 2020, the CFPB reported that over a six-year period, the largest credit card issuers had been withholding information that they previously reported to the credit bureaus about borrower repayment patterns. According to the agency, this had impeded other issuers from offering competitive pricing to customers.

“We will be paying close attention to such industry-wide practices that challenge fair competition,” the CFPB said in the post.

Data sharing to assist consumers to get a better deal

The consumer agency also plans to put market conditions, such as credit card shopping and switching, under the spotlight as it is worried that it is hard for consumers to compare and switch credit cards.

It pointed out that many credit card products advertise broad interest rate ranges and consumers must apply for those cards to get a specific rate. This results in a hard credit check, which “perversely can lower a consumer’s credit score,” according to the CFPB.

However, by giving consumers more control of their financial data, creditors could have a more complete understanding of the consumer’s financial position and offer consumers better financial products or services.

“Consumers who have more control over their own their data may be able to create more options for themselves to find better deals,” the blog post said.

Therefore, the CFPB is planning to use its rulemaking authority under Section 1033 of the Dodd-Frank Act 2010 to fix this issue.

Section 1033 enables the CFPB to create regulations that allow consumers to share their financial information with third parties, such as fintechs. Fintechs currently need to enter bilateral agreements with banks to be able to provide their services to U.S. customers.

The CFPB first started to look at Section 1033 six years ago, when it issued a request for information to market participants. That was followed by the publication of an advance notice of proposed rulemaking (ANPR) in October 2020.

In a July executive order, President Joe Biden urged the CFPB to accelerate the rulemaking process.

Later in October, Rohit Chopra, weeks after his confirmation as CFPB director, told Congress he is looking at the responses received to the ANPR, but first, the agency must understand how payment networks work and how they use the data in their possession.

To that end, the CFPB sent out an information request to bigtechs, Square, and PayPal seeking information on their products, plans and practices relating to payments.

The CFPB now says the agency is looking to use its “long-dormant authority to help spur better credit card shopping and switching by proposing rules that give consumers more control of their financial data.”

Finally, the agency is planning to scrutinize junk fees, the hidden or excessive costs that consumers pay for a financial product or service.

The agency notes that the industry is still heavily dependent on fees, and it estimates that credit card companies assessed $14bn in late fee penalties alone in 2019, “which fall disproportionately on Americans with lower credit scores.”

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