UPDATE: White House Urges States To Join It In Fight Against Junk Fees

March 10, 2023
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The White House has again spoken out against junk fees, calling on state regulators to step up efforts to tackle unfair and hidden fees. Meanwhile, Consumer Financial Protection Bureau data shows many banks have already adjusted their practices as a result of federal actions.

The White House has again spoken out against junk fees, calling on state regulators to step up efforts to tackle unfair and hidden fees. Meanwhile, Consumer Financial Protection Bureau (CFPB) data shows many banks have already adjusted their practices as a result of federal actions.

Senior advisors in the White House have reiterated their commitment to take on unfair and hidden fees, or junk fees, but urged state legislatures to take action into their own hands.

“While President Biden will continue to do everything he can to eliminate junk fees, he knows that state leaders also play a critical role in advancing this effort,” the statement says.

To support state leaders in cracking down on junk fees, the White House released a guide which outlines the actions that states can take to build on the administration’s efforts on junk fees and encourage private sector action.

The group noted that several state legislators in New York, California and Vermont have already started to take action against excessive fees in various sectors.

For instance, one bill in California would rein in unnecessary fees in small business financing, cap fees that are unreasonably high and provide more transparency in the lending process.

The statements followed a convening that involved former Fed deputy governor Lael Brainard, who currently serves as National Economic Council director, hundreds of state legislative leaders and Rohit Chopra, director of the CFPB.

In parallel with the White House meeting, the CFPB has also published a special report on its supervisory activities regarding junk fees.

The supervisory highlights that several banks have changed their practices regarding overdraft fees and non-sufficient funds (NSF) fees since the agency began its scrutiny of these charges.

At least 20 of the largest US banks, which hold more than 60 percent of the volume of consumer deposit accounts subject to the CFPB’s supervisory authority, do not charge “surprise overdraft fees”.

Additionally, banks that the CFPB has examined so far will refund roughly $30m to about 170,000 account holders who were charged unexpected overdraft fees.

The majority of institutions reviewed by the CFPB staff have also put an end to charging NSF fees.

Original story: Biden Backs CFPB Crackdown On Late Credit Card Fees (February 2, 2023)

A new proposal by the US Consumer Financial Protection Bureau (CFPB), backed by President Joe Biden, would cut annual credit card late fees by 75 percent.

On February 1, the CFPB announced a proposed rule that would significantly curtail late payment fees on credit cards.

Under current federal regulations, card issuers may charge $30 for the first missed payment on a credit card and a further $41 fee for each subsequent missed payment of the same type. Issuers may charge higher fees, but above this cap they must justify the fee.

According to the agency’s 2020 data collection exercise, 18 of the top 20 issuers charge just below this cap at $40, while smaller issuers charge on average $25.

The agency now proposes to lower caps to $8, both for the first late payment and subsequent ones, arguing that income resulting from these late fees exceeds five times the collection costs that the companies incur in missed payments.

The proposed rule would also ban late fee amounts above 25 percent of the consumer’s required minimum payment. Under the current rules, the card issuer may charge a late fee that is 100 percent of the minimum payment owed by the cardholder.

The agency would also eliminate an automatic adjustment for the cap that raised the limit based on inflation. The CFPB said the inflation adjustment is not required by law, nor is it necessarily reflective of how collection costs change over time. Instead, it would monitor market conditions itself and adjust the cap when necessary.

The CFPB estimates that Americans currently pay $12bn in credit card late fees each year and the proposal could reduce that amount by $9bn.

“Major credit card issuers continue to profit off late fees that are protected by an expansive immunity provision,” the agency says.

“The proposed rule would help ensure that over the top late fee amounts are illegal.”

Biden backing

The rule has been backed by President Joe Biden as part of the White House’s wider initiative to crack down on hidden or surprise fees they call “junk fees”.

“It doesn’t cost 31 bucks for a bank to process the late fee, but that’s how much they’re charging you now. That’s a junk fee if there ever was one and it can drain hundreds of dollars a year from the pockets of hardworking American families,” Biden said.

The President also urged Congress to pass the Junk Fee Protection Act, which would cut hidden fees for event tickets, hotel resort and airline family seat booking, and early termination of broadband, mobile and cable contracts.

The announcements marked the fourth meeting of the President’s Competition Council, a cross-agency group that aims to create a common whole-of-government competition policy, and builds on the CFPB and the White House’s joint crackdown on overdraft fees.

The Consumer Federation of America (CFA) welcomed the actions against late fees, which it stressed disproportionately burden subprime consumers and consumers of colour.

“We look forward to working with the CFPB on this much-needed rulemaking that, as proposed, will profoundly impact consumers and their financial well-being,” Rachel Gittleman, CFA’s financial services outreach manager, said.

Meanwhile, Rob Nichols, president and CEO of the American Bankers Association (ABA), blasted the proposal saying it will harm consumers by reducing competition and increasing the cost of credit.

“If the proposal is enacted, credit card issuers will be forced to adjust to the new risks by reducing credit lines, tightening standards for new accounts and raising APRs for all consumers, including the millions who pay on time,” Nichols said.

Additionally, he argues that small banks may be forced to exit the credit card market altogether, which will reduce competition and access to credit.

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