Biden Administration and CFPB Crack Down on Junk Fees
Federal administration and Consumer Financial Protection Bureau target hidden charges and excessive fees in financial institutions
The Consumer Financial Protection Bureau (CFPB) and the Biden administration have announced new efforts to combat "junk fees" imposed by banks and financial institutions.
In a report released this week, the CFPB detailed millions of dollars in junk fees uncovered through examinations conducted between February and August. These fees were discovered in bank account deposits, auto loan servicing, and remittances.
The report revealed that in some instances, remittance providers charged fees without proper disclosure or failed to refund fees when money consumers sent didn't arrive on time. Similarly, auto lenders were found to have charged fees for loan add-on products even after a vehicle was repossessed or a loan was paid off early.
Moreover, the CFPB found that some banks charged customers fees for bank statements that were neither printed nor mailed. As banks lean deeper into automation, the advisory clarifies that people are entitled to get basic account information without paying junk fees.
The CFPB's report also highlighted previous instances where large financial institutions, including Wells Fargo, Regions, and Bank of America, were caught in large junk fee schemes. Bank of America, for example, had to pay $100 million to harmed customers and $90 million in fines to the CFPB for a junk fee scheme earlier this year, along with $60 million in fines to the Office of the Comptroller of the Currency.
National Economic Council Director Lael Brainard described these announcements as "some of the most comprehensive actions on junk fees the administration has taken to date." Starting in February 2024, firms that violate the law will be subject to monetary penalties, although the size of the penalties was not specified.
The CFPB's new initiatives do not include any new rules regarding the purchase licensing rights for financial institutions. However, the CFPB did issue an advisory opinion regarding a 2010 law prohibiting banks and credit unions with $10 billion or more in assets from imposing junk fees on customers seeking account information.
The CFPB also plans to propose a rule for open banking, allowing customers to send transaction data to other institutions, making it easier to switch banks and manage accounts from multiple providers. This open banking reform will prevent institutions from using junk fees by ensuring competition based on service quality and upfront pricing.
Alongside the CFPB's efforts, the Federal Trade Commission proposed a rule that, if finalized, would ban businesses like ticket vendors and car rental companies from charging surprise service fees and require vendors to advertise the full cost of something upfront. Offending companies will refund $140 million, with 86% of the refunds being for unexpected overdraft fees and double-dipped non-sufficient funds fees.
These new measures are part of the Biden administration's ongoing battle against junk fees, which President Joe Biden has spearheaded. The administration aims to protect consumers from hidden fees and restore trust in the financial system.
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