the Consumer Financial Protection Agency (“CFPB”) has continued to tighten its regulatory scrutiny over the consumer financial services market. On January 26, 2022, the CFPB released an initiative seeking public input on so-called “junk fees” in consumer financial services. According to the CFPB, “garbage charges” occur when: (i) charges are made for things that consumers believe are covered by the base price of a product or service; (ii) fees are unexpected; (iii) the cost of the fee is disproportionate to the cost of the service; or (iv) it is unclear why a fee was charged. The CFPB claims that “junk fees” hurt the financial services market because they “disguise the true price” of a service, for example by offering attractive introductory prices, but then make up the difference by charging various back-end fees to consumers.
The Bulletin specifically identified credit card late fees and checking account overdraft fees as potential “junk fees” that obscure the true pricing of services and undermine a competitive financial services market. The bulletin’s purpose is to obtain public input on consumer financial services fees to “make rules, issue industry guidance, and focus regulatory and enforcement resources” to try to increase competition in consumer finance and reduce the incidence of alleged “junk fees.” ” to reduce. ”
The Bulletin is linked to the CFPBs Requests for information about fees charged by providers of consumer financial products or services (“RFI”), which asks consumers to identify fees related to “bank, credit union, prepaid, or credit card accounts, credit cards, mortgages, loans, or money transfers.” In addition to the deposit account and credit card fees detailed in the CFPB Bulletin, the RFI also requests consumer reports on fees related to (i) wire transfers and payments (wire transfer/ACH, etc.); (ii) prepaid card fees; (iii) mortgage fees; and (iv) fees related to other types of loans, such as B. Student loans, car loans, or payday loans. Given the language in the RFI and Bulletin, it’s possible that the Bureau will track consumer financing fees, even if those fees are well disclosed, if it finds a gross discrepancy between the amount of the fee and the cost of the service leading to the fee .
The CFPB’s continued focus on financial services fees is likely to spur an active bar association, which has created a cottage industry to pursue class action lawsuits against financial institutions alleging insufficient disclosures regarding consumer banking fees. The risks associated with this type of consumer class action are not insignificant. Recently, in a consumer class action lawsuit over bank fees, a court approved an award of $25 million in fees to class plaintiff attorneys, payable out of a $75 million settlement fund. Financial institutions should also brace themselves for increased regulatory scrutiny and possible enforcement action following the CFPB’s conclusions from the RFI.
Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 34