The Consumer Financial Protection Bureau (CFPB) issued guidance on two fee practices in October 2022 that could potentially trigger liability under the Consumer Financial Protection Act (CFPA):
Unfair returned deposited item fee assessment practices (bulletin 2022-06).
According to the CFPB, certain overdraft and returned item fees likely violate the CFPA’s prohibition on unfair practices when consumers can’t reasonably avoid them. It’s important to note that these releases are general policy statements the CFPB issued as part of its “junk fee initiative” (“CFPB’s ‘junk fee’ initiative,” p. 38).
They don’t impose new federal regulatory requirements on credit unions.
CUNA has pushed back against the CFPB’s broad classification of many financial services fees as “junk fees,” including in recent letters to Congress.
CUNA President/CEO Jim Nussle notes, “credit unions are the original consumer protectors, but we have strong concerns about the White House and CFPB’s classification of certain financial services fees as ‘junk fees.’ Credit unions offer these services as a member accommodation and benefit, and design their programs to meet the needs of their individual memberships.”
Unanticipated overdraft fees are likely to impose substantial injury on consumers that they can’t reasonably avoid.
‘Unfair’ practice under Dodd-Frank
Under the Dodd-Frank Act, it’s unlawful for any provider of consumer financial products or services to engage in any unfair, deceptive, or abusive act or practice.
An act or practice is unfair when:
It causes or is likely to cause substantial injury to consumers, and isn’t reasonably avoidable.
The injury isn’t outweighed by countervailing benefits to consumers or to competition.
A “substantial injury” generally means monetary harm, such as fees or costs consumers pay because of the unfair act or practice. An injury isn’t reasonably avoidable when consumers can’t make informed decisions or take action to avoid that injury.
An act or practice isn’t unfair if the injury it causes or is likely to cause is outweighed by its consumer or competitive benefits. Note that the CFPB rejects any contention that the “back-end” fees its circular cites provide any countervailing benefits to consumers or competition.
NEXT: Unanticipated overdraft fees
CFPB’s ‘junk fee’ initiative
In January 2022, the Consumer Financial Protection Bureau (CFPB) launched an initiative to scrutinize so-called “junk fees,” such as inflated and/or back-end resort fees and service charges that can “obscure the true cost of a product and undermine a competitive market.”
The CFPB requested information from the public regarding fees imposed by financial service providers, and “tens of thousands of people” responded, according to the agency.
Since then, the CFPB has taken action to restrict convenience (“pay-to-pay”) fees charged by debt collectors and announced an advance notice of rulemaking on credit card late fees.
The agency also published several research reports on overdraft fees and an analysis of college banking products.
The Winter 2023 issue of Credit Union Magazine explores award-winning marketing, board training on a budget, developments in instant payments, service to small businesses, and NCUA’s final rule on member expulsion.
