CFPB Official Urges State Governments to Join War on Junk Fees
Commentary by Steven Lofchie
CFPB Senior Advisor Brian Shearer highlighted coordinated action between the CFPB and state regulators to combat junk fees.
In his testimony before the Pennsylvania House of Representatives Consumer Protection, Technology and Utilities Committee, Mr. Shearer underscored the role played by state governments as the "first-and in some cases the only-line of defense" in protecting consumers against illegal business practices, including junk fees. He warned that junk fees are a threat to fair competition and explained that, within the context of financial banking and consumer finance, they can take the form of high late fees, overdraft fees, returned deposited item fees and pay-to-pay fees. He said that the CFPB worked with state governments to address junk fees through (i) enforcement actions and (ii) issuing guidance on how bank regulators and state Attorneys General can utilize Federal laws to prevent the illegal conduct.
Mr. Shearer said the CFPB has been "using every tool at [their] disposal" to combat junk fees, but called on state and federal regulators to address the "rising junk fee problem". He stated that junk fees have "crept into all aspects of the economy" and as a result will require "all levels of government to protect consumers." Shearer encouraged state governments to use statutes enacted to "prohibit" unfair or deceptive acts or practices ("UDAP" statutes) to "attack" junk fees, which he said are likely to be unfair or deceptive. Mr. Shearer stated that the CFPB encourages state governments to "make explicit what is often already illegal" and support enforcement of UDAP statutes against junk fees.
Mr. Shearer's remarks followed up on prior CFPB guidance asserting that certain types of common bank fees were in violation of law. See generally:
Commentary
Declaring "junk fees" to be unlawful has a good sound to it, but market participants should have a right know just what is unlawful. When the regulators say that "something" (in this case, "junk fees") is illegal, they should be careful to closely define what that something is. If there are particular fees that the CFPB believes should be illegal, then the CFPB should propose a rule to that effect and take public comment on the rule, and, if it then goes forward, adopt a rule that is clear.
For example, in its Guidance, the CFPB criticizes banks for charging a fee to persons who deposit a check that bounces, even if the fee is disclosed. If the CFPB believes that such fees should be completely illegal, or that the fee amounts should be limited, the CFPB should propose an explicit rule to that effect. Rather than issue proposals that are subject to public comment or adopt explicit rules that can be followed, the CFPB issues warnings based on criteria that are subjective and ambiguous--that just is not the best way to regulate.