Banks, Credit Card Companies Earning from Fees rather than Competing on Service
Today, the Consumer Financial Protection Bureau (CFPB) issued a request for information on late and junk fees charged by banks and credit cards. The move is an effort to begin the process of designing protections for consumers in the credit and banking industries.
In making the announcement, the CFPB indicated that industry reform could save consumers billions of dollars each year.
“Many financial institutions obscure the true price of their services by luring customers with enticing offers and then charging excessive junk fees,” said CFPB Director Rohit Chopra. “By promoting competition and ridding the market of illegal practices, we hope to save Americans billions.”
The CFPB derided what it labels a “fee economy” that has banks and credit card companies earning billions in profits from punitive fees rather than competing on better service.
Companies across the U.S. economy are increasingly charging inflated and back-end fees to households and families. This new “fee economy” distorts our free market system by concealing the true price of products from the competitive process.
Specifically, the CFPB cited research demonstrating that banks and credit card companies earn nearly $30 billion a year from charging punitive fees to consumers.
- In 2019, the major credit card companies charged over $14 billion each year in punitive late fees.
- In 2019, bank revenue from overdraft and non-sufficient funds (NSF) fees surpassed $15 billion .
Public Input Needed
The CFPB is in the early stages of crafting regulations that would protect consumers from these egregious fees.
The CFPB is interested in hearing about people’s experiences with fees associated with their bank, credit union, prepaid or credit card account, mortgage, loan, or payment transfers, including:
- Fees for things people believed were covered by the baseline price of a product or service
- Unexpected fees for a product or service
- Fees that seemed too high for the purported service
- Fees where it was unclear why they were charged
Consumers may submit comments on the issue via email:
FederalRegisterComments@cfpb.gov. Include Docket No. CFPB-2022–0003 in the subject line of the message.
Industry Changes Ahead
The CFPB recently issued a report on credit card fees and interest rates which noted the need for increased competition and a move away from a fee-based profit system.
Additionally, the banking industry is moving away from NSF and overdraft fees even as regulators indicate a willingness to crack down on the practices.
“Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model,” said CFPB Director Rohit Chopra. “We will be taking action to restore meaningful competition to this market.”
Consumer advocates continue to highlight the harms caused by overdraft fees.
“Overdraft and NSF fees are one of the leading reasons that people are unbanked, either because past overdrafts put the consumer on an account screening list that prevents them from opening new accounts, or because the fees make it too costly to maintain an account,” said Chi Chi Wu, staff attorney at the National Consumer Law Center.