The war on ‘junk fees’ is gaining ground, but the fight is not yet won
“I talk to a lot of of banks,” Rep. Dan Meuser, R-pennsylvania, told Rohit Chopra, director of the Consumer Financial Protection Bureau, “and they’re really not happy with your agency.”
He urged Chopra to “be responsive to the clientele you’re supposed to be helping.”
With admirable restraint, Chopra replied: “Just to be clear, the clientele of the CFPB is not the banks. The clientele is the public.”
The exchange occurred at a hearing of the House Committee on Financial Services on June 14. Leaving aside that Wall Street banks and brokerages have been among Meuser’s leading campaign donors, the congressman was not lying about the bankers’ opinion about Chopra and his agency — in fact, he may have minimized their hostility.
The U.S. Chamber of Commerce, speaking on behalf of the financial services industry, has called Chopra a “radical” pursuing an “ideologically driven agenda.” Last year, the American Bankers Association and two other bankers’ lobby groups published a 21-page broadside against him, calling on Congress and the federal courts to rein him in.
Their ire has intensified in recent months, as the CFPB has stepped up its campaign against
“junk fees.” The agency defines these as excessive or unnecessary fees on overdrafts, account information requests, late payments on loans or credit cards, among other charges.
The CFPB’S campaign is part of the Biden administration’s broader attack on junk fees across the U.S. economy — fees that appear on a consumer’s bill at the end of a transaction, rather than being disclosed in advance.
If you’ve rented a car, bought an airline ticket, booked a hotel room or paid a cable bill, you probably know what the White House is talking about: hidden, surprise charges for services you may not even have used, transaction charges for buying online or downloading a concert ticket instead of picking it up at the box office, etc., etc.
These charges have proliferated as retailers and service providers try to raise revenues by “unbundling” services that used to be provided at no extra charge. The quintessential example comes from the airline industry, where baggage fees have soared, reaching nearly $6.8 billion last year among the top domestic carriers, up from $464 million in 2007. Some ostensibly low-cost airlines charge for checked bags and carry-ons.
Biden took aim at the nickeland-diming of American consumers within six months of taking office in 2021, when he instructed agencies including the Department of Transportation, Federal Trade Commission and Federal Communications Commission to devote close scrutiny to regulated industries’ treatment of consumers.
The administration intensified its campaign on Oct. 11, when Biden, FTC Chair Lina Khan and Chopra jointly announced new initiatives on junk fees.
The FTC’S proposed rule would require businesses to disclose “all mandatory fees when telling consumers a price, making it easier for consumers to comparison shop for the lowest price,” according to a commission statement. The FTC would be empowered to obtain refunds for consumers and impose financial penalties on businesses that don’t comply.
“Consumers are fed up with hidden fees for everything from booking hotels and resort fees to buying concert tickets online, renting an apartment, and paying utility bills ... leaving consumers wondering what they are paying for or if they are getting anything at all for the fee charged,” the statement said.
A couple of weeks later, the White House targeted another source of hidden fees — unrepairable products that force owners to pay for servicing by authorized shops — by convening a roundtable on the “right to repair.”
The administration was building on state initiatives in
New York, Colorado, Minnesota and California, where a new law going into effect next July 1 requires manufacturers to provide documentation, parts and tools to consumers and repair shops on reasonable terms for any appliances or electronic devices made after July 1, 2021.
As I’ve reported, Apple has long been the worst of bad actors in selling devices that can’t be repaired by users; it began to come around in 2021, when it allowed iphone users to perform the simplest fixes of broken screens and exhausted batteries. But it’s been backsliding: Owners of its newest desktop and laptop computers can’t even replace or upgrade their internal memory cards.
Government pressure on banks to reduce their junk fees has borne fruit, to an extent. At a hearing of the Senate Banking Committee Wednesday, several bank CEOS testified about their institutions’ determination to reduce or even eliminate overdraft charges. That’s a fee category that long has been an irritant to customers, especially lower-income depositors, and has been a particular target of the CFPB.
Jpmorgan Chase Chief Executive Jamie Dimon, for example, told the committee that his bank had introduced “low-cost, no-minimum balance, no-overdraft accounts specifically designed for the unique needs of
lower-income and historically underbanked consumers.” He said overdraft fees at JPM Chase had declined by about 50% since before the pandemic.
That’s true as far as it goes — extrapolating from the bank’s nine-month totals, overdraft fees at Jpmorgan Chase are on pace to total about $1.11 billion this year, down from $2.06 billion in 2019. More generally, however, JPM’S consumer banking fees have been sticky — they’re on pace to reach about $4.6 billion this year, compared
to $5.12 billion in 2019.
Does it really cost a bank $10 to process a checking overdraft? That’s Bank of America’s fee, according to CEO Brian Moynihan, who bragged that it has been reduced from $35. Does it really cost Bank of America $30 to process a stop-payment request, its fee for that service?
One reason these charges are pegged so high is to discourage customers from using those services, but an institution that really values its customers, as all the banks say they do, might think twice about using unnecessary charges to manipulate its clientele into avoiding services they can only get
at a bank.
The CFPB is also tangling with the banking sector over an initiative it has launched to clamp down on credit card late fees (perhaps another reason that banks are “not happy” with the agency, to cite Meuser’s gripe).
The fact is that junk fees permeate the economic landscape. Consumers are on the front line, but they face a tough battle, because junk fees are likeliest to crop up where they can’t easily be avoided. If you have a critical need to change your flight, refusing to pay an airline’s $100 change fee won’t get you where you need to go; it will just leave you earthbound.