Trends & Research

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Published on Monday, October 30, 2023

CFPB Issues Advisory Opinion to Curtail Junk Fees Imposed by Large Banks

Payments Report: News from Washington, Brought to you by NEACH
VOLUME 2023-8 (OCT 23)

 

Overview:  Effective October 16, 2023, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) issued guidance in the form of an advisory opinion to large banks and credit unions about certain practices and fees that the Bureau views as illegal under the Consumer Financial Protection Act (“CFPA”).

The Bureau’s Efforts on Junk Fees

In January 2022, the CFPB launched an initiative to review what it termed “junk” fees associated with bank accounts, credit cards, and other financial products. Shortly after that, the Bureau issued a Request for Information concerning “junk” fees that received more than 10,000 responses. Initially, the Bureau focused on two broad categories of junk fees: hidden or surprise fees that conceal the actual cost of a consumer financial product, and fees for expenses that exceed the actual costs to the financial institution for that service.

Later that year, the CFPB fined one bank $50 million and ordered it to refund $141 million to customers for illegal surprise overdraft fees and fined another $1.7 billion and ordered it to pay back more than $2 billion to consumers for an extensive list of violations, including surprise overdraft fees.

In early October 2023, the Bureau released a special edition of its Supervisory Highlights on the topic of junk fees. The report stated, “Supervision continues to focus significant resources on identifying and eliminating junk fees charged by supervised institutions.” The Bureau went on to indicate that its examiners have recently focused on non-sufficient funds (NSF) and overdraft fees as well as “statement fees and surprise depositor fees.” For example, the Bureau noted that certain supervised institutions charged customers fees for the printing and delivery of paper account statements, which constitute an unfair act or practice. “Indeed, in one instance, a senior citizen discovered that her account was almost entirely depleted because an account statement had been returned undelivered five years prior and the institution had been assessing statement fees each month since.” The Bureau also found violations during exams in the form of fees assessed to consumers when an institution returns a check, unprocessed, that the consumer attempted to deposit.

As this is an ongoing area of high-focus for the Bureau, it has established a dedicated page on its website gathering its various efforts related to combating junk fees.

The Advisory Opinion

Section 1034(c) of the CFPA requires large banks and credit unions supervised by the CFPB (those with total assets of more than $10 billion) to comply in a timely manner with consumer requests for information concerning their accounts, including the provision of supporting written documentation. According to the advisory opinion, even though Section 1034(c) has been a current and ongoing legal obligation since July 21, 2011, the Bureau has never previously issued exam findings or regulatory guidance, or pursued enforcement actions, under this provision of the CFPA.

The advisory opinion explains that a consumer request for information “concerning” an account encompasses a wide range of information, including:

  • Information that appears on periodic statements or on online account portals (e.g., balance, interest rate, and transaction history).
  • Information regarding bill payment and other recurring transactions.
  • The terms and conditions of the account or financial product, including a complete schedule of fees.
  • Status of liens on real property, including old, released liens.

By contrast, the Bureau noted that information about the financial institution’s operating procedures, financial performance, marketing strategy, or employee training programs would not fall under Section 1034(c).

The Bureau interprets the term “supporting written documentation” very broadly, to include documents that will substantiate the information provided in response to consumer questions or will otherwise assist consumers with understanding or verifying the information about their accounts. This information is crucial to consumers’ ability to stay current and avoid fees, identify and resolve errors, resolve disputes, and generally manage their finances. Therefore, the Bureau is adopting a strict stance that conditions that unreasonably impede a consumer’s ability to obtain the information covered by Section 1034(c) violate the institution’s obligation to timely comply with the consumer’s request. 

As an example, requiring a consumer to pay a fee to request account information is likely to unreasonably impede the consumer’s ability to exercise the rights granted by Section 1034(c). In the CFPB’s view, this includes charging fees for:

  • Responding to consumer inquiries regarding deposit account balances.
  • Responding to consumer inquiries regarding loan balances or pay-off amounts.
  • Responding to requests for specific types of supporting documents (such as a check image or original account agreement).
  • Time spent on consumer requests for information and supporting documents regarding an account.

The advisory opinion also warns covered institutions that conditions or obstacles other than fees may also violate Section 1034(c) by unreasonably impeding a consumer’s ability to make an information request. Examples of conditions or obstacles that might constitute unreasonable impediments (depending on the specific facts and circumstances) include:

  • Forcing consumers to endure excessively long wait times to speak to a customer service representative.
  • Requiring consumers to submit the same request multiple times.
  • Requiring consumers to interact with a chatbot that does not understand or adequately respond to consumers’ requests.
  • Directing consumers to obtain information that the institution possesses from a third party instead.

It is worth noting that Section 1034(c) provides four exceptions to the financial institution’s obligation to reply to consumer information requests. Specifically, those exceptions apply to: (i) confidential commercial information, including an algorithm used to derive credit scores or other risk scores or predictors; (ii) information collected for the purpose of preventing fraud or money laundering, or detecting or reporting unlawful conduct; (iii) information required to be kept confidential by any other provision of law; and (iv) any nonpublic or confidential information, including confidential supervisory information. Covered banks and credit unions are not required to respond to consumer requests for information that falls into one of these four exceptions.

Regarding what constitutes a “timely” response, the Bureau notes that the CFPA does not specify a fixed time limit for responding. Accordingly, the Bureau will consider the specific circumstances and nature of a particular request to determine compliance.

Outlook:  The new advisory opinion provides clear indication of the CFPB’s continuing focus on junk fees and related practices, part and parcel of a larger push by the Biden Administration to root out junk fees throughout much of the economy. The advisory opinion also provides reasonable guidance about what practices covered financial institutions should avoid. CFPB Director Rohit Chopra summarized the core concept of the advisory opinion this way: “when people request basic information about their accounts, big banks cannot charge them junk fees or trap them in endless customer service loops.” The advisory opinion gives covered institutions more than a year to review and address their practices: the Bureau does not intend to seek monetary penalties for violations of Section 1034(c) that occur before February 1, 2024.

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AUTHOR INFORMATION:

Craig Saperstein, a member of Nacha’s Government Relations Advisory Group, is a partner in the Public Policy practice of Pillsbury Winthrop Shaw Pittman LLP in Washington, D.C. In this capacity, he provides legal analysis for clients on legislative and regulatory developments and lobbies congressional and Executive Branch officials on behalf of companies in the payments industry. Deborah Thoren-Peden is a partner and member of the Financial Institutions Team at Pillsbury Winthrop Shaw Pittman LLP. She provides advice to financial institutions, bank and non-bank, and financial services companies. Daniel Wood is a Counsel and member of the Financial Services Regulatory Team. He provides analysis for financial institutions, technology companies, and clients that offer consumer financial products. Brian Montgomery is a Senior Counsel and member of the Financial Services Regulatory Team. He provides analysis for financial institutions, technology companies, and clients that offer consumer financial products. The information contained in this update does not constitute legal advice and no attorney-client relationship is formed based upon the provision thereof.

 

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