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Decoding the CFPB’s Crackdown on “Junk Fees”: A Changing Climate

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The Consumer Financial Protection Bureau (CFPB) has narrowed its focus on what it terms “junk fees” targeting financial industry practices.

Understanding the CFPB’s recurrent theme and deciphering its message from the recent press releases provides insights into potential enforcement actions over the next 12-24 months and how banks can reassess their current fee structures.

Failure to understand the prevailing wind risks running counter to the CFPB’s current focus.

The CFPB’s Problem with Junk Fees

Recently, a regional bank headquartered in Richmond, VA faced a hefty $6.2 million fine for alleged illegal overdraft fee harvesting. CFPB Director Rohit Chopra stated, “Americans are fed up with junk fee scams and the CFPB will continue its work to ensure families are treated fairly”.

The term “junk fee” has appeared in no fewer than 10 press releases in 2023 alone, signaling a broader concern for the CFPB.

In January 2022, the CFPB launched a press release soliciting public feedback on four specific concerns:

  • Fees for things people believed were covered by the baseline price.
  • 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.

Starting in June 2023, the CFPB released several other press releases further criticizing practices they deemed inappropriate. These culminated in an advisory opinion paper where the CFPB illuminated the fact that “…many large banks erect obstacle courses and impose junk fees to answer basic questions.”
A cursory reading elicits the obvious question: Is this a genuine attempt to protect consumers, or is it a strategic move to redefine industry norms?

Guidance to Halt Large Banks

The CFPB’s issuance of guidance to curb large banks from charging illegal junk fees for basic customer service points to a regulatory stance that goes beyond isolated incidents. The choice of words implies a proactive measure, suggesting that the CFPB is steering the industry away from what it considers questionable practices.

Examining Illegal Junk Fees Across Industries

In their October 11th press release, the CFPB shared that examinations have resulted in the return of $140 million to consumers affected by illegal junk fees in banking, auto loans, and remittances. This significant sum underscores that junk fees are not isolated incidents but a systemic concern that requires industry-wide attention.

Questionable Practices – Looking Ahead

The regulatory spotlight has uncovered potentially illegal junk fees in various financial products. While the CFPB positions itself as a consumer protector, the exposed practices raise questions about whether the financial industry is genuinely plagued by issues or if it’s becoming a target for regulatory reform from a partisan agency, not under congressional oversight.

Regardless of the motivation, the CFPB’s recent actions serve as a warning to banks to proactively scrutinize their fee structures.

Junk fees are a central theme, and financial institutions should note it as a leading indicator of regulatory scrutiny. Now is the time for banks to evaluate and eliminate fees that may attract the CFPB’s attention in the evolving financial landscape.

Perficient’s Deep Expertise Can Help

In navigating these uncharted waters, Perficient has experts with decades of experience working for the most successful and compliant banks in the world. We specialize in not only thought leadership but also practical experience helping regional banks and credit unions seeking to understand and rectify potential “junk fees” in their fee structures. With profound expertise in the financial services sector, we can assist banks in identifying and addressing these areas of concern, ensuring compliance, and bolstering customer trust.

Learn More: Perficient’s Financial Services Solutions

As the CFPB intensifies its focus on “junk fees,” the financial industry must adapt and respond. This isn’t just a call for compliance; it’s an opportunity for banks to redefine their practices, fostering transparency and fairness.

Collaborating with Perficient enables financial institutions to take a proactive approach to tackling the issue of “junk fees” and other regulatory challenges. This partnership not only helps avoid regulatory scrutiny but also positions them as advocates for customer well-being in the continually changing financial landscape.

Connect with Perficient today to elevate your business practices.

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Patrick Swain

For over 27 years, Patrick Swain has led large-scale operations and analytics teams at the top US banks in loan and deposit spaces. He is a proven cultural and business process transformation leader and has driven profound innovation in system development, team leadership, customer engagement, and net loss improvement.

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