The Biden administration on Wednesday said it was going after “junk fees” charged by banks that largely target low-income residents and people of color.
The Consumer Financial Protection Bureau issued guidance to end two junk fee practices that it says are likely unfair and unlawful.
The guidance, if adopted by financial institutions, could save Americans billions of dollars according to the CFPB.
“They’re unfair and they hit marginalized Americans the hardest,” President Joe Biden told a press conference. “They benefit big corporations. Not consumers. Not working families. And that changes now.”
The White House push comes as some major banking institutions, such as Bank of America, eliminated or reduced fees this year.
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American Bankers Association President and CEO Rob Nichols told CNBC the action “attempts to sensationalize highly regulated fees that are already clearly disclosed to customers under existing federal rules.”
Here are the fees and how they may affect you:
What are bank junk fees?
Let’s start with a “surprise depositor fee” This occurs when a consumer deposits a check that bounces, resulting in a bank charging a fee of $10 to $19 to the depositor.
The CFPB said charging a fee to the depositor penalizes the person who could not anticipate the check would bounce, while doing nothing to deter the originator from writing bad checks.
The agency said financial institutions “can generally stay on the right side of the law when they employ more tailored fee policies that charge depositor fees only in situations where a depositor could have avoided the fee, such as when a depositor repeatedly deposits bad checks from the same originator.”
What is a surprise overdraft fee?
A surprise overdraft fee, which may be up to $36, can occur when a customer doesn’t reasonably expect that their actions would incur that fee, such as charging penalties even when a consumer has a positive account balance.
This can happen when a bank displays that a customer has sufficient available funds to complete a debit card purchase at the time of the transaction, but the consumer is later charged an overdraft fee.
Often, the federal agency said, the financial institution relies on complex back-office practices to justify charging the fee.
The CFPB in September took action against Regions Bank for charging surprise overdraft fees known as authorized positive fees, and the bank was ordered to refund customers at least $141 million and pay a $50 million penalty.
Who makes money on fees?
While not part of the CFPB’s guidance, the White House also released estimates on how much money transportation, banking, internet and hospitality companies make on fees.
Here’s a breakdown:
Credit card late payment fees: $12 billion in 2020 (CFPB estimate).
Bank overdraft and non-sufficient funds (NSF) fees: $15.5 billion in 2019 (CFPB estimate).
Hotel resort fees: $2.93 billion in 2018 (NYU estimate).
Airline baggage and change fees: $5.97 billion in 2021 (DOT statistics).
Cable hidden fees: $28 billion in 2019 (Consumer Reports estimate).
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