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House Financial Services GOP Concerned About ‘Regulatory Overreach’ in CFPB’s RFI on Fees

The members outlined concerns to CFPB Director Rohit Chopra in a letter with questions on the reasoning for the RFI on convenience fee processes as well as in a subcommittee hearing on the topic March 31.

04/01/2022 12:00 P.M.

4 minute read

Republican members of the House Financial Services Committee submitted questions on the Consumer Financial Protection Bureau’s Request for Information on convenience fees to Director Rohit Chopra March 31 and subsequently held a hearing, “The End of Overdraft Fees? Examining the Movement to Eliminate the Fees Costing Consumers Billions” with the Subcommittee on Consumer Protection and Financial Institutions.

The CFPB continues to seek comments from the public and businesses related to fees that are not subject to competitive processes that ensure fair pricing, having received more than 25,000 since it opened the comments in January. As a result of the feedback so far, the bureau extended the deadline for comments from March 31 to April 11, ACA International previously reported.

The public comments will assist the CFPB and policymakers in exercising the bureau’s enforcement, supervision, regulation and other authorities to create fairer, more transparent and competitive consumer financial markets, according to the request for information.

“We agree consumer education and simplification of disclosures should be a priority. There is, however, always a cost associated with providing financial services and access to credit,” the GOP members, led by U.S. Rep. Patrick McHenry, R-N.C., the ranking member of the House Financial Services Committee, said in the letter. “These costs include the risk to the offering firm for such product and credit extensions, which may be offset in part by certain fees for service. Moreover, there are statutory and regulatory requirements in place that guide financial institutions in how to properly communicate these costs, including the Truth in Lending Act (TILA) disclosure requirements and fee disclosures promulgated by the CFPB.”

Among the examples of fees outlined in the request for information, the CFPB noted that financial institutions charge “convenience” fees on payment transfers, return item fees, stop payment fees, check image fees, online or telephone bill pay fees, ACH transfer fees, and wire transfer fees. International transfers are subject to a significant number of fees as well.

McHenry and the GOP members said in the letter to Chopra that “the CFPB broadly groups all fees associated with consumer products and services as ‘junk fees’ and does not provide any legal definition of the term or any statutory authority to define such a term. The CFPB gives examples of the types of fees on which they are soliciting information including ‘unexpected fees’ and ‘fees that seemed too high.’ However, the CFPB fails to outline any illegal activity taking place regarding fees by financial institutions that would require the CFPB ‘exercising its enforcement, supervision, regulatory, and other authorities.’”

During the hearing on the subject of fees, it was revealed that the crux of the issue—from the GOP perspective—is regulatory overreach by an aggressive CFPB. U.S. Rep. Blaine Luetkemeyer, R-Mo., ranking member of the subcommittee, building off the letter to Chopra, delivered criticism of the agency’s ongoing need to act beyond the bounds of its statutory authority by creating problems to oversee.

Subcommittee Chairman U.S. Rep. Ed Perlmutter, D-Colo., noted Chopra will appear before the full House Financial Services Committee next month.

In testimony at the hearing, Todd Zywicki, professor of law at George Mason University Foundation, Antonin Scalia Law School, noted consumer frustration with complex financial fees is not a sound basis for policy, given the costs associated with efficient pricing of financial services.

“Ill-considered new regulations on overdraft fees not only could harm consumers overall but by limiting the ability of banks to accurately price the risk of offering these services would have the greatest adverse effect on responsible lower-income, younger, higher-risk, and other marginal consumers who would likely find themselves facing higher bank fees, higher mandatory minimum balance requirements, and reduced access to banking services in general,” Zywicki said.

Additional highlights from his testimony include:

  • Higher income households are more likely to overdraft due to high account activity and lower average balances. Small banks are more dependent on overdraft fee income than larger banks with multiple, diverse lines of revenue.
  • Elimination of overdraft services would require banks to recoup lost revenue elsewhere, likely in the form of higher minimum deposits and loss of free checking, which impacts low-income households the most. Notably, when the Fed changed overdraft to an opt-in, free bank accounts decreased by 11%.

Meanwhile, the questions from the GOP members to Chopra include how the CFPB expects financial institutions to bear the cost and offset risk of credit products for low and moderate-income consumers and consumers with difficult credit histories in a safe and sound manner without fee assessment and if the CFPB has consulted with prudential regulatory agencies concerning the risks to safety and soundness of limiting fees or attempting to set pricing.

Responses from Chopra were requested by April 15. He will testify before the House Financial Services Committee April 27.

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