A Senate subcommittee examined various fees consumers face and discussed how they are a misguided attempt to link the fees to inflation, plus the need for a concise definition of the term.
08/23/2023 2:20 P.M.
3.5 minute read
U.S. Senate discussions on “junk fees” are expected to be part of the conversation in Congress when legislators return to session in September.
The Senate Consumer Protection, Product Safety and Data Security Subcommittee held a hearing in June to explore the issue and possible legislation followed by a similar hearing in July before the Senate Banking Subcommittee on Financial Institutions and Consumer Protection.
The witness panel for the hearing, “Taking Account of Fees and Tactics Impacting Americans’ Wallets,” included:
- Michelle Henry, attorney general, Commonwealth of Pennsylvania.
- Lindsey Siegel, director of Housing Advocacy, Atlanta Legal Aid Society
- Brian Johnson, managing director, Patomak Global Partners.
The discussion focused on the impact of rental fees, overdraft fees and credit card late fees, according to a summary from Brownstein Hyatt Farber Schreck LLP.
Subcommittee Chair Raphael Warnock, D-Ga., said the goal of the hearing was to examine student loans, bank fees, the rental housing market and small-dollar lending.
He added that “most fees provide no economic value and that some fees are too high, unclear, and used to generate extra revenue … and that one third of unbanked households remain unbanked due to high fees,” according to the summary.
Ranking Member U.S. Sen. Thom Tillis, R-N.C., countered that there is no established definition of “junk fees” in law, but the term stems from politics and actions on the fees have incorrectly linked them to inflation.
The Consumer Financial Protection Bureau’s definition of “junk fees” is also missing a clear meaning, which makes it difficult for companies to comply with guidance and regulations.
From the witness panel, Henry said the fees cause businesses to lose out to competitors who charge them, and consumers pay more than they planned.
Siegel explained that fees charged by landlords “make rental housing unaffordable for many low-income families.”
Johnson, a former deputy director at the CFPB, said the efforts to curtail “junk fees” by the Biden administration are a “misguided attempt to take on the root causes of inflation.” He said that “the White House and agencies dismissed broad categories of fees as ‘junk’ without providing a consistent definition,” according to Brownstein’s summary.
Johnson and Tillis discussed the impact of the CFPB’s approach to reining in the fees—noting that it will have unintended consequences—and whether the bureau has jurisdiction and resources to make regulatory decisions on these fees.
Federal standards on “junk fees” would simplify bringing cases against bad actors for states, according to the hearing discussions.
The subcommittee also discussed overdraft fees and rental fees.
It and other members of Congress will continue to review issues on “junk fees” regulation and development as consideration of legislation on the topic advances.
Meanwhile, the CFPB, for example, has proposed a rule that would update regulations implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), ACA previously reported.
ACA submitted comments (PDF) to the CFPB on its request for information regarding fees related to consumer financial products and services clarifying the use of fees in the debt collection industry.
The CFPB does not provide any evidence or date of abuse by accounts receivable management industry participants occurring in this area, ACA states in its comments.
“ACA takes issue with including this vague and unsupported accusation in an RFI and is unaware of any pattern of abusive behavior in this area among our members.”
Congress recently noted in a letter 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.” ACA strongly agrees with this concern.
Moreover, we are disappointed that it has been a trend in recent months for the CFPB to use pejorative terms when describing not only the debt collection industry, but also most participants in the financial services industry.