In July, 2011, Congress voted to establish the Consumer Financial Protection Bureau, the CFPB. What a difference that has made in curtailing misleading business practices, especially in the financial industry! One of their most recent efforts is a focus on eliminating or reducing junk fees.
According to the CFPB, junk fees cost Americans $29 billion every year. Many junk fees are hidden, and we don’t realize they are being charged until after our payment is made.
Common junk fees include the overdraft fees charged by banks when customers don’t have enough money in their account to cover a transaction. The last two Getting Ahead columns have been about these overdraft fees charged on checks, debit card transactions, and automatic payments.
Rohit Chopra, head of the CFPB, shared the following story. “Because overdraft lending is so profitable, we have seen how large banks have egregiously crossed the boundaries of the law. Seven years ago, the CFPB sued TCF Bank – now known as Huntington Bank – for tricking consumers into costly overdraft lending. Over the course of many years, TCF went all in to drive up its junk fee haul, including by cheating to get its customers to sign up for overdraft. Their efforts to churn hefty fees were so successful that the bank’s CEO named his boat Overdraft.”
Late fees. Credit card companies make about $14 billion a year in fees paid for late payments according to the CFPB.
Convenience fees. Some banks have a load of these “convenience” fees: using an ATM – especially out of network, online payments, money transfers, foreign transactions, foreign currency exchanges, line of credit accessibility, money orders, inactive accounts. Sometimes you even have to pay to talk to a real person.
If you have bought a home, you know there are thousands of dollars charged for various fees. Owning a home has historically been one of the best ways to build wealth. However, you end up paying a lot more than you thought you’d have to. Banks might charge for document preparation and a loan origination fee to process your application. You pay for title insurance. You have to pay points, or money up front, to get a lower interest rate. There is an appraisal fee. And a home inspection fee. If you haven’t paid 20% down, you have to purchase private mortgage insurance, naming the financial institution as beneficiary. How about that credit report fee, or the document transfer fee you have to pay the Courthouse to process the property transfer. Then your house payment will include your interest on the loan and a payment to escrow for your property tax and required insurance along with the actual payment on the principal, the amount you borrowed.
Be aware that all banks and credit unions do not charge the same fees, and it is worth it to shop around when you are deciding who to trust with your financial transactions.
The CFPB is the primary enforcer of the Fair Debt Collection Practices Act (FDCPA), along with the Federal Trade Commission. They protect consumers from debt collectors that break the law, including mortgage servicers. The FDCPA prohibits debt collectors from charging fees that borrowers didn’t agree to upfront unless Congress or a state has passed a law affirmatively allowing them.
The Consumer Financial Protection Bureau regulates the financial industry. Their efforts have resulted in a lot of protections for Americans. But there is a lot more to do!