Under the Hood: CFPB’s ‘junk fee’ probe lacks transparency

The Consumer Financial Protection Bureau has stepped up scrutiny of auto loan servicers’ fees for late payments, repossessions and payment processing in an effort to bolster industry transparency. Yet the findings in the agency’s newly released report on the subject are generalized and vague. Earlier this month, the CFPB published the winter edition of its Supervisory Highlights report, called Junk Fees Special Edition. The term “junk fees,” the CFPB wrote, refers to “unnecessary charges that inflate costs while adding little to no value to the consumer.” The agency further noted that “these unavoidable or surprise charges are often hidden or disclosed only at a later stage in the consumer’s purchasing process or sometimes not at all.” Junk fees have been on regulators’ radar for more than a year. In January 2022, the CFPB issued a request for public input on fees associated with bank, credit union, loan, mortgage, prepaid or credit card account and payment transfers. Around midyear, the Federal Trade Commission proposed a rule to ban junk fees and bait-and-switch advertising tactics in the car-buying process. More recently, the CFPB has proposed a rule to cap credit card late fees, and the Federal Communications Commission has finalized a rule that requires cable and internet providers to provide easy-to-read labels of fees and services up front. Last week, U.S. Senators Richard Blumenthal (D-Conn.) and Sheldon Whitehouse (D-R.I.) introduced legislation — the Junk Fee Prevention Act — to “limit and eliminate excessive, hidden and unnecessary fees imposed on consumers,” according to the language of the proposal. Dripped-in fees The Council of Economic Advisers (CEA), which provides the White House with research to coordinate national economic policies and has been involved in collecting junk fee data, compiled examples to illustrate the challenges these fees can pose to consumers. Several examples entail “drip pricing” — where additional costs are “dripped in” as the consumer goes through the shopping process — as with concert tickets or food delivery. For instance, the CEA compared advertised prices with true prices for tickets to a concert in Washington across two platforms. The general admission ticket was listed for $87 on both websites, but the final price — including taxes, service fees and fulfillment fees — ranged between $123.98 and $128.26. In other words, the ticket shopper would only learn at the end of the purchase process that the $87 ticket would, in fact, cost 44% more than the advertised price. The CEA also cited examples with specific costs related to hotel resort fees, apartment fees and bank wire-transfer fees. Findings not quantified Yet, the CFPB’s report on auto servicing provided minimal details to quantify the magnitude of its findings. For the most part, the CFPB report used vague terminology like “excessive” late fees, “substantial injury to consumers” and “fees that far exceeded the servicers’ costs.” Further, the CFPB did not say which — or how many — institutions it examined to reach the conclusions outlined in its report. Rather, the agency noted that “references to institutions generally are in the plural, and the related findings may pertain to one or more institutions.” In other words, the CFPB could have based its findings on the examination of a single company. And while it’s possible that other servicers might maintain similar procedures, it’s also conceivable that they do not. Additionally, several of the auto servicing claims in the CFPB’s junk fee report were of another nature altogether. For example, the agency wrote that some servicers were charging late fees that exceeded the amounts allowed by consumers’ contracts or even fees disallowed by consumers’ contracts. Specifically, the CFPB cited an example in which servicers were charging $25 late fees, which exceeded the 5% late fee stipulated in consumers’ auto loan contracts. But these charges should be referred to as unlawful fees, not junk fees. Another claim in the CFPB report related to late fees is that “consumers could not reasonably avoid the injury because they do not control how servicers calculate late fees, had no reason to anticipate that the servicers would impose excessive late fees, and could not practically avoid being charged a fee.” In fact, consumers have a very simple way to avoid the “injury” of late fees — they could avoid being late on their payments. Then, it would not matter how servicers calculate those fees or how steep the fees are. Auto Finance Summit East, Auto Finance News’ new spring event, is scheduled for May 10-12 at the JW Marriott Nashville featuring a fireside chat with Peter Muriungi , CEO of Chase Auto . Visit autofinance.live .

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