Are your fees junk-free?
Consumers are entitled to get the basic information they need from financial institutions without having to pay so-called “junk fees.” That was the gist of the Consumer Financial Protection Bureau’s (CFPB’s) recent advisory opinion. The guidance for large financial institutions, related to Section 1034(c) of the Consumer Financial Protection Act (CFPA), supports the requirement that financial institutions need to respond in a timely manner to consumer requests about their accounts.
The advisory provides clarification that financial institutions are not allowed to charge consumers junk fees for basic account information, such as a copy of a deposit account statement, a canceled check or a loan payoff request.
The guidance also clarifies that financial institutions should put customer service as a priority and not require customers to have to wait a long time on hold or need to talk with multiple employees or automated systems before being able to obtain their account information.
Time to review your fee practices
Although the advisory opinion was directed at large financial institutions, all-sized organizations can follow suit, as it will prevent future regulator criticism of the institution’s fee practices and provide a positive customer experience. With the year-end approaching, now is a great time to review your financial institution’s policies, procedures and practices regarding fees charged to account holders.
When reviewing your standard fee schedule and other disclosures that include fees, consider these elements as they apply throughout your offerings including both deposit and loan accounts. Meanwhile, if you determine a change in your fee schedule or disclosures is warranted, you should follow the subsequent change in term notification requirements for each applicable regulation.
- Clarity: Your fee schedule should allow all readers to easily understand what the fee is applicable to, when it will be assessed and the amount of the fee.
- Accuracy: All fees disclosed to consumers should reflect the correct amount that will be charged as well as accurate and consistent use of the fee description listed on disclosures, advertisements and periodic statements. For example, if the annual HELOC fee changes, the change needs to be reflected on the HELOC application disclosure, HELOC advertisements and periodic statements.
- Updates: Fee schedules and disclosures should be updated for any new fees charged to consumers and any obsolete fees should be removed from the disclosures. Some examples of fees that you may have previously charged but no longer do include:
- Excessive transaction fees related to Regulation D
- Representment nonsufficient funds (NSF) fees
- Continuous overdraft fees
- Paper statement fees
- Returned deposit fees
- Third-party fees: Fees charged to your consumers by a third party, such as a service provider or fintech partner, should be reviewed for accuracy and fairness as well.
- Junk fees: Reviewing your fee disclosures for any potential junk fees is very important as these fees have been frequently discussed by examiners over the past year. The CFPB describes these as unnecessary charges that inflate costs while adding little to no value to the consumer and are often unavoidable or hidden charges applied on the back end of the transaction. When reviewing fees, consideration of UDAAP (prohibition of unfair, deceptive or abusive acts or practices) should always be top of mind. Fees should not be unfair to the consumer, even if properly disclosed.
Junk fee examples
The CFPB offers these junk fee examples to be aware of in its Supervisory Highlights:
- Fees for products or services not performed: For example, avoid charging a monthly paper statement fee when the consumer’s mail is returned, resulting in a fee for a paper statement that was never generated.
- Add-on loan products that are not canceled or refunded properly upon early payoff or default: These include gap insurance or unearned PMI premiums.
- Charging a fee for the request of information: These include an account balance, a copy of an imaged canceled check or payment history records, as these are considered basic account information. Remember that ATM fees charged for a balance inquiry could also be a potential junk fee.
- Assessing multiple NSF fees for the same transaction: Examiners have provided clarification throughout the last year that representment fees are considered unfair and should be avoided.
- Authorize positive, settle negative (APSN) overdraft fees:- These occur when the financial institution assesses an overdraft fee for debit card or ATM transactions resulting from an account that had a sufficient available balance at the time the consumer authorized the transaction, but had an insufficient account balance at the time the transaction settled due to the payment of intervening transactions.
- Returned deposit item fees: These are assessed to a consumer when an institution returns a deposited check due to insufficient funds.
- Charging inappropriate remittance transfer fees: Charging a fee when the transfer did not occur timely or not disclosing the fee to the consumer as required.
How Wipfli can help
Wipfli can help you avoid costly junk fee violations by assisting you in your review of disclosures, fee schedules and system parameters. Wipfli’s specialists are here to support your financial institution in effectively maintaining compliance throughout your operations. We can assist you in reviewing your programs, implementing solutions and staying current with regulations. Contact us to learn more about how we can help you protect consumers and your institution.
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