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The President's Initiative on Junk Fees

Recently, Sheshunoff Online Compliance Consulting clients received our Compliance Alert that highlighted recent CFPB guidance on surprise deposit account fees. That guidance was focused on returned deposit item fees, as well as unanticipated overdraft fees. As voiced within the guidance, and at a high level, concerns with fees that a consumer cannot reasonably avoid can constitute an unfair practice.

While the CFPB guidance is directly impactful to the financial industry, stakeholders should be aware that the White House has their own initiative on junk fees and related pricing practices. As that initiative is leading the charge, it’s important to be aware of what it contains.

What is the President’s initiative?

As noted in an October White House blog post, President Biden has “called on all agencies to reduce or eliminate hidden fees, charges, and add-ons for everything from banking services to cable and internet bills to airline and concert tickets.”

The blog provides some background on what the Biden-Harris Administration means by “junk” fees and what they are doing about them. As current and future guidance on this topic is likely to impact the financial industry, it’s important to consider the overall White House initiative.

What does the White House mean by “junk” fees?

As shared in the White House blog post: 

“There is nothing wrong with a firm charging reasonable add-on fees for additional products or services. In the interests of customization, firms should be free to charge more to add mushrooms to your pizza or to upgrade you to a hotel room with an ocean view. However, in recent years we’ve seen a proliferation of “junk fees” – a category of fees that serve a different purpose. They can be defined as fees designed either to confuse or deceive consumers or to take advantage of lock-in or other forms of situational market power.”

The post goes on to suggest that the following fees and practices likely fall into this category:

• mandatory fees that often hide the full price,
• surprise fees that consumers learn about after purchase,
• exploitative or predatory fees, and
• fraudulent fees.

Also, the post shares that “a sample of some fee categories where junk fees appear to make up significant fee revenue” include:

• credit card late payment fees,
• bank overdraft and non-sufficient funds (NSF) fees,
• hotel resort fees,
• airline baggage and change fees, and
• cable hidden fees.

How is the Biden-Harris Administration taking action on junk fees?

At a high level, actions the administration has stated they have already taken include:

• eliminating unfair banking fees,
• supporting additional CFPB actions on bank and credit card fees,
• taking aim at junk fee practices that span industries (through FTC action),
• restricting junk fees charged by auto dealers,
• requiring airlines (and airline search sites) to disclose fees up front,
• requiring broadband nutrition labels (through FCC action), and
• reducing the cost of shipping goods.

Our readers are encouraged to read more about the President’s initiative here.  

Thanksgiving is the perfect time to express our sincere thanks to those whose friendship we cherish. Thank you for your business and best wishes for a bountiful Thanksgiving holiday.

Regulation II Update Finalized

At the beginning of October, the Federal Reserve Board finalized a final rule to amend their Regulation II – Debit Card Interchange Fees & Routing, which establishes standards for debit card interchange fees and prohibits payment card network exclusivity arrangements and routing restrictions for debit card transactions. 

The Board is required by law to make rules ensuring that debit card issuers give merchants the opportunity to choose between at least two unaffiliated networks when routing debit card transactions. While an initial rule was issued in 2011, it was noted that at that time, the market had not developed solutions to broadly support multiple networks for “card –not-present” debit card transactions.

The 2022 final rule amending Regulation II (§12 CFR 235) underscores that debit card issuers should enable at least two unaffiliated networks to process debit card transactions. The Board noted in their press release that based on input, many issuers, including most community bank issuers, are already compliant. The final rule will be effective July 1, 2023, and does the following:

• specifies that the requirement that each debit card transaction must be able to be processed on at least two unaffiliated payment card networks applies to “card-not-present” transactions,
• clarifies the requirement that debit card issuers ensure that at least two unaffiliated networks have been enabled to process a debit card transaction, and
• standardizes and clarifies the use of certain terminology.

The final rule does not modify interchange fee requirements; however, the Board will continue its review of such fees and may propose changes in the future. Interested persons may find the Federal Reserve’s new final rule, as published in the Federal Register here and the Regulation II FAQs here.  

Getting Ready for Small Business Data Collection?

As we informed our readers in September 2021, the CFPB issued proposed amendments to Regulation B to implement section 1071 of the Dodd-Frank Act for small business data collection.   

According to the CFPB, “Section 1071’s purposes are to facilitate enforcement of fair lending laws and to enable the identification of business and community development needs and opportunities for women-owned, minority-owned, and small businesses.”  The proposed rule includes:

• identification of covered financial institutions, covered applications, covered credit transactions, and small businesses;
• requirements to collect and report data;
• provisions regarding the availability and publication of data;
• limitations of certain persons’ access to certain data;
• recordkeeping requirements; and
• implementation of an effective date after 90 days, and a compliance date after 18 months, of the publication of a final rule.

As reflected in the proposed rule, a “covered financial institution” refers to a financial institution that originated at least 25 covered credit transactions for small businesses in each of the two preceding calendar years. 

Also, the Bureau is proposing to define “small business” by reference to the definitions of “business concern” and “small business concern” as set out in the Small Business Act and Small Business Administration (SBA) regulations. However, in lieu of using the SBA’s size standards for defining a small business concern, the Bureau’s proposed definition would look to whether the business had $5 million or less in gross annual revenue for its preceding fiscal year.

While the financial industry is still awaiting a final rule, many institutions are taking steps now to start formulating plans to support compliance. This includes:

• a review of the proposed rule, including proposed data points
• giving consideration to proposed coverage of financial institutions, covered applications and transactions, and small businesses; formulate an initial determination of:
• adjustments to policies and procedures
• revisions to small business application form(s) to support data collection
• needed internal resources, staff, and technology to support data collection
• impact to staff to support collection efforts
• impact to staff to support reporting efforts
• investigating whether your platform provider is supporting data collection and reporting efforts and if so, what their action plan entails. This investigation should include whether or not technology is available to support the firewall requirements included in the proposal.

A final rule to implement section 1071 and small business data collection requirements is expected by March 31, 2023. 

Interested persons may find the CFPB’s proposed rule to amend Reg. B here, a summary of the proposal here, and an overview of the proposed data points here. Other information can be located on the CFPB’s webpage for small business lending data collection rulemaking here. 

Earlier this month, FEMA amended their Standard Flood Hazard Determination Form (SFHDF) and uploaded it to their website. The SFHDF is used when determining whether the building or mobile home offered as collateral security for a loan is or will be located in a special flood hazard area in which flood insurance is available under the Act. 

While FEMA does not detail revisions made to the SFHDF, the new form reflects an expiration date of 09-30-2023.



Interested persons may find the updated SFHDF here. As FEMA indicates, this form needs to be downloaded and opened directly in Adobe Reader because it may not open in Edge or other browser-based readers.