White House Backs CFPB Efforts to Crack Down on Surprise Bank Fees

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  • The White House Competition Council has its eye on banning junk fees and providing a level playing field so new businesses can compete.
  • Americans spend more than $29 billion annually on junk fees.
  • Transparent billing practices make it possible for consumers to accurately compare the service and price of one business to another.

As President Biden said, they are "surprise charges that companies sneak into bills because they can."

The White House Competition Council has recently taken on some powerful players. For example, they're fighting to slash excessive credit card late fees, pushing to break down competition barriers in the mobile app store ecosystem, and working toward full transparency in the airline industry.

But that's not all. No business sector is off limits. If an industry lacks competition, the Council is on the case, finding alternative ways to even the playing field. Here's how they're doing it and why the Biden administration is so dead set on eliminating bank fees.

Junk fees are the enemy

Americans spend at least $29 billion annually on junk fees, funds many of us cannot afford to lose. That's $29 billion that doesn't make its way into savings accounts, retirement accounts, or toward the high cost of education.

The President got the ball rolling in October 2022 when he announced his intention to target junk fees and the businesses exploiting consumers.

"One of the key things I've asked the council to take on was the unfair hidden fees known as 'junk fees' that are taking real money -- real money out of your pockets -- real money out of the pockets of American families. Things like, as been mentioned, surprise banking overdraft fees, excessive credit card late fees, hidden hotel booking fees, or those huge termination charges to stop you from switching cable and Internet plans to a better deal. Surprise charges that companies sneak into bills because they can.

In fact, there's an entire industry that's popping up in America to help companies use complicated algorithms to hide fees that hurt consumers and help them. These things add up."

Targeting bank fees

A little over a year into the Biden administration, the CFPB targeted overdraft and bounced check fees. Due to the agency's action, 15 of the 20 largest banks agreed to end bounced check fees.

Here are two more fees under the ax:

1. Surprise overdraft fees

Let's say you stop by the grocery store to pick up supplies for dinner. You pay using your debit card, and the transaction goes through without a hitch. Later the same day, your rent payment hits the bank, overdrafting your account by $10. Typically, a bank would charge you an overdraft fee for both transactions, as well as any other transactions that hit your account, before a sufficient deposit is made.

The CFPB has now issued guidance banning "surprise" fees. In this case, the surprise fee would be the one incurred due to using your debit card at the grocery store. After all, the bank approved that transaction. Another transaction coming through later in the day does not change that fact.

Surprise depositor fees

Now, imagine that you're selling a lawnmower. The buyer doesn't have enough cash on them, so you agree to take a check for the remaining balance. The check bounces.

Normally, your financial institution would charge you a fee for depositing a bad check. Given that you had no way of knowing how much was in the buyer's checking account, charging you for someone else's error makes no sense. And now, that practice is banned.

Eliminating these two banking fees alone is expected to save consumers more than $1 billion annually.

The Competition Council has teeth

The Council has brought together several major government agencies to enact change. For example, the Department of Transportation (DOT) has implemented consumer-friendly guidelines to make travel costs more fair and potentially less stressful. And it's the Department of Commerce's National Telecommunications and Information Administration (NTIA) that is working to give smaller app developers a chance to get their apps to market. It's the Consumer Financial Protection Bureau (CFPB) engaged in slashing credit card fees, reducing late fees from roughly $30 to $8, and saving consumers as much as $9 billion a year.

If you've ever tried to figure out the "true" cost of internet service, you know how confusing it is. Junk fees are labeled with terms that make no sense, information is spread out, and all of it sounds vaguely foreign. The Federal Communications Commission (FCC) is on the case, implementing a rule that requires broadband providers to provide "nutrition labels" like those found on food products. Providers must clearly state the speed, data allowance, additional fees, and total price of service.

If a business charges junk fees, they can expect to be snagged. And if an entire industry has found a way to block competition -- like charging hefty fees for customers who cancel their service -- it can count on receiving more scrutiny.

"We're just getting started," President Biden said in a statement from the White House. "There are tens of billions of dollars in other junk fees across the economy, and I've directed my administration to reduce or eliminate them."

The Council can't do it on its own, though. They're going to need Congress to support their efforts by banning the junk fees that are costing their constituents billions of dollars a year.

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