U.S. Consumer Watchdog Targets Hidden Financial Fees

By Makailah Gause and Pete Schroeder

WASHINGTON (Reuters) – A crackdown by the U.S. consumer finance watchdog on hidden or excessive financial fees could expand to target billions of dollars in mortgage, credit reporting, and other fees if Vice President Kamala Harris wins the presidential election.

Expunging "junk fees" has been a central, and popular, plank of Democratic President Joe Biden's push to bring down prices. With inflation and the economy at the heart of the presidential race, Democratic candidate Harris has pledged to carry on the fight.

Rohit Chopra, director of the U.S. Consumer Financial Protection Bureau (CFPB) under Biden, has targeted around $20 billion of annual bank overdraft, credit card, and bounced-check fees, according to the agency's data. However, there are billions of dollars of other fees the agency could pursue with four more years of Democratic leadership. Chopra's term ends in 2026.

According to a CFPB official and a second regulatory source, the CFPB's next top targets include mortgage closing costs and business-to-business fees that trickle down to customers, particularly borrower credit-score fees.

While there is no available data on the total annual value of these fees, a Reuters analysis suggests they could exceed $24 billion.

"Harris would be wise to continue to focus on junk fees… as vice president she's observed the success first-hand," said Aaron Klein, senior fellow at the Brookings Institution.

The CFPB states that the financial system is riddled with fees that are undisclosed or excessive, distorting the free-market system by concealing the true prices of goods and services.

Banks argue that fees are transparent and that eliminating them will hinder Americans' access to credit. They have sued to overturn the CFPB's March rule capping credit card late fees at $8, down from the typical $32.

"U.S. consumers don't want new regulations that make it more expensive to use their credit cards and other banking products," said Bill Hulse, senior vice president at the U.S. Chamber of Commerce, which is leading the credit card litigation. He stated that the group would continue to advocate on fees.

This has not deterred the CFPB, which expects to finalize curbs on overdraft and bounced-check fees by year-end, after which mortgage closing costs will be the next target, a CFPB official said anonymously.

The CFPB flagged that closing costs, which comprise dozens of individual fees, are a barrier to affordable housing and may merit regulatory action. Median total loan costs in 2022 rose more than 20% year-on-year, reaching nearly $6,000 for home purchase loans and $5,000 for refinancings, indicating that borrowers spent approximately $24 billion on closing costs last year.

The CFPB noted that title insurance, costing typically 0.5% to 1% of the purchase price, is among the most expensive components of closing costs.

Additionally, mortgage lenders reported a sharp increase in fees for borrower credit reports and scores, sometimes exceeding $100, which ultimately gets passed on to borrowers. These fees have jumped since 2022, in some cases by as much as 400%.

The CFPB remains focused on these types of big-business-to-small-business information fees.

The CFPB has also been addressing fees lenders charge customers for account information, including outstanding loan balances or fraud inquiries. The agency has pointed out ATM fees and fees charged by retailers for cash back in stores.

"If Democrats win, you're going to see continued pressure on all types of fees," said Isaac Boltansky, director of policy research at brokerage BTIG.

PUSHBACK

CFPB officials believe the agency has the authority to cap fees, but firms dispute this and have indicated they will fight further regulations. In an August letter, lenders and title insurers warned their belief that Congress did not grant the CFPB power to set fees in the mortgage-origination process.

Congressional Republicans have criticized CFPB's Chopra for what they see as overreach. If Republican candidate Donald Trump wins, analysts believe the agency would pull back.

Some executives worry that Trump’s recent pledge to cap credit card interest rates might make the CFPB tougher on lenders if he returns to office.

Regardless of the outcome, the Consumer Bankers Association, which represents major retail lenders, has initiated a campaign pushing back against the "junk fee" narrative.

"What we don't want to see repeated is this administration's campaign against banks," said Lindsey Johnson, CEO of the group, referring to the Biden administration's stance. "Whoever wins, the banks need to be at the table, participating in the discussion."