Looking Ahead to 2025
We expect continued scrutiny by regulators on fees, including enforcement actions and rulemakings, with the caveat that the new administration could shift federal priorities away from this fee crackdown. Specifically, regulators will maintain their focus on “junk fees,” a broad term the Consumer Financial Protection Bureau (CFPB) has used to describe a wide range of fees financial institutions may charge consumers, ranging from so-called “surprise” overdraft fees to “pay-to-pay” convenience fees.
Key Trends From 2024
In 2024, Goodwin tracked 15 enforcement actions related to credit, debit, and prepaid cards; payments; and the consumer banking space. This represents a slight increase from the 14 such actions tracked in 2023, but the total recoveries (approximately $254 million) reflect a decrease from 2023’s recovery of $322 million.
The CFPB continued its focus on fees in the debit and credit card space. In March, it issued a new rule lowering the immunity provision dollar amount for credit card lates fees from $32 to $8. And in September, it published new guidance regarding overdraft fee practices and Regulation E, asserting that certain overdraft fees can be unlawful if the financial institution did not obtain the consumer’s affirmative consent in advance.
Other agencies were also focused on fees, including California’s Department of Financial Protection and Innovation (DFPI), which entered into a consent order with an internet platform that allows merchants to sell installment contracts regarding allegedly undisclosed convenience fees, and the Federal Trade Commission (FTC), which filed a suit against a bill pay company related to alleged junk fees.
In the News
CFPB Issues Report on Credit Card Rewards Programs
In May, the CFPB issued its first report on credit card rewards programs. In the report, the CFPB identified several patterns related to credit card rewards programs that it deemed “concerning,” including:
- Requirements detailed in the fine print of rewards programs’ terms and conditions not matching marketing materials (i.e., potentially turning a sign-up offer or other promotional rewards into a “bait and switch”)
- Customer service issues and technical glitches blocking or delaying redemptions, often by preventing the transfer of rewards to a third-party merchant
- Card issuers failing to reinstate rewards in circumstances where cardholders were unable to redeem them through no fault of their own
That same month, the CFPB and the Department of Transportation held a joint hearing on credit card and airline rewards programs. During the hearing, former CFPB Director Rohit Chopra said, “[W]hen Americans sign up for rewards credit cards, they intuitively assign a monetary value to those points that make signing up and spending worthwhile. However, our initial review of the fine print suggests that credit card companies and airlines have the power to quickly and dramatically devalue those points by making it more challenging to redeem them or by limiting the inventory that can be purchased with points.”
CFPB Turns Its Sight to Medical Credit Cards and the Marketing Thereof
In July, the CFPB issued Supervisory Highlights, which included a finding that consumers feel pressure from healthcare providers to use medical credit cards without fully understanding the terms of those financing tools. Consumers use medical credit cards and associated products to pay for healthcare-related products and services at the point of sale, most often a doctor’s or dentist’s office or a hospital. Specifically, the CFPB focused on the ways in which medical providers relayed information about these products to consumers and the way in which those products are marketed. Of particular interest to the CFPB was the high number of consumer complaints related to the way in which healthcare providers describe the “deferred interest” aspect of some of these products to consumers. According to the CFPB, consumer complaints indicate that healthcare providers often misrepresent the specific terms of the “deferred interest” promotions when describing them to consumers. The CFPB continues to beef up its monitoring of this area, which Goodwin also observed in 2023.
CFPB Issues EFTA Guidance on Overdraft Fees
In September, the CFPB issued guidance to clarify that “under the Electronic Fund Transfer Act [EFTA], banks cannot charge overdraft fees on ATM and one-time debit card transactions unless consumers have affirmatively opted in.” The CFPB further instructed that regulators should assume that consumers have not opted in to overdraft services unless the banks can affirmatively prove otherwise. The CFPB indicated that this affirmative proof varies based on the channel through which the consumer opted in to coverage:
- If the opt in was completed in person or by postal mail, a copy of a form signed or initialed by the consumer indicating the consumer’s affirmative consent to opting in to covered overdraft services would constitute evidence of consumer consent.
- If the opt in occurred over the phone, a recording of the phone call in which the consumer elected to opt in to covered overdraft services would constitute evidence of consumer consent.
- If the opt in was completed online or through a mobile app, a securely stored and unalterable “electronic signature” as defined in the E-Sign Act (15 U.S.C. 7006(5)) conclusively demonstrating the specific consumer’s action to affirmatively opt in and the date that the consumer opted in would constitute evidence of consumer consent.
CFPB Finalizes Rule Enabling Supervision of Nonbanks
In November, the CFPB finalized a rule that will enable it to supervise large “nonbank companies” that offer digital funds transfer and payment wallet apps. According to the CFPB, the rule, which focused on companies that handle more than 50 million transactions per year, was purportedly designed to ensure that these companies follow federal law in the manner that large banks and credit unions already do under the CFPB’s supervision. The rule went into effect on January 9, 2025.
2024 Enforcement Highlights
California DFPI Enters Into Consent Order With Online Company to Settle Hidden Junk Fees Allegations
In January 2024, the California DFPI announced that it entered into a consent order with Credova Financial LLC, an internet-based financial services company that allows online merchants to offer payment installments to its customers. The DFPI alleged that the company violated the California Consumer Financial Protection Law (CCFPL) by failing to disclose certain convenience fees a consumer might incur. The DFPI further alleged that although the company offered a free option for consumers to make their monthly payments and disclosed this option in its contract, the company also offered payment methods, such as paying over the phone or paying electronically, that would incur service fees and were allegedly not disclosed in its contract. The DFPI categorized these “hidden fees” as junk fees that the company was obligated to disclose up front by CCFPL. During the investigation, the company revised its online form contract to revise its disclosures, and under the terms of the consent order, the company also agreed to pay a $50,000 penalty.
FRB Fines Company Over Allegations of Unfair and Deceptive Practices Related to Fee Disclosures
In July, the Federal Reserve Board of Governors (FRB) announced it had fined Green Dot $44 million for alleged unfair and deceptive practices related to its failure to disclose certain fees, including those assessed on zero balance accounts that consumers expected to have been closed. The FRB accused the company of violating Section 45 of the FTC Act. In addition to the fine, the company will hire an independent third party to strengthen its consumer compliance risk management program, develop an effective anti–money laundering program, and hire an independent third party to conduct a review of certain transaction activities.
CFPB Settles Allegations Against Credit Union Regarding Overdraft Fees
In November, the CFPB announced it had entered into a consent order with Navy Federal Credit Union to resolve allegations regarding improperly assessed overdraft fees. The credit union agreed to pay nearly $95 million as part of the order. The consent order resolves the CFPB’s allegations that the credit union engaged in unfair practices by charging consumers overdraft fees for transactions when the consumer had a positive available account balance at the time the transaction was authorized but had a negative account balance at the time the transaction was settled by the credit union; and charging consumers overdraft fees when the consumer initiated a transaction after receiving money from a person-to-person payment service such as Zelle or Cash App, which was reflected in their available balance but not yet posted in their account at the time of the transaction. The CFPB alleged that these practices misled and confused consumers who did not reasonably expect to incur overdraft fees in either scenario.
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