[Senate Hearing 118-554]
[From the U.S. Government Publishing Office]
S. Hrg. 118-554
CONSUMER PROTECTION: EXAMINING FEES IN
FINANCIAL SERVICES AND RENTAL HOUSING
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING FEES IN FINANCIAL SERVICES AND RENTAL HOUSING
__________
MAY 9, 2024
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
------
U.S. GOVERNMENT PUBLISHING OFFICE
58-502 PDF WASHINGTON : 2025
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chair
JACK REED, Rhode Island TIM SCOTT, South Carolina
ROBERT MENENDEZ, New Jersey MIKE CRAPO, Idaho
JON TESTER, Montana MIKE ROUNDS, South Dakota
MARK R. WARNER, Virginia THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts JOHN KENNEDY, Louisiana
CHRIS VAN HOLLEN, Maryland BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada CYNTHIA M. LUMMIS, Wyoming
TINA SMITH, Minnesota J.D. VANCE, Ohio
RAPHAEL G. WARNOCK, Georgia KATIE BOYD BRITT, Alabama
JOHN FETTERMAN, Pennsylvania KEVIN CRAMER, North Dakota
LAPHONZA R. BUTLER, California STEVE DAINES, Montana
Laura Swanson, Staff Director
Lila Nieves-Lee, Republican Staff Director
Elisha Tuku, Chief Counsel
Catherine Fuchs, Republican Policy Director
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Assistant Clerk
(ii)
C O N T E N T S
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THURSDAY, MAY 9, 2024
Page
Opening statement of Chair Brown................................. 1
Prepared statement....................................... 32
Opening statements, comments, or prepared statements of:
Senator Scott................................................ 3
Prepared statement....................................... 33
WITNESSES
Adam Rust, Director of Financial Services, Consumer Federation of
America........................................................ 5
Prepared statement........................................... 35
Responses to written questions of:
Senator Fetterman........................................ 84
Karen Madry, President and Chief Executive Officer, Afena Federal
Credit Union................................................... 7
Prepared statement........................................... 58
Santiago Sueiro, Senior Policy Analyst, UnidosUS................. 8
Prepared statement........................................... 68
Responses to written questions of:
Chair Brown.............................................. 94
Additional Material Supplied for the Record
Statement submitted by ABA....................................... 95
Statement submitted by BPI....................................... 110
Letter submitted by CBA.......................................... 113
Letter submitted by DCUC......................................... 118
Letter submitted by NAA/NMHC..................................... 120
(iii)
CONSUMER PROTECTION: EXAMINING FEES
IN FINANCIAL SERVICES AND RENTAL HOUSING
----------
THURSDAY, MAY 9, 2024
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., via Webex and in room 538,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chair of
the Committee, presiding.
OPENING STATEMENT OF CHAIR SHERROD BROWN
Chair Brown. The Senate Committee on Banking, Housing, and
Urban Affairs comes to order.
Senator Scott, welcome. The three witnesses, welcome.
Costs are far too high for Americans. Corporations are
finding more and more ways to raise those costs to boost their
own profits. We have talked about how every time Americans go
to a grocery store they pay for corporate stock buybacks and
executive bonuses. Last week, we looked at how companies use
the latest technologies to jack up prices for consumers.
This week, we look at junk fees. These are surprise--
although not that much of a surprise anymore--often last-minute
charges that drive up the cost of products, have no
justification or connection to anything other than their quest
for profits.
Think about that hotel room you booked that has a bunch of
mysterious charges at the end.
Or that time you paid your credit card bill over the phone,
so you wouldn't be late, but were charged a convenience fee.
The only thing that fee is convenient for is the bank's bottom
line. Or let's say you're looking for an apartment and you
finally find one with affordable rent. But when you get a look
at the lease, you realize that, between the maintenance fee and
the trash fee and the mysterious convenience fee, the actual
rent you'll be charged each month is out of your budget now.
These hidden add-ons, surcharges, fees, they're all junk
fees. They're extra costs that inflate the price you pay, but
add no real value. They're often hidden. They're only disclosed
when it's time to pay.
Consumers know what they can afford. That's why we all shop
based on price. But when the real price is hidden through
undisclosed junk fees, how are consumers supposed to find the
lowest price? The answer is they often can't.
We hear a lot about personal responsibility and consumer
financial literacy in this Committee, but no amount of
financial education is going to protect someone from a tactic
that's meant to purposely hide the real purpose of a product or
service. They hide the price. That's the whole point.
Junk fees make a mockery of free and fair markets. Thirty-
two dollars here, $45 dollars there, sprinkle in a $10 service
fee. Before you know it, a product you thought was the most
affordable option actually is the most expensive.
Without junk fees, consumers would keep more of their hard-
earned money. They would be able to better find the lowest
price, which is how you really should promote competition to
bring costs down.
That's why the CFPB has taken long-overdue steps to reduce
costs and fees and make them more transparent.
CFPB took a major step toward reducing costs for consumers
when it issued its credit card late fee rule. Credit card late
fees are the most costly and frequently applied junk fee.
According to one report, one in five adult Americans, an
estimated 52 million people, paid a credit card late fee last
year.
By law, credit card late fees are supposed to be reasonable
and proportional--that's what the law says, ``reasonable and
proportional''--to the cost that companies incur for late
payment. So, be clear, there are massive trillion-dollar Wall
Street companies. The idea that your missing your payment due
date by a day or two is imposing some huge cost on the credit
card company is just patently ridiculous.
Sure enough, CFPB found that credit card companies are
charging consumers more than five times their cost. By 2022,
that meant credit card companies charged consumers $14.5
billion in late fees. That's up $3 billion over the previous
year, and who knows what next year will be?
The new action by the CFPB will lower credit card late fees
that the largest credit card issuers can charge down to just
$8--if it stands. This will save Americans more than $10
billion in fees each year. Of course--of course--the biggest
banks oppose it.
They trot out the same old complaints we always hear every
time anyone tries to do anything that might just cut into Wall
Street profits just even a little bit. They whined in 2009 when
we passed the Credit Act--or excuse me--we passed the CARD Act
to lower some fees and increase transparency.
Surprise, surprise, the sky didn't fall. Consumer still
have access to credit. And, of course, credit card companies
still make billions in profits.
Of course, it's not just credit card late fees. Junk fees
pile on top of all sorts of services and products. CFPB found
that some auto loan services charge $1,000 in repossession
fees, almost three times the average repossession cost.
Unsurprisingly, some owners never recover their cars because
$1,000 is an amount many working families cannot afford out of
the blue.
Rental housing. Junk fees that are added to the advertised
rent can make the actual rent paid unaffordable. We've seen
cases where the advertised rent grows hundreds of dollars a
month once all the fees were added on top of the rent--
application fees, utility deposits, trash fees, fees for the--a
young man in my office pays a fee for the honor of paying his
rent. Fee after fee after fee after fee.
Imagine a family getting approved for a place they think
they can afford, but, then, getting several hundred dollars of
surprise--surprise--added-on fees and surprise add-on fees when
they go to sign their lease. Most renters can't afford these
massive price increases, but they may not have an option once
they have paid all the upfront costs and set their move-in
date.
Be clear, the entire point of these fees is to hide the
true cost. They could just list their rent for what it is, but
they don't, because they want to make it impossible for
families to actually, as they survey where they want to move,
to actually find the lowest rent.
It's not a free, fair market. It's a rigged system. We need
to continue working to expose and crack down on those fees that
are raising costs on Americans to push already high corporate
profits even higher. We need to defend the CFPB's work that has
refunded $260 million to consumers for unlawful junk fees--
already saved that money and will save consumers billions in
the future. Corporations raising these prices have armies of
lobbyists to fight for them. At the beginning, I said people,
when they go into the grocery store to shop, they're paying for
stock buybacks and bonuses for executives--not too different in
this world, in the banking world, in the apartment world, and
in the car repossession world.
Our job is to stand up to those corporate lobbyists who
work for everyone else, so that consumers can actually keep
their hard-earned money. Senator Scott.
OPENING STATEMENT OF SENATOR TIM SCOTT
Senator Scott. Thank you, Mr. Chairman. Thank you to the
witnesses for being with us today. At last week's hearing, we
heard from my colleagues on the other side of the aisle that
the high prices Americans are paying, as they struggle to put
food on the table and face mounting debt, are the result of
greedflation and shrinkflation. And today is a similar story.
This time, the bogeyman is so-called junk fees and these fees
are to blame for the obvious economic pain Americans are
feeling--not skyrocketing inflation, not increasing global
instability, and certainly not the slush fund known as the
Inflation Reduction Act. Clearly, there's no shortage of
fingerpointing for the failure of Bidenomics or, as I like to
call it, ``Brokenomics,'' because that's what's happening to
the average American family.
My Democratic colleagues and this Administration have
deployed a herd of scapegoats to deflect blame for the economic
harm they have brought upon American households. Instead of
taking responsibility for the real consequences of unchecked
spending and increased regulation across the economy, the Biden
administration would rather throw a towel over the mirror and
say, ``Not me.''
Sure, it might be easy or even politically expedient to
slap a label of ``junk'' or ``excessive'' on additional costs
for legitimate products and services, in an effort to
villainize business in America, so that they, themselves, do
not have to face the reality that Bidenomics/Brokenomics is
causing devastation after devastation after devastation upon
the shoulders of the American people.
But it long past time that Democrats stop playing political
games with price controls and trying to micromanage the
business operations, especially when the real outcome of these
feel-good gains is reducing access to credit and limiting
economic opportunity for those who need it most.
That's why I introduced a CRA resolution to overturn the
CFPB's credit card penalty fee rule. Let's be clear about what
this rule will mean for American families.
It will result in lower credit limits and higher interest
rates for borrowers.
It will result in new fees for services that are currently
provided free of charge.
Finally, and perhaps worst of all, this rule will cutoff
access to credit and stymie financial inclusion for the
families who need it most.
Sadly, I wasn't surprised when the CFPB finalized the
credit card penalty fee just days before the President's State
of the Union Address. That's the politics of this
Administration. Actions that sound good as talking points, just
like the billions of dollars of student loan forgiveness, but
they are truly divorced from economic reality.
And it's not just the financial sector; it's everything
everywhere all at once. That's what astounds me--this
Administration's rhetorical hypocrisy.
The White House has claimed that a ``junk fee'' is a charge
designed either to confuse or deceive consumers. Ironically
enough, two of the recent targets within the Committee's
jurisdiction--overdraft and credit card late fees--are two of
the most highly regulated and transparent business practices in
any industry. The credit card late fees and overdraft fees we
are discussing here today are, in fact, not illegal and are
heavily regulated.
And while we are on the subject of regulation, if Democrats
actually wanted to address the junk fees that American families
are facing, a good place to start would be the enormous costs
that consumers are paying due to the Biden administration's
regulatory onslaught. It's an albatross around every family
trying to make ends meet.
Since he took office, the total cost of President Biden's
regulatory nightmare--the mountain of red tape--is $1.37
trillion. That's 1.37 trillion--``T'' as in Tom--dollars paid
by everyday families in the form of higher prices because of
these new regulations.
This contributes to the increased cost for food, housing,
vehicles, and all the other basics a family must have just to
survive--and this happens while inflation is raging.
If my friends on the other side of the aisle were truly
interested in helping the American family, the American people,
this hearing would be about finding solutions to tame the
inflation that has increased the cost of goods by almost 20
percent since President Biden took office. We should be
discussing how real average hourly wages have decreased under
this Administration. Remember, 52 paychecks in a row where
inflation was higher than wage increases.
And we would be discussing how President Biden has promised
to let the TCJA, the Tax Cuts and Jobs Act, expire next year,
which would result in a $2.5 trillion tax increase on the
American family. But that's not the conversation we're having
today, unfortunately.
In closing, it is my hope that we will hear today how
misguided the Administration's attempts are to push the
financial services industry into only offering one-size-fits-
all products, when we should be really focusing on providing
solutions to the financial hardships facing Americans.
And let me just close with one example. Everyone I know
hates paying a late fee, but the late fee is oftentimes the one
thing that encourages us to take our bills more seriously.
Because, ultimately, a late fee represents a late payment, and
if you are late on your payment, ultimately, your credit score
goes down, which means that the cost of borrowing goes up--
undeniably.
If we really want to save Americans more money, we should
focus not on these fees that encourage better payment history--
so your credit score goes up and your interest rates go down--
we should focus on the cost of gas, up 40 percent; we should
focus on the cost of energy, up 30 percent; we should focus on
the cost of food, up 20 percent--not on late fees.
Chair Brown. Thank you, Senator Scott.
Three witnesses today.
The first witness, Adam Rust, Director of Financial
Services, the Consumer Federation of America. Welcome, Mr.
Rust.
Mr. Rust. Thank you.
Chair Brown. Hang on 1 second. Sorry. Sorry.
Our next witness is Ms. Karen Madry, President and CEO of
Afena Federal Credit Union, headquartered in Marion, Indiana.
Welcome, Ms. Madry.
Our final witness is Mr. Santiago Sueiro. He is Senior
Policy Analyst on the Economic Policy Team at UnidosUS.
Mr. Rust, now, please.
STATEMENT OF ADAM RUST, DIRECTOR OF FINANCIAL
SERVICES, CONSUMER FEDERATION OF AMERICA
Mr. Rust. Thank you. Thank you for the opportunity to
testify on this important issue today.
My name is Adam Rust. I am the Director of Financial
Services at the Consumer Federation of America. CFA is an
association of approximately 250 groups from across the United
States. Founded in 1968, our mission is to advance the consumer
interests through research, advocacy, and education.
Today, I'm going to talk about junk fees and explain their
harm on consumers and the economy. And I'm going to talk about
the Consumer Financial Protection Bureau's important work to
address these issues.
You know, at the heart of it, junk fees are about power.
They're about the imbalance between big banks and smaller
consumers. Large banks with tens of billions of dollars in
their boardrooms, or hundreds of billions or trillions in
private equity, and corporate landlords with millions of
single-family homes are talking about how junk fees are going
to be what brings home an earnings beat for them--to hear on
the talk radio shows ``booyah'' on earnings--but, for consumers
in their dining rooms, junk fees are an entirely different
matter. Junk fees are what is going to keep them from bringing
home groceries this year.
Today, renters are focusing on housing increases. Anyone
who has more month than paycheck knows how harmful these junk
fees are to their households.
So, this is a zero-sum game in the end and the costs are
high. Junk fees, including credit card late fees, amounted to
$14.5 billion last year, in overdraft and NSF, $7.7 billion.
I want to make a few top-line points.
First, in the credit card late fees rule and in the
overdraft proposal, the CFPB has tailored regulations that
focus on the largest financial institutions only. Only card
issuers with more than 1 million active accounts will be
affected by the rule--effectively, between 30 and 35 large
issuers out of more than 4,000 institutions that issue credit
cards. And it's similarly with the overdraft proposal; it only
applies to institutions with more than $10 billion in assets.
To critics who contend that disclosures are enough, I say,
no, the honest truth is, and we need to understand, that credit
cards are marketed based on rewards--images of beach vacations
and celebrity spokespersons. And the penalty fees are buried in
fine print.
And it's the same way with overdraft. No one shops for a
bank account with the intention of failing to use the service
in a way that meets their goals. They're caught by surprise.
Too often, consumers do use overdraft, but it's by accident.
CFPB research reveals that many consumers who have experienced
an overdraft fee have an alternative source of credit.
And I want to underscore that the CFPB has been deliberate
about doing research to understand the credit card market.
Congress instructed the CFPB to ensure that penalty fees are
reasonable and proportional to cost. By closing these
loopholes, the CFPB is living up to its mission to put consumer
first. Additionally, we believe that reliance on penalty fees
is, ultimately, something that undermines trust in the banking
system.
Nine percent of account holders pay 80 percent of overdraft
fees. It saddens me that our payment system has been designed
in such a way that the least well-off pay an outsized share of
the overall cost.
And we must remember that, because they have been granted a
charter, financial institutions have received a privilege, and
they have a responsibility with that. And we should also
remember that the Federal Reserve's payment system is something
that comes with that. The privileges of the charter to meet the
convenience and needs of communities where they do business is
an essential truth to remember. But penalty fees undermine true
financial inclusion.
In the midst of an affordable housing crisis, renters
today, typically, face a dizzying array of fees. Those fees
render safe and decent housing one step further away--because
rent is already high and these late fees only add to the cost.
You know, the simple lease of 20 years ago has been
replaced by a new structure, where rent is only one of the
costs. Fees are partitioned and consumers may not know all of
the fees at the time that they consider filling out an
application. And an application could cost more than $100 for
each applicant on the lease.
There can be fees to sign the lease; fees to move in; fees
to move out; fees to pay rent electronically; fees to remove a
coresident from the lease. And often, essential services that
are included also have their own fees, such as trash fees, fees
to receive mail. And these are fees that should be included in
the all-in cost upfront. I just want to say that the stakes are
high and these problems are actually interdependent. When junk
fees trap residents in an unaffordable lease, they may be
vulnerable to eviction. And penalty fees, particularly ones
that are a surprise and may come just before the rent is due,
are perhaps particularly the most dangerous ones that could
lead to evictions.
So, thank you and I look forward to your questions.
Chair Brown. Thank you, Mr. Rust. Ms. Madry, welcome.
STATEMENT OF KAREN MADRY, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, AFENA FEDERAL CREDIT UNION
Ms. Madry. Good morning, Chairman Brown, Ranking Member
Scott, and the other Members of the Committee.
My name is Karen Madry, and I am the President and CEO of
Afena Federal Credit Union, located in Marion, Indiana.
Afena is a federally chartered credit union with $99
million in assets, three branches, and we serve just over 8,000
members.
Afena's mission is to help families who are financially
vulnerable to achieve financial wealth and endure a legacy. We
do not exist just to make profits. We are very focused on
serving the needs of our community. First, I'd like to address
the term ``junk fees.'' ``Junk fees'' is a made-up word and it
is not in statute. We heard a lot of comments about junk fees
in various industries. I would argue that, in the financial
services market, that those fees differ. Credit union fee
programs are regulated by Federal and State government, and the
reduction of fee income would, ultimately, result in the
reduction of services to our members. I can also share that, in
the credit union space, data shows that fee income is at a 32-
year low. The CFPB's actions really want to impact overdraft
protection. They would make it seem that this is a predatory
way that we serve our members. My members would argue that they
are paying for a service that is valuable to them.
Overdraft protection provides a lifeline for my members and
it gives them peace of mind to know that, when their paycheck
cannot stretch and meet their needs, that we will cover a
charge to help them to buy gas or put food on their table.
To participate in an overdraft program is a choice. It is
one that our members make, understanding what it is and how it
works. We at our credit union make sure that we educate our
members on overdraft protection and teach them how to use it
responsibly. We disclose everything to our members upfront, and
it is not a rush program and none of my members will tell you
that they were forced to participate in such a program. Now, as
a $100 million credit union, I recognize that I am exempt from
the rules of the CFPB. However, there will be a trickle-down
effect. Because if larger institutions are forced to lower or
cut their fees, my members will expect me to do the same. And a
reduction in fees would mean a reduction in the services that I
am able to provide.
The final rule on credit card late fees also is for larger
institutions. However, similar to overdraft courtesy pay
programs, it will have a negative impact on my institution,
regardless of the fact that I'm exempt. The $8 fee is not
enough to cover the cost of collecting on a credit card once
that credit card becomes delinquent.
Again, those fees are fully disclosed to our members prior
to them receiving their credit card and at the time of
application. An $8 fee is not enough to encourage responsible
behaviors from our members. If they have a choice to pay an $8
late fee versus a higher late fee charge by someone else, they
will not pay our card and cover the bill that has the higher
late fee penalty. I would also argue that Government agencies
and entities charge a late fee that is much higher than $8.
So, the biggest concern for us is safety and soundness. As
Senator Brown pointed out, if our members become late, it is
reported on their credit bureau as such. It demises their
ability to get credit in the future and it will also cause
financial institutions to tighten up on their credit standards.
So, in conclusion, I'd like to say that I hope you
understand that these regulations pose a substantial risk to
small credit unions like mine, as well as to my members and the
communities that we serve. I am asking Congress and regulators
to take action and do something to stop this before it's too
late.
Thank you for inviting me here to be a witness today and
testify and speak on this issue. And I welcome any questions.
Chair Brown. Thank you, Ms. Madry, from my neighboring
State of Indiana.
Mr. Sueiro, welcome.
STATEMENT OF SANTIAGO SUEIRO, SENIOR POLICY ANALYST,
UNIDOSUS
Mr. Sueiro. Good morning. Thank you, Chairman Brown. Thank
you to the Committee staff for inviting me to be here today.
I am Santiago Sueiro, Senior Policy Analyst at UnidosUS.
We're the largest Hispanic civil rights and advocacy
organization in the country. We partner with 300 affiliates
from Ohio to South Carolina, to Texas, and Florida. Our
affiliates are community organizations that serve Latinos.
Working class people, people of color, and Latinos are
experiencing mixed results in our economy. The good news is
that unemployment is at near historic lows and real wages are
rising, even as inflation keeps declining.
On the other hand, too many families continue to face
economic difficulties. Poverty, for instance, remains higher
than prepandemic levels and skyrocketing housing costs are
burdening families.
Wealth and equality also remains a concern, as researchers
calculate that fully closing the racial wealth gap for Latinos
could take up to 228 years at the current pace.
Developments in the financial system mirror this mixed
economic picture. Fees and costs are falling, including for
overdraft fees and small-dollar loans. And the number of people
who remain unbanked is reaching near historic lows.
However, many challenges remain. Credit card debt is at the
highest level ever, and working-class consumers are paying more
in late fees than wealthier consumers. Industry progress toward
reducing overdraft fees also appears to have stalled. And the
most recent studies suggest that the number of people without a
bank account is rising. Backsliding on these means that more
households will fall into economic hardship or deeper distress.
Efforts to reduce these fees can have a major impact on the
financial well-being of working-class consumers. The CFPB's
credit card late fees rule, for example, is projected to save
consumers more than $10 billion. There are three major reasons
why supporting this rule and others like it is important to
making the financial system more equitable.
First, fees are all too common among working-class
consumers and people of color. Those in the poorest
neighborhoods pay twice as much in total late fees than do
those in the wealthy areas. A new forthcoming survey by
UnidosUS finds that one in four Latinos have made a credit card
late fee in the past year.
Second, fees harm financial health and access to credit,
making it harder to get an account out of delinquency and
increasing the chances of losing an account. In fact, a large
percentage of consumers identify late fees as a barrier to
obtaining credit.
And third, late fees do not effectively deter late payment
and undermine the lender's relationship with borrowers.
Evidence shows that most people who miss a bill payment simply
cannot pay because they don't have the funds. Many who are
charged a late fee may be facing a decision between paying
their rent or paying their credit card bill. The decision there
is clear. High late fees are, thus, counterproductive because
they pile onto existing debt.
Congress and financial institutions should buildupon
progress from the past few years by following three principles.
First, policymakers should respect efforts by financial
regulators to improve affordability in the marketplace, while
supporting innovations to better meet the needs of working-
class people. BankOn Certified Accounts are an example of a
market solution that improves inclusion, while maintaining
safeguards to prevent abusive practices. Others are also
developing affordable small-dollar loans and credit card
products that save consumers money and improve their finances.
Second, financial institutions should reimagine the
relationship between themselves and consumers to promote long-
term customer loyalty and financial health. Consumers notice
when a financial institution is willing to be flexible with
them, and they will, in turn, remain loyal to the financial
institution as they grow economically and need other financial
products.
Third, democratic structures can make our banking system
more equitable. Credit unions, especially CDFIs and MDIs, are
examples of community-owned banks that democratize banking
policy decisions. Policymakers should cultivate these to reach
more people.
Finally, policies that require banks to meet with
communities will allow their needs to be voiced where it
counts.
Ultimately, investing in working-class people by providing
affordable and high-quality products will allow banks and
communities to grow together. If we create a banking system
built on trust and loyalty, one that invests in the long-term
potential of everyone, we will be a major step closer to
creating a more fair, inclusive, and thriving economy.
Thank you and I look forward to your questions.
Chair Brown. Thank you, Mr. Sueiro.
I'll start with Mr. Rust.
Working families have real budgets they have to stick to.
Junk fees do not allow them to know the true cost of a
product--making consumers pay more than what they're budgeted
for.
Last week, CFPB released a report finding that consumers
pay more for products with, shall we say, complex pricing
structures.
Mr. Rust, a couple of questions. What are some of the most
troubling junk fees you've seen in financial services and in
rental housing, and how do these hidden fees affect people's
ability to find the lowest price and stifle health competition
between businesses?
Mr. Rust. Thank you for your question.
I think the point of complexity cannot be overstated. This
is an issue where it becomes difficult to comparison shop
because you don't know all of the costs ahead of time.
I do find it stunning to see leases where there are scores
of fees added on top of the original rent. That makes it that
people could actually apply for an apartment, think it's
affordable, receive an invitation to move in, and then,
discover that, in fact, it was too expensive.
Credit card late fees, that's $14.5 billion a year;
overdraft fees, similar. And then, just the myriad of fees that
people pay at any point in time when they're having a struggle.
I think you see this with captive arrangements. I listed about
10 kinds of fees that are also involved, but there are more.
So, I'll stop there.
Chair Brown. Thank you. And I appreciate your comments
about complexity. I appreciate Ms. Madry, the way she runs her
credit union. And credit unions, overwhelmingly, in Ohio, I see
the same way. They explain to their members better. They keep a
simple structure. They really aren't the problem. So, I just
wanted to say that in response to her testimony.
Mr. Sueiro, I want to get some facts straight about CFPB's
credit card late fee rule. Please answer the following, I
guess, four questions with a yes or no:
According to the law, credit card late fees are not meant
to generate profits. Yet, on average, they generate profits
that are five times greater than relevant costs, is that
correct?
Mr. Sueiro. Yes.
Chair Brown. OK. Thank you.
Do credit card late fees disproportionately impact
consumers with lower credit scores and people in less well-off
neighborhoods?
Mr. Sueiro. Yes.
Chair Brown. And you made that clear in your testimony.
Thanks for repeating it.
Are only the largest credit card issuers covered by the
CFPB rule?
Mr. Sueiro. Yes, with 1 million--you have to have 1 million
open accounts.
Chair Brown. And that's the reason for Ms. Madry's credit
union, as most credit unions in Ohio would be exempted.
So, the rule just doesn't apply to small card issuers,
correct?
Mr. Sueiro. Correct, yes.
Chair Brown. OK. Thank you.
Credit card issuers shouldn't be extracting profits from
consumers through late fees, first of all, because it's unfair
to consumers; second of all, because these rules are required
to be reasonable and proportional to cost. By reducing late
fees, it's pretty clear CFPB is ensuring consumers saved over
$10 billion every year.
Back to you, Mr. Rust. On rental junk fees, which is every
bit as problematic as is financial services junk fees, in
rental housing, they're raising already far too high housing
costs. Companies charge renters all kinds of fees--application
fees, processing fees, convenience fees, notice fees. And I'm
sure you could cite several others. Some renters report even
being charged a January fee, a fee for just being in the month
of January--unbelievably perhaps.
Mr. Rust, can you explain the types of fees that renters
face; the challenges these fees create for renters shopping for
a place they can't afford or manage their expenses once they
sign their lease?
Mr. Rust. So, thank you.
And to be honest, I can't explain the fees. They seem
unexplainable, right? But the truth is that I think it reflects
a power imbalance. And I would say that, if we had more housing
supply, perhaps landlords wouldn't be attempting to extract
these kinds of fees from consumers. But in the moment when
there is this vulnerability, they are.
I think the point about comparison shopping, just it is so
hard to determine how much you're really going to pay. That
doesn't make any sense at all for our economy.
Chair Brown. OK. Again, that speaks to what Ms. Madry said,
that you can comparison shop with her because they make it
clear; they're simple. I mean, they're exempt from this rule;
I'll point that out, as she acknowledged.
But it makes it that much more complex in the larger
institutions that really are the ones that extract, that levy
the biggest fees and the most frequent fees, and are the most
onerous to moderate-income people and to everybody.
Mr. Sueiro, do you want to add anything onto what Mr. Rust
said?
Mr. Sueiro. Yes. You know, pointing out that, sometimes
similar to the rental housing market, and housing in general,
when banking, a lot of people are finding themselves without a
lot of options. And so, the same dynamic applies here, where if
you need an account or you need a loan, or you need a credit
card, but you only have one or two options to choose from,
you're going to have trouble. You know, you're going to pay
what they're going to offer because you need that account. So,
it makes it more difficult to comparison shop, and it makes it
easier for the financial institution to raise costs.
Chair Brown. Senator Scott.
Senator Scott. Thank you, Mr. Chairman.
So much has been said. I love the debate, but I only have 5
minutes. It's so unfortunate.
But let me just ask you a question, Ms. Madry. Reading your
story about who you are and the success that you've had, being
the CEO of a credit union, you have overcome real obstacles. I
wish we had more time for you to tell your story because,
honestly, the question that I want to ask deserves the context
of not just your position today, but the journey that you've
taken to get to your position today.
I lead by my life story and the challenges I've had to
overcome from a single parent household mired in poverty, and
what that really means for the context of which I'm asking the
questions. I think about some of my staffers. Catherine Fuchs,
who's last day in the Committee is today, I think about her
growing up on a farm, a farm that focuses on vegetables,
cucumbers and corn, and the impact that that has on her psyche
and the ability to work hard.
And I think about the three stories that we have combined
together, and I ask myself, if the CFPB is going to save the
average person about $200 a year, or the concept of the Biden
economy on a family of four, $15,000 a year. When you are in
your credit union in Indiana and your members come in and
they're complaining about the cost of gas, the cost of food,
the cost of energy, do you hear them talking more about the
challenges--the $15,000, the weight of Bidenomics--or do you
hear them talking a little bit more about the late fee?
Ms. Madry. That's a great question.
Every day, we have members come into our credit union and
express just how hard it is to make ends meet. One of the
things about our credit union is that we do not take a fast-
food approach to lending. My lenders will spend anywhere from
an hour to 2 hours with a member because we want to listen and
understand the struggles that they are facing.
We will do what we can to help them to overcome those
challenges, and we do it with empathy. My lenders have training
on how to envision themselves walking in our members' shoes. We
help them to look at their financial situation and create
budgets. And when it's deemed necessary, we provide them with a
loan, if that is in their best interest. We do a lot of debt
consolidation loans to try to help put them in a better
financial position.
So, because we're regulated, because we are limited and
capped at an 18 percent interest rate, quite often, my members
can borrow money from me at a much more affordable rate. When
we consolidate all of their debt and give them one payment to
make, it makes it easier for them to manage their finances. It
makes them less prone to late fees. The other thing that we do
is, when a member comes in and says, ``I'm having a hardship,''
we do a lot of extensions on loans where we will forgive
payments for up to 90 days. If they are having problems paying
their current loans, we will do modifications. We will look at
what they can reasonably afford to pay and rewrite that loan at
that loan payment, so that our members can be successful.
As you said, I have lived that life. I wish when I was
struggling that there was a bank or a financial institution
that was willing to help me better manage my money, so that I
could ensure that my children always had food on their table.
That was not always the case. And so, I am committed to making
sure the people in the communities that I serve have a
wonderful opportunity and know that we are there to walk
alongside them and help them through whatever financial
challenge they face.
Senator Scott. Thank you.
We need more people like you in the financial services
industry, without any question. You have introduced Financial
Laws 101. The fast-food approach--you don't take the fast-food
approach. I love that concept.
Because I'm only the Ranking Member and not the Chairman,
he's going to cut me off in a few minutes because I'm going to
run out of time.
But I want to talk for just a second about something I call
``the law of the tradeoffs.'' There are no changes to fee
structures that don't require a tradeoff. So, if your fees go
away, either your interest rates go up, the cost of the product
goes up, or the product itself goes away. Yea/nay?
Ms. Madry. I agree with that. And we have looked at what we
would do if the overdraft protection law was passed into
regulation. It would mean that we would have to cut our
services. It could mean that we would have to lay off staff. I
currently employ 36 people in my community. And we would have
to move away from this 2-hour approach and say, how can we
accomplish things in a shorter period of time?
Senator Scott. Thank you very much. I know I'm out of time.
Mr. Chairman, I'll just close with this: I know the Chairman is
trying to do his best to be as lenient with me as possible.
Chair Brown. It's a difficult challenge.
[Laughter.]
Senator Scott. It is, indeed. And I appreciate his
transparency there.
Let me just suggest this: that even though the fees that
we're talking about do not apply to your credit union, you
said, without any question, that the trickle-down effect will
have impact on your credit union.
Thank you very much.
Thank you, Mr. Chairman, for your leniency this morning.
Chair Brown. Thank you, Senator Scott. Don't try it again
next week.
[Laughter.]
Senator Scott. I tried not to do it last week.
Chair Brown. Mr. Tester of Montana is recognized.
Senator Tester. That's what happens when you run for
President; it gets a little longer on the questions and
answers, right?
Senator Scott. I told Brown that, too. He's gotten very
longwinded since he ran for President, yes, sir, I agree with
you.
[Laughter.]
Chair Brown. I did not run for President, Mr. Scott.
[Laughter.]
Senator Tester. All right. Anything I can do to start some
fights, that's good.
Hey, look, housing is a big issue across this country, and
Montana has had a housing shortage for years. That's my home
State. It's getting worse. Everywhere we go across the State,
one of the first challenges folks mention to me is lack of
workforce housing in our State. It's really hurting our
economy, quite frankly.
And we're seeing a lot of wealthy individuals and groups
come into ``the last best place,'' which is what they call
Montana, and buying up these houses. And it's happening with
single-family homes, buildings. We've seen examples of it
happening with manufactured home communities, where Montanans
are really stuck; they own a mobile home that really isn't
mobile at all. And these out-of-State investors take advantage
by jacking up the rent and jacking up fees on hardworking
Montanans and seniors living in sometimes the only affordable
stuff left in the State.
On top of jacking up rent, these out-of-State investors
often add new fees, basic fees, that have always been included,
but now, all of a sudden, they're not. Sewer and water are two.
The Chairman talked about others. And they have been long
included as part of the rent. OK? And so, what we're seeing is
a lot of out-of-staters are making money off of what used to be
affordable housing and making it not so affordable anymore.
So, Mr. Rust, just give me some insight on how any
additional fees, how increase in fees, how new fees impact
folks across the board, but, specifically, in these
manufactured home parks where they really don't have a lot of
flexibility and they don't have a lot of money.
Mr. Rust. Thank you for that question.
That is such an important thing to remember. From 2015 to
2018, a group of private equity investors bought over 150,000
lots. Again, this is a power imbalance. When a person lives in
a manufactured housing community, it's very difficult to move.
It might cost $5,000 to $10,000 to move. If you can afford
that, then it's also difficult to find a place that will take a
used manufactured home, because there are fewer and fewer
communities that are zoning for these communities. It's true,
as you said, that the cost is going up--not just the rent, but
also fees are being added onto it.
I think, at the end of the day, this is workforce housing,
right? It is working in rural communities, where there are
fewer construction crews available. It's housing for seniors.
This is a fundamental aspect of something that's happening in
the Midwest and the Upper Midwest. And with junk fee, it's just
not fair.
Senator Tester. So, the real question is--I think we can
all agree it's not fair. This is workforce housing. This is
senior housing. These are folks that are working hard for their
money. Some of them are on fixed incomes. And so, the question
is, what does Congress do about it?
Mr. Rust. Well, so I'm glad you raised that. There is a
bill before Congress that would permit investment in
manufactured housing communities, in particular, when resident-
owned communities seek to buy homes or nonprofit groups. The
challenge they face is that it's very difficult to gather the
capital in a short period of time.
And typically, the reason a manufactured housing community
is being sold is because there's an infrastructure challenge.
So, it becomes very expensive to find the capital and buy a
home quickly.
The PRICE Act, which is a bipartisan-supported Act, will
provide grant funding to address these issues, and I believe it
will become a very important source of reinvestment in
communities.
Senator Tester. So, let me go back to something you just
said because I want to clarify that a little bit. Did you say
that they're being sold because of infrastructure needs. Or I
just want to clarify this for me. I see them being sold
because, in our particular case, we've got out-of-staters who
are coming into the State that want to change our State, and
they see an opportunity to make a quick buck on the back of
working people and seniors. And that's exactly what they do.
Mr. Rust. Well, right. The cash-flows available on
manufactured housing communities, especially if you're talking
about owning the land but not the units, are very certain. They
are very guaranteed. There are consultancies out there saying,
yes, these individuals will have a hard time moving; this is an
opportunity for you to make a lot of money.
Senator Tester. I appreciate all three of your testimonies
and I appreciate what you're doing. I had a question for the
credit union lady, but I'm out of time. Unlike the Ranking
Member, I do not want to go over.
I yield.
Chair Brown. Thank you, Senator Tester.
Senator Vance of Ohio is recognized.
Senator Vance. Thank you, Mr. Chairman. Thanks to you and
the Ranking Member.
I think it's important just to sort of note that this
entire conversation about late fees, overdraft fees, and so
forth, takes place in the context of extraordinarily high
interest rates. I'm 39 years old. It's pretty much the worst
interest rate environment since I was a toddler, and I,
obviously, don't remember anything on interest rates when I was
3 years old.
So, I think we have to sort of be careful here about this
particular proposal or, at the very least, appreciate some of
its implications.
And, Ms. Madry, I wanted to sort of direct this first
question to you. You, obviously, run a small bank, and I
appreciate you being here--or I should say a small credit
union, right?
Ms. Madry. Right.
Senator Vance. Maybe you could just sort of explain how,
especially in the context of higher interest rates, what this
particular proposal would mean for your ability to offer debt
and credit services to sort of people, especially low-income
people.
Ms. Madry. So, in the context of my credit union, first
off, we are capped at 18 percent interest rates.
Senator Vance. Yes.
Ms. Madry. And we really try very hard to keep our interest
rates very low. I'm in a market where it is overbanked and
underserved. And so, I have extreme market pressures to have
low rates in order to attract borrowers. And we also, as a
credit union, we believe in giving profits back to our members.
Senator Vance. Sure.
Ms. Madry. So, liquidity is tight. So, I am paying higher
rates on my members' deposits because, as a credit union, I am
reliant upon the deposits that my members make to provide the
liquidity that I need to lend out. So, while the interest rates
have climbed, my members have not felt much of that pinch.
Again, I serve a low-income population and it is important
to me to make sure that financial services are affordable to my
members. The fee income really helps to offset the operating
cost that goes along with collecting on overdraft, when a
member overdraws their account. We have to send out letters. My
staff is there calling members. It helps when members are
coming in because their account is overdrawn because of a
circumstance or a life event. As I said, my staff will take the
time to talk to the member, understand the situation, and help
them find a solution.
I can tell you that the way we operate in our credit union
is, if a member's account is overdrawn, we will do everything
that we can to help them to get back in good standing. We waive
fees whenever possible. If a member comes in and asks, we have
other alternatives that we make available to members. However,
when you're serving a population that is vulnerable, quite
often, they don't want loan products. They feel more
comfortable with this service because it prevents them
propelling into perpetual debt.
Senator Vance. Sure. Sure. So, I appreciate that, Ms.
Madry. I really pick up on that, that basic point.
Mr. Rust, I know you're an advocate of this proposal. And I
want to just understand this basic question. I mean, do you
think that consumers, especially lower-income consumers, will
have less access to credit if this proposal becomes law, the
junk fee proposal?
Mr. Rust. And you mean, specifically, the credit card late
fee rule?
Senator Vance. Yes.
Mr. Rust. So, thank you for the question.
I personally think that credit cards are among the most
profitable sources of business for institutions. And the Y-14
data from the Federal Reserve talks about returns on assets
that are three to four times greater than other forms of
commercial banking. There's examples of institutions with
profit margins of over 40 percent on their credit card
business. So, in my view, this is a question of: will credit
cards be exorbitantly profitable or just incredibly profitable?
Senator Vance. So, I understand that and I don't
necessarily disagree with the underlying argument, Mr. Rust. I
guess my point is, look, when you take a product--even if I
assume sort of your framing is correct and say it's very
profitable to sort of moderately profitable, if you make
something more expensive, if you take it from very profitable
to just, you know, somewhat profitable, don't you fundamentally
make it less likely that people are going to offer those
services? And my point here is not to put you in a tough spot.
I guess my argument is I think it would be better if we were
just honest about the debate we are actually having. This
proposal will, inevitably, lead to less credit options for
lower-income people. And I wish its advocates would just lean
into that and say, ``Yeah, that's exactly what it's going to
do. In fact, we think that's a good thing,'' as opposed to sort
of hiding from the fact that it will mean less consumer credit
for low-income people.
And I guess a related point is, if the goal here is to
provide options and to reduce the debt spiral that we all know
people in low-income situations sometimes experience, I maybe
wish we had just tried to have dealt with that problem
directly, as opposed to this sort of backdoor way of making
credit more expensive, and consequently, less available to
people.
So, I just wish this whole debate was a little bit more
honest about what we're really doing. What we're proposing to
do is to make consumer debt much less available to low-income
people. Let's just be honest about that, and then, have the
debate about whether that's good or bad, or could be
accomplished through other means. That's sort of my point here.
With that, Mr. Chairman, I'll stop. Thank you.
Chair Brown. Thank you, Senator Vance.
Senator Menendez of New Jersey is recognized.
Senator Menendez. Thank you, Mr. Chairman. Ample research
shows that junk fees are disproportionately targeted at and
paid by minority consumers. To give one example, according to a
survey from Bankrate, Hispanic checking account holders pay an
average of more than triple that of white account holders.
Mr. Sueiro, can you talk about the particular vulnerability
of minority consumers to junk fees?
Mr. Sueiro. Yes. So, the first point is, low-income people
and working-class people across the board pay more in overdraft
fees and credit card late fees. Latinos and Black consumers pay
even higher rates of overdraft fees and junk fees.
We just did a survey where we found that 40 percent of all
Latinos had paid a junk fee. This is much higher than other
groups. Twenty-five percent of Latinos had paid a credit card
late fee, which is also much higher than other groups.
So, it's widespread. It's disproportionately affecting
people who don't have a lot of income.
Senator Menendez. Yes. And then, one of the other elements
of it is I'm concerned that disparities are even larger for the
26 million Americans who have limited English proficiency.
These consumers are disproportionately targeted by scams. They
often face difficulty accessing consumer protection resources
and education materials. What can we do to promote price
transparency and reduce the disproportionate fees paid by
minority and LEP consumers?
Mr. Sueiro. There's a number of different things. Number
one is, you know, for LEP consumers, in particular, we need to
make sure that our marketing and the materials that we offer
consumers are transparent, are accurate, and are in Spanish and
other languages spoken in the U.S. as well.
We've found in the auto-lending space that there's been a
lot of issues with auto lenders promoting a product in Spanish
at a certain price, and then, when the consumer comes in to get
that loan, it turns out the price was different. The interest
rate was higher. There were other fees associated. The FTC has
done a lot of work trying to address that issue. So, that's
one.
The second part is, on a broader scale, obviously, these
rules we think will help. That's why we support them. In the
market, we can also promote things like BankOn accounts. We can
also promote things like affordable small-dollar loans that
have low interest rates. Credit cards, lots of credit card
products that are out there that are really solid have low
interest rates, have no or low late fees. We need to be
promoting those products as well.
Senator Menendez. Thank you.
Mr. Rust, in May of 2022, the CFA and several other
consumer groups sent a letter to the CFPB on junk fees and
financial services. In that letter, you stated, and I quote,
``Junk fees contributed to high rates of unbanked or
underbanked households of color.'' Close quote.
Can you and Mr. Sueiro elaborate on how junk fees drive
low-income families away from the traditional financing system
and how this negatively impacts their financial well-being?
Mr. Rust. So, thank you for that question.
The FDIC does research every 2 years on the unbanked and
the underbanked, and they ask, ``Why don't you have a bank
account?'' And the first reason is, ``I'm afraid of having a
bank account because of surprise fees.'' And the third reason,
specifically, calls out overdraft fees. So, these set of fees
are explicitly creating financial exclusion.
Senator Menendez. Mr. Sueiro.
Mr. Sueiro. I would add we see similar findings with credit
card. There's surveys out there asking consumers, ``Why don't
you have a credit card, if you don't have a credit card?'' They
cite costs, interest rates, and late fees, specifically, as one
of the reasons why they don't get those.
I would add, you know, people that do have these high-cost
products are often more likely to, for credit cards being
delinquent, for overdraft fees, to lose their products; get
overburdened in debt in both situations, and can get pushed out
of the financial system if they're not able to pay those fees.
Senator Menendez. Yes. According to a 2019 FDIC survey, 16
percent of unbanked households cited distrust of banks as the
main reason for not having an account. It's something we have
to try to modify because we need people to enter a portal of
financial institutions. So that, this way, they're not going to
the check-cashing place and the payday lender and the pawn
broker.
One final question. One area where renters are feeling
acutely the pain of junk fees is the search for housing in New
Jersey, where housing is acute. It can be difficult,
particularly for low-income families. And it seems that many
landlords are taking advantage of that fact by charging
exorbitant application fees--as high as $350 in some instances,
according to the National Consumer Law Center.
Mr. Rust, are these application fees truly reflective of
actual costs incurred by the landlord in processing
applications?
Mr. Rust. So, no, they're not. Thank you for that question.
TransUnion, for example, has a service that they market to
landlords where the cost is between $25 and $42, based on what
basket of services the landlord wants. And then, yes, they turn
that around and charge $100 per person, even more. That's
what's happening and that makes it very difficult to comparison
shop, because just the search costs are so high. It makes
people say, ``I have to apply for this first one and just take
it, because I can't afford another $300 application fee.''
Senator Menendez. Thank you.
Thank you, Mr. Chairman.
Chair Brown. Thanks, Senator.
Senator Britt of Alabama is recognized.
Senator Britt. Thank you, Mr. Chairman.
Americans are facing real problems and real financial
challenges under the Biden administration. Yet, I am
discouraged by the continual lack of responsibility taken by
this White House for the consequences of its own actions.
What we see from this Administration is another attempt to
change its messaging, to blame-shift, rather than reversing
course or admitting fault. According to some of my colleagues
on the other side of the aisle, it's not inflation or excessive
Government spending, or overregulation, that is fueling the
obstacles that hardworking families are facing just to make
ends meet every day. Instead, they are pointing the blame to
everyone imaginable.
Last week in this Committee room, we talked about
shrinkflation. This week, it's junk fees that are to blame.
``Junk fees,'' by the way, is an arbitrary term found nowhere
in any legal statute--used by this Administration to vilify
seemingly every industry that offers services to its customers.
However, so many times, these are just political talking points
used to distract from the root of the problem and to evade
accountability.
There is also an attempt to justify significant regulatory
actions from regulators across the board, and without any
adequate cost-benefit analysis to follow, or any assessment of
how these numerous rulemakings actually impact the end user,
actually impact the customer, or actually impact the member.
These very individuals that these regulators and the
Administration claim to be, quote, ``helping,'' I believe are
the very ones that are going to suffer the most.
Mrs. Madry, just to clarify, you, obviously, are the CEO of
a smaller financial institution, Afena Federal Credit Union.
And I want to know how this is going to affect your members;
what this means to the very people that we are trying to help.
So, first, does current regulation already require credit
unions and banks to disclose fees to their members and to their
customers?
Ms. Madry. So, the current regulation is, it requires us to
disclose fees, yes.
Senator Britt. OK.
Ms. Madry. We have a fee schedule that we go over with our
members at the time that they apply for it.
Senator Britt. OK. Thank you. And in addition to these
disclosures that are already required by law, do your
institutions typically engage in other forms of communication
with your members or your customers? Do you, for instance,
share things like low-balance alerts, things like that?
Ms. Madry. Yes, we have texting services that our members
can opt into that will alert them when their balance is low;
plus, all sorts of tools where they can monitor their account
online.
Senator Britt. OK. Well, thank you.
In addition to these types of alerts and communications,
have financial institutions, particularly these smaller credit
unions, proactively made other changes to their late fees and
overdraft fee programs without any additional regulation or
legislative changes? Like what have you done to make
improvements in this area?
Ms. Madry. So, one of the things that we do is our members
who have overdraft protection, we educate them that you do not
have to access that by swiping your debit card. If you find
that you cannot make ends meet, we encourage our members to
come in and ask that all of the funds that are available be
moved into their checking account or savings account, so that
they pay just the one fee in the course of a month and they
will have those funds available to them when they need them.
Senator Britt. Excellent. I am glad to hear that. I
certainly believe you understand the needs of your members and
the day-to-day challenges that they face in the State of
Indiana more than anyone in a regulating building here in
Washington, D.C. So, I appreciate what you are doing to help
the very people that these regulations intend or say they
intend to help.
A couple of other questions. Do you, as the CEO, determine
your salary or your bonus based on overdraft or late fee
charges at your credit union?
Ms. Madry. No.
Senator Britt. Uh-hum, that's what I thought.
Ms. Madry. And in fact----
Senator Britt. Go ahead.
Ms. Madry. ----I will just share that, from time to time, I
have told my board that I will forgo a raise or a bonus when I
feel that our credit union needs to show a profit in order to
be able to meet regulatory requirements.
Senator Britt. And obviously, serve your members' needs.
So, thank you so much.
And can you share with us what you anticipate will happen
to the products that you offer to your members at your credit
union if the CFPB's so-called ``junk fee rules'' are finalized
as proposed? I mean, specifically, what would happen to things
like free checking account or affordable small business loans?
And that's kind of what I want to know.
Ms. Madry. Yes. We would probably have to rethink our
interest rate structure; increase our interest rates, when
possible; eliminate things like free checking accounts, and--
Senator Britt. Eliminate free checking accounts?
Ms. Madry. Eliminate free----
Senator Britt. The very thing the very people that this
rule is so-called intended to help, I believe it will hurt, and
I think that what you have said proves that right there. So,
thank you so much.
And I wish we could take a look at these regulations and
actually see how they affect the end user.
Thank you.
Ms. Madry. Thank you.
Chair Brown. Thanks, Senator Britt.
Senator Smith of Minnesota is recognized.
Senator Smith. Thank you, Chair Brown.
Thanks to all of you for being with us today. I really
appreciate it. It's a very important topic.
I'm going to focus my questions, first, with you, Mr. Rust.
I want to talk a bit about these automated tenant-screening
processes that are popping up all over the place. So, landlords
are increasingly turning to automatic screening tools and
reports to determine whether or not to rent to a perspective
tenant. And so, who pays for these screenings? It's usually, of
course, it he applicants.
And in Minnesota, a two-adult family is paying, on average,
four application fees, incurring about $320 in total costs,
every time they're trying to find a place to live. And I've
heard reports that that number could go up to $800.
So, obviously, these screening fees are making it really
expensive for families, especially low-income families, to find
an affordable place to live. And they might not even result in
a fair or accurate assessment of the capacity of that tenant to
be able to be a good tenant.
One woman in Minnesota, for example, was denied an
apartment because a tenant-screening report flagged an
incorrect criminal record. And this isn't an anomaly.
An investigation of the tenant-screening industry by the
CFPB found that screening services can use incorrect
information and often provide limited explanation back to folks
about why they've been denied--leaving renters in the dark and
in the hole financially. So, they paid for an inaccurate
screening.
So, could you talk a bit about this? Tell us your
perspective on how this is working, the obstacles that they
create for tenants, and what we should be doing to protect
people against these tools?
Mr. Rust. Thank you for that question.
You've raised something really important, which is how the
evolution of tenant-screening reports are changing. They're
becoming more complex. And one of the issues that happens from
that is that it's very difficult, if there's information on
your report that's not true--well, first off, it's very hard
even to know if that's the case. It's harder perhaps to even
know how to fix it.
So, this is happening frequently. Again, when the
information is wrong, and then, you're denied, well, that's
$100; that's $200, and you've got to try again. And if the
information is wrong on Tuesday, it's probably wrong on
Thursday.
Senator Smith. Right. Right. And, I mean, I'm kind of
stuttering because I think that this is just so unfair--that
you actually are being forced to pay for something that is
inaccurately and unfairly denying you a place to live. And, I
mean, wouldn't that go--I mean consumers should have a right to
know whether they're being denied to rent based on inaccurate
information. That's part of what's in fair lending laws, right?
Mr. Rust. Right. The FTC has been working on this, as well
as the CFPB, with filing complaints against institutions that
don't have record systems in place to make sure that
information is correct.
Senator Smith. Yes. Mr. Sueiro--am I saying your name
correctly?
Mr. Sueiro. Yes.
Senator Smith. Thank you. I want to just follow up a bit on
the question that Senator Britt and others have been asking
about. You know, I think the consumers understand that the
prices of products and services in this world have a markup,
and that's capitalism. They get that.
But I think if you told them that they were looking at a
markup that was, like, 400 percent, that maybe they would think
twice about what's going on and what is really fair and
reasonable. I mean, to me, that is really the issue that is at
the core of the CFPB's credit card late fee rule.
And so, my question to you is--this is adding up to, you
know, billions of dollars that it is costing people for these
late fees. And there seems to be sort of this argument that
credit card issuers are suggesting that these high fees are,
basically, an incentive to get people to pay their bills on
time. But that is assuming that people could pay their bills on
time and aren't because they just don't feel like it, as
opposed to what seems to be more likely, which is that they
can't.
And so, I would like to hear your comments on this. And to
me, this sort of gets at the issue of why it is so expensive to
be poor in this country.
Mr. Sueiro. Yes. So, there are a number of different pieces
here. Number one is we know from lots of surveys, and we know
from just talking to people, that one of the biggest reasons
why people don't pay is simply they don't have the funds.
Right?
And we also see this reflected in the data. It's lower-
income people that are living paycheck to paycheck that are
disproportionately paying these fees. So, folks are in a
situation where they are faced with a decision between putting
food on the table or paying this late fee. That's one.
Two is the CFPB collected a lot of comments, 57,000
comments. They received a ton of comments from consumers who
had been paying late fees. One of the comments--so just to give
you like a real-world example--of the people that commented was
a parent. They had a very serious medical issue. They were
paying for lots of expensive medicine. And they were working
two and three jobs.
Senator Smith. Uh-hum.
Mr. Sueiro. You know, a third job every now and again just
to make ends meet. They missed a payment because they had
worked so late that they worked after midnight of the day that
the payment was due, and they missed the payment window. They
got charged with a $35 late fee.
Senator Smith. Uh-hum.
Mr. Sueiro. So, this is the type of thing. That is also an
example of where this is a working-class person. They had the
funds, but they couldn't do it. But there's so many other
things going on in people's lives that they couldn't pay it.
There were other examples, like people put their payment in
the mail.
Senator Smith. Yes.
Mr. Sueiro. The money didn't get to the credit card company
in time because the mail slowed down.
Senator Smith. It's not their fault, and they're not going
to pay quicker in any of those circumstances because they're,
you know--Mr. Chair, I know I'm out of time.
Thank you for the opportunity to ask these questions and
thanks to our panelists.
Chair Brown. Thanks, Senator Smith.
Senator Cortez Masto from Nevada is recognized.
Senator Cortez Masto. Thank you. Thank you, Mr. Chair. And
thank you to the witnesses for being here today.
I know one of my colleagues already talked about
manufactured housing. I'm going to touch on this because we
don't talk about manufactured housing enough and the potential
for it.
I know, Mr. Rust--thank you very much--wrote an incredible
book here and very thoughtful about families who live in
manufactured housing. To my colleagues, this was in 2007. If
you haven't had a chance to read it, please do.
A few months ago, HUD announced a request for applications
for a new program--I think you've talked about this--to fund
new roads, water, sewer, tornado shelters, and other
infrastructure improvements. It's called the PRICE program in
honor of Congressman David Price, who, by the way, wrote the
foreword here in the book.
And I led the bill for the Preservation and Reinvestment
Initiative for Community Enhancement, the permanent program.
And why is this? Because I see the benefits in my State.
But, Mr. Rust, can you explain why the 8.5 million
Americans who live in manufactured home communities deserve
special consideration and investment?
Mr. Rust. So, thank you for that question.
I've visited manufactured housing communities in Nevada,
and this is, clearly, an issue there. The cost of
rehabilitating a community, the cost of infrastructure
investment, this is something that the PRICE Act will address.
And I think it's strongly needed.
So, why are people living in manufactured housing? What are
the reasons for that demand that exists? It's because it's
affordable. It meets the needs of people who are seniors. It
meets the needs of workers who may be working in a community
where there is not a large set of construction workers. So,
rural areas.
Senator Cortez Masto. Thank you. Uh-hum.
Mr. Rust. Manufactured housing communities can be a very
nice place to live. They are communities, right? But if they're
being disinvested in--and I would say, if you go around to your
local neighborhood and look for the neighborhood that is the
least, that is receiving the least amount of capital, it's
probably a manufactured housing community.
Senator Cortez Masto. That's right. And that's the
unfortunate piece about this. Because there also is some stigma
associated with manufactured housing, which there shouldn't be.
This is an opportunity for so many people to have a roof over
their head and have it be affordable.
Also, I know one of my colleagues talked about private
equity coming in and purchasing up a lot of these. I have
concerns about that. We see that just in housing in general in
southern Nevada, and it is an issue that we need to address,
these high costs.
Mr. Rust, let me ask you this: in Nevada, 86 percent of
extremely low-income renters are severely housing cost
burdened, meaning renters that are spending more than 50
percent of their income on rent. And rents are only going up.
Since 2020, rents have increased between 20 and 30 percent in
some parts of my State. As families are forced to spend more
and more on rent, they are left with fewer resources; we know
that.
How do additional fees imposed on renters, like application
fees, processing fees, and so-called convenience fees,
exacerbate these high costs of renting?
Mr. Rust. So, that's a great question.
I think it gets down to, if you're going to comparison
shop, if you're going to look on a platform and you see 10
different potential places to live, and some of those listings
are all-in priced and some are partitioned, where there might
be fees that you don't even know about, well, that makes it
very difficult to comparison shop. It puts well-intentioned
landlords who are being fair at a disadvantage with landlords
that are playing these games.
So, yes, and I think what we're seeing are cases where
consumers are paying rent on time in their community, in their
manufactured housing community. Private equity comes in. They
buy the park. They add $400 in fees. And suddenly, it becomes
groceries or paying the rent, or even if I have to leave, I may
not be able to take my home with me. So, I may actually lose
that home.
Senator Cortez Masto. That's right. That's right. And
nobody should have to make that decision, but, unfortunately,
there are too many just even individuals that are having--I
don't care whether you're a veteran, you're a senior, you're
working, a hardworking family, still, there's many in our
communities now that are having to make this decision. And
that's why we have to address it.
But, more importantly, we have to address these fees and
these junk fees that are add-ons. But we've got to address the
housing issue and the affordability of housing. And that's why
I'm so pleased there's bipartisan support in this Committee to
really address these issues. And I hope--I hope--we are able to
pass this--for the benefit of so many, not just in Nevada, but
across the country.
There's more questions that I have. I'm not going to be
able to get to everyone. I thank you for being here and your
commitment to addressing these issues.
Thank you, Mr. Chair.
Chair Brown. Thanks, Senator Cortez Masto.
Senator Warren of Massachusetts is recognized.
Senator Warren. Thank you, Mr. Chairman.
So, in 2009, Congress passed the CARD Act to crack down on
banks and other credit card issuers that were abusing consumers
with excessive late fees and bait-and-switch terms, like those
low initial rates that, once somebody signed on the dotted
line, really jumped up, and jumped up high.
The CARD Act slashed average late fees by a third to $23 in
2010, but, by 2022, 12 years later, by exploiting loopholes in
the law, that number was back up to $32--enough to make the
biggest credit card companies an extra $14.5 billion in profits
that year.
Meanwhile, average credit card APRs have nearly doubled
over the last decade from 13 percent in 2013 to 23 percent in
2023. That is the highest on record.
Now, as credit card companies have grown their profits
through interest and fees, they have also become more
concentrated--with the biggest issuers gobbling up the smaller
ones. In 2022, the 10 biggest credit card companies in the
country accounted for 83 percent of all credit card loans.
Mr. Rust, you have studied the credit card market for years
now. Can you say something about how the smaller credit card
issuers stack up versus the biggest issuers in terms of how
much they're charging consumers--the big guys versus the small
guys that are still left?
Mr. Rust. Thank you for that question.
And actually, I was really hoping to have the opportunity
to say that CFA and the CFPB have pointed out that interest
rates at smaller institutions, small credit unions, are lower,
right? And this has to do, I believe, with the fact that the
credit card market is somewhat broken.
Because the way that people are comparison shopping, when
they say, ``I would like to get a credit card,'' it doesn't
take them to the small bank; it takes them through a comparison
shopping site, a lead generator, that's earning large amounts
of fees to direct them just to the cards that have the highest
rates.
And we're seeing margin-on-margin issues where the amount
of the margin is growing over time. It's never been higher. And
credit card issuers that are larger are charging interest rates
that are 8 to 10 percentage points higher now.
Senator Warren. Wow. So, the big guys with the highest-paid
CEOs are actually charging consumers a whole lot more than the
little guys in the credit card market. And it's the big guys
who are hitting particularly hard on customers' pockets.
Mr. Sueiro, you're an expert on predatory lending
practices. Who's paying the bulk of the interest and fees that
are driving credit card companies' profits?
Mr. Sueiro. Yes. So, there's a number of different ways to
look at it. CFPB has found that consumers with deep subprime
credit scores are paying a disproportionately high amount of
fees.
We know that that population are generally lower-income,
working-class people of color. We know from our surveys, we
know from other consumer surveys, you know, this has been
reflected over time repeatedly, that low-income people
disproportionately pay these. Latinos, Black consumers also are
disproportionately paying these.
Senator Warren. OK. So, people are paying more and you know
who is paying more--people who are struggling the most.
Now, the CFPB is taking action to rein-in price gouging in
the credit card market, including by capping most late fees at
$8--obviously, very good news for American families. Of course,
we know who's not happy about that--big credit card issuers and
their Republican friends in Congress.
Last month, Republicans introduced a bill to overturn the
CFPB's credit card late fee rule, so that the credit card
industry can continue squeezing every last dime out of these
consumers. One House Republican even said, quote, ``The vast
majority of Americans support these fees.''
So, Mr. Rust, I have to ask: do you know anyone who is
actually a consumer who loves junk fees?
Mr. Rust. So, I have never heard someone say, ``Oh, I paid
an overdraft fee and I'm really glad that worked out.''
Senator Warren. Yes, ``That really worked out well for
me.'' I have never seen the bumper sticker ``I heart junk
fees.'' Right?
How about you, Mr. Sueiro? Anybody you know who is excited
about being gouged by a multibillion dollar bank?
Mr. Sueiro. No, obviously not. And I want to add two
things.
One is the CFPB received 57,000 comments from this. A vast
majority or a large number were from consumers that were saying
quite the opposite, that they were fed up with these fees; that
they didn't want to pay them. They were very unpopular.
The opposite is also true. If you ask consumers, ``How
would you feel about a product that doesn't have such high late
fees, or low fees?'' they look at those products very
favorably, and they actually have more goodwill toward
financial institutions if they were to be offered those
products.
Senator Warren. Well, I'm really glad that the CFPB is
taking up the fight on behalf of consumers and willing to stand
up to these big banks. Thank you.
Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator.
Senator Fetterman is recognized from Pennsylvania.
Senator Fetterman. Thank you, Mr. Chairman.
And I would like to thank my colleague from Connecticut for
allowing to do this.
Yes, hi.
Banks seem to really, really--they love fees like that,
right? I didn't. I think it's helpful, if something happens to
you, to really understand what a lot of other American
consumers have faced with that kind of a thing.
I would say about 18, well, probably a couple of years ago,
I was at a coffee place and I bought one, and then, everything
went through. I didn't think anything of it. And then, I had a
notice that I overdraft my account. So, that was a $40 cup of
coffee. And then, I wasn't at Blue Bottle.
But, at any rate, so it seems kind of crazy that you would
allow your account to be charged for, you know, $35 over a cup
of coffee. And, of course, I didn't really appreciate it.
So, in who's interest was that, would you think? Anyone,
what are your thoughts about it?
Mr. Rust. So, it's in the interest of institutions that
want to pad their profits with huge, exorbitant fees. I think
we shouldn't forget that, during the time when you were
experiencing your not Blue Bottle coffee overdraft, that many
institutions were using high-to-low check reordering to
actually trigger additional overdrafts.
Senator Fetterman. Yes. Well, and that's what I thought,
and then, I called up my bank and I'm like, ``Well, hey, that's
kind of crazy.'' And they're like, ``Well, actually, sir, we
allowed this transaction to occur, and you were able to get on
with your day.'' And they actually justified that by saying,
``Well, that's a service that we provided, that you were
allowed to get your coffee and get on with your day.''
And then, now it becomes very clear that these kinds of
fees are a profit center. Is that accurate, too?
Mr. Rust. Oh, absolutely. The data from call reports
reveals that the amount of fees coming in off of transaction
accounts in some cases can be 20, 30, 40 percent equivalent to
the net income of that financial institution. Those are almost
overdraft stores.
Senator Fetterman. Yes, and it's pure profit, too. I mean,
it's no service, anything other than it's just being nickeled
and dimed. I personally don't enjoy that, being nickeled and
dimed. Any of you in the panel, do you enjoy being nickeled and
dimed anywhere you got?
Mr. Sueiro. No, sir.
Senator Fetterman. No? Anyone?
But now, what once was something that was a penalty now has
become part of their mission, like to do that.
And then, this happened just last week in my apartment. The
D.C. rental market is kind of rough and I pay $2,000 a month
for 500 squares, and then, I left my key on the counter. And
then, I approached the front desk and I'm like, ``Could you
please let me in, so I can get my key?'' And they were like,
``Well, absolutely.'' And then, they pulled out a form that
said, well, that's $50. I'm like, ``Oh, no, no. I don't need
another--I don't need a new key. Could you just let me in?''
And they're like, ``Well, that doesn't matter. That's $50.''
And I'm like, ``Fifty dollars to let me in?'' And then, I
really couldn't believe that someone would charge $50 just to
open up to just get your key.
And would agree that that's kind of junk fees for housing
rentals?
Mr. Rust. Well, yes, absolutely, that's a junk fee. I feel
bad for the person at the desk who had to follow the corporate
policy that requires them to charge that fee.
Senator Fetterman. Well, yes, of course, it's not personal
against the worker. But the fact that they institutionalized
this idea that we're going to be $50 for letting just get your
key there, and that seems that's just pure profit, and that
becomes that, too.
And metaphorically--and I know I'm running out of time--but
I think that's the same kind of thing in Government where you
cannot count or create, like, parking tickets and speeding
tickets as, like, revenue. That should be for a public service
or to protect a situation.
And in my opinion, it's just gone crazy. And now, when
billions and billions of dollars now, those kinds of nickeling
and diming now is part of their business strategy.
But thank you for joining me, and my time is off.
Chair Brown. Thank you, Senator Fetterman.
Senator Van Hollen of Maryland is recognized.
Senator Van Hollen. Thank you, Mr. Chairman.
Thank all of you for your testimony today. I've been trying
to listen-in via C-SPAN, and I know a lot has been covered, of
course, on the issue of overdraft fees and the finding that 80
percent of overdraft fees are borne by 9 percent of customers,
which shows the impact of these fees on those who can least
afford to pay them. So, that is why the CFPB developed a rule
to address this issue. Senator Booker and I organized a letter
in April in support of the CFPB rule.
There's also been a lot of misinformation about the CFPB
rule from opponents of it. Mr. Rust, if you could just briefly
describe what the rule does and what it doesn't do?
Mr. Rust. So, thank you.
So, one of the things I like about the rule is how it
creates multiple structures to fit different types of use cases
and fit institutions into the different priorities they might
have for their business.
So, there is the overdraft described as a ``courtesy
overdraft'' where the institution is allowed to charge a fee up
to a benchmark amount, and still receive an exemption from
being regulated as credit. And it's a proposal. So, we don't
know exactly what the rate will be.
There's also an option to create an intentional line of
credit, an overdraft line of credit, that comes with consumer
protections. And so, this is really moving in the direction
that will be about financial inclusion, not ``gotcha,'' but
working together.
And then, there's a third aspect which you might call a
hybrid debit credit card that allows a consumer to overspend,
but instead resulting in a negative balance on the debit card
side, it is paid from a separate but linked credit card
account, which was set up beforehand and comes with CARD Act
protections.
Such as rules against fee harvesting; an ability-to-repay
standard; giving consumers time to repay, so a periodic
statement; giving them the ability to choose how they repay
their account, so that they don't incur another overdraft fee.
Senator Van Hollen. I appreciate that because, as I said
and as you know, there's been a lot of misinformation. I think
it's a very well-tailored and well-designed proposal.
Mr. Rust. Yes.
Senator Van Hollen. I do want to turn briefly to the issue
of junk fees as part of the rental housing market. And the
Chairman of this Committee has put a renewed focus on housing.
We're the Banking and House and Urban Affairs Committee, and I
appreciate that. And we've looked at ways to reduce the costs
of housing, including rental housing, in terms of increasing
the supply; making sure that we have voucher programs.
But one of the other areas where we've seen big increases
in the cost of housing is not only rents, but in many of these
sort of predatory junk fees that's the topic of today's
discussion.
So, Mr. Rust and Mr. Sueiro, if you could just provide some
examples of the most egregious junk fees you've seen in the
housing market? I know some of them surfaced as part of the
RealPage lawsuit. Maybe we should start with Mr. Sueiro, or Mr.
Rust, either one, whoever wants to go first.
Mr. Rust. Right. So, there are additional costs being
applied to home ownership that also raise the cost of housing.
One of the things that we're worried about is any situation
where you have to pay to pay, and particularly, if you have to
pay to pay electronically, where the real cost of an ACH might
be 4\1/2\ cents, but you have to pay $7 or $10.
The CFPB has been working on addressing junk fees in the
title insurance market. Title insurance is an interesting
market where there are counter-competitive pressures. Loss
ratios on title insurance could be between 3 and 5 percent.
That's the amount of the premium that is ultimately paid back
to the consumer in the form of a claim. Most of the fees in
title insurance are going to pay the institutions that provided
the lead generation for that title insurance policy.
Senator Van Hollen. Thank you.
Mr. Sueiro.
Mr. Sueiro. Yes. No, I'll just add, you know, in the rental
market, things like application fees, late fees on your rent
payments, utility fees, administrative fees, right, I guess
for, you know, the process of applying and things like this,
those are the most common ones that we see. And again, you
know, a similar pattern to the banking junk fees, which is low-
income people across the board are paying those, and Latinos
and people of color are also paying those disproportionately.
Senator Van Hollen. Thank you. Well, thank you for your
work on this. And to the CFA, thank you, and the team there,
for what you're doing.
Mr. Chairman, thank you.
Chair Brown. Thanks, Senator Van Hollen.
Senator Butler of California is recognized.
Senator Butler. Thank you, Mr. Chairman, for having this
hearing.
And thank you all for your testimony and for your work.
I would like to just associate myself with the questioning
from Senator Van Hollen relative to the rental market
application fees, and, Mr. Sueiro, those that you just
mentioned, as they have just an incredibly impactful impact on
young people in the country, who are trying to find a way to do
all the things that we expect them to do--save their money and
be prepared for a rainy day, and the $100 application fee or
the $50 trash take-out fee. And so, I appreciate your comment,
specifically, to that market and to those young people, because
I think that there are some things that we can and should be
doing.
Let me turn to, actually, Mr. Sueiro, where you left off,
the notion of disproportionate impact and racial wealth gaps
relative to junk fees. The Federal Reserve Survey of Consumer
Finances shows that, while the wealth of Black and Hispanic
households grew at a faster rate than the wealth of white
households, disparities continue to persist, in part, due to
the proliferation of junk fees. Consumers of color are often
pushed out of mainstream financial products into fringe
financial services and predatory financial products, including
high-cost loans and credit cards. You know this as well as I
do, and thank you for helping my team facilitate that financial
literacy webinar last week.
Mr. Sueiro or Mr. Rust, either of you can take the
question. But what are the ways that junk fees perpetuate
existing racial wealth gaps and hinder generational wealth-
building?
Mr. Sueiro. Yes. So, I want to start on the access side
first. So, we've cited already today that high costs are one of
the big barriers to obtaining these products. So, we know from
the FDIC survey--we've done surveys--if you just go out and ask
people, ``Why don't you have a bank account?'' they'll cite
cost as one of the biggest barriers. ``I don't want to pay--you
know, it's too expensive to pay for an overdraft fee or a
monthly maintenance fee,'' that type of thing. The same thing
for credit card products. They'll tell you the same thing.
``It's too expensive. Interest rates are too high. Credit card
late fees are too high.''
So, one the one hand, we're creating a situation in which
low-income people and people of color disproportionately are
left out because they're concentrated in those working-class,
low-income jobs. So, that's on the one hand. And if you look at
the access to those products, they always have the least amount
of access to those products.
In the bigger picture in terms of wealth, you know, the
people who do have these products are also paying the highest
fees and the highest costs. And so, you think about what's
going on in that situation. This is a continual process where
working-class people, people of color are paying a lot more, a
bigger percentage of their money, back into financial
institutions. And oftentimes, it's the biggest financial
institutions. We're talking multibillion-, you know, trillion-
dollar institutions that are getting back that money.
So, it's a wealth extraction and it's also financial
exclusion process.
Senator Butler. Thank you for that.
Mr. Rust, I'd love to get your thoughts to that question.
And I have done some work to introduce a set of bills relative
to expanding language inclusivity and making sure that we are
making the information much more accessible to people whose
first language is not English. And so, I would love to have you
combine these two issues for me, if you can. How and why are we
here, and then, what are things like language access and ways
that companies continue to take advantage of these communities?
Mr. Rust. So, sure. Thank you. I'll start with the first
half and touching on a bit of what Santi said, but adding that
Gen Z and Millennials face a housing market that's dramatically
different than what generations before did. Currently,
something like 30 percent of Gen Z, after high school or
college, are living with their parents. And this is really
about a lack of supply of housing, right? But this means that
they're not getting on the escalator to home ownership, to
wealth-building, to all the aspects of what we associate with
the American dream.
So, related to your question, these new generations,
younger generations, are more diverse, right? The bargain
they're seeing isn't the same bargain.
And so, to the point about making sure that financial
institutions use inclusive language, well, this is very
important. We've worked a lot over time in things like adverse
action notices, right? When you are turned down for credit,
well, why were you turned down for credit? Well, if it's in
English, that's doesn't really help if you're someone who comes
from a family that speaks a different language, right? This is
vitally important to being fair.
Senator Butler. Thank you.
And thank you, Mr. Chair.
Chair Brown. Thank you, Senator Butler.
Thank you all for being here, for good questions. I
appreciate so many people, especially on this side of the
aisle, with such good questions. Appreciated the involvement of
everyone on this Committee.
Senators who wish to submit questions for the hearing
record, they're due 1 week from today, May 16th.
To the witnesses, please submit your responses to the
questions within 45 days from the day you receive them.
Thank you all again. With that, the hearing is adjourned.
[Whereupon, at 11:41 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIR SHERROD BROWN
The Senate Committee on Banking, Housing, and Urban Affairs comes
to order.
Senator Scott, welcome. The three witnesses, welcome.
Costs are far too high for Americans. Corporations are finding more
and more ways to raise those costs to boost their own profits. We have
talked about how every time Americans go to a grocery store they pay
for corporate stock buybacks and executive bonuses. Last week, we
looked at how companies use the latest technologies to jack up prices
for consumers.
This week, we look at junk fees. These are surprise--although not
that much of a surprise anymore--often last-minute charges that drive
up the cost of products, have no justification or connection to
anything other than their quest for profits.
Think about that hotel room you booked that has a bunch of
mysterious charges at the end.
Or that time you paid your credit card bill over the phone, so you
wouldn't be late, but were charged a convenience fee. The only thing
that fee is convenient for is the bank's bottom line. Or let's say
you're looking for an apartment and you finally find one with
affordable rent. But when you get a look at the lease, you realize
that, between the maintenance fee and the trash fee and the mysterious
convenience fee, the actual rent you'll be charged each month is out of
your budget now.
These hidden add-ons, surcharges, fees, they're all junk fees.
They're extra costs that inflate the price you pay, but add no real
value. They're often hidden. They're only disclosed when it's time to
pay.
Consumers know what they can afford. That's why we all shop based
on price. But when the real price is hidden through undisclosed junk
fees, how are consumers supposed to find the lowest price? The answer
is they often can't.
We hear a lot about personal responsibility and consumer financial
literacy in this Committee, but no amount of financial education is
going to protect someone from a tactic that's meant to purposely hide
the real purpose of a product or service. They hide the price. That's
the whole point.
Junk fees make a mockery of free and fair markets. Thirty-two
dollars here, $45 dollars there, sprinkle in a $10 service fee. Before
you know it, a product you thought was the most affordable option
actually is the most expensive.
Without junk fees, consumers would keep more of their hard-earned
money. They would be able to better find the lowest price, which is how
you really should promote competition to bring costs down.
That's why the CFPB has taken long-overdue steps to reduce costs
and fees and make them more transparent.
CFPB took a major step toward reducing costs for consumers when it
issued its credit card late fee rule. Credit card late fees are the
most costly and frequently applied junk fee. According to one report,
one in five adult Americans, an estimated 52 million people, paid a
credit card late fee last year.
By law, credit card late fees are supposed to be reasonable and
proportional--that's what the law says, ``reasonable and
proportional''--to the cost that companies incur for late payment. So,
be clear, there are massive trillion-dollar Wall Street companies. The
idea that your missing your payment due date by a day or two is
imposing some huge cost on the credit card company is just patently
ridiculous.
Sure enough, CFPB found that credit card companies are charging
consumers more than five times their cost. By 2022, that meant credit
card companies charged consumers $14.5 billion in late fees. That's up
$3 billion over the previous year, and who knows what next year will
be?
The new action by the CFPB will lower credit card late fees that
the largest credit card issuers can charge down to just $8--if it
stands. This will save Americans more than $10 billion in fees each
year. Of course--of course--the biggest banks oppose it.
They trot out the same old complaints we always hear every time
anyone tries to do anything that might just cut into Wall Street
profits just even a little bit. They whined in 2009 when we passed the
Credit Act--or excuse me--we passed the CARD Act to lower some fees and
increase transparency.
Surprise, surprise, the sky didn't fall. Consumer still have access
to credit. And, of course, credit card companies still make billions in
profits.
Of course, it's not just credit card late fees. Junk fees pile on
top of all sorts of services and products. CFPB found that some auto
loan services charge $1,000 in repossession fees, almost three times
the average repossession cost. Unsurprisingly, some owners never
recover their cars because $1,000 is an amount many working families
cannot afford out of the blue.
Rental housing. Junk fees that are added to the advertised rent can
make the actual rent paid unaffordable. We've seen cases where the
advertised rent grows hundreds of dollars a month once all the fees
were added on top of the rent--application fees, utility deposits,
trash fees, fees for the--a young man in my office pays a fee for the
honor of paying his rent. Fee after fee after fee after fee.
Imagine a family getting approved for a place they think they can
afford, but, then, getting several hundred dollars of surprise--
surprise--added-on fees and surprise add-on fees when they go to sign
their lease. Most renters can't afford these massive price increases,
but they may not have an option once they have paid all the upfront
costs and set their move-in date.
Be clear, the entire point of these fees is to hide the true cost.
They could just list their rent for what it is, but they don't, because
they want to make it impossible for families to actually, as they
survey where they want to move, to actually find the lowest rent.
It's not a free, fair market. It's a rigged system. We need to
continue working to expose and crack down on those fees that are
raising costs on Americans to push already high corporate profits even
higher. We need to defend the CFPB's work that has refunded $260
million to consumers for unlawful junk fees--already saved that money
and will save consumers billions in the future. Corporations raising
these prices have armies of lobbyists to fight for them. At the
beginning, I said people, when they go into the grocery store to shop,
they're paying for stock buybacks and bonuses for executives--not too
different in this world, in the banking world, in the apartment world,
and in the car repossession world.
Our job is to stand up to those corporate lobbyists who work for
everyone else, so that consumers can actually keep their hard-earned
money. Senator Scott.
______
PREPARED STATEMENT OF SENATOR TIM SCOTT
Thank you, Mr. Chairman. Thank you to the witnesses for being with
us today. At last week's hearing, we heard from my colleagues on the
other side of the aisle that the high prices Americans are paying, as
they struggle to put food on the table and face mounting debt, are the
result of greedflation and shrinkflation. And today is a similar story.
This time, the bogeyman is so-called junk fees and these fees are to
blame for the obvious economic pain Americans are feeling--not
skyrocketing inflation, not increasing global instability, and
certainly not the slush fund known as the Inflation Reduction Act.
Clearly, there's no shortage of fingerpointing for the failure of
Bidenomics or, as I like to call it, ``Brokenomics,'' because that's
what's happening to the average American family.
My Democratic colleagues and this Administration have deployed a
herd of scapegoats to deflect blame for the economic harm they have
brought upon American households. Instead of taking responsibility for
the real consequences of unchecked spending and increased regulation
across the economy, the Biden administration would rather throw a towel
over the mirror and say, ``Not me.''
Sure, it might be easy or even politically expedient to slap a
label of ``junk'' or ``excessive'' on additional costs for legitimate
products and services, in an effort to villainize business in America,
so that they, themselves, do not have to face the reality that
Bidenomics/Brokenomics is causing devastation after devastation after
devastation upon the shoulders of the American people.
But it long past time that Democrats stop playing political games
with price controls and trying to micromanage the business operations,
especially when the real outcome of these feel-good gains is reducing
access to credit and limiting economic opportunity for those who need
it most.
That's why I introduced a CRA resolution to overturn the CFPB's
credit card penalty fee rule. Let's be clear about what this rule will
mean for American families.
It will result in lower credit limits and higher interest rates for
borrowers.
It will result in new fees for services that are currently provided
free of charge.
Finally, and perhaps worst of all, this rule will cutoff access to
credit and stymie financial inclusion for the families who need it
most.
Sadly, I wasn't surprised when the CFPB finalized the credit card
penalty fee just days before the President's State of the Union
Address. That's the politics of this Administration. Actions that sound
good as talking points, just like the billions of dollars of student
loan forgiveness, but they are truly divorced from economic reality.
And it's not just the financial sector; it's everything everywhere
all at once. That's what astounds me--this Administration's rhetorical
hypocrisy.
The White House has claimed that a ``junk fee'' is a charge
designed either to confuse or deceive consumers. Ironically enough, two
of the recent targets within the Committee's jurisdiction--overdraft
and credit card late fees--are two of the most highly regulated and
transparent business practices in any industry. The credit card late
fees and overdraft fees we are discussing here today are, in fact, not
illegal and are heavily regulated.
And while we are on the subject of regulation, if Democrats
actually wanted to address the junk fees that American families are
facing, a good place to start would be the enormous costs that
consumers are paying due to the Biden administration's regulatory
onslaught. It's an albatross around every family trying to make ends
meet.
Since he took office, the total cost of President Biden's
regulatory nightmare--the mountain of red tape--is $1.37 trillion.
That's 1.37 trillion--``T'' as in Tom--dollars paid by everyday
families in the form of higher prices because of these new regulations.
This contributes to the increased cost for food, housing, vehicles,
and all the other basics a family must have just to survive--and this
happens while inflation is raging.
If my friends on the other side of the aisle were truly interested
in helping the American family, the American people, this hearing would
be about finding solutions to tame the inflation that has increased the
cost of goods by almost 20 percent since President Biden took office.
We should be discussing how real average hourly wages have decreased
under this Administration. Remember, 52 paychecks in a row where
inflation was higher than wage increases.
And we would be discussing how President Biden has promised to let
the TCJA, the Tax Cuts and Jobs Act, expire next year, which would
result in a $2.5 trillion tax increase on the American family. But
that's not the conversation we're having today, unfortunately.
In closing, it is my hope that we will hear today how misguided the
Administration's attempts are to push the financial services industry
into only offering one-size-fits-all products, when we should be really
focusing on providing solutions to the financial hardships facing
Americans.
And let me just close with one example. Everyone I know hates
paying a late fee, but the late fee is oftentimes the one thing that
encourages us to take our bills more seriously. Because, ultimately, a
late fee represents a late payment, and if you are late on your
payment, ultimately, your credit score goes down, which means that the
cost of borrowing goes up--undeniably.
If we really want to save Americans more money, we should focus not
on these fees that encourage better payment history--so your credit
score goes up and your interest rates go down--we should focus on the
cost of gas, up 40 percent; we should focus on the cost of energy, up
30 percent; we should focus on the cost of food, up 20 percent--not on
late fees.
______
PREPARED STATEMENT OF ADAM RUST
Director of Financial Services, Consumer Federation of America
May 9, 2024
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
PREPARED STATEMENT OF KAREN MADRY
President and Chief Executive Officer, Afena Federal Credit Union
May 9, 2024
Introduction and Mission
Good morning and thank you for the opportunity to share my story.
My name is Karen Madry, and I serve as the President and CEO of Afena
Federal Credit Union (Afena), located in Marion, Indiana. We are a
federally chartered, low-income designated credit union with $99
million in assets and 3 branches serving over 8,000 members in central
Indiana. In 2019 Afena was certified as a Community Development
Financial Institution (CDFI). As Grant County's only CDFI, Afena is
mission-focused on increasing financial inclusion among the under-
served and financially challenged individuals in our community. With
the support of our many community partnerships, we continue to develop
products, services, and programs that are specially designed to empower
low-income and financially underserved people and families and help
them enter the financial mainstream.
More than 70 percent of families in Grant County, Indiana, one of
the main areas within Afena's field of membership, live below the
poverty line and face difficult financial decisions every day. I do not
have to imagine the struggles that so many members of my community
face--I have experienced them myself. Years ago, having survived an
abusive relationship, filing for bankruptcy, and on the verge of
homelessness, I once found myself living at the poverty level.
Overcoming this adversity through years of hard work and dedication to
my community has led me to where I am today--building empathy and trust
with the members we serve to ensure they too can avoid future financial
pitfalls within their life's journey.
A core part of our mission at Afena is to empower our members
through financial education and help them understand how to make wise
money management decisions that will have a dramatic impact on their
future and their ability to build generational wealth. We want to put
our members on a path to financial health and well-being so that they
can leave a legacy they are proud of for the people who come after
them. Furthermore, in times of economic distress or personal hardship
for our members, we offer assistance through several methods including
low-interest loans, fee waivers, and flexible payment options. We are
also proud to partner with several community banks in the region to
ensure customers who may not fit the risk profiles of banks can be
referred to Afena for their financial needs, which will further
decrease unbanked populations in our region.
In addition to the variety of free and low-cost routine banking
services we provide, Afena is proud to offer unique lending options
that help families maintain their financial stability and improve their
quality of life through affordable home improvement loans. Over 70
percent of the loans Afena approves are to families considered to be
low- and moderate-income (LMI), with an average credit score of 560-
570. Over the last 3 years, the credit union's loan portfolio achieved
double-digit growth.
Born through a collaborative effort with the Community Foundation
of Grant County, Afena's Bridge the Gap Loan program is designed as a
safe, affordable alternative short term loan program. Through this
program, Afena provides small-dollar, low-interest loans with flexible
terms specifically for low-income families. These loans are designed to
help borrowers build good credit, grow their emergency savings, and
improve their financial literacy. Each participant receives free
personalized coaching from Afena's certified financial counselors to
set them on a path toward financial wellness.
While credit unions nationwide have continued to grow over the past
few years, now serving over 140 million consumers, the vast majority
are small institutions with limited resources, like Afena. The unique
and impactful financial assistance services we provide for our members
are under threat with mounting regulatory requirements and expectations
from Federal regulators. These high levels of regulatory burden are
hampering many credit unions from fulfilling their mission of serving
LMI Americans. We support tailored and rightsized regulation that
accounts for the varying size and complexity of financial institutions,
especially community-based, not-for-profit institutions like Afena.
Credit unions always put their members first and prudent use of member
resources is critical. Diverting those resources toward meeting
excessive regulatory requirements has ripple effects, one of the more
prominent being a trend toward industry consolidation. This result,
ironically, threatens consumer access to credit, disproportionately
impacts LMI communities, and strains the entire industry. This
unintended consequence of excessive regulatory burden is felt across
all small community-based financial institutions, and the people they
serve, who are often unable to be banked at other financial
institutions.
I look forward to sharing how Afena's unique approach to serving
the financial needs of my community may be hindered by recent changes
made to the financial services regulatory landscape.
The Credit Union Mission
Credit unions are the original consumer financial protectors
because of our not-for-profit, member-owned cooperative structure that
aligns the interest of the credit union with its members. Credit unions
like mine serve a unique purpose in the financial services marketplace,
helping diverse and underserved populations gain access to safe,
reliable, and affordable retail banking services. This distinction,
combined with a track record of providing consumer-friendly financial
services, is a key reason that rules and regulations should be tailored
so they are not overly burdensome on credit unions.
Credit unions play an essential role in helping individuals, small
businesses, and communities prosper by assisting with daily financial
management and fostering stronger financial futures. Credit unions
continue to offer members affordable interest rates, which keep monthly
payments lower. The median interest rate for a 30-year mortgage for
near-prime borrowers at a credit union in December 2023 was 9.04
percent.
The median credit union interest rate for a $40,000 auto loan with
a 6-year term in December 2023 ranged from 7.33 percent for super prime
borrowers to 11.38 percent for deep subprime borrowers. Using recent
pricing differences, we found that credit unions save consumers with
lower credit scores up to $10,000 over the life of a typical car loan
and as much as $73,000 over the life of a typical home loan. \1\
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\1\ Equifax Analytic Dataset and America's Credit Unions.
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Member-ownership and not-for-profit status results in a wide range
of pro-consumer credit union behaviors and substantial pro-social
outcomes. Credit union members across the country recognize the real
measurable ``transformative power'' associated with cooperative
finance.
``Junk Fees''
In 2022, the CFPB launched an initiative to target standard fees
charged by credit providers that included sensible payment guardrails
such as overdraft and credit card late fees. This initiative has been
mislabeled, with the CFPB calling lawful payment incentives ``junk
fees.'' These fees bear no resemblance to the type of hotel and resort
fees referenced by others as ``junk fees'' and, in contrast, are all
subject to comprehensive Federal or State laws and regulations that
include clear and conspicuous consumer disclosures. Sensible payment
guardrails are not unfair, deceptive, or abusive, and there are
mechanisms in place to ensure consumers are well informed of the costs
of these essential financial products.
Afena takes financial literacy and counseling seriously and
addresses these fee costs head on with our members to ensure they build
sustainable and fiscally responsible spending habits. For example,
members have opportunities to have multiple overdraft fees waived if
they meet with a staff member to get financial counseling.
The CFPB's guidance on these so-called ``junk fees'' falsely
suggests that these fees are for the sole benefit of the financial
institution. In practice, these fees are used to help the consumer make
responsible financial decisions, cover short-term financial
shortcomings, and encourage on-time payments or avoid violating the
terms of financial agreements. These fees also enable companies to
offset the costs of late payments and their associated risks so that
they can continue to offer the financial products that people want and
need, particularly to financially vulnerable communities and
individuals trying to build credit. These products help many LMI
communities and the nearly 26 million Americans who are credit
invisible to begin their financial health journeys.
The characterization of these well-disclosed, regulated fees as
``junk fees'' and the conflation of member-driven financial
institutions with financial bad actors has a very real, very harmful
impact on the ability of credit unions to serve their members. If
credit union members are consistently told by Federal regulators, and
even the President, that their financial institution is out to get
them, it will erode the trust and relationship-focused service that is
so crucial to the credit union difference.
Furthermore, the reduction in fee revenue is especially onerous for
small credit unions. Although there are often asset-based exemptions
for rules, such as the overdraft proposed rule, market pressures create
downstream impacts for all financial institutions. Small credit unions
will struggle to find non-essential costs to cut in response to
decreased revenue when these downward pressures emerge. We have
evidence of this from the implementation of Regulation II, where credit
unions like mine were exempt from debit interchange caps, but we still
saw an over 30 percent decrease in debit interchange revenue since the
rule took effect. If burdensome regulation continues to make it more
difficult for small financial institutions to operate, we will see
fewer banking options, less competition, and higher prices. These
results hurt consumers and are the opposite outcome of what the CFPB
seeks to achieve.
Service fees for financial products enable credit unions to make
financial services overall more affordable and more accessible for
Americans, particularly those who are low income. It is important to
recognize that fee income at credit unions is at a 32-year low, as
evidenced by recent data published by the NCUA and America's Credit
Unions (see Figure below). That means basic banking services are more
affordable than they have been for a decade. A consumer can join a
credit union and open checking and savings accounts, including an ATM
card, for free. This is possible in part because of the move towards
service fees, such as overdraft or late fees. Credit union members pay
for the services they use, such as an overdraft program, which allows
the credit union to keep basic services such as checking accounts low
cost or free for their members. The cost of eliminating or reducing
overdraft based on Government mandates instead of market forces is that
credit unions like mine will have to raise prices for all members to
replace that revenue, making basic banking services less affordable.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Finally, these regulations do not exist in a vacuum. My colleagues
within the credit union movement feel as though their revenue on all
fronts is being questioned in a manner that fails to recognize the
ever-increasing costs of operating a modern, safe, and secure financial
institution. As new restrictions on fee income move through the
regulatory process there will undoubtedly be a shift in cost-structures
that will increase the cost of credit and lower the value proposition
that credit unions offer their communities. Credit unions want the
Bureau to know that they embody the pro-consumer, relationship banking
ethos that the Bureau celebrates, but they feel that the Bureau is not
recognizing how difficult the operating environment is becoming.
Overdraft Rule
One of the most recent attacks on well-disclosed, regulated fees is
the CFPB's proposed rule to amend Regulations E and Z, specifically as
it relates to updating regulatory exceptions for overdraft credit
provided by financial institutions with more than $10 billion in
assets. As a credit union with less than $10 billion in assets, we are
deeply committed to our mission of promoting financial inclusion and
providing affordable, accessible financial services to our members,
many of whom are from underserved communities. We are concerned that
the proposed rule, as currently drafted, may inadvertently undermine
the ability of smaller financial institutions like ours to offer
services that are critical to our members' financial well-being.
Like many other credit unions, Afena offers services tailored to
assist our members in managing their finances effectively. We provide
various options to cover instances where members unintentionally or
intentionally overdraft their accounts, including checks, automatic
payments, and debit card transactions. To meet the needs of our
members, all of Afena's Member Service Representatives are authorized
by management to refund up to $100 in overdraft fees upon a member's
first request, no questions asked. If a member requests a second refund
in a 12-month period, we require them to complete a form and have a
counseling session with a Loan Officer or a Member Service
Representative. Our team uses their discretion to determine the
appropriate amount of fees to refund based on the situation or hardship
experienced by the member. Member Service Representatives on our team
work diligently to counsel our members to understand the circumstances
that led to the overdraft and how to help them prevent habitual use of
this service in the future.
We prioritize compliant and user-friendly options for our checking
account holders. Additionally, they can opt in to a service where our
credit union covers the transaction temporarily, allowing the account
to go negative until a deposit is made, albeit with a fee associated.
This service, known as Courtesy Pay, is highly valued by our members.
If a member's account is overdrawn and the member is not able to bring
it current within the 45 days required by regulation, we may offer the
member an opportunity to obtain an overdraft payback loan. These loans
are generally offered to members whose accounts are overdrawn due to an
unexpected life event and have a relatively low interest rate.
Our Courtesy Pay program ensures that members' checks and automatic
payments are processed without disruption, preventing them from
incurring additional expenses such as returned check fees. We also
cover debit card transactions, ensuring that members can access
necessities when needed, thus averting potential embarrassments at
checkout counters or even critical situations like being unable to
purchase groceries due to a shortfall in funds. Contrary to the
suggestion that these services exploit consumers, consumers greatly
appreciate the option to ensure their transactions are completed.
Without overdraft services as a financial lifeline, often bridging the
gap between paychecks and covering essential expenses like utilities
and groceries, important transactions would be declined. Declining such
transactions could spark impacts, like increased fees, disrupted
services, and financial insecurity. These potential impacts dwarf the
relatively minor cost of an overdraft fee.
To ensure transparency and understanding, we maintain regular
communication with members who use the Courtesy Pay service, providing
detailed information about limits, fees, and how the service operates.
Our members are well-informed and appreciate the clear terms under
which overdraft services are offered, including the fees associated
with these services. We often receive expressions of gratitude from
members who appreciate the assistance these programs offer.
The utilization rate of our Courtesy Pay program stands at
approximately 20 percent of our checking accounts monthly, with over 58
percent of account holders having access to all or part of the service
as a precautionary measure. We observe a mix of regular and first-time
users, and refund about 10 percent of fees, mainly to first-time users,
as part of our commitment to supporting them through financial
challenges.
The proposed rule's requirement to treat overdraft services as
extensions of credit subject to Regulations E and Z, unless fees are
nominal and only cover applicable costs and losses, although not
directly applicable to smaller institutions, may force credit unions
like ours to significantly alter or eliminate these services. As
regulatory mandates reduce or remove the prevalence of overdraft
services for the largest financial institutions, market pressures will
necessitate that smaller credit unions alter their overdraft programs
in response. Without the ability to benefit from the same economies of
scale that might allow larger institutions to weather a reduction in
fee revenue, these changes could make it unsustainable for smaller
institutions to offer overdraft protection, disproportionately
affecting those who rely on it the most.
All 4,700 credit unions across the country are unique and serve
their fields of membership in the best way they see fit for the benefit
of their communities. We believe that financial institutions should
retain the flexibility to set fees for services like overdraft
protection. This flexibility allows us to tailor our services to the
needs of our diverse membership, balancing the need to cover costs and
manage risk with the commitment to keeping our products and services
affordable. A blanket approach in which above breakeven overdraft is
deemed open-ended credit does not account for the downstream impacts to
smaller institutions and the unique circumstances of our credit union
and varied needs of our members.
Moreover, the ability to set and adjust fees enables us to innovate
and introduce new services that can help members manage their finances
more effectively, such as convenient money management tools or low-
cost, short-term credit options that can serve as alternatives to
traditional overdraft protection. If the proposed rule drives down the
average overdraft fee, these innovations would be at risk.
Instead of imposing restrictive fee structures, we advocate for a
greater emphasis on financial literacy and education efforts. Many
consumers benefit from overdraft services because they rely on these
financial lifelines to pay for purchases during moments of sudden need
or between paychecks. Although a small subset of these consumers may
become overly reliant on overdraft services, the solution should not be
to regulate it out of existence, but rather to help equip consumers
with the resources to take control of their financial futures. Several
institutions report that some members knowingly want to use this
service regularly and have indicated that they are willing to change
institutions if it is not available. Afena's members have told us that
that they do not always trust themselves to pay off credit products and
would rather pay a one-time fee like overdraft. We believe the focus
should be on investing in comprehensive financial education programs
that can empower consumers to make informed decisions about their
money, reduce reliance on overdraft services, understand other options
available, and improve their overall financial health.
Afena is deeply committed to financial education, offering
workshops, online resources, and one-on-one counseling to help our
members build budgeting skills, understand credit, and plan for their
financial futures, including retirement or their children's education.
We believe that expanding these efforts, with support from regulators
and policymakers, can have a profound impact on financial inclusion and
consumer well-being.
America's Credit Unions believes that the proposed rule on
overdraft credit may have unintended consequences that could hinder
credit unions' ability to serve their members effectively. We urge the
CFPB to consider the unique role of smaller financial institutions in
promoting financial inclusion and to rescind the rule and support a
paradigm that balances consumer protection with the need for
flexibility and innovation in financial services. Instead of imposing a
rule on overdraft fees with industry-wide implications, we encourage
the CFPB to support efforts to enhance financial literacy and empower
consumers to make informed financial decisions. By working together, we
can ensure that all consumers have access to affordable, responsible
financial services that meet their needs and support their long-term
financial health.
Credit Card Late Fees
We object to the CFPB's final rule to amend Regulation Z to slash
credit card late fees from the current limits to $8 for large issuers
with over one million open accounts. The rule aims to ensure these late
fees are ``reasonable and proportional'' to assist LMI borrowers in
better managing their debt. However, the rule will instead result in
reduced competition in the credit card market, further consolidation
among community-based financial institutions, and reduced access to
credit for vulnerable and underserved communities. The current
regulatory structure and safe harbor limits for credit card late fees
have resulted in clear disclosures to consumers, providing ample
opportunity for comparison shopping, and a deterrence effect that
encourages consumers to make timely payments on their accounts. An $8
late fee does nothing to encourage responsible consumer behavior. It
may even encourage greater delinquencies on unsecured credit card
portfolios, leading to potential safety and soundness concerns. We
would note that various governmental entities, including the Federal
Government, set late fees well above that $8 level for a wide range of
payments.
This drastically reduced safe harbor limit is not only arbitrary
but is also unlikely to reduce consumer indebtedness. In fact, this
rule would have a disproportionate impact on LMI borrowers and those
with thin credit files by limiting the availability of safe and
affordable products and services. Although the majority of credit
unions are not immediately impacted, similar to the CFPB's overdraft
proposed rule, there will be a downstream effect on smaller
institutions over time due to market pressures and changing consumer
expectations. As a result, credit unions and other institutions will be
forced to make difficult decisions about their offerings. Some smaller
credit unions may be forced to reevaluate or eliminate their credit
card programs altogether because the economics no longer work. Credit
unions are also unique in that they are subject to an interest rate
ceiling established under the Federal Credit Union Act (FCU Act). This
statutory limitation further constrains credit unions' revenue options
with respect to credit cards, whereas other institutions will likely
increase their interest rates to compensate for reduced late fee
revenue. We have already seen this trend toward increasing interest
rates among larger issuers despite the pending legal challenge against
the final rule. If credit unions like ours are forced to tighten their
credit criteria or exit the credit card market because of this rule,
the impact on underserved communities will be immeasurable.
We encourage you to exercise your oversight over this final rule as
the CFPB's data and analysis were cursory at best and the Bureau did
not seek the input of small financial institutions as required under
the law.
NSF Rule/UDAAP
The uncertainty surrounding the abusiveness prong of unfair,
deceptive, or abusive acts and practices (UDAAP) has been a source of
concern for credit unions for many years. The recent proposed rule
prohibiting nonsufficient funds (NSF) fees on instantaneously declined
transactions puts the logic of the Bureau's 2023 Policy Statement on
Abusive Acts or Practices into action, and we are troubled by the
Bureau's interpretation regarding the test for abusive conduct.
Specifically, that conduct is abusive if it takes unreasonable
advantage of a lack of understanding on the part of the consumer of the
material risks, costs, or conditions of the product or service. But in
the Bureau's interpretation, there is no requirement that the
consumer's lack of understanding be reasonable, and the Bureau
unreasonably concludes that the fact that a consumer decides to take a
risk must necessarily mean that the consumer did not understand the
risk.
If a consumer chose to initiate a transaction even though they were
uncertain if they had sufficient funds, it does not necessarily mean
that they lacked understanding of the risk. It could just as easily
mean the consumer understood the risks and chose to initiate the
transaction anyway, hoping that their account had sufficient funds.
Through this interpretation, the Bureau has removed all responsibility
from the consumer and shifted the burden entirely to financial
institutions. Furthermore, it has created a situation in which any
product or service could be deemed too complex for a consumer to
understand, and if a financial institution charges a fee in relation to
that product or service, it could be subject to an allegation that it
violated the abusiveness prong of UDAAP.
This interpretation will chill innovation and place credit unions
in a position where they will be extremely hesitant to offer new
products or services to their members, for fear that they might be
considered abusive. Smaller credit unions that cannot afford to take
the risk of UDAAP enforcements will be incentivized to only offer the
most basic services, further reducing their ability to compete.
We urge the Bureau to issue a rulemaking to further define the
abusiveness standard and work to ensure an equitable framework that
recognizes the role of financial responsibility for consumers as much
as it does the responsibility of their financial institution. While any
guidance or additional clarity is crucial to providing credit unions
with the rules of the road when it comes to UDAAP, a single policy
statement with overly broad prohibitions is insufficient. A rulemaking
to further define abusiveness through the notice and comment rulemaking
process would give financial institutions confidence in the knowledge
that an act or practice is or is not abusive and would allow the
entities that are governed by UDAAP to better understand their
obligations under those prohibitions.
CFPB Governance Modernization
America's Credit Unions believes that, given the broad authority
and awesome responsibility vested in the CFPB, a five-person commission
has distinct consumer benefits over a single director. Regardless of
how qualified one person may be, including the current leadership of
the Bureau, a commission would allow multiple perspectives and robust
discussion of consumer protection issues throughout the decision-making
process. Additionally, a commission helps ensure some continuity of
expertise and rulemaking. The current single director structure can
lead to uncertainty during the transition from one Presidential
administration to another. The U.S. Supreme Court highlighted this fact
when it released a decision in Seila Law v. the Consumer Financial
Protection Bureau that found the single director, removal only for
``just cause'' structure of the CFPB to be unconstitutional. \2\ It is
with this in mind that we urge Congressional action on legislation to
transform the structure of the CFPB from a single director to a
bipartisan commission. We support legislative efforts that would
improve the Bureau by making this change. sUnfortunately, under the
current structure, the CFPB has missed many opportunities to leverage
credit unions' mission and history to the benefit of consumers and
finalized regulations that ultimately hampered credit unions and their
members. Consumers lose when one-size-fits-all rules force credit
unions to pull back safe and affordable options from the market,
pushing consumers into the arms of entities engaged in the very
activity the CFPB's rules were designed to curtail. Under Director
Rohit Chopra's leadership, the Bureau has yet again missed numerous
opportunities to recalibrate its approach to regulation in a manner
that fulfills its consumer protection mission without impeding
consumers' access to credit or safe and affordable financial products
and services.
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\2\ Seila Law LLC v. Consumer Financial Protection Bureau, 591
U.S. ______ (2020).
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Principles That Should Guide CFPB Rulemaking
We would like to take this opportunity to highlight for Congress
several key principles we believe should guide any CFPB action. These
principles were developed in consultation with members of America's
Credit Unions.
Use the Bureau's authority in a manner consistent with the
original purpose of the CFPB and the spirit of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the Dodd-Frank
Act)
The Bureau should dedicate most of its time and resources to
unregulated and under-regulated entities. If the Bureau spent fewer
resources on regulating and supervising credit unions and other lenders
subject to Federal prudential regulation, then it would have more
available to focus on unregulated institutions and the businesses
actively engaged in objectionable practices that exploit consumers. We
believe this balance can be accomplished without sacrificing important
consumer protections.
Credit unions remain some of the most regulated entities in the
country. Despite our pro-consumer history, credit unions have
repeatedly been lumped in with others through the promulgation of
overly broad rulemakings, increasing compliance costs without a
material benefit for consumers. In fact, the increasing cost and
complexity of regulatory compliance remains a contributing factor in
the significant consolidation taking place among community-based
financial institutions. Ultimately, consumers lose when fewer choices
are in the marketplace, resulting in a higher cost of financial
services and reduced access to local community-based providers.
Appropriately tailor regulations to reduce disruption for
community-based financial institutions
In the wake of the financial crisis, Congress contemplated the need
for exemptions to certain rules and crafted the Dodd-Frank Act to
authorize the Bureau to tailor its rules to avoid adverse outcomes for
consumers and regulated entities. Congress deliberately provided this
express authority in Section 1022 of the Dodd-Frank Act:
The Bureau, by rule, may conditionally or unconditionally
exempt any class of covered persons, service providers or
consumer financial products or services from any provision of
this title, or from any rule issued under this title (Emphasis
added).
These words are unambiguous, and Congress clearly granted the
Bureau broad authority to tailor regulations in a manner consistent
with the best interest of consumers. We appreciate that the Bureau has
used its Section 1022 authority in some rulemakings to create
exemptions based on asset size, loan volume, the merits of a specific
product, or other factors. However, we believe the Bureau should use
its exemption authority more consistently and to greater effect.
Credit unions and Credit Union Service Organizations (CUSOs) should
be considered for and receive appropriate exemptions from some of the
Bureau's regulatory requirements. It is critically important for the
Bureau to understand that credit unions are not asking to be exempt
from all its rules; instead, we ask the Bureau to carefully consider
the downstream impact of its rules and how those rules--without
appropriate tailoring--could negatively affect the ability of consumers
to access financial products and services from reputable, community-
based financial institutions.
Be consistent and transparent during the development and
implementation of rulemakings and supervision and enforcement
policies
The current CFPB structure vests substantial authority with the
Director. It is critical for the CFPB Director to avoid disrupting the
efficient functioning of markets due to unnecessary secrecy, surprise
regulation, ``gotcha'' enforcement, or the pursuit of political goals.
Often, it is consumers themselves that are negatively affected by
opaque, abrupt, or extreme changes in policy from one Administration to
the next.
We believe the CFPB should emphasize regular and open communication
with financial services providers and be transparent during the
policymaking process. An open communication posture would generate
goodwill with industry and further both consumer protections and proper
due process. To that end, we are ready and willing to assist in
communicating and amplifying any critical information from the Bureau
to credit unions and their members. We are also at the Bureau's
disposal to solicit feedback from our members, as stakeholder input is
critical to an efficient and effective regulatory environment.
Relatedly, we encourage the Bureau to regularly conduct reviews of
its regulations in the interest of streamlining and eliminating
outdated or superfluous requirements, increasing the efficiency of
rules, or to provide exemptions where appropriate. However, it is
critical that the Bureau keep in mind that any change in regulation--
even a change intended to reduce complexity--always comes with a cost.
For most Bureau rulemakings, the Dodd-Frank Act and the Regulatory
Flexibility Act provide specified review processes intended to assist
in identifying necessary or appropriate regulatory changes after the
rule has been ``in the field'' for a reasonable time. Therefore, the
Bureau should reserve the adoption of substantial changes to rules or
policies for cases where there are compelling data-based reasons for
doing so or an imminent need that addresses a specified consumer
impact.
Consult with NCUA during the policymaking process and avoid
implementing duplicative or contradictory policies
Throughout their history, credit unions have been supervised by
several different Federal agencies. The lesson that comes through
clearly, based on these different supervisory arrangements, is that
credit unions are best positioned to succeed when policy decisions
affecting them are made by a regulatory agency that has significant
familiarity with the characteristics that differentiate them from other
financial services providers. The National Credit Union Administration
(NCUA or agency), due to its half-century of experience regulating
credit unions, has a special understanding of the credit union model as
well as the environmental and operational challenges credit unions face
daily. For that reason, the CFPB should work more closely with the
agency throughout the policymaking process and avoid implementing
policies that conflict with or are duplicative of those issued by the
agency, especially regarding examinations.
Provide certainty to regulated entities by adopting clear
``rules of the road'' and prioritizing internal consistency
Since the passage of the Dodd-Frank Act, there has been a massive
increase in new consumer financial services regulations. This
environment is particularly burdensome for credit unions which, unlike
big banks, do not have scores of legal experts in-house to assist with
compliance matters. Given the heightened nature of the regulatory
landscape, it is important that the Bureau provide certainty to
regulated entities through the adoption of clear ``rules of the road,''
internal consistency from the Director's office down to the field
examiners, and robust guidance and implementation support.
In that spirit, we encourage the Bureau to provide helpful
compliance resources, especially interactive webinars on final rules
and Small Entity Compliance Guides, that help stakeholders understand
regulatory expectations. We also encourage the Bureau to be proactive
and continue providing compliance resources after final action as
questions in need of clarification are identified. For example, the
Bureau's recent implementation of an Advisory Opinion program is a
positive development and should be maintained.
Regarding clarity, we oppose the Bureau adopting a ``regulation by
enforcement'' approach to policymaking. We believe if the Bureau wants
to make actionable policy, then it should propose clear regulations
pursuant to the Administrative Procedure Act (APA) process instead of
using its enforcement authority against financial institutions
expecting the subsequent consent order to serve as a means for others
to determine what practices are in violation of the law. We also
caution against an unproductive and inflammatory ``regulation by press
release'' approach to governance characterized by clearly politicized
press releases intended to serve as a bully pulpit. The Bureau's recent
reliance on blog posts, guidance, and even amicus brief filings to
issue proclamations regarding the application of consumer financial
protection laws is inappropriate and denies stakeholders the
opportunity to participate in the statutorily mandated notice and
comment process.
Conduct thorough research prior to the adoption of a new
rule or policy and base policy decisions on relevant data
The Bureau prides itself on being a modern, data-driven regulator.
Former Director Cordray often referred to the data underlying consumer
complaints as the Bureau's ``compass,'' playing a key role in
identifying and prioritizing the Bureau's actions, including in the
realm of rulemakings. However, data for data's sake is insufficient,
and it is critical that the Bureau's policy and regulatory decisions be
wholly supported by relevant, timely, representative data.
Unfortunately, it has been common for a CFPB rulemaking to lack (or at
least appear to the public to lack) sufficient evidence, data,
research, or other information to substantiate assertions within the
rulemaking. The Bureau has also refused, in certain instances, to
publicly share the data upon which it relies to justify a rulemaking--
in direct contravention of its obligations under the APA. We challenge
the CFPB to set a new standard for evidence-based rulemaking decisions
and processes.
It is critical that the Bureau base its decisions on data specific
to the entities it intends to regulate through an action. For example,
relying on bank data to justify a rulemaking that also covers credit
unions without evaluating credit union-specific data is misguided.
Almost equally critical is that the Bureau be wholly transparent in its
reliance on data, ensuring the public has access to the same
information--absent confidential and personally identifiable
information--the Bureau relies on as a foundation for its rulemakings.
Ensure continued access to credit from reputable providers
Credit unions often provide the safest and most affordable loan
options for consumers in need of credit. When developing rulemakings
overseeing lending, the Bureau should carefully evaluate and consider
the impact a policy decision may have on the availability of credit for
consumers, especially when the action is likely to impact the cost of
credit. At Afena, we understand the nuances of how our members use our
affordable credit cards and we educate them on the potential fees and
costs associated with this service. Over the last several years, we
have consistently operated our credit card program near the break-even
point or at a net loss to the credit union because we understand the
importance of these options for families seeking affordable credit to
cover an unintended cost that may arise. For example, we have called
for the Bureau's rule governing short-term, small dollar lending to be
meaningfully tailored to address predatory lending while not inhibiting
credit unions from offering responsible credit products to members in
need. It is important that the CFPB strikes an appropriate balance
between its consumer protection mission and the availability of
products and services. This balance is critical whether the product is
a mortgage, credit card, or emergency loan. Many consumers rely on
access to credit to manage their everyday finances, and the Bureau
should ensure reputable providers, especially community-based
providers, are able to meet those needs.
Encourage and support innovation in the consumer financial
services marketplace
Innovation through technology and other creative solutions has the
potential to enhance the delivery and quality of financial products and
services to consumers. In recent years, credit unions have been at the
vanguard of innovation as a byproduct of their cooperative nature,
member-driven focus, and relatively small size. Consumers benefit when
financial institutions are provided with more opportunities, under the
careful oversight of regulators, to pursue fresh answers to traditional
questions. However, the Bureau should not approach innovation in a
manner that places traditional depository institutions at a
disadvantage compared to another business model. Ultimately, credit
unions must be given equal access to innovation policies and programs.
Conclusion
My lived experiences have underscored the importance of access to
quality education and socioeconomic opportunities. They have fueled my
commitment to advocating for marginalized communities, addressing
systemic inequities, and doing whatever I can to level the playing
field. Through mentorship, community outreach, and advocacy efforts, I
strive to empower individuals to overcome barriers that prevent them
from achieving financial well-being.
Credit unions across the country, including Afena, derive their
value in their genuine commitment to serving their communities. Every
decision we make is guided by our dedication to our members and the
belief that they can achieve a brighter financial future if offered the
proper tools, guidance, and most importantly respect. While my career
leading financial institutions continues to reach heights beyond my
wildest dreams, nothing brings me greater joy than hearing a member of
my credit union express gratitude: ``Thank you for empowering me to
become a better financial manager. You were there for me when everyone
else said no.'' While we may not be able to assist everyone, making a
positive impact in the lives of those we serve is what truly matters.
It is crucial that stories like mine and the members of Afena are
told in the halls of Congress and directly with the regulatory agencies
that ensure safety, soundness, and fairness within the diverse
financial services ecosystem. Unfortunately, overregulation and attacks
on products that provide necessary income to financial institutions,
such as mischaracterizing avoidable and clearly disclosed fees as
``junk fees, are making it harder for small institutions like mine to
survive. It is not one single action that ultimately overburdens small
institutions, but rather it is the tidal wave of regulations and
restrictions that are ultimately crushing us. Finally, in addition to
using your oversight authority to help small institutions, I would also
encourage you to act on two small measures pending before the Committee
that will help turn the tide and provide relief--S. 2674, the CDFI Fund
Transparency Act, which would ensure an annual hearing on CDFI issues
for institutions like mine, and S. 610, the Credit Union Board
Modernization Act, which would reduce the number of required board
meetings for well-run credit unions like mine. Both measures enjoy
bipartisan and bicameral support.
Thank you for the opportunity to discuss these issues with the
Committee today and I would welcome any questions you may have.
______
PREPARED STATEMENT OF SANTIAGO SUEIRO
Senior Policy Analyst, UnidosUS
May 9, 2024
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RESPONSES TO WRITTEN QUESTIONS OF
SENATOR FETTERMAN FROM ADAM RUST
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RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN
FROM SANTIAGO SUEIRO
Q.1. Research suggests that the credit card late fee limits
imposed by the CARD Act of 2009 did not reduce access to credit
and in fact benefited consumers, such as through reduced costs.
Please elaborate on the impact of the CARD Act on consumers and
the credit card market.
A.1. The Credit Card Accountability Responsibility and
Disclosure (CARD) Act of 2009 implemented several consumer
protections related to credit cards such as limits to interest
rate increases, limits on double-cycle billing, transparent
disclosures, and limits on fees such as late fees which were
capped at $27 for a first late payment and $38 for subsequent
late payments. Many industry actors and policymakers claim that
late fee limits would restrict access to credit. However, the
passage of the CARD Act proved that late fee limits don't
restrict access to credit. Instead, the data shows that in the
first few years following the first CARD Act rule, the law
saved consumers more than $16 billion in fees, lowered the
overall cost of credit, and credit availability remained
widespread. \1\
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\1\ Consumer Financial Protection Bureau, ``The Consumer Credit
Card Market'', Consumer Financial Protection Bureau, December 2015,
https://files.consumerfinance.gov/f/201512-cfpb-report-the-consumer-
credit-card-market.pdf.
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For example, a 2015 study by the Consumer Financial
protection Bureau (CFPB) found that, ``the data showed that
credit availability expanded in the years following the CARD
Act as compared to its recessionary trough.'' \2\ Another study
from 2013 by the Federal Reserve Bank of Boston shared, ``we do
not find evidence that banks closed accounts at a higher rate''
in the years after the enactment of the CARD Act. \3\ Finally,
a 2014 study by researchers at the National Bureau of Economic
Research find that, ``the CARD Act had a precise zero effect on
credit limits and [average daily balances, and] a zero effect
on the number of new accounts.'' \4\
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\2\ Ibid.
\3\ Federal Reserve Bank of Boston, ``The Credit CARD Act of 2009:
What Did Banks Do?'' Federal Reserve Bank of Boston, October 2013,
https://www.bostonfed.org/publications/public-policy-discussion-paper/
2013/the-credit-card-act-of-2009-what-did-banks-do.aspx.
\4\ Sumit Agarwal, Souphala Chomsisengphet, Neale Mahoney, and
Johannes Stroebel, ``Regulating Consumer Financial Products: Evidence
From Credit Cards'', National Bureau of Economic Research, September
2013, https://www.nber.org/system/files/working-papers/w19484/
w19484.pdf.
Additional Material Supplied for the Record
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