In Defense of 'Junk Fees'

“Junk fees” are back in the news now that President Joe Biden, Rohit Chopra, Director of the Consumer Financial Protection Bureau (CFPB), and Lena Khan, Chairwoman of the Federal Trade Commission (FTC), all spoke out against this modern-day plague last week that is impacting everything from Taylor Swift concerts to bank account record requests.

Chopra released a report detailing the decline of overdraft fees, and the Bureau issued a guidance effectively banning financial institutions with $10 billion or more in assets from charging fees to members asking for account records even if the account information goes back several years.

Since I am not running for office and don’t have to worry about members complaining to my board or students demanding that I not get tenure, I’m here to defend junk fees or, more accurately, the right of any institution to charge whatever fees it wants, provided the member or consumer knows the fee is being charged, the cost of the fee, and has the right and ability to take his or her business elsewhere. Simply put, the American public can do a better job of determining whether or not a fee is appropriate than a well-meaning bureaucrat or president.

First, can anyone actually tell me what a junk fee is? Overdrafts are always pointed to as a prime example, but I know there are people out there who are willing to pay fees in return for not having to embarrass themselves over a bounced check or pretend that they are going to balance their checkbook. The truth is no one can define what a junk fee is, but everyone claims to have been victimized by one.

Unfortunately, policymakers are translating this gut instinct into tangible actions and that hurts credit unions. Instead of using its powers to ensure that members have appropriate disclosures, the Bureau is trying to make certain fees go the way of the dinosaur. Chopra noted with pride that “a report we issued today shows that financial firms have nearly eliminated transaction denial fees or NSF fees entirely. Since 2021, that fee revenue shrank by 86%, saving consumers almost $2 billion every year.”

But this is nothing more than a victory of form over function. This reduced revenue has to be recouped by raising prices or absorbed with reduced services and products.

Ultimately, when regulators criticize fees they are simply replacing a business’ judgment with their own. When they take on certain fees what they are actually saying is that you should find other ways of getting the necessary funds to keep your credit union growing. Regardless of credit union size, no matter its financial outlook and no matter how well it knows its membership, the Bureau knows that certain fees are not appropriate. End of story.

Just like I think Elon Musk does a better job pricing his automobiles than would regulators, I think your credit union is better at deciding whether to charge fees and how much they should cost. This is particularly true in uncertain economic times. This is no time to extoll the fact that an important source of consistent income is being challenged in the name of consumer protection.

Now I am not a masochist, I hate certain fees as much as the next guy and I certainly think some fees go too far. But the financial services industry already does a pretty good job of disclosing fees. We have detailed regulations, baseline disclosures, and regulators and litigators ready, willing, and able to react to improper or inadequate account information. Anyone who disagrees with me should spend some time reading Regulation Z, the Truth in Savings Act or RESPA. In fact, the consumer banking industry should be pointed to as a model instead of being used as a punching bag for so-called junk fees.

Right now, what we need most of all is enough faith that the American consumer will make the right decision when it comes to their own finances.

Henry Meier is the former General Counsel of the New York Credit Union Association, where he authored the popular New York State of Mind blog. He now provides legal advice to credit unions on a broad range of legal, regulatory and legislative issues. He can be reached at (518) 223-5126 or via email at henrymeieresq@outlook.com.