GOP Senator: Financial Regulators Using Short Cuts in Rulemaking

Democrats and Republicans sparred at a Senate Banking Committee hearing on 'junk fees,' with NAFCU also weighing in.

David Baumann


Jul 27



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David Baumann

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Democrats, Republicans spar over the term “junk fee” at Banking Committee hearing, with NAFCU also weighing in.

Federal financial regulators are circumventing the legal rulemaking process by issuing rules as “guidance” or “statements of policy,” a former CFPB official and Sen. Thom Tillis, R-N.C., charged Wednesday.

At a Senate Banking Committee subcommittee hearing called to examine the Biden Administration’s efforts to rein in so-called junk fees, Tillis said the CFPB is not alone in trying to avoid issuing proposed rules that would require an open comment period.

“It is rampant in the financial regulators,” said Tillis, the ranking Republican on the Senate Banking Committee’s Financial Institutions and Consumer Protection Subcommittee. “It’s not just the CFPB.”

Testimony From Former CFPB Official

A former CFPB official agreed.

Guidance permits federal agencies to take action on a policy immediately, rather than waiting for the rulemaking process to proceed, said Brian Johnson, managing director of Patomak Global Partners, a financial services regulatory consultant group. Johnson was deputy director of the CFPB during the Trump Administration and is a longtime critic of the agency.

Johnson cited the bureau’s proposed credit card late fee rule as evidence.

“One significant flaw in the CFPB’s rulemaking is that the rushed timeline established for the rulemaking process as well as public statements made to date strongly support the conclusion that the CFPB has already predetermined the outcome of the rulemaking, which contravenes the requirements of the [Administrative Procedure Act],” he testified.

Johnson also noted that the CFPB limited the comment period on the proposed rule to 40 days.

Pushback From Democratic Senator

Neither Tillis nor Johnson offered examples of other agencies that are circumventing the rulemaking process.

Sen. Elizabeth Warren, D-Mass., who helped form the CFPB before she was elected to Congress, was skeptical about allegations that many financial regulators are circumventing the system.

“If there really is a problem, I’d like to see the data,” she said.

Continued Debate Over Definition

As in the past, Democrats and Republicans sparred over the term “junk fees,” which has been used by Biden Administration officials when referring to everything from concert ticket fees to overdraft and credit card late charges.

“These junk fees are keeping hard working Americans out of the financial system,” argued subcommittee Chairman Sen. Raphael Warnock, D-Ga.

To which Tillis responded, “It is undeniable that the term junk fees has a political origin.”

Testimony From State Attorney General

Michelle Henry, Pennsylvania’s Democratic attorney general, agreed with Warnock.

“Junk fees prevent consumers from effectively shopping for the best overall price,” she testified. “This hinders the functioning of a competitive marketplace.”

Henry cited a multi-state lawsuit filed against Mariner Finance, an installment lender.

“Our lawsuit alleges that Mariner charged consumers junk fees for hidden add-on products that consumers either did not know about or did not agree to buy,” she explained. “Consumers left Mariner believing they had entered into an agreement to borrow and repay, over time, a certain amount of money.”

She added that for a random sample of loans originated in her home state, Mariner charged each consumer $1,085 in junk fees for an average loan of $3,394.

Stance of Credit Union Group

However, in a letter to the subcommittee in advance of the hearing, Brad Thaler, NAFCU’s vice president of legislative affairs, said that lawful payment incentives have been termed junk fees.

“The CFPB’s guidance falsely suggests that these fees are for the sole benefit of the financial institution; however, these fees are used to help the consumer make responsible financial decisions and encourage on-time payments or otherwise prevent violations of the terms of financial agreements,” he wrote.

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