Sherrod Brown Leads Senate Banking Committee Hearing On Fees In Financial Services & Rental Housing

5 months ago

On Thursday, the Senate Banking Committee held a hearing entitled, “Consumer Protection: Examining Fees in Financial Services and Rental Housing.”

Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:

https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript

Stay Connected
Forbes on Facebook: http://fb.com/forbes
Forbes Video on Twitter: http://www.twitter.com/forbes
Forbes Video on Instagram: http://instagram.com/forbes
More From Forbes: http://forbes.com

Transcript

00:00:00 Senator Scott, welcome.

00:00:13 The three witnesses, welcome.

00:00:15 Costs are far too high for Americans.

00:00:18 Corporations are finding more and more ways to raise those costs to boost their own profits.

00:00:23 We've talked about how every time Americans go to a grocery store, they pay for corporate

00:00:28 stock buybacks and executive bonuses.

00:00:31 Last week, we looked at how companies use the latest technologies to jack up prices

00:00:35 for consumers.

00:00:37 This week, we look at junk fees.

00:00:39 These are surprise, although not that much of a surprise anymore.

00:00:43 Often last minute charges that drive up the cost of products have no justification or

00:00:47 connection to anything other than their quest for profits.

00:00:52 Think about that hotel room you booked that has a bunch of mysterious charges at the end.

00:00:58 Or that time you paid your credit card bill over the phone so you wouldn't be late, but

00:01:02 were charged a convenience fee.

00:01:04 The only thing that fee is convenient for is the bank's bottom line.

00:01:08 Or let's say you're looking for an apartment, you finally find one with affordable rent,

00:01:12 but when you get a look at the lease, you realize that between the maintenance fee and

00:01:17 the trash fee and the mysterious convenience fee, the actual rent you'll be charged each

00:01:21 month is out of your budget now.

00:01:24 These hidden add-ons, surcharges fees, they're all junk fees.

00:01:28 They're extra costs that inflate the price you pay, but add no real value.

00:01:33 They're often hidden.

00:01:34 They're only disclosed when it's time to pay.

00:01:37 Consumers know what they can afford.

00:01:39 That's why we all shop based on price.

00:01:41 But when the real price is hidden through undisclosed junk fees, how are consumers supposed

00:01:46 to find the lowest price?

00:01:48 The answer is, they often can't.

00:01:50 We hear a lot about personal responsibility and consumer financial literacy in this committee,

00:01:56 but no amount of financial education is going to protect someone from a tactic that's meant

00:02:01 to purposely hide the real purpose of a product or service.

00:02:06 They hide the price.

00:02:07 That's the whole point.

00:02:09 Junk fees make a mockery of free and fair markets.

00:02:12 $32 here, $45 there.

00:02:15 Fill in a $10 service fee before you know it, a product you thought was the most affordable

00:02:21 option actually is the most expensive.

00:02:24 Without junk fees, consumers would keep more of their hard-earned money.

00:02:27 They'd be able to better find the lowest price, which is how you really should promote competition

00:02:33 to bring costs down.

00:02:35 That's why the CFPB has taken long-overdue steps to reduce costs and fees and make them

00:02:40 more transparent.

00:02:41 The CFPB took a major step toward reducing costs for consumers when it issued its credit

00:02:47 card late fee rule.

00:02:49 Credit card late fees are the most costly and frequently applied junk fee.

00:02:54 According to one report, one in five adult Americans, an estimated 52 million people,

00:03:00 paid a credit card late fee last year.

00:03:04 By law, credit card late fees are supposed to be reasonable and proportional.

00:03:09 That's what the law says, reasonable and proportional to the costs that companies incur for late

00:03:13 payments.

00:03:14 So be clear, there are massive trillion-dollar Wall Street companies.

00:03:17 The idea that you are missing your payment due date by a day or two is imposing some

00:03:22 huge cost on the credit card company is just patently ridiculous.

00:03:28 Sure enough, CFPB found that credit card companies are charging consumers more than five times

00:03:34 their cost.

00:03:35 By 2022, that meant credit card companies charge consumers $14.5 billion in late fees.

00:03:42 That's up $3 billion over the previous year, and who knows what next year will be.

00:03:47 The new action by the CFPB will lower credit card late fees that the largest credit card

00:03:52 issuers can charge down to just $8 if it stands.

00:03:58 This will save Americans more than $10 billion in fees each year.

00:04:02 Of course, of course, the biggest banks oppose it.

00:04:05 They trot out the same old complaints we always hear.

00:04:07 Every time anyone tries to do anything that might just cut into Wall Street profits just

00:04:13 even a little bit, they wind in 2009 when we passed the Credit Act, or excuse me, we

00:04:19 passed the Card Act to lower some fees and increase transparency.

00:04:23 Surprise, surprise, the sky didn't fall.

00:04:25 Consumers still have access to credit, and of course, credit card companies still make

00:04:29 billions in profits.

00:04:30 Of course, it's not just credit card late fees.

00:04:33 Junk fees are piled on top of all sorts of services and products.

00:04:37 CFPB found that some auto loan services charge $1,000 in repossession fees, almost three

00:04:44 times the average repossession cost.

00:04:47 Unsurprisingly, some owners never recovered their cars because $1,000 is an amount many

00:04:53 working families cannot afford out of the blue.

00:04:57 Real housing, junk fees that are added to the advertised rent can make the actual rent

00:05:02 paid unaffordable.

00:05:03 We've seen cases where the advertised rent grows hundreds of dollars a month once all

00:05:09 the fees are on top of the rent.

00:05:10 Application fees, utility deposits, trash fees, fees for the young man in my office

00:05:16 pays a fee for the honor of paying his rent, fee after fee after fee after fee.

00:05:22 Imagine a family getting approved for a place they think they can afford, but then getting

00:05:26 several hundred dollars of surprise add-on fees when they go to sign their lease.

00:05:34 Most renters can't afford these massive price increases, but they may not have an option

00:05:38 once they've paid all the upfront costs and set their move-in date.

00:05:42 Be clear.

00:05:43 The entire point of these fees is to hide the true cost.

00:05:46 They could just list the rent for what it is, but they don't because they want to make

00:05:52 it impossible for families to actually, as they survey where they want to move, to actually

00:05:57 find the lowest rent.

00:05:59 It's not a free, fair market.

00:06:01 It's a rigged system.

00:06:03 We need to continue working to expose and crack down on those fees that are raising

00:06:07 costs in Americans to push already high corporate profits even higher.

00:06:11 We need to defend the CFPB's work that has refunded $260 million to consumers for unlawful

00:06:17 junk fees already save that money and will save consumers billions in the future.

00:06:23 Corporations raising these prices have armies of lobbyists to fight for them.

00:06:26 At the beginning I said people, when they go into the grocery store to shop, they're

00:06:31 paying for stock buybacks and bonuses for executives.

00:06:36 Not too different in this world, in the banking world, in the apartment world, in the car

00:06:41 repossession world.

00:06:42 Our job is to stand up to those corporate lobbyists, to work for everyone else so that

00:06:47 consumers can actually keep their hard-earned money.

00:06:50 Senator Scott.

00:06:51 Thank you, Mr. Chairman.

00:06:52 Thank you to the witnesses for being with us today.

00:06:56 At last week's hearing, we heard from my colleagues on the other side of the aisle that the high

00:07:00 prices Americans are paying as they struggle to put food on the table and face mounting

00:07:06 debt are the result of greedflation and shrinkflation.

00:07:12 And today it's a similar story.

00:07:14 This time the boogeyman is so-called junk fees, and these fees are to blame for the

00:07:19 obvious economic pain Americans are feeling.

00:07:25 Not skyrocketing inflation, not increasing global instability, and certainly not the

00:07:33 slush fund known as the Inflation Reduction Act.

00:07:38 Clearly there is no shortage of finger pointing for the failure of binomics or as I like to

00:07:45 call it, brocanomics, because that's what's happening to the average American family.

00:07:51 My Democratic colleagues and this administration have deployed a herd of scapegoats to deflect

00:07:57 blame for the economic harm they have brought upon American households.

00:08:03 Instead of taking responsibility for the real consequences of unchecked spending and increased

00:08:08 regulation across the economy, the Biden administration would rather throw a towel over the mirror

00:08:16 and say, not me.

00:08:18 Sure, it might be easy or even politically expedient to slap a label of junk or excessive

00:08:26 on additional costs for legitimate products and services in an effort to villainize business

00:08:34 in America so that they themselves do not have to face the reality that binomics, brocanomics,

00:08:45 is causing devastation after devastation after devastation upon the shoulders of the American

00:08:54 people.

00:08:56 But it is long past time that Democrats stop playing political games with price controls

00:09:01 and trying to micromanage the business operations, especially when the real outcome of these

00:09:09 feel good games is reducing access to credit and limiting economic opportunity for those

00:09:19 who need it most.

00:09:21 That's why I introduced a CRA resolution to overturn the CFPB's credit card penalty fee

00:09:27 rule.

00:09:28 Let's be clear about what this rule will mean for American families.

00:09:33 It will result in lower credit limits and higher interest rates for borrowers.

00:09:38 It will result in new fees for services that are currently provided free of charge.

00:09:44 Finally, and perhaps worst of all, this rule will cut off access to credit and stymie financial

00:09:52 inclusion for the families who need it most.

00:09:55 Sadly, I wasn't surprised when the CFPB finalized the credit card penalty fee just days before

00:10:02 the President's State of the Union Address.

00:10:05 That's the politics of this administration.

00:10:08 Actions that sound good as talking points, just like the billions of dollars of student

00:10:14 loan forgiveness, but they are truly divorced from economic reality.

00:10:19 And it's not just the financial sector, it's everything, everywhere, all at once.

00:10:26 That's what astounds me.

00:10:29 This administration's rhetorical hypocrisy.

00:10:32 The White House has claimed that a junk fee is a charge designed either to confuse or

00:10:38 deceive consumers.

00:10:40 Ironically enough, two of the recent targets within the committee's jurisdiction, overdraft

00:10:45 and credit card late fees, are two of the most highly regulated and transparent business

00:10:52 practices in any industry.

00:10:55 The credit card late fees and overdraft fees we are discussing here today are in fact not

00:11:00 illegal and are heavily regulated.

00:11:04 And while we are on the subject of regulation, if Democrats actually wanted to address the

00:11:10 junk fees that American families are facing, a good place to start would be the enormous

00:11:16 costs that consumers are paying due to the Biden administration's regulatory onslaught.

00:11:24 It's an albatross around every family trying to make ends meet.

00:11:31 Since he took office, the total cost of President Biden's regulatory nightmare, the mountain

00:11:37 of red tape, is $1.37 trillion.

00:11:42 That's $1.37 trillion, T as in Tom, dollars, paid by everyday families in the form of higher

00:11:53 prices because of these new regulations.

00:11:57 This contributes to the increased costs for food, housing, vehicles, and all the other

00:12:02 basics a family must have just to survive.

00:12:07 And this happens while inflation is raging.

00:12:11 If my friends on the other side of the aisle were truly interested in helping the American

00:12:15 family, the American people, this hearing will be about finding solutions to tame the

00:12:21 inflation that has increased the cost of goods by almost 20% since President Biden took office.

00:12:29 We should be discussing how real average hourly wages have decreased under this administration.

00:12:35 Remember, 52 paychecks in a row where inflation was higher than wage increase.

00:12:44 And we would be discussing how President Biden has promised to let the TCJA, the Tax Cuts

00:12:51 and Jobs Act, expire next year, which would result in a $2.5 trillion tax increase on

00:13:00 the American family.

00:13:02 But that's not the conversation we're having today, unfortunately.

00:13:08 In closing, it is my hope that we will hear today how misguided the administration's attempts

00:13:14 are to push the financial services industry into only offering a one size fits all products

00:13:22 when we should be really focusing on providing solutions to the financial hardships facing

00:13:27 Americans.

00:13:28 And let me just close with one example.

00:13:32 Everyone, I know, hates paying a late fee.

00:13:41 But the late fee is oftentimes the one thing that encourages us to take our bills more

00:13:49 seriously.

00:13:50 Because ultimately, a late fee represents a late payment.

00:13:55 And if you are late on your payment, ultimately, your credit score goes down, which means that

00:14:00 the cost of borrowing goes up undeniably.

00:14:05 If we really want to save Americans more money, we should focus not on these fees that encourages

00:14:15 better payment history.

00:14:17 So your credit score goes up and your interest rates go down.

00:14:21 We should focus on the cost of gas up 40%.

00:14:25 We should focus on the cost of energy up 30%.

00:14:29 We should focus on the cost of food up 20%.

00:14:33 So I'll leave these.

00:14:36 Thank you, Senator Scott.

00:14:37 Three witnesses today.

00:14:38 First witness, Adam Rust, Director of Financial Services to Consumer Federation of America.

00:14:42 Welcome, Mr. Rust.

00:14:44 Thank you.

00:14:45 Hang on one sec.

00:14:46 Sorry.

00:14:47 Sorry.

00:14:48 Our next witness is Ms. Karen Madry, President and CEO of Afina Federal Credit Union, headquartered

00:14:52 in Marion, Indiana.

00:14:54 Welcome, Ms. Madry.

00:14:56 Final witness is Mr. Santiago Swero.

00:14:58 He's Senior Policy Analyst on the Economic Policy Team at UnidosUS.

00:15:03 Mr. Rust, now, please.

00:15:06 Thank you.

00:15:07 Thank you for the opportunity to testify on this important issue today.

00:15:10 My name is Adam Rust.

00:15:11 I am the Director of Financial Services at the Consumer Federation of America.

00:15:15 CFA is an association of approximately 250 groups from across the United States.

00:15:20 Founded in 1968, our mission is to advance the consumer interest through research, advocacy,

00:15:26 and education.

00:15:27 Today, I'm going to talk about junk fees and explain their harm on consumers and the

00:15:32 economy.

00:15:33 I'm going to talk about the Consumer Financial Protection Bureau's important work to address

00:15:38 these issues.

00:15:39 At the heart of it, junk fees are about power.

00:15:42 They're about the imbalance between big banks and smaller consumers.

00:15:48 Large banks with tens of billions of dollars in their boardrooms, or hundreds of billions,

00:15:53 or trillions, and private equity and corporate landlords with millions of single-family

00:15:58 homes are talking about how junk fees are going to be what brings home an earnings beat

00:16:04 for them.

00:16:05 To hear on the talk radio shows that they've booyah on earnings, but for consumers in their

00:16:12 dining rooms, junk fees are an entirely different matter.

00:16:15 Junk fees are what is going to keep them from bringing home groceries this year.

00:16:23 Today, renters are focusing on housing increases.

00:16:28 Anyone who has more month than paycheck knows how harmful these junk fees are to their households.

00:16:35 This is a zero-sum game in the end, and the costs are high.

00:16:39 Junk fees, including credit card late fees, amounted to $14.5 billion last year in overdraft

00:16:44 in NSF, $7.7 billion.

00:16:47 I want to make a few top-line points.

00:16:49 First, in the credit card late fees rule and in the overdraft proposal, the CFPB has tailored

00:16:55 regulations that focus on the largest financial institutions only.

00:17:00 Only card issuers with more than 1 million active accounts will be affected by the rule.

00:17:06 Effectively between 30 and 35 large issuers out of the more than 4,000 institutions that

00:17:12 issue credit cards.

00:17:13 Similarly with the overdraft proposal, it only applies to institutions with more than

00:17:17 $10 billion in assets.

00:17:20 To critics who contend that disclosures are enough, I say no.

00:17:24 The honest truth is we need to understand that credit cards are marketed based on rewards,

00:17:29 images of beach vacations and celebrity spokespersons, and the penalty fees are buried in fine print.

00:17:36 It's the same way with overdraft.

00:17:38 No one shops for a bank account with the intention of failing to use the service in a way that

00:17:43 meets their goals.

00:17:45 They are caught by surprise.

00:17:48 Too often consumers do use overdraft, but it's by accident.

00:17:51 CFPB research reveals that many consumers who have experienced an overdraft fee have

00:17:57 an alternative source of credit.

00:17:59 I want to underscore that the CFPB has been deliberate about doing research to understand

00:18:03 the credit card market.

00:18:06 Congress instructed the CFPB to ensure that penalty fees are reasonable and proportional

00:18:10 to cost.

00:18:11 By closing these loopholes, the CFPB is living up to its mission to put consumers first.

00:18:18 Additionally, we believe that reliance on penalty fees is ultimately something that

00:18:23 undermines trust in the banking system.

00:18:25 Nine percent of account holders pay 80 percent of overdraft fees.

00:18:30 It saddens me that our payment system has been designed in such a way that the least

00:18:35 well-off pay an outsized share of the overall cost.

00:18:39 We must remember that because they have been granted a charter, financial institutions

00:18:44 have received a privilege, and they have a responsibility with that.

00:18:50 We should also remember that the Federal Reserve's payment system is something that comes with

00:18:54 that.

00:18:55 The privileges of a charter to meet the convenience and needs of communities where they do business

00:19:01 is an essential truth to remember, but penalty fees undermine true financial inclusion.

00:19:07 In the midst of an affordable housing crisis, renters today typically face a dizzying array

00:19:12 of fees.

00:19:13 Those fees render safe and decent housing one step further away because rent is already

00:19:19 high and these late fees only add to the cost.

00:19:23 The simple lease of 20 years ago has been replaced by a new structure where rent is

00:19:27 only one of the costs.

00:19:30 Fees are partitioned and consumers may not know all of the fees at the time that they

00:19:34 consider filling out an application.

00:19:36 An application could cost more than $100 for each applicant on the lease.

00:19:41 There can be fees to sign the lease, fees to move in, fees to move out, fees to pay

00:19:46 rent electronically, fees to remove a co-resident from the lease, and often essential services

00:19:56 are included, also have their own fees such as trash fees, fees to receive mail.

00:20:02 These are fees that should be included in the all-in cost up front.

00:20:06 I just want to say that the stakes are high and these problems are actually interdependent.

00:20:12 When junk fees track residents in an unaffordable lease, they may be vulnerable to eviction.

00:20:21 Penalty fees, particularly ones that are a surprise and may come just before the rent

00:20:25 is due, are perhaps particularly the most dangerous ones that could lead to evictions.

00:20:32 Thank you and I look forward to your questions.

00:20:33 Thank you, Mr. Ross.

00:20:34 Ms. Madry, welcome.

00:20:38 Good morning, Chairman Brown, Ranking Member Scott, and the other members of the committee.

00:20:45 My name is Karen Madry and I am the President and CEO of Affina Federal Credit Union located

00:20:52 in Marion, Indiana.

00:20:54 Affina is a federally chartered credit union with $99 million in assets, three branches,

00:21:02 and we serve just over 8,000 members.

00:21:06 Affina's mission is to help families who are financially vulnerable to achieve financial

00:21:14 wealth and endure a legacy.

00:21:19 We do not exist just to make profits.

00:21:22 We are very focused on serving the needs of our community.

00:21:26 First, I would like to address the term "junk fees."

00:21:31 Junk fees is a made-up word and it is not in statute.

00:21:35 We heard a lot of comments about junk fees in various industries.

00:21:41 I would argue that in the financial services market, those fees differ.

00:21:48 Credit union fee programs are regulated by federal and state government.

00:21:55 The reduction of fee income would ultimately result in the reduction of services to our

00:22:02 members.

00:22:04 I can also share that in the credit union space, data shows that fee income is at a

00:22:11 32-year low.

00:22:14 The CFPB's actions really want to impact overdraft protection.

00:22:22 They would make it seem that this is a predatory way that we serve our members.

00:22:27 My members would argue that they are paying for a service that is valuable to them.

00:22:35 Overdraft protection provides a lifeline for my members and it gives them peace of mind

00:22:40 to know that when their paycheck cannot stretch and meet their needs, that we will cover a

00:22:47 charge to help them to buy gas or put food on their table.

00:22:54 To participate in an overdraft program is a choice.

00:22:59 It is one that our members make, understanding what it is and how it works.

00:23:06 We at our credit union make sure that we educate our members on overdraft protection and teach

00:23:12 them how to use it responsibly.

00:23:15 We disclose everything to our members up front and it is not a rush program.

00:23:22 None of my members will tell you that they were forced to participate in such a program.

00:23:28 As a $100 million credit union, I recognize that I am exempt from the rules of the CFPB.

00:23:37 However, there will be a trickle-down effect because if larger institutions are forced

00:23:43 to lower or cut their fees, my members will expect me to do the same.

00:23:49 A reduction in fees would mean a reduction in the services that I am able to provide.

00:23:55 The final rule on credit card lay fees also are for larger institutions.

00:24:02 However, similar to overdraft courtesy pay programs, it will have a negative impact on

00:24:09 my institution, regardless of the fact that I am exempt.

00:24:14 The $8 fee is not enough to cover the cost of collecting on a credit card once that credit

00:24:22 card becomes delinquent.

00:24:26 Those fees are fully disclosed to our members prior to them receiving their credit card

00:24:34 and at the time of application.

00:24:38 An $8 fee is not enough to encourage responsible behaviors from our members.

00:24:46 If they have a choice to pay an $8 late fee versus a higher late fee charged by someone

00:24:51 else, they will not pay our card and cover the bill that has the higher late fee penalty.

00:24:59 I would also argue that government agencies and entities charge a late fee that is much

00:25:05 higher than $8.

00:25:09 The biggest concern for us is safety and soundness.

00:25:13 As Senator Brown pointed out, if our members become late as reported on their credit bureau

00:25:20 as such, it demises their ability to get credit in the future and it will also cause financial

00:25:28 institutions to tighten up on their credit standards.

00:25:33 In conclusion, I would like to say that I hope you understand that these regulations

00:25:39 poses a substantial risk to small credit unions like mine as well as to my members and the

00:25:46 communities that we serve.

00:25:48 I am asking Congress and regulators to take action and do something to stop this before

00:25:55 it is too late.

00:25:56 Thank you for inviting me here to be a witness today and testify and speak on this issue.

00:26:03 I welcome any questions.

00:26:04 [Chairman Issa] Thank you, Ms. Madry.

00:26:05 Mr. Swero, welcome.

00:26:09 >> Thank you, Chairman Brown.

00:26:14 Thank you to the committee staff for inviting me to be here today.

00:26:17 I am Santiago Swero, senior policy analyst at UnidosUS.

00:26:26 We partner with 300 affiliates from Ohio to South Carolina to Texas and Florida.

00:26:31 Our affiliates are community organizations that serve Latinos.

00:26:35 Working class people, people of color and Latinos are experiencing mixed results in

00:26:40 our economy.

00:26:41 The good news is that unemployment is at near historic lows and real wages are rising even

00:26:46 as inflation keeps declining.

00:26:49 On the other hand, too many families continue to face economic difficulties.

00:26:53 Poverty, for instance, remains higher than pre-pandemic levels and skyrocketing housing

00:26:58 costs are burdening families.

00:27:00 Wealth inequality also remains a concern as researchers calculate that fully closing the

00:27:05 racial wealth gap for Latinos could take up to 228 years at the current pace.

00:27:12 Developments in the financial system mirror this mixed economic picture.

00:27:16 Fees and costs are falling, including for overdraft fees and small dollar loans.

00:27:21 And the number of people who remain unbanked is reaching near historic lows.

00:27:25 However, many challenges remain.

00:27:27 Credit card debt is at the highest level ever and working class consumers are paying more

00:27:32 in late fees than wealthier consumers.

00:27:35 Industry progress towards reducing overdraft fees also appears to have stalled.

00:27:39 And the most recent studies suggest that the number of people without a bank account is

00:27:43 rising.

00:27:44 Backsliding on these means that more households will fall into economic hardship or deeper

00:27:49 distress.

00:27:51 Efforts to reduce these fees can have a major impact on the financial well-being of working

00:27:55 class consumers.

00:27:56 The CFPB's credit card late fees rule, for example, is projected to save consumers more

00:28:00 than $10 billion.

00:28:01 There are three major reasons why supporting this rule and others like it are important

00:28:06 to making the financial system more equitable.

00:28:08 First, fees are all too common among working class consumers and people of color.

00:28:13 Those in the poorest neighborhoods pay twice as much in total late fees than do those in

00:28:17 the wealthy areas.

00:28:18 A new forthcoming survey by UnidosUS finds that one in four Latinos have made a credit

00:28:25 card late fee in the past year.

00:28:27 Second, fees harm financial health and access to credit, making it harder to get an account

00:28:33 out of delinquency and increasing the chances of losing an account.

00:28:37 In fact, a large percentage of consumers identify late fees as a barrier to obtaining credit.

00:28:42 Third, late fees do not effectively deter late payment and undermine the lender's relationship

00:28:47 with borrowers.

00:28:49 Evidence shows that most people who miss a bill payment simply cannot pay because they

00:28:53 don't have the funds.

00:28:55 Many who are charged a late fee may be facing a decision between paying their rent or paying

00:28:59 their credit card bill.

00:29:01 The decision there is clear.

00:29:03 High late fees are thus counterproductive because they pile onto existing debt.

00:29:08 Congress and financial institutions should build upon progress from the past few years

00:29:12 by following three principles.

00:29:14 First, policymakers should respect efforts by financial regulators to improve affordability

00:29:19 in the marketplace while supporting innovations to better meet the needs of working class

00:29:23 people.

00:29:25 Bank on certified accounts are an example of a market solution that improves inclusion

00:29:29 while maintaining safeguards to prevent abusive practices.

00:29:33 Others are also developing affordable small dollar loans and credit card products that

00:29:37 save consumers money and improve their finances.

00:29:40 Second, financial institutions should reimagine the relationship between themselves and consumers

00:29:45 to promote long-term customer loyalty and financial health.

00:29:51 Consumers notice when a financial institution is willing to be flexible with them, and they

00:29:55 will in turn remain loyal to the financial institution as they grow economically and

00:29:59 need other financial products.

00:30:02 Third, democratic structures can make our banking system more equitable.

00:30:07 Credit unions, especially CDFIs and MDIs, are examples of community-owned banks that

00:30:12 democratize banking policy decisions.

00:30:16 Policymakers should cultivate these to reach more people.

00:30:19 Finally, policies that require banks to meet with communities will allow their needs to

00:30:24 be voiced where it counts.

00:30:28 Ultimately, investing in working class people by providing affordable and high-quality products

00:30:33 will allow banks and communities to grow together.

00:30:37 If we create a banking system built on trust and loyalty, one that invests in the long-term

00:30:42 potential of everyone, we will be a major step closer to creating a more fair, inclusive,

00:30:47 and thriving economy.

00:30:49 Thank you, and I look forward to your questions.

00:30:51 Thanks, Russ.

00:30:52 I'll start with Mr. Rust.

00:30:54 Working families have real budgets.

00:30:56 They have to stick to junk fees to not allow them to know the true cost of a product, making

00:31:01 consumers pay more than what they're budgeted for.

00:31:04 Last week, CFPB released a report finding that consumers pay more for products with,

00:31:09 shall we say, complex pricing structures.

00:31:12 Mr. Rust, a couple questions.

00:31:14 What are some of the most troubling junk fees you've seen in financial services and in rental

00:31:19 housing, and how do these hidden fees affect people's ability to find the lowest price

00:31:24 and stifle healthy competition between businesses?

00:31:32 Thank you for your question.

00:31:33 I think the point of complexity cannot be overstated.

00:31:38 This is an issue where it becomes difficult to comparison shop because you don't know

00:31:41 all of the costs ahead of time.

00:31:44 I do find it stunning to see leases where there are scores of fees added on top of the

00:31:49 original rent.

00:31:51 That makes it that people could actually apply for an apartment, think it's affordable, receive

00:31:57 an invitation to move in, and then discover that, in fact, it was too expensive.

00:32:03 Credit card late fees, that's $14.5 billion a year.

00:32:07 Overdraft fees, similar.

00:32:10 Then just the myriad of fees that people pay at any point in time when they're having a

00:32:15 struggle.

00:32:16 I think you see this with captive arrangements.

00:32:19 I listed about 10 kinds of fees that are also involved, but there are more.

00:32:26 I'll stop there.

00:32:28 Thank you.

00:32:30 I appreciate your comments about complexity.

00:32:33 I appreciate Ms. Madry's, the way she runs her credit union.

00:32:38 Credit unions overwhelmingly in Ohio I see the same way.

00:32:41 They explain to their members better.

00:32:44 They keep a simple structure.

00:32:46 They really aren't the problem.

00:32:48 I just wanted to say that in response to her testimony.

00:32:51 Mr. Swerow, I want to get some facts straight about CFPB's credit card late fee rule.

00:32:56 Please answer the following four questions with a yes or no.

00:33:01 According to the law, credit card late fees are not meant to generate profits, yet on

00:33:05 average they generate profits that are five times greater than relevant costs.

00:33:09 Is that correct?

00:33:10 Yes.

00:33:11 Thank you.

00:33:12 Do credit card late fees disproportionately impact consumers with lower credit scores

00:33:17 and people in less well-off neighborhoods?

00:33:20 Yes.

00:33:21 You made that clear in your testimony.

00:33:23 Thanks for repeating it.

00:33:24 Are only the largest credit card issuers covered by the CFPB rule?

00:33:29 Yes.

00:33:31 You have to have one million open accounts.

00:33:32 That's the reason for Ms. Madry's credit union, as most credit unions in Ohio would be exempted.

00:33:38 The rule just doesn't apply to small card issuers, correct?

00:33:44 Correct.

00:33:45 Thank you.

00:33:46 Credit card issuers shouldn't be extracting profits from consumers through late fees,

00:33:50 first of all, because it's unfair to consumers, second of all, because these rules are required

00:33:55 to be reasonable and proportional to cost.

00:33:58 By reducing late fees, it's pretty clear CFPB is ensuring consumers save over $10 billion

00:34:04 every year.

00:34:05 Back to you, Mr. Rust.

00:34:08 Rental junk fees, which is every bit as problematic as financial services junk fees.

00:34:13 In rental housing, they're raising already far too high housing costs.

00:34:18 These charge renters all kinds of fees, application fees, processing fees, convenience fees, notice

00:34:23 fees, and I'm sure you could cite several others.

00:34:27 Some renters report even being charged a January fee, a fee for just being in the month of

00:34:34 January, unbelievably perhaps.

00:34:36 Mr. Rust, can you explain the types of fees that renters face, the challenges these fees

00:34:41 create for renters shopping for a place they can afford or manage their expenses once they

00:34:47 sign their lease?

00:34:48 Thank you.

00:34:49 To be honest, I can't explain the fees.

00:34:52 They seem unexplainable, right?

00:34:55 The truth is that I think it reflects a power imbalance.

00:34:58 I would say that if we had more housing supply, perhaps landlords wouldn't be attempting to

00:35:03 extract these kinds of fees from consumers, but in the moment when there is this vulnerability,

00:35:08 they are.

00:35:09 I think the point about comparison shopping, it is so hard to determine how much you're

00:35:13 really going to pay.

00:35:14 That doesn't make any sense at all for our economy.

00:35:18 Again, that speaks to what Ms. Madry said, that you can comparison shop with her because

00:35:26 they make it clear, they're simple, they're exempt from this rule.

00:35:30 I'll point that out, as she acknowledged, but it makes it that much more complex in

00:35:35 the larger institutions that really are the ones that extract, that levy the biggest fees

00:35:40 and the most frequent fees and are the most onerous to moderate income people and to everybody.

00:35:47 Mr. Swaver, do you want to add anything on to what Mr. Russ said?

00:35:53 Yeah.

00:35:54 Pointing out that there's sometimes in this similar to the rental housing market and housing

00:36:00 in general, in banking, a lot of people are finding themselves without a lot of options.

00:36:04 The same dynamic applies here where if you need an account or you need a loan or you

00:36:09 need a credit card, but you only have one or two options to choose from, you're going

00:36:13 to have trouble.

00:36:15 You're going to pay what they're going to offer because you need that account.

00:36:18 It makes it more difficult to comparison shop and it makes it easier for the financial institution

00:36:22 to raise costs.

00:36:24 Thank you, Mr. Chairman.

00:36:30 So much has been said, I'd love to debate, but I only have five minutes.

00:36:35 So unfortunate.

00:36:36 But let me just ask you a question, Ms. Madry.

00:36:42 Reading your story about who you are and the success that you've had being the CEO of a

00:36:47 credit union, you have overcome real obstacles.

00:36:52 I wish we had more time for you to tell your story because honestly, the question that

00:36:57 I want to ask deserves the context of not just your position today, but the journey

00:37:01 that you've taken to get to your position today.

00:37:04 I think about my life story and the challenges I've had to overcome from a single parent

00:37:07 household mired in poverty and what that really means for the context in which I'm asking

00:37:13 the questions.

00:37:14 I think about some of my staffers, Catherine Fuchs, whose last day in the committee is

00:37:18 today.

00:37:19 I think about her growing up on a farm, a farm that focuses on vegetables, the cucumbers

00:37:24 and corn and the impact that that has on her psyche and the ability to work hard.

00:37:30 I think about the three stories that we have combined together and I ask myself that the

00:37:34 CFPB is going to save the average person about $200 a year or the cost of the Biden economy

00:37:43 on a family of four, $15,000 a year.

00:37:48 When you are in your credit union in Indiana and your members come in and they're complaining

00:37:53 about the cost of gas, cost of food, the cost of energy, do you hear them talking more about

00:38:00 the challenges of $15,000, the weight of Bidenomics or do you hear them talking a little bit more

00:38:07 about the late fee?

00:38:10 That's a great question.

00:38:13 Every day we have members come into our credit union and express just how hard it is to make

00:38:19 ends meet.

00:38:21 One of the things about our credit union is that we do not take a fast food approach to

00:38:27 lending.

00:38:28 Our lenders will spend anywhere from an hour to two hours with a member because we want

00:38:33 to listen and understand the struggles that they're facing.

00:38:38 We will do what we can to help them to overcome those challenges and we do it with empathy.

00:38:49 My lenders have training on how to envision themselves walking in our members' shoes.

00:38:55 We help them to look at their financial situation and create budgets.

00:39:01 When it's deemed necessary, we provide them with a loan if that is in their best interest.

00:39:09 We do a lot of debt consolidation loans to try to help put them in a better financial

00:39:15 position.

00:39:18 Because we're regulated, because we are limited and capped at an 18 percent interest rate,

00:39:24 quite often my members can borrow money from me at a much more affordable rate.

00:39:30 When we consolidate all of their debt and give them one payment to make, it makes it

00:39:35 easier for them to manage their finances.

00:39:38 It makes them less prone to late fees.

00:39:41 The other thing that we do is when a member comes in and says, "I'm having a hardship,"

00:39:48 we do a lot of extensions on loans where we will forgive payments for up to 90 days.

00:39:56 If they are having problems paying their current loans, we will do modifications.

00:40:02 We will look at what they can reasonably afford to pay and rewrite that loan at that loan

00:40:09 payment so that our members can be successful.

00:40:13 As you said, I have lived that life.

00:40:16 I wish when I was struggling that there was a bank or a financial institution that was

00:40:23 willing to help me better manage my money so that I could ensure that my children always

00:40:30 had food on their tables.

00:40:32 That was not always the case.

00:40:35 I am committed to making sure the people in the communities that I serve have a wonderful

00:40:41 opportunity and know that we are there to walk alongside them and help them through

00:40:47 whatever financial challenge they face.

00:40:49 Thank you.

00:40:50 We need more people like you in the financial services industry without any question.

00:40:54 You have introduced financial laws 101, fast food approach.

00:40:59 You don't take the fast food approach.

00:41:00 I love that concept.

00:41:02 Because I'm only the ranking member and not the chairman, he's going to cut me off in

00:41:05 a few minutes because I'm going to run out of time.

00:41:07 I want to talk about something I call the law of the tradeoffs.

00:41:13 There are no changes to fee structures that doesn't require a tradeoff.

00:41:19 If your fees go away, either your interest rates go up, the cost of the product goes

00:41:24 up or the product itself goes away.

00:41:27 Yay, nay?

00:41:30 I agree with that.

00:41:32 We have looked at what we would do if the overdraft protection law was passed into regulation.

00:41:41 It would mean that we would have to cut our services.

00:41:44 It could mean that we would have to lay off staff.

00:41:48 I currently employ 36 people in my community.

00:41:53 We would have to move away from this two-hour approach and say, "How can we accomplish things

00:42:01 in a shorter period of time?"

00:42:02 Thank you very much.

00:42:03 I know I'm out of time, Mr. Chairman.

00:42:05 I'll just close with this.

00:42:07 I know the chairman is trying to do his best to be as lenient with me as possible.

00:42:11 It's a difficult challenge.

00:42:13 It is indeed.

00:42:14 I appreciate his transparency there.

00:42:16 Let me just suggest this, that even though the fees that we're talking about do not apply

00:42:21 to your credit union, you said without any question that the trickle-down effect will

00:42:25 have impact on your credit union.

00:42:27 Thank you very much.

00:42:28 Thank you, Mr. Chairman, for your convenience this morning.

00:42:29 Thank you, Senator Scott.

00:42:30 I'm going to try to get it next week.

00:42:31 Don't try it again next week.

00:42:32 I tried not to do it last week.

00:42:34 Tester of Montana is recognized.

00:42:36 That's what happens when you run for president.

00:42:38 It gets a little longer on the questions and answers, right?

00:42:41 I told Brown that, too.

00:42:42 He's gotten really long-winded since he ran for president.

00:42:45 Yes, sir, I agree with you.

00:42:46 I did not run for president, Mr. Scott.

00:42:49 All right.

00:42:50 Anything I can do to start some fights?

00:42:52 That's good.

00:42:53 Hey, look.

00:42:55 Housing is a big issue across this country, and Montana has had a housing shortage for

00:43:01 years.

00:43:02 That's my home state.

00:43:03 It's getting worse.

00:43:04 Wherever you go across the state, one of the first challenge folks mentioned to me is lack

00:43:09 of workforce housing in our state.

00:43:11 It's really hurting our economy, quite frankly.

00:43:16 We're seeing a lot of wealthy individuals and groups come into the last best place,

00:43:20 which is what they call Montana, and buying up these houses.

00:43:24 It's happening with single-family homes, buildings.

00:43:27 We've seen examples of it happening with manufactured home communities, where Montanans are really

00:43:33 stuck.

00:43:34 They own a mobile home that really isn't mobile at all, and these out-of-state investors take

00:43:40 advantage by jacking up the rent and jacking up fees on hardworking Montanans and seniors

00:43:47 that are living in sometimes the only affordable stuff left in the state.

00:43:53 On top of jacking up rent, these out-of-state investors often add new fees, basic fees.

00:44:01 They've always been included, but now all of a sudden they're not.

00:44:04 Fees, sewer and water are too.

00:44:06 The chairman talked about others.

00:44:09 That had been long included as part of the rent.

00:44:14 What we're seeing is a lot of out-of-staters are making money off what used to be affordable

00:44:18 housing and making it not so affordable anymore.

00:44:21 Mr. Rust, just give me some insight on how any additional fees, how increase in fees,

00:44:29 how new fees impact folks across the board, but specifically in these manufactured home

00:44:38 parks where they really don't have a lot of flexibility and they don't have a lot of money.

00:44:44 Thank you for that question.

00:44:45 That is such an important thing to remember.

00:44:48 From 2015 to 2018, a group of private equity investors bought over 150,000 lots.

00:44:55 Again, this is a power imbalance.

00:44:58 When a person lives in a manufactured housing community, it's very difficult to move.

00:45:02 It might cost $5,000 to $10,000 to move.

00:45:05 If you can afford that, then it's also difficult to find a place that will take a used manufactured

00:45:12 home because there are fewer and fewer communities that are zoning for these communities.

00:45:18 It's true, as you said, that the cost is going up, not just the rent, but also fees are being

00:45:23 added onto it.

00:45:26 I think at the end of the day, this is workforce housing.

00:45:31 It is working in rural communities where there are fewer construction crews available.

00:45:37 It's housing for seniors.

00:45:39 This is a fundamental aspect of something that's happening in the Midwest and the Upper

00:45:44 Midwest and junk fees, it's just not fair.

00:45:51 The real question is, I think we can all agree it's not fair.

00:45:53 This is workforce housing.

00:45:54 This is senior housing.

00:45:56 These are folks that are working hard for their money.

00:45:59 Some of them are on fixed incomes.

00:46:02 The question is, what does Congress do about it?

00:46:07 I'm glad you raised that.

00:46:08 There is a bill before Congress that would permit investment in manufactured housing

00:46:13 communities, particularly when resident-owned communities seek to buy homes or non-profit

00:46:19 groups.

00:46:20 The challenge they face is that it's very difficult to gather the capital in a short

00:46:23 period of time.

00:46:24 Typically, the reason a manufactured housing community is being sold is because there's

00:46:28 an infrastructure challenge.

00:46:30 It becomes very expensive to find the capital and buy a home quickly.

00:46:35 The Price Act, which is a bipartisan supported act, will provide grant funding to address

00:46:42 these issues and I believe will become a very important source of reinvestment in communities.

00:46:48 Let me go back to something you just said because I want to clarify that a little bit.

00:46:51 Did you say that they're being sold because of infrastructure needs or I just want to

00:47:01 clarify this for me.

00:47:02 I see them being sold because in our particular case, we've got out-of-staters that are coming

00:47:07 into the state that want to change our state and they see an opportunity to make a quick

00:47:10 buck on the back of working people and seniors and that's exactly what they do.

00:47:14 Right.

00:47:15 The cash flow is available on manufactured housing communities, especially if you're

00:47:19 talking about owning the land but not the units, are very certain, they're very guaranteed.

00:47:24 There are consultancies out there saying, "Yes, these individuals will have a hard

00:47:28 time moving.

00:47:29 This is an opportunity for you to make a lot of money."

00:47:32 I appreciate all three of your testimonies and I appreciate what you guys are doing.

00:47:36 I had a question for the credit union lady but I'm out of time.

00:47:39 Unlike the ranking member, I do not want to go over.

00:47:42 I yield.

00:47:43 Thanks, Senator Test.

00:47:44 Senator Vance of Ohio is recognized.

00:47:47 Thank you, Mr. Chairman.

00:47:49 Thanks to you and the ranking member.

00:47:50 I think it's important just to note that this entire conversation about late fees, overdraft

00:47:55 fees and so forth takes place in the context of extraordinarily high interest rates.

00:48:01 I'm 39 years old.

00:48:03 Pretty much the worst interest rate environment since I was a toddler.

00:48:08 I immersively don't remember anything about interest rates when I was three years old.

00:48:12 I think we have to be careful here about this particular proposal or at the very least appreciate

00:48:19 some of its implications.

00:48:22 Ms. Madry, I wanted to direct this first question with you.

00:48:24 You obviously run a small bank and I appreciate you being here.

00:48:28 Or I should say small credit union, right?

00:48:34 Maybe you could just explain how, especially in the context of higher interest rates, what

00:48:39 this particular proposal would mean for your ability to offer debt and credit services

00:48:45 to people, especially low income people.

00:48:49 In the context of my credit union, first off, we are capped at 18 percent interest rates.

00:49:01 We really try very hard to keep our interest rates very low.

00:49:07 I'm in a market where it is overbanked and underserved.

00:49:13 I have extreme market pressures to have low rates in order to attract borrowers.

00:49:21 We also, as a credit union, we believe in giving profits back to our members.

00:49:27 Liquidity is tight, so I am paying higher rates on my members' deposits because we,

00:49:35 as a credit union, I am reliant upon the deposits that my members make to provide the liquidity

00:49:41 that I need to lend out.

00:49:45 While the interest rates have climbed, my members have not felt much of that pinch.

00:49:51 Again, I serve a low income population and it is important to me to make sure that financial

00:49:59 services are affordable to my members.

00:50:03 The fee income really helps to offset the operating cost that goes along with collecting

00:50:10 on overdraft when a member overdraws their account.

00:50:14 We have to send out letters.

00:50:16 My staff is there calling members.

00:50:20 It helps when members are coming in because their account is overdrawn because of a circumstance

00:50:27 or life event.

00:50:30 As I said, my staff will take the time to talk to the member, understand the situation,

00:50:37 and help them to find a solution.

00:50:39 I can tell you that the way we operate in our credit union is if a member's account

00:50:45 is overdrawn, we will do everything that we can to help them to get back in good standing.

00:50:52 We waive fees whenever possible if a member comes in and asks.

00:50:57 We have other alternatives that we make available to members.

00:51:02 However, when you are serving a population that is vulnerable, quite often they don't

00:51:08 want loan products, they feel more comfortable with this service because it prevents them

00:51:15 propelling into perpetual debt.

00:51:18 I appreciate that.

00:51:19 I want to pick up on that basic point.

00:51:21 Mr. Rust, I know you are an advocate of this proposal.

00:51:26 I want to understand this basic question.

00:51:29 Do you think that consumers, especially lower income consumers, will have less access to

00:51:35 credit if this proposal becomes law, the junk fee proposal?

00:51:39 Do you mean specifically the credit card late fee rule?

00:51:42 Yes.

00:51:43 Thank you for the question.

00:51:45 I personally think that credit cards are among the most profitable sources of business for

00:51:51 institutions.

00:51:52 The Y14 data from the Federal Reserve talks about returns on assets that are three to

00:51:57 four times greater than other forms of commercial banking.

00:52:01 There are examples of institutions with profit margins of over 40 percent on their credit

00:52:06 card business.

00:52:07 In my view, this is a question of will credit cards be exorbitantly profitable or just incredibly

00:52:13 profitable?

00:52:14 I understand that.

00:52:16 I don't necessarily disagree with the underlying argument, Mr. Rust.

00:52:20 I guess my point is, when you take a product, even if I assume your framing is correct and

00:52:26 say it's very profitable to moderately profitable, if you make something more expensive, if you

00:52:32 take it from very profitable to somewhat profitable, don't you fundamentally make it less likely

00:52:39 that people are going to offer those services?

00:52:42 My point here is not to put you in a tough spot.

00:52:45 I guess my argument is I think it would be better if we were just honest about the debate

00:52:49 we were actually having.

00:52:51 This proposal will inevitably lead to less credit options for lower income people.

00:52:57 I wish its advocates would just lean into that and say, "Yes, that's exactly what it's

00:53:00 going to do."

00:53:01 In fact, we think that's a good thing as opposed to hiding from the fact that it will mean

00:53:05 less consumer credit for low income people.

00:53:08 I guess a related point is if the goal here is to provide options and to reduce the debt

00:53:15 spiral that we all know people in low income situations sometimes experience, I maybe wish

00:53:20 we just tried to deal with that problem directly as opposed to this backdoor way of making

00:53:25 credit more expensive and consequently less available to people.

00:53:29 I just wish this whole debate was a little bit more honest about what we're really doing.

00:53:33 What we're proposing to do is to make consumer debt much less available to low income people.

00:53:39 Let's just be honest about that and then have the debate about whether that's good or bad

00:53:42 or could be accomplished through other means.

00:53:44 That's my point here.

00:53:46 With that, Mr. Chairman, I'll stop.

00:53:47 Thank you.

00:53:48 Senator Menendez of New Jersey is recognized.

00:53:50 Thank you, Mr. Chairman.

00:53:51 Ample research shows that junk fees are disproportionately targeted at and paid by minority consumers.

00:53:58 To give one example, according to a survey from Bankrate, Hispanic checking account holders

00:54:03 pay an average of more than triple that of white account holders.

00:54:09 Mr. Suedo, can you talk about the particular vulnerability of minority consumers to junk

00:54:15 fees?

00:54:16 Yeah.

00:54:17 The first point is low income people and working class people across the board pay more in

00:54:24 overdraft fees and credit card late fees.

00:54:27 Latinos and black consumers pay even higher rates of overdraft fees and junk fees.

00:54:34 We just did a survey where we found that 40 percent of all Latinos had paid a junk fee.

00:54:40 This is much higher than other groups.

00:54:42 25 percent of Latinos had paid a credit card late fee, which is also much higher than other

00:54:47 groups.

00:54:48 It's widespread.

00:54:49 It's disproportionately affecting people who don't have a lot of income.

00:54:54 One of the other elements of it is I'm concerned that disparities are even larger for the 26

00:54:59 million Americans who have limited English proficiency.

00:55:02 These consumers are disproportionately targeted by scams.

00:55:05 They often face difficulty accessing consumer protection resources and education materials.

00:55:11 What can we do to promote price transparency and reduce the disproportionate fees paid

00:55:16 by minority and LEP consumers?

00:55:19 There's a number of different things.

00:55:20 Number one is for LEP consumers in particular, we need to make sure that our marketing and

00:55:27 the materials that we offer consumers are transparent, are accurate, and are in Spanish

00:55:33 and other languages spoken in the U.S. as well.

00:55:36 We found in the auto lending space that there's been a lot of issues with auto lenders promoting

00:55:43 a product in Spanish at a certain price.

00:55:46 And then when the consumer comes in to get that loan, it turns out the price was different.

00:55:50 The interest rate was higher.

00:55:51 There were other fees associated.

00:55:52 The FTC has done a lot of work trying to address that issue.

00:55:57 So that's one.

00:55:58 The second part is on a broader scale, obviously these rules we think will help.

00:56:01 That's why we support them.

00:56:04 In the market, we can also promote things like bank on accounts.

00:56:07 We can also promote things like affordable small dollar loans that have low interest

00:56:11 rates.

00:56:12 Credit cards that lots of credit card products that are out there that are really solid have

00:56:16 low interest rates, have no or low late fees.

00:56:19 We need to be promoting those products as well.

00:56:20 Thank you.

00:56:21 Mr. Ross, in May of '22, the CFA and several other consumer groups sent a letter to the

00:56:26 CFPB on junk fees and financial services.

00:56:29 In that letter, you stated, and I quote, "Junk fees contribute to high rates of unbanked

00:56:34 or underbanked households of color."

00:56:38 Can you and Mr. Suedo elaborate on how junk fees drive low-income families away from the

00:56:43 traditional financing system and how this negatively impacts their financial well-being?

00:56:49 So thank you for that question.

00:56:51 The FDIC does research every two years on the unbanked and the underbanked.

00:56:56 And they ask, "Why don't you have a bank account?"

00:56:59 And the first reason is, "I'm afraid of having a bank account because of surprise

00:57:05 fees."

00:57:06 And the third reason specifically calls out overdraft fees.

00:57:11 These set of fees are explicitly creating financial exclusion.

00:57:17 I would add, we see similar findings with credit cards.

00:57:22 There's surveys out there asking consumers, "Why don't you have a credit card if you

00:57:25 don't have a credit card?"

00:57:26 They cite costs, interest rates, and late fees specifically as one of the reasons why

00:57:30 they don't get those.

00:57:32 I would add, people that do have these high-cost products are often more likely to, for credit

00:57:39 cards being delinquent, for overdraft fees to lose their products, get overburdened in

00:57:44 debt in both situations, and can get pushed out of the financial system if they're not

00:57:49 able to pay those fees.

00:57:51 According to a 2019 FDIC survey, 16% of unbanked households cited distrust of banks as the

00:57:58 main reason for not having an account.

00:57:59 It's something we have to try to modify because we need people to enter a portal of financial

00:58:07 institutions so that this way they're not going to the check-cashing place and the payday

00:58:11 lender and the pawnbroker.

00:58:13 One final question.

00:58:15 One area where renters are feeling acutely the pain of junk fees is the search for housing

00:58:20 in New Jersey where housing is acute.

00:58:23 It can be difficult, particularly for low-income families.

00:58:26 It seems that many landlords are taking advantage of that fact by charging exorbitant applications

00:58:32 fees, as high as $350 in some instances, according to the National Consumer Law Center.

00:58:37 Mr. Russ, are these application fees truly reflective of actual costs incurred by the

00:58:43 landlord in processing applications?

00:58:45 No, they're not.

00:58:47 Thank you for that question.

00:58:49 Lands Union, for example, has a service that they market to landlords where the cost is

00:58:54 between $25 and $42 based on what basket of services the landlord wants.

00:59:02 And then, yes, turn that around and charge $100 per person, even more.

00:59:08 That's what's happening.

00:59:10 That makes it very difficult to comparison shop because just the search costs are so

00:59:14 high.

00:59:15 It makes people say, "I have to apply for this first one and just take it because I

00:59:19 can't afford another $300 application fee."

00:59:23 Thank you.

00:59:24 Thank you, Mr. Chairman.

00:59:25 Thanks, Senator.

00:59:26 Senator Brett, Alabama is recognized.

00:59:27 Thank you, Mr. Chairman.

00:59:29 Americans are facing real problems and real financial challenges under the Biden administration.

00:59:34 Yet, I am discouraged by the continual lack of responsibility taken by this White House

00:59:39 for the consequences of its own actions.

00:59:42 What we see from this administration is another attempt to change its messaging to blame shift

00:59:48 rather than reversing course or admitting fault.

00:59:52 According to some of my colleagues on the other side of the aisle, it's not inflation

00:59:56 or excessive government spending or overregulation that is fueling the obstacles that hardworking

01:00:02 families are facing just to make ends meet every day.

01:00:06 Instead, they are pointing the blame to everyone imaginable.

01:00:12 Last week in this committee room, we talked about shrink inflation.

01:00:17 This week, it's junk fees that are to blame.

01:00:20 Junk fees, by the way, is an arbitrary term found nowhere in any legal statute used by

01:00:26 this administration to vilify seemingly every industry that offers services to its customers.

01:00:32 However, so many times, these are just political talking points used to distract from the root

01:00:38 of the problem and to evade accountability.

01:00:42 There is also an attempt to justify significant regulatory actions from regulators across

01:00:46 the board and without any adequate cost-benefit analysis to follow or any assessment of how

01:00:51 these numerous rulemakings actually impact the end user, actually impact the customer,

01:00:58 or actually impact the member.

01:01:00 These very individuals that these regulators and administration claim to be "helping,"

01:01:06 I believe are the very ones that are going to suffer the most.

01:01:10 Mrs. Madry, just to clarify, and you obviously are the CEO of a smaller financial institution,

01:01:16 Afina Federal Credit Union, and I want to know how this is going to affect your members,

01:01:23 what this means to the very people that we are trying to help.

01:01:27 So first, does current regulation already require credit unions and banks to disclose

01:01:33 fees to their members and to their customers?

01:01:38 So the current regulation requires us to disclose fees, yes.

01:01:44 We have a fee schedule that we go over with our members at the time that they apply for

01:01:48 it.

01:01:49 Okay, thank you.

01:01:50 In addition to these disclosures that are already required by law, do your institutions

01:01:56 typically engage in other forms of communication with your members or your customers?

01:02:01 Do you, for instance, share things like low balance alerts, things like that?

01:02:06 Yes, we have texting services that our members can opt into that will alert them when their

01:02:14 balance is low, plus all sorts of tools where they can monitor their account online.

01:02:19 Okay, well, thank you.

01:02:20 In addition to these types of alerts and communications, have financial institutions, particularly

01:02:26 the smaller credit unions, proactively made other changes to their late fees and overdraft

01:02:31 fee programs without any additional regulation or legislative changes?

01:02:35 What have you done to make improvements in this area?

01:02:40 So one of the things that we do is our members who have overdraft protection, we educate

01:02:47 them that you do not have to access that by swiping your debit card.

01:02:52 If you find that you cannot make ends meet, we encourage our members to come in and ask

01:02:57 that all of the funds that are available be moved into their checking account or savings

01:03:03 account so that they pay just the one fee in the course of a month and they will have

01:03:09 those funds available to them when they need them.

01:03:12 Excellent.

01:03:13 I am glad to hear that.

01:03:14 I certainly believe you understand the needs of your members and the day-to-day challenges

01:03:19 that they face in the state of Indiana more than anyone in a regulating building here

01:03:24 in Washington, D.C.

01:03:26 So I appreciate what you are doing to help the very people that these regulations intend

01:03:31 or say they intend to help.

01:03:33 A couple of other questions.

01:03:35 Do you as the CEO determine your salary or your bonus based on overdraft or late fee

01:03:41 charges at your credit union?

01:03:44 No.

01:03:45 That is what I thought.

01:03:47 In fact, go ahead.

01:03:48 I will just share that from time to time I have told my board that I will forego a raise

01:03:54 or a bonus when I feel that our credit union needs to show a profit in order to be able

01:04:01 to meet regulatory requirements.

01:04:03 And obviously serve your members' needs.

01:04:05 So thank you so much.

01:04:07 Can you share with us what you anticipate will happen to the products that you offer

01:04:12 to your members at your credit union if the CFPB's so-called junk fee rules are finalized

01:04:18 as proposed?

01:04:19 I mean, specifically, what would happen to things like free checking account or affordable

01:04:24 small business loans?

01:04:26 That's kind of what I want to know.

01:04:28 Yes.

01:04:29 We would probably have to rethink our interest rate structure, increase our interest rates

01:04:35 when possible, eliminate things like free checking accounts.

01:04:41 Eliminate free checking accounts.

01:04:42 Eliminate free checking accounts.

01:04:43 The very thing, the very people that this rule is so-called intended to help, I believe

01:04:48 it will hurt.

01:04:49 And I think that what you have said proves that right there.

01:04:52 So thank you so much.

01:04:53 And I wish we could take a look at these regulations and actually see how they affect the end user.

01:04:58 Thank you.

01:04:59 Thank you.

01:05:00 Senator Smith of Minnesota is recognized.

01:05:02 Thank you, Chair Brown.

01:05:03 Thanks to all of you for being with us today.

01:05:04 I really appreciate it.

01:05:05 It's a very important topic.

01:05:08 I'm going to focus my questions first with you, Mr. Rust.

01:05:11 I want to talk a bit about these automated tenant screening processes that are popping

01:05:17 up all over the place.

01:05:18 So landlords are increasingly turning to automatic screening tools and reports to determine whether

01:05:24 or not to rent to a prospective tenant.

01:05:26 And so who pays for these screenings?

01:05:28 It's usually, of course, it's the applicants.

01:05:30 And in Minnesota, a two-adult family is paying on average four application fees, incurring

01:05:39 about $320 in total costs every time they're trying to find a place to live.

01:05:44 And I've heard reports that that number could go up to $800.

01:05:48 So obviously, these screening fees are making it really expensive for families, especially

01:05:52 low-income families, to find an affordable place to live.

01:05:56 And they might not even result in a fair or accurate assessment of the capacity of that

01:06:01 tenant to be able to be a good tenant.

01:06:04 One woman in Minnesota, for example, was denied an apartment because a tenant screening report

01:06:09 flagged an incorrect criminal record.

01:06:12 And this isn't an anomaly.

01:06:14 An investigation of the tenant screening industry by the CFPB found that screening

01:06:19 services can use incorrect information and often provide limited explanation back to

01:06:25 folks about why they've been denied, leaving renters in the dark and in the hole financially.

01:06:30 So they paid for an inaccurate screening.

01:06:34 So could you talk a bit about this?

01:06:36 Tell us your perspective on how this is working, the obstacles that they create for tenants,

01:06:40 and what we should be doing to protect people against these tools.

01:06:44 Thank you for that question.

01:06:45 You've raised something really important, which is how the evolution of tenant screening

01:06:51 reports are changing.

01:06:53 They're becoming more complex.

01:06:55 And one of the issues that happens from that is that it's very difficult, if there's information

01:07:00 on your report that's not true, well, first off, it's very hard to even know if that's

01:07:05 the case.

01:07:06 It's harder, perhaps, to even know how to fix it.

01:07:10 So this is happening frequently.

01:07:11 And again, when the information is wrong and then you're denied, well, that's $100, that's

01:07:17 $200, and you've got to try again.

01:07:20 And if the information is wrong on Tuesday, it's probably wrong on Thursday.

01:07:24 Right.

01:07:25 Right.

01:07:26 And I mean, that's -- do you have -- I mean, I'm kind of stuttering because I think that

01:07:32 this is just so unfair, that you actually are being forced to pay for something that

01:07:36 is inaccurately and unfairly denying you a place to live.

01:07:40 And I mean, wouldn't that go -- I mean, consumers should have a right to know whether they're

01:07:44 being denied rent based on inaccurate information.

01:07:49 That's part of what's in fair lending laws, right?

01:07:51 Right.

01:07:52 The FTC has been working on this as well as the CFPB with filing complaints against institutions

01:07:58 that don't have record systems in place to make sure that information is correct.

01:08:04 Yeah.

01:08:05 Yeah.

01:08:06 Mr. Swearer, am I saying your name correctly?

01:08:10 Yeah.

01:08:11 Thank you.

01:08:12 I want to just follow up a bit on the question that Senator Britt and others have been asking

01:08:14 about.

01:08:15 You know, I think that consumers understand that the prices of products and services in

01:08:19 this world have a markup.

01:08:20 I mean, that's capitalism.

01:08:21 They get that.

01:08:22 But I think if you told them that they were looking at a markup that was like 400 percent,

01:08:28 that maybe they would think twice about what's going on and what is really fair and reasonable.

01:08:32 And I mean, to me, that is really the issue that is at the core of the CFPB's credit card

01:08:37 late fee rule.

01:08:39 And so my question to you is, this is adding up to, you know, billions of dollars that

01:08:44 is costing people for these late fees.

01:08:47 And there seems to be sort of this argument that credit card issuers are suggesting that

01:08:54 these high fees are basically an incentive to get people to pay their bills on time.

01:08:59 But that is assuming that people could pay their bills on time and aren't because they

01:09:03 just don't feel like it, as opposed to what seems to be more likely, which is that they

01:09:07 can't.

01:09:09 And so could you I'd like to hear your comments on this.

01:09:12 And to me, this sort of gets at the issue of why it is so expensive to be poor in this

01:09:17 country.

01:09:18 Yeah.

01:09:19 So there are a number of different pieces here.

01:09:20 Number one is we know from lots of surveys and we know from just talking to people that

01:09:26 a lot of one of the biggest reasons why people don't pay is simply they don't have the funds.

01:09:31 And we know, you know, we also see this reflected in the data.

01:09:34 It's lower income people that are living paycheck to paycheck that are disproportionately paying

01:09:39 these fees.

01:09:40 So folks are in a situation where they are faced with a decision between putting food

01:09:46 on the table or paying the slate fee.

01:09:48 That's one.

01:09:49 Two is the CFPB collected a lot of comments, 57,000 comments.

01:09:53 They received a ton of comments from consumers who had been paying late fees.

01:09:59 One of the comments.

01:10:01 So just to give you like a real world example, one of the people that commented was a parent.

01:10:08 They had a very serious medical issue.

01:10:10 They were paying lots of for expensive medicine and they were working two and three jobs,

01:10:18 three you know, a third job every now and again just to make ends meet.

01:10:22 They missed the payment because they had worked so late that they worked after midnight of

01:10:28 the day that the payment was due and they missed the payment window.

01:10:32 They got charged with $35 late fee.

01:10:34 So this is the type of thing.

01:10:35 That is also an example of where this is a working class person.

01:10:38 They had the funds but they couldn't do it.

01:10:40 But there's so many other things going on in people's lives that they couldn't pay it.

01:10:44 There were other examples like people put their payment in the mail.

01:10:47 The mail, the money didn't get to the credit card company in time because the mail slowed

01:10:51 down.

01:10:52 [Judge Cardone] And they're not going to pay quicker in

01:10:53 any of those circumstances because they're, you know.

01:10:57 Mr. Chair, I know I'm out of time.

01:10:59 I thank you for the opportunity to ask these questions and thanks to our panelists.

01:11:03 [Judge Prado] Thanks.

01:11:05 Senator Cortez Masto from Nevada is recognized.

01:11:07 [Senator Cortez Masto] Thank you.

01:11:08 Thank you, Mr. Chair.

01:11:09 And thank you to the witnesses for being here today.

01:11:11 I know one of my colleagues already talked about manufactured housing.

01:11:14 I'm going to touch on this because we don't talk about manufactured housing enough and

01:11:19 the potential for it.

01:11:21 I know Mr. Rust, thank you very much, wrote an incredible book here.

01:11:27 And I'm very thoughtful about families who live in manufactured housing.

01:11:31 To my colleagues, this was in 2007.

01:11:32 If you haven't had a chance to read it, please do.

01:11:35 A few months ago, HUD announced a request for applications for a new program.

01:11:39 I think you've talked about this, to fund new roads, water, sewer, tornado shelters

01:11:44 and other infrastructure improvements.

01:11:46 It's called the Price Program in honor of Congressman David Price, who by the way, wrote

01:11:52 the foreword here in the book.

01:11:57 I led the bill for the Preservation and Reinvestment Initiative for Community Enhancement, the

01:12:04 permanent program.

01:12:06 Why is this?

01:12:07 Because I see the benefits in my state, but Mr. Rust, can you explain why the 8.5 million

01:12:11 Americans who live in manufactured home communities deserve special consideration and investment?

01:12:16 Thank you for that question.

01:12:19 I've visited manufactured housing communities in Nevada.

01:12:23 This is clearly an issue there, the cost of rehabilitating a community, the cost of infrastructure

01:12:29 investment.

01:12:30 This is something that the Price Act will address.

01:12:33 I think it's strongly needed.

01:12:37 Why are people living in manufactured housing?

01:12:40 What are the reasons for that demand that exists?

01:12:42 It's because it's affordable, it meets the needs of people who are seniors, it meets

01:12:49 the needs of workers who may be working in a community where there's not a large set

01:12:54 of construction workers, so rural areas.

01:13:01 Manufactured housing communities can be a very nice place to live.

01:13:03 They are communities, but if they're being disinvested in, I would say if you go around

01:13:08 to your local neighborhood and look for the neighborhood that is receiving the least amount

01:13:14 of capital, it's probably a manufactured housing community.

01:13:17 That's right.

01:13:18 That's the unfortunate piece about this, because there also is some stigma associated with

01:13:23 a manufactured housing, which there shouldn't be.

01:13:26 This is an opportunity for so many people to have a roof over their head and have it

01:13:30 be affordable.

01:13:31 I know one of my colleagues talked about private equity coming in and purchasing up a lot of

01:13:34 these.

01:13:35 I have concerns about that.

01:13:36 I think that just in housing in general in Southern Nevada, and it is an issue that we

01:13:41 need to address these high costs.

01:13:45 Mr. Rest, let me ask you this.

01:13:46 In Nevada, 86% of extremely low income renters are severely housing cost burdened, meaning

01:13:53 renters that are spending more than 50% of their income on rent.

01:13:58 Rents are only going up.

01:13:59 Since 2020, rents have increased between 20% and 30% in some parts of my state.

01:14:06 As families are forced to spend more and more on rent, they're left with fewer resources.

01:14:09 We know that.

01:14:10 How do additional fees imposed on renters like application fees, processing fees, and

01:14:16 so-called convenience fees exacerbate these high costs of rent?

01:14:23 That's a great question.

01:14:24 I think it gets down to if you're going to comparison shop, if you're going to look on

01:14:27 a platform and you see 10 different potential places to live, and some of those listings

01:14:33 are all in price and some are partitioned where there might be fees that you don't even

01:14:37 know about, that makes it very difficult to comparison shop.

01:14:40 It puts well-intentioned landlords who are being fair at a disadvantage with landlords

01:14:46 that are playing these games.

01:14:49 I think what we're seeing are cases where consumers are paying rent on time in their

01:14:55 community, in their manufactured housing community.

01:14:58 Private equity comes in.

01:14:59 They buy the park.

01:15:00 They add $400 in fees.

01:15:03 Suddenly it becomes groceries or paying the rent.

01:15:06 Even if I have to leave, I may not be able to take my home with me, so I may actually

01:15:11 lose that home.

01:15:13 That's right.

01:15:14 Nobody should have to make that decision, but unfortunately there are too many, even

01:15:20 individuals that are having . . . I don't care whether you're a veteran, you're a senior,

01:15:24 you're a hardworking family, you're still . . . There's many in our communities now

01:15:29 that are having to make this decision.

01:15:31 That's why we have to address it.

01:15:33 More importantly, we have to address these fees, these junk fees that are add-ons.

01:15:38 We got to address the housing issue and affordability of housing.

01:15:40 That's why I'm so pleased there's by-power support in this committee to really address

01:15:45 these issues.

01:15:46 I hope we are able to pass this for the benefit of so many, not just in Nevada, but across

01:15:52 the country.

01:15:53 There's more questions that I have.

01:15:54 I'm not going to be able to get to everyone.

01:15:56 I thank you for being here and your commitment to addressing these issues.

01:16:00 Thank you, Mr. Chair.

01:16:01 Thank you, Senator Cortez Masterson.

01:16:02 Senator Warren of Massachusetts is recognized.

01:16:04 Thank you, Mr. Chairman.

01:16:06 So in 2009, Congress passed the CARD Act to crack down on banks and other credit card

01:16:13 issuers that were abusing consumers with excessive late fees and bait-and-switch terms, like

01:16:20 those low initial rates that, once somebody signed on the dotted line, really jumped up

01:16:26 and jumped up high.

01:16:28 The CARD Act slashed average late fees by a third to $23 in 2010.

01:16:36 But by 2022, 12 years later, by exploiting loopholes in the law, that number was back

01:16:44 up to $32, enough to make the biggest credit card companies an extra $14.5 billion in profits

01:16:54 that year.

01:16:56 Meanwhile, average credit card APRs have nearly doubled over the last decade, from 13 percent

01:17:03 in 2013 to 23 percent in 2023.

01:17:07 That is the highest on record.

01:17:10 Now, as credit card companies have grown their profits through interest and fees, they have

01:17:16 also become more concentrated, with the biggest issuers gobbling up the smaller ones.

01:17:23 In 2022, the 10 biggest credit card companies in the country accounted for 83 percent of

01:17:32 all credit card loans.

01:17:33 Mr. Rust, you have studied the credit card market for years now.

01:17:39 Can you say something about how the smaller credit card issuers stack up versus the biggest

01:17:45 issuers in terms of how much they're charging consumers, the big guys versus the small guys

01:17:52 that are still left?

01:17:54 Thank you for that question.

01:17:55 Actually, I was really hoping to have the opportunity to say that CFA and the CFPB have

01:18:00 pointed out that interest rates at smaller institutions, small credit unions, are lower.

01:18:07 This has to do, I believe, with the fact that the credit card market is somewhat broken

01:18:10 because the way that people are comparison shopping, when they say, "I would like to

01:18:14 get a credit card," it doesn't take them to the small bank.

01:18:17 It takes them through a comparison shopping site, a lead generator that's earning large

01:18:22 amounts of fees, to direct them just to the cards that have the highest rates.

01:18:26 We're seeing margin-on-margin issues where the amount of the margin is growing over time.

01:18:31 It's never been higher.

01:18:33 Credit card issuers that are larger are charging interest rates that are 8 to 10 percentage

01:18:37 points higher now.

01:18:39 Wow.

01:18:40 So, the big guys with the highest paid CEOs are actually charging consumers a whole lot

01:18:47 more than the little guys in the credit card market.

01:18:51 It's the big guys who are hitting particularly hard on customers' pockets.

01:18:57 Mr. Swerow, you're an expert on predatory lending practices.

01:19:02 Who's paying the bulk of the interest and fees that are driving credit card companies'

01:19:08 profits?

01:19:09 Yeah.

01:19:10 So, there's a number of different ways to look at it.

01:19:13 CFPB has found that consumers with deep prime, subprime credit scores are paying a disproportionately

01:19:21 high amount of fees.

01:19:22 We know that that population are generally lower-income, working-class people of color.

01:19:28 We know from our surveys, we know from other consumer surveys, this has been reflected

01:19:32 over time repeatedly, that low-income people disproportionately pay these.

01:19:37 Latinos, black consumers also are disproportionately paying these fees.

01:19:41 Okay.

01:19:42 So, people are paying more.

01:19:43 But you know who is paying more, people who are struggling the most.

01:19:47 Now, the CFPB is taking action to rein in price gouging in the credit card market, including

01:19:54 by capping most late fees at $8.

01:19:57 Obviously, very good news for American families.

01:20:01 Of course, we know who's not happy about that, big credit card issuers and their Republican

01:20:06 friends in Congress.

01:20:08 Last month, Republicans introduced a bill to overturn the CFPB's credit card late fee

01:20:14 rule so that the credit card industry can continue squeezing every last dime out of

01:20:21 these consumers.

01:20:23 One House Republican even said, quote, "The vast majority of Americans support these fees."

01:20:30 So, Mr. Rust, I have to ask, do you know anyone who is actually a consumer who loves junk

01:20:36 fees?

01:20:37 So, I have never heard someone say, "Oh, I paid an overdraft fee, and I'm really glad

01:20:42 that worked out."

01:20:43 Yeah, that really worked out well for me.

01:20:44 I have never seen the bumper sticker, "I heart junk fees," right?

01:20:49 How about you, Mr. Swerow?

01:20:51 Anybody you know who is excited about being gouged by a multibillion-dollar bank?

01:20:56 No, obviously not.

01:20:57 And I want to add two things.

01:20:59 One is, the CFPB received 57,000 comments from this.

01:21:03 A large number were from consumers that were saying quite the opposite, that they were

01:21:08 fed up with these fees, that they didn't want to pay them, they were very unpopular.

01:21:12 The opposite is also true.

01:21:13 If you ask consumers, "How would you feel about a product that doesn't have such high

01:21:18 late fees or low fees?"

01:21:20 They look at those products very favorably, and they actually have more goodwill towards

01:21:24 financial institutions if they were to be offered those products.

01:21:27 Well, I'm really glad that the CFPB is taking up the fight on behalf of consumers and willing

01:21:32 to stand up to these big banks.

01:21:34 Thank you.

01:21:35 Thank you, Mr. Chairman.

01:21:36 All right.

01:21:37 Senator Fatterman is recognized from Pennsylvania.

01:21:40 Thank you, Mr. Chairman, and I would like to thank my colleague from Connecticut for

01:21:45 allowing me to do this.

01:21:47 Yes, hi.

01:21:51 Banks seem to really, really -- they love fees like that, right?

01:21:56 I didn't.

01:21:58 I think it's helpful if something happens to you to really understand what a lot of

01:22:04 other American consumers face, that kind of a thing.

01:22:07 I'd say about 18 -- well, probably a couple years ago, I was at a coffee place, and I

01:22:15 bought one, and then everything went through.

01:22:18 I didn't think anything of it, and then I had a notice that I overdraft my account.

01:22:24 So that was a $40 cup of coffee, and I wasn't at Blue Bottle, but at any rate, so is it

01:22:35 pretty kind of -- it seems kind of crazy that you would allow your account to be charged

01:22:44 for, you know, $35 over a cup of coffee, and of course, I didn't really appreciate it.

01:22:51 So in whose interest was that, would you think?

01:22:57 And anyone, what do you think about it?

01:23:03 So it's in the interest of institutions that want to pad their profits with huge exorbitant

01:23:09 fees.

01:23:10 I think we shouldn't forget that during the time when you were experiencing your not Blue

01:23:15 Bottle coffee overdraft, that many institutions were using high-to-low check reordering to

01:23:22 actually trigger additional overdrafts.

01:23:24 Yeah, well, and that's what I thought, and then I called up my bank, and I'm like, well,

01:23:29 hey, that's kind of crazy, and they're like, well, actually, sir, we allowed this transaction

01:23:34 to occur, and you were able to get on with your day.

01:23:38 And they actually -- they justify that by saying, well, that's a service that we provided,

01:23:44 that you were allowed to get your coffee and get on with your day.

01:23:48 And then now it's become very clear that these kinds of fees are a profit center.

01:23:54 Is that accurate, too?

01:23:56 Oh, absolutely.

01:23:58 The data from call reports reveals that the amount of fees coming in off of transaction

01:24:02 accounts in some cases can be 20, 30, 40 percent equivalent to the net income of that financial

01:24:09 institution.

01:24:11 Those are almost overdraft stores.

01:24:15 And it's pure profit, too.

01:24:17 I mean, it's no service, anything other than -- it's just being nickel-and-dimed.

01:24:23 I personally don't enjoy that, being nickel-and-dimed.

01:24:27 Are any of you in the panel, do you enjoy being nickel-and-dimed anywhere you go?

01:24:32 No, sir.

01:24:34 No?

01:24:35 Anyone?

01:24:36 But now what once was something that was a penalty now has become part of their mission.

01:24:45 It's like to -- and then this happened just last week in my apartment.

01:24:53 The D.C. rental market is kind of rough.

01:24:59 And I pay $2,000 a month for 500 squares.

01:25:03 And then I left my key on the counter.

01:25:05 And then I approached the front desk.

01:25:06 And I'm like, could you please let me in so I can get my key?

01:25:09 And they're like, well, absolutely.

01:25:11 And then they pulled out a form that said, well, that's $50.

01:25:15 I'm like, oh, no, no, I don't need another -- I don't need a new key.

01:25:19 I just -- could you just let me in?

01:25:20 And they're like, well, that doesn't matter.

01:25:22 That's $50.

01:25:23 And I'm like, $50 to let me in?

01:25:26 And then I really couldn't believe that someone would charge $50 just to open up to just get

01:25:32 your key.

01:25:34 And would you agree that that's kind of a junk fee for housing rentals?

01:25:41 Well, yes, absolutely.

01:25:44 That's a junk fee.

01:25:45 I feel bad for the person at the desk who had to follow the corporate policy that requires

01:25:49 them to charge that fee.

01:25:51 Well, yeah, of course.

01:25:53 It's not personal against the worker.

01:25:54 But the fact that they institutionalized this idea that it's going to -- we're going to

01:25:58 be $50 for letting you to just get your key there.

01:26:03 And that seems -- that's just pure profit.

01:26:05 And that becomes that, too.

01:26:06 And metaphorically -- and I'm running out of time -- but I think that's the same kind

01:26:12 of thing in a government where you cannot count or create, like, parking tickets and

01:26:19 speeding tickets as, like, as revenue that should be about for public service or to protect

01:26:25 a situation.

01:26:27 And it's -- in my opinion, it's just gone crazy.

01:26:32 And now when billions and billions of dollars now, those kinds of nickel and diming now

01:26:36 is part of their business strategy.

01:26:39 But thank you for joining me.

01:26:40 And my time is off.

01:26:41 Thanks, Senator Fetterman.

01:26:43 Senator Van Hollen of Maryland is recognized.

01:26:46 Thank you, Mr. Chairman.

01:26:47 Thank all of you for your testimony.

01:26:49 Today, I've been trying to listen in via C-SPAN.

01:26:53 And I know a lot has been covered, of course, on the issue of overdraft fees and the finding

01:26:59 that 80 percent of overdraft fees are borne by 9 percent of customers, which shows the

01:27:09 impact of these fees on those who can least afford to pay them.

01:27:15 So that is why the CFPB developed a rule to address this issue.

01:27:21 Senator Booker and I organized a letter in April in support of the CFPB rule.

01:27:28 There's also been a lot of misinformation about the CFPB rule from opponents of it.

01:27:34 Mr. Rust, if you could just briefly describe what the rule does and what it doesn't do.

01:27:41 So, thank you.

01:27:43 So one of the things I like about the rule is how it creates multiple structures to fit

01:27:47 different types of use cases and fit institutions and the different priorities they might have

01:27:53 for their business.

01:27:54 So there is the overdraft fee, which they describe as the courtesy overdraft fee, where

01:27:59 for a benchmark rate, the institution is allowed to charge.

01:28:04 It's a proposal, so we don't know exactly what the rate will be.

01:28:07 There's also an option to create an intentional line of credit, an overdraft line of credit

01:28:13 that comes with consumer protections.

01:28:16 So this is really moving in the direction that will be more about financial inclusion,

01:28:20 not gotcha, but working together.

01:28:23 And then there's a third aspect, which you might call a hybrid debit credit card that

01:28:28 allows a consumer to overspend, but instead of having it be a negative balance, it creates

01:28:34 a separate account that has credit.

01:28:36 And these are protected by important protections like no fee harvesters, an ability to repay

01:28:46 standard, giving consumers time to repay, so a periodic statement, giving them the ability

01:28:53 to choose how they repay their account so that they don't incur another overdraft fee.

01:28:58 I appreciate that because, as I said, and as you know, there's been a lot of misinformation.

01:29:03 I think it's a very well-tailored and well-designed proposal.

01:29:08 I do want to turn briefly to the issue of junk fees as part of the rental housing market.

01:29:18 And the chairman of this committee has put a renewed focus on housing, or the Banking

01:29:23 and Housing and Urban Affairs Committee, and I appreciate that.

01:29:27 And we've looked at ways to reduce the costs of housing, including rental housing, in terms

01:29:34 of increasing the supply, making sure that we have voucher programs.

01:29:39 But one of the other areas where we've seen big increases in the cost of housing is not

01:29:45 only rents, but in many of these sort of predatory junk fees.

01:29:50 It's the topic of today's discussion.

01:29:53 So Mr. Rust and Mr. Swerow, if you could just provide some examples of the most egregious

01:30:01 junk fees you've seen in the housing market.

01:30:03 I know some of them surfaced as part of the real page lawsuit.

01:30:07 Maybe we should start with Mr. Swerow or Mr. Rust, either one.

01:30:11 Whoever wants to go first.

01:30:14 Right.

01:30:16 So there are additional costs being applied to homeownership that also raise the cost

01:30:20 of housing.

01:30:23 One of the things that we're worried about is any situation where you have to pay to

01:30:26 pay, and particularly if you have to pay to pay electronically, where the real cost of

01:30:30 an ACH might be four and a half cents, but you have to pay seven or ten dollars.

01:30:35 The CFPB has been working on addressing junk fees in the title insurance market.

01:30:42 Title insurance is an interesting market where there are cross-competitive pressures.

01:30:50 Loss ratios on title insurance could be between three and five percent.

01:30:54 That's the amount of the premium paid that leads back to a payment back to the consumer.

01:31:00 Most of the fees in title insurance are going to pay the institutions that provided the

01:31:08 lead generation for that title insurance policy.

01:31:13 Thank you.

01:31:14 I'll just add, in the rental market, things like application fees, late fees on your rent

01:31:19 payments, utility fees, administrative fees, I guess for the process of applying and things

01:31:27 like this, those are the most common ones that we see.

01:31:30 Again, similar pattern to the banking junk fees, which is low-income people across the

01:31:36 board are paying those, and Latinos and people of color are also paying those disproportionately.

01:31:41 Thank you.

01:31:42 Thank you for your work on this.

01:31:43 To the CFA, thank you, and the team there for what you're doing.

01:31:47 Mr. Chairman.

01:31:48 Thank you.

01:31:49 Senator Butler of California is recognized.

01:31:50 Thank you, Mr. Chairman, for having this hearing.

01:31:55 Thank you all for your testimony and for your work.

01:31:59 I'd like to just associate myself with the questioning from Senator Van Hollen relative

01:32:06 to the rental market application fees and, Mr. Swero, those that you just mentioned,

01:32:12 as they have just an incredibly impactful impact on young people in the country who

01:32:21 are trying to find a way to do all the things that we expect them to do, save their money

01:32:27 and be prepared for a rainy day, and the $100 application fee or the $50 trash takeout

01:32:34 fee.

01:32:36 I appreciate your comment specifically to that market and to those young people, because

01:32:43 I think there are some things that we can and should be doing.

01:32:46 Let me turn to, actually, Mr. Swero, where you left off, the notion of disproportionate

01:32:52 impact and racial wealth gaps relative to junk fees.

01:32:59 The Federal Reserve Survey of Consumer Finances showed that while the wealth of black and

01:33:03 Hispanic households grew at a faster rate than the wealth of white households, disparities

01:33:08 continue to persist, in part due to the proliferation of junk fees.

01:33:14 Consumers of color are often pushed out of mainstream financial products into fringe

01:33:19 financial services and predatory financial products, including high-cost loans and credit

01:33:24 cards.

01:33:26 You know this as well as I do, and thank you for helping my team facilitate that financial

01:33:33 literacy webinar last week.

01:33:35 Mr. Swero, Mr. Rust, either of you can take the question, but what are the ways that junk

01:33:41 fees perpetuate existing racial wealth gaps and hinder generational wealth building?

01:33:47 Yeah, so I want to start on the access side first.

01:33:52 So we've cited already today that high costs are one of the big barriers to obtaining these

01:34:00 products.

01:34:01 So we know from the FDIC survey, we've done surveys, if you just go out and ask people,

01:34:06 why don't you have a bank account, they'll cite cost as one of the biggest barriers.

01:34:10 I don't want to pay, you know, it's too expensive to pay for an overdraft fee or a monthly maintenance

01:34:15 fee, that type of thing.

01:34:16 Same thing for credit card products.

01:34:19 They'll tell you the same thing.

01:34:20 It's too expensive, interest rates are too high, credit card late fees are too high.

01:34:24 So on the one hand, we're creating a situation in which low-income people and people of color

01:34:29 disproportionately are left out because they're concentrated in those working class, you know,

01:34:33 low-income jobs.

01:34:36 So that's on the one hand.

01:34:38 And if you look at the access to those products, they always have the least amount of access

01:34:43 to those products.

01:34:44 In the bigger picture, in terms of wealth, you know, the people who do have these products

01:34:49 are also paying the highest fees and the highest costs.

01:34:51 And so, you know, you think about what's going on in that situation.

01:34:55 This is a, you know, a continual process where working class people, people of color are

01:34:59 paying a lot more, a bigger percentage of their money back into financial institutions.

01:35:04 And oftentimes, it's the biggest financial institutions.

01:35:07 We're talking multi-billion, you know, trillion dollar institutions that are getting that

01:35:11 back, that money.

01:35:12 So it's a wealth extraction and it's also a financial exclusion process.

01:35:19 Thank you for that.

01:35:20 Mr. Rust, I'd love to get your thoughts to that question.

01:35:26 And I have done some work to introduce a set of bills relative to expanding language inclusivity

01:35:37 and making sure that we are making the information much more accessible to people whose language

01:35:44 is--first language is not English.

01:35:46 And so, I would love to have you combine these two issues for me if you can.

01:35:54 How and why are we here and then what are things like language access and ways that

01:36:01 companies continue to take advantage of these communities?

01:36:06 So sure, thank you.

01:36:07 I'll start with the first half and touching on a bit of what Santi said but adding that

01:36:14 Gen Z and millennials face a housing market that's dramatically different than what generations

01:36:19 before did.

01:36:21 Currently something like 30% of Gen Z after high school or college are living with their

01:36:26 parents.

01:36:27 And this is really about a lack of supply of housing, right?

01:36:31 But this means that they're not getting on the escalator to home ownership, to wealth

01:36:35 building, to all the aspects of what we associate with the American dream.

01:36:40 So related to your question, these new generations, younger generations are more diverse, right?

01:36:46 The bargain they're seeing isn't the same bargain.

01:36:49 And so the point about making sure that financial institutions use inclusive language, well,

01:36:54 this is very important.

01:36:55 We've worked a lot over time in things like adverse action notices, right?

01:37:01 When you are turned down for credit, well, why were you turned down for credit?

01:37:04 Well, if it's in English, that doesn't really help.

01:37:06 If you're someone who comes from a family that speaks a different language, right?

01:37:11 This is vitally important to being fair.

01:37:14 Thank you, Senator Butler.

01:37:18 Thank you all for being here, for good questions.

01:37:21 I appreciated so many people, especially on this side of the aisle, with such good questions.

01:37:27 Appreciated the involvement of everyone on this committee.

01:37:30 Senators who wish to submit questions for the hearing record, they're due one week from

01:37:34 today, March, May 9th.

01:37:36 To the witnesses, please submit your responses to the questions within 45 days from the day

01:37:41 you receive them.

01:37:43 Thank you all again.

01:37:44 With that, the hearing is adjourned.

Sherrod Brown Leads Senate Banking Committee Hearing On Fees In Financial Services & Rental Housing

Category

Transcript

Recommended