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Billions in Fees: The Story of America's Credit Card Problem
Reports highlight "fee economy" that profits from consumer pain
The Consumer Financial Protection Bureau (CFPB) has issued a report noting that Americans spend $120 billion per year on credit card interest and fees.
In a blog post highlighting key findings, the bureau notes:
At almost a trillion dollars outstanding, credit cards are the largest consumer lending product by number of users — over 175 million consumers have at least one credit card — and one of the largest sources of consumer debt
“…from 2015 to 2019, the average assessed interest rate on credit cards increased by more than 20% (from 13.7% to 16.9%).
For example, the CFPB estimates that credit card companies assessed $14 billion in late fee penalties alone in 2019, which fall disproportionately on Americans with lower credit scores.
MORE on how credit card companies prey on consumers with the greatest need for access to credit and the least ability to afford excessive fees.
In a separate report, the CFPB highlighted both credit card fees and overdraft charges as profit centers for financial institutions and noted that these often replace a focus on customer service.
The CFPB derided what it labels a “fee economy” that has banks and credit card companies earning billions in profits from punitive fees rather than competing on better service.
Companies across the U.S. economy are increasingly charging inflated and back-end fees to households and families. This new “fee economy” distorts our free market system by concealing the true price of products from the competitive process.
Specifically, the CFPB cited research demonstrating that banks and credit card companies earn nearly $30 billion a year from charging punitive fees to consumers.
In 2019, the major credit card companies charged over $14 billion each year in punitive late fees.
In 2019, bank revenue from overdraft and non-sufficient funds (NSF) fees surpassed $15 billion .
Banks Moving Away from Overdraft, NSF Fees
In more positive news, a number of banks have recently announced moves away from overdraft and NSF fees. It should be noted that while Regions made a significant policy announcement on this front, customers there will still face the possibility of up to three overdraft charges per day.
Meanwhile, the Consumer Financial Protection Bureau (CFPB) has announced it plans to consider new regulations on overdraft fees.
“Rather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model,” said CFPB Director Rohit Chopra. “We will be taking action to restore meaningful competition to this market.”
Groups like the National Consumer Law Center (NCLC) continue to highlight the harms caused by overdraft fees.
“Overdraft and NSF fees are one of the leading reasons that people are unbanked, either because past overdrafts put the consumer on an account screening list that prevents them from opening new accounts, or because the fees make it too costly to maintain an account,” said Chi Chi Wu, staff attorney at the National Consumer Law Center.
In other consumer news: