Federal: Comment Letter to FTC on its Advance Notice of Proposed Rulemaking (ANPR) Regarding Deceptive or Unfair Acts or Practices Relating to Fees

Federal Trade Commission
Office of the Secretary
600 Pennsylvania Avenue NW
Suite CC-5610 (Annex B)
Washington, DC 20580

Re: Unfair or Deceptive Fees ANPR, R207011; Docket Number: FTC-2022-0069

On behalf of the American Fintech Council and its members, we thank the Federal Trade Commission (FTC) for the opportunity to comment on this advance notice of proposed rulemaking (ANPR) regarding deceptive or unfair acts or practices relating to fees.

AFC’s mission is to promote an innovative, transparent, inclusive, and customer-centric financial system by supporting the responsible growth of lending, fostering innovation in financial technology (Fintech), and encouraging sound public policy. AFC members are at the forefront of fostering competition in consumer finance and pioneering ways to better serve underserved consumer segments and geographies. AFC has publicly supported 36 percent rate caps at state and federal levels, which is a key component of our advocacy and of addressing responsible lending. Our members are also lowering the cost of financial transactions, allowing them to help meet demand for high-quality, affordable products. We welcome the opportunity to address unfair and/or deceptive fees as this is an important issue for our members. Consumers deserve access to affordable and tailored services without predatory and/or hidden fees.

AFC supports federal policymakers, regulators, and other stakeholders on market-based solutions to issues that regulators and others have emphasized throughout the public discussion around fees. Our members are improving products that help advance consumer financial health and financial capacity, and we are working on better understanding the outcomes. AFC members are interested in providing more innovative products that address consumer demand for more affordable, lower-fee deposit products, unsecured consumer credit, small-dollar credit, auto loans, and other products. AFC members are focused on products that are responsible, fair, safe and sound, and want to work in partnership with federal and state regulators to scale responsible options in the marketplace.

‍I. AFC members are leading the financial services industry in creating market competition to lower prices and eliminate junk fees, including deposit accounts with the elimination of overdraft fees, unsecured consumer credit, small dollar lending, and auto lending.

In response to the ANPR’s questions on how widespread certain practices are in various industries, Fintech companies have been pioneering ways to eliminate and prevent overdraft fees, lower other penalty fees, and lower interest paid by consumers and costs to financial institutions by providing a range of financial products and services.

Deposit Products and Overdraft fees

Deposit products represent an opportunity for consumer-focused banks to bring competitive pressure to the market with low-fee accounts. Excessive minimum balance requirements leave too many consumers without access to a bank account. Competitive pressure from Fintechs including AFC members has changed the industry, leading traditional banks to reduce overdraft fees. This supports the work of the FTC, the Consumer Financial Protection Bureau (CFPB or Bureau), and other regulators to reduce excessive overdraft fee practices. For instance, LendingClub’s consumer deposit accounts have eliminated overdraft and the non-sufficient funds (NSF) fees. This action is designed for Americans across the income spectrum, including those living paycheck to paycheck for whom unexpected expenses like these would have a large impact.

Fintechs are providing lower cost, overdraft-free alternatives. Industry survey data demonstrates that earned wage access/on-demand pay, for example, helped consumers avoid and replace payday loan fees, bank and credit union overdraft fees, bill late fees, and loan payment late fees. Media reports have also documented the competitive pressure on the nation’s megabanks and large regional banks to change their fee policies based on the fee policies created by overdraft-free startups and neobank competitors. For example, Chime Financial offers fee-free accounts and Chime estimates it saved consumers $7 billion dollars under its fee-free overdraft program, Spot Me. Research by real-time wage access provider Daily Pay found that users see savings of $1,200 a year from overdraft fees or late fees not incurred.

Unsecured consumer credit‍

The Federal Reserve of St. Louis has noted expanded consumer use of unsecured personal loans. This study also notes the role that Fintech is playing in creating stronger competition for consumer product choice. The study points to Transunion’s research that shows Fintech unsecured personal lending expanded from 5% to 38% of the market from 2013 to 2019 alone.

Fintech personal loans have become an alternative to carrying debt on a credit card. In fact, about 80% of these loans through LendingClub are used to refinance credit cards or consolidate debt. Researchers at the Federal Reserve Banks of Philadelphia and Chicago have found that, “consumers pay smaller spreads on loans from LendingClub than from credit card borrowing.” While the average annual percentage rate (APR) paid on credit cards was 19.2% in 2020 according to the CFPB, average APRs on LendingClub personal loans are lower by about one-fifth, or about four percentage points, evidenced by internal data and researchers from the St. Louis Federal Reserve Bank. Personal loans also have drastically lower back-end fees as compared to credit cards. Late fees have been a particular focus of the CFPB which notes that “[i]n 2019, the major credit card companies charged over $14 billion each year in punitive late fees.” CFPB research indicates that credit card late fees represent about 1% of outstanding balances. In contrast, late fees charged by LendingClub have represented less than 0.01% of outstanding balances.

Unsecured personal loans offered via Fintechs are generally not associated with carrying what have been classified as "junk fees.” For example, loans offered by WebBank via Avant only charge consumers late fees following a grace period, and NSF fees for returned payments, but do not assess any payment processing, convenience, or prepayment fees. These unsecured personal loans are designed to be transparent, consumer friendly alternatives to payday loans available in the market.

‍Small Dollar Credit‍

Competition facilitates more affordable options for consumers, as demonstrated through its effect on several factors, including credit score profiles, product types, and provider structure. Researchers at the Federal Reserve found considerable interest rate and APR savings from debt consolidation through marketplace lending after calculating spreads and analyzing data across nine credit score bands as compared to average credit card offer rates. Industry research supports these findings for various products and loan sizes. Fintech platform, Oportun, found that for a $500 loan, competitor products cost 7.8 times more on average. Buy-now-pay-later (BNPL) company, Affirm, prequalifies borrowers to make small dollar purchases without charging late fees.‍

Auto Lending‍

In the auto lending market, where higher rates and hidden dealer mark-ups can be common, LendingClub found that the company’s average APRs saved borrowers nearly 5 percent compared to their previous loans, translating into an average savings of more than $4,000 over the life of the loan.

II. AFC urges the FTC to continue to work with the Consumer Financial Protection Bureau to create consistent interagency rulemaking and guidance on this important issue.

While we acknowledge and support the FTC’s jurisdiction over this issue, we note that the CFPB also holds jurisdiction over several topics addressed in this ANPR, which as the FTC notes, was addressed in a CFPB “Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products or Services” last year. We caution the FTC on future rulemaking that may not be consistent with future Bureau rulemaking on these topics.

To this end, we recommend that as the FTC works through any proposed rulemaking process on the topic of unfair and/or deceptive fees, that it coordinates with the CFPB and other relevant agencies to ensure that rules and requirements established properly fit within the FTC’s jurisdictional authority and are not duplicative or contradictory to the work conducted by the CFPB. Clear and congruent rules and/or guidance from regulators will help augment existing frameworks for how consumers can be better protected against unfair or deceptive fees. This will also allow for industries to be compliant with one set of federal standards that will allow them to follow the law and better serve their customers. Finally, we believe addressing these issues in coordination with the CFPB will avoid potential regulatory arbitrage between regulators and market participants across financial services and other industries.‍

Conclusion

The American Fintech Council supports regulation that will create a fairer and more transparent financial services ecosystem for all actors. AFC members continue to support sustainable access to credit and fostering responsible practice, and fair lending in consumer financial markets, which enriches a competitive environment that can benefit consumers. AFC urges the FTC to continue its interagency work with the CFPB and other regulators as it moves forward with rulemaking on this important topic.