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DFPI’s ‘Hidden Junk Fees’ Order: CUs Should Ensure Products Align

The California Department of Financial Protection and Innovation (DFPI) recently issued a consent order against Credova Financial, LLC. The order is part of an effort to protect consumers from hidden fees using the California Consumer Financial Protection Law (CCFPL).

“Hidden convenience fees fit into a broad category known as ‘junk fees’ and increase the amount that consumers pay for goods and services,” said Clothilde Hewlett, commissioner of the DFPI. “The California Consumer Financial Protection Law is a powerful tool against these fees and excessive financial charges, which have an outsized negative impact on low-income consumers.”

Credova is an internet-based platform that allows merchants to offer installment contracts to its customers. Credova contracts with a third-party servicer for all installment contracts originated on its online platform. The third-party servicer charges convenience fees when consumers choose to pay their installments online or over the phone.

According to the consent order, Credova was aware of the potential convenience fees but failed to disclose information regarding the fees when consumers entered into the installment contracts. The Commissioner determined that failing to disclose potential convenience fees before consumers enter into these financing contracts is deceptive and therefore violates the CCFPL.

The consent order requires Credova to pay a $50,000 penalty and disclose potential third-party convenience fees to consumers in the future.

The DFPI clarifies that “convenience fees” or “pay-to-pay fees” are charges imposed by companies when consumers opt to make payments through specific methods, such as online or by phone.

The DFPI emphasizes that these fees may pose issues if they are misrepresented or insufficiently disclosed to consumers.

While state-chartered credit unions and federally insured credit unions are not subject to the CCFPL, credit unions will want to ensure their products and practices align with disclosure requirements outlined in federal or state acts and regulations.

Credit unions should also be mindful of Senate Bill 478 (SB 478), effective July 1, 2024, which amends California’s Consumer Legal Remedies Act (CLRA) [Civil Code §§1750, et seq.] to address the contentious practice known as “drip pricing.” Credit unions are exempt if they provide products or services covered by one of the listed laws or regulations stated in SB 478, such as consumer and business accounts, loans, overdraft programs, etc. Transactions not subject to one of the listed laws or regulations stated in SB 478 may be subject to this provision. Click here to view the League’s compliance bulletin on SB 478.

You can read the DFPI’s announcement here.

Access the ‘Compliance Hotline’
Your League-member benefits include the Compliance Hotline — providing exclusive access to dedicated compliance experts:

Using the above phone number and email address, you can gain access to a knowledgeable team that’s ready to address all your credit union’s compliance inquiries — promptly and efficiently. With the Compliance Hotline, you can proactively respond to impromptu questions and issues by getting clarity and insight on technical topics that normally slow you down. We want to help you unlock the full potential of your League membership by leveraging the resources and support you need to navigate the complex world of compliance effortlessly. We’re ALWAYS just a phone call or email away!

Additionally, other League-member compliance resources include:

  • ViClarity
  • CU PolicyPro
  • ComplySight
  • InfoSight
  • CU Store
  • Record Retention Guide
  • GRC Technology Solutions

For more information, email Lisa Quaranta.

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