Biden Administration Continues Campaign to Crack Down on Junk Fees

The Biden Administration’s junk fee initiative is the highest profile effort on this subject, but it’s not the only one. Shortly before the White House,  FTC, and CFPB announced their latest moves, California Governor Gavin Newsom signed into law SB 478, which prohibits companies from advertising, displaying, or offering “a price for a good or service that does not include all mandatory fees or other charges” other than taxes and shipping fees.

FTC Announces Notice of Proposed Rulemaking (NPRM) on Unfair and Deceptive Fees
On October 11, 2023, the Federal Trade Commission (FTC) published a notice of proposed rulemaking (NPRM) for a sweeping prohibition of “hidden” and “misleading” fees across all industries.

This “Rule on Unfair or Deceptive Fees” can be traced back to the FTC publishing a petition (86 FR 73207) for rulemaking from the Institute for Policy Integrity on “drip pricing” on December 27, 2021. The petition defined drip pricing as “the practice of advertising only a part of a product’s price upfront and revealing additional charges later as consumers go through the buying process.”

Just shy of a year later, the FTC followed up with an advance notice of proposed rulemaking (87 FR 67413), which resulted in more than 12,000 comments on the impact and prevalence of businesses “misrepresenting the total costs of goods and services by omitting mandatory fees from advertised prices and misrepresenting the nature and purpose of fees.”

The newly released proposed rule broadly prohibits “hidden” and “misleading” fees across all industries by any business “that offers good or services, including, but not limited to, online, in mobile applications, and in physical locations.”

The proposed rule would make it an unfair and deceptive practice for a business to offer, display or advertise “an amount a consumer may pay without Clearly and Conspicuously disclosing the Total Price.” The “total price” is defined as “the maximum total of all fees or charges a consumer must pay for a good or service and any mandatory Ancillary Good or Service, except that Shipping Charges and Government Charges may be excluded.” The total price may also exclude any optional “ancillary good or service,” which is defined simply as “any additional good(s) or service(s) offered to a consumer as part of the same transaction.” The total price must be displayed “more prominently than any other Pricing Information.”

A “misleading fee” is one that misrepresents “the nature and purpose of any amount a consumer may pay.” While “nature and purpose” is not defined, the rule provides the examples of “the refundability of such fees and the identity of any good or service for which fees are charged”—all of which must be disclosed clearly and conspicuously under the proposed rule.

Overall, the proposed rule signals that the FTC seeks to address junk fees in the broadest possible sense. The proposed rule is industry-neutral, but the NPRM identifies the problem of junk fees being especially widespread in (1) hotel and short-term lodging; (2) live-event ticket sales; (3) restaurant, prepared food and grocery delivery; (4) transportation, including air travel, car sales and rental cars; (4) internet, television and telephone services; (5) rental housing; (6) higher education; (7) financial services; and (8) correctional services. Not only did the FTC choose to go beyond a rulemaking on drip pricing, but it explicitly lays out its case for authority that exceeds existing “specific prohibitions” targeting deceptive practices in individual industries.

The NPRM seeks input and data from specific industries and feedback on the clarity and efficacy of the proposed rule generally. Comments must be received no later than 60 days after the date the proposal is published in the Federal Register. As of the date of this article, the NPRM has not yet been published in the Federal Register.

White House and CFPB Announce Guidance on Junk Fees
The same day that the FTC published the proposed rule, the Consumer Financial Protection Bureau (CFPB) issued a new advisory opinion interpreting Section 1034(c) of the Consumer Financial Protection Act as prohibiting large banks and credit unions from charging consumers fees to obtain their account information.

The CFPB has also been hard at work on junk fees: it launched an initiative to review junk fees associated with bank accounts, credit cards and other financial products in January 2022. Unlike the FTC’s broad sweep, the CFPB focused on two general fee categories: fees that it believes conceal the actual cost of a product for consumers (including late fees, overdraft fees and non-sufficient funds (NSF) fees), and fees for individual expenses (like paperwork processing) that exceed the actual cost to the financial institution for that service.

Subsequently, in February 2022, the CFPB issued a Request for Information concerning junk fees and received more than 10,000 responses. The CFPB has also published several research reports on overdraft fees, including reports it published in December 2021 as a lead-in to the announcement of its initiative.

In May 2022, the CFPB created a new program to issue Consumer Financial Protection Circulars (Circulars): documents that describe the CFPB’s view of practices that may be unfair, deceptive or abusive, or otherwise violate a consumer finance law that the CFPB enforces. Although these Circulars are not formal regulations, the CFPB will expect institutions it supervises to comply with the policies contained in the Circulars.

On October 26, 2022, FTC Chairwoman Lina Khan and Consumer Financial Protection Bureau Director Rohit Chopra joined President Biden at the White House to announce a new CFPB Circular on junk fees. The joint announcement followed a meeting a month earlier of the White House Competition Council where President Biden called on all agencies to reduce or eliminate hidden fees, charges and add-ons.

The Circular describes two practices that may constitute an unfair practice and could lead to CFPB enforcement:

• Authorized positive overdraft fees, which some institutions charge when consumers had enough money in their account to cover a charge at the time the bank authorizes it, but not when the transaction settles.
• Charging fees to every person who deposits a check that bounces, including where the check originator does not have enough money available in their account to cover the check. The Circular states that charging these fees, regardless of circumstances, may be an unfair practice, and suggests that financial institutions should employ more tailored fee policies that charge depositor fees only in situations where a depositor could have avoided the fee.

The CFPB will assess whether institutions charge these fees when it conducts examinations and will likely cite institutions for violations if it identifies these practices, which could lead to enforcement action.

Although several financial institutions have announced that they are eliminating overdraft fees and NSF fees, or at a minimum updating their policies relating to fees, the CFPB is continuing to press forward with enforcement action and guidance that may lay the groundwork for future enforcement.

Companies Should Consider Reviewing Fee Practices
The FTC and CFPB, with clear support from the White House, have prioritized identifying and attempting to reduce or eliminate what the agencies have characterized as junk fees. Financial institutions subject to the CFPB’s jurisdiction should consider whether they charge the fees identified in the CFPB’s October 2022 Circular, and if so, should consider taking steps to evaluate whether it is prudent to continue charging such fees. All companies should consider reviewing whether their fee practices bear similarities to the practices identified in the FTC’s NPRM. Although it may be some time before the FTC finalizes its rulemaking, the NPR is a clear sign of the FTC’s priorities for potential investigations and enforcement in the near term.

Pillsbury’s Regulatory lawyers regularly assist clients maintain compliance with existing rules while anticipating new developments prompted by evolving federal and state policies. Pillsbury has worked with clients on comment letters during the course of the FTC’s rulemaking on unfair and deceptive fees and has seen firsthand the impact comment letters can have on the FTC’s policy prescriptions. If your organization has specific concerns about this rulemaking, Pillsbury’s Regulatory team is prepared to advise you.