Morrison & Foerster Discusses Agency Actions on “Junk Fees”

On October 11, 2023, the Federal Trade Commission (FTC) issued a proposed rule to prohibit so-called junk fees, and the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion to large banks and credit unions on charging fees for financial account information. This activity is part of the Biden Administration’s coordinated effort to regulate so-called “junk fees.” Just ahead of the federal action, on October 7, 2023, California Governor Gavin Newsom signed into law a bill that prohibits hidden fees.

FTC Proposed Rule

The FTC’s proposed rule, “Trade Regulation Rule on Unfair or Deceptive Fees” (“Proposed Rule”) would prohibit certain unfair or deceptive practices relating to fees for goods or services. Specifically, if finalized as currently drafted, the Proposed Rule would:

  • Prohibit businesses from advertising prices that hide or omit mandatory fees.
  • Prohibit sellers from misrepresenting fees and require sellers to disclose upfront the amount and purpose of fees and whether the fees are refundable.

The FTC anticipates providing certain exclusions from the hidden fees provisions of the Proposed Rule, including for some financial products where the total price cannot practically be determined when the price is advertised. In the supplementary information published along with the Proposed Rule, the FTC indicated that, while unfair or deceptive fees are already unlawful under Section 5 of the FTC Act, a recent decision from the U.S. Supreme Court in AMG Capital Management v. FTC limited the FTC’s authority to readily return money to injured consumers. The FTC seeks to promulgate this rule, in part, to utilize its authority under Section 19(a)(1) of the FTC Act, which allows the FTC to recover consumer redress directly through a federal court action or obtain civil penalties—remedies available only when a rule has been violated.

The language of the Proposed Rule does not address financial services fees specifically. However, in the FTC press release issued in connection with the Proposed Rule, CFPB Director Rohit Chopra stated that “the CFPB will enforce the [FTC’s rule, if finalized,] against violators in the financial industry and ensure that these firms play fairly.” Moreover, the FTC’s consumer finance authority covers for-profit entities such as creditors, debt collectors, mortgage companies, and mortgage brokers, but not banks, savings and loan institutions, and federal credit unions.

Comments will be due 60 days after publication in the Federal Register, which is anticipated shortly.

CFPB Advisory Opinion

Concurrent with the FTC’s Proposed Rule, the CFPB issued an advisory opinion on Consumer Information Requests to Large Banks and Credit Unions (“Advisory Opinion”). The Advisory Opinion interprets Section 1034(c) of the Consumer Financial Protection Act (CFPA) to require that consumers be able to obtain basic financial account information from large banks and credit unions without having to pay a fee. On its face, Section 1034(c) requires large banks and credit unions to comply in a timely manner with consumer requests for information concerning their accounts for consumer financial products and services.

In its first guidance on Section 1034(c), the CFPB said that, in general, requiring a consumer to pay a fee to request account information is “likely to unreasonably impede” the consumer’s ability to exercise the right granted by Section 1034(c), and, thus, would violate the provision. The CFPB provided examples of violative behavior, such as charging a fee (1) to respond to a consumer inquiry regarding a deposit account balance; (2) to respond to a consumer inquiry seeking the amount necessary to pay off a loan; (3) to respond to a request for a specific type of supporting document, such as a check image or an original account agreement; and (4) for time spent on a consumer inquiry seeking information and supporting documents regarding an account.

However, according to the Advisory Opinion, it would generally not be a violation of Section 1034(c) for a large bank or credit union to impose a fee in certain limited circumstances, such as charging a fee to a consumer who repeatedly requested and received the same information regarding their account.

In its press release, the CFPB said it does not plan to seek monetary relief for violations of Section 1034(c) that occur prior to February 1, 2024. The Advisory Opinion is applicable as of its October 16, 2023 publication in the Federal Register.

At the same time as the agency issued the Advisory Opinion, the CFPB published a special edition of its Supervisory Highlights focused on the agency’s efforts to protect consumers from junk fees. The Supervisory Highlights concluded that, as a result of the CFPB’s supervisory work, supervised companies are refunding $140 million to consumers, 85% of which was for “surprise overdraft fees” or “double-dipping on” NSF fees. This Supervisory Highlights also identified instances of companies charging fees for (1) paper statements that were never actually printed or mailed, (2) add-on products that no long offer any value, and (3) remittance payments that did not arrive on time.

California Ban on Hidden Fees

In a related development at the state government level, on October 7, 2023, California Governor Gavin Newsom signed into law a bill that prohibits hidden fees. Effective July 1, 2024, Chapter 400 (S.B. 478), “Consumer Legal Remedies Act: advertisements,” bans the advertising, displaying, or offering of a price for a good or service that does not include all mandatory fees, other than taxes or fees imposed by a government on the transaction. California Attorney General Rob Bonta co-sponsored the legislation. In a press release, he said, “Today, California is eliminating hidden fees. These deceptive fees prevent us from knowing how much we will be charged at the outset.”

What Is Next?

This flurry of activity represents the Biden Administration’s coordinated efforts to deliver on the President’s promise in the 2023 State of the Union Address to take on junk fees. While legislative efforts, in the form of the Junk Fee Prevention Act, have seen limited traction, the Biden Administration has issued a press release enumerating all of the ways that it has taken on junk fees.

The Administration’s press release signals that, later this month, the CFPB will propose its Section 1033 rule that, if finalized, would require financial companies to allow customers to transfer banking transaction data to other companies and banks. The Administration linked the Section 1033 rule to its junk fee efforts, by stating that the rule “will ensure financial companies compete based on service quality and up-front pricing, deterring junk fees.”

Conspicuously absent from the Administration’s junk fee event was the CFPB’s credit card late payment fee rule. While the CFPB’s proposal was included in the list of actions the Administration was taking on junk fees, there was no indication of when the CFPB’s final rule would be published. The agency indicated in its Spring 2023 Unified Agenda filing that a final rule is expected this month.

This post comes to us from Morrison & Foerster LLP. It is based on the firm’s memorandum, “Agencies Take Action on ‘Junk Fees’,” dated October 16, 2023, and available here.