For the second consecutive year, President Biden, in his State of the Union, emphasized his Administration's efforts to combat "junk and hidden fees." Acting through the authority of the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB), the Biden Administration has defined "junk fees" as charges to consumers that provide little, if any, value. So-called "hidden fees" deny consumers the ability to clearly understand the actual price they are paying. According to the Biden Administration, "consumers are paying billions of dollars a year in unnecessary, unavoidable, or surprise charges that inflate prices while adding little to no value.”¹ The Administration, using it’s bully pulpit, has motivated certain consumer-facing businesses to change their policies proactively. For example, in 2021, the vast majority of large banks did away with overdraft and bounced-check-related fees.

The CFPB and FTC continue to propose rules to minimize or eliminate such fees. In fact, CFPB Director Rohit Chopra targeted the credit card companies in an interview with CNBC on Monday, saying " big credit card issuers were exploiting a loophole… and it allowed them to haul in $14 billion in late fees on top of the extra interest they charge on late payments and in addition to slamming people’s credit reports." Earlier this month, the CFPB finalized a rule limiting credit card late fees to $8 instead of the typical $32 fee. This reduction is estimated to save the more than 45 million people who incur late fees each year approximately $220 annually.

States Attorneys General mobilize

President Biden has encouraged State Attorneys General to use their authority to combat junk and hidden fees. Indeed, last week, the White House and the CFPB issued a memo titled Guide for States, outlining how State Attorneys General play an essential role in addressing junk and hidden fees. The memo highlights three approaches that states can and have taken:

1. State Attorneys General can bring actions, either alongside the CFPB or on their own, to address conduct that violates the CFPB's prohibition on unfair, deceptive, or abusive acts or practices (UDAAPs) and use analogous state law that similarly prohibits unfair and deceptive conduct. States have and are likely to continue to heed the call to protect consumers in their States. For example, in August 2022, a coalition of State Attorneys General took action against a subprime installment lender for charging its customers for add-on products without their consent or knowledge.
2. In addition to investigations and lawsuits, state legislatures are passing laws that target junk and hidden fees, including resort fees charged by many big-brand hotels and other lodging companies. Similarly, State Attorneys General who possess rule-making authority, such as Massachusetts, have given notice that they will outlaw fees that do not provide value to consumers.
3. Finally, state and local governments, which are themselves consumers of goods and services, are encouraged to examine their contracts with third parties to ensure they too are free from unforeseen junk fees.

Before this recent memo, many State Attorneys General had already supported the federal government's efforts to address junk fees. On February 7, 2024, a bipartisan coalition of 19 State Attorneys General, led by North Carolina Attorney General Josh Stein and Pennsylvania Attorney General Michelle Henry, expressed their support of the FTC's October 2023 proposal to ban junk fees. The proposal, if enacted, would explicitly ban businesses from advertising at less than the total cost for goods and services in participating states. This would eliminate so-called "bait-and-switch" practices, whereby a consumer initially drawn in with an attractive price is later presented with a higher bill at the time of check-out. The FTC's proposed rules explicitly preserve the ability for states to enact greater legislation than or stricter interpretation of the federal rules.

The coalition pledged to continue its efforts to combat junk fees and other unfair and deceptive fee practices while highlighting numerous enforcement proceedings it has already brought to address these issues across various industries, including financial services fees, hotel fees, live-event ticket fees, rental housing fees, auto rental charges, cable, streaming, and mobile phone charges.

Looking ahead

State Attorneys General have already begun to leverage their enforcement authority in this space. For example, in January 2024, the Arizona State Attorney General Kris Mayes obtained a consent judgment against an American cable provider concerning fees associated with cable television contracts. This past fall, State Attorneys General in Pennsylvania, Colorado, and Oregon filed several assurances of voluntary compliance (AVC) with hotels regarding room prices.

In order to mitigate the risk of running afoul of crossing the line on hidden and junk fees, companies should:

• Review their billing practices to ensure transparency of charges;
• Clearly and visibly display all fees and detail what the charge relates to;
• Ensure that add-on fees provide a defined benefit to the consumer;
• Display the total charge as early in the buying process as possible – particularly online;
• Disclosure that the price listed on E-commerce sites may augment by the actual party that provided the goods or services; and
• Conspicuously invite consumers to question or complain about fees via an accessible customer complaint line.

Companies can expect to see more activity by State Attorneys General cracking down on junk fees. Hogan Lovells represents companies across industries in investigations and enforcement proceedings brought by State Attorneys General and the Plaintiffs' bar. Our highly regarded State Attorneys General practice is led by the former and first-elected Attorney General of the District of Columbia and former President of the National Association of Attorneys General, Karl Racine. We provide clients with advice and insight that reduces the risk of a costly case that can adversely impact our client's brand and market cap.

References

1 Noted in the Guide for States: Cracking Down on Junk Fees to Lower Costs for Consumers, released after the 2023 State of the Union.