On October 11, 2023, President Biden, Federal Trade Commission (FTC) Chair Lina Khan, and Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra announced the latest developments in the government’s efforts to tackle junk fees. Junk fees are hidden, surprise fees imposed on customers without clear disclosure.[1] The CFPB and FTC have taken several measures to crack down on junk fees since early 2022, including:

• On January 26, 2022, the CFPB issued a request for information regarding fees that consumers believed to be covered by a baseline price, unexpected fees, and fees that seemed too high or unclear.[2]
• On March 23, 2023, the FTC proposed a “click to cancel” provision requiring sellers to make it easier for consumers to cancel their recurring subscriptions and memberships.[3]
• On June 22, 2022, the CFPB issued an advance notice of proposed rulemaking to address excessive credit-card late fees. [4] On February 1, 2023, the CPFB issued a proposed rule limiting and capping late fees.[5]
• On June 29, 2022, the CFPB issued an advisory opinion affirming that “pay-to-pay” fees that are not authorized by the original loan violate the Fair Debt Collection Practices Act (FDCPA). “Pay-to-pay” fees are those that are imposed on consumers who want to make a payment in a particular way.[6]
• On July 23, 2022, the FTC proposed a rule to ban junk fees and bait-and-switch tactics for car buyers.[7]
• On October 20, 2022, the FTC published an advance notice of proposed rulemaking to crack down on junk fees, seeking comments on unnecessary charges, unavoidable charges, and surprise charges.[8]
• On October 26, 2022, the CFPB issued guidance stating that imposing surprise bounced-check or overdraft fees are likely to be unfair and unlawful.[9]
• On October 11, 2023, the CFPB published a Supervisory Highlights special edition covering junk fees in the areas of bank accounts, auto-loan servicing, and remittances that were identified during CFPB examinations between February and August 2023. The CFPB claims to have recovered and is refunding $140 million back to impacted customers.[10]

Earlier this week, the CFPB released an advisory opinion on fees related to consumers requesting information on products and services, and the FTC proposed a new rule banning hidden fees and bogus fees.

CFPB

The CFPB’s new initiative came in the form of an Advisory Opinion on section 1034(c) of the Consumer Financial Protection Act (CFPA). Section 1034(c) requires large banks and credit unions to comply in a timely manner with a consumer’s request for information on his financial product/service.[11] The Advisory Opinion states that the practice of charging a fee to respond to an information request violates section 1034(c) because such fee unreasonably impedes consumers’ exercise of their rights.[12] This would include charging fees: (1) to respond to consumers’ inquiries regarding their deposit account balance; (2) to respond to consumers’ inquiries seeking the amount necessary to pay a loan balance; (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 consumers’ inquiries seeking information and supporting documents regarding an account.[13] The Advisory Opinion also states that certain conditions that frustrate a consumer’s ability to exercise their rights under section 1034(c) may violate the provision. These include: (1) forcing consumers to endure excessively long wait times to make a request to a representative; (2) requiring consumers to submit the same requests multiple times; (3) requiring consumers to interact with chatbots that do not understand or adequately respond to the consumer’s request; or (4) directing consumers to obtain information that the institution possesses from a third party instead.[14]

FTC

The FTC announced a new proposed rule that would ban businesses from imposing junk fees in two forms – hidden fees and bogus fees. The proposed rule requires full disclosure on fees and prohibits businesses from imposing: (1) hidden fees, which are omitted from advertised prices; and (2) bogus fees, which result from misrepresenting or failing to adequately disclose the nature or purpose of the fees. Most importantly, the proposed rule would also allow the FTC to secure refunds for harmed consumers and seek monetary relief against the bad actors.

Takeaways

Regulatory scrutiny over “junk fees” is expected to continue, as President Biden made clear that his teams will continue to crack down on junk fees. All institutions should review the fees that they charge consumers to make sure that they are adequately disclosed and reflective of the actual costs incurred for providing the requested service. For large banks and credit unions, it is crucial that management review and revise internal policies, procedures, and operations related to consumers’ information requests before February 1, 2024, which is when the CFPB will start enforcing section 1034(c).

[1] The White House, Biden-Harris Administration Announces Broad New Actions to Protect Consumers From Billions in Junk Fees (Oct. 11, 2023).

[2] CFPB, CFPB Launches Initiative to Save Americans Billions in Junk Fees (Jan. 26, 2022).

[3] FTC, FTC Proposes Rule Provision Making it Easier for Consumers to “Click to Cancel” Recurring Subscriptions and Memberships (Mar. 23, 2023).

[4] CFPB, CFPB Initiates Review of Credit Card Company Penalty Policies Costing Consumers $12 Billion Each Year (Jun. 22, 2022).

[5] CFPB, CFPB Proposes Rule to Rein in Excessive Credit Card Late Fees (Feb. 1, 2023).

[6] CFPB, CFPB Moves to Reduce Junk Fees Charged by Debt Collectors (Jun. 29, 2022).

[7] FTC, FTC Proposes Rule to Ban Junk Fees, Bait-and-Switch Tactics Plaguing Car Buyers (Jul. 23, 2022).

[8] FTC, FTC Explores Rule Cracking Down on Junk Fees (Oct. 20, 2022).

[9] CFPB, CFPB Issues Guidance to Help Banks Avoid Charging Illegal Junk Fees on Deposit Accounts (Oct. 26, 2022).

[10] CFPB, CFPB Exams Return $140 Million to Consumers Hit by Illegal Junk Fees in Banking, Auto Loans, and Remittances (Oct. 11, 2023).

[11] See 12 U.S.C. § 5534(c).

[12] CFPB, CFPB Issues Guidance to Halt Large Banks from Charging Illegal Junk Fees for Basic Customer Service (Oct. 20, 2022).

[13] CFPB, Advisory Opinion, Billing Code: 4810-AM-P at 16 (Oct. 11, 2023).

[14] Id. at 11-12.