Businesses should be aware that the Biden administration continues its attempt to curb junk fees, with additional actions proposed by the Federal Trade Commission and Consumer Financial Protection Bureau.
In a recent announcement, US President Joseph Biden issued new guidance and sought rulemakings by the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) to curb so-called “junk fees,” or add-on costs tacked on to the advertised price of goods or services or fees for vague, unclear, or illusory services. The Biden administration has made curbing junk fees central to its substantive agenda and policy messaging, and detailed actions taken to date in the announcement.
The administration’s federal activities follow a spate of state activity to curb junk fees. For example, California recently passed legislation that would expand its already sweeping consumer protection laws to include a broad array of junk fees. Effective July 1, 2024, companies doing business in California will be prohibited 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.
To avoid potentially lengthy investigations and costly penalties (especially per-violation penalties), businesses should carefully assess the way they structure and disclose fees to ensure they comply with recent guidance.
Similarly, business aggregators like hotel or airline booking sites that display the prices of other companies’ services should scrutinize whether the manner in which they display prices complies with state Unfair and Deceptive Acts and Practices (UDAP) laws and the federal Unfair, Deceptive or Abusive Acts or Practices (UDAAP) statute.
The FTC announced in October 2023 that it was considering a proposed rule to address unfair or deceptive fees, based on responses it received to its November 2022 advance notice of proposed rulemaking regarding unfair and deceptive practices related to junk fees.
The new proposed rule would “prohibit unfair or deceptive practices relating to fees for goods or services, specifically, misrepresenting the total cost of goods and services by omitting mandatory fees from advertised prices and misrepresenting the nature and purpose of fees.” The proposed rule also identifies a wide range of industries that would be impacted, including hospitality and accommodations, live events, and delivery apps.
The issuance of such a rule would give the FTC added powers: the agency can more easily secure monetary remedies—including civil penalties and customer remediation—when suing for a rule violation.
The rule could also expand other agencies’ powers, including the federal financial regulators and state attorneys general.
CFPB Enforcement
If adopted, the CFPB arguably could enforce the rule against financial institutions and other businesses under its jurisdiction. The CFPB has statutory authority to enforce FTC trade regulation rules (TRRs) “to the extent such [a] rule applies to a covered person or service provider.”[1] Although the FTC has historically written TRRs in a manner that excludes banks, the FTC did not do so here.
Instead, the rule proposed by the FTC defines a covered “business” as any corporate provider of goods and services—without limitation, except auto dealers, who are covered by a different proposed FTC rule. Further, the federal banking agencies could—if the rule in fact applies to banks and their affiliates—rely on their authority under the Federal Deposit Insurance Act to enforce the rule.[2]
Attorney General Enforcement
In addition, state and territorial attorneys general could effectively enforce any FTC rule by construing analogous state laws to cover similar conduct, and some state laws treat FTC TRRs as relevant in determining whether specific conduct is unfair or deceptive.[3] Hence, as a practical matter, state and territorial attorneys general could enforce the substantive prohibitions contained in any FTC rule ultimately adopted.
While some agencies have pursued rulemaking to address junk fees, others have sought to regulate those fees by wielding their enforcement powers under the existing framework governing unfair, deceptive, or abusive acts and practices—the federal UDAAP statute—and issuing informal guidance to regulated entities.
For example, the CFPB recently issued guidance that would prevent large banks from charging excess fees for basic customer services. That guidance purports to codify the CFPB’s position that conduct violating state consumer protection laws may be unfair, deceptive, or abusive—even if it does not violate a specific provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
This guidance comes on the heels of a 2022 compliance bulletin jointly issued by the CFPB’s Offices of Supervision Policy and Enforcement. The bulletin summarized recent supervisory and enforcement actions by the CFPB regarding automotive default servicing and repossession and stressed that the CFPB “intends to hold loan holders and servicers accountable for UDAAPs related to the repossession of consumers’ vehicles.”
While this informal guidance need not comply with rulemaking procedures under the Administrative Procedures Act—and thus does not carry the same force as a formally promulgated rule—the guidance does provide a lens into the CFPB’s current perspective and may inform its future enforcement activities.
The latest FTC and CFPB activities build on those agencies’ prior administrative initiatives as well as initiatives by the US Department of Transportation (DOT), US Department of Housing and Urban Development (HUD), and Federal Communications Commission (FCC) to reduce “junk” fees that have become common practice across a wide range of businesses, including financial institutions, auto loan servicers, airlines, housing providers, and broadband companies.
As federal agencies continue to expand their enforcement activities, certain states also have ramped their activity to curb junk fees. In October 2023, Governor Gavin Newsom signed SB 478 into law, expanding California’s consumer protection laws to include junk fees.
Like their federal counterparts, states are pursuing enforcement activity now rather than waiting for new rules. For example, the Texas attorney general recently brought state UDAP actions under existing Texas law against two large hotel chains for advertising hotel room prices that did not disclose mandatory “resort” fees, among other claims. One of them has agreed to voluntarily comply with the requirement to properly disclose allegedly hidden fees to customers.
The Colorado attorney general also recently expressed concern about hidden fees allegedly charged by certain auto dealers, stating, “If you buy any product or service, and you're not told about some fee, and then later, they say, 'Oh, you’ve got to pay this fee, a hidden fee.' That's illegal. That’s deception.” Similarly, the Florida attorney general’s office subpoenaed documents from Florida car dealerships after complaints of add-on fees that were not a part of customers’ original leasing contracts.
The regulatory and enforcement landscape concerning junk fees has recently shifted dramatically. Federal regulators, as well as numerous state regulators, are intensely focused on curbing junk fees and utilizing a wide range of tools to crack down on what they regard as unfair and deceptive practices—including through rulemaking, enforcement, and issuance of informal guidance.
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[1] See 12 USC § 5581(b)(5)(B)(ii).
[2] See 12 USC § 1818(b), (i).
[3] See, e.g., Fla. Stat. § 501.203(3)(a).