A number of state and federal regulators, bolstered by messaging from the Biden administration, have embarked on a concerted campaign to address so-called “junk fees.”
• CFPB - On Oct. 11, the CFPB issued an advisory opinion which generally prohibits banks and credit unions from imposing unreasonable obstacles on customers, such as charging excessive fees, for basic information about their own accounts, stating that such obstacles will violate Section 1034(c) of the Dodd-Frank Act. Section 1034(c) of the CFPA requires large financial institutions to comply with consumer requests for information concerning their accounts in a timely manner.
Section 1034(c) does not prohibit the bank or credit union from imposing reasonable impediments on consumer information requests, such as reasonable identity verification and data security measures, but the CFPB stated that imposing a fee on the consumer for delivery of the requested information will generally impede a consumer’s exercise of its rights under Section 1034(c). While the advisory opinion does not specifically address whether a bank or credit union may impose a fee that becomes payable after delivery of the information to the consumer as opposed to payment being a condition for delivery of the information, in its discussion the CFPB did say that some consumers may not be able to afford to pay any fee, so the large banks and credit unions should certainly think twice before imposing fees that might violate the advisory opinion. The CFPB did say, however, that if a consumer requests the same information multiple times, it would not be unreasonable for the bank or credit union to impose a fee for making multiple deliveries of the same information.
• FTC - Meanwhile, the FTC’s proposed rule issued the same day as the CFPB’s advisory opinion would ban businesses from charging “hidden and bogus” fees, treating the charging of such fees as unlawful or deceptive practices. Under the proposal, businesses would have to disclose the total price of the product or service upfront, and the advertised price would have to include all fees. The goal of the proposed rule is to ensure that consumers know exactly how much they are paying for certain products or services, and to help spur companies to compete based on the lowest price. Comments on the proposed rule must be received not more than sixty days following publication of the proposed rule in the Federal Register. It is envisioned that the proposed rule would impact a number of industries, including hotels, short-term lodging, ticket sales, rental housing, financial services, auto sales, and internet service providers.
• California Legislation Enacted - In California, Governor Newsom signed SB 478 into law, which becomes effective July 1, 2024, and will prohibit companies from advertising the prices of goods or services that do not include mandatory “junk” fees (such as hidden fees often charged by hotels or sellers of concert tickets). SB 478 amends the Consumer Legal Remedies Act to expressly ban “drip pricing,” which is described as “advertising a price that is less than the actual price that a consumer will have to pay for a good or service.”
Not to be lost in the mix is California’s SB 666, which was signed into law on October 13, 2023, and prohibits certain commercial financing providers from charging add-on fees to a small business in connection with a commercial financing transaction. For example, the new law prohibits fees in addition to an origination fee that does not have a clear corresponding service provided for the fee, including, but not limited to, a risk assessment, due diligence, or platform fee.
Putting It Into Practice: Based on legislative analysis supporting California’s bills, California’s efforts along with the CFPB and FTC developments happening the same week appear to have been coordinated with the Biden administration’s focus on junk fees. Note also that the California bill signings come in the wake of a bipartisan federal bill dubbed the TICKET Act (i.e., Transparency in Charges for Key Events Ticketing Act), which was introduced in the Senate to block event ticket brokers from adding hidden junk fees in addition to the advertised prices and seeks to promote fair competition and transparency through “all-in” pricing models. The federal legislation is still pending.
Commercial and consumer transactions in all industries are potentially impacted by this sudden surge in legislative and regulatory activity related to “junk fees.” As a result, merchants and financers in all industries will need to stay abreast of further state and federal developments and prepare to adjust advertising that includes pricing accordingly.