On Oct. 11, 2023, the White House released a fact sheet describing new and forthcoming actions taken by the Biden administration that continue its focus on so-called “junk fees.” The announcement highlighted efforts between the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC or “Commission”) as the administration ramps up its focus on “junk fees” and attempts to increase competition across industries, as outlined by the White House’s July 2021 Executive Order on Promoting Competition in the American Economy. These developments also follow the recent enactment of S.B. 478 in California, a law to ban “junk fees” and require companies to disclose all charges upfront to consumers. In total, recent actions surrounding “junk fees” at the FTC and at both the CFPB and the Office of Information and Regulatory Affairs (OIRA) could have wide-ranging impacts across many industries.
THE FEDERAL TRADE COMMISSION’S PROPOSED RULE
The FTC’s newly released NPRM builds on its November 2022 Advanced Notice of Proposed Rulemaking (ANPR) on the same topic and would prohibit companies from charging hidden and misleading fees, require them to show the “full price,” and impose related disclosure requirements. The proposed rule states that businesses that “offer, display, or advertise an amount a consumer may pay without clearly and conspicuously disclosing the total price” are engaging in an unfair and deceptive practice. As we previously highlighted, this is only the latest development in the Biden administration’s broadening interpretation of agencies’ unfair or deceptive acts or practices (UDAP) and unfair, deceptive or abusive acts and practices authority (UDAAP).
“Junk Fees” and the UDAP Prohibition
While Section 5 of the FTC Act (15 U.S.C. 45) broadly prohibits UDAP in or affecting commerce, the NPRM seeks to empower the Commission to seek civil penalties against violators by identifying specific but broad areas that the Commission believes constitute impermissible actions related to fees. The NPRM outlines the following prohibitions:
- “Offering, displaying, or advertising an amount a consumer may pay without adequate disclosure of the Total Price, as defined in the proposed rule.”
- “Misrepresentations regarding the nature and purpose of any amount a consumer may pay and requires disclosures of the nature and purpose of any amount a consumer may pay that is excluded from the Total Price. This includes disclosing the refundability of such fees, and the identity of any good or service for which fees are charged.”
As defined in the NPRM, Total Price refers to “the maximum total of all fees or charges a consumer must pay for a good or service and any mandatory Ancillary Good or Service, except that Shipping Charges and Government Charges may be excluded.” The Commission also specifically details prohibitions on “hidden and “misleading” fees. It describes them as follows:
- Hidden Fees: “(a) It is an unfair and deceptive practice and a violation of this part for any Business to offer, display, or advertise an amount a consumer may pay without Clearly and Conspicuously disclosing the Total Price. (b) In any offer, display, or advertisement that contains an amount a consumer may pay, a Business must display the Total Price more prominently than any other Pricing Information.”
- Misleading Fees: “(a) It is an unfair and deceptive practice and a violation of this part for any Business to misrepresent the nature and purpose of any amount a consumer may pay, including the refundability of such fees and the identity of any good or service for which fees are charged. (b) A Business must disclose Clearly and Conspicuously before the consumer consents to pay the nature and purpose of any amount a consumer may pay that is excluded from the Total Price, including the refundability of such fees and the identity of any good or service for which fees are charged.”
Other key definitions in the proposal include:
- Ancillary Good or Service: “Any additional good(s) or service(s) offered to a consumer as part of the same transaction.”
- Business: “An individual, corporation, partnership, association, or any other entity that offers goods or services, including, but not limited to, online, in mobile applications, and in physical locations.”
- Clear(ly) and Conspicuous(ly): A required disclosure that is difficult to miss (i.e., easily noticeable) and easily understandable, including a long list of examples.
- Government Charges: “All fees or charges imposed on consumers by a Federal, State, or local government agency, unit, or department.”
- Pricing Information: “Any information relating to an amount a consumer may pay.”
- Shipping Charges: ”All fees or charges that reasonably reflect the amount a Business incurs to send physical goods to a consumer through the mail, including private mail services. This definition does not include delivery through couriers, such as those in mobile delivery applications.”
Impact on Motor Vehicle Dealer Rule
The FTC issued an NPRM on its Motor Vehicle Dealers Trade Regulation Rule in June 2022 that would: (a) ban bait-and-switch claims by prohibiting dealers from making certain deceptive advertising claims to prospective car buyers; (b) prohibit fraudulent add-on products; (c) prohibit dealers from charging consumers certain add-on fees without their written consent; and (d) mandate disclosure of certain costs upfront to consumers by providing the basis for a “true offering price” of a vehicle. Brownstein’s summary of this NPRM can be accessed here.
The October 2023 NPRM on Unfair or Deceptive Fees notes that if the Commission finalizes the proposed Motor Vehicle Dealers Trade Regulation Rule’s offering price and misrepresentations provisions, that part would be excluded from coverage under the NPRM on Unfair or Deceptive Fees. However, the NPRM clarifies that if the final Motor Vehicle Dealers Trade Regulation Rule does not require motor vehicle dealers to disclose the cash price and prohibits misrepresentations, the dealers would not be exempt from the definition of “Business” and therefore would be subject to the Unfair or Deceptive Fees NPRM.
State-chartered credit unions and other covered entities providing indirect financing; providers, sellers and underwriters of motor vehicle protection products; and other market participants who could be considered to have engaged in a deceptive or unfair act in the motor vehicle marketplace may also be impacted. The FTC has enforcement authority over most non-bank entities under numerous consumer protection statutes, such as the Holder Rule, as well as Section 5 of the FTC Act, as noted above.
Impact on Housing Providers
The NPRM also detailed comments related to rental housing fees that were submitted by consumer groups on the November 2022 ANPR that preceded this proposed rule. The comments referenced included arguments that:
- “Landlords do not adequately disclose many unavoidable fees or fail to explain the purpose of fees and supported a rulemaking pertaining to fees in connection with rental housing, including apartments, house rentals, and manufactured housing communities.”
- “The FTC [should] require that online platforms for rental advertisements disclose all fees, including fees charged before and after signing rental leases.”
- “Supported enhanced fee disclosure requirements and upfront disclosure of the costs of goods and services to protect consumers and the economy at large.”
The groups also recommended that the FTC investigate unfair or deceptive practices related to housing fees and provide guidance on fees.
While the FTC references these comments, it provides minimal directives to housing providers. However, the proposed rule includes some discussion about how the Commission views an “Ancillary Good or Service.” The Commission states that an Ancillary Good or Service may be mandatory or optional. It provides the example that if a hotel offers a consumer the option to purchase or decline trip insurance with a room reservation, the insurance would be an optional ancillary service. The FTC states that if a business includes a fee that the consumer cannot reasonably avoid in order to process the payment for any good or service, such payment processing would also be a mandatory ancillary service. Regarding rental agreements, it states that if a rental agreement includes a fee that the consumer cannot reasonably avoid, for example, valet trash collection, that service would be a mandatory ancillary service.
Since ancillary services are included in the definition of Total Fees, any entity offering what the Commission considers to be a mandatory ancillary service would need to comply with the required disclosures. Within the housing industry, the NPRM did not specifically mention impacts beyond trash services, although UDAP could be applied beyond what is specifically mentioned in the proposal. Under the rule, this would include goods or services that are not necessary to render the primary good or service fit for its intended use but that are nevertheless offered as part of the same transaction.
In addition to summarizing comments on practices in the rental housing industry, the Commission detailed comments received on the ANPR that were specific to hotel and short-term lodging fees; live-event ticket fees; restaurants and prepared food and grocery delivery apps; transportation fees; telecommunication fees; education fees; financial services fees charged in connection with bank accounts, credit cards, and other financial products; and correctional services fees.
Lack of Preemption
If finalized, the Commission’s rule would not preempt related state statutes concerning unfair or deceptive fees or charges, “except to the extent that such statute, regulation, order, or interpretation is inconsistent with the provisions of this part, and then only to the extent of the inconsistency.” While the rule would set the federal bar, this carveout preserves states’ abilities to create stricter regulatory regimes.
THE CONSUMER FINANCIAL PROTECTION BUREAU’S ADVISORY OPINION
Alongside the FTC’s NPRM, the CFPB issued an advisory opinion on Section 1034(c) of the Consumer Financial Protection Act (CFPA), which requires banks and credit unions with more than $10 billion in assets to comply with consumer requests for information on their accounts for financial products and services in a timely manner. The advisory opinion is focused on supervised entities and notes that financial institutions that unreasonably impede a consumer’s ability to request and access account information would be out of compliance with Section 1034(c).
As detailed in the advisory opinion, Section 1034(c) does not specify a fixed time limit for large financial institutions to respond to consumers. The advisory opinion mentioned that the CFPB will “consider the specific circumstances and nature of a particular request to determine compliance” and that the timeliness of a request may depend on the complexity of the request and the level of difficulty in responding. The CFPB noted that it expects covered entities to “already have policies and procedures in place to meet the timing requirements of other applicable laws and regulations.”
The advisory opinion also states that covered entities would violate Section 1034(c) if they provide inaccurate and incomplete information in response to consumers’ information requests. Most notably, the advisory opinion states that in general, the practice of charging fees to respond to an information request would unreasonably impede consumers’ exercise of their rights under Section 1034(c). The CFPB states that such practices would likely include charging fees (1) to respond to consumer inquiries regarding their deposit account balance; (2) to respond to consumer 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 consumer inquiries seeking information and supporting documents regarding an account.
The CFPB also asserted that a covered institution’s use of technology has no impact on violations of Section 1034(c). For example, institutions may be in violation if they use chatbots and other automated responses that provide incomplete or inaccurate information. This is in line with a recent CFPB blog post emphasizing that chatbots must comply with federal consumer financial laws.
Industry stakeholders have outlined concerns with potential overreach in this advisory opinion, cautioning that trying to prescribe one-size-fits-all customer service standards may go beyond the CFPB’s authority under Section 1034(c).
Looking Ahead: Section 1033 NPRM and Credit Card Late Fee Final Rule
The White House press release also mentions several other pending and proposed CFPB rules that it expects to advance, including one related to credit card late fees and the Section 1033 Consumer Access to Financial Records rulemaking. According to the White House, the CFPB plans to issue the NPRM for Consumer Access to Financial Records by the end of October. On Feb. 1, 2023, the CFPB convened a Small Business Review Panel for this rulemaking. It previously issued an ANPR on this issue in 2020 and has targeted 2024 for the issuance of a final rule.
NEW OIRA GUIDANCE
Despite discussing a variety of new regulations that undoubtedly add costs and compliance burdens to U.S. businesses in the same press release, the White House also announced that OIRA is publishing new guidance to help agencies better develop and analyze regulations with competition in mind. This guidance completed one of the deliverables listed in President Biden’s July 2021 Executive Order (EO) on Competition. Specifically, President Biden directed OIRA to consider how to further competition as it modernizes regulatory review, including by helping agencies better account for regulations’ “effects on competition and the potential for creation of barriers to entry.”
To comply with the EO, OIRA’s guidance outlines several questions for agency officials to consider how a regulation may impact market structure and competition:
- How competitive are the affected markets in the baseline?
- Would this action potentially induce a change in the number or range of competitors?
- Would this action limit or enhance the ability of firms to compete?
- Would this action weaken or strengthen the incentives for firms to compete vigorously?
- How does this action affect—or how is it affected by—the supply chain?
- How does this action affect—or how is it affected by—labor market competition?
NEXT STEPS
The actions by the FTC and CFPB further the Biden administration’s attempts to limit what it has deemed “junk fees” and associated practices across various industries. The Commission’s approach to limiting a host of fees under the FTC’s UDAP authority, combined with its previous actions in proposing the Motor Vehicle Dealer Rule, showcase Chair Lina Khan’s willingness to test the bounds of the FTC’s authority in this space. While many industries have proactively changed their fee structures or products, the type of broad UDAP authority the FTC is seeking to police the marketplace for any fees it deems “junk” is an expansive approach that could result in significant costs and compliance burdens. The FTC’s NPRM poses 37 specific questions for public comment, though commenters can respond to any aspect of the proposal. The comment window will remain open for 60 days after the rule is published in the Federal Register.
Brownstein is closely following these and other related developments across the federal government, and our team is well-equipped to help formulate comment letters and facilitate engagement with the FTC, CFPB and Congress on these issues. For assistance with or more information on any of this activity, please contact a member of the Brownstein Financial Services Team.
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