The Biden-Harris Administration is Taking Action on Junk Fees
In response to President Biden’s call to action, all Competition Council federal agencies are looking for ways to reduce or lower junk fees. While in some cases more work is needed to identify and understand unjustified practices, federal agencies are acting now in places where there is a compelling case to reduce or eliminate fees – and taking comment and engaging stakeholders where greater transparency and data will help to improve regulatory approaches going forward. To date, the Administration has already taken a number of actions that will save consumers and businesses billions of dollars:
- Eliminating unfair banking fees. Today, the CFPB issued guidance explaining that two junk fee practices are unfair and unlawful – effectively banning both. First, the CFPB is making clear that surprise overdraft fees are unlawful. These are fees charged for overdrawing a checking account even though at the time the account owner made a purchase, the bank’s website or ATM terminal showed the customer that they had sufficient available funds for the purchase. Second, the CFPB is making clear that surprise depositor fees are unlawful. These are fees charged to customers who deposit someone else’s bounced check, penalizing the victim. Together, these actions will save consumers more than $1 billion annually.
- Additional CFPB actions on bank and credit card fees. The CFPB is developing rules and guidance on other fees charged by banks and credit card companies. These fees cost consumers more than $24 billion a year combined, with the biggest impacts on low-income Americans. This builds on work CFPB began last year that successfully encouraged 15 of the nation’s twenty largest banks to drop the use of NSF charges, and Citi and Capital One ended the use overdraft fees altogether. As a result, the overall level of overdraft fees is already on track to be down 20% in 2022 from 2019 levels – $3 billion less compared to pre-pandemic.
- Taking aim at bad junk fee practices that span industries. Last week, the Federal Trade Commission (FTC) voted to launch a rulemaking process that would broadly reduce junk fee practices across the economy, including for event ticketing, hotels, funeral homes, and any other industry that uses mandatory fees. The rulemaking would address practices such as charging consumers fees they never consented to or charging mandatory fees with little or no added value, like hotel resort fees or event ticket processing fees. This action is an important step towards a future rule that would give the FTC additional information and enforcement tools to take action and seek penalties against companies adopting unfair and deceptive junk fees. This action builds upon the FTC’s work bringing multiple enforcement actions challenging junk fees across a variety of industries and returning money to injured consumers. In the auto industry, the FTC charged dealerships like Passport Auto and Napleton for tacking on junk fees for unwanted add-ons and other items. FTC took action against Benefytt Technologies to halt its practice of charging people separate fees for add-on health products that people didn’t know about or want. In First American Payment Systems, the FTC charged that the payment processing company trapped small businesses with surprise early termination fees.
- Restricting Junk Fees Charged by Auto Dealers. This June, the Federal Trade Commission (FTC) issued a proposed rule that would restrict junk fee practices by car dealers that are costly and frustrating for consumers. The rule, if finalized, would (1) ban bait-and-switch claims by prohibiting dealers from making deceptive advertising claims to lure in prospective car buyers; (2) prohibit fraudulent add-on products (such as “nitrogen filled” tires that contain no more nitrogen than normal air); (3) prevent dealers from charging consumers surprise fees for an add-on without their clear, written consent; and (4) mandate upfront disclosure of costs and conditions by requiring dealers to make disclosures to consumers like proving a “true offering price” for a vehicle.
- Requiring Airlines and Airline Search Sites to Disclose Fees Up Front. In September, the Department of Transportation (DOT) proposed a rule that would protect travelers by ensuring they know the full price of airline tickets before they buy. The rule, if finalized as proposed, will require airlines and online search sites to disclose up front – while you are comparison shopping – any fees to sit next to your child, for baggage, and for changes or cancellations. The proposal seeks to provide customers the information they need to choose the actual best deal, preventing surprise fees that add up quickly and prevent competition on the basis of price. This builds on previous actions the DOT has recently taken, including issuing proposed rules that would require airlines to refund fees for checked bags that are significantly delayed and for services not actually provided (like broken WiFi), and to require refunds for delayed and cancelled flights.
- Requiring Broadband Nutrition Labels. The Federal Communications Commission (FCC) has issued proposed rules that would, if finalized as proposed, require internet companies to display a standardized “Broadband Nutrition Label” that discloses their monthly prices, fees, and internet speeds – so customers can see which company is cheapest and companies will have to compete for business. The FCC anticipates completing this rulemaking by the end of this year.
- Reducing the Cost of Shipping Goods. Congress responded to President Biden’s call to crack down on excessive fees in ocean shipping by passing the bipartisan Ocean Shipping Reform Act. The Federal Maritime Commission, which is responsible for implementing the law, recently released a proposed rule that proposes to bring more clarity, structure, and punctuality to ocean shipping fee billing practices.
[1] In its recent Advance Notice of Proposed Rulemaking, the Federal Trade Commission defines “junk fees” as “unfair or deceptive fees that are charged for goods or services that have little or no added value to the consumer, including goods or services that consumers would reasonably assume to be included within the overall advertised price; the term also encompasses ‘hidden fees,’ which are fees for goods or services that are deceptive or unfair, including because they are disclosed only at a later stage in the consumer’s purchasing process or not at all, whether or not the fees are described as corresponding to goods or services that have independent value to the consumer.”