Congress may be at a standstill because of the ongoing U.S. House speaker saga, but the Biden administration is pressing forward on policy. Indeed, on Oct. 11 the White House held an event in the venerable Rose Garden to take financial services providers and other industries to task for certain charges they levy on consumers and clients.
The same day, the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) issued new policies meant to crack down on these levies, which the Biden administration and the regulatory agencies have labeled “junk fees.”
What are junk fees? What would the CFPB and FTC policies do? What other steps does the White House want agencies to take? And are these rules likely to be subject to, and survive legal challenges? We will answer those questions in today’s Allon Update.
What Is A Junk Fee?
At the Rose Garden event last Wednesday, President Joe Biden said junk fees are “those hidden charges that companies sneak into your bill to make you pay more.” The president added, “These junk fees can add up to hundreds of dollars, weighing down family budgets and making it harder to pay family bills.”
A year ago, the White House defined junk fees as charges “designed either to confuse or deceive consumers or to take advantage of lock‐in or other forms of situational market power.” While perhaps an instructive insight into the administration’s thinking, not exactly an objective definition.
Not everyone sees these fees as “junk,” of course. The libertarian think tank the CATO Institute has argued eliminating the fees could harm credit-constrained consumers, erode access to services, dampen product innovation, and even reduce the amount of product information available to consumers.
Other scholars agree.
Eliminating the baggage fees that airlines charge may make it more difficult for the Biden administration to achieve its climate goals, argued Competitive Enterprise Institute Senior Fellow Ryan Young. “Incentivizing people to only check baggage or buy food and drinks when they need to also reduces airplane weight, which saves money and fuel and can further lower ticket prices while reducing emissions,” Young has written.
Instead of the types of regulations pursued by the Biden administration, the CATO Institute recommended businesses simply “disclose charges and fees transparently.”
As was clear from the FTC and CFPB’s announcements last week, the Biden administration clearly does not think industry can – or will – police itself.
The CFPB’s Most Recent Junk Fee Announcement
On Oct. 11, the CFPB issued an advisory opinion that explains the Bureau’s position on a part of federal law that requires financial institutions to provide information to their customers in an effort to restrict the fees that those institutions can charge consumers.
That provision, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, does state that large banks and credit unions must provide complete and accurate account information when requested by accountholders. But what Dodd-Frank does not say is that financial institutions cannot charge for that information. So, to justify its advisory opinion, the CFPB relied on an interpretation of how larger banks now do business.
“While small relationship banks pride themselves on customer service, many large banks erect obstacle courses and impose junk fees to answer basic questions,” said CFPB Director Rohit Chopra said. “While the biggest banks have abandoned the relationship banking model, federal law still requires them to answer certain customer inquiries completely, accurately, and in a timely manner.”
The CFPB press release concluded, “large financial institutions charge fees to respond to those requests, they impede customers from obtaining the essential information they are entitled to under federal law.”
Last week’s announcement is not the last we will hear from the CFPB regarding junk fees. In the coming months, the CFPB is expected to issue proposed regulations to take aim at overdraft and non-sufficient funds fees. As readers may also recall, the CFPB already has issued a regulation to reduce credit card late fees.
These efforts are part of a much larger junk fee initiative by the Biden administration.
FTC Proposed Broad Rule To Tackle Junk Fees
The same day that the CFPB issued its advisory opinion impacting financial institutions, the FTC released a proposed rule that would ban all junk fees. In other words, unlike the CFPB’s actions, the FTC rule would, if finalized, impact almost every industry. Indeed, lawyers at DLA Piper noted that the FTC proposed rule specifically called out fees for concerts and hotel rooms, car and housing rentals, banking and credit cards, grocery deliveries, phone and Internet services, air travel, and college tuition.
Under its proposal, the FTC said, “Businesses would have to include all mandatory fees when telling consumers a price.” The FTC would enforce this rule by using its powers to “secure refunds for harmed consumers and seek monetary penalties against companies that do not comply with its provisions.”
Additionally, the proposed rule would:
Prohibit businesses from advertising prices that hide or leave out mandatory fees;
Prohibit sellers from misrepresenting fees;
Require sellers to disclose upfront the amount and purpose of the fees and whether they are refundable; and
Require all businesses to quote total prices at the start of the purchasing process and to remove false or misleading information about fees from the marketplace.
While the FTC’s proposal is broad, the Biden administration does not mean for this regulation to supersede other rules from other agencies. Indeed, in its release, the FTC noted the CFPB, Federal Communications Commission (FCC), the Department of Housing and Urban Development (HUD), and the Department of Transportation (DOT) are all working to draft proposed rules for the industries that fall under their jurisdiction.
DLA Piper said it is virtually certain the Biden administration will try to push out a final rule from the FTC before the end of President Biden’s first term. At that point, “the FTC will be able to seek large penalties in federal court for any violations. And when the FTC takes action against an advertiser, it also issues a press release, which usually garners significant media attention.” Those public statements caused the lawyers to warn, “Consumer companies that the agency accuses of trafficking in junk fees may take a sizeable reputational hit in addition to significant financial one.”
But none of these outcomes will happen if the Biden administration’s actions do not survive potential legal challenges.
Another Washington Saga
While the U.S. Chamber of Commerce (USCC) has not announced legal challenges to either the CFPB or FTC action, there certainly is no love lost between the agency and these two agencies.
In June 2022, the USCC launched “an extensive campaign to expose and defeat” CFPB Director Chopra’s “ideologically driven agenda to radically change the nature of America’s financial services industry.” Junk fees were mentioned in the launch.
The USCC also has create an entire initiative aimed at reining in the FTC. “Under Chairwoman Lina Khan, the FTC has radically departed from its core mission to protect consumers and competition,” the USCC has argued. “Rather, the FTC is overstepping its regulatory authority, undermining our system of checks and balances, ignoring due process, and bypassing longstanding regulatory norms to expansively regulate industries and manage our economy with a government knows best approach.”
Legal challenges to the FTC rule, CFPB actions, or any other steps agencies like the FCC, HUD, and DOT may take are not out of the question.
The U.S. Chamber of Commerce also will take its arguments to the court of public opinion. Its first argument: hypocrisy. Like the private sector businesses the White House is targeting, federal government impose fees on consumers, the USCC has noted. These fees include Internal Revenue Service late filing fees, expedited passport fees, visa processing fees, and a “bevy of other fees the government charges Americans …”
Even if these legal challenges are not successful (or take years to resolve), Congress may step into this morass.
As the Congressional Research Service has explained, under the Congressional Review Act (CRA), before an agency regulation can take effect, that agency must submit a report to each chamber of Congress. After receiving the report, lawmakers in both the House and Senate have a specified time in which which they can submit and act on a joint resolution disapproving of the rule. If that resolution is approved by both houses of Congress and signed by the president, a regulation is null and void.
Because of the time limit, and the fact that both chambers of Congress and the White House (which presumably approved the regulation) have to agree, the CRA really only comes into play during presidential election years when there is a turnover in White House power. If the time clock had not run out on the FTC rule, for example, a GOP Congress and a GOP president could immediately act to overturn the rule in January 2025, or example.
That scenario is a big “what if,” but what it shows it that this issue, like the House speaker saga, may take some time to play out.