United States: Biden-Harris Administration, CFPB, And FTC Take New Steps To Eliminate "Junk Fees"

On October 11, the Biden-Harris administration, through the Bureau of Consumer Financial Protection (CFPB) and Federal Trade Commission (FTC), announced new actions aimed at cracking down on so-called "junk fees" across all industries.

• The CFPB issued an Advisory Opinion with first-of-its-kind guidance on section 1034(c) of the Dodd-Frank Act. Section 1034(c) generally requires covered insured depository institutions (covered IDIs) to provide consumers upon request with information regarding their accounts for consumer financial products and services in a timely manner. The CFPB's Advisory Opinion explains how the agency will administer the legal requirements under section 1034(c), including how the CFPB will evaluate fees imposed on consumers for making requests of account information. As noted by CFPB Director Rohit Chopra in prepared remarks on a press call on "junk fees," section 1034(c) has never been enforced, but with the issuance of this guidance, the CFPB has adopted a "new policy" to enforce the statute to ensure that consumers obtain account information as needed.
• Concurrently, the FTC released a notice of proposed rulemaking (NPRM) under Section 5 of the Federal Trade Commission Act (FTC Act) that would broadly prohibit businesses from engaging in unfair or deceptive practices with respect to fees for goods or services. The proposed rule would expand on the FTC's enforcement powers by allowing it to seek civil penalties against companies that do not comply with its provisions and more readily obtain monetary redress for harmed consumers.

This Advisory provides an overview of the new CFPB guidance and FTC proposed rulemaking and outlines several key takeaways for financial institutions.

Understanding the CFPB Guidance on Information Requests

The Dodd-Frank Act includes a provision designed to ensure that consumers have access to full details about their accounts. Section 1034(c), codified at 12 U.S.C. § 5534(c), requires covered IDIs and their affiliates, to comply in a "timely manner" with consumer requests for information about their accounts for consumer financial products and services, subject to limited exceptions. Covered IDIs also are required to provide supporting written documentation to consumers in order to help them understand the information provided.

The CFPB breaks down its guidance in the Advisory Opinion into four sections that focus on specific elements of section 1034(c): (1) consumer requests for information regarding their accounts, (2) conditions that unreasonably impede consumer information requests, (3) timely compliance with consumer information requests, and (4) accuracy and completeness of responses to consumer information requests.

Consumer Requests for Information Subject to Section 1034(c)

When a covered IDI receives a request for information from a consumer relating to the consumer's account for a consumer financial product or service, such as a deposit or savings account, a credit product including a mortgage loan or credit card, or loan servicing, section 1034(c) requires the covered IDI to respond with information in its possession or control. In the Advisory Opinion, the CFPB draws a distinction between information "concerning" a consumer's account, which a covered IDI must provide in a timely manner under section 1034(c), and information that is not specifically related to a consumer's account, to which section 1034(c) does not apply. The CFPB identifies that information "concerning" or "relating to" an account includes account information that appears on periodic statements or on online account portals, information regarding bill payment and other recurring transactions involving the account, the terms and conditions of the account, and information about the status of a lien on real property that was released (or should have been released) years before. Information that does not specifically relate to a consumer's account includes, for example, information regarding the covered IDI's internal operating procedures, financial performance, marketing strategy, or training programs for its employees. The institution must provide, upon request, written documents that will substantiate information provided in response to consumer questions or that will help consumers understand or verify information about their accounts.

The Advisory Opinion, however, clarifies that the requested information must be within the "possession" or "control" of the covered IDI. A covered IDI "possesses" information that is known by its employees or that can be found in its records, while it "controls" information that it has the legal right, authority, or practical ability to obtain, such as where the information is held by an affiliate or service provider where it has the right or ability to receive that information. The CFPB also notes in the Advisory Opinion that section 1034(c) contains four enumerated exceptions, which apply to: (1) confidential commercial information; (2) information collected for the purpose of preventing fraud or money laundering, or detecting or making any report regarding other unlawful or potentially unlawful conduct; (3) information required to be kept confidential by any other provision of law; and (4) any nonpublic or confidential information. Section 1034(c) also does not require that a covered IDI provide the information in a particular manner or using particular means.

Covered IDIs May Not Charge Consumers For Making Information Requests

The CFPB asserts in the Advisory Opinion that section 1034(c) grants consumers a right to request and receive account information that falls within the scope of the provision and imposes a complementary legal obligation on covered IDIs to respond to the consumer's request and to provide such account information. Accordingly, the Advisory Opinion provides that section 1034(c) does not prohibit covered IDIs from imposing reasonable limits on consumer information requests, such as reasonable identity verification and data security measures, but a covered IDI may not impose conditions that "unreasonably impede" consumers' information requests. In particular, the CFPB's Advisory Opinion provides that requiring consumers to pay a fee or charge to request account information is likely to be viewed as an "unreasonable impediment" for purposes of the statute. The CFPB argues that the practice of charging fees to respond to an information request would generally unreasonably impede consumers' exercise of their rights under section 1034(c) and thus violate the provision. Prohibited fees include those charged (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.

Covered IDIs may still impose fees in certain limited circumstances, such as to a consumer who repeatedly requested and received the same information regarding their account.

The CFPB also describes other conditions or obstacles that may unreasonably impede consumers' ability to make an information request, including forcing consumers to wait an excessively long time to make a request to a consumer service representative, requiring consumers to submit the same request multiple times, requiring consumers to interact with a chatbot that does not understand or adequately respond to consumers' requests, or directing consumers to obtain information that the institution possesses from a third party instead.

Covered IDIs Must Timely Respond to Consumer Information Requests

The Advisory Opinion provides that, given that section 1034(c) does not specify a fixed time limit for responding that applies to all information requests, the CFPB will consider the specific circumstances and nature of a particular request to determine compliance with the "timely manner" requirement. The Advisory Opinion indicates that timeliness may depend on the complexity of the request and/or the difficulty of responding. However, the Advisory Opinion warns that even though a request may require a complex response, it does not mean that a covered IDI can unduly delay its response. Timeliness also may be informed by the timing requirements of other federal laws and regulations, such that where both section 1034(c) and another federal law or regulation apply to the same consumer information request, the CFPB will not view section 1034(c)'s "timely manner" requirement as likely to impose timing requirements that differ from the specific timing requirements of the other applicable federal law or regulation.

Covered IDIs Must Provide Complete and Accurate Responses to Consumer Information Requests

The CFPB asserts in the Advisory Opinion that a covered IDI would violate section 1034(c) if it provided incomplete or inaccurate information in response to a consumer's information request. Notably, with respect to this requirement, the CFPB highlights the use of technology, such as chatbots or other automated responses, to respond to consumer information requests, expressing that, in the absence of appropriate checks and quality-assurance processes, these technologies can mistakenly misdirect inquiries or provide inadequate responses. The Advisory Opinion also states that the requirement to provide complete and accurate responses applies regardless of the technology used by the institution and that a covered IDI may violate section 1034(c) if it employs technologies that do not properly recognize consumer information requests or that provide inaccurate or incomplete information in response to those requests.

Understanding the FTC Proposed Rulemaking on Unfair or Deceptive Fees

The FTC's proposed rulemaking broadly prohibits "hidden" and "misleading" fees across all industries by any business "that offers goods or services, including, but not limited to, online, in mobile applications, and in physical locations." The proposed rule's prohibition on "hidden fees" amounts to a requirement that businesses show the full price of a good or service upfront. The proposed rule would make it an unfair and deceptive practice for a business to "offer, display, or advertise" an amount a customer may pay "without Clearly and Conspicuously disclosing the Total Price." It would also require that the "Total Price" be displayed in any offer, display, or advertisement "more prominently than any other Pricing Information." "Total Price" is defined as "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 "Total Price" may also exclude any optional "Ancillary Good or Service," which is defined as "any additional good(s) or service(s) offered to a consumer as part of the same transaction." The NPRM makes clear that the prohibition on "hidden fees" would apply to amounts "offered, displayed, or advertised" by a business even if a different entity provides the good or service.

The proposed rule's prohibition on "misleading fees" would make it an unfair and deceptive practice for a business to "misrepresent the nature and purpose of any amount a customer may pay." While the proposed rule does not define "nature and purpose," the proposed rule provides that it includes "the refundability of such fees and the identity of any good or service for which fees are charged." The proposed rule would additionally require that, before a consumer consents to pay, the business disclose the nature and purpose of any amount a consumer may pay that is excluded from the "Total Price," which, as noted above, includes "any Shipping Charges, Government Charges, optional fees, voluntary gratuities, and invitations to tip." The NPRM provides that these provisions operate together to prohibit business from using vague descriptions to describe fees, such as, for example, where an invitation to tip a delivery driver fails to disclose that a portion of the tip is allocated to offset the delivery driver's base wages or benefits.

The NPRM requests comments, data, and arguments concerning the utility and scope of the proposed rule. Comments must be received no later than 60 days after the date the proposal is published in the Federal Register.

Takeaways for Financial Institutions

These actions come as part of the Biden-Harris Administration's overall "junk fee" initiative, launched in January 2022. As covered in our prior Advisory, available here, the CFPB is focused on eliminating overdraft and non-sufficient funds fees. However, the CFPB makes clear in its Advisory Opinion and its Supervisory Highlights Junk Fees Update Special Edition, which was released on the same day as the Advisory Opinion, that it is taking a wide focus on fees and charges utilized by financial institutions. In addition to overdraft and non-sufficient funds fees and fees associated with consumer information requests, the Supervisory Highlights adds that the CFPB is also scrutinizing fees related to paper bank statements, returned deposit item fees, add-on products for auto loans, and fees issued by remittance-transfer providers.

This broad approach to tackling "junk fees" is also reflected in the FTC's proposed rulemaking targeting fee practices by all entities that offer goods or services. Financial institutions subject to the CFPB's jurisdiction should consider whether the CFPB's guidance impacts the fees they charge to customers. Companies subject to the FTC's proposal should consider reviewing whether their fee practices bear similarities to the practices identified in the FTC's proposed rulemaking. And although the FTC cannot enforce Section 5 of the FTC Act against insured depository institutions, the prudential financial regulators have long enforced Section 5 against their regulated entities through their general enforcement powers, and banks may therefore wish to review the FTC's proposal as potential "best practices" guidance for general UDAP compliance.

The CFPB and FTC have not been alone in their efforts to address "junk fees." In response to calls by the Biden-Harris administration for states to better address concerns over hidden fees, California recently enacted legislation that will prohibit hidden fees in the state beginning on July 1, 2024. Although California's new law specifically excludes most financial transactions subject to federal lending laws and regulations, financial institutions should be aware that many of their California business partners will be subject to the new law.

The CFPB's Advisory Opinion and the FTC's proposed rulemaking further indicate that the agencies are prepared to pursue appropriate corrective action to remedy apparent violations. The FTC provides that it aims to expand its enforcement toolkit by adding additional remedies through the rulemaking, including civil money penalties and remediation to harmed consumers. Although the Advisory Opinion expresses that the CFPB does not intend to seek monetary relief for potential violations of section 1034(c) that occur prior to February 1, 2024, businesses subject to section 1034(c) or the FTC's proposed rulemaking should evaluate steps necessary to come into compliance.

The Advisory Opinion also builds on the CFPB's continued focus on a perceived shift, principally among larger institutions, away from relationship banking and toward algorithmic banking, including the use of chatbots and artificial intelligence. In June 2023, the CFPB published an issue spotlight highlighting the challenges and risks posed by financial institutions' use of deficient chatbots, in which the CFPB said that it will continue to monitor the issue closely. In the Advisory Opinion, the CFPB in particular calls out requiring consumers to interact with a chatbot that does not adequately respond to requests as an obstacle that may potentially and unreasonably impede consumer information requests. Financial institutions that use or are considering using chatbots or artificial intelligence to engage with consumers should be mindful of the CFPB's guidance and ensure that systems are appropriately tested and ongoing checks are conducted to avoid creating unreasonable burdens on consumers.

Finally, financial institutions should continue to pay attention to these issues. Ending the charging of "junk fees" continues to be a priority of the Biden-Harris administration, the CFPB, the FTC, and large states like California and New York. As alluded to in the White House announcement and Director Chopra's prepared remarks, on October 19, the CFPB issued a notice of proposed rulemaking to implement section 1033 of the Dodd-Frank Act regarding personal financial data sharing standards and protections. Among other things, the proposed rule would require banks and other providers to make personal financial data available, at no charge to consumers or their agents, through dedicated digital interfaces that are safe, reliable, and secure.

Institutions interested in how the CFPB's Advisory Opinion and the FTC's proposed rulemaking may impact their businesses or wishing to submit comments to the FTC may contact any of the authors of this Advisory or their usual Arnold & Porter contact. The firm's Financial Services team would be pleased to assist with any questions about the Advisory Opinion and NPRM, submitting a comment to the agencies, or financial regulation or consumer protection more broadly.

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