In “The War on the So-Called ‘Junk Fees:’ Who’s Fighting and What’s at Stake” published in the April issue of Competition Policy International’s Antitrust Chronicle, Associate Director Dr. Andrew Stivers and Kelley Drye & Warren LLP Partner Donnelly McDowell provide an overview of Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) efforts to regulate junk fees and the substantive and procedural requirements the organizations must meet to do so under their respective statutory authorities. The authors also consider the potential economic consequences of a far-reaching regulation that would significantly curtail the use of fees.
The financial industry has come under scrutiny for the practice of imposing junk fees on consumers. To regulate this practice, the CFPB and FTC have taken steps to limit fees that are unexpected, not clearly disclosed, or not related to a specific service provided. Recent actions by the CFPB and FTC include issuing an advisory opinion that debt collectors cannot impose payment fees unless authorized by the agreement creating the debt or permitted by law. Additionally, the FTC has proposed a rule to limit the amount of late fees that can be charged in connection with credit accounts and is soliciting comments on certain fee and disclosure practices with the aim of potentially promulgating a more far-reaching rule to address predatory and deceptive fees.
The authors find that, while pricing with separate fees can be harmful to consumers and competition, particularly when those fees are not adequately disclosed to consumers upfront, such fees can also serve legitimate purposes in incentivizing and deterring costly consumer behavior. When fees are adequately disclosed, a blanket prohibition could detrimentally impact consumers and the marketplace by raising prices for all, irrespective of how a consumer uses a product or service. Similarly, imposing blanket prohibitions on excessive or “too high” fees may require subjective determinations that do not fit neatly within the FTC’s or the CFPB’s existing authority and could have unintended consequences for the broader market. Absent unexpected action by Congress, the CFPB and FTC will continue to take the lead in the war on junk fees but will need to use their existing weapons and statutory authority to justify their proposals.