Recent regulatory releases reinforce the increasing focus on fees
KPMG Insight. In line with the Administration’s executive orders on fairness and competition, regulators, have focused on consumers and investors fees. The focus has been on both the transparency and clarity of fees (e.g., advertising, disclosures, communication, disparate targeting), as well as the application of fees (e.g., sales practices, billing, disparate impacts). Note: the CFPB and FTC have directly solicited input from consumers and industry groups for the purpose of helping to shape the agencies’ rulemaking, guidance, and enforcement agendas. Companies should anticipate that the ‘focus on fees’ will not abate in the near term and should consider re-evaluating their product features, fee structures, consumer/investor marketing, billing, and communications.
Recent regulatory releases reinforce the increasing focus on fees, and especially those that may be considered unfair or deceptive and cause harm to consumers. These releases include:
The Securities and Exchange Commission (SEC) issued final rule amendments to its investment company advertising rules that aim to “standardize fee and expense computations across investment company advertisements,” and address materially misleading statements about fees and expenses in investment company sales literature. The adopted amendments apply to all registered investment companies (including mutual funds, ETFs, open-end funds, closed-end funds, and business development companies). The new rule amendments provide:
The Consumer Financial Protection Bureau (CFPB) issued a Consumer Financial Protection Circular (2022-06) on unanticipated, or “surprise,” overdraft fee assessment practices, as well as a Compliance Bulletin (2022-06) pertaining to ”surprise” returned deposited item fee assessment practices. In both issuances, the CFPB states that fees that cannot be reasonably avoided by consumers are likely to be deemed unfair. Under the Consumer Financial Protection Act (CFPA), an unfair act or practice is one that:
Circular 2022-06 highlights that unanticipated overdraft fees may arise in a variety of circumstances, and offers “authorize positive, settle negative (APSN)” transactions as one example where financial institutions risk charging overdraft fees that consumers would not reasonably anticipate. In such a case, a transaction is authorized at a time when the customer’s account had a sufficient balance to cover the transaction but an insufficient balance at the time of settlement due to intervening transactions.
Bulletin 2022-06, states that blanket policies on charging returned deposited item fees to consumers for all returned transactions irrespective of the circumstances or patterns of behavior on the account are likely unfair. It outlines, as a statement of policy, how the CFPB intends to exercise its enforcement and supervisory authorities on this issue. The CFPB suggests that such fees may be unfair because, in many circumstances, the consumer depositing the check has no control over whether a check originator has funds in their account, will issue a stop payment instruction, or has closed their account.
Other CFPB Actions. CFPB has previously focused on a variety of fees issues as part of an initiative announced in January 2022, including publishing a(n):
The Federal Trade Commission (FTC) released an advance notice of proposed rulemaking (ANPR) seeking input on a potential rulemaking to address certain unfair or deceptive acts or practices (UDAP) relating to fees. The FTC is particularly focused on what it terms “junk fees,” which it defines as unfair or deceptive fees charged for goods or services that:
The FTC is considering if and how it should use its UDAP rulemaking authority (Section 18 of the FTC Act, 15 U.S.C. 57a) to address “junk fees and hidden fees.” The FTC states this authority permits the agency to promulgate, modify, and repeal trade regulation rules that define with specificity acts or practices that are unfair or deceptive. Practices under consideration include:
1. Advertisements or marketing materials that misrepresent or fail to disclose clearly and conspicuously:
2. Misrepresentations or failure to disclose clearly and conspicuously:
3. Billing or charging consumers for fees, interest, goods, services, or programs:
Commenters are requested to provide their views, arguments, experiences, and the qualitative and quantitative data that support or inform their answers to the questions provided within the ANPR. Comments must be received on or before sixty days after the date of publication in the Federal Register.
Other FTC Actions. Within the ANPR, FTC references many actions it has taken to address “junk fees” including “mobile cramming” charges, connection and maintenance fees on prepaid phone cards, account fees, fees that diminish the amount a borrower receives from a loan, miscellaneous fees levied on fuel cards, auto dealer fees, publishing undisclosed fees for funeral services, hotel “resort” fees, hidden fees for academic publishing, poorly disclosed ancillary insurance products, membership programs, and discounts for food, travel, long-distance calls, and merchandise.
Separately, in 2021, the FTC issued an enforcement policy statement on negative options marketing to regulate marketing practices where a consumer’s silence or failure to take affirmative action to reject or cancel a good or service is interpreted as an acceptance of the good or service and consent to be charged.