Biden Administration Announces New Rules that Will Eliminate Most Junk Fees
Last updated October 12, 2023
In his February State of the Union address, President Biden promised to crack down on costly junk fees. On Wednesday, two federal regulatory agencies took steps to do that. The actions, announced at a White House ceremony, could save Americans “billions of dollars a year in unfair fees,” the President said.
Listen to audio highlights of the story below:
The Federal Trade Commission (FTC) announced a proposed junk fee rule that would eliminate hidden and dishonest fees that unexpectedly drive up the cost of so many purchases—such as airline tickets, hotel rooms, car rentals, tickets to concerts, theater, and sporting events.
At yesterday’s ceremony, the Consumer Financial Protection Bureau (CFPB) also outlined steps it has taken to eliminate some junk fees charged by financial institutions. The agency issued new guidance that requires large banks and credit unions to provide customers with basic information, such as account balances, without a fee.
FTC’s Proposed Junk Fee Rule
The FTC has made it clear that it’s misleading and deceptive to advertise prices that do not include mandatory fees. When companies don’t display honest prices, comparison shopping is more complicated—or impossible. The commission calls it “bait-and-switch” pricing.
The FTC estimates its proposed rule will save consumers more than 50 million hours per year of wasted time searching for the true price when shopping for live-event tickets and hotel/motel or short-term lodging. This time savings is equivalent to more than $10 billion over the next decade, the commission said.
The FTC’s proposed rule would:
- Ban businesses from running up bills with hidden or bogus fees.
- Require businesses to include “all mandatory fees” in their advertised prices, so consumers know exactly how much they’re paying.
- Prohibit sellers from misrepresenting fees, and require them to disclose upfront the amount and purpose of any fees, and whether they are refundable.
The FTC could sue companies that violate the rule and force offenders to pay fines and issue refunds to harmed consumers.
Teresa Murray, consumer watchdog at the consumer group PIRG, said the FTC’s crackdown on junk fees is “fantastic,” and long overdue.
“It's a win for consumers, and also a win for honest businesses,” Murray told Checkbook. “This is not about limiting what businesses can charge for legitimate purposes, but it just levels the playing field so that consumers can make informed choices if they're comparing prices.”
Junk Fees are Everywhere
Because of junk fees, the initial price offered by many types of services is rarely the price you’ll actually pay. Junk fees are everywhere, but they’re especially prevalent with online transactions, where the true price isn’t disclosed until you’re ready to check out.
“Just about everyone I know, including myself, has begun a transaction based on an advertised price, and somewhere along the way—a couple of screens through—you realize there's some fee at the end that wasn't disclosed upfront,” Sam Levine, director of the FTC’s Consumer Protection Bureau, said earlier this year on Checkbook’s Consumerpedia podcast. “Sometimes that fee can be quite significant; sometimes there can be multiple fees.”
The FTC’s proposed Junk Fee Rule won’t take effect until sometime next year. So, for now, you need to be vigilant and look for hidden fees, especially when you shop online.
“If you get into the [buying] process, and you realize that they’re sticking on fees that you weren't expecting and don’t want to pay, don’t be afraid to walk away,” Murray said.
CFPB Warning to Financial Institutions
The Consumer Financial Protection Bureau also issued guidance on Wednesday about junk fees, warning large banks and credit unions that they can no longer charge fees for basic services such as asking about account balances, obtaining payoff amounts for loans, or getting account information needed for applications. Banks that don’t follow the bureau’s rules can be fined.
“Americans are fed up with the junk fees that are creeping across the economy,” said CFPB Director Rohit Chopra. “Today’s guidance outlines a pretty basic concept: When people require information about their bank accounts, big banks cannot charge them massive fees or trap them in endless customer service loops.”
Susan Weinstock, president and CEO of the Consumer Federation of America, was invited to the Rose Garden ceremony. She’s happy to see the CFPB take “some real action” to eliminate these costly bank fees.
“The idea that you have to pay for a paper statement so you can just see your own account, or when you put a call into the bank and you say, ‘I want to know what my account is,’ and they charge you for that, it’s just crazy,” Weinstock said.
The CFPB announced on Wednesday that, based on its oversight examinations of financial institutions, consumers hit by illegal junk fees will receive refunds totaling $140 million. The bureau said the junk fees targeted include surprise overdraft fees, double-dipping on non-sufficient funds (NSF) fees, and “auto loans with worthless add-on products.”
Later this month, the CFPB will propose a rule that, if finalized, would require banks and credit unions to allow customers to “safely, securely, and reliably send their banking transaction data to other companies and banks” when they want to switch financial institutions. The reform, the CFPB said, will ensure financial companies compete based on service quality and upfront pricing and will deter junk fees.
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Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He has been protecting consumers for more than 40 years, having covered the consumer beat for CBS News, The Today Show, and NBCNews.com. You can also find him on Facebook, Twitter, and at ConsumerMan.com.