Consumer/Investor Fees: SEC, CFPB, FTC Focus

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:  

• SEC final rule amendments requiring investment companies to provide retail investors with standardized fee and expense information.
• CFPB guidance, issued as a Consumer Financial Protection Circular and a Compliance Bulletin, covering two specific types of fees that may be considered unfair or unlawful.
• FTC ANPR seeking input on the need for regulations to define unfair or deceptive acts or practices relating to fees.  

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:

• Fees and expense figures that are presented in advertising materials will be required to include standardized fee and expense figures, demonstrate consistency between fees and expense figures presented in advertising materials and relevant prospectus fee table presentations, and adhere to certain prominence and timeliness requirements.
• Representations about the fees or expenses associated with an investment in a fund that are included in sales literature could be misleading because of statements or omissions made involving a material fact, including situations where portrayals of the fees and expenses associated with the investment omit explanations, qualifications, limitations, or other statements necessary or appropriate to make the portrayals not misleading. The provisions apply to all investment company sales literature, regardless of whether the investment company’s prospectus contains total annual expense figures.

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:

• Causes or is likely to cause substantial injury to consumers which is not reasonably avoidable, and
• Such substantial injury is not outweighed by countervailing benefits to consumers or to competition.

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):

• Request for Information (RFI) on consumer fees associated with bank account, credit cards, and other financial products
• ANPR on credit card penalty fee policies
• Advisory opinion on pay-to-pay fees charged by debt collectors
• Blog posts on the adverse impact of overdraft fees on consumers, and a pilot supervision effort to collect metrics on overdraft and non-sufficient fund practices
• Guidance on screening for and eliminating “obviously false data” from consumer credit reports

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:

• Have little or no added value to the consumer, including goods or services that consumers would reasonably assume to be included within the overall advertised price
• Are disclosed only at a later stage in the consumer’s purchasing process or not at all—so-called “hidden fees.”

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:

• The total cost of any good or service for sale
• The existence of fees, interest, charges, or costs that cannot be reasonably avoided
• Whether fees, interest, charges, or costs are optional or required
• Material restrictions, limitations, or conditions that may result in a mandatory charge that is added to the cost of a good or service
• The nature or purpose of fees, interest, or other costs

2.       Misrepresentations or failure to disclose clearly and conspicuously:

• Fees or charges that are mandatory or tax imposed by a government entity
• Fees or charges for terminating services or contracts

3.       Billing or charging consumers for fees, interest, goods, services, or programs:

• Without express and informed consent
• That have little or no added value to the consumer or that the consumer would reasonably assume to be included in the overall advertised price

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.