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CFPB reports that complex pricing leads to higher consumer costs
On April 30, the CFPB published a report titled Price Complexity in Laboratory Markets indicating that consumers may pay higher prices for products with complex pricing structures. The report drew on experiments conducted in “simple markets,” where participants engaged in transactions as buyers and sellers. According to the report, these experiments revealed that when product prices were divided into several sub-parts, making them more complicated, participants generally paid more compared to products with a single, comprehensive price.
The study involved participants acting in the roles of buyers and sellers, with transactions involving products priced either as a lump sum or split into eight or 16 separate charges. According to the report, the results showed that in situations with more fragmented pricing, the average selling price increased and buyers found it more challenging to compare prices between sellers. For products with 16 separate charges, the Bureau reported that sellers’ total asking price was typically 60 percent higher than products with one price. In a second experiment, the CFPB investigated the effects of increased competition on market outcomes, finding that increased competition “generally improved, but did not eliminate, the negative effects of price complexity.” The Bureau noted that the findings of this research align with existing studies and evidence suggesting that alleged "junk fees" can lead to higher overall prices than those typically found in a fair and competitive market.
FTC alleges ROSCA, GLBA and FTC Act violations against bill payment platform
On April 25, the FTC announced an enforcement action against a third-party bill payment platform and two of its co-founders (defendants) for allegedly running misleading advertisements that intercepted consumers attempting to reach their billers, using “dark patterns” to manipulate the consumers into using the platform under the false belief that they have reached the biller’s official payment site, charging “junk fees” in connection with the processing of payments, and in some cases sending untimely payments to billers. According to the FTC’s complaint, the company allegedly violated the FTC Act by making false or misleading representations that it was an official payment channel for the consumers’ billers. The FTC also claimed defendants violated the Restore Online Shoppers’ Confidence Act by charging consumers for goods or services before clearly and conspicuously disclosing to consumers all material terms of the transaction and obtaining the consumers’ informed consent to be charged, and enrolling consumers into a paid subscription service by automatically ticking a box without warning when consumers clicked on a “User Terms of Service” hyperlink. Additionally, the FTC alleged that the company caused consumers to incur late fees and other inconveniences by failing to make timely payment to consumers’ billers, despite having received timely payment from the consumer. The FTC’s complaint also alleged that defendants used fraudulent statements or representations to obtain consumer information such as bank account numbers, routing numbers, credit card numbers, and debit card numbers in violation of the Gramm-Leach-Bliley Act.
The FTC claimed that defendants received tens of thousands of consumer complaints, inquiries from two state attorney’s general offices, and temporarily lost access to a credit card company’s network due to the complaints, among other warnings regarding its practices. The FTC will seek a permanent injunction, monetary relief, and other relief.
CFPB petitions 5th Circuit to keep credit card late fee case in D.C.
On April 18, the CFPB asked a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit to reconsider its earlier decision to grant a petition for a writ of mandamus requiring the U.S. District Court for the Northern District of Texas to claw back its earlier transfer of industry’s challenge to the CFPB’s credit card late fee rule to Washington D.C. (covered by InfoBytes here). The CFPB urges the 5th Circuit to grant a panel rehearing, suggesting that the panel’s earlier decision rested on “flawed factual premises” and would be “unworkable for courts.”
According to the CFPB, the panel relied on the incorrect assumption that “credit card issuers needed to have printed and distributed disclosure materials about the late fees to customers by March 29” to comply with the final rule. The Bureau asserted this was a “manufactured” deadline. The CFPB also stressed that TILA does not require the Bureau to provide advance notice for a reduction in the maximum late fee. Further, the Bureau’s petition expanded into four misconstrued facts, such as that it was not true that the panel needed to grant the plaintiffs’ alleged claim for “urgent relief,” that the plaintiffs’ preliminary injunction motion needed to be decided quickly, that the plaintiffs were “entitled” to a quick resolution, and that the panel erred again in deciding that the final late fee rule did not require compliance until May 14 (thus leaving six more weeks for a decision).
Second, the CFPB argued that the panel’s new standard for assessing whether a preliminary injunction was denied would be “unworkable” for courts in practice and would improperly interfere with the district courts’ authority to manage their dockets when plaintiffs seek preliminary injunctive relief. The Fifth Circuit has asked the plaintiffs to respond to the petition for rehearing by April 29, 2024.
Separately, the Fifth Circuit has set a schedule for “expedited briefing” on the appeal of the district court’s “effective denial” of plaintiffs’ motion for a preliminary injunction. The briefing, however, will not conclude until May 17, 2024, days after the CFPB’s credit card late fees rule goes into effect. The Fifth Circuit has not yet ruled on plaintiffs’ pending motion for a stay pending appeal, raising the prospect that the credit card late fees will go into effect only to be enjoined soon thereafter.
Democratic senators pen letter to trade org. that brought suit against CFPB’s credit card late fee rule
On April 14, two Democratic senators, Sen. Elizabeth Warren (D-MA) and Sen. Sheldon Whitehouse (D-RI), wrote a letter to the head of a commercial trade organization that brought a lawsuit against the CFPB, challenging the CFPB’s rule capping credit card late fees. As previously covered by InfoBytes, the trade organization and other business groups sued the CFPB, challenging its recent final rule limiting most credit card late fees to $8. The senators wrote that the trade organization’s decision to sue was “outrageous and unwarranted” as the senators sought an explanation for the opposition.
The senators stated that the lawsuit was “frivolous,” and argued that the trade organization neglected “Main Street businesses” and instead was “doing the dirty work of its big bank members” who charged these high fees. Bolstering their position that the rule would cover large credit card issuers only, the senators noted that the rule would be expected to apply to less than one percent of the 4,000 financial institutions offering credit cards. Further, the senators argued that this lawsuit was a pattern of the trade organization representing the interests of large corporations, citing a report that found that only 23 of the 28 million small businesses in the U.S. benefited from the trade organization’s litigation. In seeking an explanation, the senators requested answers to a series of questions, including “How did [the trade organization] reach the decision to sue the CFPB to stop the agency from putting this rule in place?” and “Has the [trade organization] conducted an economic analysis of how the CFPB proposal would impact its members?”
5th Circuit reverses District Court’s decision to transfer credit card late fee case
On April 5, the U.S. Court of Appeals for the Fifth Circuit held that the U.S. District Court for the Northern District of Texas lacked jurisdiction to transfer a case challenging a CFPB rulemaking to the U.S. District Court for the District of Columbia. The 5th Circuit’s decision did not examine whether the transfer order was proper, but rather whether the court had jurisdiction to enter it. As previously covered by InfoBytes, the U.S. District Court for the Northern District of Texas granted the CFPB a change of venue on March 28 because only one of the six plaintiffs resided in Fort Worth. The 5th Circuit found that the lower court erred by granting the CFPB’s motion to change venues instead of ruling on the plaintiffs’ motion for preliminary injunction. The plaintiffs filed a writ of mandamus and argued the lower court “abused its discretion” by transferring the case while the plaintiffs’ appeal was outstanding, and that the lower court did not have jurisdiction to order the transfer. The 5th Circuit agreed and ruled that once a party appeals a district court’s decision, the district court “has zero jurisdiction to do anything” to change the case. The 5th Circuit granted the plaintiffs’ petition of mandamus, vacated the district court’s transfer order, and ordered the district court to reopen the case.
This case has been brought by multiple trade organizations to challenge the CFPB’s attempt to alter the structure and amount of credit card late fees through its alleged authority under the CARD Act, as covered by InfoBytes here.
FTC to hold an informal hearing on its proposed “junk fee” rules
On March 27, the FTC published a notice in the Federal Register informing the public of its decision to hold an informal hearing on its proposed rule prohibiting “junk fees.” As previously covered by InfoBytes, the FTC released a notice of proposed rulemaking (“NPRM”) titled “Rule on Unfair or Deceptive Fees” and extended the comment period last October. In the NPRM, the FTC presented the opportunity for any party to present their positions orally. The FTC announced that 17 commenters requested to partake in the informal hearing by presenting oral statements and an administrative law judge for the FTC will serve as the presiding officer. The informal hearing will be presented virtually on April 24 at 10:00 a.m. Eastern time. The hearing will be presented live to the public on the FTC’s website, and a recording will be placed in the rulemaking record.
CFPB wins approval to move credit card late fee case to Washington, D.C.
On March 28, the U.S. District Court for the Northern District of Texas granted the CFPB’s motion to transfer a case to the U.S. District Court for the District of Columbia after identifying several concerns regarding litigating the case in the Texas venue. This case has been brought by multiple trade organizations to challenge the CFPB’s attempt to alter the structure and amount of credit card late fees under its alleged authority under the CARD Act, covered by InfoBytes here. The court agreed to transfer the case after finding that both defendants, along with three of the six plaintiffs, resided in Washington where the rule at issue was promulgated; comparatively, only one of the six plaintiffs resided in Fort Worth.
The court analyzed both private- and public-interest factors. On private-interest factors, the court agreed that Washington was a more practical venue, noting that eight of the ten attorneys representing the parties list offices in Washington, while only one plaintiff was headquartered in Texas. The court concluded that plaintiffs also have not identified any substantial or practical issues with this case being held in Washington. On public interest factors, the court weighed the comparative dockets and noted that, on average, a case in Washington would be resolved faster than in Texas. The court also reasoned that there was a strong interest in having the case decided in Washington. “The Rule at issue in this case was promulgated in Washington D.C., by government agencies stationed in Washington D.C., and by employees who work in Washington D.C. Most of the Plaintiffs in this case are also based in Washington D.C. and eighty percent of the attorneys in this matter work in Washington D.C. Thus, the [U.S. District Court for the District of Columbia] has a stronger interest in resolving this dispute, as it is the epicenter for these types of rules and challenges thereto.”
White House targets “junk fees” in higher education with several new initiatives
On March 15, the White House issued a fact sheet on proposed measures aimed at curbing or eliminating alleged “junk fees” in higher education, citing that it found college students incurred “billions in fees” when having to pay for services they may not want. The first action the Biden Administration highlighted was a FY 2025 budget proposal that would eliminate student loan origination fees. The White House found that seven million student loan borrowers pay origination fees somewhere between one and four percent of their student loans. The second item the Biden Administration sought to end was college banking “junk fees,” citing a recent report by the CFPB on this issue (covered by InfoBytes here). To address this issue, the Dept. of Education has proposed a rule on college banking products that cannot include harmful fees. Third, the White House supports another proposed rulemaking from the Dept. of Education that would end automatic billing on tuition for textbooks, allowing students to shop around for better prices. Last, the Dept. of Education is considering a rulemaking that would stop colleges from pocketing leftover meal plan “dollars,” and instead will return the balance to students. The Biden Administration noted these were just a few items meant to help student initiatives, including increasing the transparency of college costs and preventing schools from withholding transcripts. These rules will go into effect on July 1.
State of the Union Address: President Biden addresses the banking industry
On March 7, President Biden delivered his 2024 State of the Union Address, where he highlighted how his administration is actively working to reduce costs for consumers by addressing issues such as corporate price gouging and alleged “junk fees.” According to a related White House Fact Sheet, the Biden Administration was focusing on corporate practices that may contribute to high prices, urging companies to lower their prices in line with decreasing input costs and stabilize supply chains. Biden highlighted the CFPB’s proposed rule on overdraft fees and the final rule on credit card late fees as progress in reducing alleged “junk fees.”
Furthermore, the fact sheet highlighted the CFPB’s scrutiny of alleged practices by branded retailers and airline credit cards of devaluing points and miles and luring in consumers with misleading deferred interest products.
CFPB blog post tackles mortgage closing costs, seeks consumer feedback
On March 8, the CFPB published a blog post seeking consumer input on experiences with the closing process of consumer mortgages, and in particular, closing costs. The blog post posited that closing costs significantly impact a borrower’s financial commitment and, potentially, monthly payments and identified a “noticeable increase” in closing costs, with median total loan expenses on home purchase loans increasing by 21.8 percent between 2021 and 2022. In particular, the Bureau singled out title insurance fees and credit reporting fees. It labeled title insurance as a fee that borrowers are charged and for which they have no control over the cost, alleging that “the amount that borrowers pay for lender’s title insurance is often much greater than the risk.” With respect to credit reports, the Bureau remarked that the highly concentrated industry dictates the price of credit reports, citing anecdotal evidence of cost increases of 25 to 400 percent.
The blog post also indicated that borrowers with smaller mortgages, including those with lower incomes, first-time homebuyers, and individuals residing in Black and Hispanic communities, are often disproportionately affected by closing costs, because they are typically fixed costs and do not change based on the size of the loan. The Bureau requested that consumers provide input on their experience with mortgage or closing costs, signaling that it will continue to analyze and if necessary “issue rules and guidance to improve competition, choice, and affordability.”