The fuss about junk fees: Recent regulatory, private actions challenge fees

The Consumer Financial Protection Bureau and Federal Trade Commission have issued proposed rules and guidance regarding some fee practices, and both agencies have ramped up enforcement actions and collected hundreds of millions of dollars in penalties for fee-related violations.  

Some relevant regulatory and enforcement activities include: 

1. CFPB acts against ‘surprise’ overdraft fees 

Last year, the CFPB took action against a bank for charging what the bureau called “surprise” overdraft fees. While the bank disputed liability, it agreed to pay tens of millions into the CFPB’s victims’ relief fund and to refund at least $100 million to customers harmed by these overdraft fees.  

According to the bureau, over a period of years the bank charged customers surprise overdraft fees on certain ATM withdrawals and debit card purchases, even after telling consumers they had sufficient funds at the time of the transactions. The CFPB also found bank leadership at fault. 

2. CFPB and OCC team up 

This year, the CFPB, in conjunction with the Office of the Comptroller of the Currency reached a settlement with a large national bank in which the bank agreed to pay more than $150 million in fines related to credit card reward programs and overdraft policies. 

Specifically, the agencies alleged the bank charged customers non-sufficient funds fees multiple times for a single declined transaction, generating millions of dollars over a four-year period.  

In addition to the fine, the bank also agreed to refund at least $75 million to customers who were charged multiple fees. 

3. FTC sues car dealerships   

The FTC in October 2022 sued a group of car dealerships for adding thousands of dollars in fees onto advertised vehicle prices.  

The dealerships regularly advertised certified, reconditioned or inspected cars at specific prices, but then added extra certification, reconditioning or inspection fees that it falsely claimed consumers were required to pay, according to the FTC.  

The car dealerships agreed to settle and refund $3.3 million to customers. 

4. FTC hits Illinois dealer for $9.8M 

In another action, the FTC and the State of Illinois sued Ed Napleton Automotive Group, alleging that its employees were sneaking illegal fees for unwanted “add-ons” onto vehicle purchases and discriminating against Black consumers.  

Eight of the junk fees were for payment insurance and paint protection, and cost consumers hundreds or even thousands of dollars, according to the joint complaint. The dealership settled for $9.8 million. 

5. Private litigants enter fray  

Unsurprisingly, private litigants have begun to file suit opposing fees associated with junk fees. Many of those lawsuits mirror comments and critiques by the CFPB and FTC.  

In January, a putative class action was filed against a bank in federal court in Virginia for charging a $38 overdraft fee.  

The suit, in direct reliance on regulatory comments from the CFPB and FTC, claims the fee is a junk fee because, among other things, it takes “money out of consumers’ accounts without their permission and contrary to their reasonable expectations that they will not be charged improper fees.” 

Also this year, a putative class action was filed in Virginia against Booz Allen, a for-profit federal contractor, for charging junk fees for consumers to access national parks.  

Plaintiffs allege that Booz Allen began charging junk fees in the form of ‘processing fees,’ ‘reservation fees,’ ‘lottery fees,’ ‘cancellation fees’ and other bogus fees designed to line its own pockets.”  

Similarly, a recent putative class action was filed against a bank in North Carolina over its practice of assessing multiple $35 overdraft fees for a single declined payment.  

Plaintiffs in that case contend that this junk fee breached the bank’s duty of good faith and fair dealing, breached the underlying account agreements, and unjustly enriched the bank on the plaintiffs’ behalf. 

Junk fee lawsuits easily become class action because the fees at issue normally transcend an individual plaintiff. The suits also mark a trend focusing on fees associated with consumer products and services that are not expressly authorized by an underlying agreement or are disproportionate to the value of the services provided. 

This is Part 2 of a three-part series on junk fees. The next installment will outline considerations for financial services companies navigating the new normal when it comes to challenges to so-called “junk fees” by consumers and regulatory agencies. 

Jim Sandy is a partner at McGlinchey, where he advises clients in cases involving federal and state regulatory matters, arbitrations, consumer complaints filed with the Consumer Financial Protection Bureau, and state and federal lawsuits.  

Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 29-31 at the Bellagio Las Vegas and features a fireside chat with Ford Credit. To learn more about the 2023 event and register, visit here.