What Are Administration Fees?
Administration fees, also known as account-keeping fees, are charging service providers impose for certain types of tasks or services outside the scope of what is considered regular service in connection with an account. The most common context in which administration fees are charged, particularly in the case of financial institutions, are in relation to personal loans and other lending services. These rules require that fees must be paid at the rate specified in the contract or determination.
In certain circumstances, consumers are charged exorbitant , excessive or otherwise unlawful fees for a service or product. Consumers have the right to seek restitution for the legal fees charged to them. go to court to seek orders declaring some fees void and to prevent service providers from charging them. A service provider is a credit provider, supplier, credit intermediary, credit report agency or credit assistance provider that is charging the administration fee. Examples of administration fees include landlord fees imposed by a lettings agency, overdraft facility fees charged by a bank and debenture extend fees charged by a debenture. An administration fee can also be charged in relation to any contract for the provision of property or services or the sale of goods.
Legal Basis for Administration Fees
Legality of Administration Fees
Given the complexity and variability of regulation in the United States, numerous state and federal laws govern the ability to charge administration fees. As a starting point, most states have consumer protection laws that apply to the assessment of such fees in the context of consumer goods or services. For example, federal law mandates certain standards for the disclosure of fees in credit card agreements via the Truth in Lending Act ("TILA"). In addition, the Credit Card Accountability Responsibility and Disclosure ("CARD") Act stipulates a number of other requirements related to credit cards, including the prohibition of double-cycle billing (i.e., assessing interest charges on debt the consumer has already paid off in a previous billing cycle). Additionally, the CARD Act addresses various penalties that merchants can impose on cardholders, and the Act’s provisions regarding fee assessment are intended to limit merchant fees and duration of penalties. Of particular importance, the CARD Act requires consumers to be notified in advance of any increase in fees: 45 days prior to the effective date of the fee increase. It is noteworthy that some criticized the CARD Act as a solution in search of a problem, and the Act’s applicability was intentionally narrow; applicability only to credit cards issued by covered issuers. Based on these provisions, however, we believe it is unlikely that the CARD Act or TILA will provide sufficient grounds for a federal agency, such as the Federal Trade Commission (FTC), to assert jurisdiction over the legality of administration fees charged by non-credit card issuers. At least not without additional evidence of "unfair" or "deceptive" conduct.
Factors for Legality
Some of the factors that influence whether an administration fee is legal include: transparency, consent, the reasonableness of the amount of the fee, and how the fee compares to market standards. The absence of a particular factor, however, does not necessarily mean that an administration fee is illegal.
Transparency of Terms
For a fee to be legal, people have to be able to find the terms of the fee; otherwise people cannot consent to the fee by their actions. Common practices of this include listing fees in the contract, mentioning fees several times in a receipt or invoice, or posting a conspicuous notice in person or online.
Consent to Fee
People generally will not agree to pay extra for a good or service in the absence of a free option. For example, if merchants charged for demonstration models at the store, most people would simply not agree to buy the items used as demonstrations and would go to a different store to find them at no charge.
Reasonableness of amount of fee
In some cases, the legality of an administration fee depends on whether it is reasonable compared to the service being offered. Courts may consider factors such as market price for the service and whether the fee provides a significant relationship to the cost of the service. For example, courts may allow small administrative fees and consider those fees to be legal even where they are mentioned only in the contract, but may disallow large administrative fees for expired contracts based upon differing views of what is significant; i.e., Are the fees significant relative to the price of the good or service? or Are the fees significant even if they are small relative to the price of the good or service?
Common Issues and Disputes
Most of these challenges center around the notion that the amount of the fees is either unreasonable or exorbitant. And, in order to prevail on this argument, the member must be able to prove that the fees are not reasonably related to the cost of the service provided (in other words, that the charges are "unreasonable"). A common example of this is charging a fee for units that actually do not have the direct services provided by utility companies. Another common example of this is charging based on the number of bedrooms in a unit (as opposed to the size of the unit), when bedrooms generally do not use the same amount of utilities as other rooms, such as full kitchens and living rooms.
Another common challenge occurs in cases where the fees are not set out in the association’s written contract with the developer or the bylaws . One example of this is when a developer retains management companies that are affiliated with the developer and developers request that HOA members pay those management companies a percentage of the monthly assessments from the members. Challenges also occur when associations change their management companies and do not pass on that change to the members, making the cost of the change a budgetary line item without seeking the consent of the members. These actions are more likely to be challenged if the fees are significant, but that is not always the case.
A final example of a dispute involving the legality of administration fees is a case where it became known that an HOA was charging members $100 administration fees for late payments, in addition to any late payment interest charges already set out in their bylaws. The plaintiffs successfully challenged the $100 administrative fee as an unlawful penalty because the cost of administering the accounts was less than this penalty and the HOA already had the right to charge a late payment penalty under the bylaws.
Consumer Rights and Protections
Consumers have important rights when dealing with administration fees.
Right to Challenge Unfair Fees
First and foremost, if you feel you have been charged an unfair administration fee, you have the right to dispute it. Your first recourse, if you think that you should not be charged a particular fee, is to ask the company for an explanation. For example, in the case of administrative fees charged in connection with the purchase of a home, consumers could challenge their real estate agent to justify the amount of the fee or its terms before he or she signs the agreement. If the real estate agent charges the fee without your consent, or without adequately warning you about the charge, you may be able to sue them for it. However, you should be aware that as a general rule, merchants can charge whatever fees they want, provided those fees are illegal, such as fees that are unlawful under state or federal law. People can only sue businesses in very specific situations. You should never feel that a fee charged for a service is necessarily unlawful, unless you are sure of its illegality based upon a law or a court decision.
Consumer Protection Laws
Fortunately, specific consumer protection laws in every state and at the federal level help consumers avoid being victimized by unfair charges, fees and surcharges. For example, businesses cannot charge different surcharges based on race, gender or age. In many cases, if a creditor charges unfair fees that may violate your rights as a consumer, you may bring a class action lawsuit against the creditor, even if you have suffered only limited damages, in order to obtain damages and potentially punitive damages.
Guidelines for Businesses Charging Administration Fees
When considering administration fees, businesses should first determine whether the fee is unavoidable if the business is going to do what it is doing. If a fee is unavoidable, we would recommend that it not be described as an administration fee (which is used for an entirely different purpose), but rather as a service fee. However, if there is any element of choice, or the fee is in some way arbitrary, we recommend against charging it. Such fees fall squarely within the prohibition.
As with any contractual terms, businesses must ensure that any fee that is ultimately charged is made clear to the consumer at the outset of the contractual relationship (ideally before the consumer contracts with the business, e . g., on the website, in advertisements, etc.). Importance should be given to placing the consumer on notice immediately of the fee being charged before the consumer decides to enter into the contractual relationship.
For example, a notice to the effect that "an administration fee is charged on arrangements made, details of which appear in our brochure" is insufficient notice of a charge, as the consumer is not told what the charge will be.
Businesses who believe that they have been a victim of an unfair administration charge do not need to sue to recover the charge. They can simply write to the party who charged the fee and ask for a refund as an unfair term.