FTC Proposes Rule to Ban 'Junk Fees'

The FTC has proposed a rule to ban so-called “Junk Fees,” which, if enacted as proposed, would affect numerous industries, ranging from hospitality to entertainment to transportation. The proposal purports to prohibit unfair or deceptive practices relating to fees for goods or services, specifically misrepresenting the total costs of goods and services by omitting mandatory fees from advertised prices and misrepresenting the nature and purpose of fees. The proposal follows an Advanced Notice of Proposed Rulemaking (ANPR), published in November 2022, for which the FTC says it received over 12,000 comments.

In general, the proposed rule seeks to address two areas that the FTC says cause consumer harm and are prevalent:

1. practices that misrepresent the total costs by omitting mandatory fees from advertised prices (so-called “bait and switch”) and
2. practices that misrepresent the nature and purpose of fees or charges.   

Regarding “bait and switch,” the FTC maintains that numerous courts have recognized that it violates the FTC Act if a consumer’s first contact is induced through deception, even if the truth is clarified prior to purchase—so-called “initial interest confusion.” This theory ignores the fact that, at least concerning complicated products, providing complete information in a single advertisement may not be feasible or may be counterproductive to consumer comprehension. Some products also have optional components, government-set fees, or shipping charges that are impossible to estimate for purposes of a single advertisement in which the specific product configuration sought by the consumers is as yet unknown. Pricing practices vary widely by industry, and perceived consumer disclosure needs must co-exist with the realities of accuracy in advertising. Not all so-called “hidden fees” are required, and whether or not they are mandatory will be an issue of significant debate in the future should this rule take effect.                            

Rule requirements

The rule would ban “hidden fees,” which it defines as not clearly disclosing the “total price” (i.e., the price that includes all “mandatory [not “ancillary fees”]). The rule would also require that in any advertisement featuring an amount a consumer may pay, the regulated business must display the “total price” more prominently than any other pricing information.  

The rule would also prohibit misleading descriptions of the purpose of add-on fees and would require disclosure, before the consumer consents to pay, of “the nature and purpose of any amount a consumer may pay” that is excluded from the advertised total price. 

Why a rule?

The FTC lost its ability to obtain monetary redress under Section 13(b) in the AMG Cap. Mgmt., Supreme Court decision in 2021. Since then, the Commission has sought additional methods to obtain consumer redress, including engaging in rulemaking. Violation of a rule can result in civil penalties and also lead to consumer redress. 15 U.S.C. 57b(a)(1).

Implications

If it goes into effect, the proposed rule will require a sea-change in advertising of pricing information. The proposed rule contains an unusually lengthy economic analysis of the proposed impact across business sectors, which affected businesses should scrutinize carefully.

What happens from here

Unless the deadline is extended, comments are due in roughly 60 days. That puts the due date on or around December 12, 2023. Under the FTC’s rulemaking process, the FTC must provide an opportunity for interested persons to present concerns orally in an informal hearing. 15 U.S.C. 57a(c).

We encourage interested businesses to make their voices heard in this process. Please contact us for more information.