Anti 'Junk Fee' Lawsuit Risk Already Growing

Everyone hates “junk fees.” Just the name suggests that the junk fee refers to surprise, unnecessary charges, tacked onto advertised prices in a manner that is deceptive or unfair. The Biden Administration has announced a popular administrative effort to ban them. The FTC is one of the first agencies out of the gate, currently considering a proposed rule to ban junk fees.

A sign that regulatory action often inspires private litigation, plaintiffs' lawyers are already lining up junk fee lawsuits. Various cultural attractions in New York City have been sued for supposedly tacking on sizable “junk” fees to tickets. For example, in a recent case, plaintiffs allege that the New York City Museum of Ice Cream tacks on a $9.50 “service fee” to every ticket sale. Regular prices advertised for tickets appear to run from $30 to $50, so the service fees constitute a sizable percentage of the total sale. The fees are “flashed," according to the complaint, only after the consumer has selected the date and time of the ticket. However, they are inarguably displayed prior to purchase, meaning that the consumer can certainly choose not to buy after seeing the total price.

Nevertheless, the plaintiffs assert that the total ticket price should have been disclosed earlier and that the delayed disclosure violates Arts and Cultural Affairs Law § 25.07(4), which provides that “every operator … of a place of entertainment … shall disclose the total cost of the ticket, inclusive of all ancillary fees that must be paid in order to purchase the ticket.” The Complaint adds that “[s]uch disclosure of the total cost and fees shall be displayed in the ticket listing prior to the ticket being selected for purchase.” In other words, the total price, inclusive of all mandatory service fees, should be displayed before the consumer clicks on the date and time of the requested ticket. The plaintiff seeks to certify a nationwide class of museum visitors who purchased tickets from 2022 to the present, presumably to seek refunds of the service fees, if not the total ticket sale price – irrespective of anyone actually being misled.

This complaint might otherwise be pigeonholed as an artifact of a relatively obscure law applicable to New York cultural attractions only were it not for the deceptively simple requirement that looms large in the anti-junk fee rules proposed by the federal government. As the federal government defines it, junk fees include both “hidden fees” and “bogus fees.” Hidden fees are any mandatory fee that must always be paid regardless of item or service purchased. Bogus fees are fees whose purpose is “misrepresented” by the seller. The proposed rule says that any legitimate, mandatory fees must always be included in the advertised total price before the consumer first clicks.

Imagine a seller that wishes to reflect the portion of total price it must pass on to a third party – fees that it does not keep but in effect passes through. It has a First Amendment right to communicate to consumers what it characterizes as the base price it charges, while at the same time informing the consumer that its base price is inflated by other costs imposed by third parties. One can also easily imagine a seller operating a profitable business being accused of pocketing these fees, and thus misrepresenting their purpose. Should a profitable seller have to reduce prices in order to avoid allegations that the fees are not “bogus”?  Will any seller henceforth be able to get a case dismissed under 12(b)(6)?

A similar proceeding is now winding its way through the Canadian court system. There, the Competition Bureau has accused Cineplex of adding deceptive junk fees to the price of movie tickets.  A closer look at the allegations, however, suggests that the fees are not mandatory for those who opt in to the chain's movie club. The case will be an interesting harbinger of possible activity in the United States.

What seems clear is that the private litigation on this issue will be on the rise even if the federal rules are never finalized.  Any company making consumer sales – particularly online – should examine their buy flows to address the possible risks.