By: Kevin Quintanilla A big win may come soon to consumers due to the Federal Trade Commission’s (“FTC”) new proposed rule to ban junk fees.[1] Junk fees refer to hidden costs or extra charges that a consumer must pay,...
By: Kevin Quintanilla
A big win may come soon to consumers due to the Federal Trade Commission’s (“FTC”) new proposed rule to ban junk fees.[1] Junk fees refer to hidden costs or extra charges that a consumer must pay, oftentimes substantially increasing the total price of a product or service.[2] These fees are frequently not prominently disclosed and instead discreetly tucked away in the fine print. For example, a business advertises an artificially low price for a good or service to attract customers. But, when the customer is at the checkout stage, they learn that the total price of their purchase is much higher because of added junk fees such as service fees. This tactic has gained popularity among companies in recent years, particularly in the hotel, airline, and live event ticketing industries.[3] The widespread use of junk fees has caught the attention of the FTC.
In October 2023, the FTC published its notice of purposed rulemaking (“NPRM”) which outlined the Commission’s reasons for proposing the rule.[4] In the NPRM, the Commission argues that eliminating junk fees could positively impact the economy by reducing the financial burden these fees impose on consumers.[5] It also argues that junk fees negatively impact competition in the long-term because competitive forces will drive more businesses to implement this junk fee model.[6] The Commission says that the rule is needed because although existing rules and statutes already prohibit unfair or deceptive fees, the Commission currently lacks the power to seek redress for consumers for everyday junk fees that fall outside of the specific contexts outlined in the existing rules and statutes.[7] It says that with this new rule, the Commission will have a more efficient and quicker avenue to impose civil penalties on businesses and return money to consumers.[8]
Under the FTC’s proposed rule, it will be illegal for a business to offer, display, or advertise amounts consumers may pay without “clearly and conspicuously” disclosing the “total price.”[9] The total price must also be displayed more prominently than any other pricing information.[10] The total price is defined as all of the fees or charges a consumer must pay, except shipping costs or governmental charges such as taxes.[11] Additionally, it will be illegal for a business to mispresent the nature and purpose of any amount a consumer may pay, including the refundability of such fees and the identity of any good or service for which fees are charged.[12] The rule gives the FTC authority to seek penalties of up to $50,120 per violation.[13]
Clearly, the rule does a lot to protect consumers, but not everyone is excited. Trade associations such as the U.S. Chamber of Commerce oppose the rule, saying that classifying all fees as “junk” is an oversimplification and that these fees serve a purpose to help differentiate the cost of services.[14] The National Apartment Association also opposed the rule, saying it oversimplifies the advertising and leasing process because some fees cannot be predicted with certainty at the time of application.[15]
At this stage in the rulemaking process, the FTC is seeking comments from the public before finalizing the rule, which can be as early as 2024.[16] If the proposed rule is adopted, it will greatly impact how businesses structure their fee models, interact with customers, and disclose charges. Additionally, it will increase price transparency, promote competition, and reduce consumer confusion. Ultimately, given the widespread desire among consumers for the federal government to act on junk fees,[17] plus a pro-consumer FTC leadership, the rule will likely be adopted, and junk fees as we know it will become a thing of the past.
[1] See FTC, FTC Proposes Rule to Ban Junk Fees, fed. trade comm’n (Oct. 11, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/10/ftc-proposes-rule-ban-junk-fees.
[2] See Id.
[3] See Christopher Elliot, Hotels are returning fire in the ‘junk fee’ war. Don’t be a casualty, USA Today, (Aug. 16, 2023, 9:30 AM), https://www.usatoday.com/story/travel/columnist/2023/08/04/junk-fees-hotels-fight-them/70514452007/ (discussing the various junk fees prevalent in the hotel industry and the increasing use of them); See Jess Wade, Travel ‘Junk Fee’ Crackdown: Skift Explains, Skift, (Oct. 11, 2023, 11:01 AM), https://skift.com/2023/10/11/travel-junk-fee-crackdown-skift-explains/ (“For the travel industry, examples of junk fees could include seat selection fees, resort fees, charging for overhead bin space on a plane, or excessive cleaning fees in a short-term rental. It’s when that $270 flight to New York suddenly costs $300, and the $450 hotel room is now over $500”).
[4] Notice of Proposed Rulemaking on Unfair or Deceptive Fees, 87 Fed. Reg. 67413 (proposed Nov. 8, 2022) (to be codified at 16 C.F.R. pt. 464).
[5] See FTC, Notice of Proposed Rulemaking on Trade Regulation Rule on Unfair and Deceptive Practices, fed. trade comm’n, 1-161, at 135 (Oct. 13, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/r207011unfairjunkfeesnprmfinal.pdf (“The break-even analysis implies there are positive net benefits to the proposed rule if the benefit for consumer is at least $6.65 per consumer per year over a 10-year period”).
[6] Id. at 42 (“Such practices have no countervailing benefits to consumers and competition—they simply make it more difficult for consumers to comparison shop and for truthful businesses to compete on price”).
[7] Id. at 50-52 (discussing the existing rules and regulations that the FTC has to combat unfair fees and explaining why they are not as efficient in seeking redress for consumers as the purposed rule is).
[8] Id.
[9] Id. at 135.
[10] Id.
[11] Id.
[12] Id. at 136.
[13] Melissa Angell, The FTC Is Coming After Junk Fees, With Penalties of $50,120 per Violation, Inc., (Oct. 13, 2023), https://www.inc.com/melissa-angell/the-ftc-is-coming-after-junk-fees.html.
[14] See Richard Hartnett, Micromanaging the Economy, U.S. Chamber of Commerce, (Mar. 31, 2023), https://www.uschamber.com/economy/micromanaging-the-economy.
[15] National Apartment Association, FTC Announces Proposed Rule on Junk Fees, (Oct. 11, 2023), https://www.naahq.org/ftc-announces-proposed-rule-junk-fees (“The federal government’s proposed actions . . . ignore realities of operating rental housing”).
[16] FTC, supra note 1.
[17] See FTC, supra note 5 (“The majority of comments expressly supported government action or described negative experiences relating to fees that suggested support for such action. The comments generally supported a rulemaking to improve pricing transparency—including requiring advertised prices to include mandatory fees— and to prohibit misrepresentations about the nature, purpose, or amount of fees”); see generally Rashaad Jorden, Junk Fee Rules: The FTC Received 12,000 Comments – Here’s What They Said, Skift (Oct. 12, 2023, 9:41 AM), https://skift.com/2023/10/12/junk-fee-rules-the-ftc-received-12000-comments-heres-what-they-said/ (discussing some of the comments from consumers in response to the advanced notice of proposed rulemaking released in October 2022).
