On October 20, the Federal Trade Commission (FTC) issued an Advanced Notice of Proposed Rulemaking, seeking public comment on the harms stemming from what it characterizes as “junk fees,” i.e., fees that are allegedly unnecessary, unavoidable, or unexpected, and that inflate costs while adding little value. The term also encompasses “hidden fees,” which are fees for goods or services that are deceptive or unfair, including because they are only disclosed at the latter stage in the consumer’s purchasing process or not at all. While the FTC has been active in bringing enforcement actions against alleged “junk fees,” it generally lacks the authority to seek penalties against first-time violators or the ability to obtain financial compensation for consumers in instances in which “junk fees” violate the FTC’s prohibition on unfair or deceptive practices. This new rule would change that.
According to the FTC, these so-called “junk fees” are prevalent in a variety of industries: “Junk fees manifest in markets ranging from auto financing to international calling cards and payday loans.” Examples of fees that the FTC is questioning include “mobile cramming” charges, connection and maintenance fees on prepaid phone cards, account fees, fees that diminish the amount a borrower receives from a loan, miscellaneous fees levied on fuel cards, auto dealer fees, undisclosed fees for funeral services, hotel “resort” fees, hidden fees for academic publishing, poorly disclosed ancillary insurance products, and membership programs.
According to the FTC, fees it is considering regulating fall into the following categories:
- Unnecessary charges for worthless, free, or fake products or services.
- Consumers may be subject to charges for products or services that cost companies nothing to provide, are available for free, or should be included as part of the purchase price.
- Unavoidable charges imposed on captive consumers.
- Consumers may be forced to pay unwanted fees because they have no way to avoid or opt out of them, either because they are dealing with a company with a monopoly, or they have already sunk money into the product or service and can’t easily walk away.
- Surprise charges that secretly push up the purchase price.
- According to the FTC, this happens when companies unexpectedly tack on undisclosed charges, hide fees in the fine print, add fees onto the end of a purchase process, or use digital dark patterns or other deception to collect on them.
The FTC is seeking comment on, among other things, the prevalence of each of the above practices and the costs and benefits of a rule that would require upfront inclusion of any mandatory fees whenever consumers are quoted a price for a good or service. Once the notice has been published in the Federal Register, consumers can submit comments electronically.
This proposed rulemaking is not the only new rule the FTC is considering attacking fees. As we discussed here, in June 2022, the FTC released a proposed Motor Vehicle Dealers Trade Regulation Rule. The proposed rule would create a host of new compliance challenges for motor vehicle dealers, including a new national standard for price advertising, trigger disclosures for payments, added paperwork for the sale of add-on products, a prohibition on “no benefit” add-on products, and additional recordkeeping requirements. The deadline for comments expired on September 12.
The FTC and other regulators have also been challenging fees through enforcement actions, and this notice comes hard on the heels of announcement by the FTC of charges against an automotive dealer that it discriminated against certain groups of car purchasers in how it imposed additional charges in motor vehicle sales. We discuss this settlement here.
FTC Chair Lina Khan explained the reasoning for the proposed new rule in her statement: “These types of extra or redundant fees can mislead consumers, or prevent them from knowing the true cost of a purchase until they’ve already invested substantial time and energy.” Chair Khan also claimed that “junk fees” have negative ramifications for other business owners as well. “These fees don’t only harm consumers — they can also force honest businesses to compete on an unfair playing field. A company selling a widget for 25 dollars might lose sales to a company selling a comparable widget for 20 dollars, plus a six-dollar widget-certification fee tacked on at the end.”
Troutman Pepper will continue to monitor important developments involving the FTC and the proposed rules, and we will provide further updates as they become available.