The FTC and California Take Aim at “Junk Fees”

by: John Allaire and Chloé Nelson with contributions by Sara Chubb

Last month, the Federal Trade Commission announced a proposed rule that targets unfair and deceptive practices relating to advertised fees for goods or services. Specifically, the proposed rule would prohibit companies from misrepresenting the total costs of goods and services by omitting mandatory fees from advertised prices and misrepresenting the nature and purpose of fees. The proposed rule is part of a broader effort by the Biden administration and regulators to protect consumers from junk fees, which the FTC defines as “unfair or deceptive fees that are charged for goods or services that have little or no added value to the consumer.”

As part of the rulemaking process, the FTC reviewed over 12,000 comments in response to its Advanced Notice of Proposed Rulemaking, which the Commission issued last year.  According to the FTC, the comments show that junk fees are widespread across a number of industries. The FTC specifically considers junk fees in the following industries: hotel and short-term lodging (including travel agencies), live event ticketing, restaurant and grocery delivery (including delivery apps), transportation (including airlines and car rentals), telecommunications (including internet, television and telephone service, rental housing, education, financial services, and correctional services).

The proposed rule covers any business selling in physical locations and online, with the exception of motor vehicle dealers (which are addressed in a separate rule). The crux of the rule reads:

§ 464.2 Hidden Fees Prohibited

(a) It is an unfair and deceptive practice and a violation of this part for any Business to offer, display, or advertise an amount a consumer may pay without Clearly and Conspicuously disclosing the Total Price.

(b) In any offer, display, or advertisement that contains an amount a consumer may pay, a Business must display the Total Price more prominently than any other Pricing Information.

§ 464.3 Misleading Fees Prohibited

(a) It is an unfair and deceptive practice and a violation of this part for any Business to misrepresent 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.

Important Definitions

  • “Total Price” is defined to mean “the maximum total of all fees or charges a consumer must pay for a good or service and any mandatory Ancillary Good or Service, except that Shipping Charges and Government Charges may be excluded.”

  • “Ancillary” goods or services are those that arise out of the same transaction and can be mandatory or optional.

  • “Government Charges” is defined to cover taxes and any other mandatory government-imposed fee.

  • “Shipping Charges” is defined narrowly to cover the cost of sending physical goods.

  • “Pricing information” (which, if displayed, must be less prominent than the Total Price per 464.2(B)) means “any information relating to an amount a consumer may pay.”

  • Finally, “Clearly and Conspicuously” is prescriptively defined. For a written online disclosure, the Total Price would need to “stand out from any accompanying text or other visual elements so that it is easily noticed, read, and understood” and be “unavoidable” to an online shopper, in order to satisfy the definition of this term.  

Relatedly, California governor Gavin Newsom recently signed into law an Amendment to the California Legal Remedies Act (CLRA) that forbids “drip pricing,” which is the practice of advertising a price that is less than the actual price that a consumer will have to pay for a good or service. The Amendment goes into effect in July 2024 and requires businesses to disclose the full price of goods and services in advertisements or other materials that display prices (excluding taxes or fees imposed by the government and postal or carriage charges).

Takeways:

The FTC currently has the ability to target deceptive pricing through its Section 5 authority, although its ability to seek monetary relief in these types of cases is limited. The rule, if enacted, would significantly bolster the agency’s ability to obtain consumer redress and allow the Commission to seek up to $50,120 in civil penalties per violation. Additionally, companies may face costly penalties for failing to comply with the Amendment to the CLRA once it goes into effect, including actual damages, punitive damages, restitution, civil penalties, injunctive relief, and attorneys’ fees and court costs. Now is the time to review how your company communicates its prices to consumers and consider how you will ensure the full price of a good or service is adequately disclosed in advertising materials. If you have any questions about how the FTC’s proposed rule or the Amendment to the CLRA may impact your advertising practices, please don’t hesitate to reach out.

 Originally published by InfoLawGroup LLP. If you would like to receive regular emails from us, in which we share updates and our take on current legal news, please subscribe to InfoLawGroup’s Insights HERE.

John Allaire and Chloé NelsonFTC, retail