On October 20, the Federal Trade Commission (FTC) Published an advance notice of proposed rulemaking, seeking public comment on the harms resulting from what it describes as “undesirable fees”, that’s to say, allegedly unnecessary, unavoidable or unexpected charges that inflate costs while adding little value. The term also encompasses “hidden charges”, which are charges for goods or services that are misleading or unfair, including because they are disclosed only at the last stage of the consumer’s purchase process or not everything. Although the FTC has been active in bringing enforcement action against alleged “junk fees,” it generally lacks the authority to seek sanctions against first-time offenders or the ability to obtain financial compensation for consumers in cases where “junk fees” violate the FTC. prohibition of 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 themselves in markets ranging from auto financing to international calling cards and payday loans. Examples of fees the FTC is questioning include “mobile cramming” fees, connection and maintenance fees on prepaid phone cards, account fees, fees that decrease the amount a borrower receives from loan, miscellaneous fuel card charges, car dealership fees, undisclosed fees for funeral services, hotel “resort” fees, hidden fees for academic publications, poorly disclosed auxiliary insurance and membership programs.
According to the FTC, the fees it plans to regulate fall into the following categories:
- Unnecessary charges for worthless, free or counterfeit products or services.
- Consumers may be subject to fees for products or services that cost businesses nothing, are available free of charge, or should be included in the purchase price.
- Unavoidable charges imposed on captive consumers.
- Consumers may be forced to pay unwanted charges because they have no way of avoiding or opting out of them, either because they are dealing with a monopolistic company or because they have already invested money in the product or service and can’t easily walk away.
- Surprise fees that secretly drive up the purchase price.
- According to the FTC, this happens when companies unexpectedly prey on undisclosed fees, hide fees in the fine print, add fees at the end of a purchase process, or use digital dark models or other deceptions to perceive them.
The FTC invites comment on, among other things, the prevalence of each of the above practices and the costs and benefits of a rule that would require the initial inclusion of all mandatory charges whenever consumers are offered a price for a good or service. Once the notice is published in the Federal Registerconsumers can submit their comments electronically.
This proposed rule isn’t the only new rule the FTC is considering attacking fees. As we discussed here, in June 2022, the FTC issued a proposed motor vehicle dealer business regulation rule. The proposed rule would create a host of new compliance challenges for motor vehicle dealers, including a new national standard for advertising prices, disclosure triggers for payments, additional paperwork for selling add-on products, prohibition of “no benefit” additions on products and additional record keeping requirements. The deadline for comments expired on September 12.
The FTC and other regulators have also challenged the charges through enforcement action, and this notice follows the FTC’s announcement of charges against a car dealership for discriminating against certain groups of car buyers in the way he imposed additional charges in the automobile. vehicle sales. We are discussing this settlement here.
FTC Chair Lina Khan explained the reasoning for the proposed new rule in her statement“These types of additional or redundant charges can mislead consumers or prevent them from knowing the true cost of a purchase until they have already invested significant time and energy.” Chairman Khan also claimed that the “unwanted fees” also had negative ramifications for other business owners. “These fees don’t just hurt consumers, they can also force honest businesses to compete on an unfair playing field. A company selling a widget for $25 could lose sales to a company selling a comparable widget for $20, plus a six-dollar widget certification fee added 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.