Key Point
- The FTC has proposed comprehensive rules that would ban “junk fees” in all sectors of the U.S. economy and impose stiff penalties for violations.
- If adopted in its current form, the FTC would impose initial enforcement restrictions on certain industries, including hotels and short-term lodging facilities, live event ticket sales, and restaurants and food delivery services, according to a report accompanying the proposal. likely to focus on. and transportation.
- Other potential targets include sectors where the toll impact could be greatest among vulnerable populations, such as telecommunications services, rental housing, education, financial services, and correctional services.
- The Commission is currently evaluating public comments on its proposal, pending final decision on the proposed rule.
Undisclosed fees are a frequent complaint from consumers related to shopping, travel, and subscriptions. Their unpopularity has earned them the nickname “junk fees,” and recent polls show that a majority of Americans support government measures to curb their use.
Fighting junk fees has become a priority for President Joe Biden as national momentum grows. The White House has used agency enforcement and multi-agency rulemaking to do so. Most importantly, the Federal Trade Commission (FTC or Commission) has indicated its intention to aggressively regulate these fees.
If the FTC adopts sweeping proposed rules banning unfair or deceptive fees across the U.S. economy, many companies will have to reconsider how they market and price their products and services. Dew.
Rules against unfair or deceptive conduct
The FTC issued a Notice of Proposed Regulations in November 2023 regarding the “Trade Regulation Regulations Regarding Unfair or Deceptive Fees'' (Proposed Regulations). This expands on the Commission's previous junk fee efforts in specific industries such as telemarketing, funeral services, and auto sales. Applies to all fields. “Classifying certain junk fees as unfair or deceptive” would prohibit a variety of fees-related activities.
The commission said a significant benefit of the proposed rule is that it would avoid the more red tape typically required by the FTC Act and would allow “monetary remedies, particularly consumer relief and civil penalties, to be obtained” for violations of the rule. It is claimed that there is a point. The proposed rule would impose fines of $51,744 for each violation, “creating a strong deterrent against the imposition of junk fees.”
The proposed rule generated so much public interest that the FTC extended the comment period by one month, until February 7, 2024. The FTC will consider the comments and decide whether to finalize the proposed rule, modify it, or end the process.
Given the government's desire to crack down on junk fees, it seems unlikely that this rulemaking will be cancelled. There is no deadline for the Commission to submit amendments or issue a final rule.
Potential enforcement priorities under the rule
The proposed rule includes two general requirements that apply broadly to all businesses.
- Doing so would prevent companies from misrepresenting the nature of their fees.
- Companies are generally prohibited from misrepresenting the total cost of goods or services by omitting mandatory fees.
The FTC and the Biden administration have said the rule will be “industry neutral,” but debate over the proposed rule's language and rules may raise questions about what types of companies the FTC might initially target. It suggests.
- Hotel expenses, short-term accommodation expenses, etc. “Resort fees” and cleaning fees, which are not advertised as part of a hotel or short-term accommodation nightly rate, are some of the most common junk fees cited by proponents of the rule. Resort fees totaled more than $2.9 billion in 2018, according to an analysis of the proposed rule. The Biden administration also specifically mentioned resort fees in its press release about the FTC's proposed action.
- Ticket prices for live events. The commission and the Biden administration have also criticized live entertainment ticket sellers' fee disclosure practices. The FTC noted comments about the difficulty in obtaining tickets at posted prices because hidden fees often increase prices by 30 to 40 percent. The FTC also notes that these hidden fees are often vaguely described or misleadingly labeled, such as “shipping charges” on tickets sent via email or app. I also observed.
- Restaurants and food delivery services. The FTC also claims that consumers are being misled by fees that do not accurately describe the nature or purpose of the restaurant, potentially targeting restaurants (for example., “service charge'', “kitchen fee'', or “entertainment fee''). The FTC also suggested that restaurants may be using the fees to circumvent rules that prohibit them from keeping tips given to servers. The proposed rule also criticized food delivery services, noting that consumers are frustrated by delivery apps charging fees that are not reflected in advertised prices.
- Transportation facilities. Both the Biden administration and the FTC have cited rental car fees as an area where there are a lot of rate disclosure issues. For example, the FTC suggested that rental car companies often delay mandatory fee disclosures until consumers are well into the rental process. The FTC also suggested that airlines similarly do not include required prices in their advertisements or otherwise misrepresent their prices.
Other areas that may be subject to enforcement include telecommunications, rental housing, education, financial services, and correctional services, where rates may particularly impact vulnerable populations. Masu.
For example, the FTC cites comments from consumer groups that hidden fees for financial services are particularly burdensome for low-income Black and Latino consumers. Similarly, the FTC noted comments suggesting that a lack of tuition transparency is particularly impacting communities of color.
In total
Given the broad approach taken by the FTC and the Biden administration's prioritization of cracking down on “junk fees,” companies will see a number of new regulations with very broad application across fee areas and types. You may want to prepare for the possibility of a regulation mandating. Disclosure.
Companies can begin this process by reviewing their price disclosure practices and considering business alternatives that could be implemented if the proposed rule or its amendments are ultimately adopted.
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