FTC Proposes a Rule on Junk Fees: What Companies Should Know

5 minute read | October.12.2023

The Federal Trade Commission (FTC) has released a notice of proposed rulemaking meant to prohibit unfair or deceptive fees, often referred to as junk fees. The proposed rule would prohibit:

  • Offering, displaying or advertising an amount a consumer may pay without “clearly and conspicuously” disclosing the “total price.”
  • Misrepresenting “the nature and purpose of any amount a consumer may pay.”
  • Disclosing “any other pricing information” besides the total price “more prominently” than disclosures of the total price in an “offer, display, or advertisement.”

The FTC has a history of pursuing enforcement against companies that engage in unfair and deceptive pricing practices under its Section 5 authority. It has lacked the authority to seek penalties against first-time violators, particularly since the Supreme Court’s decision in AMG Capital Mgmt. LLC v. FTC (2020), unless the practice violated a rule or statute enforced by the Commission, such as ROSCA or the FCRA. 

The proposed rule (if finalized) will give the FTC more aggressive enforcement powers to curb the use of junk fees, enabling the FTC to seek penalties of up to $50,120 per violation and to more easily seek refunds for harmed consumers.

How We Got Here

The proposed rule follows an Advanced Notice of Proposed Rulemaking the Commission issued last year, when it sought comments regarding unfair and deceptive practices and fees. The FTC said the comments it received revealed concerns that some businesses misrepresent overall costs by omitting mandatory fees from advertised prices and fail to adequately explain the nature and amount of fees.

The FTC emphasized comments that indicated such practices are widespread in a range of industries. It highlighted fees for:

  • 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 services).
  • Rental housing.
  • Education.
  • Financial services.
  • Correctional services.

Although the proposed rule is not specifically limited by industry, businesses operating in one of the industries listed above should pay particular attention, as they are likely to be where the FTC focuses its enforcement efforts.

Scope of Rule and Key Provisions

The FTC’s proposed rule applies broadly to any entity that “offers goods or services” to consumers, including goods or services offered “online, in mobile applications, and in physical locations.”  This broad definition means the proposed rule could have a sweeping effect on any business that charges fees to consumers and is not among those types of businesses excluded from the FTC’s authority, such as banks, credit unions, insurance companies and common carriers.

The proposed rule would prohibit the following as unfair or deceptive practices:

  • Hidden Fees

    The proposed rule:

    • Targets “bait and switch pricing” (or “drip pricing”) and would prohibit businesses from offering, displaying or advertising “an amount that a consumer may pay without clearly and conspicuously disclosing the total price.”
    • Requires businesses to include any mandatory costs for ancillary goods or services in its price disclosures. It also requires “any offer, display or advertisement that contains an amount a consumer may pay” to display “the total price more prominently than any other pricing information.”
  • Misleading Fees

    The proposed rule:

    • Prohibits businesses from misrepresenting “the nature or purpose of any amount a consumer may pay,” including misrepresentations about “the refundability of such fees and the identity of any good or service for which fees are charged.”
    • Would require businesses to clearly disclose the amount of any optional or governmental charges, as well as clearly disclose the purpose of those charges.

Perhaps most importantly, the proposed rule would unlock civil penalty authority, allowing the Commission to seek up to $50,120 per violation. Given that the Commission broadly interprets “per violation” to apply to each impacted consumer, the rule would create substantial potential monetary exposure for companies that fail to comply.

Next Steps: Comment Period and Potential Timing

The FTC is seeking public input on 37 questions. The period to submit comments will begin once the proposed rule is published in the Federal Register. It will remain open for 60 days afterward. It is anticipated that the FTC will make a push to finalize the proposed rule in advance of the 2024 election.

Broader Federal Strategy on Junk Fees

The FTC’s proposed rule is part of a coordinated effort by federal agencies to address (in their view) deceptive pricing practices. 

The Consumer Financial Protection Bureau (CFPB) has also issued guidance emphasizing that large banks and credit unions are prohibited from imposing unreasonable obstacles on customers, such as charging excessive fees for basic information about their accounts.  

In the past, a number of FTC rulemakings under Section 5 of the FTC Act that were potentially applicable to financial services (e.g., late fee pyramiding) were mirrored in rules adopted by federal banking agencies. It is not yet clear if the banking agencies will follow that playbook in the context of this rule.

President Biden, CFPB Director Rohit Chopra and FTC Chair Lina Khan announced these developments jointly. The White House has called on federal agencies “to reduce or eliminate hidden fees, charges, and add-ons for everything from banking services to cable and internet bills to airline and concert tickets.” 

Brian Bartholomay and Daniel Alleva contributed to this article.