FTC sharpens Administration’s attack on junk fees – proposed regulation would apply to virtually all US businesses

In his latest State of the Union address, President Joe Biden urged federal agencies to take action against junk fees – unnecessary or hidden fees that inflate the price of goods or services above the advertised price. Some classic examples include service charges tacked on to the price of tickets for concerts and hotel bills that include mystery charges only discovered upon check out. The government believes that many businesses use junk fees as a form of bait-and-switch advertising, enticing consumers with a low advertised price, then jacking it up when consumers check out.

Since Biden’s speech, the Consumer Financial Protection Bureau and the Federal Communications Commission have launched regulatory initiatives targeting junk fees in the financial services and telecommunications industries. Now, the Federal Trade Commission has announced a new proposed regulation that would prohibit junk fees throughout the US, applicable to virtually all US businesses.

The total price

The proposed regulation prohibits companies from advertising any price for a good or service without also disclosing, in a manner difficult to miss, the total price that a consumer must pay for the good or service. And, significantly, once the rule is finalized, companies will be required to display the total price – the price consumers actually pay – more prominently than any other pricing information. So, advertising for a product that includes a service charge might need to look like this:

$89

$104 total price including $15 service charge

Concerts and hotel rooms are hardly the only products causing the FTC concern. The agency also called out car and housing rentals, banking and credit cards, grocery deliveries, phone and Internet services, air travel, and even college tuition. Ultimately, it won’t matter what kind of product is involved:  the FTC will be eager to shut down any advertising that misleads consumers about the real price of the advertised product, and its staff will be on the prowl for potential targets.

A final regulation is near certain, and then…

The Agency is calling for public comment before it finalizes its junk fee rule, but, given the Administration’s very public focus on the perceived problem, it is near certain that it will issue a final regulation once it analyzes the comments.  Then the FTC will be able to seek large penalties in federal court for any violations. And when the FTC takes action against an advertiser, it also issues a press release, which usually garners significant media attention. Consumer companies that the agency accuses of trafficking in junk fees may take a sizeable reputational hit in addition to significant financial one.

The FTC’s new junk fee rule will likely have a meaningful impact on many advertisers. Now would be a good time for brands to review their pricing and advertising practices to avoid having any of their fees found to be junk.

Please contact the authors of this alert with any questions, or for additional information.