Last week, the Federal Trade Commission (FTC) released a proposed rule called “Rule on Unfair and Deceptive Fees,” that, if adopted in their proposed form, would ban “misleading” fees and promote transparency around so-called “junk fees” (“hidden and bogus fees that can harm consumers and undercut honest businesses” – the FCC). The proposed rule would affect a broad range of businesses within the FTC’s jurisdiction (including telecom companies that are not common carriers).[1] The proposal mandates clear and conspicuous disclosure of the “total price” of products or services. The definition of “total price” encompasses all charges and fees, excluding shipping costs and government-imposed fees, that consumers must pay for a product or service, or any additional goods or services offered within the same transaction.
In the official statement announcing this proposal, FTC Chair Lina Khan stressed the administration’s concerns about “junk fees.” Khan stated, “All too often, Americans are plagued with unexpected and unnecessary fees they can’t escape. These junk fees now cost Americans tens of billions of dollars per year—money that corporations are extracting from working families just because they can… By hiding the total price, these junk fees make it harder for consumers to shop for the best product or service and punish businesses who are honest upfront. The FTC’s proposed rule to ban junk fees will save people money and time and make our markets more fair and competitive.”
Background
In its Advance Notice of Proposed Rulemaking (ANPR) released in November 2022, the FTC acknowledged that Congress and multiple federal agencies had already taken measures to address “junk fees.” The Telemarketing Sales Rule defines as deceptive acts or practices any misrepresentation or failure to truthfully and clearly disclose the total costs of goods or services in a sales offer. [2]
Despite these efforts, the FTC’s ANPR concluded that “junk fees” are not only widespread but also on the rise across various sectors of the American economy. Consequently, the FTC believed that a rule targeting unfair or deceptive practices related to “junk fees” could serve as a deterrent against such practices because “such a trade regulation rule would allow for civil penalties against violators” and “enable the Commission more readily to obtain redress and damages for consumers.”
The Proposed Rule
Building upon the ANPR’s text and the Chair’s remarks, the FTC’s proposed rule could be seen as an attempt to eliminate “junk fees.” However, it does not outright ban specific types of fees; instead, it focuses on prohibiting “hidden fees” and “misleading fees.” The rule refrains from banning “excessive” or “worthless” fees, as determining whether a fee falls into these categories could result in costly litigation.
Hidden Fees: The provisions pertaining to hidden fees would make it an unfair and deceptive practice for any business under the FTC’s jurisdiction to present a consumer’s mandatory payment amount without prominently disclosing the “Total Price.” Additionally, businesses would be required to display the “Total Price” more prominently than any other pricing information. The “Total Price”’ is defined as the “maximum total of all fees or charges a consumer must pay for a good or service and any mandatory Ancillary Goods or Services, except that Shipping Charges and Government Charges, such as sales or excise taxes may be excluded.”
Misleading Fees: The provisions concerning misleading fees would establish that it is an unfair and deceptive practice for businesses under FTC jurisdiction to misrepresent the purpose and nature of any fee a consumer must pay, including the refundability of such fees and the identity of the product or service for which the fee is charged. Businesses would also need to clearly and conspicuously disclose the nature and purpose of any fee a consumer must pay, including refundability and the associated product or service, before the consumer agrees to pay.
Remedies: Although unfair or deceptive fee-related practices are already illegal under Section 5 of the FTC Act, the proposed rule would grant the FTC the authority to seek civil penalties against violators and secure financial restitution for affected consumers if finalized.
No Preemption of More Protective State Laws: Given the attention to “junk fees” at both the state and federal levels, including California’s Consumers Legal Remedies Act set to take effect in July 2024, the FTC’s proposed rule explicitly states that it will only preempt state laws that are “inconsistent” with it. A state law is not considered “inconsistent” with the proposed rule solely because it offers greater consumer protections.
Key Considerations:
In light of the Biden administration’s emphasis on addressing “junk fees,” businesses should meticulously evaluate their fee structures and associated disclosures to mitigate regulatory risks. They also may wish to file comments on the proposed rules with the FTC, either individually or through trade associations.
The FTC is actively seeking comments on its proposed rule, with a 60-day comment period following its publication in the Federal Register.
NEED HELP WITH TELEMARKETING COMPLIANCE?
The CommLaw Group Can Help!
If your company has questions about its telemarketing compliance under state and federal laws or would like to reassess its telemarketing practices, please contact us:
Michael Donahue — Tel: 703-714-1319 / E-mail: mpd@CommLawGroup.com
Allison Rule — Tel: 703-714-1312 / E-mail: adr@CommLawGroup.com
Ron Quirk – Tel: 703-714-1305 / E-mail: req@CommLawGroup.com
Rob Jackson – Tel: 703-714-1316 / E-mail: rhj@CommLawGroup.com
Diana Bikbaeva – Tel: 703-663-6757 / E-mail: dab@commlawgroup.com
[1] The FCC’s rules include “Truth-in-Billing Requirements” for carriers. 47 C.F.R., Part 64, subpart Y; 47 C.F.R. §§ 64.2400-64.2401.
[2] 16 CFR 310.3(a)(1)-(2); 16 CFR 310.4(a)(7)
