As part of the White House’s latest round of efforts targeting so-called “junk fees,” the Federal Trade Commission has issued a proposed rule, “Rule on Unfair or Deceptive Fees.”  The proposal follows the FTC’s issuance in October 2022 of an Advance Notice of Proposed Rulemaking to address “junk fees,” a term that was used in the ANPR Notice to refer to “unfair or deceptive fees that are charged for goods and services that have little or no added value to the consumer.”  It was issued on the same day that the CFPB issued three new items directed at “junk fees.”  Comments on the FTC’s proposed rule must be received no later than 60 days after the date the proposal is published in the Federal Register.

The FTC’s proposed rule would declare that the following practices by “any Business” are unfair and deceptive practice and a violation of the rule:

• Offering, displaying, or advertising an amount a consumer may pay without Clearly and Conspicuously disclosing the Total Price.  In any offer, display, or advertisement, a Business must display the Total Price more conspicuously than any other Pricing Information.
• Misrepresenting the nature and purpose of any amount a consumer may pay, including the refundability of such fees and the identity of any good or service for which fees are charged.  Before a consumer consents to pay, a  Business must Clearly and Conspicuously disclose the nature and purpose of any amount a consumer may pay that is excluded from the Total Price, including the refundability of such fees and the identity of any good or service for which fees are charged.

A “Business” would be defined as “an individual, corporation, partnership, association, or any other entity that offers good or services, including, but not limited to, online, in mobile applications, and in physical locations.”  The definition contains a carve out for motor vehicle dealers who would be required to comply with the FTC’s proposed Motor Vehicle Dealers Trade Regulation Rule, which seeks to address unnecessary add-on fees, among other things, in the car buying process.  However, if that rule is not finalized, motor vehicle dealers would not be exempt from the definition of “Business” and would be subject to the proposed rule on unfair and deceptive fees.  

“Total Price” would be defined as “the maximum total of all fees or charges a consumer must pay for a good or service and any mandatory Ancillary Good or Service, except that Shipping Charges and Government Charges may be excluded.”  “Ancillary Good or Service” means “any additional good(s) or service(s) offered to a consumer as part of the same transaction.”  It would include goods or services that are not necessary to render the primary good or service fit for its intended use but are nevertheless offered as part of the same transaction.  As examples of mandatory ancillary services, the FTC gives a fee for a trash valet service in a housing rental agreement that the consumer cannot reasonably avoid and a fee that a consumer cannot reasonably avoid to  process the payment for a good or service.

The first prohibition, which would appear in a section of the rule entitled “Hidden Fees Prohibited,” is directed at bait-and-switch pricing. The prohibition applies to amounts “offered, displayed, or advertised” by a Business even if a different entity provides the good or service.  As an example, the FTC indicates that if a Business advertises a price for a product that it provides to a consumer and requires an ancillary good or service provided by another entity, such as payment processing, the charge for the ancillary good or service must be included in the Total Price.  The FTC states that it anticipates the possibility of providing certain exclusions for the proposed rule, including for some financial products where the Total Price cannot practically be determined.”

The second prohibition, which would appear in a section of the rule entitled “Misleading Fees Prohibited,” is intended to cover misrepresentations about a fee’s nature and purpose, including the refundability of such fees and the identify of any good or service for which fees are charged.  The section mandates the disclosure of the nature and purpose of any amount a consumer may pay that is excluded from the Total Price.  Such amounts include any Shipping Charges, Government Charges, optional fees, voluntary gratuities, and invitations to tip.

While the FTC’s proposed rule would only directly apply to a “Business” that is subject to the FTC’s jurisdiction, the federal banking agencies are likely to consider the FTC’s interpretation of what are unfair or deceptive fee practices in applying Section 5 of the FTC Act to the financial institutions they supervise.

The proposal also includes a series of questions on which the FTC seeks comment.  Among those questions is whether a new definition of “Covered Business” should be added to narrow the Businesses covered by specific requirements of the rule and, if so, whether that definition should exclude Businesses to the extent they offer or advertise credit, lease, or savings products, or to the extent they extend credit or leases or provide savings products to consumers.  In addition, although the proposed rule largely focuses on advertisements and misrepresentations, the FTC asks whether it should prohibit “excessive” fees, and, if so, how “excessive” fees should be defined in the final rule.   

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