On October 11, 2023, the Federal Trade Commission announced a new proposed rule to prohibit “junk fees,” which the FTC states are hidden and bogus fees that can harm consumers and undercut honest businesses.

FTC attorneys have estimated that these fees can cost consumers tens of billions of dollars per year in unexpected costs.

According to the announcement, FTC lawyers launched a proceeding last year requesting public input on whether a rule would help to eliminate such unfair and deceptive charges. After receiving more than 12,000 comments on how fees affect their personal spending or business, the FTC is seeking a new round of comments on a proposed junk fee rule.

“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,” said FTC lawyer and Chair Lina M. Khan. “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.”

The public comments thus far suggest that consumers are fed up with hidden fees for everything from booking hotels and resort fees, to buying concert tickets online, renting an apartment and paying utility bills. Consumers concerns include sellers that fail to advertise the total amount they will have to pay, and disclose fees only after they are well into completing the transaction. Consumers have also expressed concern that sellers often misrepresent or do not adequately disclose the nature or purpose of certain fees, leaving consumers wondering what they are paying for or if they are getting anything at all for the fee charged.

According to agency estimates, the proposed rule will save consumers more than 50 million hours per year of wasted time spent searching for the total price in live-ticketing and short-term lodging alone.

The FTC’s Proposed Rule

The proposed rule would ban businesses from running up the bills with hidden and bogus fees, ensure consumers know exactly how much they are paying and what they are getting, and help spur companies to compete on offering the lowest price.

Businesses would have to include all mandatory fees when telling consumers a price, making it easier for consumers to comparison shop for the lowest price. The proposed rule would also have enforcement teeth, allowing the FTC to secure refunds for harmed consumers and seek monetary penalties against companies that fail to comply.

To accomplish this, the proposed rule would ban the following junk fee practices that consistently confuse and trick consumers, according to the FTC:

• Hidden Fees. Consumers told the FTC that dishonest businesses routinely engage in bait-and-switch pricing tactics that hide mandatory fees and deceive consumers about the price. Fees imposed later, but before the purchase is made, significantly increase the total that consumers pay. Accordingly, the proposed rule would prohibit businesses from advertising prices that hide or leave out mandatory fees; and
• Bogus Fees. Many consumers also said that they often do not know what fees are for, because dishonest businesses are alleged to routinely misrepresent or fail to adequately disclose the nature or purpose of the fees. The rule would prohibit sellers from misrepresenting fees and require them to disclose upfront the amount and purpose of the fees and whether they are refundable.

These provisions are aimed at ensuring businesses will no longer be able to lure consumers with artificially low prices that they later inflate with mandatory fees or to deceive consumers about the nature and purpose of fees. In addition, the proposed rule would provide a level playing field for honest businesses by requiring all businesses to quote total prices at the start of the purchasing process and to remove false or misleading information about fees from the marketplace.

Consult with experienced FTC CID attorneys if your company is the subject of a regulatory investigation or enforcement action, or if you are interested in the design and implementation of customized legal regulatory compliance protocols designed to minimize liability exposure for direct marketing practice.

Other Federal Agencies Joining the FTC

Other federal agencies and organizations are joining the FTC to develop and implement rules prohibiting junk fees across multiple U.S. markets and sectors, including the Consumer Financial Protection Bureau, the Federal Communications Commission, the Department of Housing and Urban Development, and the Department of Transportation.

“Americans are fed up with the junk fees that are creeping across the economy,” said CFPB Director Rohit Chopra. “The FTC’s proposed rule will protect families and honest businesses from race-to-the-bottom abuses that cost us billions of dollars each year. If finalized, the CFPB will enforce the rule against violators in the financial industry and ensure that these firms play fairly.”

“No one likes surprise charges on their bill. Consumers deserve to know exactly what they are paying for when they sign up for communications services. But when it comes to these bills, what you see isn’t always what you get,” said FCC Chairwoman Jessica Rosenworcel. “Instead, consumers have often been saddled with additional junk fees that may exorbitantly raise the price of their previously agreed-to monthly charges. To combat this, we’re implementing Broadband Consumer Labels, a new tool that will increase price transparency and reduce cost confusion, help consumers compare services, and provide ‘all-in-pricing’ so that every American can understand upfront and without any surprises how much they can expect to be paying for these services.”

“I believe that every renter should know the true cost of finding and staying in their home and not be hit with hidden costs and junk fees. Earlier this year, we called for reform in the housing industry to increase transparency for renters across the country, reflecting the Biden-Harris administration and the Department of Housing and Urban Development’s commitment,” said HUD Secretary Marcia L. Fudge. “HUD continues to release research and data highlighting state, local, and private sector policies to encourage fairness and equity in the rental market.”

“Junk fees mean that working families have to pay higher prices for the things they need, which is why President Biden is taking decisive action to eliminate them,” said U.S. Transportation Secretary Pete Buttigieg. “At DOT, we have secured commitments from major U.S. airlines to provide free rebooking, meals, and hotels when they are responsible for stranding passengers. We’re working to stop airlines from forcing parents to pay to sit next to their kids, and requiring them to disclose hidden fees for things like extra bags. And we’ve helped secure billions of dollars in refunds for passengers whose flights are cancelled.”

FTC Action Leads to Lifetime Ban for Marketers that Allegedly Charged Consumers Millions in Junk Fees

On October 11, 2023, the FTC also announced that as a result of a Federal Trade Commission lawsuit, the owner of a series of companies that allegedly charged consumers millions of dollars in undisclosed and recurring subscription fees for skin creams has agreed to a lifetime ban on negative option marketing and will turn over his funds and assets to the FTC.

In 2019, the FTC filed suit against an individual and eight companies that he allegedly owned, charging that he marketed a number of skin creams online, selling them for a nominal “shipping and handling” fee. Consumers that purchased the products were allegedly not aware that they would later be charged the full price for the products and a recurring monthly charge.

“Our proposed order banning defendants from the subscription marketing business and ordering the return of assets is a big win for consumers, and it should send a strong message to other unscrupulous marketers,” said FTC attorney Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The FTC will continue its crackdown on junk fees and subscription traps.”

In its complaint, the FTC alleged that the individual and his companies charged consumers tens of millions of dollars in fees they did not consent to, noting that the supposed disclosure of these fees was hidden behind a small link on the sales websites, and that consumers’ attempts to cancel were often unsuccessful, even when they returned the products unopened. The FTC also alleged that he created hundreds of shell companies to facilitate payment processing for the scam.

According to the FTC, in 2022 the individual pled guilty to separate charges brought by the U.S. Attorney’s Office for the District of Puerto Rico related to his actions.

The proposed settlement order in the FTC case, includes a number of requirements:

• Permanent ban on negative option marketing: The individual and his companies are permanently banned from participating in any negative option marketing.
• Prohibition on deceiving consumers: The order would also prohibit him and his companies from deceiving consumers about any other good or service they sell or market.
• Turn over funds and assets: The order would require the settling defendants to turn over the contents of numerous bank accounts and a retirement account. It also requires the individual to assign his interest in a promissory note secured by real property to an FTC-appointed liquidator. The order also notes that he has already surrendered more than $500,000 to the United States as part of the federal criminal suit against him. According to the FTC, the relinquished assets will be used by the agency to provide refunds to consumers harmed by the scam.

The order contains a total monetary judgment of $34,081,6073, which is partially suspended based on the settling defendants’ inability to pay the full amount. If the settling defendants are found to have lied to the FTC about their financial status, the full judgment would be immediately payable.