FTC Requests Public Statement on So-called “Junk Fees”

On October 20th, the Federal Trade Commission (FTC) problematic an Advanced Notice of Proposed Rulemaking soliciting public comment on the harm resulting from what it calls “garbage charges,” ie, Fees that claim to be unnecessary, unavoidable, or unexpected that drive up costs without adding little value. The term also includes ‘hidden charges’, ie charges for goods or services that are misleading or unfair, including because they are not disclosed until later in the consumer’s purchasing process or are not disclosed at all. While the FTC has been active in bringing enforcement actions against alleged “junk fees,” it generally lacks the power to seek penalties for first-time violations or the ability to obtain monetary compensation for consumers in cases where “Junk fees” violate the FTC’s prohibition on unfair or deceptive practices. This new rule would change that.

According to the FTC, these so-called “junk fees” are prevalent across a variety of industries: “Junk fees are manifest in markets ranging from auto financing to international phone cards and payday loans.” Examples of fees the FTC is questioning includes mobile cramming fees, prepaid phone card connection and maintenance fees, account fees, fees that reduce the amount a borrower receives on a loan, miscellaneous fuel card fees, car dealership fees, undisclosed funeral service fees , hotel “resort” fees, hidden fees for scientific publications, poorly disclosed supplemental insurance products and membership programs.

According to the FTC, the fees it is considering regulating fall into the following categories:

  • Unnecessary charges for worthless, free, or counterfeit products or services.
    • Consumers may be subject to fees for products or services that businesses are free to provide, are available for free, or should be included as part of the purchase price.
  • Unavoidable Fees for Bound Consumers.
    • Consumers may be forced to pay unwanted fees because they have no way to avoid or turn them down, either because they are dealing with a company with a monopoly or because they have already put money into the product or service and haven’t just know how to walk a path.
  • Surprise fees that secretly inflate the purchase price.
    • According to the FTC, this happens when companies unexpectedly attach undisclosed fees, hide fees in fine print, add fees at the end of a checkout, or use digital dark patterns or other deceptions to collect them.

Among other things, the FTC solicits comments on the prevalence of each of the above practices and the costs and benefits of a rule that would require the inclusion of all mandatory upfront fees when quoting consumers a price for a good or service. After publication of the notice in the federal registerconsumers can submit comments electronically.

This proposed rulemaking isn’t the only new rule the FTC is considering attacking fees. As we discussed here, in June 2022, the FTC issued a proposed trade regulation for motor vehicle dealers. The proposed rule would create a host of new compliance challenges for auto dealers, including a new national standard for price advertising, triggers for payment disclosure, additional paperwork for the sale of ancillary products, a ban on ancillary products with no benefit. on products and additional record-keeping obligations. The deadline for comments expired on September 12.

The FTC and other regulatory agencies have also challenged fees through enforcement actions, and this release follows the FTC’s announcement that it had filed charges against a car dealership that they discriminated against certain groups of car buyers by charging additional fees for motor vehicle sales. We will discuss this arrangement here.

In her, FTC Chairwoman Lina Khan explained the rationale for the proposed new rule expression: “These types of additional or superfluous fees can mislead consumers or prevent them from knowing the true cost of a purchase until they have already put a lot of time and energy into it.” other business owners have. “Not only do these fees hurt consumers — they can also force honest businesses to compete under unfair conditions. A company that sells a $25 widget could lose sales to a company that sells a comparable widget for $20, plus a $6 widget certification fee attached at the end.”