The Federal Trade Commission (FTC) issued a sweeping new proposed rule that would require practically all businesses to change the way they disclose the price of goods and services they sell to provide more transparency to consumers.
The rule would apply to all businesses except for motor vehicle dealers1 and addresses two marketing practices that the FTC deems to be junk fee practices: (1) bait-and-switch pricing tactics that do not disclose mandatory fees together with other pricing information (which the FTC in both its press release and the proposed rule refers to as “hidden fees”) and (2) misrepresentations or inadequate disclosures of the nature and purpose of fees.
In the Supplemental Information to the proposed rule, the FTC specifically identified nine market sectors where junk fee practices are prevalent based on its review of more than 12,000 comments that were submitted following the publication of its Advance Notice of Proposed Rulemaking in November 2022. These include hotels and short-term lodging; live event tickets; restaurants, prepared food and grocery apps; transportation (e.g., airlines, car rentals and car sales); telecommunications; rental housing; education (e.g., tuition fees); financial services (e.g., bank accounts, credit cards); and correctional services (e.g., fees imposed by service providers in connection with private correctional services). In highlighting certain practices described by commenters across a wide variety of industries, the FTC outlined some of the common marketing practices that it finds unfair or deceptive and indicated the broad scope of the types of practices that it intends the proposed rule to address.
Hidden Fees
Under the proposed rule, (1) businesses are prohibited from offering, selling or advertising a price that consumers must pay without “Clearly and Conspicuously” disclosing the “Total Price” and (2) the Total Price must be displayed more prominently than any other information relating to the price the consumer may pay.
While the definition of “Clearly and Conspicuously” is consistent with the FTC’s use of the terminology in other contexts, the expansive definition of “Total Price” may require major adjustments in the way sellers provide pricing information to consumers. The Total Price is defined as the maximum total of all fees or charges a consumer must pay for a good or service plus any mandatory ancillary good or service (i.e., a good or service that is part of the same transaction and is necessary to render the primary good or service fit for its intended purpose), but shipping charges (i.e., only fees or charges that reasonably reflect what the seller may incur to send physical goods through the mail) and government charges (i.e., only those charges imposed by the government on consumers) may be excluded.
According to an example provided by the FTC in the Supplemental Information, if a housing rental agreement includes a mandatory travel valet service, then the fee for such a service would need to be included in the Total Price that must be disclosed to the consumer. Also, because the Total Price is defined as the “maximum” total of all fees, in the event there are any applicable discounts or rebates, the seller would need to disclose the price without the discounts or rebates first and then apply the discounts and rebates.
Perhaps a more challenging element of the proposed section may be the requirement that the Total Price must be displayed more prominently than any other pricing information. While the FTC did not elaborate on this requirement in the proposed rule, if this rule is finalized as is, sellers will not be able to say anything relating to the price of a good or service (which could be interpreted to mean discounts or rebates) unless the Total Price is displayed more prominently. This is not the current marketing practice of many retailers and other consumer-facing businesses; moreover, it may be difficult and even infeasible to operationalize this requirement in certain instances (e.g., advertising a discount that applies to a wide variety of products).
Misrepresentation of the Nature and Purpose of Fees
The proposed rule (1) makes it unlawful for any business to misrepresent the nature and purpose of any fees that may be charged to a consumer, including the refundability of such fees and the identity of the good or service for which the fees are covering, and (2) requires businesses to disclose the nature and purpose of any amount that is excluded from the Total Price (including the refundability of such amount and the identity of the good or service for which the amount would be charged), which must be made Clearly and Conspicuously, before the consumer consents to pay such amount.
To illustrate the practical impact of this proposed rule, the FTC describes a meal delivery app that itemizes a mandatory service charge as part of the Total Price. If a portion of such service charge is a fee for the delivery driver and another portion is to pay the business for providing the app, a description that combines both portions without specifying the applicable recipient would violate this proposed rule. Additionally, the business would need to provide accurate information about other fees that are excluded from the Total Price, such as shipping charges, government charges, optional fees and voluntary gratuities. Today, many businesses already break out fees charged to consumers by goods or services associated with such fees, but even those businesses may not provide the level of detail that may be required under this proposed rule, especially regarding whether or not any such fees are refundable.
Relationship With State Laws
Despite the sweeping nature of this proposed rule, the FTC expressly noted in the proposed rule that the rule would not supersede or affect any state statute, regulation, order or interpretation relating to unfair or deceptive fees or charges except to the extent there is any inconsistency. The FTC added that if a state law provides greater protection for consumers than this proposed rule does, then such greater protection would prevail and not be deemed to be inconsistent with the proposed rule.
Coordination With Other Agencies
The FTC timed the announcement of the new proposed rule to coincide with a statement from the White House that heralded the Biden-Harris Administration’s efforts to “crack down on junk fees and bring down costs for American consumers.” Joining the FTC and the White House on the same day, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion stating that large banks and credit unions must provide basic information to consumers (e.g., checking bank account balances, the interest rate on a loan or credit card, obtaining a payoff amount for a loan) without charging any fees. Several other agencies, including the Federal Communications Commission (FCC), the Department of Housing and Urban Development (HUD), and the Department of Transportation (DOT), have also been taking separate actions to combat junk fees and are expected to make more announcements in the coming months.
Why It Matters
As discussed above, this rule as proposed would require businesses to make significant changes to how they advertise and market their goods and services. While the FTC’s objectives and intentions may be shared by responsible businesses, it is important to scrutinize the provisions of the proposed rule and ensure that they can be implemented effectively. To that end, businesses should review their current practices in light of the proposed rule, identify any gaps that should be addressed and submit any relevant comments to the FTC for consideration before issuing the final rule. The FTC will be accepting comments until 60 days following the publication of the proposed rule in the Federal Register (unless the deadline is extended). See Manatt’s FTC Regulation Tracker for any updates to the rulemaking.
1 Motor vehicle dealers are subject to the proposed Motor Vehicle Dealers Trade Regulation Rule (proposed by the FTC in July 2022), under which they would be required to disclose the full cash price at which they will sell or finance the motor vehicle to any consumer.