Last week at its monthly open meeting, the Federal Trade Commission (FTC) unveiled two new rulemaking proceedings: the first deals with deceptive customer reviews and endorsements and the second with so-called junk fees.
Both rulemakings are in their nascent stages. Last week’s actions—the issuance of two advance notices of proposed rulemaking (ANPRs)—simply request information from the public on the consumer harms caused by fake and paid reviews and junk fees. The road from ANPR to final trade rule is a long and winding one, particularly given the number of new rulemakings upon which this FTC has embarked, which Commissioner Christine Wilson has termed “Ruleapalooza.”
The FTC’s battle against fake, paid, or manipulated customer reviews has been ongoing for years, resulting in multiple enforcement actions and the publication of industry guidance. Now, the FTC has set its sights on a formal rule. The ANPR seeks comments on:
- Fake and/or paid reviews and followers
- Review reuse fraud
- Insider reviews
- Review suppression
- Fake review websites
Readers of this blog may be experiencing déjà vu. After all, didn’t the FTC recently take action on these exact issues? Yes and no. In May 2020, FTC staff proposed updates to its Endorsement Guides as part of a standard regulatory review. However, the Endorsement Guides are interpretations of how the FTC Act applies to endorsements and testimonials in advertising and not formal rules. Moreover, the ANPR tackles only a subset of what the Endorsement Guides address. The decision to proceed on parallel tracks underscores how important this issue is to the FTC.
The pejorative and loaded term “junk fees” frequently is used by the FTC and its sister agency, the Consumer Financial Protection Bureau (CFPB), to describe a variety of fees companies charge consumers. The term even made it into President Biden’s remarks to the White House Competition Counsel in September 2022.
Until recently, junk fees were primarily associated with undisclosed, or poorly disclosed, charges that follow a purchase of services or goods. In this ANPR, the FTC has defined junk fees more broadly to include “unfair or deceptive fees that are charged for goods or services that have little or no added value to the consumer, including goods or services that consumers would reasonably assume to be included within the overall advertised price.”
The reference to value here should raise eyebrows. It certainly raised Wilson’s, who voted against the ANPR. In her dissenting statement, she identified a slew of problems with a potential rule designed to regulate how prices are conveyed to consumers across virtually every sector of the U.S. economy. She specifically questioned whether the FTC was in a position to determine whether fees correspond to services and goods consumers value.
To determine whether to proceed with a rulemaking that would classify certain fees as unfair (thus illegal), the FTC specifically seeks comments on:
- Unnecessary charges for worthless, free, or fake products or services
- Unavoidable charges imposed on captive consumers
- Surprise charges that push up the purchase price
Notably, the CFPB also is actively considering a rule on junk fees. In January 2022, it issued a similar ANPR seeking public input on fees relating to bank accounts, credit cards, and other financial products. Given the FTC’s and CFPB’s shared jurisdiction over many financial service providers, it is inevitable that these two proceedings will collide.
Comments in response to both ANPRs are due 60 days after the ANPR is published in the Federal Register. (As of October 26, it has not been published.)