This week, the Federal Trade Commission (FTC) released a Proposed Rule, “Rule on Unfair or Deceptive Fees.” The Proposed Rule comes after the FTC solicited comments through its Advance Notice of Proposed Rulemaking in November 2022. The Proposed Rule would cover any business selling in physical locations and online. There is one exception for motor vehicle dealers, which is addressed in a separate rule. The below requirements apply to businesses regardless of whether they are providing the goods or services themselves (e.g., an online travel agent advertising for a hotel chain).
The FTC broadly identified two practices that it intends to regulate: (1) omitting mandatory charges and fees from advertised prices; and (2) misrepresenting the nature and purpose of the charges or fees.
Disclosing the “Total Price” for Goods and Services
Under the Proposed Rule, businesses would be required to disclose the “Total Price” clearly and conspicuously (i.e., it must be difficult to miss and easily noticeable) in any offer, display, or advertisement. The Total Price must be disclosed more prominently than any other pricing information.
The “Total Price” includes the maximum total of all charges or fees a consumer must pay for a good or service, including mandatory fees for ancillary goods or services. “Maximum total” is intended to allow businesses to apply discounts and rebates after they disclose the Total Price. “Ancillary” goods or services are those that arise out of the same transaction and can be mandatory or optional. To illustrate the mandatory vs. optional ancillary goods/services, the corresponding fees, and the required disclosures: a business would need to include a mandatory trash pickup fee contained in a rental agreement in the advertised listing, but a travel company need not include the cost of an optional travel insurance policy in the booking price.
The Total Price excludes certain fees, such as shipping and government charges, but these nonetheless must be separately disclosed to consumers prior to purchase. Shipping charges do not include delivery via couriers, such as meal delivery mobile applications. Government charges are limited to fees imposed directly by a government entity and do not encompass any charges or fees that businesses choose to pass on to consumers to offset those costs. Additional types of fees that would require disclosure include optional fees, voluntary gratuities, and invitations to tip.
The FTC makes clear that businesses may not artificially increase shipping charges, as those charges must reasonably reflect the costs a business incurs for providing the shipping service. Likewise, government charges cannot be inflated, as they only include charges imposed by the government on consumers.
Disclosing the “Nature and Purpose” of Charges and Fees
When listing any charges or fees, a business would be prohibited from categorizing different charges or fees under the same label if they serve distinctly different purposes. Relatedly, the FTC addressed several comments that complained of the use of labels such as “convenience fees,” “improvement fees,” and “economic impact fees,” which are often used as catchall terms for multiple fees. As an illustration, the FTC posits that a meal delivery application could not charge both a fee to compensate its drivers and a fee to run the service under the same label or line item and instead must list the two fees separately. The same business must also disclose the allocation of fees, for example, if a portion of an additional gratuity is used to offset the driver’s wages or benefits. If any charges or fees are refundable, that information must also be disclosed.
Similar State Laws
The Proposed Rule provides that any state law, regulation, or rule that affords greater protection is not superseded or altered if it is not inconsistent with the Proposed Rule. California Governor Newsom recently signed into law SB 478, which will take effect in July 2024. The law is aimed specifically at “drip pricing,” a term for “junk” fees, where advertised prices are less than the actual price consumers end up paying.
Businesses will need to be careful to comply with the forthcoming federal rule and the emerging patchwork of state laws. The Consumer Financial Protection Bureau also recently issued guidance for large banks concerning similar fee issues, and the Biden administration has taken a leading role in promoting the new agency actions.
The FTC is soliciting comments on the Proposed Rule, which are due 60 days after publication in the Federal Register.