Last week, the Federal Trade Commission (FTC) announced a proposed rule that would regulate a broad range of “junk fees” in consumer goods and services, from resort fees associated with travel and lodging, to delivery fees associated with meal and grocery delivery, to convenience fees associated with financial services (the proposed rule). The proposed rule would generally prohibit the omission of mandatory fees from advertised prices. If finalized, violations of the proposed rule could result in civil penalties of up to $50,120 per violation. The public has 60 days to comment after the proposal is published in the Federal Register.
The proposed rule does three main things. First, it states that businesses cannot offer, display, or advertise an amount a consumer may pay without clearly and conspicuously disclosing the total price. The total price must be disclosed more prominently than any other pricing information. The total price is defined to include all charges that a consumer must pay for a good or service, including for any mandatory ancillary good or service (e.g., a separate fee for payment processing services). Total price need not include shipping charges and government-mandated charges, but the proposed rule does set forth some requirements on this issue, as described below. The FTC anticipates the possibility of providing certain exclusions from the proposed rule, including for some financial products where the total price cannot practically be determined, and seeks comment on this issue.
Second, the proposed rule prohibits misrepresentations about the nature and purpose of any amount a consumer may pay, including the refundability of any fees and the identity of any good or service for which the fee is charged. As an example, the FTC notes that a meal delivery application that charges a “mandatory service fee” would violate the proposed rule if only some of the charge is used to compensate a delivery driver while the other portion is used to compensate the business. In this scenario, the business must specify the recipient of each portion to avoid violating the proposed rule.
Third, before a consumer consents to pay, businesses must disclose the nature and purpose of any amount the consumer may pay that is excluded from the total price. Such exclusions might include shipping charges, government-mandated charges, optional fees, voluntary gratuities, and invitations to tip.
The proposed rule is notable in several other respects:
- It would apply broadly: The proposed rule would apply to all “businesses” over which the FTC has jurisdiction. Businesses are defined as individuals, corporations, partnerships, associations, or other entities that offer goods or services, including online, in mobile applications, and in physical locations. Given this breadth, the proposed rule would have far-reaching application.
- It would not preempt state law: The proposed rule would not preempt or supersede state law unless the state law is inconsistent with it. States that provide the same or a higher level of protection than the proposed rule are not considered inconsistent. California is one such state that has recently moved to curb hidden fees. Earlier this month, California passed a law stating that advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges (other than government-required charges or shipping charges, and subject to certain exceptions) is unlawful. California’s law goes into effect in July 2024.
- It’s part of a broader push by the Biden administration: The FTC’s proposed rule forms part of a broader push announced by the White House last week to protect consumers from junk fees. For example, as part of the White House announcement, the Consumer Financial Protection Bureau stated that it had issued an advisory opinion prohibiting banks from charging excessive fees for consumers to access basic information about their own accounts.
All interested businesses have the opportunity to submit written comments on the proposed rule. We encourage businesses interested in and potentially affected by the FTC’s proposal to submit comments. Wilson Sonsini Goodrich & Rosati routinely advises companies on FTC disclosure requirements. For more information or advice, please contact Maneesha Mithal, Libby Weingarten, Aaron Hendelman, Alyssa Worsham, or any other member of the privacy and cybersecurity or trademark and advertising practices.
Boniface Echols contributed to the preparation of this alert.