FTC Takes Aim at Sneaky Fees: Proposed Rule Cracks Down on Hidden Costs

Federal Trade Commission (FTC)

The Federal Trade Commission recently announced a new proposed rule to prohibit junk fees, which are hidden and bogus fees that can harm consumers and undercut honest businesses. The FTC has estimated that these fees can cost consumers tens of billions of dollars per year in unexpected costs.

The agency launched a proceeding last year requesting public input on whether a rule would help to eliminate these unfair and deceptive charges. After receiving more than 12,000 comments on how fees affect their personal spending or business, the FTC is seeking a new round of comments on a proposed junk fee rule.

“All too often, Americans are plagued with unexpected and unnecessary fees they can’t escape. These junk fees now cost Americans tens of billions of dollars per year—money that corporations are extracting from working families just because they can,” said FTC Chair Lina M. Khan. “By hiding the total price, these junk fees make it harder for consumers to shop for the best product or service and punish businesses who are honest upfront. The FTC’s proposed rule to ban junk fees will save people money and time, and make our markets more fair and competitive.”

As the public comments made clear, consumers are fed up with hidden fees for everything from booking hotels and resort fees to buying concert tickets online, renting an apartment, and paying utility bills. Many consumers said that sellers often do not advertise the total amount they will have to pay, and disclose fees only after they are well into completing the transaction. They also said that sellers often misrepresent or do not adequately disclose the nature or purpose of certain fees, leaving consumers wondering what they are paying for or if they are getting anything at all for the fee charged.

The proposed rule will save consumers more than 50 million hours per year of wasted time spent searching for the total price in live-ticketing and short-term lodging alone, according to FTC estimates. This time savings is equivalent to more than $10 billion over the next decade.

The Proposed Rule

The proposed rule would ban businesses from running up the bills with hidden and bogus fees, ensure consumers know exactly how much they are paying and what they are getting, and help spur companies to compete on offering the lowest price. Businesses would have to include all mandatory fees when telling consumers a price, making it easier for consumers to comparison shop for the lowest price. The proposed rule would also have enforcement teeth, allowing the FTC to secure refunds for harmed consumers and seek monetary penalties against companies that do not comply with its provisions.

To accomplish this, the proposed rule would ban the following junk fee practices that consistently confuse and trick consumers:

  • Hidden Fees. Consumers told the FTC that dishonest businesses routinely engage in bait-and-switch pricing tactics that hide mandatory fees and deceive consumers about the price. This is because fees imposed later, but before the purchase is made, significantly increase the total that consumers pay. Accordingly, the proposed rule would prohibit businesses from advertising prices that hide or leave out mandatory fees; and
  • Bogus Fees. Many consumers also said that they often do not know what fees are for, because dishonest businesses routinely misrepresent or fail to adequately disclose the nature or purpose of the fees. The rule would prohibit sellers from misrepresenting fees and require them to disclose upfront the amount and purpose of the fees and whether they are refundable.

These provisions are aimed at ensuring businesses will no longer be able to lure consumers with artificially low prices that they later inflate with mandatory fees or to deceive consumers about the nature and purpose of fees. In addition, the proposed rule would provide a level playing field for honest businesses by requiring all businesses to quote total prices at the start of the purchasing process and to remove false or misleading information about fees from the marketplace.

Other Federal Agencies’ Actions

Other federal agencies and organizations are joining the FTC to develop and implement rules prohibiting junk fees across multiple U.S. markets and sectors including the Consumer Financial Protection Bureau (CFPB), the Federal Communications Commission (FCC), the Department of Housing and Urban Development (HUD), and the Department of Transportation (DOT).

“Americans are fed up with the junk fees that are creeping across the economy,” said CFPB Director Rohit Chopra. “The FTC’s proposed rule will protect families and honest businesses from race-to-the-bottom abuses that cost us billions of dollars each year. If finalized, the CFPB will enforce the rule against violators in the financial industry and ensure that these firms play fairly.”

“No one likes surprise charges on their bill. Consumers deserve to know exactly what they are paying for when they sign up for communications services. But when it comes to these bills, what you see isn’t always what you get,” said FCC Chairwoman Jessica Rosenworcel. “Instead, consumers have often been saddled with additional junk fees that may exorbitantly raise the price of their previously agreed-to monthly charges. To combat this, we’re implementing Broadband Consumer Labels, a new tool that will increase price transparency and reduce cost confusion, help consumers compare services, and provide ‘all-in-pricing’ so that every American can understand upfront and without any surprises how much they can expect to be paying for these services.”

“I believe that every renter should know the true cost of finding and staying in their home and not be hit with hidden costs and junk fees. Earlier this year, we called for reform in the housing industry to increase transparency for renters across the country, reflecting the Biden-Harris administration and the Department of Housing and Urban Development’s commitment,” said HUD Secretary Marcia L. Fudge. “HUD continues to release research and data highlighting state, local, and private sector policies to encourage fairness and equity in the rental market.”

“Junk fees mean that working families have to pay higher prices for the things they need, which is why President Biden is taking decisive action to eliminate them,” said U.S. Transportation Secretary Pete Buttigieg. “At DOT, we have secured commitments from major U.S. airlines to provide free rebooking, meals, and hotels when they are responsible for stranding passengers. We’re working to stop airlines from forcing parents to pay to sit next to their kids, and requiring them to disclose hidden fees for things like extra bags. And we’ve helped secure billions of dollars in refunds for passengers whose flights are canceled.”

The Commission vote approving publication of the notice of proposed rulemaking was 3-0. Once the notice has been published in the Federal Register, consumers can submit comments electronically for 60 days. Consumers also may submit comments in writing by following the instructions in the “Supplementary Information” section of the Federal Register notice.

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