On Dec. 17, the Federal Trade Commission (FTC) issued a final rule to limit certain industries’ use of so- called “junk fees,” concluding a rulemaking process that began in 2022 and ultimately drew over 72,000 public comments. The final rule is narrowly tailored to the live-event ticketing and short-term lodging industries, excluding the housing industry, and does not require disclosures to reflect the price determination. Though far less expansive than the October 2023 proposed rule, the final rule maintains the mandate that select businesses advertise the “full price” of a good or service before final payment. The approved (4-1) final rule will have broad impacts on covered industries, as detailed in this client alert.
Application of the Final Rule
The FTC’s final rule modifies the October 2023 proposed rule and prohibits the live-entertainment and short-term lodging industries from using “bait-and-switch pricing,” which the agency asserts can mislead consumers on the total price of a good or service or deceive consumers on the purpose of a “junk fee.” Specifically, the covered industries will be required to display the full price, including mandatory fees, of their product “more prominently” to ensure it is “easily noticeable” to the average consumer. Additionally, the rule mandates that the covered industries disclose the “nature, purpose, and amount” of mandatory fees, excluding “optional fees,” in any advertisement of the total price.
The rule states that it “is tailored to target these specific unfair and deceptive pricing practices, while preserving flexibility” as it neither (1) prohibits the imposition of select fees nor (2) mandates that all fees be disclosed in the total price. The final rule maintains that businesses can determine the price of their products and impose their choice of ancillary fees.
As previously highlighted, this is only the latest development in the Biden administration’s broadening interpretation of agencies’ unfair or deceptive acts or practices (UDAP) and unfair, deceptive or abusive acts and practices authority (UDAAP). While Section 5 of the FTC Act (15 U.S.C. 45) broadly prohibits UDAP in or affecting commerce, the final rule will empower the FTC to seek civil penalties against violators by identifying specific but broad areas that the commission believes constitute impermissible actions related to fees. The rule:
- “requires businesses that offer a price for live-event tickets or short-term lodging to disclose the total price, inclusive of most mandatory charges, and to make sure that the total price is disclosed more prominently than other pricing information, except the final amount of payment.”
- “prohibits misrepresentations about fees or charges in any offer, display, or advertisement for live-event tickets and short-term lodging.”
As defined in the rule, total price refers to “maximum total of all fees or charges a consumer must pay for any good(s) or service(s) and any mandatory Ancillary Good or Service, except that Government Charges, Shipping Charges, and fees or charges for any optional Ancillary Good or Service may be excluded.” The commission also maintains or slightly modifies other key definitions in the final rule as follows:
- Ancillary Good or Service: “any additional good(s) or service(s) offered to a consumer as part of the same transaction.”
- Business: “an individual, corporation, partnership, association, or any other entity that offers goods or services, including, but not limited to, online, in mobile applications, and in physical locations.”
- Clear(ly) and Conspicuous(ly): “a required disclosure that is easily noticeable (i.e., difficult to miss) and easily understandable by ordinary consumers.”
- Government Charges: “the fees or charges imposed on the transaction by a Federal, State, Tribal, or local government agency, unit, or department.”
- Pricing Information: “any information relating to an amount a consumer may pay.”
- Shipping Charges: “the fees or charges that reasonably reflect the amount a Business incurs to send physical goods to a consumer, including through the mail, private mail and shipping services, or by freight.”
Impact on Financial Services and Housing Providers
As part of the final rule’s narrow scope, financial services and housing providers fall outside of the definition of a covered business and will not be subject to the rule. The final rule highlights thousands of comments from the rental housing industry, stating that it is not possible to predict and disclose total prices and fees that residents could incur during the term of their lease. The final rule also clarifies that rental housing providers do not qualify as short-term lodging under the definition of a covered good or service. The exclusion of housing and financial services providers is a significant change from the FTC’s proposed rule, which provided the commission with broad UDAP authority to police the marketplace across many industries and referenced numerous comments raising concerns about rental housing and financial services fees.
Lack of Preemption
The commission’s rule will not preempt related state statutes concerning unfair or deceptive fees or charges, “except to the extent that such statute, regulation, order, or interpretation is inconsistent with the provisions of this part, and then only to the extent of the inconsistency.” While the rule sets the federal bar, this carveout preserves states’ abilities to create stricter regulatory regimes.
Next Steps
The actions by the FTC further the Biden administration’s attempts to limit what it has deemed “junk fees” and associated practices across various industries. The rule is set to take effect 120 days after publication in the Federal Register, pushing this date until at least mid-March, which will allow the incoming Trump administration time to review the rule. The Trump administration and Congress will heavily scrutinize various agency actions, but it remains unclear if this rulemaking will be rescinded. It is notable that incoming FTC Chairman Andrew Ferguson was the only commissioner to dissent on the final rule. Litigation on the rule is also possible, and the Trump administration could choose to settle the litigation instead of continuing to defend the Biden-era rule.
Additionally, lawmakers could also invoke the Congressional Review Act (CRA), which would allow the Republican-controlled 119th Congress to rescind the rule. The CRA requires that all final rules be submitted to the House, Senate and Government Accountability Office (GAO) before they can take effect. Once a rule is submitted, members of Congress have 60 days of “continuous session” to introduce a joint resolution of disapproval. Importantly, the Senate has 60 “session days” from the date Congress receives the rule to use expedited procedures to act on a resolution of disapproval. The expedited Senate rules make the CRA a privileged measure with limited floor debate, essentially making the resolution filibuster-proof. If a CRA joint resolution is passed by both chambers and signed by the president, the rule will no longer take effect. Additionally, the issuing agency may not reissue a rule in “substantially the same form” without subsequent statutory authorization.
Brownstein is closely following these and other related developments across the federal government. For assistance with or more information on any of this activity, please contact a member of the Brownstein Hospitality team.
THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING FTC'S NEW "JUNK FEE" REGULATIONS. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.