FTC Issues Final Rule on Junk Fees

On Dec. 17,  the Federal Trade Commission issued its final rule on junk fees entitled “Rule on Unfair or Deceptive Fees” which will become effective 120 days after publication in the Federal Register. This rulemaking process started in 2022 with the FTC being concerned about bait-and-switch pricing for businesses that offer, display, or advertise prices for lodging, including short-term rentals and live events, whereby businesses do not disclose the all-in pricing to consumers before consumers commit to pay. The Rule defines “Covered Good or Service” to include live-event tickets or short-term lodging, including temporary sleeping accommodations at a hotel, motel, inn, short-term rental, vacation rental, or other place of lodging. After much debate regarding the possible sweeping application of this proposed rule, the FTC’s final definition of covered goods and services effectively excluded a number of types of businesses from the Rule’s applicability, notably restaurants, where “service charges” have become quite common.

Businesses must now consider all fees charged to consumers and ensure that the total price for the goods or services is the most conspicuous of dollar figures displayed and not hidden. “Total Price” means the maximum total of all fees or charges a consumer must pay for any goods or services and any mandatory ancillary goods or services, except that government charges, shipping charges, and fees or charges for any optional ancillary goods or services may be excluded. In any advertisement, the total price must be the most prominent and include all mandatory fees. The FTC addressed some concerns with the applicability of the Rule to specific types of fees (e.g. contingent fees, ticket service fees, dynamic pricing, bundled fees, promotional offers, etc.) with the overarching theme being transparency to the consumers as to the total amount charged (subject to allowable exclusions as described above).  Misleading fees and statements are prohibited. Businesses should review pricing and advertising structures to determine steps which should be taken now to ensure compliance before this final Rule becomes effective.

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