On October 20, 2022, the Federal Trade Commission (“FTC”) announced that it is issuing an Advance Notice of Proposed Rulemaking (“ANPR” or “Notice”) to address “junk fees,” a term used in the Notice to refer to “unfair or deceptive fees that are charged for goods and services that have little or no added value to the consumer.”
In announcing the Notice, the FTC said it is seeking public comment on “the harms stemming from junk fees and associated junk fee practices and on whether a new rule would better protect consumers.” As summarized in the FTC’s press release, the types of fees the FTC is seeking comment on include:
- Unnecessary charges for worthless, free, or fake products or services: Consumers may be slammed with charges for products or services that cost companies nothing to provide, are available for free, or should be included as part of the purchase price. Companies might also upsell consumers on fake products or services that either have no value or never materialize.
- Unavoidable charges imposed on captive consumers: Consumers may be forced to pay junk fees because they have no way to avoid or opt out of them. They might be dealing with a company with a monopoly or exclusive rights that can extract fees because there is no competing option. Or consumers might get hit with fees after they have already sunk costs into a product or service, and they can’t easily walk away.
- Surprise charges that secretly push up the purchase price: Consumers can experience junk fee shock when companies unexpectedly tack on mystery charges they did not know about, consent to, or factor into the purchase. Companies might hide these fees in the fine print, cram them on at the end of a purchase process, or use digital dark patterns or other deception to collect on them. Some companies might claim that they do not charge any fees and then add on fees after the purchase or sign up.
The ANPR was announced just over a month after the comment period closed for the FTC’s proposed Motor Vehicle Dealers Trade Regulation Rule, which also seeks to address unnecessary add-on fees, among other things, in the car buying process. The ANPR seeks to address fees more broadly, and provides examples of charges it views as “junk” fees based on its substantial work in this area, including: “mobile cramming” charges (unauthorized fees on mobile phones), connection and maintenance fees on prepaid phone cards, account fees (including maintenance or inactivity fees on blocked or inaccessible accounts), fees that diminish the amount a borrower receives from a loan, miscellaneous fees levied on fuel cards, auto dealer fees, undisclosed fees for funeral services, hotel “resort” fees, hidden fees for academic publishing, poorly disclosed ancillary insurance products, membership programs, and discounts for food, travel, long-distance calls, and merchandise.
The FTC has sought consumer redress in actions and settlements involving “junk” fees under Section 5 of the FTC Act, including an action settled recently with an auto dealer (Passport Auto Group) which included allegations of “junk” fees. While conceding that certain unlawful fee practices may be covered by existing rules and statutes, the FTC explains in the Notice that its ability to seek consumer redress is limited or unavailable in many instances in light of the Supreme Court’s holding in AMG Capital Management v. FTC that equitable monetary relief is unavailable under Section 13(b) of the FTC Act and the fact that it is challenging to obtain such relief under Section 19(b) without a rule violation. (A podcast featuring an in-depth discussion of AMG Capital Management and its aftermath with Bikram Bandy, FTC Chief Litigation Counsel, Bureau of Consumer Protection, and Ballard Spahr’s Alan Kaplinsky, is available here.) Accordingly, the FTC believes a new rule specific to “junk” fees would act as a deterrent in light of the risk of civil money penalties and allow it to more readily obtain redress and damages for consumers.
Publication of the ANPR was approved by a 3-1 vote, with Commissioner Christine S. Wilson voting no. In her dissenting statement, Commissioner Wilson highlighted substantive issues she believes stakeholder input should address, including the ANPR’s breadth, the likelihood of overlap with existing regulations, and, in her view, its flawed assumptions and vague definitions – including how to define the term “junk fee.”
The CFPB is also seeking to address fees it believes are unfair and deceptive, and issued a Request for Information in January 2022 seeking comments related to “fees that are not subject to competitive processes that ensure fair pricing.” Last week, the CFPB issued guidance on two fees it believes are likely unfair, “surprise” overdraft fees (overdraft fees charged when consumers had enough money in their account to cover a debit charge at the time the bank authorizes it) and depositor fees charged to consumers who deposit a check that bounces.
The deadline to submit comments to the ANPR will be 60 days after its publication in the Federal Register.