Preparing for the Proposed FTC Rule on Unfair Or Deceptive Fees

In an ever-changing legal landscape, businesses must stay ahead of the curve to ensure they are operating within the bounds of the law. The Federal Trade Commission (FTC)’s proposed "Rule on Unfair or Deceptive Fees" (the “Rule”) has the potential to significantly impact businesses across various industries. This article provides a quick overview with the goal of helping business owners better understand, prepare for, and comply with the proposed Rule, if it should go into effect. We will also take a look at its potential impact on businesses, and the timeline for its implementation, as well as a few specific actions that a business owner can take now to anticipate and prepare for the impact of the Rule.

Understanding the Proposed Rule

The proposed Rule aims to address the widespread issue of hidden fees, also known as "junk fees," which often catch consumers by surprise and significantly increase the overall cost of goods and services. As we have all experienced from time to time, hidden fees can lead to frustration and financial hardship—not to mention an overall distrust of the company charging them.

Key Provisions of the Proposed Rule

The proposed Rule targets two primary practices that contribute to unfair and deceptive fees, in the FTC’s opinion:

1. Misrepresenting Total Costs: Under the Rule, Businesses would be prohibited from advertising prices that exclude “mandatory fees”, such as service fees, convenience fees, or delivery fees. The total price, including all mandatory fees, must be clearly and conspicuously displayed upfront. This means that businesses would no longer be able to advertise a low price that does not include all of the fees that a consumer will have to pay.
   
   • The proposed Rule defines a "mandatory fee" as "a fee that is a condition of obtaining a good or service, including a fee that is imposed on all consumers who purchase the good or service, regardless of whether they choose to use the service that the fee covers." The rule also states that a "mandatory fee" must be "disclosed in a clear and conspicuous manner, including the amount of the fee and the purpose of the fee.”
   
   Example: a car dealership would no longer be able to advertise a low price for a car without including the mandatory fees, such as the documentation fee and the dealership fee.
   
   • The proposed Rule's prohibition on misrepresenting total costs is specifically designed to address situations where businesses advertise a low price for a product or service, but then add on additional mandatory fees later in the purchase process.
   
   Example: a concert promoter would no longer be able to advertise a low ticket price without disclosing all of the mandatory fees, such as the service fee and the facility fee, upfront.‍
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2. Misrepresenting the Nature and Purpose of Fees: Businesses would be required to provide clear and accurate information about the “nature and purpose” of any fees, including whether they are refundable and what services they cover. This means that businesses would need to provide clear and concise explanations of their fees, including what the fees are for and whether they are refundable.
   
   • The proposed Rule defines "misrepresenting the nature or purpose of a fee" as "making a false or misleading statement about the nature or purpose of a fee, including stating that a fee is refundable when it is not, or stating that a fee is for a service that it does not cover."
   
   • The proposed Rule's prohibition on misrepresenting the nature and purpose of fees is specifically designed to address situations where businesses provide inaccurate or misleading information about their fees. For example, a telecommunications company would no longer be able to state that a fee is refundable when it is actually non-refundable.
   
   Example: a gym membership agreement would need to clearly explain what the monthly fee is for, whether there are any cancellation fees, and what services are included in the membership.

Affected Businesses

There is no clear answer on specifically which industries or types of business would and would not be affected by the proposed Rule; however, the text of the proposed Rule does at least cite fees charged by nine (9) specific “market sectors” for which the FTC received public comments – thus, it stands to reason that, if you are in one of these nine (9) categories, there is a reasonable degree of certainty that you will be affected by the proposed Rule. The categories of fees are as follows:

• Hotel and Short-Term Lodging Fees
• Live-Event Ticket Fees
• Fees Related to Restaurants and Prepared Food and Grocery Delivery Apps
• Transportation Fees
• Telecommunications Fees
• Rental Housing Fees
• Education Fees
• Financial Services Fees
• Correctional Services Fees (sad that jails are a market sector…)

Timeline for Implementation

The proposed Rule is currently in the public comment period, which ends on January 8, 2024. After the public comment period closes, the FTC will review the comments and, if necessary, make revisions to the proposed Rule before issuing a final rule. The timeframe for implementation will depend on the outcome of the public comment period and the finalization of the rule.

Potential Impacts on Businesses

The proposed Rule is likely to have a significant impact on businesses across various industries—including those specifically listed above, as well as others—which may result in the following:

1. Increased Transparency: Businesses will need to be more transparent about their pricing practices and ensure that all mandatory fees are clearly disclosed upfront. This may require adjustments to advertising materials, website content, and customer service interactions.
   
   Example: a hotel might need to revisit their policies to ensure that they are clearly disclosing all of its fees—including the resort fee, the parking fee, and the pet fee, on its website and in its advertising materials.‍
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2. Reduced Hidden Fees: The Rule is expected to reduce the prevalence of hidden fees, which could lead to lower overall costs for consumers and potentially enhance customer satisfaction.
   
   Example: a concert promoter would no longer be able to add an additional ‘service fee’ to the ticket price at checkout if it were not previously disclosed up front.‍
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3. Fairer Competition: Businesses that rely on hidden fees to undercut competitors may find themselves at a disadvantage once the rule is in effect. This could level the playing field and promote fairer competition.
   
   Example: an airline that does not charge any baggage fees would have a competitive advantage over an airline that charges high baggage fees.‍
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4. Enforcement Concerns: Businesses should be aware that the FTC will have the authority to enforce the rule, which could result in penalties for non-compliance. The FTC has a history of enforcement actions against businesses that engage in unfair or deceptive practices, and the proposed Rule would expand the FTC's authority to take action against businesses that charge hidden fees.‍
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5. Adapting to Change: Businesses may need to adapt their pricing strategies and internal processes to comply with the new rule. This may involve additional time and resources, but the long-term benefits of maintaining consumer trust and avoiding legal repercussions could outweigh the initial costs. For example, a telecommunications company may need to change its pricing structure to ensure that all of its fees are clearly disclosed and that there are no hidden fees.

Recommended Actions for Businesses

To effectively prepare for the proposed Rule, business owners should consider whether they are able to make any changes now that will lessen the impact of the Rule if it does go into effect. By way of example only, here are some potential steps a business owner could take:

1. Review Current Pricing Practices: Conduct a thorough review of your current pricing practices to identify any mandatory fees that may not be clearly disclosed upfront. Ensure that all mandatory fees are clearly and conspicuously displayed in advertising materials, website content, and customer service interactions.
2. Evaluate the Role of Hidden Fees: Assess the role of hidden fees in your business model and determine whether there are any opportunities to reduce or eliminate hidden fees altogether. This could involve rethinking your pricing structure or offering alternative options that do not include hidden fees.
3. Seek Legal Counsel: Consult with an experienced attorney to discuss the specific implications of the proposed Rule for your business. An attorney can help you identify potential compliance risks and develop strategies to ensure that your business complies with the new rule.

Staying Ahead of the Curve

The proposed FTC Rule on Unfair or Deceptive Fees is a significant development that could have a lasting impact on businesses across various industries. By understanding the rule, anticipating its potential effects, and taking proactive measures to comply, businesses can position themselves to navigate the changing legal landscape and maintain a competitive edge.

If you are a business owner seeking legal advice regarding the proposed Rule, please feel free to contact our firm for a personalized Strategy Session where we can discuss the unique aspects of your business. Our team is committed to helping businesses navigate the complexities of evolving legal regulations and protect their interests.

NOTE: At the time of writing, the FTC’s Proposed Rule has not gone into effect; and it is now likely that it will not go into effect (if at all) until 2024. This article provides guidance in the event that the Proposed Rule does go into effect. The reader is strongly advised to consult with legal counsel regarding the current status and effect of the Proposed Rule.