You may recall that I have written two previous articles about the possibility that the federal government would join a few states in prohibiting so-called “junk fees,” defined essentially as mandatory charges added late in the buying process as a, usually, unwelcome surprise to the buyer. In travel, the most common examples are hotel “resort” or “destination” fees.
But junk fees are, in the Federal Trade Commission’s view “prevalent” throughout the economy. In addition to hotel reservations, clients of travel advisors may encounter them when buying air travel, car rentals, restaurant reservations, and special event tickets, among others. While the fate of the legislation on junk and other charges remains highly uncertain, the FTC, after only eight months of evaluating some 12,000 comments, has proposed a formal regulation on junk fees. The proposal has not been published in the Federal Register yet, but that step should occur soon. The customary 60-day period for comments will then begin.
The FTC’s proposed rule is remarkable in its brevity and simplicity, despite the 161-page length of the explanatory statement and background. A new 16 CFR Part 464 of the Federal Regulations (“Rule on Unfair or Deceptive Fees? would be created, the most important part of which is the Definitions section.
The definitions relevant to travel advisors are:
“Ancillary Good or Service” -- any additional good(s) or service(s) offered to a consumer as part of the same transaction.
“Total Price” -- the touchstone for everything under the rule -- means the “maximum total of all fees or charges a consumer must pay for a good or service and any mandatory Ancillary Good or Service, except that Shipping Charges and Government Charges may be excluded.”
“Clear(ly) and Conspicuous(ly)” -- relates to disclosure of the “Total Price” and means a “required disclosure that is difficult to miss (i.e., easily noticeable) and easily understandable, including in all of the following ways:
(1) In any communication that is solely visual or solely audible, the disclosure must be made through the same means through which the communication is presented. In any communication made through both visual and audible means, such as a television advertisement, the disclosure must be presented simultaneously in both the visual and audible portions of the communication even if the representation requiring the disclosure is made in only one means.
(2) A visual disclosure, by its size, contrast, location, length of time it appears, and other characteristics, must stand out from any accompanying text or other visual elements so that it is easily noticed, read, and understood.
(3) An audible disclosure, including by telephone or streaming video, must be delivered in a volume, speed, and cadence sufficient for ordinary consumers to easily hear and understand it.
(4) In any communication using an interactive electronic medium, such as the Internet or software, the disclosure must be unavoidable.
(5) The disclosure must use diction and syntax understandable to ordinary consumers and must appear in each language in which the representation that requires the disclosure appears.
(6) The disclosure must comply with these requirements in each medium through which it is received, including all electronic devices and face-to-face communications.
(7) The disclosure must not be contradicted or mitigated by, or inconsistent with, anything else in the communication.
(8) When the representation or sales practice targets a specific audience, such as children, older adults, or the terminally ill, “ordinary consumers” includes reasonable members of that group.”
“Government Charges” -- one of the two items excludable from the Total Price, means “all fees or charges imposed on consumers by a Federal, State, or local government agency, unit, or department.”
“Pricing Information” -- means any information relating to an amount a consumer may pay.
“Shipping Charges” -- means the fees or charges that reasonably reflect the amount a Business incurs to send physical goods to a consumer through the mail, including private mail services.
The rule applies to any form of business entity and includes mobile applications.
The operative sections of the rule are a prohibition on the offering, displaying, or advertising of a price a consumer must pay without “Clearly and Conspicuously disclosing the Total Price …
more prominently than any other Pricing Information.”
The rule also forbids the misrepresentation of the “nature and purpose of any amount a consumer may pay, including the refundability of such fees and the identity of any good or service for which fees are charged.”
Finally, prior to securing the consumer’s consent to pay, the Business must “disclose Clearly and Conspicuously … the nature and purpose of any amount a consumer may pay that is excluded from the Total Price, including the refundability of such fees and the identity of any good or service for which fees are charged.”
The last section of the rule would prevent the preemption of any state laws/regulations relating to unfair/deceptive charges unless and only to the extent such provisions were inconsistent with the federal rule. The states are thus free to impose even more stringent rules on the use of Ancillary charges.
Unusual and particularly important features of the proposed rules
The proposed rule does not limit the amounts that businesses may charge for ancillary services BUT note that the definitions of “Government Charges” and “Shipping Charges” prevent a business from artificially inflating the charges; the charges shown under these terms must be the actual charges to be paid by the business.
Note also that it is irrelevant that another business may provide the charged service. The example used was, “if an online travel agent advertises a price for a hotel room provided by a hotel chain, the online travel agent must display the Total Price, inclusive of mandatory fees charged by the hotel chain.” The same principle applies to mandatory payment processing charges. They must be included in the published Total Price even if the processing is handled by another party.
The FTC is aware of the DOT Full Fare Advertising Rule that was discussed in Governmental Rules and More Rules: What's An Advisor to Do? Part 3. Nothing in the junk fees rules changes your obligation to comply with the DOT rule.
Prospects for adoption
At this point you may be asking, what are the chances that these rules, or something very close to them, will be adopted, and when? For reasons it regards as legally necessary, the FTC included in the NPRM a long list of specific questions (1,277 words) that interested parties are invited to address. I expect continued resistance from multiple industries, and possible legal challenges in the courts, if the FTC proceeds with these rules, so nothing substantive is likely to happen any time soon.