FTC Moves Against Some Junk Fees

Travel Market Report has been reporting on the “junk fee” problem since at least 2022 when the Federal Trade Commission issued an Advance Notice of Proposed Rulemaking (ANPRM) on the subject.

In late April 2023, we reported that legislation had been introduced to address the issue along with the question of children being forced to sit apart from their adult co-travelers. The Junk Fee Prevention Act was broad in scope and, for that reason, radical in its approach to regulating junk fees.

For example, it permitted “substantive price regulation” of the covered fees by forbidding any “excessive” charges, defined as “whether the fee is reasonable and proportional to the cost of the good or service” along with “the reason for which the fee is charged” and “any other factors determined appropriate by the Federal Trade Commission or the court.”

The family seating rules in the legislation were extremely complex and, with the expansive approach to junk fees, created doubt about the possibility of adoption.

Not long thereafter, California tired of waiting for the federal government and adopted its own rules banning “drip pricing,” to take effect July 1, 2024.

Those rules would apply only to advertising directed at California consumers. However, California went even further by adopting legislation in October 2023 (SB 478), effective the same day as the regulations, amending the Consumers Legal Remedies Act:

The law is designed to address “bait-and-switch advertising practices” including the display of lower advertised prices followed by unavoidable fees (i.e., “hidden fees” or “junk fees”) that are disclosed at later stages of the buying process (referred to as “drip pricing”) or that are displayed in smaller, finer print.

Also, in October 2023, I departed from my normal policy of avoiding predictions and suggested that due to probable resistance from multiple industries, and possible legal challenges in the courts, “nothing substantive is likely to happen any time soon.”

And, indeed, the Washington Post soon reported that the battle was afoot.

Many firms in a broad array of industries whined about how hard it would be to disclose upfront the full price consumers would have to pay.

The big news is that the Federal Trade Commission has finally acted. The final rule was announced Dec. 17 – but not yet published in the Federal Register. It will be effective 120 days after that happens but see the note at the end of this article.

Key Elements of the FTC Rule on Junk Fees

The first point to note is that the FTC has narrowed the final rule to apply to only two industries: Live-event Tickets and Short-term Lodging (which includes “temporary sleeping accommodations at a hotel, motel, inn, short-term rental, vacation rental, or other place of lodging.”)

The FTC’s stated reason for applying the rules to those industries is that “These two industries have engaged in bait-and-switch pricing tactics for years.”

The comments on the NPRM addressed a much more comprehensive array of industries. The FTC noted that supporters of the proposed rule:

confirmed the prevalence of hidden and misrepresented fees throughout the economy, across large and small industries subject to the Commission’s jurisdiction, ranging, for example, from travel, live events, restaurants, delivery, rental housing, and correctional services to carpet cleaning, dietary supplements, moving companies, and gyms. These commenters supported the rule for its benefits to both consumers and honest businesses.

The FTC repeated the essence of that finding:

Despite the evidence that these specific practices are prevalent economy wide, the Commission will first focus its rulemaking authority on combatting these practices in the live-event ticketing and short-term lodging industries, the two industries in which the Commission first began evaluating drip pricing more than a decade ago and for which there is a long history of consumer harm.

It explicitly stated the narrowing was an act of agency discretion. While we may wonder about the nature of this decision, by characterizing the decision as an act of agency discretion, the FTC has probably eliminated most of the legal challenges that might be brought by the multitude of nation-wide businesses that could have been subjected to the new rules.

Thus, while the rule refers to “any business,” the actual services covered are those noted. For example, airline tickets and ancillary fees are not covered by the rule. Car rental charges are also excluded.

For the two industries that are covered, every offer, display or advertisement that states a price must “clearly and conspicuously” state the “Total Price.” The “total price” is “the 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” but not including Government Charges and Shipping Charges. Fees and charges for any optional Ancillary Good or Service may also be excluded.

In the case where an offer, display or advertisement shows prices in addition to the Total Price, the rule is straightforward: the Total Price must be displayed “more prominently that any other Pricing Information” with one notable exception: “where the final amount of payment for the transaction is displayed, the final amount of payment must be disclosed more prominently than, or as prominently as, the Total Price.”

There is another twist, however: before the consumer signifies consent to pay for the Live Event Ticket or Short-Term Lodging, the seller must disclose “clearly and conspicuously”

• (1) the “nature, purpose, and amount of any fee or charge imposed on the transaction that has been excluded from Total Price,”
• (2) the identity of the good or service for which the fee or charge is imposed; and
• (3) the final amount of payment for the transaction.

In addition, it is forbidden to “misrepresent any fee or charge, including: the nature, purpose, amount, or refundability of any fee or charge; and the identity of the good or service for which the fee or charge is imposed.”

This rule will affect many displays of “resort fees” that have often been charged as misstating what they covered. More importantly, the rule requires mandatory “resort fees” to be included in the total all-in price regardless of what it may cover.

I have saved the worst for last.

You have likely noticed the repeated use of “clearly and conspicuously” in the narrative about the rule. The FTC apparently regards that language as susceptible of multiple interpretations and therefore has gone to great lengths to be specific about what it means:

Clear(ly) and Conspicuous(ly) means a required disclosure that is easily noticeable (i.e., difficult to miss) and easily understandable by ordinary consumers, 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, the 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, a mobile application, 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 members of that group.

What the Rule Means for Travel Advisors

Travel advisors may need to prepare to comply with the rules until there is clarity about the actual effective date. The discretionary FTC decision to limit the industry-application of the rules creates uncertainty about the responsibility of travel advisors to assure that information they provide to consumers complies with the regulations.

This is an area where I believe an ounce of prevention is worth a ton of benefit.

If a hotel fails to comply with the new rules, it is unclear whether a travel advisor has responsibility to correct the information provided to consumers and how the advisor could effectively do that. I do not believe travel advisors should be held responsible for hotels, for example, that publish price information inconsistent with the regulation. However, it is unclear how the FTC will view that question. Until it is clarified, you should be alert to such situations so that you are not entangled in enforcement proceedings stimulated by hotels’ failure to comply with the FTC’s mandate.

I close with the further frustrating observation that the change of national administration that will occur in January may lead to changes in the effective date and/or content of the FTC rule. Stay tuned.