Will the U.S. Government Really Regulate Junk Fees?

If you ask around, you likely won’t find many consumers who like what are called “junk fees.”

In the hotel industry, they are known as “resort fees” although in many cases they are charged by properties that are plainly not “resort” level. Now, finally, federal legislation has been introduced to address the problems created by these add-on charges. The Junk Fee Prevention Act also addresses the controversial issue of children being forced to sit apart from their adult co-travelers. 

Some of the resistance to these fees was inspired by the fact that in their earliest incarnation, they were not disclosed in advance. Travelers staying in hotels were often surprised to find substantial “resort fees” added to their bills at check-out, allegedly covering services that were not used or wanted. If you made a major fuss about it, many hoteliers simply removed the charges. More timid travelers just paid up.

The Federal Trade Commission has long had policies against so-called “drip pricing,” the practice of dribbling out the components of a bill piecemeal. As far back as 2012, the FTC defined “drip pricing” this way:

… a pricing technique in which firms advertise only part of a product’s price and reveal other charges later as the customer goes through the buying process. The additional charges can be mandatory charges, such as hotel resort fees, or fees for optional upgrades and add-ons. Drip pricing is used by many types of firms, including internet sellers, automobile dealers, financial institutions, and rental car companies. 

Whatever it is called and however they are displayed and collected, the extra charges often represent a large portion of the final price and are widely and deeply resented by consumers. Some improvements have occurred in the sense that most major hotels disclose early in the online buying process that the “price” for the room is not final and will have, usually, daily resort fees added. This still makes price comparisons difficult and improves the listing position of hotels that, in the final purchase, have prices higher than their online site ranking suggested.

Late in 2022, the FTC announced an Advance Notice of Proposed Rulemaking to, presumably, lay the groundwork for formal regulation of junk fees. More than 6,000 comments were submitted. The new legislation directs the FTC to proceed with the rulemaking and sets parameters for it to follow. The Federal Consumer Financial Protection Bureau is also working on the issue in banking, credit, and related industries.

The Consumer Federation of America, National Consumers League, and Consumer Reports have endorsed the bill. However, given the composition of the U.S. Congress, and the fact that the bill only has Democratic sponsors, the prospects for near-term passage may be questionable.

The legislation is broad in its potential coverage. Among other elements, it applies to any:

• provider of short-term lodging an entity that advertises rates or [sic] the purchase of short-term lodging (offering occupancy of less than six months (hotels, motels, Airbnb);
• event ticket sellers (presumably including Ticketmaster, Major League Baseball teams and many others);
• ticket sellers in secondary marketplaces (presumably StubHub);
• any other ticket seller the FTC decides should be covered;
• Internet service and commercial mobile and data service;
• multi-channel video programming distribution (Netflix and Prime Video?)

The breadth of the legislation seems certain to inspire vigorous lobbying against it.

The fundamental rule proposed is that the first price disclosure to a consumer for a covered service must disclose “clearly and conspicuously,” the total price of the good or service provided by the covered entity, including any mandatory fees a consumer would incur during the transaction, which shall not change during the purchase process.

The bill then expands to permit 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.” This feature assures a long road ahead even if the FTC proceeds with dispatch to advance rulemaking. Substantive price regulation of these fees would be unprecedented when regulation of underlying airfares, and hotel prices, among many others, are not regulated.

Given the recent dustup with airlines over refunds due to pandemic-driven cancellations, the rule established would compel clear and conspicuous disclosure of the refund policy and actual provision of refunds for the total ticket cost plus mandatory fees. However, since the FTC may not regulate airlines, these rules would not actually solve the airline issue unless replicated by the Department of Transportation.

The proposed regulation would, on the other hand, authorize state attorneys general to bring civil actions to enjoin violations. How that will align with the federal preemption provisions of the Federal Aviation Act remains to be seen. There is no specific reference to amending the Federal Aviation Act to change preemption restrictions.

Moving to the hot topic of the seating of families on airplanes, the proposed rule provides that whenever an airline assigns or allows seat selection, it must,

seat each young child adjacent to an accompanying adult, provided that adjacent seat assignments are available at any time after the ticket is issued for the young child and before the first passenger boards the flight.

If no advance seat assignment or selection is offered, the airline must,

Board customers in a manner that ensures each young child is seated adjacent to an accompanying adult.

All at no extra charge. The rule requires these principles to be applied to every class of service on the flight.

There is more:

No carrier may limit the availability of adjacent seats in a manner that results in an undue burden on the ability of a young child to receive an advance seat assignment adjacent to an accompanying adult. 

I have no idea what that means or how it will be defined or enforced.

Further, if no adjacent seat is available within 48 hours of booking, the accompanying adult is to have the choice, exercisable for not less than seven days, of (a) a full refund for everyone in the reservation, or (b) waiting for adjacent seat assignments to be provided. If the adult elects to wait, but no adjacent seat becomes available, the carrier must rebook everyone on the same reservation on the next available flight “at no additional cost” or carry the group in non-adjacent seats if still available. Presumably this choice is the accompanying adult to make but that is not clear.

There are more elements dealing with situations such as connecting airports. I will leave it there for now. Note, however, that the legislation defines “accompanying adult” as an individual “14 years of age or older on the date of the scheduled departure of the flight.” I will not comment on the implications of that definition.

Beyond the obvious complexities in all this, one concern leaps out: if adopted, travel advisors are going to be required to try to explain the rules to travelers. If you thought the rules on denied boarding compensation were complicated to explain, they pale in comparison.

While I rarely try to predict the future, and recognizing the good intentions behind these proposals, I conclude by saying that I think the chances of any rules remotely like these being enacted are roughly zero.