FTC’s Proposed Junk Fee Ban Draws Legal Threats From Industry

The US Chamber of Commerce and other industry groups warned the Federal Trade Commission that its bid to ban so-called junk fees across the economy faces a likely legal challenge.

The Biden administration has made combating what it sees as junk fees a central theme of its economic policy, and a part of President Joe Biden’s messaging for his 2024 re-election efforts. A legal challenge to the FTC’s final junk fees rule would be a high-stakes affair for both the administration and the president’s campaign.

The Chamber and other industry groups, citing the “major questions” doctrine, say the FTC doesn’t have specific authorization from Congress to enact such a broad regulation restricting fees. Any final rule risks a legal challenge under the major questions doctrine enshrined by the US Supreme Court’s 2022 West Virginia v. EPA decision, the Chamber’s Feb. 7 letter said.

“If Congress wanted the Commission to issue an economy-wide rulemaking on fees and fee disclosures, Congress would have instructed the agency to do so,” the Chamber’s letter said.

The FTC’s October proposal would require companies to incorporate and disclose all mandatory fees upfront in the display price for any good or service. The administration has singled out surprise hotel resort fees and surprise processing fees for concert and sporting event tickets, among others charged to consumers after they agree to make a purchase.

Dealing with those fees is better left to the market, the Chamber said.

“Competition over pricing structures is more likely to satisfy consumer preferences than overbroad regulatory requirements,” the group’s letter said.

The deadline for comments was Feb. 7. The FTC received nearly 12,000 comments on the proposal.

Doubling Up

Several industries said they shouldn’t be included in the FTC’s junk fee rule because their pricing practices are already governed by federal and state laws and regulations, including previous FTC rules.

The funeral industry, for instance, falls under the FTC’s 1984 Funeral Industry Practices Rule, the International Cemetery, Cremation, and Funeral Association said in a Feb. 7 letter.

That rule, which was updated in 1994 and is under review for another revamp, already requires funeral homes to provide a general price list and statement of funeral goods and services that clearly lay out the costs.

The funeral industry “strongly opposes the inclusion of those businesses already regulated under the Funeral Industry Practices Rule,” the funeral industry letter said.

Similarly, banks said the FTC should expressly exempt them in the rule since they’re already regulated by the Consumer Financial Protection Bureau and other federal agencies.

The Independent Community Bankers of America “strongly urges the FTC to exclude community banks from this rulemaking because they are already subject to similar regulations that require them to make disclosures and provide protections to consumers,” the trade group said in a Feb. 7 letter.

The Arizona Indian Gaming Association said that the FTC should exempt Indian tribal governments from the proposed junk fees rule, similar to the treatment of other governmental entities.

“If the FTC intends to exclude governments from the regulation but simply forgot to say anything about tribes, the FTC should expressly exclude tribes and tribal entities from the sweep of the proposed regulation,” the gaming group’s Feb. 5 letter said.

Variable Pricing

Online marketplaces said a full disclosure of costs could make it harder for them to use variable pricing tools that can save consumers money.

The Chamber of Progress, a trade association representing online marketplaces and other tech firms, said the FTC’s proposal for all-in, up front pricing poses challenges for companies that offer variable shipping costs depending on when an order is being delivered, for example.

“Under variable pricing models, the price of delivery and other services would also change through the course of the shopping experience, increasing as customers added additional items to their cart. It is unclear how platforms would capture this fluctuation without creating confusion for customers or misrepresenting prices,” the Chamber of Progress said in its Feb. 7 letter.

Several other trade groups representing rental housing providers and auto dealers, among others, raised the specter of a legal challenge to the FTC’s forthcoming rule, citing the major questions doctrine among their arguments.

Reclaiming Powers

While industry groups highlighted the Supreme Court’s ruling on the major questions doctrine, consumer advocates said a separate decision from the high court shows the need for FTC to adopt its junk fee proposal.

The Supreme Court’s 2021 AMG Capital Management LLC v. FTC decision eliminated the agency’s ability to get restitution for consumers or recover ill-gotten gains from companies that fail to disclose loan terms and other fees.

Establishing a junk fee rule will make it easier for the FTC to return money to wronged consumers, a Feb. 7 letter from the Consumer Federation of America and 51 other consumer groups said.

“With this rule, the FTC will be able to serve its purpose and continue its mission to prevent, punish and deter unfair and deceptive conduct in the form of junk fees,” the consumer advocates said.