Junk Fee Rule Seeks to Restore Speedy FTC Relief for Consumers

Businesses can thank the US Supreme Court for the Federal Trade Commission’s latest effort to crack down on so-called junk fees for concert tickets, hotel rooms, and other consumer purchases.

The agency Wednesday proposed a broad ban on hidden and bogus fees throughout the economy, as part of the Biden administration’s battle against the charges. The rule would require companies to incorporate and disclose all mandatory fees in the display price of a good or service, so consumers aren’t hit with surprise costs after they agree to make a purchase.

The FTC’s rule would also make it easier for the agency to quickly get relief for consumers who were misled by hidden fees or charges after the Supreme Court limited some of the agency’s authority in its 2021 AMG Capital Management LLC v. FTC decision.

“What this does is create a shorter route for the FTC to recoup that money,” said Katherine Van Dyck, senior legal counsel at the American Economic Liberties Project, an advocacy group that opposes concentrated economic power.

President Joe Biden was joined by FTC Chair Lina Khan and other regulators at a White House event to unveil the FTC’s proposal, along with new guidance from the Consumer Financial Protection Bureau targeting bank fees.

The FTC is already able to get speedy access to consumer refunds under laws and regulations covering telemarketing sales, post-transaction sharing of online consumer data with third-party merchants, tactics to enroll consumers in subscriptions that are difficult to cancel, and funeral goods and services. Those policies specifically allow the agency to go directly to federal court and skip the administrative process.

The new proposal would expand that authority to cover a wider swath of FTC-regulated businesses, including ticket brokers, hotel companies, and even websites that aggregate prices for travel and other services, said Clayton Friedman, a partner with Troutman Pepper Hamilton Sanders LLP who has represented companies in FTC actions.

The FTC’s consumer protection authority covers most industries outside of financial services, common carriers, and a few others handled by other agencies. By putting a rule in place, the FTC can make clear which fees have to be disclosed without relying on individual enforcement actions to curb violations, Friedman said.

“To have that level playing field, you need to have clarification on what’s okay,” he said.

Prior to the AMG Capital case, the FTC often brought deceptive pricing charges under its founding law, the 1914 FTC Act, directly to federal court.

But the Supreme Court ruled the law didn’t give the agency the right to seek consumer redress when it opts to bring a case straight to federal court rather than going through an administrative proceeding first.

That unanimous decision has limited the number of cases where the agency can move swiftly to get consumer relief, Van Dyck said. The FTC’s collection of consumer refunds in enforcement cases dropped to about $393 million in 2022, compared with more than $11 billion collected under the FTC Act in the four years preceding the high court’s decision, the agency reported.

The FTC and Democrats have unsuccessfully attempted to get Congress to amend the FTC Act to allow for rapid consumer redress. California Gov. Gavin Newsom (D) signed legislation last week that would require companies to provide all-in pricing in an effort to combat hidden fees. While similar to the FTC’s proposal, the law goes further and could become a baseline national standard, given the size of California’s economy.

Instituting a junk fee rule that covers all industries under the FTC’s watch would expand “the Commission’s enforcement toolkit and allows it to deliver on its mission by stopping and deterring harmful conduct and making American consumers whole when they have been wronged,” the FTC said.

A rule would ensure all companies are on notice, allowing the FTC to bring swifter action, Friedman said.

“If I were in the commission and this was a priority, issuing the rule was a very smart way to go,” he added.

Uniform price disclosures could also make it easier for consumers to comparison shop, Van Dyck said.

“You’re not just preventing deception. You’re encouraging competition,” she said.

Industry Pushback

Industry groups have already raised objections to the FTC’s proposal, previewing a potential legal clash once the agency finalizes the rule.

“It is baffling that the administration believes it is going to help consumers by regulating how businesses price all of those transactions,” Neil Bradley, the chief policy officer at the US Chamber of Commerce, said in a statement. “The reality is this attempt at price controls will only stifle the innovation that leads to more choices and lower prices for consumers.”

The FTC’s proposal doesn’t post a cap or set any fees, and focuses primarily on disclosures.

The agency’s rule, if finalized, wouldn’t extend to banks, some consumer financial technology companies, and other financial services companies that fall under the CFPB’s purview.

The federal consumer finance watchdog released its own interpretative guidance Wednesday to address how banks with more than $10 billion in assets should handle customer questions about their accounts.

The CFPB said it would begin enforcing a Dodd-Frank Act provision to ensure bank customers can access their account information upon request, without facing fees or long delays.

“It’s really the CFPB saying, you know these laws that Congress passes, they actually mean something,” said Morgan Harper, the American Economic Liberties Project’s director of policy and advocacy.

Like the FTC’s proposal, the CFPB’s advisory opinion is already getting pushback from banks and credit unions, potentially setting the stage for litigation.

“The CFPB’s latest advisory opinion is another instance of the bureau overstepping its authority and masking a major power grab as simple ‘guidance,’” Greg Mesack, senior vice president of government affairs at the National Association of Federally-Insured Credit Unions,said in a statement.

Mesack said the CFPB failed to follow regulatory procedures under the Administrative Procedure Act (APA)—a common argument raised by industry groups challenging agency rules.

A federal judge in Texas last month ruled the CFPB violated the APA with changes to its examination manual that would’ve allowed the agency to use its powers to police the market for unfair, deceptive, and abusive acts and practices in its antidiscrimination work.