New Junk Fee Rules Require Staying Ahead of the Regulatory Curve

Intense scrutiny and possible regulation targeting hidden fees and additional charges known as junk fees should push businesses to implement best practices now to ensure compliance.

What makes these actions necessary is a push from both the federal government and lawmakers on the state level to reign in or eliminate what they see as unfair fees on goods and services.

Junk fees—including processing fees, convenience charges, and recoupment—routinely go unseen by consumers because of their lack of transparency. They appear when businesses advertise an initial low price, then reveal additional fees throughout the purchasing process.

This approach gives a false impression of affordability or prohibits the consumer from properly compare pricing, as the total price is often not shown until the end of the transaction.

Federal Crackdown

Warnings of an impending regulatory focus on hidden and junk fees were realized following President Joe Biden’s call to Congress during his 2023 State of the Union address to eliminate them. Later that year, the Federal Trade Commission announced its Trade Regulation Rule on Unfair and Deceptive Fees.

This rule seeks to prohibit misrepresentation of total costs by excluding mandatory fees from advertised prices and by misrepresenting the nature and purpose of the fees. After the announcement, a group of 19 state attorneys general (AGs) filed a comment letter saying the rule would provide much-needed safeguards for consumers.

At an informal FTC hearing on April 24, critics of the proposed regulation argued that existing rules adequately addressed the issues. They said the proposal could remove national price advertising due to varying fees based on consumer location, further confusing customers. They also said the regulation might burden and bewilder small businesses, especially in the fitness, restaurant, or health-care sectors.

Speakers representing consumer rights organizations, however, noted the harm caused by hidden and deceptive fees. They emphasized that the fees significantly affected consumers, particularly the marginalized. They argued the rule was necessary for fostering transparency and should be adopted without delay.

One point of contention involved applying the rule to cable TV, satellite, and broadband providers. Industry representatives argued it would conflict with existing regulations set by the Federal Communications Commission.

The FCC had adopted the “All-In” Cable and Satellite Video Pricing rule in March, requiring certain video providers to provide customers comprehensive or “all-in” pricing up front for video programming fees. Representatives urged the FTC to exclude broadband providers and cable communication services from any final rule.

The FTC rule, with potential modifications, is anticipated to be adopted later this year. But the regulatory rollout doesn’t stop there.

State Actions

On the state level, California’s Senate Bill 478 aims to stop companies from hiding mandatory fees or charges. It goes into effect on July 1 and imposes strict requirements for how pricing must be advertised.

This law modifies the unlawful methods of competition and acts or practices under the California Consumers Legal Remedies Act by declaring: “advertising, displaying, or offering a price for a good or service that does not incorporate all mandatory fees or charges” as illegal. California AG Rob Bonta released guidance for businesses to comply with the law, which exempts taxes, postage or carrier charges, and fees subject to existing disclosure laws.

At least 10 other states are advancing legislation and regulation in this area.

Massachusetts, for example, wants businesses to disclose the total price of a product in a clear, conspicuous, and prominent manner, incorporating all associated costs at the time of advertising. The proposed regulations also stipulate that sellers must clearly elucidate the nature and purpose of any fees and disclose whether they are obligatory.

Valuable Examples

The ticketing and hospitality industries, which have been the subject of significant regulatory scrutiny, provide valuable insights for navigating this new regulatory landscape.

After the turbulent rollout of presale tickets to Taylor Swift’s 2023 tour, states took a closer look at the ticketing industry and its players. New York and Connecticut enacted laws requiring ticket sale facilitators to provide “all-in” disclosures upfront. In June 2023, Live Nation (operator of Ticketmaster) committed to ending hidden fees and drip pricing practices, pledging to roll out an all-in pricing model.

In the hospitality sector, allegations of hidden charges like resort or destination fees not included in advertised rates persistently plague hotel chains. State AGs across the political spectrum, including Pennsylvania, Colorado, Washington, D.C., Oregon, Texas, and Nebraska, have reached settlements with various hotels.

Many hotels, including Hilton, Choice, and Omni, agreed to significant changes in their advertising strategies nationwide. Specifically, they have agreed to disclose the bundled total room rate prominently, ensure clear and conspicuous fee disclosures in advertisements, and buy-flows, and describe amenities covered by mandatory fees.

Outlook

Considering the current legislative and regulatory trends, businesses must not only keep abreast of the changing legislative and regulatory landscape, but also consider assessing their current advertising to see if they could become a target.

Regulators already consider this a deceptive practice covered by their UDAP statues. In light of this, businesses must consider clearly and conspicuously disclosing all mandatory fees—that includes a total price—upfront in prominent font size. Similarly, businesses should offer a full itemized price breakdown, explaining all fees charged before collecting billing information.

Businesses are also advised to observe competitors’ actions and remain responsive to consumer complaints and feedback concerning pricing. Customer complaints about pricing may signal potential issues. Such complaints often made to the company, Better Business Bureau, other non-governmental organizations, and state attorneys general, catch the attention of regulators who typically consider these grievances as potential triggers for regulatory scrutiny.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Clayton Friedman, is partner at Troutman Pepper and co-leads the firm’s state attorneys general practice.

Namrata Kang is an associate at Troutman Pepper’s regulatory investigations, strategy and enforcement practice group.

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