New State Junk Fee Laws Set Corporate Advertising Bar—For Now

As US elections heat up, Republicans have put Democrats on the defense about the economy and the public’s perception of it. One talking point for Democrats in response, including in President Joe Biden’s last two State of the Union addresses, has been federal efforts to combat so-called junk fees.

Still, the strongest regulations are coming from states, and companies will need to keep an eye on all of these laws to comply.

The term “junk fee” has been used to encompass processing fees, convenience charges, or any other fees companies charge but allegedly fail to include in their advertisements or fail to properly disclose to consumers. Many federal and state agencies allege that junk fees are widespread across various industries and, according to Biden, cost consumers $90 billion each year.

A couple of federal agencies have made efforts to combat junk fees. The Consumer Financial Protection Bureau finalized a rule in March that lowered the cap on credit card late fees from $32 to $8. The Federal Trade Commission announced a proposed rule in November to ban junk fees. But no comprehensive federal rule addresses junk fees outside of the CFPB rule regulating late fees.

Several states have also taken steps to regulate junk fees through legislation. In July, California’s Senate Bill 478 went into effect, amending the unlawful methods of competition and acts or practices under the California Consumers Legal Remedies Act by prohibiting “advertising, displaying, or offering a price for a good or service that does not incorporate all mandatory fees or charges.”

Minnesota’s law, which takes effect on Jan. 1, 2025, requires a company’s advertised price to include all mandatory fees. Under this law, those include fees that must be paid to purchase the good or service, fees that aren’t reasonably avoidable, and those that a reasonable person would expect to be included in the advertised price.

To comply with these laws, companies must determine which portions of their product and service offerings are in fact mandatory and need to be included in the advertised price. A helpful barometer is to identify which fees a customer can’t reasonably avoid.

Both California and Minnesota have attempted to alleviate this burden by explicitly exempting taxes from needing to be included in the advertised price. California’s law says “taxes or fees imposed by a government on the transaction” don’t need to be included in the advertisement. Minnesota’s law states that “mandatory fee does not include taxes imposed by a government entity.” Note, California’s statute is broader in that it also includes “fees” government imposes. However, for both states, there is currently limited guidance regarding what charges might be encompassed by taxes.

Both states also exempt companies from needing to include it in their advertised prices shipping fees, but each state frames the exemption slightly differently. Minnesota’s language states the shipping fee must be one “that is actually incurred by a consumer who has purchased a good that requires shipping.”

California’s law states that a shipping fee is one “that will be reasonably and actually incurred to ship the physical good to the consumer.” Both states have framed the exemption as postage and carriage costs, which doesn’t include handling or installation costs. Any delivery of goods that require installation or setup by the business must likely include this cost in the advertised price.

Although these state laws only theoretically apply within their own borders, in practice California’s and Minnesota’s laws will likely become the national standard, for now at least. Nationwide retailers and service providers commonly run advertisements that span multiple states, if not the entire country. As a result, national campaigns will default to standards set by California and Minnesota, or risk regulatory scrutiny.

The burden on companies to simultaneously comply with both state laws isn’t particularly challenging. Under both state laws, companies essentially must determine what fees are mandatory and disclose them in their advertisements. Several other states have initiatives to pass similar laws. As more states enact junk fee laws, there is a higher likelihood that laws may conflict.

The proposed FTC rule is currently the most comprehensive federal regulation that could address junk fees nationwide. However, the FTC rule creates a floor and not a ceiling, which could complicate the landscape for companies. It wouldn’t preempt states from passing more stringent laws. Companies with nationwide product and service offerings could therefore face a complex regulatory landscape when it comes to how it discloses prices.

There is some concern that this complex landscape would simply result in companies choosing not to engage in price advertisement. If it becomes too complicated for companies to advertise a price, then they simply won’t include prices in their advertisements, which may lead to more consumer confusion.

The goal will be for regulators to develop a scheme where companies don’t have the hurdle of complying with a patchwork of various state and federal laws making it difficult to include their prices. This would certainly be harmful to consumers and would backfire on government agencies.

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 a member of its regulatory investigations, strategy and enforcement practice group, and co-leads the state attorneys general practice.

Michael Yaghi is partner at Troutman Pepper and a member of its regulatory investigations, strategy and enforcement practice and state attorneys general team.

Natalia Jacobo is an associate at Troutman Pepper and a member of its regulatory investigations, strategy and enforcement practice and state attorneys general team.

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