Regulators looking to garner bipartisan support for an initiative would be hard-pressed to find a more politically palatable target than “junk” or “hidden” fees. President Joe Biden recently announced his initiative against junk fees, calling on regulators to issue guidance to banks, airlines, and concert ticketing companies alike.
The Consumer Financial Protection Bureau recently issued guidance, stating that surprise overdraft fees and depositor fees (fees charged to consumers who deposit a check that bounces) are junk fee practices that are likely unfair and unlawful. At the National Association of Attorneys General, CFPB Director Rohit said we “cannot live in a country of junk fees.”
State attorneys general have targeted these fees for some time, framing them as unfair or deceptive typically because they are rarely disclosed clearly and conspicuously to consumers.
The Federal Trade Commission on Oct. 20 issued notice of proposed rulemaking and request for public comment on junk and hidden fees. It noted that the hospitality, live entertainment, travel, and automobile industries are where it believes junk or hidden fees and “drip pricing”—where companies reveal only part of the price and add charges later—are prevalent.
One reason for the FTC’s notice is that it presently cannot secure compensation for consumers or penalties related to unfair or deceptive fees. The US Supreme Court recently held in AMG Capital Management v. FTC that the Federal Trade Commission Act does not authorize the commission to seek equitable monetary relief, and generally precludes the federal regulator’s authority to pursue consumer restitution under Section 13(b).
But if the FTC adopts a rule on junk fees, it could seek similar relief under Section 19(b) of the FTC Act. The commission is specifically interested in the public’s opinion on the prevalence of junk and hidden fees, how often consumers are expected to pay such fees, whether a rule should require a business to disclose one price encompassing all charges when advertising products or services, and whether such rules should apply to all industries, according to its notice.
Several years ago, attorneys general from more than 40 states and the District of Columbia launched a working group to investigate whether hotel chains charged undisclosed or improperly disclosed fees, such as “resort” fees not included in advertised rates.
Last year, Pennsylvania Attorney General and now Governor-elect Josh Shapiro reached a settlement with Marriott on mandatory fees that it failed to disclose to customers. Marriott became the first major hotel to commit to a policy of disclosing these fees as part of the total price of a hotel stay.
The settlement follows similar lawsuits by District of Columbia Attorney General Karl Racine against Marriott and Nebraska Attorney General Doug Peterson against Hilton.
Other hospitality companies including hotels, home stay, or home-sharing businesses and third-party websites that offer these services are now on notice. Airbnb recently announced that it is scrapping its hidden fees and will instead display the total price including all fees before taxes upfront.
Companies in the industry should also ensure that they are only charging mandatory fees and that these fees are, at a minimum, disclosed to customers up front. A surprise fee on the checkout page could be construed as a junk fee.
Ticketing and Food Delivery
In 2019, Texas Attorney General Ken Paxton settled with a third-party online booking company that advertised and sold tickets to national parks and monuments for failing to disclose its booking fees. Under the settlement, the company must only advertise ticket prices that include all mandatory fees and must disclose online all fees separate from ticket prices.
District of Columbia’s Racine also recently sued Grubhub over misleading fees. One of his main allegations involved “dark patterns” employed by the company. Grubhub allegedly displayed a delivery fee on a restaurant’s listing, but after users selected the items to order, the company added an additional service fee and small order fee, if applicable, during checkout. Before the lawsuit, Grubhub used to group the fees with taxes at checkout, further obscuring them.
Other ticketing platforms like StubHub and Ticketmaster and food delivery platforms are also forewarned. In 2020, Maryland Attorney General Brian Frosh settled with Ticketmaster for charging service fees to consumers who purchased tickets through secondary resale sites despite disclosing that consumers would not pay additional fees.
This issue could pop up again as the attorneys general investigate Ticketmaster over its turbulent rollout of presale tickets to Taylor Swift’s 2023 tour. Attorneys general from Tennessee, Pennsylvania, Nevada, and North Carolina have announced they are looking into whether the company’s practices violate state consumer protection laws, such as the states’ Unfair Deceptive and Abusive Practices laws.
Given the success state attorneys general have had targeting junk and hidden fees, we would be surprised if the FTC did not promulgate a rule that gives it the power to regulate such fees. Companies engaging in junk fee practices may soon face a triple threat of three different regulatory regimes reviewing their practices.
Companies should prepare to stave off scrutiny by ensuring they charge mandatory fees and not convenience fees—such as those charged for the convenience of taking a payment through a particular channel.
Carefully consider whether to “bundle” an unavoidable fee into the price, and clearly and conspicuously disclose the total costs upfront, including all fees. This should include pass-through charges such as taxes.
Companies also should provide a full price breakdown and explain all fees charged before customers checkout. They ought not to commingle taxes and fees in one line-item field, as they should not be conflated. Be careful when providing extended “free” offers, as laws and rules limit how long a free offer can last.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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Chris Carlson is an associate in Troutman Pepper’s regulatory investigations, strategy, and enforcement practice group.
Clayton S. Friedman is a partner in Troutman Pepper’s regulatory investigations, strategy, and enforcement practice group and co-leader of the state attorneys general practice.
Namrata Kang is an associate in Troutman Pepper’s regulatory investigations, strategy, and enforcement practice group.
Troutman Pepper associate Natalia Jacobo contributed to this article.