Podcast - Junk Fees: What's the Flap All About

Good afternoon or good morning. It's a privilege to be with you today. Today's topic is "Junk Fees: What's the Flap All About?" This will be a two-part series. Today's session will address the political and regulatory background and focus on the action by the Federal Trade Commission (FTC). Part two will address the interest by the Consumer Financial Protection Bureau (CFPB).

The Junk Fees Prevention Act

In his State of the Union Address, President Biden talked about eliminating or limiting junk fees. Such junk fees include concert, sporting events and other entertainment tickets fees, some airline fees, early termination fees for TV, phone and internet service, and some resort and destination fees. The fulcrum of his remarks was the Junk Fees Prevention Act, which was designed to target those hidden surcharges many industries use. Specifically, the act is focused on hidden fees in four areas: airlines, hotels and resorts, termination fees for cellphone, television, internet providers and entertainment tickets, like sporting events or concerts. But, it is not just a political issue facing Congress. It's of high interest to the regulators. Both the FTC and CFPB are involved in enforcement actions, rulemaking, guidance and audits concerning companies charging junk fees.

The FTC's Proposed Actions

Let's now focus on the action by the FTC. Late last year, in November, the FTC provided a proposed rule to address deceptive or unfair junk fees and hidden fees. The proposed rule relates to fees that have little or no added value to the consumer. The core concern is that the overall advertised price of all goods and services should include all costs and that fees disclosed only at a later stage in the consumer's purchasing process constitutes consumer harm. Specifically, the commission is seeking to use its authority under Section 18 of the FTC Act to address deceptive or unfair acts or practices involving junk fees and hidden fees. The commission proposes addressing the following practices, which have been the subject of commission investigations, enforcement actions, workshops, research and consumer education, among other activities. First, they want to focus on misrepresenting or failing to disclose clearly and conspicuously, on any advertisement or in any marketing, the total cost of any good or service for sale. Second, misrepresenting or failing to disclose clearly and conspicuously, on any advertisement or in any marketing, the existence of any fees, interest, charges or other costs that are not reasonably avoidable for any good or service. Third, misrepresenting or failing to disclose clearly and conspicuously whether fees, interest, charges, products or services are optional or required. Fourth, misrepresenting or failing to disclose clearly and conspicuously any material restriction, limitation or condition concerning any good or service that may result in a mandatory charge in addition to the cost of the good or service or that may diminish the consumer's use of the good or service, including the amount the consumer receives. Fifth, misrepresenting that a consumer owes payments for any product or service the consumer did not agree to purchase. Sixth, billing or charging consumers for fees, interest, goods, services or programs without express and informed consent. Seventh, billing or charging consumers for fees, interest, goods, services or programs that have little or no added value to the consumer or that consumers would reasonably assume to be included within the overall advertised price. Finally, misrepresenting or failing to disclose clearly and conspicuously, on an advertisement or in marketing, the nature or purpose of any fees, interest, charges or other costs. The FTC sought formal comments on the proposed rule, and we anticipate prompt action given the interest and public policy concerns.

Key Takeaway

In conclusion, junk fees are a hot topic right now. If your company has any such "hidden" fees, pay close attention to developments and consider revising your policies on fees proactively. So stay tuned for the next podcast, where we examine the issue of hidden fees by the CFPB. I wish you a meaningful day.