On December 17, the Federal Trade Commission (FTC) released a new trade regulation rule entitled “Rule on Unfair or Deceptive Fees” (the Rule). The Rule targets hidden or “junk” fees in transactions for live-event tickets and short-term lodging (such as hotels, motels, and vacation rentals). In these industries, when a price is advertised, the total price must be more prominent than any other pricing information. The total price must include all associated fees except for government fees (e.g., taxes), shipping costs, and costs for optional ancillary goods or services (the Total Price). Prior to obtaining consumer consent to the transaction, any fees not included in the Total Price must be disclosed (including their purpose), and the final amount to be paid must be more or equally as prominently disclosed as the Total Price. This Rule will take effect 120 days after publication in the Federal Register.
What are hidden or “junk” fees?
The FTC characterizes transaction fees, convenience fees, service charges, etc. that are not included in the advertised price as hidden or “junk” fees. The Rule is aimed at promoting pricing transparency to permit the consumer to understand the true price of a service at the time of the offer/advertising.
Whom does the Rule apply to?
The Rule applies to all businesses (including individuals, franchised and non-franchised businesses, and travel advisors) that sell live-event tickets or short-term lodging, including online and in person. The Rule also applies to both B2B and B2C transactions. Although the scope of the final rule was narrowed to focus on the live-event and short-term lodging industries, the FTC has noted that it may focus on other industries in the future, and the FTC is free to take action against deceptive or unfair practices against other actors outside of the covered industries under Section 5. Additionally, some states have passed legislation regulating “junk” fees more broadly than the FTC.
What do I need to do to comply with the Rule?
If you are a business engaged in the sale of live-event tickets or short-term lodging, and you are presenting a price in an offer or advertisement, then the Total Price must be clearly and conspicuously disclosed. Clear and conspicuous means the Total Price is “difficult to miss” and easy to understand. The “Total Price” must include all associated fees except for government fees (e.g., taxes), shipping costs, and costs for optional ancillary goods or services.
The Total Price must be more prominent than any other pricing information. However, if the final amount a consumer will be charged is displayed (i.e., the Total Price plus permitted exclusions), that final amount must be displayed equally as or more prominently than the Total Price.
Additionally, any charges you have permissibly excluded from the Total Fee must be clearly and conspicuously disclosed, including the nature, purpose, and amount of each additional charge. Businesses also must not misrepresent the nature of any charge nor its refundability.
What kinds of fees must be included in the Total Price?
All non-optional fees must be included in the Total Price. A fee is non-optional if it is required to be paid in the same transaction as the underlying good or service. The FTC recognized that there are some fees that may shift based on the actions of a consumer (such as shipping options or add-ons), which do not need to be included in the Total Price. However, if the fee is known, such as a credit card fee when the only option available to consumers is to pay by credit card, that fee must be included in the Total Price.
What kinds of fees may be excluded from the Total Price?
Under the Rule, governmental fees (such as taxes) imposed on the transaction (as opposed to pass-through costs), shipping charges, and fees for optional ancillary goods or services do not need to be included in the Total Price. The FTC notes that “convenience” fees for electronic ticket delivery or other processing fees associated with online purchases and handling charges do not fall within the definition of “shipping charges.”
What are ancillary goods or services, and when are they required to be included in the Total Price?
Ancillary goods and services are those that are separate from the covered transaction but are included in the same transaction. Fees for ancillary goods or services must be included in the Total Price if they are mandatory. For instance, if a business offers a trip protection plan with a room reservation, that protection plan would be considered an ancillary fee because it is optional. However, if the hotel requires all guests to purchase a meal voucher, although the meal voucher would be considered an ancillary fee because it is mandatory, the cost would be required to be included in the Total Price.
What if I’m already required to itemize charges or include certain governmental fees in my advertised price?
The FTC has opined that in the event a business is required under other regulations – such as the Department of Transportation’s Full Fare Advertising Rule on the treatment of Government Charges, subject to jurisdictional limitations – businesses will need to comply with both. Businesses are not obligated to carve out the exempted charges such as government fees, shipping costs, or optional ancillary goods or services costs. Conversely, the Rule does not prohibit businesses from itemizing what is included in the Total Price. Under the Rule, if said costs are itemized, the descriptions of the fees must accurately describe the purpose of the fee, and the Total Price must be more prominent from said other transaction information.
How will this affect how I advertise prices that may vary in national campaigns?
You may still include “starting at” or base prices to account for situations where the final price may be contingent upon a consumer’s selection/actions, however, you must still advertise prices that are attainable. The prices and offers should continue to comply with disclosure requirements related to material conditions or limitations, otherwise the Total Price may be deemed unfair under the Rule. Further, any charges accounting for those consumer selections, if not included in the Total Price, must still be clearly and conspicuously disclosed (including the nature, purpose, and amount of each charge) and included in the final charge amount prior to obtaining a consumer’s consent to the transaction.
Does the Rule override existing state laws?
If there is a state law that conflicts with the Rule, the Rule will supersede that law as it relates to the inconsistency. However, a state law is not inconsistent with the Rule if it provides consumers with more protections. A number of states, such as California and Minnesota, have implemented stricter laws regarding the use of hidden or “junk” fees. In those instances, any stricter requirements would not be considered inconsistent, and the Rule would not supersede it.
**
The FTC is concerned about unfair and deceptive pricing tactics that it found were prevalent in the live-event and short-term lodging industries. The Rule shows a push toward greater pricing transparency. While the final Rule was narrowed to apply only to these industries, it left the door open to extending these regulations to other industries in the future.
Client Alert 2024-003