Reed Smith In-depth

On October 20, 2022, the Federal Trade Commission (FTC or Commission) held an open meeting to vote on whether to issue an Advance Notice of Proposed Rulemaking (ANPR) to initiate a rulemaking proceeding addressing (i) “junk fees” and (ii) consumer reviews and other related endorsements. The FTC voted to publish the ANPR in the Federal Register, and the public will now have 60 days to submit a comment on the published ANPR.

“Junk Fees”

The first topic of discussion in the FTC’s open meeting related to “junk fees.” The FTC appeared to define “junk fees” as charges that inflate the cost of goods or services while providing little or no value to the consumer. Of the different ways that junk fees may present themselves, the FTC is specifically seeking comments on (i) unnecessary charges for worthless, free, or fake products or services; (ii) unavoidable charges imposed on captive consumers; and (iii) surprise charges that increase the purchase price after the consumer has invested attention and time considering the purchase.

The ANPR seeks comments particularly on the prevalence of junk fees and the consumer harms arising from them.

During the Commission meeting, three commissioners echoed concerns that were presented in two-minute presentations by members of the public, including representatives from consumer interest groups such as U.S. PIRG, Travelers United, and Consumer’s Union. The three commissioners who voted in favor of moving forward with the ANPR ‒ Khan, Slaughter, and Bedoya ‒ generally expressed that although merchants are free to set prices for the goods and services they offer, arbitrary fees added to the purchase price seem to enrich the merchants’ pockets unfairly at the consumer’s expense.

According to a survey referenced several times during the meeting, 82 percent of consumers spent money on “hidden” fees in the previous year. Often, such fees are experienced when consumers purchase event tickets or book a hotel room. Other assertions presented at the meeting were that junk fees accounted for one-sixth of total hotel revenue ‒ approximately $2 billion a year ‒ and that junk fees are increasing at an alarming rate in the higher education and hospitality sectors.

The FTC expressed concerns that these ancillary fees can prevent consumers from making accurate price comparisons, resulting in consumers spending more than they had previously budgeted and undermining fair competition. Other concerns highlighted included entities misrepresenting optional services or upgrades as mandatory, charging fees without consumer consent, and charging for a product or service with little to no added value. All of these practices, according to members of the public presenting and some of the Commission, left consumers feeling powerless and cheated.