“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.
Commissioner Wilson voted against publication of the ANPR on a number of grounds, including the breadth of the rule. Unlike a trade regulation rule targeted at a specific industry, such as the Funeral Industry Practices Rule (which was also discussed at the meeting), the ANPR potentially covers a very large percentage of goods and services in the United States economy seemingly without any consideration of whether the potential harms imagined by the majority might vary by industry. Commissioner Wilson suggested that the “major questions” doctrine may be implicated by such administrative action. She also worried about how the rule would overlap and/or conflict with existing laws and rules, such as the Truth in Lending Act, which requires disclosure of certain costs upon the use of “triggering terms,” or the Funeral Industry Practices Rule, which requires the unbundling of certain costs.
Commissioner Wilson also stressed the importance of ensuring that there are empirical data in the record to support the requirement that the “drip pricing” problems described by the majority were “prevalent.” Merely holding workshops or publishing newsletters about “drip pricing” do not equate to evidence of a prevalent problem, according to the commissioner. She also criticized the way the ANPR seeks to define “junk fees,” and she queried whether the FTC should be required to demonstrate why a fee should be considered “junk” or “worthless.” She worried about whether the result of the rule will be that prices will be raised in certain industries, exacerbating inflation, and she expressed concern about how a rule could impact competition. Finally, Wilson noted that rulemaking like this carries potential “opportunity costs,” including the diversion of scarce FTC resources and the tarnishing of the Commission’s reputation and legitimacy as it delves into “legislative” activities.
Consumer Reviews
Additionally, the FTC voted 3-1 to publish an ANPR on deceptive and false reviews. The ANPR seeks comment from the public on the prevalence of fake and deceptive reviews and the consumer harms arising from them, among other questions. The FTC is aiming to create a trade regulation rule that will enable it to impose civil penalties on companies and individuals who violate the rule.
Among the three commissioners approving publication of the ANPR was Chair Khan, who expressed concern about positive reviews by bots and sellers hiding low star reviews, and she observed that the FTC has already brought enforcement actions in this area against Fashion Nova and Roomster in 2022. Chair Khan also explained that the FTC already sent 700 companies notice of penalty letters concerning false and misleading use of reviews and endorsements. She also pointed to the Commission’s ongoing revision to the Endorsement and Testimonial Guides. Chair Khan appeared to view the ANPR as a logical step toward greater enforcement and deterrence of deceptive behavior.
Commissioner Wilson viewed the ANPR in a different light. She acknowledged that there had been two enforcement actions in 2022 related to fake reviews, but she expressed frustration that the Commission has engaged in far fewer enforcement actions than it did under the last Administration. Instead, the current FTC has been prolific in its publication of rulemaking proceedings. Wilson suggested that the limited resources of the FTC could be better focused on enforcement against bad actors rather than on “legislative” efforts that are time- and resource-consuming. Furthermore, she noted that the FTC has already initiated a multipronged strategy to combat the issue of endorsements and fake or promoted reviews, including the on-going revisions to the Endorsement and Testimonial Guides. She criticized the speculative nature of the harm proposed as there is often no allegation that a service or good actually did not perform as represented and the endorsement or review in many cases is not the central claim featured in the advertising.
Nevertheless, the Commission voted 3-1 to approve publication of the ANPR, which specifically seeks comment on the costs and benefits of the potential rule, as well as the pervasiveness and potential harms to consumers in the areas of (i) fake reviews; (ii) review reuse fraud; (iii) paid reviews; (iv) insider reviews; (v) review suppression; (vi) fake review websites; and (vii) buying followers.
Key Takeaways
- Although the FTC has regulated junk fees in the past and brought several enforcement actions related to hidden fees, it nonetheless currently lacks authority to seek civil penalties against violators in many instances. It is not clear whether the rulemaking will result in disclosure requirements or eradication of unbundled fees. For now, companies in industries where ancillary fees are common may want to consider reviewing the consumer journey to ensure that any ancillary fees are disclosed in a prominent, clear, and unavoidable way. It may also be wise to consider how to differentiate between fees that should be unbundled and those that should not. For example, should a service that is generally available to everyone who pays to attend an event be broken out as an added, mandatory fee that is incremental to the advertised ticket price? Might there be value in developing a safe harbor definition for ancillary fees that could protect the ability to break out fees in certain circumstances with appropriate disclosure without fear of monetary exposure under the new rule?
- The FTC’s obsession with consumer reviews continues. A proposed rule may place a particular burden on advertisers who seek to moderate their review sites or affirmatively welcome positive reviews. Regardless of the proposed rulemaking, the FTC’s intense focus on the area of consumer reviews should prompt advertisers to review its monitoring, collecting, and publishing processes.
- As one commenter from TechFreedom noted during the meeting, the Commission will need to navigate two different competing legal paradigms. First, to the extent the FTC seeks to place constraints on individuals who post opinions and other reviews, the FTC must address the potential First Amendment implications arising from restrictions affecting truthful and non-deceptive commercial speech. Second, to the extent the new rule regulates platforms, the Commission will need to address Section 230 of the Communications Decency Act, which provides immunity for platforms except to the extent they are contributing to the deceptiveness of posted third-party content or are themselves acting deceptively.
- The public has 60 days to submit comments on the ANPR. Information about how to submit a comment is included in the notice.
In-depth 2022-356
