Key points
- The Federal Trade Commission has proposed a sweeping rule that would ban “garbage taxes” across all sectors of the U.S. economy and impose stiff penalties for violations.
- Based on the report accompanying the proposal, if the rule is adopted as it stands, the FTC would likely focus initial enforcement efforts on certain industries, including hotels and short-term lodging, live event ticketing, restaurants and delivery services of food and transport.
- Other potential targets include sectors where the impact of fees may be greatest among vulnerable populations, including telecommunications services, rental housing, education, financial services and correctional services.
- The Commission is currently evaluating public comments on its proposal pending a final decision on the proposed rule.
Undisclosed fees are the subject of frequent consumer complaints, often related to shopping, travel and subscriptions. Given their unpopularity, the nickname “garbage taxes” has stuck, and recent polls show that a majority of Americans support government action to curb their use.
With public momentum gathering, fighting unnecessary fees has become a priority for President Joe Biden. To do this, the White House has used agency enforcement and multi-agency rulemaking. Most importantly, the Federal Trade Commission (FTC or Commission) has signaled its intention to aggressively regulate these fees.
If the Federal Trade Commission adopts its proposal for a comprehensive rule to ban unfair or deceptive fees throughout the U.S. economy, many businesses will have to rethink the way they market and price their products and services.
Unfair or Deceptive Practices Rule
The Federal Trade Commission issued a Notice of Proposed Rulemaking in November 2023 for the Trade Regulation Rule Regarding Unfair or Deceptive Fees (Proposed Rule), which would expand the Commission’s previous efforts on unwanted fees in specific industries such as telemarketing, funeral services and sales of cars to applicable to all sectors. It would prohibit various fee-related practices by “classifying certain junk fees as unfair or deceptive.”
The commission argued that a significant benefit of the proposed rule would be its ability to “obtain monetary relief, particularly consumer redress, as well as civil penalties” for its violations, avoiding the more cumbersome processes normally required by the FTC Act. The proposed rule would impose fines of $51,744 per violation, which “would help create a powerful deterrent against the imposition of garbage fees.”
The proposed rule generated so much public interest that the FTC extended the comment period by one month, until February 7, 2024. The FTC will now review the comments and decide whether to finalize or modify the proposed rule, or to end the process.
Based on the administration’s stated desire to reduce trash fees, it seems unlikely that the rulemaking will be suspended. There is no deadline for the Commission to propose changes or publish a final rule.
Potential enforcement priorities under the rule
The proposed rule contains two general requirements that will apply broadly to all businesses.
- This will prevent the business from misrepresenting the nature of any charges.
- In general, businesses will be prohibited from misrepresenting the total cost of goods or services by omitting any mandatory charges.
Although the FTC and the Biden administration have said the rule will be “industry neutral,” the text of the proposed rule, as well as the discussion surrounding the rule, suggest what types of businesses the FTC might initially target.
- Hotel and short-term accommodation fees. “Resort fees” and cleaning fees, which are not advertised as part of the price of a night’s stay in hotels and short-term lodging, are among the most common junk fees cited by supporters of the rule. According to analysis in the proposed rule, resort fees totaled more than $2.9 billion in 2018. The Biden administration also specifically called out resort fees in its press release on the FTC’s proposed actions.
- Ticket fees for live events. The commission and the Biden administration have also criticized the fee disclosure practices of ticket sellers for live entertainment. The Federal Trade Commission noted comments about the difficulty of obtaining tickets at advertised prices due to hidden fees that often increase those prices by 30-40%. The FTC also noted that these hidden fees are often vaguely described or misleadingly labeled, such as “delivery fees” for tickets sent by email or app.
- Restaurants and food delivery services. The FTC may also target restaurants, alleging that consumers are misled by charges that do not accurately describe their nature or purpose (e.g., ‘service charges’, ‘kitchen charges’ or ‘hospitality charges’). The FTC also suggested that restaurants may be using fees to get around rules that prohibit them from keeping tips that should go to the waiter. The proposed rule also called out food delivery services, noting that users have complained about delivery apps charging fees that are not reflected in the advertised price.
- Transportation. Both the Biden administration and the FTC have singled out rental car fees as an area rife with fee disclosure issues. The Federal Trade Commission has suggested, for example, that rental car companies often delay disclosing mandatory fees until consumers are further along in the rental process. The Federal Trade Commission has also proposed that airlines similarly not include mandatory fares in advertisements or otherwise misrepresent charges.
Other likely targets for enforcement include those where charges may have a particular impact on vulnerable populations: telecommunications, rental housing, education, financial services and correctional services.
For example, the FTC cited comments from consumer groups that hidden fees for financial services are particularly burdensome for low-income black and Latino consumers. Similarly, the FTC noted comments suggesting that the lack of transparency in tuition costs particularly affects communities of color.
In short
Given the expansive approach taken by the FTC and the priority the Biden administration has placed on controlling “unnecessary fees,” businesses may want to prepare for the possibility of a rule that applies very broadly across sectors and types of fees and to impose many new disclosures.
Businesses can begin this process by reviewing their price disclosure practices and exploring possible business alternatives for implementation if the proposed rule or a modified version of it is ultimately adopted.
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