Never say never, but we are fairly confident that the newly announced Junk Fee Rule (Rule) will be the final final rule issued while Chair Khan is at the helm of the Federal Trade Commission (FTC). In a move that came as a bit of a surprise to many, the FTC – in a 4-1 vote – announced a final Junk Fees Rule just weeks before the upcoming inauguration and one week after it was announced that Commissioner Andrew Ferguson would become the new FTC Chair sometime after the Inauguration.
We don’t want to bury the lead – but the broad proposed rule that the FTC announced last year is gone and in its place is a rule that covers only live event ticketing and hotel/short-term lodging. The Federal Register Notice for the “Trade Regulation Rule on Unfair or Deceptive Fees” explains the reasoning behind this significant narrowing:
[T]he Commission has determined, in its discretion, to focus this final rule on the live event ticketing and short-term lodging industries. The Commission recognizes that substantial evidence exists to support a finding of the prevalence of bait-and-switch pricing and misleading fees throughout the economy; nevertheless, the Commission elects to use its rulemaking authority incrementally by first combatting these unfair and deceptive practices in the two industries in which the Commission first began evaluating drip pricing and that have a history of bait-and-switch pricing tactics and misleading fees. Indeed, commenters representing the live-event ticket and short-term lodging industries recognized the need for the Commission’s rulemaking and generally supported the rule’s application to those industries.
Before we dive into the Rule, we do need to set the stage. One of the changes we expect to see once Ferguson takes over as Chair is far less rulemaking at the agency. Notably, Ferguson dissents on this Rule and notes that his dissent has nothing to do with the merits, and he dissents “only on the ground that the time for rulemaking by the Biden-Harris FTC is over.” Commissioner Holyoak voted for the rule, thereby allowing the agency to tout this as a bipartisan effort. Her statement is quite different and is highly critical of the original rule that the agency proposed. Given the substantial narrowing of the rule, however, she supports the rule because it comports with the agency’s rulemaking authority and the final rule has sufficient flexibility to allow for lawful advertising and practices. She makes one additional crucial point in her statement – and that is that her vote “should not be read as a full-throated endorsement of the entire 300-plus page [Federal Register Notice].” For example, she disagrees with the Commission’s repeated conclusion that there is substantial evidence that bait-and-switch pricing, hidden fees, and misrepresentations about fees or charges are prevalent ‘throughout the economy.’”
Of course, being able to tout this as a bipartisan rule means that the Rule is more likely to survive 2025 and beyond, though it is of course likely that there will be challenges to this Rule by the affected industries.
As for the Rule itself, it covers live event tickets as well as temporary sleeping accommodation such as a “motel, inn, short-term rental, vacation rental, or other place of lodging.” The Federal Register Notice explains that this definition includes popular platforms that offer short-term rental accommodations. Notably, the Rule addresses defined goods and services, so to the extent that companies in the ticketing or hotel industry promote other services, those other goods or services would not be covered by the Rule. The Rule also does not cover general rental housing providers, and the Federal Register Notice provides more detail about how the FTC is interpreting Rule coverage.
For the goods and services that are covered, the Rule requires that the total price must be disclosed upfront and that includes the maximum total of all mandatory fees or charges people will have to pay, with exceptions for government charges and reasonable shipping charges. That total price must appear more prominently than any other pricing information. Any additional fees or charges imposed – which would presumably be nonmandatory fees – must be disclosed before payment with an explanation of the nature, purpose and amount of the fee. The Rule also includes a provision prohibiting misleading fees. In addition, the Rule does not preempt state laws unless they are inconsistent with this Rule and notes that providing greater protections is not inconsistent with this Rule.
There are a few other interesting things to note about the Federal Register Notice. As you may recall, thousands and thousands of comments were filed about this rule and many industry groups raised a wide range of concerns, including that the proposal violated the First Amendment, constituted a “major question,” was inconsistent with the agency’s rulemaking authority, and violated the Administrative Procedures Act. The agency addresses each issue and strikes them all down.
Additionally, the Federal Register Notice explains that the rule does not bar the practice of dynamic pricing, but notes that “adjusted fees must include all known mandatory fees and the advertised good or service must be actually available to consumers at the quoted price.”
It should be noted that although this Rule is narrow in scope – and the FTC can get penalties for violations of this Rule, the FTC Act still applies for virtually every other industry. The spotlight is on the hotel and ticketing industry today, but the FTC can still go after other industries and allege that pricing practices violate the FTC Act. Although such actions can’t result in penalties, there can still be very real consequences.
And finally, the states are regulating more in this space as well and are not limiting new laws to hotels and tickets. Indeed, Chair Khan’s statement in the press release “urge[s] enforcers to continue cracking down on these unlawful fees and encourage[s] state and federal policymakers to build on this success with legislation that bans unfair and deceptive junk fees across the economy.”
The Rule becomes effective 120 days after it is published in the Federal Register (and that has not yet happened).
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