ADventures in Law

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“Junk fees” were a popular topic at the Federal Trade Commission (FTC) in 2024 – but now that the dust has settled (at least for now), let’s take a closer look at how the FTC is using its authority to tackle these practices. &nbsp;Over the last year or so, the FTC announced two rules aimed at junk fees. &nbsp;First, the <a href="https://www.ftc.gov/legal-library/browse/federal-register-notices/combating-auto-retail-scams-trade-regulation-rule">CARS Rule</a> (Combating Auto Retail Scams Trade Regulation Rule) was aimed at hidden fees and bait-and-switch tactics. &nbsp;This rule was recently vacated by the Fifth Circuit because the FTC did not provide adequate notice of the proposed rulemaking. &nbsp;Second, in December, the FTC announced a greatly narrowed “bipartisan” <a href="https://www.ftc.gov/news-events/news/press-releases/2024/12/federal-trade-commission-announces-bipartisan-rule-banning-junk-ticket-hotel-fees">Junk Fees Rule</a>, which is slated to become effective on May 12, 2025. &nbsp;In addition to this rulemaking, the FTC has been very busy pursuing companies for the lack of transparent pricing disclosures with its more traditional enforcement measures, presenting the perfect opportunity to remind companies across all industries that regardless of the fate of the FTC’s rulemaking, price disclosure practices must still comply with the FTC Act and state laws.

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Over the past few weeks, the FTC has sent a clear message to all that price disclosures must be accurate and up front. &nbsp;Misleading consumers with surprise fees, undisclosed eligibility requirements and/or mischaracterizing the nature of fees will not be tolerated and will be pursued, whether it’s under the FTC Act or state laws. &nbsp;While using the FTC Act to target such conduct is hardly a new concept, let’s take a closer look at the FTC’s most recent actions, which were all voted out 5-0 by the commissioners. &nbsp;While one case had some Republican dissents, the dissents were unrelated to the price disclosure issues, so while priorities at the FTC may be shifting, we do not expect the change in leadership to impact the need for clear and fulsome price disclosures.

First, the FTC and the Illinois attorney general pursued a food delivery company for a range of misconduct that resulted in a judgment of $140 million, of which the company had to pay $24.8 million. &nbsp;While many of the company’s practices were the subject of the FTC’s complaint, relevant to this post were the allegations regarding deceptive delivery costs, which a former executive referred to as a “pricing shell game.” &nbsp;The company advertised a certain price for delivery fees, yet upon checkout, consumers allegedly found delivery fees were often more than double (sometimes triple) what they’d expected, in part due to the addition of other types of delivery fees under the label of “service” or “small order” fees. &nbsp;For subscription members, one advertised perk was free delivery; however, there were still delivery fees for many subscribers.

Second, the FTC and Illinois reached a $20 million settlement with an automotive group for a “textbook bait-and-switch” scheme. &nbsp;The company allegedly advertised one price for vehicles and then required consumers to purchase already installed add-on products or charged consumers for additional products without their knowledge or consent. &nbsp;These practices greatly increased the price of the vehicle beyond the advertised price. &nbsp;In addition, fees were added, for example to “recondition” the vehicles, which one manager described as a “fake fee.”

Third, the FTC and Maryland attorney general filed a complaint against another automotive group alleging a systematic practice of overcharging consumers, which resulted in millions of dollars in junk fees and unwanted add-on products. &nbsp;The company allegedly did not honor advertised prices (one executive is quoted as saying that “we never deliver the vehicle anywhere near the stated price”). &nbsp;This was allegedly so because the majority of consumers did not qualify for rebate programs necessary to reach the stated prices and there were thousands of dollars in additional fees that also made the prices unobtainable. &nbsp;In addition, many consumers were charged for add-ons that either they did not agree to or were misrepresented as required, which added hundreds to thousands of dollars to the price. &nbsp;This case is pending in the Eastern District of Virginia.

Fourth, the FTC and Colorado filed a complaint against a multifamily rental property manager for deceiving consumers about rent costs by allegedly adding hidden fees ranging from tens to hundreds of dollars a month. &nbsp;Consumers allegedly did not learn of these fees until after they signed a lease or moved into the rental. &nbsp;Examples of the mandatory fees included fees relating to utilities, trash collection, package handling, distributing utility bills and more. &nbsp;The case is pending in the District of Colorado. &nbsp;(This is not to be confused with a $48 million settlement the FTC announced in September against another company for deceiving consumers regarding lease costs and charging undisclosed junk fees, among other practices.)

So even if the Junk Fee Rule doesn’t apply to you (or you no longer have to worry about the CARS Rule), it’s a good time to make sure that your price disclosures are accurate and that if you advertise a price that has eligibility thresholds, your disclosures identify any limitations and/or restrictions on pricing. &nbsp;In addition, it’s good practice to provide “all-in pricing” as much as possible – be up front about mandatory fees and don’t wait until checkout or until the consumer has committed to your product or service to inform them about new fees for the first time. &nbsp;Last, don’t forget about state laws. &nbsp;All of the actions above involve state attorney generals and we would be remiss not to remind you that there are certain state laws related to price disclosures that may be even more prescriptive than what the FTC requires.

Junk Fees Will Be Pursued Regardless of the Fate of FTC Rules