In recent months, regulators and lawmakers have announced steps aimed at curtailing allegedly misleading fee practices, including junk fees or drip pricing. Both “junk fees” and “drip pricing” involve charging fees that companies fail to disclose in advertisements or other pricing materials.
California has led the way by signing into law an amendment to the Consumer Legal Remedies Act. Actions by the Federal Trade Commission (“FTC”), Consumer Financial Protection Bureau (“CFPB”), and Federal Communications Commission (“FCC”) indicate that they too plan to enhance regulations and enforcement in this space. These regulatory steps came on the heels of the proposed TICKET Act, a bill introduced in the Senate that would target junk fees in ticketing transactions.
These actions cover a range of industries. For instance, the California amendment and FTC proposal would cover almost all businesses. Others target specific industries and sectors, from telecommunication providers to live event ticketing companies and large banks. They each attempt to address the concerns around junk fees in slightly different ways, but focus primarily on mandating clear and conspicuous disclosures of the total price of a product or service and prohibiting statements or omissions that may mislead consumers about the nature and purpose of the fees and charges. Although several of the regulatory actions discussed in this post do not yet carry legal effect, companies should review their pricing procedures to gauge compliance with California’s new law and continue to monitor federal rulemaking and enforcement.
California Amendment to CLRA
On October 7, 2023, California Governor Gavin Newsom signed into law an amendment to the Consumer Legal Remedies Act (the “CLRA”) by adding subsection (a)(29) to Cal. Civ. Code § 1770 among other amendments and additions to other sections of the code. Beginning in July 2024, the CLRA will require businesses to disclose the full price – including mandatory fees and charges (except taxes or fees imposed by government entities and most postage charges) – in all advertising or other materials displaying a price.
Companies that fail to properly disclose fees could face penalties of actual monetary damages (with a statutory minimum of $1,000 per violation), punitive damages, restitution, injunctive relief, and attorney’s fees and court costs. The “drip pricing” amendments to the CLRA apply broadly and do not target particular industries. However, they expressly carve out certain contexts and sellers, like car rental companies, car manufacturers, and property managers who do not need to disclose certain registration and licensing fees.
The Federal Trade Commission’s Proposed Rule
On October 11, 2023, the FTC published a notice of proposed rulemaking for a regulation titled the “Rule on Unfair or Deceptive Fees” (the “Proposed Rule”). The Proposed Rule would clarify that the FTC considers junk fees and other forms of misleading fees within the corpus of activities defined as “unfair or deceptive” under Section 5 of the FTC Act. According to the Commission, the Proposed Rule attempts to prohibit bait-and-switch pricing.
If enacted, the Proposed Rule would expose regulated companies to enforcement actions for misrepresentation of the total cost of a product by either:
- omitting mandatory fees from product advertisements or otherwise failing to disclose in all copy displaying a price the “total price” (which is the maximum total of all fees or charges a consumer must pay; excluding shipping charges and government-imposed fees or charges)
- misleading consumers regarding the nature or purpose of a particular fee, including the refundability of such fees and which goods/services the fee applies to (e.g., for the food to be delivered as opposed to for the driver)
- failing to disclose before the consumer consents to pay, the nature and purpose of any amount a consumer may pay that is excluded from the “total price” (e.g., shipping charges, government charges, optional fees, voluntary gratuities)
Under the Proposed Rule, when disclosing the “total price” and the nature and purpose of a fee, the disclosures must be “clear and conspicuous,” meaning in a way that is difficult to miss and easy to understand (as laid out in further detail in the Proposed Rule). The “total price” must also be displayed more prominently than other pricing information.
In its announcement of the Proposed Rule, the Commission pointed to widespread industry-specific practices commenters identified as both prevalent and unfair or deceptive. Like the amendment to the CLRA, the Proposed Rule would apply across industries. Please see below for a chart summarizing practices the public reported as unfair or deceptive in comments provided to the FTC.
The Proposed Rule is currently in the comments phase of the rulemaking process; on pages 144-153, the Commission lists several dozen questions on which they are specifically looking for input. Interested parties may submit feedback through the process outlined in the Proposed Rule.
The Consumer Finance and Protection Bureau’s Advisory Opinion
On October 11, 2023, the CFPB issued an advisory opinion in which the Bureau informed large banks and credit unions that regulated institutions would violate Section 1034(c) of the Consumer Financial Protection Act (“CFPA”) if large banks or credit unions require a consumer to pay a fee to request financial account information. According to the Bureau, imposing fees on consumer requests for account information “is likely to unreasonably impede” a consumer’s right to request account information under Section 1034(c). In its guidance, the Bureau outlined that it is unlawful to charge fees to respond to:
- consumer inquiries regarding loan balances;
- requests for certain supporting documents, such as an image of a check; and
- inquiries seeking information or documents related to an account.
The Bureau stated that large banks and credit unions may charge a fee in certain circumstances, including if a consumer repeatedly requests and receives the same information or document.
Federal Communications Commission Proposed Rulemaking
In June, the FCC released a notice of proposed rulemaking seeking comments to a rule that would require cable providers and direct broadcast satellite providers to prominently display the “all-in” price of services on any promotional materials or subscriber bills. If enacted, covered providers will need to list the aggregate price, including video programming, broadcast retransmission consent, regional sports programming, and other programming-related fees in a single line on marketing and billing materials. The FCC would promulgate the rule under its public interest and consumer services rulemaking powers contained in Sections 335 and 632 of the Communications Act of 1934 as well as its authority to promote transparency in consumer billing under the Television and Viewer Protection Act of 2019 (TVPA).
The TICKET Act
In April, Senators Ted Cruz (R-TX) and Maria Cantwell (D-WA) introduced the Transparency in Charges for Events Ticketing Act (the “TICKET Act”) to the Senate Committee on Commerce, Science, and Transportation. The proposed TICKET ACT targets sellers of event tickets only. The TICKET Act would require ticket issuers to do the following:
- clearly and conspicuously state the total price of a ticket in any advertisement, marketing material, or price list;
- clearly and conspicuously display the total price of a ticket before a consumer selects a ticket to purchase; and
- clearly and conspicuously disclose if the seller does not have actual or constructive possession of a ticket (a “speculative ticket”).
The TICKET Act names the FTC as the enforcement authority for any violations. The Act is currently on the Senate Legislative Calendar.
Fee practices identified by the public in comments provided to the FTC as prevalent and unfair or deceptive:
|Hotels, travel agencies, and vacation rentals||Failure to disclose cleaning, service, and host fees.|
|Live-event ticketing companies||Omitting processing fees and delivery fees from total price. Obscuring the nature and purpose of processing, convenience, and delivery fees.|
|Telecommunication providers||Failure to disclose installation fees, activation fees, equipment fees, early termination fees, and any penalties for exceeding data caps in advertised prices.|
|Restaurants, prepared foods, and meal/grocery delivery apps||Omitting service fees, hospitality fees, kitchen fees, equity fees, economic impact fees, temporary inflation fees, etc. from advertised prices. Obscuring the nature and purpose behind certain fees, such as delivery fees.|
|Airlines, car rentals, and car dealers||Failure to include all mandatory fees in advertised prices, such as customer facility charge and dealer fees.Misrepresentation of flights as “free” when airlines add junk fees, fuel surcharges, etc. to ticket price.|
|Property leasing||Failure to disclose all mandatory and ancillary leasing fees. Failure to clearly identify the purpose of all fees.|
|Financial Services||Omitting certain fees charged in connection with bank accounts, credit cards, and other financial products from advertisements.|