The Hidden Costs of FTC’s Junk Fees Rule

Sean Heather
Senior Vice President, International Regulatory Affairs & Antitrust, U.S. Chamber of Commerce

Published

February 26, 2024

While fees tacked on to anything from airline tickets to hotel stays may be one of the latest alleged inconveniences for consumers, the proposed alternative to this legitimate pricing practice comes with its own price tag. The Biden Administration’s sweeping agenda to crack down on so-called “junk fees” is nothing more than an attempt to micromanage businesses’ pricing structures, often undermining businesses’ ability to give consumers options at different price points.

If successful, the Federal Trade Commission (FTC) will replace consumers' ability to pick winners and losers in the marketplace, undermining American free enterprise.

To be clear, the U.S. Chamber supports efforts to enhance price transparency and eliminate misrepresentations about the costs and fees consumers pay for products and services. However, the FTC’s proposed rule severely misses the mark—causing concern for both businesses and consumers alike, who will face the wrath of this overly broad and misguided regulation.

The Junk Fee Rule Explained

The FTC has said the goal of the rule is to prohibit hidden or bogus fees. However, to achieve that objective, the proposed rule would require the following practices:

Businesses must advertise all-in upfront pricing. The rule prohibits businesses from offering, displaying, or advertising amounts consumers may pay without clearly and conspicuously disclosing the “Total Price.” The term “Total Price” includes all charges that a consumer must pay for a good or service, including any mandatory ancillary good or service.
Businesses are prohibited from misrepresenting the nature or purpose of fees. The rule requires businesses to disclose the nature and purpose of fees (including optional fees) before the consumer consents to pay.

Prohibiting so-called “junk fees” may sound great in theory, but in practice, the rule could end up costing consumers more money. And business-to-consumer transactions aren’t the only ones subject to compliance with this rule. Business-to-business transactions face the same scrutiny, compounding downstream pressure and dealing a greater blow to consumers’ wallets.

Micromanaging the Economy

Where the rubber meets the road, the FTC’s rule has the potential to chill legitimate pricing practices that benefit consumers. Consider the following examples:

Discounts could be eliminated. The proposed rule requires that the Total Price is always the most prominent price information in any advertisement or offer, even more prominent than any price that reflects discounts or rebates. The rule makes it difficult to advertise the availability of discounts and lower prices. Companies may choose not to offer discounts if they cannot effectively advertise them. Overemphasis on Total Price over truthful, discounted price information will create a bad outcome for consumers—potentially missing saving opportunities.
Consumer savings could be tempered. All-in upfront pricing may be technically impossible for companies that offer variable and dynamic fees. Variable and dynamic fees allow costs to scale with the price of goods or services purchased or to reflect current supply and demand considerations. Consumers benefit when such a fee structure can adjust downwards. However, advertised prices cannot reflect dynamic prices until consumers input specific information or make purchasing selections. Companies are likely to eliminate dynamic pricing since they cannot predict the cost for inclusion in total upfront prices, resulting in higher base prices as companies add significant margins to cover variable costs.

FTC Overreach

This rulemaking is part of a concerning trend where the FTC proposes regulations based on questionable legal theories void of any credible enforcement record. Once again, the FTC has not shown evidence of widespread misconduct that requires or justifies its proposed rule. The FTC has never brought an enforcement action. It even alleges that failure to advertise fees but disclosing fees before consumers make purchasing decisions qualifies as deceptive or unfair.

The FTC has never proven in court that such advertising practices violate the law. The FTC latched onto consumer frustrations related to fees in certain industries and extrapolated remedies that it wanted to impose across the entire economy, ignoring differences in how products are priced and marketed, as well as limits to its jurisdiction.

What You Need to Know

Americans Deserve a Transparent and Accountable FTC

A Growing Trend

But the FTC isn’t the only agency looking at how companies market fees. The Consumer Financial Protection Bureau (CFPB) has proposed several rules to address financial product fees, including rules that cap credit card late fees or overdraft fees. The Department of Transportation (DOT) proposed a rule that would require disclosure of fees for bags, flight changes, and cancellations. Meanwhile, the Federal Communications Commission (FCC) is engaging in a similar regulatory crusade on broadband services.

The Path Forward

The U.S. Chamber took decisive action by filing comments to strongly oppose the proposed rule. The U.S. Chamber recommended the agency withdraw the rule. However, if it is unwilling to do so, we made clear that the Commission needs to study the proposal’s impact on legitimate and pro-consumer pricing practices before finalizing any rule.

The U.S. Chamber certainly understands consumer frustrations with surprise fees. The U.S. Chamber supports transparency in pricing. But what the Chamber does not support are rules that extend beyond the FTC’s jurisdiction. Mandating all-in upfront pricing has the potential to raise prices, eroding any savings the FTC assumes will follow such a practice. Moreover, the proposed rule will likely create significant new costs for companies revamping advertising practices and revisiting sales processes to ensure compliance with the rule's expanded disclosure requirements, costs that will all too easily be passed on to consumers. 