FTC Issues Final ‘Junk Fees Rule’ to Crackdown on Aggressive Pricing Practices

The Federal Trade Commission (FTC or Commission) recently issued a final rule (the Junk Fees Rule or the Rule) banning so-called “junk fees” in two key industries: short-term lodging and live events. The Rule addresses whether “drip pricing” in those industries is permissible, which has been an area of uncertainty. With this new Rule, the FTC has conclusively banned this practice.

KEY PROVISIONS OF THE RULE

The FTC’s Junk Fees Rule requires any business (collectively, a covered business) that sells live-event tickets or short-term lodging (e.g., hotels, vacation homes, and other short-term rentals) to disclose clearly and conspicuously all mandatory fees associated with any good or service offered.

The Junk Fees Rule specifically prohibits four pricing practices: (1) failing to disclose “clearly and conspicuously” the “true total price inclusive of all mandatory fees” charged whenever a business “offer[s], display[s], or advertise[s] any price;” (2) failing to display the total price “more prominently” than “most other pricing information;” (3) misstating the cost or fees for any live-event tickets or short-term lodging; and (4) misstating the identity of any good or service offered. [1]

The Junk Fees Rule is a disclosure rule—not a substantive rule. That is, it regulates how prices must be displayed—not what prices may be charged or what kinds of fees may be levied. Accordingly, while the Rule requires covered businesses to disclose upfront all mandatory fees charged, it does not ban any specific type of fee or charge. The Rule neither caps the amount that a covered business may charge for any good or service nor bars businesses from itemizing various fees, provided such fees are clearly and conspicuously disclosed at the outset of the transaction and do not “overshadow” the total price.

While the Rule strictly applies to live-event ticketing and short-term lodging only, the FTC has warned companies in other industries of its broad authority under Section 5 of the deceptive pricing practices. [2]

The Rule authorizes civil penalties of up to $51,744 per violation—a cap adjusted annually for inflation. The Rule will take effect 120 days after its publication in the Federal Register.

AMENDMENTS TO PROPOSED RULE AND POTENTIAL FUTURE CHALLENGES

The final Junk Fees Rule—adopted following receipt of more than 72,000 public comments—differs from the initial rule proposed by the Commission in two important respects. [3]

First, whereas the initial proposed rule applied to a wide range of businesses—including restaurants, food delivery services (i.e., service fees, hospitality fees, etc.), and transportation (i.e., car rental companies, etc.)—the final Rule solely applies to “live-event tickets or short-term lodging, including temporary sleeping accommodations at a hotel, motel, inn, short-term rental, vacation rental, or other place of lodging.” [4]

Although the FTC noted that “bait-and-switch pricing and misleading fees or charges are prevalent throughout the economy,” [5] it narrowed the application of the final Rule, in part, to gain the support of commissioners, who may have otherwise objected to a broader rule. [6]

Second, whereas the initial proposed rule covered all rental properties, as well as extraneous services offered in connection with live-event and short-term lodging (e.g., resort fees, cleaning fees, etc.), the final Rule applies solely to short-term rentals (not long-term rentals) and solely to live-event and short-term lodging but not to any other extraneous offerings provided in connection with those services.

Nonetheless, two potential developments could undercut, or nullify entirely, the Rule.

First, while curbing junk fees is broadly popular, Congress may face industry pressure to cabin the Rule’s scope—particularly given the significant associated revenue generated for affected businesses. Under the Congressional Review Act, [7] the incoming 119th Congress may repeal the Rule by a majority vote.

Second, the Rule is subject to potential legal challenge, including by industry groups and trade associations. Indeed, other rules recently promulgated by the FTC, including the Combatting Auto Retail Scams (CARS) Rule and the Non-Compete Clause Rule, faced stiff legal challenges, and similar challenges to the FTC’s Junk Fees Rule could preclude or delay its implementation. [8]

THE WIDER STATE AND FEDERAL CRACKDOWN ON JUNK FEES

The FTC’s Junk Fees Rule follows the Commission’s public criticism of drip-pricing practices over the last several years, as well as its receipt of numerous consumer complaints regarding hidden fees.

The FTC has wielded its existing authority to police deceptive practices under Section 5 of the Federal Trade Commission Act (FTCA) to crack down on these practices. Under Section 5, the FTC may police material misstatements, omissions, or practices likely to mislead consumers. In its public pronouncements [9] and enforcement actions,[10] the FTC has adopted the position that failing to disclose all mandatory fees and charges may constitute a deceptive practice because it is likely to mislead consumers about the total price of the good or service offered.

Additionally, in the last several years, the FTC has brought multiple enforcement actions against a wide range of businesses for various types of deceptive pricing practices, including omitting restaurant surcharges; omitting hotel charges for mandatory resort or destination fees, daily surcharges for internet or housekeeping, and worker protection fees; and omitting fees charged for processing, making, and canceling hotel reservations.

Further, the FTC’s Junk Fees Rule “builds on work across [the Biden administration] to ban junk fees and lower costs.” [11] For example, in March 2024, the White House announced the creation of the Strike Force on Unfair and Illegal Pricing to “strengthen interagency efforts to root out and stop illegal corporate behavior that hikes prices on American families through anti-competitive, unfair, deceptive, or fraudulent business practices.”

Led by the FTC and the US Department of Justice, the strike force comprises representatives from six other federal agencies: the Consumer Financial Protection Bureau, US Securities and Exchange Commission, US Department of Agriculture, US Department of Health and Human Services, US Department of Transportation, and Federal Communications Commission.

Nor is the federal government alone in tackling junk fees. In April 2024, the White House convened a meeting among state legislative leaders to discuss state-level actions to address junk fees and to tout state legislation to curb deceptive fees. [12] Numerous states have now cracked down on opaque pricing practices. For example, New York, Tennessee, Connecticut, California, Maryland, Colorado, and Minnesota have recently passed laws requiring more transparent pricing—including disclosure requirements for the total price for ticket sales and the banning of “hidden fees.” Notably, the Junk Fees Rule does not impinge on the ability or authority of state attorneys general to enforce state laws that are more restrictive than the Rule.

Moreover, all 56 state and territorial attorneys general have authority under long-standing state consumer protection laws to prosecute unfair or deceptive acts and practices (UDAP). And indeed, the FTC and state attorneys general have jointly prosecuted violations of such laws. For example, last year, the FTC and Connecticut Attorney General William Tong filed a joint complaint under their respective UDAP and UDAAP authority against a Connecticut auto dealership, which allegedly charged undisclosed fees in its “certified used car” program. [13]

And just in the last several days, the FTC filed a separate action in coordination with Maryland Attorney General Anthony Brown against a different auto dealer, which allegedly charged undisclosed fees for unwanted add-on products. [14] Notably, all five FTC Commissioners voted to file a complaint against that dealer—a decision that reflects the broad bipartisan support within the Commission for curbing junk fees. [15]

Finally, the private plaintiff’s bar has brought a number of class actions against live-event ticketing and hospitality companies, alleging violations of longstanding state consumer protection laws. [16]

SIGNIFICANCE OF THE RULE

Given the broad crackdown on junk fees by the FTC, state attorneys general, and the private plaintiff’s bar over the last several years, one might wonder whether the FTC’s Junk Fees Rule was necessary. Despite the robust enforcement backdrop described above, the Junk Fees Rule is significant for several reasons.

First, while the FTC had adopted the position in recent enforcement actions that failing to disclose all mandatory fees constitutes a deceptive practice under Section 5 of the FTCA, courts have yet to definitively resolve the issue. And state attorneys general have adopted disparate interpretations of state law analogs to Section 5. With the adoption of the Junk Fees Rule, the Commission has conclusively pronounced in a binding rule that those practices are now illegal.

Second, numerous states have so-called “deeming statutes,” which deem violations of Section 5 of the FTCA to be per se deceptive practices under their respective consumer protection statutes. Accordingly, the Junk Fees Rule will effectively convert violations of Section 5 into violations of those states’ respective consumer protection laws.

Third, the adoption of the Junk Fees Rule provides legal certainty and casts a spotlight on potentially illegal pricing practices, illuminating a possibly lucrative area for class action counsel.

Finally, the FTC estimates that the Rule will save consumers up to 53 million hours annually in time that would otherwise be spent attempting to ascertain the total price for live-event tickets and short-term lodging (i.e., $11 billion in purported time and cost savings over the next decade).

KEY TAKEAWAYS

Covered businesses should consider moving swiftly to ensure their current pricing practices, as well as any future pricing strategies, comply with the Junk Fees Rule. When reviewing materials, advertising practices, and pricing structures, covered businesses should ensure that they

• disclose upfront, and wherever the price for a good or service is displayed, all mandatory fees and charges, including any prices displayed on a third party’s website;
• disclose prominently the total cost of the good or service offered; and
• disclose in a transparent manner any itemized fees.

Third-party sellers also should ensure they comply with the Junk Fees Rule.

While the Rule strictly applies to live-event ticketing and short-term lodging only, the FTC has made clear in its public pronouncements that it views similar pricing practices in other industries as problematic. Further, neither state attorneys general nor the private plaintiff’s bar have restricted their enforcement activity to live-event ticketing and short-term lodging alone.

Accordingly, to mitigate risk, businesses in other industries should remain vigilant and ensure they disclose upfront all mandatory fees and that their pricing practices are fully transparent. A thorough compliance program following the FTC’s disclosure requirements can reduce legal risk.