No more junk fees?
5 diciembre, 2023
junk fees

The Federal Trade Commission (FTC) recently unveiled a proposed rule aimed at prohibiting junk fees that can adversely impact consumers and hinder fair competition. The FTC estimates that these fees cost consumers tens of billions of dollars annually, prompting the need for regulatory intervention. Besides, to address this issue, the FTC has invited public comments on the proposed rule.

What is a Junk Fee?

Junk fees refer to hidden and deceptive charges imposed by businesses, often during or after a transaction, that are not adequately disclosed upfront. These fees can include mandatory charges that significantly increase the overall cost paid by consumers. Examples of junk fees range from undisclosed resort fees when booking hotels to misrepresented charges in various transactions like concert ticket purchases, apartment rentals, and utility bill payments.

Ways in which Junk Fees can affect consumers

Junk fees have a detrimental impact on consumers in several ways. Firstly, they lead to unexpected and increased costs, making it challenging for consumers to accurately compare prices and make informed purchasing decisions. Consumers may find themselves paying more than anticipated, eroding their trust in businesses. Additionally, the lack of transparency surrounding these fees hinders fair competition and punishes honest businesses that are upfront about their pricing, as consumers may be drawn to artificially low prices only to face hidden charges later.

Where do they frequently appear?

Junk fees are extensive across various sectors, affecting consumers in diverse transactions. These fees often appear when businesses fail to disclose the total amount consumers will have to pay until later in the transaction process or when they misrepresent the nature and purpose of certain fees.

For those commenting on the FTC’s proposal, scenarios in which junk fees tend to arise include the following:

resort icon

Hotel and Short-Term Lodging Fees

Hotels, online travel agencies, and vacation rental providers frequently exclude fees, such as hotel resort fees and vacation rental cleaning fees, from their advertised nightly rates. This practice artificially reduces the apparent cost of hotel rooms and rentals compared to competitors.
concert ticket icon

Live-Event Ticket Fees

Regarding live entertainment tickets, there is a near impossibility of securing tickets at advertised prices, due to sellers inflating them with fees that can reach as high as 40%. Additionally, there are concerns about vague fee identification, such as «convenience» fees, and skepticism about whether processing fees truly cover processing, or if delivery fees genuinely address delivery expenses.
food-delivery icon

Fees Related to Restaurants and Prepared Food and Grocery Delivery Apps

Restaurants routinely add undisclosed fees to bills, using various names such as «service fee,» «hospitality fee,» «kitchen fee,» «equity fee,» «economic impact fee,» and «temporary inflation fee,» without clearly identifying their nature or purpose. Concerns also arise about the true purpose of restaurant «service» charges, with uncertainty about whether they benefit the wait staff. Besides, in the realm of food delivery, there is a noted issue where delivery apps charge fees not reflected in advertised food prices, and the nature or purpose of these fees is often unclear or misrepresented.
transportation icon

Transportation Fees

Concerns exist in both the airline and car rental industries. Airlines frequently exclude mandatory fees from advertised prices and engage in fee misrepresentation. Similar issues are observed in advertising for car rentals and sales, where the delayed disclosure of mandatory fees leads to a misrepresentation of total costs, inflating the amounts consumers ultimately have to pay.
telecommunication

Telecommunications Fees

Regarding telecommunications, including internet, television, and telephone services, observations highlight that consumers often encounter advertised rates that do not include mandatory fees. These fees are typically disclosed after consumers have contracted for services in ways that are difficult to understand. For instance, internet service providers routinely exclude various fees, such as installation and activation fees, equipment fees, penalties for exceeding data caps, and early termination fees, from advertised prices.
house-rental

Rental Housing Fees

Concerning rental housing fees, monthly rents advertised by leasing companies often do not include fees for mandatory services, resulting in unexpected and significant increases in renters’ monthly expenditures. Besides, the purpose of these fees is not consistently specified by leasing companies.

school icon

Education Fees

Institutions of higher learning frequently impose mandatory fees that are not incorporated into the advertised tuition fees. In some cases, the rate of undisclosed fees is rising at a faster pace than the cost of tuition. Non-transparent tuition and fee pricing models, especially, could have an impact on students coming from lower-income backgrounds.

finance service

Financial Services Fees

Fees linked to bank accounts, credit cards, and other financial products are considered excessive and insufficiently transparent. Despite existing regulations such as the Truth in Lending Act and the Consumer Financial Protection Act, a 2018 Consumer Reports survey revealed that 37% of consumers experienced hidden fees for personal banking in the preceding two years. This raises concerns about the potential disproportionate impact of these fees on vulnerable, low-income consumers.
correctional icon

Correctional Services Fees

Numerous unfair or deceptive practices regarding fees imposed on incarcerated individuals were highlighted. Commentators emphasized that being a captive audience, incarcerated people are forced to pay excessive fees by service providers engaged in private correctional services. These practices include omitting fee information and presenting pricing details in confusing ways, such as bundling services that make it difficult to identify fees. These fees tend to offer little or no added value and do not contribute to healthy competition in the correctional services industry.

What is the FTC proposing?

The FTC’s proposed rule seeks to address the issue of junk fees by implementing measures to enhance transparency and protect consumers. The key elements of the proposed rule include:
list

Banning hidden fees

Prohibiting businesses from advertising prices that hide or omit mandatory fees.

list

Regulating bogus fees

Requiring businesses to disclose upfront the amount and purpose of fees and whether they are refundable, preventing misrepresentation.

The proposed rule aims to save consumers significant time and money, with an estimated 50 million hours and over $10 billion in savings over the next decade, particularly in live-ticketing and short-term lodging.

This new rule proposed by the FTC represents a significant step towards protecting consumers from deceptive business practices. By banning hidden and bogus fees, the rule aims to foster transparency, empower consumers to make informed choices and level the playing field for honest businesses. The proposed measures, if implemented, could save consumers time and money, strengthen market competition, and contribute to a fairer and more transparent marketplace. Besides, as the FTC invited public comments on the proposed rule, it demonstrates a commitment to addressing consumer concerns and promoting a marketplace that prioritizes honesty and fairness.

In addition, this proposal is a warning to market sectors that usually include this type of fee in consumer charges. Although this proposal, if accepted, will only apply in the United States, these initiatives may be replicated in other jurisdictions, which is why companies should avoid incurring in this type of conduct.

Our Experts

Santiago Lombana

Santiago Lombana

Antitrust and Consumer
Law Coordinator

Categorías

Archivos

Archivos

Categorías

Archivos

Archivos