The Federal Trade Commission announced that it is exploring a rule to crack down on "junk fees," which the FTC defines as “unnecessary, unavoidable, or surprise charges that inflate costs while adding little to no value.”  In an Advance Notice of Proposed Rulemaking, the FTC is seeking comment on the alleged harms caused by these junk fees, the tactics companies use to impose them, and whether there is a need for a rulemaking to prevent such practices.

According to the FTC, companies impose junk fees in a wide variety of contexts, including by cramming in hidden fees to which consumers did not consent, misrepresenting optional services or upgrades as mandatory, and by charging for products or services with little to no value.  The FTC therefore seeks comment on harms stemming from the following:

  • Charges for products or services that cost companies nothing to provide, are available for free, or should be included as part of the purchase price.  This category of junk fees may also include upsell charges for fake products or services that either have no value or never materialize.
  • Charges imposed on captive consumers, who may be forced to pay such fees because they have no way to avoid or opt out of them—for instance, because the company has a monopoly or exclusive rights, or because the consumer has already sunk costs into a product or service and can’t easily walk away.
  • Charges that secretly inflate purchase prices which consumers were not aware of or did not consent to.  According to the FTC, companies often hide these fees in fine print, cram them on at the end of a purchase process, or use digital dark patterns or other deception to collect on them.

While the FTC has historically taken action on junk fee practices—through, among other things, investigations, enforcement actions and consumer and business education—its authority to seek penalties and readily obtain consumer redress is limited without promulgation of a rule; this junk fee rule would change that.

In fact, just two days before announcing its junk fee ANPR, the FTC announced that it had taken action against auto dealer Passport Automotive Group for deceiving consumers by tacking hundreds to thousands of dollars in illegal junk fees onto car prices.  The FTC’s complaint alleges that Passport regularly advertised certified, reconditioned, or inspected cars at specific prices, but then added extra certification, reconditioning, or inspection fees that it falsely claimed consumers were required to pay.  The FTC also alleges that Passport charged Black and Latino consumers hundreds of dollars more in financing costs and fees, on average, than white consumers.

Passport and its president and vice president will pay $3.38 million to settle the suit, which will be used to refund injured consumers.  In addition, they have agreed to a court order that would (i) require Passport to establish a fair lending program to ensure it does not discriminate going forward, including by charging different groups different markup rates, and (ii) prohibit Passport from misrepresenting the cost or terms to buy, lease, or finance a car, or whether a fee or charge is optional.  The order would also require Passport to only charge consumers fees with their express, informed consent.

With respect to the junk fee rule, the ANPR will soon be published in the Federal Register, upon which the public will have 60 days to submit comments electronically or by mail.