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The scope of the FTC’s rule was significantly narrowed and only applies to two sectors where junk fees are inordinately high and prevalent: live entertainment and short-term lodging.
This week, the Federal Trade Commission finalized one of its last rules of the Biden administration. The agency banned certain secretive junk fees, a deceptive practice used by numerous industries that hides additional charges from consumers until the very end of the checkout. The final rule forces companies to display the full all-in price up front to customers, so they have the choice to evaluate the real price next to competitors’ services.
The scope of the rule was significantly narrowed from the proposed version and only applies to two sectors where those fees are inordinately high and prevalent: live entertainment and short-term lodging, like hotels and vacation rentals. That concession was done in part to secure bipartisan support on the commission, and to bulletproof it from challenges.
The agency’s rule mirrors two junk fee bills focused on these exact industries that are making their way through Congress right now and are currently included in the year-end funding package. (That bill has been torpedoed after an Elon Musk–led backlash, unrelated to the junk fee provisions.) There are some flaws in those measures, according to consumer advocacy groups, but if they pass at some point, they would shore up the federal rule by making it law, all but negating the inevitable legal challenges to come against the FTC rule. The similarities between the rule and those bills are by design, to ensure it can withstand opposition from industry and Republican allies in Congress.
“We wanted to protect the agency’s ability to do rulemaking going forward and deliver a result instead of just immediately being destroyed in the courts,” said a source familiar with the rule at the FTC.
WHEN IT WAS ANNOUNCED LAST YEAR, the FTC’s proposed junk fee rule essentially banned hidden fees across the economy. The commission estimated that these hidden or bogus fees, which bear no correlation to any actual cost of service, were ripping away tens of billions of dollars from consumers each year on everything from rent to airlines and utility bills.
Combating junk fees has been a core pillar of the Biden administration, helping to bring down high prices caused initially by inflation. Biden directly called out junk fees during his State of the Union speech and in an essay this week in the Prospect laying out his economic agenda. Numerous agencies and departments issued rulemaking to curb hidden fees in the sectors under their jurisdiction, from the Department of Transportation to the Consumer Financial Protection Bureau (CFPB).
Ripping off consumers pays handsomely. Industry groups have therefore fought back vehemently against any efforts to rein in this business practice.
When the CFPB finalized a rule to cap late fees on credit cards in April this year, the financial sector turned to congressional Republicans to do their bidding and try to neuter the rule.
Through a law known as the Congressional Review Act, Congress can strike down any administrative rule finalized less than 60 legislative days before the end of the session. If that CRA resolution passes, it not only voids that version of the rule but also blocks the agency from enacting a “substantially similar” rule in the future. It’s a very potent poison pill if one of the resolutions passes.
Combating junk fees has been a core pillar of the Biden administration, helping to bring down high prices caused initially by inflation.
While the financial sector readied lawsuits against the credit card late fee rule, pro–junk fee Republicans carried water for their donors in Congress by introducing a slew of CRA resolutions to stop the rule from going into effect. Sen. Tim Scott (R-SC) introduced one version, and Rep. Andy Barr (R-KY) did the same in the House. The House Financial Services Committee passed one of these resolutions in a markup vote.
Though it never got to a floor vote, the momentum garnered to pass that CRA resolution posed a credible threat to federal rulemaking.
That jeopardized the FTC’s sweeping rule on junk fees. “If the rule was full out as proposed, Republicans would vote with industry to pass a CRA, meaning we couldn’t see junk fees rules by the FTC in the future across any industries,” said Aaron Stephens, senior legislative strategist at P Street. The threat was greater because Republicans will be in power in both chambers of Congress and the presidency next year, so could credibly pass a resolution.
Instead, the FTC chose to pare back the rule and take an incremental step that wouldn’t risk tanking all future prospects to regulate junk fees across sectors.
This drew the support of one of the agency’s Republican commissioners. Melissa Holyoak actually delivered the concurring opinion and stated that the revised rule plainly rested on legitimate Section 18 rulemaking authority. Andrew Ferguson, whom President-elect Trump chose as the new chair of the agency, was the lone dissenting vote. However, his dissent was fairly muted, claiming merely that it was finalized too late before a turnover in the administration. The critique didn’t structurally attack the rule itself other than the timing.
Most dissents on the commission are intended to give industry groups a road map for how to challenge a rule, and this one gave adversaries very little to work with. Holyoak specifically said that it would pass muster in court.
That cross-party imprimatur should help the rule beat back congressional action, too. “There’s bipartisan support for what’s in it, so I don’t think we’ll see a threat from Congress,” said a source familiar with the rule at the FTC.
The selected industries, hospitality and live entertainment, lined up with existing legislation in Congress that garnered support from both parties. Earlier this year, the House overwhelmingly passed the No Hidden FEES Act, which requires fee disclosure on short-term lodging reservations. The American Hotel and Lodging Association supports the bill.
Another bill, the TICKET Act, was actually introduced by Sen. Ted Cruz (R-TX), though some see it as flawed. For one, language in the bill could allow ticket scalpers to continue a fraudulent practice of “speculative ticketing” on secondary ticketing sites, where they sell tickets to customers that don’t yet exist.
Versions of both bills were in the year-end funding package before it was scuttled. If they pass, they would buttress the FTC’s rule, and the TICKET Act actually builds on weaker parts of it. One criticism of the FTC rule by the Future of Music Coalition, an advocacy organization for music artists, is that the all-in up-front pricing requirement doesn’t specify that sellers have to include line items of all the various fees adding up to the total charge. When an artist agrees with a venue to split ticket sales, those line items matter to ensure they’re fulfilling their end of the bargain. The TICKET Act, however, does include language requiring line items.
REPUBLICANS COULD STILL TRY TO PASS a CRA resolution to kill the junk fee rule, but it would face bipartisan opposition and passing it through both chambers would be unlikely. By contrast, Republicans are expected to file a CRA resolution against another CFPB rule finalized last week that goes after overdraft fees.
Neither Sen. Scott’s office nor Rep. Barr’s office, who introduced the CRA resolutions in April against the CFPB credit card fee rule, would comment on these new rules.
Depending on what happens in Congress, another threat to the FTC junk fee rule lies in the courts. Industry groups haven’t indicated yet whether they intend to challenge. Ticketmaster actually announced it supports the FTC rule, though the hotel industry or other pro-business entities such as the Chamber of Commerce may oppose it. The line of argument will be that mandating the display of all-in pricing information amounts to compelled speech by the government forced on private enterprise, violating the First Amendment.
However, the FTC put itself in a solid position to rebuff these legal assaults. “They’ve thoroughly guarded themselves against any legitimate legal challenge to the rule based on well-settled principles … but in the era of rampant [court] forum shopping anything is possible,” said Lee Hepner, senior legal counsel for the American Economic Liberties Project.
These imminent lawsuits are particularly relevant because the potential legal troubles will require the incoming chair, Ferguson, to continue the fight in court. How he decides to handle this potential battle will be a key test of whether he plans to use the commission’s authority to protect consumers or merely defend private financial interests.
Because a law would thoroughly shield the rule, its fate may be decided by the year-end action in Congress, which at the moment appears all but dead after President-elect Trump came out in opposition. If the rule faces legal challenges in the next administration, its future could very well rest on whether Trump decides it’s good politics for him to take credit for the rule and continue it, despite pushback from industry.
