Podcast - New Guidance on Complying with FTC Rule on Deceptive and Unfair Fees

Welcome to another podcast of Clearly Conspicuous. As we noted in previous sessions, our goal in these podcasts is to make you succeed in this current regulatory and governmental environment, make you aware of what's going on with the federal and state consumer protection agencies and give you practical tips for success. Again, it's a privilege to be with you today.

Today we discuss the FTC's Rule on Unfair or Deceptive Fees. The FTC recently issued FAQs to answer questions about its Rule on Unfair or Deceptive Fees and to provide a compliance guide in connection with the rule. The issuance of the FAQs affirms that the current FTC, led by Chair Andrew Ferguson, did not intend to modify the rule.

The FAQs

As we've discussed, the rule only applies to businesses selling live-event tickets and short-term lodging, a significant departure from the initially proposed rule, which would have covered all industries. The FAQs represent FTC "staff's view" of the rule, and its requirements and are "not binding on the Commission." Nonetheless, the FAQs provide helpful insight into how the FTC plans to enforce the rule. Thus, they warrant attention when evaluating risks.

Scope and Applicability

Let's now talk about the scope and applicability. As the FAQs instruct, the rule covers any business that offers, displays or advertises live-event tickets or short-term lodging, "including third-party platforms, resellers and travel agents," regardless of where the ads appear. Importantly, the rule also applies to B2B transactions. Online marketers or other intermediaries, including those in the secondary ticket market, must give sellers the information necessary to calculate and disclose the total price upfront, such as any fees the intermediary charges.

The FAQs also provide examples of what is covered and excluded from the rule. For example, live-event tickets include "concerts, sporting events, music, theater and other live performances that audiences watch as they occur," but do not include "pre-recorded audio and visual performances and film screenings." Short-term lodging includes hotels, home shares, vacation rentals and "discounted extended stays at a hotel," but excludes "long-term or other rental housing that involves an ongoing landlord-tenant relationship" and short-term lease extensions and temporary corporate housing offered on the same terms as long-term leases.

Avoiding Misrepresentations

Big theme in the rule is, of course, avoiding misrepresentations. FTC staff explains that a business must tell the truth about how much it is charging and why, and any other fee-related information it chooses to convey, like whether a fee is refundable. In addition, businesses must describe what fees are for and avoid vague phrases like convenience fees, service fees or processing fees.

Mandatory Fees

Now let's talk about mandatory fees. FTC staff lists examples of mandatory fees, or fees that consumers can't reasonably avoid, such as credit card processing charges. Included are also ancillary goods or services people must buy to make the underlying good or service fit for its intended purpose, which reasonable consumers would expect to be part of the purchase. For example, if towels are not included in a hotel stay, then a hotel would need to list a towel fee.

Businesses can itemize mandatory fees, but they "must not overshadow the total price," which must be the most prominent. Businesses may exclude governmental, shipping and optional charges from the total cost, but such charges must be disclosed before asking for payment. Staff also provides some guidance on shipping charges. For example, shipping charges must reasonably reflect a business' costs to ship physical goods. However, staff notes that shipping charges "don't have to reflect a business' exact cost to ship goods." Businesses may not include handling charges in shipping charges. Any handling charges must be incorporated in the total price. The FAQs provide examples of optional ancillary goods or services, which do not have to be included in the total price. For example, a trip protection plan that requires a consumer to affirmatively check a box to add the plan or fees that can't be calculated in advance because they depend on choices that consumers make during the transaction, such as upgraded balcony seats or optional features for hotel rooms.

Final Payment

The final payment now. A business must display the final payment amount before asking people to pay, and that amount must be displayed as prominently as, or more than, the total price, that is the previously provided price with mandatory fees.

Relation to Other Laws

Now let's think about this with respect to relation with other laws. Businesses must comply with the rule and all applicable state or local laws or regulations except to the extent there is a conflict, in which case the rule will supersede, but only to the extent of the conflict. If a state or local law gives greater protections, businesses must comply with the rule and the greater protections.

Concluding Thoughts 

So here's the key takeaway: The FAQs provide meaningful guidance into how the FTC interprets the rule. I expect the FTC to investigate these issues and bring enforcement actions.

Stay tuned to further programs as we identify and address the key issues and developments, and provide strategies for success. I wish you continued success. Thank you.