Beware of Hidden Fees: The FTC Already Enforcing New ‘Junk Fees’ Rule

It is critical for businesses in the entertainment and hospitality sectors to understand the Rule, review their marketing practices, and tailor them accordingly to avoid FTC scrutiny.

The Rule’s Requirements

The Rule applies to fees imposed by companies offering live-event tickets and short-term lodging. Live-event tickets refer to tickets for concerts, sporting events, and other live performances where audiences watch the performance as it occurs. Short-term lodging includes temporary sleeping accommodations (such as hotels, motels, inns, vacation rental stays), home shares and rentals offered through platforms such as Airbnb and VRBO, and discounted extended stays at hotels.

The Rule’s core requirement is that covered businesses disclose the “total price” of the tickets or accommodations upfront in any advertisement or offer and more prominently than other pricing information. The total price must include all mandatory fees and charges the business knows of and can calculate upfront. This would include, for example, a mandatory processing fee added when tickets are purchased online or a cleaning or resort fee that is automatically added to a hotel stay. According to FTC guidance, the total price must also include charges for items that are technically optional, but which the reasonable consumer would expect to be part of the good or service being purchased, such as separate charges for towels at a hotel. Relatedly, the total price cannot exclude optional charges that apply by default, such as optional add-ons presented with a pre-checked box.

Notably, certain amounts, including taxes, other government-required charges, and shipping, can be excluded from the total price displayed in an advertisement or offer. These charges must, however, be disclosed clearly and conspicuously before payment is requested and in a manner that explains the nature and purpose of the previously excluded charges.

The Rule also includes a prohibition on misrepresentations concerning “the nature, purpose, amount, or refundability of fees or charges, and the identity of the good or service for which the fee or charge is imposed.” According to FTC guidance, this requires covered businesses to clearly describe the nature of any imposed fees and charges and to avoid vague (but commonly used) phrases like “convenience fee,” “service fee,” or “processing fee.”

Importantly, the Rule does not prevent covered businesses from engaging in flexible and strategic pricing practices, such as dynamic pricing and promotional discounts, but businesses must ensure that such prices are not communicated in a misleading manner. For example, FTC guidance explains that when a discount is offered only to certain purchasers, the discounted price should not be displayed as the total price in an offer. While it is acceptable to display the discounted price as well (provided that it is accompanied by a clear explanation of how and when it applies), the total price should be presented more prominently.

The Takeaway

Covered businesses in the entertainment and hospitality industries should promptly audit their practices and ensure compliance with the Rule to avoid FTC scrutiny and the possibility of substantial monetary penalties. Significantly, penalties for noncompliance can include civil penalties of up to $53,088 per violation and mandatory refunds to consumers.

This not just a hypothetical risk; mere days after the Rule took effect, the FTC sent a warning letter to a company alleging that it was advertising live-event tickets without including all mandatory fees and charges in the total price, including fulfillment and service fees. Given the FTC’s prompt action, continued monitoring and enforcement should be expected from the agency.

The Advertising & Promotions team at ArentFox Schiff regularly counsels clients on compliance with FTC rules and regulations. If you have questions about how the FTC’s Rule on Unfair or Deceptive Fees may affect your business or whether your current practices comply, please contact a member of our team.