Hill – Winter 2024

Major Questions About the FTC’s Proposed Ban on Junk Fees

Brian Hill

If you have booked a hotel, purchased a concert ticket, or ordered from a restaurant online recently, you have probably noticed that the price on your checkout screen is higher than the price that was advertised to you when you decided to add the item to your cart. This is because of sellers’ use of “junk fees,” hidden mandatory fees not reflected in the upfront price of a good or service.[1] A 2018 Consumer Reports survey found that 96% of those who encountered hidden fees in the two years prior to the survey found them “annoying,” with 64% finding them “extremely annoying.”[2] If you haven’t noticed these fees, the Federal Trade Commission (“FTC”), President Biden, and over 12,000 commenters[3] certainly have.

On November 8, 2022, the FTC published an Advanced Notice of Proposed Rulemaking (“ANPR”) to take comments on the issue and explore the possibility of a Notice of Proposed Rulemaking (“NPRM”).[4] Commenters to the ANPR overwhelmingly supported government action and expressed displeasure with hidden fees because sellers do not adequately represent the fees’ purpose.[5] Even when sellers do represent the fees’ purpose, commenters expressed skepticism that the disclosures were truthful.[6] Specifically, commenters called out the hotel and short-term lodging, live-event ticket, food delivery, transportation, telecommunications, rental housing, education, and financial service industries.[7]

On October 11, 2023, President Biden personally announced[8] that the FTC would issue a NPRM for a Trade Regulation Rule on Unfair or Deceptive Fees (“Proposed Rule”) that, if finalized, would prohibit these hidden fees and penalize sellers who violate the rule.[9] According to FTC Chair Lina Khan, junk fees “cost Americans tens of billions of dollars per year” and “make it harder for consumers to shop for the best product or service and punish businesses who are honest upfront.”[10] In his recent State of the Union, President Biden boasted, “I’m getting rid of junk fees—those hidden fees—at the end of your bill that are there without your knowledge.”[11] While President Biden’s excitement about eliminating these fees is commendable, he might be getting too ahead of himself because the ProposedRule will likely face legal challenges if it is enacted in its current state.

Issues with the Proposed Rule

            Despite the Proposed Rule’s overwhelming support amongst consumers, sellers are not ready to abandon their hidden fees without a fight—and they can wield a powerful weapon. In a recent comment to the proposed rule, the U.S. Chamber of Commerce (“Chamber”), the world’s largest business organization that advocates for businesses,[12] listed several concerns about the rule.[13] It argued that the proposed rule “has the potential to chill legitimate pricing practices in an attempt to cure consumer frustrations with fees.”[14] Additionally, the Chamber argued that the proposed rule “lacks clarity regarding its application” and “would be technically impossible for some industries to implement” as written.[15] While these claims appear rather benign, the Chamber threatened the implication of every agency’s worst nightmare: the dreaded Major Questions Doctrine.

Major Questions Doctrine

While most administrative law topics can be an effective substitute for melatonin, the Major Questions Doctrine is a topic that has led to sleepless nights for many in the administrative law realm. It has been described ominously as “a powerful weapon wielded against the administrative state.”[16] In West Virginia v. EPA, the Supreme Court cemented the Major Questions Doctrine into modern administrative law doctrine when it held that agencies can only act within the scope of the authority granted to them by Congress and Congress does not intend to leave major policy decisions to agencies.[17] Simply, the Major Questions Doctrine is about addressing the issue of “agencies asserting highly consequential power beyond what Congress could reasonably have understood to have granted.”[18] The Major Questions Doctrine applies “when an agency claims the power to resolve a matter of great ‘political significance.’”[19] When this is the case, the agency “must point to clear congressional authority when it seeks to regulate ‘a significant portion of the American economy.’”[20] Application of the Major Questions Doctrine has notably led the Supreme Court to strike down an OSHA rule mandating COVID-19 vaccines nationwide for workers[21] and the EPA’s definition of “best system of emissions reduction” in the Clean Power Plan.[22]

Here, the issue is whether the FTC Act grants the FTC the authority to enact the Proposed Rule. Section 18 of the FTC Act authorizes the FTC to enact rules defining rules or practices that are considered unfair or deceptive.[23] Section 5 of the FTC Act outlaws unfair or deceptive practices.[24] The FTC states that it has authority to enact its Proposed Rule under Section 5 of the FTC Act because junk fees are deceptive or unfair by misrepresenting the total cost of a transaction.[25] The Chamber, in arguing that the Major Questions Doctrine is applicable to the proposed rule, avers that the Proposed Rule is “of major political and economic significance” and “Congress has not clearly authorized a comprehensive unfair and deceptive fees rulemaking.[26]

The Chamber’s concerns are valid. First, the proposed rule impacts multiple sectors of the economy. It would alter the pricing practices of large industries such as the hotel, transportation, and live-event ticket industries. Second, the Proposed Rule has political implications. President Biden has mentioned getting rid of junk fees in both his 2023 and 2024 State of the Union addresses. In 2023, he stated that his administration was “taking on junk fees” and that junk fees “make it harder for you to pay your bills or afford that family trip.”[27] In his 2024 address, as mentioned above, President Biden continued to reinforce that getting rid of junk fees is an important part of his economic agenda. In an election year, these types of statements can be seen as campaign promises, increasing the political significance of the issue. It is also notable that President Biden personally announced the proposed rule on October 11, 2023.

Third, it is unclear if Congress authorized the FTC to have the power to issue a rule of this magnitude. The Chamber argues that Section 5 of the FTC Act “does not provide the specific Congressional authority necessary to occupy the entire field of price disclosure for the entire U.S. economy.”[28] According to the Chamber, this is evident in the fact that Congress has decided not to pass proposed legislation such as “The Junk Fee Prevention Act” and “No Hidden FEES Act of 2023.”[29] Finally, the Chamber also argues that the Proposed Rule is not authorized by the FTC Act because it is not addressing an unfair practice under Section 5.[30] The Chamber insists that pricing practices that lead to hidden fees have pro-competitive justifications such as the practice permitting dynamic pricing and preventing consumers paying for services that they do not use.[31]

Why Does This Matter?

The Proposed Rule’s comments indicate that it has overwhelming support, yet Congress has been unable to pass legislation. Given that Congress has had difficulty passing laws in recent years, the FTC could be the best option for eliminating junk fees. This proposed rule might be the Major Questions Doctrine’s latest victim.   Unlike other issues struck down by the Major Questions Doctrine, however, it lacks the same magnitude of political controversy.

[1] Press Release, FTC, FTC Proposes Rule to Ban Junk Fees (October 11, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/10/ftc-proposes-rule-ban-junk-fees.

[2] Consumer Reports, WTFee Survey 2 (2019), https://advocacy.consumerreports.org/wp-content/uploads/2019/09/2018-WTFee-Survey-Report-_-Public-Report-1.pdf.

[3] Trade Regulation Rule on Unfair or Deceptive Fees, 88 Fed. Reg. 77420 (proposed Nov. 9, 2023) (to be codified at 16 C.F.R. pt. 464).

[4] Id.

[5] Id.

[6] Id. at 77422.

[7] See Id. at 77420, 77422.

[8] Akayla Gardner, Biden Unveils New Action on ‘Junk Fees’ to Counter Rising Costs, Bloomberg Law (Oct. 11, 2023, 12:26 PM), https://news.bloomberglaw.com/esg/biden-to-expand-junk-fee-crackdown-with-proposed-ftc-rule.

[9] Press Release, FTC, supra note 1.

[10] Id.

[11] President Biden’s State of the Union Address, The White House (2024), https://www.whitehouse.gov/state-of-the-union-2024/.

[12]About Us, U.S. Chamber of Commerce, https://www.uschamber.com/about (last visited Mar. 16, 2024).

[13] Chamber of Com. of the U.S., Comment Letter on Unfair or Deceptive Fees NPRM, R207011 (Feb. 7, 2024), https://www.uschamber.com/assets/documents/USCC-Unfair-Deceptive-Fee-NPRM-Comments.pdf [hereinafter “Comment Letter”].

[14] Id. at 1.

[15] Id. at 2.

[16] Daniel T. Deacon & Leah M. Litman, The New Major Questions Doctrine, 109 Va. L. Rev. 1009, 1011 (2023).

[17] West Virginia v. EPA, 597 U.S. 697, 724 (2022).

[18] Id.

[19] Id. at 744 (Gorsuch, J., concurring) (quoting NFIB v. OSHA 595 U.S. 109, 125 (2022) (per curiam)).

[20] Id. (Gorsuch, J., concurring) (quoting Utility Air Regulatory Group v. EPA, 573 U.S. 302, 324 (2014)).

[21] NFIB v. OSHA, 595 U.S. 109 (2022).

[22] West Virginia, 597 U.S. at 732-44.

[23]A Brief Overview of the Federal Trade Commission’s Investigative, Law Enforcement, and Rulemaking Authority, Fed. Trade Comm’n (2021), https://www.ftc.gov/about-ftc/mission/enforcement-authority.

[24] Id.

[25] Trade Regulation Rule on Unfair or Deceptive Fees, 88 Fed. Reg. at 77431.

[26] Comment Letter, supra note 13, at 2.

[27] President Biden’s State of the Union Address, The White House (2023), https://www.whitehouse.gov/state-of-the-union-2023/.

[28] Chamber of Com. of the U.S., Comment Letter, supra note 13, at 4-5.

[29] Id. at 5 n.20.

[30] Id. at 11-12.

[31] Id.

Leave a comment

Your email address will not be published. Required fields are marked *