FTC targets bait-and-switch pricing

The FTC on Oct. 20 followed up its dealership-specific bait-and-switch regulations by starting on rules to attack what it called “junk fee shock” across multiple industries.

“It’s beyond frustrating to end up spending more than you budgeted because of random, arbitrary fees,” FTC Chairwoman Lina Khan said in a statement then. “No one has ever felt that a ‘convenience fee’ was convenient. Companies should compete to provide the best quality at the best price, not to see who can squeeze the most added expenses out of consumers.”

President Joe Biden on Oct. 26 highlighted the new FTC proposal and other federal agencies’ work to address what he called billions of dollars worth of “junk fees” in the marketplace.

“I’ve directed my administration to reduce or eliminate them,” Biden said, according to a White House transcript. The FTC, which used the term “junk fees” in discussing its dealership regulations, defined them in the new rule-making as “unfair or deceptive fees that are charged for goods or services that have little or no added value to the consumer, including goods or services that consumers would reasonably assume to be included within the overall advertised price.”

It said these fees included “hidden fees,” which are “deceptive or unfair, including because they are disclosed only at a later stage in the consumer’s purchasing process or not at all, whether or not the fees are described as corresponding to goods or services that have independent value to the consumer.”

A 2018 Consumer Reports poll cited by the FTC found 85 percent of people had paid hidden fees in the past two years, and 96 percent find them annoying. Thirty-four percent had encountered unexpected fees with auto purchases or loans.

The FTC said it had authority to attack some fees but that a new rule would better deter businesses by permitting civil penalties and easier reimbursement and damages for consumers.

The FTC listed eight practices it might target with new rules for industries, and similarities exist to what the agency has planned to enact specifically for auto dealerships. The agency said Oct. 20 it proposed tackling:

1. Misrepresenting or not ” clearly and conspicuously” disclosing “the total cost of any good or service for sale” in ads or marketing.

2. Misrepresenting or not disclosing “the existence of any fees, interest, charges, or other costs that are not reasonably avoidable for any good or service” in ads or marketing.

3. Misrepresenting or not disclosing if “fees, interest, charges, products or services are optional or required.”

4. Misrepresenting or not disclosing “any material restriction, limitation or condition concerning any good or service that may result in a mandatory charge … or that may diminish the consumer’s use of the good or service, including the amount the consumer receives.”

5. Misrepresenting that a customer owes for “any product or service the consumer did not agree to purchase.”

6. Charging for anything “without express and informed consent.”

7. Charging for “fees, interest, goods, services or programs that have little or no added value to the consumer or that consumers would reasonably assume to be included within the overall advertised price.”

8. Misrepresenting or not disclosing “the nature or purpose of any fees, interest, charges or other costs.”

The plan advanced in October was at a more preliminary stage than the auto dealer proposal in June. The new initiative did not contain draft regulatory language, just the ideas above.