In May the FTC’s Rule on Deceptive or Unfair Fees (the Rule) went into effect, and the FTC staff published accompanying FAQs for business. We have blogged a lot about the proposed Rule, enforcement in this space and its windy path to enactment (as well as state law developments here, here and here). While the Rule ended up being limited in scope to live events and short-term lodging rentals, these FAQs provide a good road map for what other sorts of display of price might be seen as misleading. While the FTC can obtain penalties for Rule violations and the road to financial redress is more difficult for violations of the FTC Act, as state junk fee laws proliferate, paying attention to the FTC’s views is important for any business that advertises a price.
So what do the FAQs focus on? The up-front price and then the total price. The up-front cost must be the first price customers see. It includes all mandatory nonavoidable fees, other than taxes and shipping. Of course, with many purchases, consumers may make choices along the way that impact the actual price. Total price includes the up-front cost as well as any avoidable charges the customer has selected – for example, insurance. The FAQs provide lots of good examples of what is avoidable vs. what is mandatory, such as credit card surcharges where other forms of payment are accepted (avoidable) vs. when you must pay with a credit card (mandatory). Handling is not considered part of shipping costs that can be disclosed later. Convenience fees not only must be part of the up-front cost but also must be explained. Beyond disclosure, fees like shipping should be the reasonable pass-through costs and not an opportunity to pad margin. You can itemize the cost, but the largest number needs to be the up-front cost (and at the end, the total price should be the largest). The rule includes both B2B and B2C advertising. That should go without saying, but they said it.
What happens next? We expect there will be enforcement over clear violations. We could also see industry warning letters if some sort of prevalent conduct bothers the FTC but might be viewed as less clear under the Rule. We may see more cases stemming outside industries covered by the Rule, as the FTC signaled when it adopted the Rule that it would bring Section 5 enforcement actions on a case-by-case basis in other areas. But the Rule and these FAQs are required reading for anyone pondering how other enforcers and potentially private litigants will think about price advertising going forward.
[View source.]
