On December 17, 2024, the U.S. Federal Commerce Fee (FTC) introduced its remaining “Junk Charges Rule” (the “Closing Rule” or “Rule”) to stop sure practices associated to pricing within the live-event ticketing and short-term lodging industries. The Closing Rule requires companies that provide a worth for live-event tickets or short-term lodging to reveal the entire worth, inclusive of obligatory fees, and to take action extra prominently than different pricing info. The Closing Rule additionally prohibits companies from misrepresenting charges or fees in any supply, show, or commercial for reside occasions and short-term lodging. Notably, the Closing Rule doesn’t prohibit anyone kind of charge, nor does it prohibit particular pricing practices, equivalent to itemization of charges or dynamic pricing. As an alternative, the Rule focuses on making certain that charges are clearly disclosed.
The FTC’s acknowledged intention in passing the Closing Rule is to curb perceived unfair and misleading pricing practices in these two industries, particularly so-called “bait-and-switch” pricing that hides the entire worth of tickets and lodging by omitting obligatory charges and fees from marketed costs and misrepresenting the character, objective, quantity, and refundability of charges or fees. The FTC pointed to proof that these practices are prevalent in these two industries, the place most transactions happen on-line. The FTC emphasizes that “truthful, well timed, and clear pricing” “is crucial for shoppers” and claims this rule will permit American shoppers to make better-informed buying selections in these situations.
The Rule was printed within the Federal Register on January 10, 2025, and is slated to enter impact 120 days later, placing its efficient date as Could 10, 2025. It’s attainable, nevertheless, that the incoming Administration will search to alter the rule or delay its efficient date.
FTC Rulemaking Resulting in Closing Rule
The Closing Rule is the end result of the rulemaking course of that the FTC initiated in November 2022, when it introduced an Superior Discover of Proposed Rulemaking beneath Part 18 of the FTC Act, to handle sure purportedly unfair or misleading acts or practices involving charges. The FTC particularly sought public touch upon the prevalence of sure practices associated to what it labeled “junk charges” and the prices and advantages of a rule that may require upfront inclusion of obligatory charges each time shoppers are quoted a worth. After posing a sequence of inquiries to solicit knowledge and commentary, the FTC obtained greater than 12,000 feedback in 90 days.
One yr later, the FTC printed a Discover of Proposed Rulemaking, which proposed a rule that prohibited misrepresenting the entire worth of products or providers by omitting obligatory charges from marketed costs and misrepresenting the character and objective of charges. The proposed rule was not industry-specific; fairly, it will have utilized broadly to companies throughout the nationwide economic system. The FTC then obtained 60,000 extra feedback on its proposed rule, most of which have been supportive. The FTC interpreted this suggestions as affirmation of the prevalence of the kinds of fee-related practices the FTC sought to handle. The FTC estimated that its proposed rule would save shoppers as much as 53 million hours per yr of wasted time spent looking for the entire worth of live-event tickets and short-term lodging, equating to greater than $11 billion over the subsequent decade.
In March 2024, the Biden Administration launched an interagency initiative, co-chaired by the FTC and U.S. Division of Justice, known as the “Strike Drive on Unfair and Unlawful Pricing.” The Strike Drive seeks to fight unfair and unlawful pricing and decrease costs for all People. Shortly after the announcement of the Strike Drive, the FTC held a public listening to on its proposed rule whereas it continued to think about feedback, resulting in the announcement of the Closing Rule final month.
Closing Rule
The Closing Rule prohibits hidden charges and makes it an unfair and misleading follow for “any Enterprise to supply, show, or promote any worth” of live-event tickets or short-term lodging with out clearly and conspicuously disclosing the entire worth. Beneath Part 5 of the FTC Act, a illustration, omission, or follow is “misleading” whether it is prone to mislead shoppers appearing fairly beneath the circumstances and is materials to shoppers; that’s, it will probably have an effect on the buyer’s conduct or selections relating to an excellent or service. Value, for instance, is a fabric time period. A follow is taken into account “unfair” beneath Part 5 if it causes or is prone to trigger substantial damage, the damage is just not fairly avoidable by shoppers, and the damage is just not outweighed by advantages to shoppers or competitors.
For instance, within the commentary to the rulemaking, the FTC says that bait-and-switch pricing, the place the preliminary contact with a client reveals a decrease or partial worth with out together with obligatory charges, violates the FTC Act even when the entire worth is later disclosed.
The Closing Rule specifies that the “whole worth” is the “most whole of all charges or fees a client should pay for any good(s) or service(s) and any obligatory Ancillary Good or Service” (any extra items or providers supplied as a part of the identical transaction). Authorities fees, delivery fees, and charges for ancillary items or providers could also be excluded beneath the rule.
The entire worth should be displayed extra prominently than every other pricing info. If a remaining quantity is displayed earlier than the buyer completes the transaction, it should be disclosed as prominently as the entire worth.
The entire worth additionally should be displayed clearly and conspicuously, which implies simply noticeable (“troublesome to overlook”) and simply comprehensible by abnormal clients. The clear-and-conspicuous requirement additionally covers audible communications. Along with the entire worth, a enterprise should show clearly and conspicuously the character, objective, and quantity of any non-obligatory charge or cost that has been excluded from the entire worth, what the charge or cost is for, and the ultimate quantity of cost for the transaction.
The Closing Rule goes past disclosure: It affirmatively prohibits deceptive charges. Beneath the Closing Rule, it’s illegal to misrepresent any charge or cost in a proposal, show, or commercial for live-event tickets and short-term lodging, together with the character, objective, quantity, or refundability of any charge or cost and what it’s for.
State Legal guidelines and Laws on Charges
The Closing Rule doesn’t preclude state legal guidelines which might be extra restrictive pertaining to unfair or misleading charges or fees, besides to the extent such legal guidelines or laws are inconsistent with the Closing Rule (after which solely to the extent of the inconsistency). In line with the FTC, a state legislation or regulation is just not inconsistent with the Closing Rule if the safety it affords is bigger than the safety beneath the rule.
Quite a few states have handed legal guidelines aiming to extend transparency in pricing and charges, together with California, Colorado, Connecticut, Maryland, Minnesota, New York, and Tennessee. Additional, some states have provisions that violations of Part 5 of the FTC Act additionally represent misleading practices beneath their state client safety statutes. The Closing Rule thus augments the federal government scrutiny of fee-related practices and conduct that companies might obtain.
Takeaways and the Way forward for the Closing Rule
As soon as the Closing Rule turns into efficient, when companies promote or show a worth for live-event tickets or short-term lodging, they have to show the entire worth — together with any obligatory charges — and guarantee any explanations for charges or fees are truthful and never deceptive. Companies have discretion to record non-obligatory charges. For companies that haven’t beforehand been topic to state legal guidelines or laws, the Closing Rule will now apply to these companies.
Regardless of the Closing Rule’s slim applicability to live-event tickets and short-term lodging, the FTC made clear it has not given up on different industries. The FTC emphasised it could tackle unfair and misleading practices in different industries, as mentioned in its Discover of Proposed Rulemaking, however will achieve this utilizing its present Part 5 authority.
The Closing Rule was accredited with a 4–1 vote, with Republican Commissioner Holyoak voting for the rule and incoming Republican FTC Chair Andrew Ferguson dissenting. Though the company beneath new management might look to withdraw the Closing Rule, beneath the Administrative Process Act, the FTC would want to publish a discover within the Federal Register explaining the explanations for the withdrawal, permit alternative for remark, and contemplate these feedback earlier than repealing the Closing Rule. Though incoming administrations previously have imposed moratoriums on laws beneath improvement, the Closing Rule has been printed within the Federal Register, and a moratorium probably wouldn’t impression the rule going into impact. The incoming administration, nevertheless, would possibly select to delay the efficient date of the Closing Rule. The Closing Rule additionally falls inside the window for overview beneath the Congressional Evaluation Act, creating one other potential avenue for its repeal.
Individually, on January 14, 2025, the Client Monetary Safety Bureau (CFPB) launched a report titled “Strengthening State-Degree Client Protections.” Within the report, the CFPB encourages states to proceed to go after “junk charges,” citing the FTC’s Closing Rule and the FTC’s findings on the prevalence of sure practices. The CFPB offers proposed language for states to think about including to their “state prohibitions on unfair, misleading, and/or abusive acts or practices.” The CFPB’s really helpful statutory language is industry-agnostic, which means extra states might look to undertake broad fee-related guidelines.
Just like the FTC’s current rule on non-compete agreements, the Closing Rule could also be topic to potential authorized problem, together with by {industry} teams and commerce associations. The panorama for disclosure of charges continues to evolve, and companies ought to look ahead to developments at each the federal and state degree. In case you have any questions concerning the Junk Payment Rule, contact the creator or your Foley & Lardner lawyer.
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