FTC Proposes Ban on Hidden “Junk Fees”

Key Points:

• The Federal Trade Commission proposes a ban on “junk fees” with Biden’s support.
• “Junk fees” refer to hidden charges added to products or services without clear disclosure.
• If approved, businesses would need to present a “total price” including all fees.
• Critics argue the ban could reduce competition and hurt small businesses.

The Federal Trade Commission (FTC) has introduced a proposal, supported by the Biden administration, aiming to ban “junk fees.” These hidden charges, which often appear without clear disclosure, bolster the bottom lines of businesses across various industries.

President Joe Biden, in a recent press conference, stated, “Unfair fees known as junk fees take real money out of the pockets of American families, adding hundreds of dollars that weigh down family budgets.”

James Pollard, founder of the Advisor Coach, defines “junk fees” as ambiguous charges companies add to products or services. They aren’t specific to any one industry. Common examples include “convenience” fees on event tickets, “resort fees” in hotels, and baggage-related charges when booking flights.

The proposal, if finalized, would reshape many businesses’ operations. The primary aim is to increase transparency in pricing. “Businesses would be required to present a ‘total price’ that includes all required fees,” explained Andrew Wang, a financial adviser at Runnymede Capital Management, Inc.

However, the proposal faces criticism. While many Americans may welcome clearer pricing, some detractors believe consumers should read the fine print before committing. A significant concern is that penalties and reduced margins from eradicating extra charges could reduce consumer choices and competition. David Klyman, a financial strategist at Klyman Financial, also highlighted that small businesses might face more challenges adapting to these changes than larger corporations.

Recently, California has taken a proactive step, with Governor Gavin Newsom signing SB 478 into law, which will make similar hidden charges illegal starting July 1, 2024.

The next steps for this proposal include gaining agreement from both the Senate and the House of Representatives before reaching President Biden for final approval. Currently, the FTC is inviting public feedback.