Mitigating the Risk from ‘Junk Fees’

February 23, 2024

Increases in enforcement and private litigation relating to what federal and state authorities have termed “junk fees” pose a growing challenge to businesses across geographies and sectors, as evidenced by the recent uptick in federal, state, and private actions. Federal regulators, as well as their state enforcement counterparts, are intensely focused on curbing junk fees and utilizing a wide range of tools to crack down on what they allege as unfair and deceptive practices—including through rulemaking, enforcement, and issuing informal guidance.

Terms of Enforcement

Recently, the regulatory and enforcement landscape concerning junk fees has shifted dramatically. Junk fees, sometimes called “hidden fees” or “drip-pricing,” refer to later disclosed—and often mandatory—fees or charges that are not included in the initial offered price of a good or service. Industries most likely to be impacted by this widespread crackdown include travel, hospitality, entertainment, and financial institutions. Concluding these hidden fees pose consumer risk and stifle competition, President Joseph Biden has made curbing junk fees central to his substantive agenda and policy messaging.

New Federal Activity

Regulatory and enforcement activity has spiked among many agencies with jurisdiction over the US economy, but the two biggest federal actors are the US Federal Trade Commission (FTC) and the US Consumer Financial Protection Bureau (CFPB).


In October 2023, the FTC proposed a new rule to prohibit junk fees. While it is deceptively short, the proposal prohibits two broad types of conduct: (1) misrepresenting the total amount of fees, including by acts of omission, and (2) misrepresenting the purpose or nature of such fees. Additionally, the proposed rule requires the disclosure of the total price of any offering, defined as the aggregate of all fees or charges that a consumer must pay, except for shipping and government charges. For any enterprise, the “total price” would be extremely difficult to calculate.

The FTC’s proposed rule would:

  • Make it easier for the FTC to secure monetary remedies when suing for a rule violation
  • Impact a wide range of industries, including travel, hospitality, accommodations, live events, and delivery apps
  • Expand other agencies’ powers, including federal financial regulators and state attorneys general

CFPB Enforcement

While many highly regulated industries, including banks, fall outside of FTC authority, the agency seeks broader jurisdiction as to junk fees. If adopted, the FTC’s proposed rule could give the CFPB enforcement power against financial institutions and other businesses under its jurisdiction. That is in addition to its statutory authority to enforce FTC trade regulation rules (TRRs) “to the extent such

[a] rule applies to a covered person or service provider.” While banks have historically been excluded from the FTC’s TRRs, the FTC defined a covered “business” in its proposed rule as any corporate provider of goods and services, with the sole exception of auto dealers, which are covered by a separate FTC regulation.

In addition, the CFPB has issued guidance codifying the agency’s position that conduct violating state consumer protection laws may be unfair, deceptive, or abusive, and that state attorneys general may enforce alleged violations of the Dodd-Frank Wall Street Reform and Consumer Protection Act directly.

Additionally, the agency has issued new guidance aimed at preventing large banks from charging excess fees for what the CFPB calls “basic customer service.” This guidance comes on the heels of a 2022 compliance bulletin summarizing CFPB enforcement actions against automotive loan holders and servicers under existing laws regarding unfair, deceptive, or abusive acts or practices (UDAAP).

The 56 Icebergs

State Enforcement

All 56 state and territorial attorneys general have enforcement authority under each jurisdiction’s UDAAP statute, creating latent threats, or “icebergs.” Some states, include Arizona, Colorado, Texas, and the District of Columbia, have already taken action under their respective UDAAP authority. UDAAP statutes typically carry per violation penalties, rather than simple damage assessments. If each advertising impression constitutes a violation, for example, potential penalties could quickly exceed even a large business’s valuation or market cap.

Additionally, some state laws create private rights of action, amplifying companies’ potential legal exposure—particularly New York and California, where state financial protection departments and state attorneys general also have enforcement authority.

  • Federal Law–State Enforcement: Dodd-Frank authorized state attorneys general to enforce the CFPB’s UDAAP authority in federal court.
  • Federal Law–State Interpretation: Many states, either by statutory language or precedent, treat violations of federal law, including rules, as violations of state UDAAP law. At a minimum, a new FTC rule may well receive substantial deference in state court.

Federal and State Coordination

Expansion of State UDAAP Authority

In December 2023, nearly two dozen state and territorial attorneys general sent letters to the Director of the CFPB and the Acting Comptroller of the Currency asking for support in their investigations of national banks. These letters urged for expanded state authority to investigate national banks for violations of state UDAAP claims. The tone of these letters strongly indicates “buy in” from the CFPB and US Office of the Comptroller of the Currency (OCC). Additional federal and state coordination may be on the horizon.

FTC and Connecticut AG File Joint Complaint

The FTC and Connecticut AG filed a joint complaint under their respective UDAAP authorities against a Connecticut auto dealership, in which they alleged widespread undisclosed fees in the company’s “certified used car” marketing.

Notably, the FTC’s participation in this case—without the benefit of its newly finalized Combating Auto Retail Scams (CARS) Rule—demonstrates that enforcement authority may exist independent of those rules. For its part, Connecticut takes the position that it does not require a dedicated junk fee rule, as its core UDAAP authority is sufficient to bar such practices.

Private Right of Action

State authorities are raising their profiles. Enforcement actions often lead to private class action litigation, which can lead to other state enforcement activity.

Legislative Developments in California

California SB 478, effective July 1, 2024, applies to any company “doing business” in California. This legislation amended the California Consumer Legal Remedies Act to include as a prohibited act “advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges” other than (1) taxes or fees imposed by a government on the transaction or (2) postage or carriage charges that will be reasonably and actually incurred to ship the physical good to the consumer.

Carveouts apply for rental car companies, auto dealerships, property managers, and food delivery services. Plaintiffs are entitled to recover actual damages or $1,000 per violation (whichever is greater), injunctive relief, restitution, punitive damages, and attorneys’ fees.

The implications are that it could serve as a model for other states’ enactment of similar legislation, and it is likely to increase plaintiffs’ class action bar’s scrutiny of hidden fees. While a lot of litigation has occurred over what “per violation” means, enterprises still have five months to prepare for compliance.

Legislative Developments in Other States

Private actions amplify enforcement risk. Private litigation may spawn follow-on government investigations or enforcement actions, or vice versa.

Recent enforcement actions have targeted a wide spectrum of activity, including omitting surcharges on restaurant menus; hotel charges for mandatory resort or destination fees, daily surcharges for internet or housekeeping, or worker protection fees; and fees charged by a private contractor managing the federal government website for processing, reservations, cancellation, and other alleged junk fees in connection with the US National Park Service.

When reviewing materials, advertising practices, and pricing structures, businesses should keep in mind:

  • Early and conspicuous disclosures are the gold standard and clarity should be sought on apps and websites
  • Itemization of fees’ purposes should be transparent
  • Third-party sellers must adequately disclose as well
  • Consumer surveys can be helpful in establishing market expectations that might reduce risk
  • Where appropriate, include enforceable class action waivers for any terms of use relied on by customers and arbitration provisions terms

Major Takeaways

Given the guidance issued, new rules proposed (pending legislation), and enforcement actions at both the federal and state levels, staying abreast of the quilt work of laws across US jurisdictions can be daunting.

Key takeaways include the following:

  • Companies should monitor federal and state laws governing disclosures to ensure compliance; a patchwork of legislation, rules, and practices will apply broadly across multiple industries
  • The past is prologue; federal and state UDAAP enforcement is not new and decades of agency interpretation and court rulings can assist in determining best practices to minimize risk
  • While new laws and regulations are slowly being adopted, federal agencies and state attorneys general—often in coordination with each other—are interpreting existing legislation in novel ways to bring claims targeting junk fees
  • Enterprises must be vigilant to avoid pro se violations in California in connection with both public and private claims; other states may follow suit
  • Class action cases challenging hidden fees or junk fees are vulnerable to valid class action waivers that prohibit claims for violations of consumer protection statutes—including newly enacted California SB 478—from being pursued on a classwide basis; be sure to avoid common pitfalls that permit plaintiffs to avoid enforcement of such waivers such as lack of mutual assent and unconscionability
  • Recall the potential impact on secondary actors, such as websites and online aggregators because regulators and many states might argue that those who facilitate violations of their respective authorities have liability identical to primary actors; in the context of the states, be mindful that monetary damages and injunctive relief might be available under applicable law

Vigilance, transparency, and strict adherence to requirements governing third-party compliance, as well as attention to arbitration clauses, should be top of mind.

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