FTC targets bait-and-switch pricing

On Oct. 20, the FTC followed up its dealership-specific Bait-and-Switch regulations with rules to combat what it called “junk-fee shock” in multiple industries.

Lina Khan, FTC Chairwoman, stated that it was “extremely frustrating” to spend more than you budgeted due to random, arbitrary fees. “No one ever believed that a convenience fee was convenient. Companies should be able to offer the highest quality products at the lowest price. They shouldn’t compete with each other to make consumers pay more.

On Oct. 26, President Joe Biden highlighted the FTC’s new proposal and the work of other federal agencies to reduce the “junk fees” that he said amount to billions of dollars in the market.

Biden stated, that he had directed his administration to reduce or eliminate these fees. In discussing its dealer regulations, the FTC used the term junk fees to describe fees charged for goods and services that offer little or no added value to consumers. This includes goods or services that consumers would reasonably expect to be included in the advertised price.

These fees were described as “hidden fees”, which can be misleading or unfair. They are disclosed at a later stage of the consumer’s buying process, or not at all.

According to the FTC, 85 percent of respondents in a 2018 Consumer Reports survey said they had received hidden fees over the past two year. 96 percent found them irritating. 34 percent of respondents had experienced unexpected fees when they bought or borrowed an auto.

FTC stated that it was authorized to charge fees, but that a new rule would be more effective in deterring businesses. Permitting civil penalties and making consumers pay less for damages.

Eight practices were listed by the FTC as possible targets for new rules for industries. There are similarities to what the agency intends to enact for auto dealers . Oct. 20 was the date when the agency proposed to tackle:

1. Not clearly and conspicuously disclosing the “total cost of any product or service for sale” in advertising or marketing.

2. Incorrectly stating or not disclosing the “existence of any fees, interests, charges or other costs that cannot reasonably be avoided for any good or services” in ads and marketing.

3 Not disclosing or misrepresenting if “fees or interest, charges or products are optional or necessary.”

4 Not disclosing or misrepresenting “any material restriction or limitation concerning any good/service that could result in a compulsory charge…or that may reduce the consumer’s enjoyment of the good/service, including the amount that the consumer receives.”

5. False representation that a customer owes “any product/service the consumer didn’t agree to purchase.”

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

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

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

The October plan was more in the preliminary stages than the June proposal for auto dealers. The new initiative didn’t contain any draft regulatory language. It only contained the ideas.


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