[Federal Register Volume 90, Number 6 (Friday, January 10, 2025)]
[Rules and Regulations]
[Pages 2066-2167]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30293]
[[Page 2065]]
Vol. 90
Friday,
No. 6
January 10, 2025
Part II
Federal Trade Commission
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16 CFR Part 464
Trade Regulation Rule on Unfair or Deceptive Fees; Final Rule
Federal Register / Vol. 90 , No. 6 / Friday, January 10, 2025 / Rules
and Regulations
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FEDERAL TRADE COMMISSION
16 CFR Part 464
RIN 3084-AB77
Trade Regulation Rule on Unfair or Deceptive Fees
AGENCY: Federal Trade Commission.
ACTION: Final rule.
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SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is
issuing a final trade regulation rule entitled ``Rule on Unfair or
Deceptive Fees'' (``rule'' or ``final rule'') and Statement of Basis
and Purpose addressing certain unfair or deceptive practices involving
fees or charges for live-event tickets and short-term lodging: bait-
and-switch pricing that hides the total price by omitting mandatory
fees and charges from advertised prices; and misrepresenting the
nature, purpose, amount, and refundability of fees or charges. The
final rule specifies that it is an unfair and deceptive practice for
businesses to offer, display, or advertise any price of live-event
tickets or short-term lodging without clearly, conspicuously and
prominently disclosing the total price. The rule also requires
businesses to clearly and conspicuously make certain disclosures before
a consumer consents to pay. The rule further specifies that it is an
unfair and deceptive practice for businesses to misrepresent any fee or
charge in any offer, display, or advertisement for live-event tickets
or short-term lodging.
DATES: This rule is effective May 12, 2025.
ADDRESSES: Copies of this document are available on the Commission's
website, www.ftc.gov.
FOR FURTHER INFORMATION CONTACT: Janice Kopec or Annette Soberats,
Division of Advertising Practices, Bureau of Consumer Protection,
Federal Trade Commission, 202-326-2550 (Kopec), 202-326-2921
(Soberats), [email protected], [email protected].
SUPPLEMENTARY INFORMATION:
Statement of Basis and Purpose
Table of Contents
I. Background
A. Advance Notice of Proposed Rulemaking
B. Notice of Proposed Rulemaking
C. Informal Public Hearing
II. The Legal Standard for Promulgating the Rule
A. Prevalence of Acts or Practices Addressed by the Rule
B. Manner and Context in Which the Acts or Practices Are
Deceptive or Unfair
C. The Economic Effect of the Rule
III. Section-by-Section Analysis
A. Sec. 464.1: Definitions
1. Ancillary Good or Service
2. Business
3. Clear(ly) and Conspicuous(ly)
4. Covered Good or Service
5. Government Charges
6. Pricing Information
7. Shipping Charges
8. Total Price
(a) Mandatory Fees
(b) Maximum Total
(c) Itemization
(d) Exclusions From Total Price
(e) Intersection With IRS Requirements
B. Sec. 464.2 Hidden Fees Prohibited
1. Sec. 464.2(a)
(a) Contingent Fees
(b) Ticket Service Fees
(c) Credit Card and Other Payment Processing Surcharges
(d) Dynamic Pricing and National Advertising
(e) Rebates, Bundled Pricing, and Other Discounts: Compliance
When Promotional Pricing Models Have Different Fees
(f) Online Marketplaces
2. Sec. 464.2(b)
3. Sec. 464.2(c)
C. Sec. 464.3 Misleading Fees Prohibited
D. Sec. 464.4 Relation to State Laws
E. Sec. 464.5 Severability
IV. Challenges to the FTC's Legal Authority To Promulgate the Rule
A. Major Questions Doctrine
1. The Rule Does Not Address a Major Question
(a) The Commission Has a Long History of Addressing Unfair or
Deceptive Acts or Practices Related to Pricing Information
(b) Commenters' Claims About the Scope of the Acts or Practices
Covered by the Rule Are Inapplicable or Overstated
2. Congress Provided the Commission With a Clear Grant of
Authority To Promulgate This Rule
B. Non-Delegation Doctrine
C. First Amendment
1. Comments
2. Legal Standard
3. The Rule's Disclosure Requirements Are Constitutional Under
Zauderer
4. The Rule Does Not Prohibit Truthful Speech
5. The Rule's Treatment of Credit Card Fees and Government
Charges Does Not Violate the First Amendment
D. Commission Structure
E. Administrative Procedure Act
V. Final Regulatory Analysis Under Section 22 of the FTC Act
A. Concise Statement of the Need for, and Objectives of, the
Final Rule
B. Alternatives to the Final Rule the Commission Considered,
Reasons for the Commission's Determination That the Final Rule Will
Attain Its Objectives in a Manner Consistent With Applicable Law,
and the Reasons the Particular Alternative Was Chosen
C. The NPRM's Preliminary Regulatory Analysis
D. Significant Issues Raised by Comments, the Commission's
Assessment and Response, and Any Changes Made as a Result
1. Comments on Costs
(a) Public Comments: Estimated Costs Are Too Low
(b) Public Comments: Unquantified Costs to Firms
(c) Public Comments: Unquantified Costs to Consumers
(d) Public Comments: Unquantified Costs to Third Parties
(e) Public Comments: Costs From Incorporating Contingent Fees
Into Total Price
2. Comments on Benefits
(a) Public Comments: Benefits Are Too High
(b) Public Comments: Unquantified Benefits
3. Comments on the Economy-Wide Break-Even Analysis
(a) Public Comments: Break-Even Analysis Has Incorrect
Assumptions or Contains Errors
(b) Public Comments: Break-Even Analysis Is Not Enough To
Justify an Economy-Wide Rule
(c) Public Comments: Break-Even Analysis Is Satisfactory
E. Economic Regulatory Analysis of the Final Rule's Costs and
Benefits
1. Economic Rationale for the Final Rule
(a) Shrouded Pricing as a Cause of Market Failure
(b) Shrouded Pricing as a Source of Biased Expectations
2. Economic Effects of the Final Rule
(a) General Benefits of the Final Rule
i. Reductions in Search Costs
ii. Reductions in Deadweight Loss
(b) Welfare Transfers
(c) General Costs of the Final Rule
3. Quantified Welfare Effects
(a) Quantified Compliance Costs
(b) Break-Even Analysis
i. Sensitivity Analysis: Assume Higher Wage Rates
(c) Quantified Benefits and Costs: Live-Event Ticketing Industry
i. Live-Event Ticketing: Estimated Benefits of the Final Rule
(a) Consumer Time Savings When Shopping for Live-Event Tickets
(b) Additional Unquantified Benefits: Reductions in Deadweight
Loss and Abandoned Transactions
ii. Live-Event Ticketing: Estimated Costs of the Final Rule
iii. Live-Event Ticketing: Net Benefits
iv. Live-Event Ticketing: Uncertainties
(d) Quantified Benefits and Costs: Short-Term Lodging Industry
i. Short-Term Lodging: Estimated Benefits of the Final Rule
(a) Search Statistics
(b) U.S. Hotels and Home Shares
(c) Foreign Hotels and Home Shares With U.S.-Facing websites
(d) All Hotels and Home Shares
(e) Additional Unquantified Benefits: Reductions In Deadweight
Loss and Abandoned Transactions
ii. Short-Term Lodging: Estimated Costs of the Final Rule
(a) Panel A: U.S. Hotels and Home Share Hosts
(b) Panel B: Foreign Hotels and Home Share Hosts
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(c) Panel C: All Hotels and Home Share Hosts (US + Foreign)
iii. Short-Term Lodging: Net Benefits
iv. Short-Term Lodging: Uncertainties
4. Economic Evaluation of Alternatives
5. Summary of Results
6. Appendix A: Model of Market Distortion Caused by Drip Pricing
7. Appendix B: Short-Term Lodging Industry Minutes per Listing
Calculations
(a) Low-End Estimate of Minutes per Listing Calculation
(b) High-End Estimate of Minutes per Listing Calculation
VI. Paperwork Reduction Act
A. Disclosures Related to Final Sec. 464.2(a) Through (c)
1. Number of Respondents
2. Estimated One-Time Hour Burden
3. Estimated One-Time Labor Costs
4. Estimated One-Time Non-Labor Costs
5. Projected Labor Costs Likely Overestimated
B. Prohibited Misrepresentations Under Final Sec. 464.3
VII. Regulatory Flexibility Act--Final Regulatory Flexibility
Analysis
A. Statement of the Need for, and Objectives of, the Rule
B. Significant Issues Raised by Comments, the Commission's
Assessment and Response, and Any Changes Made as a Result
C. Comment by the Small Business Administration, Office of
Advocacy, the Commission's Assessment and Response, and Any Changes
Made as a Result
D. Description and Estimate of the Number of Small Entities To
Which the Rule Will Apply
E. Description of the Projected Reporting, Recordkeeping, and
Other Compliance Requirements
F. Discussion of Significant Alternatives the Commission
Considered That Would Accomplish the Stated Objectives of the Final
Rule and That Would Minimize Any Significant Economic Impact of the
Final Rule on Small Entities
VIII. Congressional Review Act
I. Background
When shopping for a good or service, consumers want to know: how
much? It is a bedrock principle of FTC law that price is material to a
consumer's decision about whether to purchase a good or service.
Consumers look for prices to comparison shop and to weigh what a good
or service might be worth. Most consumers also rely on price to answer
critical budgeting questions such as: Can I afford this hotel or short-
term rental for my upcoming vacation? Can I afford these concert
tickets? Unfortunately, consumers face widespread and growing unfair
and deceptive fee practices that make it much harder to find out: how
much will this cost?
There is nothing new about businesses using bait-and-switch tactics
to reel in and deceive consumers. The Commission has a long history of
bringing enforcement actions against these unfair and deceptive
practices. Quoting a misleading, artificially low price and then adding
in mandatory fees and other charges throughout the buying process--a
practice known today as drip pricing--is a quintessential example of
bait-and-switch pricing and is a practice that falls squarely within
the scope of the Commission's long history of work to protect
consumers. While today this practice goes by a different name, the
playbook has not changed: lure in consumers with a low price, then hit
them with a higher price after they have invested in the transaction
and sunk time and effort into trying to buy a good or service for an
illusory price. Behavioral and economic research explains that
piecemeal numbers and explanations cannot cure the deception or
mitigate the harms to consumers when businesses employ these pricing
tactics. Often consumers finish the transaction without an accurate
understanding of the total price of goods or services.
In recent years, bait-and-switch pricing has garnered widespread
public attention. Consumers have cried foul when they discovered the
cost of their hotel stays were significantly higher than expected due
to a mandatory, hidden ``resort fee,'' typically charged for services
that consumers expected to be a part of staying in a hotel. Consumers
have also complained when they tried to purchase tickets to a live
event, only to find out that the quoted ticket price almost doubled by
the time they reached the final checkout page. Consumers have
confronted a host of mysterious, mandatory, ``convenience,''
``processing,'' or ``service'' charges that are either non-descript or
otherwise misleading. These practices are frustrating for consumers
when they shop for travel and entertainment especially because these
purchases can be significant expenditures. This rulemaking record is
replete with individual stories of consumers inundated by bait-and-
switch pricing and misleading fees and charges.
For example, an individual commenter lamented the pervasiveness of
bait-and-switch pricing tactics across everyday purchases:
Like almost every American consumer, I have had to pay these
``junk fees'' in various circumstances. I consider myself reasonably
well informed, yet have been surprised by them, because they keep
[c]ropping up in unexpected places. Like many, I've experienced them
in hotels, with car rentals and telecom providers. In these
instances, the consumer has no real recourse, as the bargaining
power is wholly unequal. However, these fees are now impacting every
aspect of commerce. ``Convenience'' fees have impacted me with food
service. ``Facility'' fees charges at fitness facilities. Credit
card fees in excess of the actual interchange fees being charged at
restaurants. It's endless, ubiquitous and makes it extremely
difficult for consumers to make informed decisions.\1\
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\1\ FTC-2023-0064-0886 (Individual Commenter).
As another individual commenter aptly put it, ``It's one thing to
be on guard when walking down a dark alley, but being on guard every
time you want to take a vacation, go to a concert, fly home to see a
sick loved one--that's just not fair.'' \2\
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\2\ FTC-2023-0064-1576 (Individual Commenter).
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It is no surprise that, once bait-and-switch pricing tactics are
used by some businesses to obscure the cost of a good or service, they
tend to spread. Businesses that want to compete on the true price of
their offering are undercut by businesses that use hidden or misleading
fees to display an artificially low price. As studies confirm, in such
instances, consumers cannot shop for price effectively. This forces
businesses into a race to the bottom and results in more and more
businesses using hidden and misleading fees to remain competitive. When
these types of fees are eventually revealed, consumers are left
frustrated with a new and unexpected higher price and misleading fees
and charges that prevent them from having a real understanding of what
they are getting in return for these additional fees.
The Rule on Unfair or Deceptive Fees addresses these problems
directly in the live-event ticketing industry and the short-term
lodging industry, which includes temporary sleeping accommodations at a
hotel, motel, inn, short-term rental, vacation rental, or other place
of lodging. These two industries have engaged in bait-and-switch
pricing tactics for years. The rule ensures that when businesses
advertise a price for live-event tickets or short-term lodging, it is
the total price, and when they explain a fee or charge, the description
is truthful. In simple terms: tell consumers the real price and do not
lie about the fees or charges. The final rule does this by addressing
two specific and prevalent unfair and deceptive practices: (1) bait-
and-switch pricing that hides the total price of live-event tickets and
short-term lodging by omitting mandatory fees and charges from
advertised prices, including through drip pricing, and (2)
misrepresenting the nature, purpose, amount, and refundability of fees
or charges. The rule has two main
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components. First, the final rule requires businesses that offer a
price for live-event tickets or short-term lodging to disclose the
total price, inclusive of most mandatory charges, and to make sure that
the total price is disclosed more prominently than other pricing
information, except the final amount of payment. Second, the final rule
prohibits misrepresentations about fees or charges in any offer,
display, or advertisement for live-event tickets and short-term
lodging.
The final rule is tailored to target these specific unfair and
deceptive pricing practices, while preserving flexibility for live-
event ticket and short-term lodging businesses. The rule does not
prohibit any one type of fee, nor does it prohibit specific pricing
practices such as itemization of fees or dynamic pricing. The rule does
not require that all fees be included when offering a price--just
mandatory ones. The rule gives businesses discretion to list optional
fees selected by the consumer and government and shipping charges
separately. The discretion to set prices remains squarely with
businesses; the rule simply requires that they tell consumers the truth
about prices for live-event tickets and short-term lodging.
A. Advance Notice of Proposed Rulemaking
The Commission published, on November 8, 2022, an advance notice of
proposed rulemaking (``ANPR'') \3\ under the authority of section 18 of
the Federal Trade Commission Act (``FTC Act'') \4\ to address certain
unfair or deceptive acts or practices involving fees. The ANPR
described the Commission's history of taking law enforcement action
against, and educating consumers about, unfair or deceptive practices
relating to fees, and it asked a series of questions to help inform the
Commission about whether such practices are prevalent and, if so,
whether and how to proceed with a notice of proposed rulemaking
(``NPRM''). The Commission was particularly interested in the following
practices that it identified as the subjects of investigations,
enforcement actions, workshops, research, and consumer education: (a)
misrepresenting or failing to disclose clearly and conspicuously, on
any advertisement or in any marketing, the total price of any good or
service for sale; (b) misrepresenting or failing to disclose clearly
and conspicuously, on any advertisement or in any marketing, the
existence of any fees, interest, charges, or other costs that are not
reasonably avoidable for any good or service; (c) misrepresenting or
failing to disclose clearly and conspicuously whether fees, interest,
charges, products, or services are optional or required; (d)
misrepresenting or failing to disclose clearly and conspicuously any
material restriction, limitation, or condition concerning any good or
service that may result in a mandatory charge in addition to the cost
of the good or service or that may diminish the consumer's use of the
good or service, including the amount the consumer receives; (e)
misrepresenting that a consumer owes payments for any product or
service the consumer did not agree to purchase; (f) billing or charging
consumers for fees, interest, goods, services, or programs without
express and informed consent; (g) billing or charging consumers for
fees, interest, goods, services, or programs that have little or no
added value to the consumer or that consumers would reasonably assume
to be included within the overall advertised price;[thinsp]and (h)
misrepresenting or failing to disclose clearly and conspicuously, on
any advertisement or in any marketing, the nature or purpose of any
fees, interest, charges, or other costs.
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\3\ Advance notice of proposed rulemaking; request for public
comment: Unfair or Deceptive Fees Trade Regulation Rule Commission
Matter No. R207011, 87 FR 67413 (Nov. 8, 2022). The ANPR and other
documents pertaining to this rulemaking are available on the FTC web
page, Rulemaking: Unfair or Deceptive Fees, https://www.ftc.gov/legal-library/browse/rules/rulemaking-unfair-or-deceptive-fees.
\4\ 15 U.S.C. 57a(b)(2). Section 18 authorizes the Commission to
promulgate, modify, or repeal trade regulation rules that define
with specificity acts or practices that are unfair or deceptive in
or affecting commerce within the meaning of section 5(a)(1) of the
FTC Act, 15 U.S.C. 45(a)(1).
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The Commission specifically sought public comment on the prevalence
of such practices and the costs and benefits of a rule that would
require upfront inclusion of mandatory fees whenever consumers are
quoted a price, including by asking a series of questions to solicit
data and commentary. The Commission took comments for sixty days,
extended the comment period by an additional thirty days,\5\ and
carefully considered the more than 12,000 comments received.\6\
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\5\ Notice; extension of public comment period: Unfair or
Deceptive Fees Trade Regulation Rule, 88 FR 4796 (Jan. 25, 2023).
\6\ Publicly posted comments are available to view through
Regulations.gov under Docket ID FTC-2022-0069 at https://www.regulations.gov/docket/FTC-2022-0069/comments.
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B. Notice of Proposed Rulemaking
Based on the substance of the comments received in response to the
ANPR, as well as the Commission's history of enforcement and other
information, on November 9, 2023, the Commission published an NPRM,
which proposed an industry-neutral rule that would prohibit
misrepresenting the total price of goods or services by omitting
mandatory fees from advertised prices and misrepresenting the nature
and purpose of fees.\7\ The NPRM described the comments received in
response to the ANPR and examined the Commission's prior enforcement
actions and other responses concerning unfair and deceptive fees. In
the NPRM, the Commission stated that it has reason to believe that
certain unfair or deceptive acts or practices involving fees are
prevalent, specifically: (1) misrepresenting the total price of goods
and services by omitting mandatory fees from advertised prices and (2)
misrepresenting the nature and purpose of fees. After discussing the
comments and explaining its considerations in developing a proposed
rule, the Commission also posed specific questions for comment and
provided explanation of the proposed rule text. Finally, the NPRM set
out the Commission's proposed regulatory text.\8\ The Commission took
public comments for sixty days, and extended the comment period for an
additional thirty days.\9\
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\7\ Notice of proposed rulemaking; request for public comment:
Trade Regulation Rule on Unfair or Deceptive Fees, 88 FR 77420 (Nov.
9, 2023). In accordance with section 18(b)(2)(C) of the FTC Act, 15
U.S.C. 57a(b)(2)(C), on October 10, 2023, the Commission sent
notices to the House Committee on Energy and Commerce and the Senate
Committee on Commerce, Science and Transportation seeking comment
concerning the utility and scope of the trade regulation rule
proposed in the NPRM and including the full text of the NPRM.
\8\ NPRM, 88 FR 77483.
\9\ Notice of proposed rulemaking; extension of public comment
period: Trade Regulation Rule on Unfair or Deceptive Fees, 89 FR 38
(Jan. 2, 2024).
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In response to the NPRM, the Commission received over 60,800
comments from stakeholders representing a wide range of viewpoints and
industries.\10\ These stakeholders
[[Page 2069]]
included numerous individual consumers and consumer groups who
described examples and experiences with the unfair and deceptive fee
practices identified by the Commission. Commenters also included a
range of business owners, trade associations, and other industry
groups; academics; and government officials and agencies from all
levels of government. While some commenters raised concerns and
recommended specific modifications to, or exemptions from, the
Commission's proposal, the overwhelming majority of commenters strongly
supported the Commission's proposed rule.
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\10\ Publicly available comments are available to view through
Regulations.gov under Docket ID FTC-2023-0064 at https://www.regulations.gov/document/FTC-2023-0064-0001/comment. As noted on
Regulations.gov, not every comment is made publicly available. For
example, ``[a]gencies may redact or withhold certain Comment
Submissions . . . , such as those containing . . . duplicate/near
duplicate examples of a mass-mail campaign. Therefore, the total in
the Number of Comments Posted Box may be lower than the total in the
Comments Received Box.'' See https://www.regulations.gov/faq,
Frequently Asked Questions, General FAQs, Find Dockets, Documents,
and Comments FAQs, answer to How are Comments counted and posted to
Regulations.gov?. In this rulemaking, Regulations.gov identified ten
mass-mail campaigns as part of the total number of comments received
of over 60,800. One mass-mail campaign alone accounted for close to
48,200 comments, and all mass-mail campaigns combined accounted for
more than 57,400 comments. Because comments within each mass-mail
campaign are highly similar, only representative comments of each
mass-mail campaign are publicly posted on Regulations.gov. In
addition to representative mass-mail comments, the more than 3,300
comments that Regulations.gov did not identify as belonging to a
mass-mail campaign are publicly posted. The Commission received and
considered all filed comments, including all mass-mail comments.
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The proposed rule received widespread support in comments from
Federal,\11\ State, and local \12\ elected officials; State Attorneys
General; \13\ Federal,\14\ State, and local \15\ government agencies;
public policy and consumer advocates,\16\ including housing advocates
\17\ and advocates for the incarcerated or formerly incarcerated; \18\
university public policy advocates and clinics; \19\ academics; \20\
legal services providers; \21\ and industry members from a broad range
of market sectors, including online merchants,\22\ live-event
ticketing,\23\ and hotels and other short-term lodging.\24\ These
commenters supporting the rule confirmed the prevalence of hidden and
misrepresented fees throughout the economy, across large and small
industries subject to the Commission's jurisdiction, ranging, for
example, from travel, live events, restaurants, delivery, rental
housing, and correctional services to carpet cleaning, dietary
supplements, moving companies, and gyms. These commenters supported the
rule for its benefits to both consumers and honest businesses.
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\11\ See, e.g., FTC-2023-0064-3135 (U.S. Senate, Sen. Robert P.
Casey, Jr.); FTC-2023-0064-3271 (U.S. Senate, Sen. Amy Klobuchar);
FTC-2023-0064-2858 (U.S. House of Representatives, Rep. Maxwell
Alejandro Frost, Rep. Jimmy Gomez, Rep. Barbara Lee, Rep. Rashida
Tlaib, Rep. Kevin Mullin, Rep. Dwight Evans, Rep. Judy Chu, Rep.
Greg Casar, Rep. Dan Goldman, Rep. Salud Carbajal).
\12\ See, e.g., FTC-2023-0064-1411 (Arizona House of
Representatives, Rep. Analise Ortiz); FTC-2023-0064-2938 (Colorado
House of Representatives, Rep. Naquetta Ricks); FTC-2023-0064-2926
(Florida House of Representatives, Rep. Rita Harris); FTC-2023-0064-
3081 (Florida House of Representatives, Rep. Anna V. Eskamani); FTC-
2023-0064-3103 (Florida House of Representatives, Rep. Angela
Nixon); FTC-2023-0064-3117 (Maryland House of Delegates, Del. Julie
Palakovich Carr); FTC-2023-0064-2341 (Massachusetts House of
Representatives, Rep. Lindsay Sabadosa); FTC-2023-0064-3072
(Michigan Senate and House of Representatives, Sen. Darrin
Camilleri, Sen. Mary Cavanagh, and Rep. Betsy Coffia); FTC-2023-
0064-3079 (Montana State Senate, Senate Democratic Caucus, Sen. Pat
Flowers, Sen. Susan Webber, Sen. Andrea Olsen, Sen. Edie
McClafferty, Sen. Jen Gross, Sen. Janet Ellis, Sen. Shane Morigeau,
Sen. Ellie Boldman, Sen. Ryan Lynch, Sen. Christopher Pope, Sen.
Mike Fox, Sen. Denise Hayman, Sen. Willis Curdy, and Sen. Mary Ann
Dunwell); FTC-2023-0064-3184 (New York Senate, Sen. Michael
Gianaris); FTC-2023-0064-3123 (Syracuse, New York, City Auditor
Alexander Marion); FTC-2023-0064-3149 (North Carolina House of
Representatives, Rep. Julie von Haefen); FTC-2023-0064-3237 (North
Carolina House of Representatives, Rep. Pricey Harrison).
\13\ See, e.g., FTC-2023-0064-3150 (Attorney General of the
State of California); FTC-2023-0064-3215 (Attorneys General of the
States of North Carolina and Pennsylvania, along with Attorneys
General of the States or Territories of Arizona, Colorado,
Connecticut, Delaware, District of Columbia, Hawaii, Illinois,
Maine, Michigan, Minnesota, New Jersey, New York, Oklahoma, Oregon,
Vermont, Washington, and Wisconsin).
\14\ See, e.g., FTC-2023-0064-3134 (U.S. Department of
Transportation, Federal Motor Carrier Safety Administration); FTC-
2023-0064-3187 (U.S. Department of Justice, Antitrust Division).
\15\ See, e.g., FTC-2023-0064-1519 (New York City Department of
Consumer and Worker Protection); FTC-2023-0064-2883 (District of
Columbia, Office of the People's Counsel); FTC-2023-0064-3196 (South
Carolina Department of Consumer Affairs).
\16\ See, e.g., FTC-2023-0064-1028 (Complex Trauma Project);
FTC-2023-0064-2885 (AARP); FTC-2023-0064-3104 (Truth in Advertising,
Inc.); FTC-2023-0064-3160 (Consumer Federation of America on behalf
of itself and 51 other national and State consumer advocacy groups,
authored by American Economic Liberties Project, Consumer Action,
Consumer Federation of America, National Association of Consumer
Advocates, National Consumer Law Center, National Consumers League,
U.S. Public Interest Research Group); FTC-2023-0064-3162 (BBB
National Programs, Inc.); FTC-2023-0064-3191 (Community Catalyst and
32 other organizations focused on health care and consumer
protection issues); FTC-2023-0064-3205 (Consumer Reports); FTC-2023-
0064-3216 (Demand Progress Education Fund); FTC-2023-0064-3218
(National Consumer Law Center); FTC-2023-0064-3242 (William E.
Morris Institute for Justice); FTC-2023-0064-3246 (Coalition for App
Fairness); FTC-2023-0064-3248 (DC Jobs With Justice on behalf of
Fair Price, Fair Wage Coalition); FTC-2023-0064-3259 (National
Women's Law Center); FTC-2023-0064-3270 (Consumer Federation of
America, National Consumer Law Center, and National Association of
Consumer Advocates); FTC-2023-0064-3290 (U.S. Public Interest
Research Group Education Fund); FTC-2023-0064-3302 (Public Citizen).
\17\ See, e.g., FTC-2023-0064-1431 (McPherson Housing
Coalition); FTC-2023-0064-2851 (Housing Action Illinois); FTC-2023-
0064-3102 (Corporation for Supportive Housing); FTC-2023-0064-3235
(National Housing Law Project).
\18\ See, e.g., FTC-2023-0064-2915 (Voice of the Experienced);
FTC-2023-0064-2696 (Safe Return Project); FTC-2023-0064-3253
(Fortune Society); FTC-2023-0064-3260 (Formerly Incarcerated,
Convicted People & Families Movement, in collaboration with the
Partnership for Just Housing); FTC-2023-0064-3283 (National Consumer
Law Center, Prison Policy Initiative, and advocate Stephen Raher).
\19\ See, e.g., FTC-2023-0064-1939 (Tzedek DC, David A. Clarke
School of Law, University of the District of Columbia); FTC-2023-
0064-2888 (Housing Policy Clinic, University of Texas School of
Law); FTC-2023-0064-3146 (Institute for Policy Integrity, New York
University School of Law); FTC-2023-0064-3255 (Carrie Floyd,
Clinical Teaching Fellow, Veterans Legal Clinic, and Mira Edmonds,
Clinical Assistant Professor of Law, Civil-Criminal Litigation
Clinic, University of Michigan Law School); FTC-2023-0064-3275
(Berkeley Center for Consumer Law & Economic Justice, University of
California, Berkeley School of Law, and Consumer Law Advocates,
Scholars & Students Network); FTC-2023-0064-3268 (Housing & Eviction
Defense Clinic, University of Connecticut School of Law).
\20\ See, e.g., FTC-2023-0064-1294 (James J. Angel, Ph.D., CFP,
CFA, Professor, Georgetown University, McDonough School of
Business); FTC-2023-0064-1467 (Richard J. Peltz-Steele, Chancellor
Professor, University of Massachusetts Law School).
\21\ See, e.g., FTC-2023-0064-2862 (Legal Aid Foundation of Los
Angeles); FTC-2023-0064-2892 (Community Legal Services of
Philadelphia); FTC-2023-0064-2920 (Colorado Poverty Law Project);
FTC-2023-0064-3090 (Atlanta Legal Aid Society, Inc.); FTC-2023-0064-
3225 (CED Law); FTC-2023-0064-3278 (Southeast Louisiana Legal
Services).
\22\ See, e.g., FTC-2023-0064-2840 (Indie Sellers Guild); FTC-
2023-0064-2901 (E-Merchants Trade Council, Inc.).
\23\ See, e.g., FTC-2023-0064-2856 (National Football League);
FTC-2023-0064-3108 (Christian L. Castle, Esq.; Mala Sharma,
President, Georgia Music Partners; and Dr. David C. Lowery, founder
of musical groups Cracker and Camper Van Beethoven, and a lecturer
at the University of Georgia Terry College of Business); FTC-2023-
0064-3122 (Vivid Seats); FTC-2023-0064-3195 (League of American
Orchestras on behalf of itself and Association of Performing Arts
Professionals, Carnegie Hall, Dance/USA, Folk Alliance
International, Future of Music Coalition, National Performance
Network, OPERA America, PAVA--Performing Arts Venues Alliance,
Performing Arts Alliance, and Theatre Communications Group); FTC-
2023-0064-3212 (TickPick, LLC); FTC-2023-0064-3230 (Future of Music
Coalition); FTC-2023-0064-3250 (National Independent Talent
Organization); FTC-2023-0064-3266 (StubHub, Inc.); FTC-2023-0064-
3292 (National Association of Theatre Owners); FTC-2023-0064-3304
(Recording Academy); FTC-2023-0064-3306 (Live Nation Entertainment
and its subsidiary Ticketmaster North America); FTC-2023-0064-3105
(Charleston Symphony); FTC-2023-0064-3241 (National Association of
Ticket Brokers).
\24\ See, e.g., FTC-2023-0064-3077 (Far Horizons Travel); FTC-
2023-0064-3094 (American Hotel & Lodging Association); FTC-2023-
0064-3106 (American Society of Travel Advisors, Inc.); FTC-2023-
0064-3204 (Expedia Group); FTC-2023-0064-3244 (Vacation Rental
Management Association).
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Individual consumers overwhelmingly supported the rule. Out of
60,853 total comments received, a mass mailing of close to 48,186
consumer commenters stated that they supported ``the FTC's efforts to
protect American consumers and crack down on unscrupulous businesses
that tack on junk fees at the end of the purchasing process,'' and
urged the Commission ``to pass this rule to not only save consumers
tens of billions of dollars each year, but to level the playing field
for honest businesses who are transparent about their costs and
[[Page 2070]]
fees.'' \25\ Other mass mailings contained similar comments in support.
In a mass mailing of about 344 comments, consumer commenters made near-
identical statements to the aforementioned mass mailing and added:
``Junk fees are monies a business tacks on at the end of the purchasing
process instead of being transparent about the full price upfront.
These fees are common when people are purchasing airline and concert
tickets, booking hotel rooms, paying utility bills, and renting
apartments.'' \26\ A mass mailing submitted by about 315 consumer
commenters stated, ``I support cracking down on hidden junk fees that
cost Americans billions of dollars each year.'' \27\ A mass mailing by
about nineteen consumer commenters stated, ``For too long, individuals
have been subjected to misleading practices, such as the omission of
mandatory fees from advertised prices and misrepresentation of the
nature and purpose of fees. These practices not only erode trust but
also hinder informed decision-making by consumers.'' \28\ A mass
mailing by about thirteen consumer commenters simply urged: ``Stop junk
fees!'' \29\ Additional comments from individual consumers also
supported the rule.
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\25\ See, e.g., FTC-2023-0064-0962, FTC-2023-0064-1186, FTC-
2023-0064-1219, FTC-2023-0064-1230, FTC-2023-0064-1826, FTC-2023-
0064-1827, FTC-2023-0064-1933, FTC-2023-0064-1946.
\26\ See, e.g., FTC-2023-0064-2290.
\27\ See, e.g., FTC-2023-0064-3156.
\28\ See, e.g., FTC-2023-0064-2962.
\29\ See, e.g., FTC-2023-0064-2964.
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Other commenters opposed the rule, sought exemptions from the rule,
or expressed concern about the rule's definitions or application to
specific pricing scenarios. They included a Federal government agency;
\30\ national business groups and public policy advocates,\31\
including tax groups and advisors; \32\ academics; \33\ representatives
from auto dealers and service providers; \34\ app-based delivery
platforms; \35\ financial and real estate settlement services; \36\
franchised businesses; \37\ representatives of housing providers,\38\
including apartment associations \39\ and a housing advertising
platform; \40\ hospitality groups, including hotel \41\ and restaurant
associations; \42\ funeral and cemetery providers; \43\ gaming
associations; \44\ telecommunications providers; \45\ live-event
venues; \46\ a law firm; \47\ providers of communications services to
incarcerated people; \48\ and other sectors.\49\ The commenters argued
that the FTC failed to establish the prevalence of the defined unfair
and deceptive practices and failed to conduct an adequate cost-benefit
analysis, and that the proposed rule would interfere with established
pricing models, could not be applied to all pricing scenarios, would
overlap with other laws and regulations, or would exceed the FTC's
rulemaking authority or jurisdiction.
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\30\ U.S. Small Bus. Admin., Office of Advocacy, Re: Trade
Regulation Rule on Unfair or Deceptive Fees FTC-2023-0064-0001,
https://advocacy.sba.gov/wp-content/uploads/2024/03/Comment-Letter-Trade-Regulation-Rule-on-Unfair-or-Deceptive-Fees.pdf.
\31\ See, e.g., FTC-2023-0064-2367 (Small Business Majority);
FTC-2023-0064-2887 (Progressive Policy Institute); FTC-2023-0064-
2919 (National Automatic Merchandising Association); FTC-2023-0064-
3028 (Competitive Enterprise Institute); FTC-2023-0064-3016
(National Federation of Independent Business, Inc.); FTC-2023-0064-
3127 (U.S. Chamber of Commerce); FTC-2023-0064-3128 (Merchants
Payments Coalition); FTC-2023-0064-3137 (Chamber of Progress); FTC-
2023-0064-3140 (Merchant Advisory Group); FTC-2023-0064-3145
(Association of National Advertisers, Inc.); FTC-2023-0064-3147
(American Land Title Association); FTC-2023-0064-3173 (Center for
Individual Freedom); FTC-2023-0064-3186 (National LGBT Chamber of
Commerce and National Asian/Pacific Islander American Chamber of
Commerce & Entrepreneurship); FTC-2023-0064-3208 (FreedomWorks);
FTC-2023-0064-3267 (National Retail Federation).
\32\ See, e.g., FTC-2023-0064-3100 (Civitas Advisors, Inc.);
FTC-2023-0064-3126 (Tax Foundation); FTC-2023-0064-3258 (National
Taxpayers Union Foundation).
\33\ See, e.g., FTC-2023-0064-2891 (Mary Sullivan, George
Washington University, Regulatory Studies Center); FTC-2023-0064-
3264 (Mark J. Perry, Ph.D., Professor Emeritus of Economics at
University of Michigan-Flint and Senior Fellow Emeritus at the
American Enterprise Institute).
\34\ See, e.g., FTC-2023-0064-3121 (National Independent
Automobile Dealers Association); FTC-2023-0064-3189 (National
Automobile Dealers Association); FTC-2023-0064-3206 (Motor Vehicle
Protection Products Association, Guaranteed Asset Protection
Alliance, and Service Contract Industry Council); FTC-2023-0064-3276
(Automotive Service Association).
\35\ See, e.g., FTC-2023-0064-3263 (Flex Association); FTC-2023-
0064-3202 (TechNet).
\36\ See, e.g., FTC-2023-0064-1425 (Iowa Bankers Association);
FTC-2023-0064-1941 (Independent Bankers Association of Texas); FTC-
2023-0064-2574 (BattleLine LLC via Investor Protection Initiative);
FTC-2023-0064-2893 (America's Credit Unions); FTC-2023-0064-3119
(Money Services Business Association, Inc.); FTC-2023-0064-3138
(Independent Community Bankers of America); FTC-2023-0064-3139
(American Bankers Association and Consumer Bankers Association);
FTC-2023-0064-3142 (American Escrow Association); FTC-2023-0064-3144
(Mortgage Bankers Association); FTC-2023-0064-3168 (American
Financial Services Association); FTC-2023-0064-3182 (Massachusetts
Bankers Association).
\37\ See, e.g., FTC-2023-0064-3141 (Coalition of Franchisee
Associations); FTC-2023-0064-3211 (American Association of
Franchisees & Dealers); FTC-2023-0064-3294 (International Franchise
Association).
\38\ See, e.g., FTC-2023-0064-3066 (Norhart, Inc.); FTC-2023-
0064-3115 (National Association of Residential Property Managers);
FTC-2023-0064-3116 (Manufactured Housing Institute); FTC-2023-0064-
3133 (National Multifamily Housing Council and National Apartment
Association); FTC-2023-0064-3152 (Building Owners & Managers
Association, Council for Affordable & Rural Housing, Housing
Advisory Group, Institute of Real Estate Management, Manufactured
Housing Institute, National Apartment Association, National
Association of Home Builders, National Association of Residential
Property Managers, National Leased Housing Association, National
Multifamily Housing Council, and Real Estate Roundtable).
\39\ See, e.g., FTC-2023-0064-2981 (Apartment & Office Building
Association of Metropolitan Washington); FTC-2023-0064-3042 (Nevada
State Apartment Association); FTC-2023-0064-3044 (San Angelo
Apartment Association); FTC-2023-0064-3045 (Chicagoland Apartment
Association); FTC-2023-0064-3089 (Apartment Association of Northeast
Wisconsin and Fox Valley Apartment Association); FTC-2023-0064-3111
(Houston Apartment Association); FTC-2023-0064-3172 (New Jersey
Apartment Association); FTC-2023-0064-3296 (Bay Area Apartment
Association); FTC-2023-0064-3311 (Greater Cincinnati Northern
Kentucky Apartment Association); FTC-2023-0064-3312 (Tulsa Apartment
Association); FTC-2023-0064-3313 (Property Management Association of
Michigan).
\40\ FTC-2023-0064-3289 (Zillow Group).
\41\ See, e.g., FTC-2023-0064-3262 (Skyscanner); FTC-2023-0064-
3293 (Travel Technology Association).
\42\ See, e.g., FTC-2023-0064-2918 (Elite Catering + Event
Professionals); FTC-2023-0064-3078 (Washington Hospitality
Association); FTC-2023-0064-3080 (UNITE HERE); FTC-2023-0064-3101
(High Road Restaurants); FTC-2023-0064-3180 (Independent Restaurant
Coalition); FTC-2023-0064-3197 (American Beverage Licensees); FTC-
2023-0064-3203 (American Pizza Community); FTC-2023-0064-3219
(Georgia Restaurant Association); FTC-2023-0064-3300 (National
Restaurant Association).
\43\ See, e.g., FTC-2023-0064-3065 (Carriage Services, Inc.);
FTC-2023-0064-3130 (International Cemetery, Cremation & Funeral
Association); FTC-2023-0064-3210 (Service Corporation
International).
\44\ See, e.g., FTC-2023-0064-2886 (American Gaming
Association); FTC-2023-0064-3120 (Arizona Indian Gaming
Association).
\45\ See, e.g., FTC-2023-0064-3261 (National Association of
Broadcasters); FTC-2023-0064-2884 (NTCA--The Rural Broadband
Association); FTC-2023-0064-3143 (ACA Connects--America's
Communications Association); FTC-2023-0064-3233 (NCTA--The internet
& Television Association); FTC-2023-0064-3234 (CTIA--The Wireless
Association); FTC-2023-0064-3295 (USTelecom--The Broadband
Association).
\46\ See, e.g., FTC-2023-0064-3033 (The Rebel Lounge, Lucky Man
Concerts LLC, PHX Fest, RelentlessBeats LLC).
\47\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\48\ See, e.g., FTC-2023-0064-3236 (NCIC Inmate Communications);
FTC-2023-0064-3284 (Global Tel*link Corporation d/b/a ViaPath
Technologies).
\49\ See, e.g., FTC-2023-0064-2906 (National Association of
College & University Business Officers, American Council on
Education); FTC-2023-0064-3217 (Bowling Proprietors' Association of
America); FTC-2023-0064-3249 (Marine Retailers Association of the
Americas); FTC-2023-0064-3251 (National RV Dealers Association);
FTC-2023-0064-3269 (IHRSA--The Health & Fitness Association). Towing
& Recovery Association of America, Inc. submitted a late comment,
which the Commission considered in its discretion and makes
available at https://www.ftc.gov/system/files/ftc_gov/pdf/R207011TRAAComment.pdf.
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Members of the restaurant industry voiced opposition to the
proposal. A mass mailing from about 4,650
[[Page 2071]]
restaurant owners criticized the rule as a one-size-fits-all approach
that would be unworkable for the restaurant industry. In addition,
members of the rental housing industry also submitted comments in
opposition to the proposed rule. A mass mailing from about 3,781
members of the rental housing industry stated that it is virtually
impossible to predict and disclose in advertisements total prices that
include all mandatory fees that residents could incur during lease
terms. The Commission does not address the specific issues raised by
these industries and others that fall outside the scope of this final
rule.\50\
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\50\ See, e.g., FTC-2023-0064-2953, FTC-2023-0064-2961, FTC-
2023-0064-2972; FTC-2023-0064-2971.
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C. Informal Public Hearing
On March 27, 2024, the Commission published an initial notice of
informal hearing, which also served as the final notice of informal
hearing (``Informal Hearing Notice'').\51\ The Informal Hearing Notice
was published in accordance with section 18(b)(1) of the FTC Act, 15
U.S.C. 57a(b)(1), which requires the Commission to provide an
opportunity for an informal hearing in section 18 rulemaking
proceedings. The Informal Hearing Notice identified eight commenters to
the NPRM that requested an informal hearing in accordance with the
requirements of 16 CFR 1.11(e), as well as nine additional commenters
that requested the opportunity to make an oral presentation if the
Commission was to hold an informal hearing at others' requests. A
number of commenters, including several who requested an informal
hearing, proposed potential disputed issues of material fact for the
Commission's consideration.\52\ The Commission reviewed these potential
issues and concluded in its Informal Hearing Notice that there were no
disputed issues of material fact to resolve at the hearing.
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\51\ Initial notice of informal hearing; final notice of
informal hearing; list of Hearing Participants; requests for
submissions from Hearing Participants: Trade Regulation Rule on
Unfair or Deceptive Fees, 89 FR 21216 (Mar. 27, 2024).
\52\ See, e.g., FTC-2023-0064-3127 (U.S. Chamber of Commerce);
FTC-2023-0064-3143 (ACA Connects); FTC-2023-0064-3139 (American
Bankers Association and Consumer Bankers Association); FTC-2023-
0064-3294 (International Franchise Association); FTC-2023-0064-3233
(NCTA--The internet & Television Association).
---------------------------------------------------------------------------
On April 24, 2024, the Commission conducted an informal public
hearing. In the Informal Hearing Notice, which was formally approved by
vote of the Commission, the Commission's Chief Presiding Officer, the
Chair, designated the Honorable Jay L. Himes, an Administrative Law
Judge for the Federal Trade Commission, to serve as the presiding
officer of the informal hearing. Seventeen interested parties were
identified in the Informal Hearing Notice,\53\ and six of them made
documentary submissions in support of their hearing testimony.\54\
Fifteen interested parties made presentations,\55\ and two did not
appear at the hearing.\56\ The majority of interested parties that
appeared spoke in support of the proposed rule. However, several voiced
opposition to the rule, explained perceived problems with the proposed
rule text, or argued that the Commission incorrectly concluded that
there were no disputed issues of material fact raised in response to
the NPRM.
---------------------------------------------------------------------------
\53\ The interested parties were: ACA Connects--America's
Communication Association; American Bankers Association and Consumer
Bankers Association; U.S. Chamber of Commerce; NCTA--The internet &
Television Association; International Franchise Association;
BattleLine LLC; IHRSA--The Global Health & Fitness Association;
National Taxpayers Union Foundation; Consumer Federation of America,
representing a coalition of 52 national and state consumer advocacy
groups; Consumer Federation of America with National Consumer Law
Center and National Association of Consumer Advocates; Community
Catalyst, representing a coalition of 33 health and consumer
protection advocacy groups; National Housing Law Project,
representing a coalition of 39 housing justice advocacy
organizations; National Consumer Law Center, Prison Policy
Initiative, and Stephen Raher; Formerly Incarcerated, Convicted
People & Families Movement; Truth in Advertising, Inc.; National
Consumer Law Center; and Fair Price, Fair Wage Coalition.
\54\ The interested parties that made documentary submissions in
connection with the informal hearing were: National Taxpayers Union
Foundation; Community Catalyst; National Housing Law Project;
Consumer Federation of America; U.S. Chamber of Commerce; and NCTA--
The internet & Television Association. Each of the documentary
submissions is posted in the Informal Hearing Documents folder
available at https://www.ftc.gov/legal-library/browse/rules/rulemaking-unfair-or-deceptive-fees.
\55\ Transcript, Informal Hearing on Proposed Trade Regulation
Rule on Unfair or Deceptive Fees (Apr. 24, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/transcript-deceptive-fees.pdf.
\56\ American Bankers Association and Consumer Bankers
Association and the U.S. Chamber of Commerce did not appear at the
Informal Hearing despite being given the opportunity to do so.
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II. The Legal Standard for Promulgating the Rule
The Commission is promulgating 16 CFR part 464 (``final rule'' or
``rule'') pursuant to section 18 of the FTC Act, 15 U.S.C. 57a, which
authorizes the Commission to promulgate, modify, and repeal trade
regulation rules that define with specificity acts or practices in or
affecting commerce that are unfair or deceptive within the meaning of
section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1).\57\ Whenever the
Commission promulgates a rule under section 18(a)(1)(B), the rule must
include a Statement of Basis and Purpose (``SBP'') that addresses: (1)
the prevalence of the acts or practices addressed by the rule; (2) the
manner and context in which the acts or practices are unfair or
deceptive; and (3) the economic effect of the rule, taking into account
the effect on small businesses and consumers.\58\ The Commission
summarizes in this section its findings regarding each of these
requirements.
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\57\ See 15 U.S.C. 57a(a)(1)(B).
\58\ 15 U.S.C. 57a(b)(3). In addition, section 22(b)(2) of the
FTC Act, 15 U.S.C. 57b-3(b)(2), requires the Commission to prepare a
final regulatory analysis, which it discusses in section V.
---------------------------------------------------------------------------
Substantial evidence exists supporting the prevalence of bait-and-
switch pricing and misleading fees and charges economy-wide as well as
in the live-event ticketing and short-term lodging industries. As
documented by the rulemaking record, the Commission's work on these
pricing issues for over a decade, and the complementary actions of the
Commission's local, State, and international counterparts, these
specific practices are widespread across the economy and are harmful to
consumers and honest businesses. Nevertheless, the Commission has
decided, in its discretion, to focus this final rule on the industries
in which the Commission first evaluated drip pricing--live-event
ticketing and short-term lodging--and have a long history of harming
consumers and honest competitors.
The Commission notes that the harms of bait-and-switch pricing and
the misrepresentation of fees and charges are particularly pronounced
in industries such as these, in which most transactions occur online.
Consumers trying to comparison shop across multiple websites, or even
on the same website, when deciding what tickets to purchase or where to
travel are unable to do so effectively because some businesses hide the
true total price and instead force consumers to go to different sites
and click through multiple web pages for each offer to learn the true
total price.
Consumer harm is also pronounced in these industries because the
offered goods and services are often identical (as is the case with
live-event tickets), or nearly identical (as is the case with competing
short-term lodging offers in a particular destination and for a
particular star rating), and the most salient feature is the total
price, which is shrouded from consumers. Indeed, for some consumers,
hotel rooms are interchangeable so long as the location, star rating,
and reviews are similar
[[Page 2072]]
across offers, and what matters most is the total price.
In the future, the Commission may address these unfair and
deceptive practices across industries as discussed in the NPRM. For
now, however, the Commission will address unfair and deceptive pricing
practices in other industries using its existing section 5 authority.
A. Prevalence of Acts or Practices Addressed by the Rule
As discussed herein, and in the NPRM, the Commission finds that
unfair or deceptive pricing practices involving bait-and-switch pricing
and misleading fees or charges are prevalent throughout the economy and
affect, or have the potential to affect, virtually every purchasing
transaction a consumer undertakes, including decisions about basic
goods or services; where to live, dine, stay, or travel; and what
events to attend. Specifically, the Commission finds that the following
unfair or deceptive practices relating to fees are prevalent generally
throughout the economy and specifically in the live-event ticketing and
short-term lodging industries: (1) bait-and-switch pricing practices
that hide the total price of goods or services by omitting mandatory
fees and charges from advertised prices, including through drip
pricing, and (2) misrepresenting the nature, purpose, amount, and
refundability of fees or charges.
Section 18 of the FTC Act instructs that the Commission may
determine that unfair or deceptive acts or practices are prevalent if:
``it has issued cease and desist orders regarding such acts or
practices'' or ``any other information available to the Commission
indicates a widespread pattern of unfair or deceptive acts or
practices.'' \59\ In support of its preliminary finding that these
practices are prevalent, the NPRM cited enforcement evidence, including
prior work by the Commission, complementary actions by State Attorneys
General, private lawsuits, and international actions to address unfair
or deceptive pricing practices, as well as comments received in
response to the ANPR.\60\ The NPRM also described legislative and
regulatory action taken by multiple States to address unfair or
deceptive fees.
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\59\ 15 U.S.C. 57a(b)(3).
\60\ NPRM, 88 FR 77435; see also, e.g., FTC-2022-0069-6099
(ANPR) (Consumer Reports discussed its WTFee?! Survey, 2018
Nationally-Representative Multi-Mode Survey of hidden fees in
multiple sectors of the economy and the prevalence of unfair or
deceptive fees practices.); FTC-2022-0069-6095 (ANPR) (Consumer
Federation of America noted that the Washington Attorney General's
Hidden Fee Survey showed that consumers experienced unexpected fees
in a wide range of industries.); FTC-2022-0069-6113 (ANPR) (UnidosUS
cited surveys or studies by itself, the Financial Health Network,
and the Center for Responsible Lending that documented the impact of
fees related to financial services products.).
---------------------------------------------------------------------------
To support its prevalence determination herein as to the economy
generally, and as to the live-event ticketing and short-term lodging
industries specifically, the Commission reiterates that it has a long
history of enforcement actions, as well as a plethora of other
information, indicating a widespread pattern of bait-and-switch pricing
practices, including drip pricing and misleading fees or charges. In
addition, the Commission's prevalence determination is further
supported by the Commission's workshops and warning letters relating to
bait-and-switch pricing and misleading fees or charges; the behavioral
and economic research documenting consumer harm from these practices;
and consumer surveys and reports. The Commission also relies on the
great majority of the more than 60,800 comments filed in response to
the NPRM--one of the largest number of comments filed in any Commission
rulemaking to date--including comments by consumers, consumer groups,
academics, businesses, and government officials highlighting the
prevalence of these unfair and deceptive practices and urging the
Commission to promulgate a final rule to combat them.
As explained in the NPRM, the Commission has a long history of
enforcement actions targeting unfair and deceptive bait-and-switch
pricing tactics concerning hidden fees \61\ and misrepresentations
regarding the nature and purpose of fees.\62\ The takeaway
[[Page 2073]]
from this enforcement history is clear--businesses cannot hide or
misrepresent the true cost of a good or service or mislead consumers
about the nature, purpose, amount, or refundability of fees or charges.
Some commenters suggested consent orders are not cease-and-desist
orders that the Commission can rely upon to support a finding of
prevalence, but that is incorrect. The FTC Act makes clear when it
intends to exclude consent orders from the ambit of ``cease and desist
orders,'' and does not do so in section 18.\63\
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\61\ See, e.g., Complaint ]] 4-5, 106-14, FTC v. Invitation
Homes, Inc., No. 24-cv-04280 (N.D. Ga. Sept. 24, 2024) (alleging
that defendant, among other deceptive and unfair practices,
deceptively advertised monthly home rental prices that omitted and
used confusing and buried language about mandatory fees); Complaint
]] 39-46, FTC v. Vonage Holdings Corp., No. 3:22-cv-6435 (D.N.J.
Nov. 3, 2022) (alleging in part that defendant charged undisclosed
large cancellation fees); Complaint ]] 42-44, 50, United States v.
Funeral Cremation Grp. of N. Am., LLC (``Legacy Cremation Servs.''),
No. 0:22-cv-60779 (S.D. Fla. Apr. 22, 2022) (alleging defendants
advertised artificially low prices for cremation services which
ultimately included undisclosed additional charges and, in some
cases where consumers contested these charges, defendants refused to
return remains); Complaint ] 9, FTC v. Liberty Chevrolet, Inc.
(``Bronx Honda''), No. 1:20-cv-03945 (S.D.N.Y. May 21, 2020)
(alleging defendants advertised low sales prices but later told
consumers they were required to pay additional charges including
certification charges); Complaint ] 13, FTC v. NetSpend Corp., No.
1:16-cv-04203 (N.D. Ga. Apr. 11, 2017) (alleging in part that
defendant charged maintenance and usage fees to consumers who were
unable to use all, or even a portion of, the funds of their prepaid
debit cards); see also Complaint ]] 24-25, 29, 40-42, FTC v. AT&T
Mobility LLC, No. 3:14-cv-04785 (N.D. Cal. Oct. 28, 2014) (alleging
defendant did not adequately disclose the limitations of defendant's
data plan offerings and subsequently charged high cancellation fees
for consumers who chose to end their contracts); Complaint ]] 1, 26,
39-40, FTC v. Millennium Telecard, Inc., No. 2:11-cv-02479 (D.N.J.
May 2, 2011) (alleging defendants deceptively marketed prepaid
credit calling cards by failing to adequately disclose fees that
substantially limited the number of minutes consumers had
purchased); Complaint ] 15, FTC v. CompuCredit Corp., No. 1:08-cv-
01976 (N.D. Ga. June 10, 2008) (alleging in part that defendants
misrepresented the credit limits on various credit cards and failed
to disclose fees charged upfront).
\62\ See, e.g., Complaint ]] 4-5, 106-14, 118-23, Invitation
Homes, Inc., No. 24-cv-04280 (alleging that defendant, among other
deceptive and unfair practices, misled consumers about fees by using
confusing and buried language); Complaint ]] 39-46, Vonage Holdings
Corp., No. 3:22-cv-6435; Complaint ]] 61-63, FTC v. Benefytt Techs.,
Inc., No. 8:22-cv-1794 (M.D. Fla. Aug. 8, 2022) (alleging in part
that defendants bundled and charged fees for unwanted products with
sham health insurance plans); Complaint ]] 17-20, FTC v. Passport
Auto Grp., Inc., No. 8:22-cv-02670 (D. Md. Oct. 18, 2022) (alleging
in part that defendants advertised vehicle prices that did not
include redundant fees ranging from hundreds to thousands of dollars
for inspection, reconditioning, preparation, and certification);
Complaint ]] 3, 33, 41, FTC v. N. Am. Auto. Serv., Inc. (``Napleton
Auto''), No. 1:22-cv-01690 (E.D. Ill. Mar. 31, 2022) (alleging
defendants charged consumers for additional products and services
without their consent and misrepresented the fees as mandatory,
resulting in artificially low advertised prices); Complaint ]] 50-
51, Amazon.com, Inc. (``Amazon Flex''), No. C-4746 (FTC June 9,
2021) (alleging respondents falsely represented that 100% of tips
would go to the driver in addition to the pay respondents offered
drivers); Complaint ]] 37-39, FTC v. Lead Express, Inc., No. 2:20-
cv-00840 (D. Nev. May 11, 2020) (alleging in part that defendants
did not clearly and conspicuously disclose material information
related to the total amount of payments related to loans and also
withdrew significantly more than the stated total cost of the loan
from consumers' accounts); Complaint ]] 9-10, FTC v. FleetCor Techs,
Inc., No. 1:19-cv-05727, 2019 WL 13081514 (N.D. Ga. Dec. 20, 2019)
(alleging defendants charged consumers arbitrary and unexpected fees
related to pre-paid fuel cards without consumers' consent);
Complaint ]] 4, 30-32, 36-37, FTC v. BCO Consulting Servs., Inc.,
No. 8:23-cv-00699 (C.D. Cal. Apr. 24, 2023) (alleging defendants
enticed consumers with false promises to alleviate student loan debt
despite not applying any payments to the student loan balances and
collecting illegal advance fees without providing any services);
Complaint ]] 31-36, FTC v. OMICS Grp. Inc., No. 2:16-cv-02022 (D.
Nev. Aug. 25, 2016) (alleging in part defendants misrepresented the
publishing process of academic papers and only disclosed large
publishing fees after notifying consumers that their papers had been
approved for publication); Complaint ]] 12, 23-25, FTC v. Lending
Club Corp., No. 3:18-cv-02454 (N.D. Cal. Apr. 25, 2018) (alleging
defendant charged consumers an upfront fee based on a percentage of
the loan requested that was not clearly and conspicuously disclosed;
this hidden fee caused loans received to be substantially smaller
than advertised); Complaint ] 37, FTC v. T-Mobile USA, Inc., No.
2:14-cv-00967 (W.D. Wash. July 1, 2014) (alleging defendant added
unauthorized third-party charges to the telephone bills of
consumers); Amended Complaint ]] 21-22, FTC v. Websource Media, LLC,
No. 4:06-cv-01980 (S.D. Tex. June 21, 2006) (alleging defendants
placed charges on consumer telephone bills despite representations
that there would be no charges or obligations); FTC v. Mercury Mktg.
of Del., Inc., No. 00-cv-3281, 2004 WL 2677177, *1 (E.D. Pa. Nov.
22, 2004) (finding defendants billed consumers without their consent
after misleading consumers about introductory internet packages);
Complaint ]] 25-27, FTC v. Stewart Fin. Co., No. 1:03-cv-02648 (N.D.
Ga. Sept. 4, 2003) (alleging in part that defendants package
undisclosed add-on products with consumer loans and in some cases
describe those add-on products as mandatory); Complaint ]] 19-21,
24, FTC v. Hold Billing Serv., Ltd., No. SA-98-CA-0629-FB (W.D. Tex.
July 16, 1998) (alleging defendants had previously added third-party
charges to consumers' phone bills without permission by using
sweepstakes entry forms as contracts to authorize charges);
Complaint ]] 18, 33, 56-58, FTC v. Lake, No. 8:15-cv-
00585–CJC-JPR (C.D. Cal. Apr. 14, 2015) (alleging defendants
misrepresented that trial loan payments or reinstatement fee
payments would be held in escrow and refunded to the consumer if the
loan modification was not approved); FTC v. Hope for Car Owners,
LLC, No. 2:12-CV-778-GEB-EFB, 2013 WL 322895, at *3-4 (E.D. Cal.
Jan. 24, 2013) (finding that the FTC sufficiently stated a claim for
misrepresentation of the refundability of vehicle loan modification
fees and entering default judgment); Amended Complaint ]] 38-39, 58-
60, FTC v. U.S. Mortg. Funding, Inc., No. 9:11-cv-80155-JIC (S.D.
Fla. July 26, 2011) (alleging defendants misrepresented that an
upfront loan modification fee was refundable); FTC v. Nat'l Bus.
Consultants, Inc., 781 F. Supp. 1136, 1143 (E.D. La. 1991) (finding
that ``defendants' misrepresentations regarding the ease with which
the `performance deposit' could be refunded composed a large part of
the various and sundry misrepresentations'').
\63\ Compare 15 U.S.C. 45(m) (excluding consent orders from the
type of cease and desist orders that could support an action for
civil penalties under 15 U.S.C. 45(m)(1)(B)) and 108 Stat. 1691
(1994) (amending 15 U.S.C. 45(m) to add ``other than a consent
order'' after the term ``cease and desist order'') with 15 U.S.C.
57a(b)(3) (stating that the Commission may make a determination of
prevalence if ``it has issued cease and desist orders regarding such
acts or practices or any other information available to the
Commission indicat[ing] a widespread pattern of unfair or deceptive
acts or practices''). Even if consent orders and the investigations
that lead up to them are not ``cease and desist orders,'' in making
a determination of prevalence, the Commission can still rely upon
them as ``other information.''
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In addition to the Commission's enforcement actions, for more than
a decade, the Commission has engaged with the public and issued
guidance to industry on issues related to bait-and-switch tactics,
including drip pricing, and the misrepresentation of fees or charges.
The Commission first engaged with the public on the concept of drip
pricing in 2012 by convening a conference, titled ``The Economics of
Drip Pricing,'' to bring together economists and marketing academics to
``examine the theoretical motivation for drip pricing and its impact on
consumers, empirical studies, and policy issues pertaining to drip
pricing.'' \64\ Several psychological theories were discussed at this
conference, and these theories explain why consumers cannot reasonably
avoid making errors when the total price is not revealed upfront.\65\
Following the workshop, Commission staff sent warning letters to hotels
and online travel agents that were not adequately disclosing resort
fees or including those fees in the total price.\66\ These hotels and
online travel agents were employing drip pricing tactics as well as
another bait-and-switch pricing tactic, partitioned pricing, to
inadequately disclose resort fees and hide the total price of a hotel
stay. Partitioned pricing consists of dividing a price into multiple
components without ever disclosing the total and leaving consumers to
figure out the true total price on their own. Hotels, for example,
might separately list the room rate and ``resort fee'' but never add
them up and quote an all-inclusive total price. In 2017, the
Commission's Bureau of Economics published a report that reviewed the
existing literature on drip pricing and partitioned pricing and
examined the costs and benefits of disclosing hotel resort fees.\67\
The report found that ``[u]nless the total price is disclosed up front,
separating resort fees from the room rate is unlikely to result in
benefits that offset the likely harm to consumers.'' \68\ Specifically,
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\64\ Fed. Trade Comm'n, The Economics of Drip Pricing (May 21,
2012), https://www.ftc.gov/news-events/events/2012/05/economics-drip-pricing.
\65\ See, e.g., Fed. Trade Comm'n, The Economics of Drip
Pricing: Conference Transcript 76-111 (May 21, 2012), https://www.ftc.gov/sites/default/files/documents/public_events/economics-drip-pricing/transcript.pdf.
\66\ Press Release, Fed. Trade Comm'n, FTC Warns Hotel Operators
that Price Quotes that Exclude ``Resort Fees'' and Other Mandatory
Surcharges May Be Deceptive (Nov. 28, 2012), https://www.ftc.gov/news-events/news/press-releases/2012/11/ftc-warns-hotel-operators-price-quotes-exclude-resort-fees-other-mandatory-surcharges-may-be.
\67\ Mary Sullivan, Fed. Trade Comm'n, Economic Analysis of
Hotel Resort Fees 4 (2017), https://www.ftc.gov/system/files/documents/reports/economic-analysis-hotel-resort-fees/p115503_hotel_resort_fees_economic_issues_paper.pdf.
\68\ Id.
separating mandatory resort fees from posted room rates without
first disclosing the total price is likely to harm consumers by
increasing the search costs and cognitive costs of finding and
choosing hotel accommodations. Forcing consumers to click through
additional web pages to see a hotel's resort fee increases the cost
of learning the hotel's price. Separating the room rate from the
resort fee increases the cognitive costs of remembering the hotel's
price. When it becomes more costly to search and evaluate an
additional hotel, a consumer's choice is either to incur higher
total search and cognitive costs or to make an incomplete, less
informed decision that may result in a more costly room, or
both.\69\
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\69\ Id.
The report observed that hotels could eliminate these costs to
consumers by including the resort fee in the advertised price; bundling
the same resort services with the room and charging the same total
price; listing the components of the total price separately, as long as
the total price is the most prominently disclosed price; or changing to
unbundled, optional resort services which would not be included in the
advertised price.\70\ Finally, the report did not find ``any benefits
to consumers from separately-disclosed mandatory resort fees that could
not be achieved by first listing the total price and then disclosing
the resort fee.'' \71\
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\70\ Id.
\71\ Id.
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In 2019, the Commission hosted a workshop and issued a staff
perspective report that examined pricing and fees in the live-event
tickets market.\72\ The report observed,
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\72\ Fed. Trade Comm'n, ``That's the Ticket'' Workshop: Staff
Perspective 4 (May 2020), https://www.ftc.gov/system/files/documents/reports/thats-ticket-workshop-staff-perspective/staffperspective_tickets_final-508.pdf.
On most primary and resale platforms, the ticket price a consumer
first sees is not what the consumer will pay. Mandatory fees, such as
`venue' and `ticket processing' fees, bulk up the price-often by as
much as thirty percent . . . . The late disclosure of fees increases
search costs for consumers and makes it harder to comparison shop.\73\
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\73\ Id.
The report remarked that ``[a]ll of the workshop panelists who
discussed the fees issue, including each participating ticket seller
that does not currently provide upfront all-in pricing, favored
requiring all-in pricing through federal legislation or rulemaking.''
\74\
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\74\ Id.
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The Commission's finding of prevalence is further supported by the
complementary enforcement actions brought by its law enforcement
partners, most of which have resulted in orders prohibiting bait-and-
switch pricing and misrepresenting fees and charges in the short-term
lodging, live-event ticketing, delivery services, rental cars, travel,
and tax filing preparation services
[[Page 2074]]
industries.\75\ Indeed, a group of State Attorneys General wrote in
support of a finding of prevalence of these practices across
industries, including event ticket sellers, and hotels and other short-
term lodging providers.\76\ They have attempted to address some, but
not all, of these fees in their own States.\77\ The State Attorneys
General cited a number of cases across industries demonstrating that
bait-and-switch pricing and misleading fees are ``a chronic, prolific
problem confronting many consumers across numerous sectors of the
economy.'' \78\ Further, they agreed with the Commission's assertion
that ``charges that misrepresent their nature and purpose are unfair
and deceptive because they mislead consumers and make it more difficult
for truthful businesses to compete on price.'' \79\ The Commission
takes note of legislative and regulatory efforts in Minnesota,
California, Pennsylvania, New York, Massachusetts, and North Carolina
to combat hidden and misleading fees \80\ which further support its
finding of prevalence.
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\75\ See, e.g., Complaint ] 3, Rhode Island v. UPP Global, LLC,
No. PC-2024-04453 (R.I. Super. Ct. Aug. 13, 2024) (alleging in part
that defendant charges a fee as a tax, fails to disclose prices
until after consumers have elected to use defendant's service, and
advertises hourly prices and then requires consumers to pay for
multiple hours at a minimum); Complaint ]] 3-4, District of Columbia
v. StubHub, Inc., No. 2024-CAB-004794 (D.C. Super. Ct. July 31,
2024) (alleging defendant uses drip pricing and entices consumers to
shop for tickets by displaying artificially low prices and revealing
mandatory fees later in the checkout process which defendant also
misrepresents the purpose of); Consent Decree ]] 10-24, Arizona v.
Cox Enterprises, Inc., No. CV-2023-019752 (Ariz. Sup. Ct. Jan. 2,
2024) (alleging defendants failed to disclose additional fees to
consumers who purchased services through long-term contracts based
on ``price-lock'' guarantee); Assurance of Voluntary Compliance ] 2,
Texas v. Marriott Int'l, Inc., No. 2023-CI09717 (Tex. Dist. Ct. May
16, 2023) (alleging defendant misrepresented various fees, including
resort fees, and did not include all mandatory fees in the
advertised room rate in violation of the Texas Deceptive Trade
Practices Act); Plaintiff's Original Pet. ] 1, Texas v. Hyatt Hotels
Corp., No. C2023-0884D (TX. Dist. Ct. May 15, 2023) (alleging
defendant did not include mandatory fees in advertised room rates in
violation of the Texas Deceptive Trade Practices Act); Consent Order
] 20, District of Columbia v. Grubhub Holdings, Inc., No. 2022 CA
001199 B (D.C. Super. Ct. Jan. 4, 2023) (alleging in part that
defendants misrepresented menu prices to consumers and deceptively
advertised that consumers could ``order online for free'');
Assurance of Voluntary Compliance ] 4, Commonwealth v. Omni Hotels
Mgmt., GD-23-013056 (Pa. Commw. Ct. Nov. 9, 2023) (alleging
defendants failed to advertise room prices including mandatory fees,
misleading consumers); Assurance of Voluntary Compliance ] 2,
Commonwealth v. Choice Hotels Intl., Inc., GD-23-011023 (Pa. Commw.
Ct. Sept. 21, 2023) (alleging defendants failed to advertise room
prices including mandatory fees misleading consumers); Assurance of
Voluntary Compliance ]] 1-5, Commonwealth v. RYADD, Inc., No. 2022-
07262 (Pa. Commw. Ct. Sept. 8, 2022) (alleging defendants failed to
advertise ticket prices including service fees and failed to clearly
disclose an itemization of the total cost); Complaint ] 1,
Commonwealth v. Mariner Finance, LLC, No. 2:22-cv-03235-MAK (E.D.
Pa. Sept. 6, 2022) (alleging defendant charged consumers for hidden
add-on products without consumer knowledge and in some cases after
explicit rejection); Consent Order ] 6, District of Columbia v.
Maplebear, Inc., No. 2020 CA 003777B (D.C. Super. Ct. Aug. 19, 2022)
(prohibiting defendant from misrepresenting the nature and purpose
of fees applied to consumers' orders); Assurance of Voluntary
Compliance ] 2, Commonwealth v. Marriott Int'l, Inc., No. GD-21-
014016 (Pa. Ct. C.P. Nov. 16, 2021) (alleging defendant
misrepresented its room rates by failing to include items such as
mandatory fees in its pricing); Consent Order ] 3.1-3.18, Drivo LLC,
N.J. Div. Consumer Aff. (Sept. 16, 2020) (prohibiting unfair and
deceptive practices relating to damage fees and third party
reservation fees for rental vehicles); Press Release, Off. Minn.
Att'y Gen., Attorney General Ellison Obtains Relief for More than
30,000 Comcast/Xfinity Customers (Jan. 15, 2020) (alleging in part
that defendants misrepresented prices for their services and added
services without consumer consent), https://www.ag.state.mn.us/Office/Communications/2020/01/15_ComcastXfinity.asp; Press Release,
Off. Minn. Att'y Gen., Attorney General Ellison Obtains Nearly $9
Million Settlement with CenturyLink for Overcharging Minnesota
Customers (Jan. 8, 2020) (alleging defendant misrepresented the
price of its services and used a complex pricing scheme to mislead
consumers), https://www.ag.state.mn.us/Office/Communications/2020/01/08_CenturyLinkSettlement.asp.; Assurance of Voluntary Compliance
]] 1-12, Commonwealth v. Event Ticket Sales, LLC, No. 201101873 (Pa.
Commw. Ct. Nov. 19, 2020) (alleging defendants failed to advertise
ticket prices including service fees and failed to clearly disclose
an itemization of the total cost); Assurance of Voluntary Compliance
] 7, CenturyLink, Inc., No. 19-CV-56401 (Or. Cir. Ct., 2019)
(alleging defendants charged undisclosed fees and failing to
disclose all mandatory fees and charges); Agreed Final J. ] 8, Texas
v. Guided Tourist, LLC, No. D-1-GN-19-001618 (Tex. Dist. Ct. Mar.
26, 2019) (enjoining defendant from advertising ticket prices other
than the total ticket price, including all mandatory fees);
Settlement Agreement ] 8(b)-(c), Florida v. Dollar Thrifty Auto.
Grp., Inc., No. 16-2018-cv-005938 (Fla. Cir. Ct., Jan. 14, 2019)
(alleging in part that defendant misrepresented optional charges as
mandatory and did not sufficiently disclose toll-related fees).
Additionally, Intuit recently entered a multistate settlement of
allegations that it misrepresented its tax filing products would
come at no cost. Assurance of Voluntary Compliance, Commonwealth v.
Intuit Inc., No. 220500324 (Pa. Ct. C.P. May 4, 2022).
\76\ FTC-2023-0064-3215 (Attorneys General of the States of
North Carolina and Pennsylvania, along with Attorneys General of the
States or Territories of Arizona, Colorado, Connecticut, Delaware,
District of Columbia, Hawaii, Illinois, Maine, Michigan, Minnesota,
New Jersey, New York, Oklahoma, Oregon, Vermont, Washington, and
Wisconsin). The Attorneys General also pointed to prevalence of
these practices in residential leasing, payday lending, internet
applications, online shopping, automobile rentals, carpet cleaners,
dietary supplement sellers, moving companies, gyms, travel
companies, outlet stores, and online auctions.
\77\ Id. (The Attorneys General highlighted actions each has
taken in their own states to address financial services fees, hotel
fees, live-event ticket fees, rental housing fees, auto rental fees,
and telecommunication fees.)
\78\ Id.
\79\ Id.
\80\ N.Y. Arts & Cult. Aff. Law sec. 25.01-25.33 (McKinney 2023)
(Effective Jun. 30, 2022) (requiring that the sellers and resellers
of live-event tickets disclose the total cost of a ticket, upfront,
and clearly and conspicuously disclose the amount of the price that
is made up of fees and other charges); An Act Ensuring Transparent
Ticket Pricing, H. 259, 193rd Gen. Court (Mass. 2023) (proposed
legislation requiring in part that the sellers and resellers of
live-event tickets disclose the total cost inclusive of all
ancillary fees that must be paid and the portion of the ticket price
that represents a service charge or any other fee or surcharge);
H.B. 714 (2023-2024 Session) (N.C. 2023) (proposed legislation that
requires, among other things, that providers of short-term lodging
and live-event ticketing clearly display the total price of goods
and services inclusive of mandatory fees a consumer would incur
during a transaction); see also 2023 Minn. H.B. 3438 (Enacted May
20, 2024) (stating that it is a deceptive trade practice for a
business to not include all mandatory fees or surcharges when
advertising, displaying or offering a price for goods or services);
Cal. S.B. 478 (2023-2024 Regular Session) (Enacted Oct. 7, 2023)
(amending the California Consumer Legal Remedies Act to state that
it is unlawful to advertise, display, or offer a price for a good or
service that does not include all mandatory fees or charges other
than taxes or fees imposed by a government on the transaction); Cal.
S.B. 1524 (2023-2024 Regular Session) (clarifying and amending S.B.
478 to include that additional fees such as service charges for food
services businesses including bars and restaurants could appear
separately so long as they were displayed on the menu); H.B. 636
(2023-2024) (Pa. 2023) (Engrossed Oct. 19, 2023) (proposed
legislation amending the Pennsylvania Unfair Trade Practices and
Consumer Protection Law to require the disclosure of all mandatory
fees and charges included in the advertised and displayed price of
any good or service); Conn. Gen. Stat. sec. 53-289a (2023)
(requiring conspicuous disclosure in the advertisement of total
price of live-event tickets including service charges); Conn. Gen.
Stat. sec. 53-289a (2023) (requiring conspicuous disclosure in the
advertisement of total price of live-event tickets including service
charges); SB 329 (2024 Reg. Sess.) (Md.) (requiring all-in pricing
throughout the purchase process of a live-event ticket); SB 329
(2024 Reg. Sess.) (Md.) (requiring all-in pricing throughout the
purchase process of a live-event ticket); 1510 Mass. Reg. 5 (Dec. 8,
2023) (Proposed Regulations 940 C.M.R. 38.00: Unfair and Deceptive
Fees) (proposed regulation stating that it is an unfair and
deceptive practice to misrepresent or fail to disclose at the time
of initial presentation of the price of any product the total price
of that product inclusive of all fees, interest, charges, or other
expenses necessary or required in order to complete the
transaction).
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Comments submitted by Federal and State elected officials echoing
the widespread practice of misleading consumers about total prices and
fees or charges further strengthen the Commission's prevalence finding.
For example, U.S. Senator Amy Klobuchar stated that she held a hearing
focusing on the lack of transparency in the live-event ticketing
industry as well as a hearing on fees in the rental housing market that
prevent renters from having meaningful opportunities to compare
prices.\81\ U.S. Senator Robert Casey discussed a report released on
January 24, 2024, ``Additional Charges May Apply: How Big Corporations
Use
[[Page 2075]]
Hidden Fees to Nickel, Dime, and Deceive American Families,'' tracking
the variety of junk fees facing Pennsylvania families, including in the
short-term lodging industry.\82\ A group of Congressional
representatives raised concerns regarding misleading fees and a lack of
price transparency in the rental housing market.\83\ Concerns over
unfair and deceptive pricing were also raised by a variety of State
legislators and officials.\84\ There has also been significant
bipartisan interest in passing legislation targeting fees in the live-
event ticketing and short-term lodging industries.\85\
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\81\ FTC-2023-0064-3271 (U.S. Senate, Sen. Amy Klobuchar).
\82\ FTC-2023-0064-3135 (U.S. Senate, Sen. Robert P. Casey, Jr.
noted that his report ``details how corporations use hidden fees to
deceive consumers and increase corporate profits, which leaves
families paying more than they should and puts honest businesses at
a disadvantage.'') The report is available at https://www.casey.senate.gov/imo/media/doc/greedflation_junk_fees3.pdf.
\83\ FTC-2023-0064-2858 (U.S. House of Representatives, Rep.
Maxwell Alejandro Frost, Rep. Jimmy Gomez, Rep. Barbara Lee, Rep.
Rashida Tlaib, Rep. Kevin Mullin, Rep. Dwight Evans, Rep. Judy Chu,
Rep. Greg Casar, Rep. Dan Goldman, and Rep. Salud Carbajal stated
that the rule would help eliminate some of the barriers to those
seeking rental housing as renters ``often face ambiguous or
misleading fees'' and ``bring much needed transparency to the rental
housing market.'').
\84\ FTC-2023-0064-2341 (Massachusetts House of Representatives,
Rep. Lindsay Sabadosa); FTC-2023-0064-1411 (Arizona House of
Representatives, Rep. Analise Ortiz); FTC-2023-0064-3072 (Michigan
Senate and House of Representatives, Sen. Darrin Camilleri, Sen.
Mary Cavanagh, and Rep. Betsy Coffia); FTC-2023-0064-3079 (Montana
State Senate, Senate Democratic Caucus, Sen. Pat Flowers, Sen. Susan
Webber, Sen. Andrea Olsen, Sen. Edie McClafferty, Sen. Jen Gross,
Sen. Janet Ellis, Sen. Shane Morigeau, Sen. Ellie Boldman, Sen. Ryan
Lynch, Sen. Christopher Pope, Sen. Mike Fox, Sen. Denise Hayman,
Sen. Willis Curdy, and Sen. Mary Ann Dunwell); FTC-2023-0064-3103
(Florida House of Representatives, Rep. Angela Nixon); FTC-2023-
0064-3123 (Syracuse, New York, City Auditor Alexander Marion); FTC-
2023-0064-3117 (Maryland House of Delegates, Del. Julie Palakovich
Carr); FTC-2023-0064-3149 (North Carolina House of Representatives,
Rep. Julie von Haefen); FTC-2023-0064-3237 (North Carolina House of
Representatives, Rep. Pricey Harrison).
\85\ See, e.g., Transparency In Charges for Key Events Ticketing
Act (``TICKET Act''), H.R. 3950, sec. 2, 118th Cong. (as engrossed
in the House, May 15, 2024) (among other provisions, requiring
ticket sellers, including secondary markets and exchanges, to
clearly and conspicuously disclose the total ticket price for an
event in any advertisement and each time the ticket is displayed in
the purchasing process, and to provide an itemized list of the base
ticket price and each fee or charge prior to completion of the
purchase; violations of the TICKET Act would be treated as violation
of a rule defining an unfair or deceptive act or practice under
section 18(a)(1)(B) of the FTC Act); No Hidden Fees on Extra
Expenses for Stays Act of 2023 (``No Hidden FEES Act of 2023''),
H.R. 6543, sec. 2(a), 118th Cong. (as engrossed in the House, June
11, 2024) (among other provisions, prohibiting providers of short-
term lodging, including providers of a website or other centralized
platform that advertises or otherwise offers the price of a
reservation for short-term lodging, from advertising, displaying,
marketing, or otherwise offering for sale, including through a
direct offering, third-party distribution, or metasearch referral, a
price of a reservation that does not include each mandatory fee;
violations of sec. 2(a) would be treated as violation of a rule
defining an unfair or deceptive act or practice under section
18(a)(1)(B) of the FTC Act).
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The Commission also takes notice of the work of its international
counterparts, as well as private lawsuits in the United States
concerning unfair and deceptive fee practices. Regulatory actions in
Canada, Australia, the European Union, and the United Kingdom with
respect to such conduct include paragraph 74.01(1.1) of the Canadian
Competition Act,\86\ the Australian Competition and Consumer Protection
Act of 2010,\87\ EU Directive 2005/29/EC of the European Parliament and
of the Council,\88\ and the UK Digital Markets, Competition and
Consumers Act 2024.\89\ In addition, private lawsuits filed against
businesses in the live-event ticketing, short-term lodging, banking,
and delivery service industries challenging these practices lend
further support to the Commission's prevalence determination.\90\
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\86\ Competition Act, R.S.C., 1985, c. C-34, ] 74.01(1.1) (Can.)
(providing with respect to ``drip pricing'' that ``the making of a
representation of a price that is not attainable due to fixed
obligatory charges or fees constitutes a false or misleading
representation''), https://laws.justice.gc.ca/eng/acts/C-34/FullText.html.
\87\ Competition and Consumer Act 2010, Vol. 4, Sched. 2, Ch. 3,
P. 3-1, Sec. 48, Ch. 4, P. 4-1, Sec. 166 (Austl.) (prohibiting
``mak[ing] a representation with respect to an amount that, if paid,
would constitute a part of the consideration for the supply of the
goods or services unless the person also specifies, in a prominent
way and as a single figure, the single price for the goods or
services''), https://www.legislation.gov.au/C2004A00109/latest/text.
\88\ Directive 2005/29/EC of the European Parliament and of the
Council of 11 May 2005 concerning unfair business-to-consumer
commercial practices in the internal market, art. 7, 2005 O.J. (L
149) (providing that it is a misleading commercial practice to
engage in ``bait advertising'' or offering products at a specified
price if not able to provide the products at that price for a period
and in quantities reasonable with regard to the product, the scale
of advertising of the product and the price offered), https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32005L0029; see also
Directive 2011/83/EU of the European Parliament and of the Council
of 25 October 2011 on consumer rights, art. 5 and art. 6, 2011 O.J.
(L 304), https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32011L0083&qid=1726109600968. Additionally, a 1998
Directive required that the selling price should be indicated for
all products referred to in the Article, which means a price that is
the final price for a unit of the product including VAT and all
other taxes. See Directive 98/6/EC of the European Parliament and of
the Council of 16 February 1998 on consumer protection in the
indication of the prices of products offered to consumers, 1998 O.J.
(L 80), https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A31998L0006&qid=1726109951386.
\89\ Digital Markets, Competition and Consumers Act 2024, c. 13,
sec. 230 (providing that an invitation to purchase omits material
information if it omits the total price of the product or, if the
nature of the product prevents all or a part of the total price from
reasonably being calculated in advance, how the price (or that part
of it) will be calculated), https://www.legislation.gov.uk/ukpga/2024/13/section/230. Reports preceding this legislation included: UK
Department for Business & Trade, Estimating the Prevalence and
Impact of Online Drip Pricing (2023), https://assets.publishing.service.gov.uk/media/64f1ebd7a78c5f000dc6f448/estimating-the-prevalence-and-impact-of-online-drip-pricing.pdf; and
UK Department for Business & Trade, Government response to
consultation on ``Smarter Regulation: Consultation on Improving
Price Transparency and Product Information for Consumers'' (2023),
https://www.gov.uk/government/consultations/smarter-regulation-improving-price-transparency-and-product-information-for-consumers/outcome/government-response-to-consultation-on-smarter-regulation-improving-consumer-price-transparency-and-product-information-for-consumers#introduction.
\90\ See, e.g., Class Action Complaint ]] 2-3, Abdelsayed v.
Marriot Int'l, Inc., No. 3:21-cv-00402-JLS-AHG (S.D. Cal. Mar. 5,
2021) (alleging defendant misled consumers into believing that hotel
rooms were cheaper that they actually were by engaging in drip
pricing that baited consumers with lower prices and adding charges,
such as resort fees, amenity fees, and destination fees, throughout
the vending process); Complaint ]] 1, 3-5, Travelers United v. MGM
Resorts Int'l, Inc., No. 2021-CA-00477-B (D.C. Super. Ct. Feb. 18,
2021) (alleging defendant misled consumers into believing hotel
rooms were cheaper that they actually were by using drip pricing
that hid resort fees from advertised daily room rates); Class Action
Complaint ]] 18, 31, 43, 69-71, Lee v. Ticketmaster LLC, No. 3:18-
cv-05987-VC (N.D. Cal. Sept. 28, 2018) (alleging, in part, that
defendants were unjustly enriched through service charges added to
resale tickets); Second Amended Class Action Complaint ]] 1-2, Wang
v. StubHub, Inc., No. CGC-18564120 (Cal. Super. Ct. Feb. 25, 2019)
(alleging defendant intentionally hid additional fees in order to
advertise artificially low-ticket prices); Class Action Complaint ]]
1-3, 33-34, Holl v. United Parcel Service, Inc., No. 4:16-cv-05856-
HSG (N.D. Cal., Oct. 11, 2016) (alleging defendant created a bait
and switch by falsely advertising low published rates that were
later inflated); (Truth in Advertising, Inc., submitted information
about its tracking of class action cases related to unfair and
deceptive fees, including cases involving event ticket sellers
charging and misrepresenting the purpose of ``junk fees'' and hotels
advertising a low base rate for rooms and then charging consumers
more than the advertised rate by imposing additional fees.); see
also Second Amended Class Action Complaint ]] 5-7, Hecox v.
DoorDash, Inc., No. 1:23-cv-01006-JRR (D. Md. Sept. 5, 2023)
(alleging in part that defendant employed deceptively named fees
misleading consumers to believe the fees were for delivery personnel
or for government imposed fees); Class Action Complaint ]] 7-16,
Ramirez v. Bank of Am., N.A., No. 4:22-cv-00859-YGR (N.D. Cal., Feb.
10, 2022) (alleging misrepresentations about the refundability of
fees); Class Action Complaint ]] 27, 36, 46-51, Cross v. Point and
Pay LLC, No. 6:16-cv-01182 (M.D. Fla., June 29, 2016) (alleging
defendant made representations about its services and fees that
contained false, misleading, and deceptive and unfair statements and
omissions about fees for online payment processing services); Class
Action Complaint ]] 1-2, 9-12, DeSimone v. LOOK Brands, LLC, No. 23-
cv-11144 (S.D.N.Y. Dec. 22, 2023) (alleging defendant failed to
disclose the total cost of movie ticket prices, inclusive of all
fees, in violation of New York state law); Class Action Complaint ]]
1-2, 9-15, Jones v. Regal Cinemas, Inc., No. 23-CV-11145 (S.D.N.Y.
Dec. 22, 2023) (alleging defendant failed to disclose total cost of
movie ticket prices, inclusive of all fees, in violation of New York
state law); see also FTC-2022-0069-6042 (ANPR).
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[[Page 2076]]
The Commission takes notice of additional indications of prevalence
identified in response to the NPRM. Commenters to the NPRM noted that
unfair or deceptive pricing practices exist economy-wide.\91\ For
instance, Consumer Reports conducted a nationally representative survey
and found that many consumers experienced unexpected fees in a variety
of industries and that more than two-thirds of Americans report paying
more in hidden fees now than they did five years ago.\92\ Similarly,
Consumer Federation of American submitted an extensive compilation of
stories from consumers about their experiences with junk fees that
recounted hidden and misleading fees being applied across a wide range
of industries.\93\ Truth in Advertising, Inc. provided a sampling of
consumer complaints it had received over the years and noted the
pervasiveness of hidden and misleading fees in multiple industries,
including event ticket sales, hotel and travel companies, short-term
lodging, internet apps, automobile rentals, communication services,
carpet cleaning, auto/truck sales, dietary supplement orders, food
services, airlines, moving services, credit unions and banks, payday
lending services, gym memberships, outlet stores, sports betting, and
online auctions.\94\ Public Citizen commented about ``the widespread
use of the deceptive practice of charging undisclosed fees by major
industries . . . including communication carriers, air carriers, ticket
sales, auto dealers, credit card companies, cable giants, and property
owners,'' as well as ``event ticketing, hotels, funeral homes,'' and
other industries.\95\ Additionally, AARP pointed to a myriad of
confusing fees charged by assisted living facilities.\96\ Commenters
also noted that instances of unfair and deceptive fees or charges have
increased over time.\97\
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\91\ See, e.g., FTC-2023-0064-3216 (Demand Progress Education
Fund noted that consumers face surprise or ``bogus'' fees across
industries, including rental housing, cell phone service, utilities,
and ticketing, and cited a Consumer Reports study finding that 85%
of Americans have dealt with fees of this nature.).
\92\ FTC-2023-0064-3205 (Consumer Reports noted the prevalence
of unexpected fees in live entertainment or sporting events, hotels,
telecommunication services, gas or electric utilities, air travel,
credit cards, auto loans and purchases, and personal banking
services.).
\93\ FTC-2023-0064-3160 (Consumer Federation of America
submitted the compilation as Appendix B to its comment.).
\94\ FTC-2023-0064-3104 (Truth in Advertising, Inc.).
\95\ FTC-2023-0064-3302 (Public Citizen).
\96\ FTC-2023-0064-2885 (AARP argued these fees are not well
understood by potential residents and that renters are charged
``many superfluous fees, including application fees, credit check
fees, pet fees, excessive late fees, utility-related fees, mail
sorting fees, inspection fees, convenience fees, common area fees,
guest fees, trash fees, notice fees, security deposit fees, check
cashing fees, cleaning or repair fees, and other mandatory fees for
services that a renter does not need or want.'').
\97\ See, e.g., FTC-2023-0064-3290 (U.S. Public Interest
Research Group Education Fund commented that consumers have faced
more unfair and deceptive fees as consumers ``have become accustomed
to online transactions.''); FTC-2023-0064-3090 (Atlanta Legal Aid
Society, Inc. noted the ubiquity of unfair and deceptive fees and
that these types of fees in the rental housing context have been
steadily rising for years.).
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Commenters also raised concerns about the prevalence of hidden fees
in specific industries such as live-event ticketing and short-term
lodging. The American Society of Travel Advisors, Travel Technology
Association, and a travel agent observed that, despite increased
scrutiny over hotel resort fees, there remains little uniformity in
pricing practices, and bait-and-switch pricing remains an issue.\98\
Multiple commenters raised continued concerns over hidden fee pricing
practices in the live-event ticketing market. TickPick, LLC observed
the ``widespread'' deceptive practice of bait-and-switch pricing
rampant in this industry. Chamber of Progress noted that deceptive and
unfair fees are ``rampant in some industries and pose clear threats to
consumers,'' including ``hotel stays, live sports or concert tickets,
and airline tickets.'' Future of Music Coalition commented that they
have worked to ``deal[ ] with the scourge of junk fees in various parts
of the economy,'' including live touring. The Charleston Symphony
affirmed that ``requiring sellers to disclose the total price clearly
and conspicuously[ ] addresses a pressing issue in the nonprofit
performing arts sector.'' \99\
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\98\ FTC-2023-0064-3106 (American Society of Travel Advisors
stated that resort fees are disclosed in a highly inconsistent
manner, even between hotels doing business under the same brand
name.); FTC-2023-0064-3293 (Travel Technology Association commented
that hotels have been known to surprise guests at check-in with
these fees and ``guests have no reasonable recourse but to pay
them.''); FTC-2023-0064-3077 (Far Horizons Travel, by its owner, a
travel agent of almost 40 years, called hotel fees ``out of
control'' and stated: ``I am appalled by these fees and how much
they have risen over the years. . . . They say it's for extra
amenities but that is not always the case and more often not the
case at all.'').
\99\ FTC-2023-0064-3212 (TickPick, LLC); FTC-2023-0064-3137
(Chamber of Progress); FTC-2023-0064-3230 (Future of Music
Coalition); FTC-2023-0064-3105 (Charleston Symphony).
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Despite the overwhelming evidence supporting the prevalence of
bait-and-switch pricing and misleading fee practices economy-wide, a
minority of commenters argued that the Commission has failed to meet
its burden of establishing prevalence. Some commenters contended that
the Commission's evidence focuses on a small number of problematic
industries and does not demonstrate prevalence in every single industry
across the economy.\100\ Some commenters similarly contended that the
proposed rule was an attempt to impose a ``one-size-fits-all'' solution
on distinct industries, not all of which are engaging in unfair or
deceptive practices, and thus the proposed rule is overbroad and not
supported by the requisite evidence of prevalence.\101\
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\100\ FTC-2023-0064-3143 (ACA Connects--America's Communication
Association argued that the NPRM contained no meaningful discussion
of prevalence of unfair or deceptive pricing disclosures with
respect to communication services.); FTC-2023-0064-3186 (National
LGBT Chamber of Commerce and the National Asian/Pacific Islander
American Chamber of Commerce & Entrepreneurship argued that
``prepared food and grocery delivery applications . . . have
demonstrated transparency and accessibility, providing clear
explanations about fees.''); FTC-2023-0064-3292 (National
Association of Theatre Owners argued that the NPRM failed to
demonstrate prevalence with respect to the theatre industry,
identifying only fifty comments received in response to the ANPR
that reference movie theatre convenience fees.); FTC-2023-0064-3238
(Gibson, Dunn & Crutcher LLP argued that the Commission has failed
to reliably demonstrate the prevalence of unfair or deceptive fees
across any industry or sector.); FTC-2023-0064-3233 (NCTA--The
Internet & Television Association argued that the only mention of
telecommunication fees is anecdotal, and the Commission has failed
to show prevalence with respect to any NCTA member.); FTC-2023-0064-
3263 (Flex Association stated that ``[t]he Commission has not
pointed to evidence of any prevalent consumer harm that justifies
imposing new pricing and disclosure rules on app-based delivery
platforms.''); FTC-2023-0064-3130 (International Cemetery, Cremation
& Funeral Association argued that over the last several reviews of
the Funeral Rule the Commission has not found evidence of widespread
consumer abuse among cemeteries or third-party suppliers.).
\101\ FTC-2023-0064-3258 (National Taxpayers Union Foundation);
FTC-2023-0064-3173 (Center for Individual Freedom argued that the
Commission was overly reliant on lodging, ticketing, and restaurants
in justifying an economy-wide rule.); FTC-2023-0064-3251 (National
RV Dealers Association argued the proposed rule ``is an
overextension from this drip pricing concern, and not only strays
from the FTC's traditional areas of concern but also risks impeding
the normal business operations and innovation across a multitude of
sectors.'').
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First, the Commission disagrees that it must find that the unfair
or deceptive act or practice is widespread within every individual
context or industry to issue a rule targeting a specific practice
across industries. To begin with, the Commission's prevalence findings
need only have ``some basis or evidence'' to show ``the practice the
FTC rule seeks to regulate does indeed occur.'' \102\ While many trade
regulation rules promulgated under section 18 focus on a particular
industry, as discussed in
[[Page 2077]]
section IV.A.1, others apply to specific practices across industries
regardless of product or service, such as the Cooling-Off Period for
Door-to-Door Sales Rule (the ``Cooling-Off Rule''), the Rule on the
Preservation of Consumers' Claims and Defenses (the ``Holder Rule''),
the Rule on Retail Food Store Advertising and Marketing Practices (the
``Unavailability Rule''), the mail, Internet, or Telephone Order
Merchandise Rule (the ``Mail Order Rule''), the Rule on the Use of
Prenotification Negative Option Plans (the ``Negative Option Rule''),
the Rule on Impersonation of Government and Businesses (the
``Impersonator Rule''), and the Rule on the Use of Consumer Reviews and
Testimonials.\103\ While the Commission agrees that minimal evidence of
a practice would be insufficient to meet the prevalence standard,
section 18 did not require the Commission to find for its economy-wide
rulemakings that every industry engaged in sales made at a consumer's
home or at certain other locations (Cooling-Off Rule), used credit
contracts (Holder Rule), offered products at an advertised price when
they did not have the advertised products in stock (Unavailability
Rule), or had a robust mail, internet or telephone order business (Mail
Order Rule); or that every industry used negative options (Negative
Option Rule), had an issue with impersonating government agencies or
businesses (Impersonator Rule), or used and abused reviews (Rule on the
Use of Consumer Reviews and Testimonials). Imposing such a standard
would artificially limit the Commission's rulemaking authority under
section 18 in a way that does not align with the Commission's mandate
or the text of the statute, which focuses on acts or practices
generally and never mentions the need to define markets or industries.
As explained herein and in the NPRM, the information evidencing
prevalence of bait-and-switch pricing and misleading fees more than
meets section 18's standard for prevalence for the economy generally,
and for the live-event ticketing and short-term lodging industries,
specifically, by demonstrating that the practices are widespread and,
further, that such practices are occurring across a wide range of
industries.
---------------------------------------------------------------------------
\102\ Pa. Funeral Dirs. Ass'n. v. FTC, 41 F.3d 81, 87 (3d Cir.
1994).
\103\ 16 CFR part 429; 16 CFR part 433; 16 CFR part 424; 16 CFR
part 435; 16 CFR part 425; 16 CFR part 461; 16 CFR part 465.
---------------------------------------------------------------------------
Second, the Commission notes that, even when commenters challenged
the application of the rule to specific pricing scenarios or to their
own industries, they also appeared to concede that advertising a base
price to which mandatory fees are added later is a frequent practice
even in their own industries. While some commenters raised genuine
challenges or questions about the application of the rule, others
attempted to conflate such genuine challenges with their desire to
continue to use drip or partition pricing.
As discussed in section III.B.1, commenters from some ticket
sellers did not contest that their advertised prices failed to include
all mandatory fees and to provide the total price of goods or services.
Instead, they attempted to explain why they engaged in those practices.
Finally, some commenters from industries other than live-event
ticketing and short-term lodging argued that the Commission's NPRM
failed to establish prevalence because of the following reasons: the
cited cases focused on inapplicable fact patterns or resulted in
settlement; the cited conferences called for additional research rather
than regulatory strategy, or were narrow in scope as to the industries
covered; and the resort fee warning letters failed to result in
enforcement action.\104\ Commenters such as the U.S. Chamber of
Commerce argued that the enforcement record should rely only on cease-
and-desist orders or ``extensive empirical research.'' \105\ Other
commenters also raised concerns about a lack of empirical
research.\106\ These commenters overlook section 18's clear instruction
that the Commission's prevalence determination can be based on ``any
other information available to the Commission'' that indicates a
widespread pattern, which the Commission thoroughly laid out in the
NPRM and expands upon herein.
---------------------------------------------------------------------------
\104\ FTC-2023-0064-3127 (U.S. Chamber of Commerce argued the
NPRM failed to cite any cases holding that late in time fee
disclosures are unfair or deceptive and the settlements described by
the Commission only raised the failure of companies to disclose
certain applicable fees prior to purchase or at all.).
\105\ Id.
\106\ FTC-2023-0064-3152 (Building Owners & Managers Association
et al. commented that the proposed rule ``lacks any reasonable
factual underpinning as applied to the rental housing industry
because it is not based on any statistical data relevant to the
industry,'' but is ``based solely upon anecdotal, conclusory, and
non-representative justification.''); FTC-2023-0064-3172 (New Jersey
Apartment Association stated that the NPRM lacked ``statistical
basis'' for claims that unfair and deceptive fees were an issue in
the rental housing context and that the Commission relied on
anecdotal evidence.).
---------------------------------------------------------------------------
In sum, the Commission's enforcement history, workshops, and
reports, together with the record of this rulemaking and the
enforcement cases brought by the Commission's local, State, and
international enforcement counterparts fully support a finding that
bait-and-switch pricing that hides the total price of goods or services
and misrepresenting the nature, purpose, amount, and refundability of
fees or charges are prevalent across the economy, including in the
live-event ticketing and short-term lodging industries.\107\ Despite
the evidence that these specific practices are prevalent economy wide,
the Commission will first focus its rulemaking authority on combatting
these practices in the live-event ticketing and short-term lodging
industries, the two industries in which the Commission first began
evaluating drip pricing more than a decade ago and for which there is a
long history of consumer harm.
---------------------------------------------------------------------------
\107\ See, e.g., supra notes 66, 67, 72, 75, 80, 85, 90
(detailing the Commission's enforcement history, workshops, and
reports, class action lawsuits, state and local enforcement and
regulations, and other efforts to curb unfair or deceptive pricing
practices in the live-event ticket and short-term lodging
industries). The Commission also received thousands of comments from
individual consumers detailing bait-and-switch pricing and deceptive
fees in the live-event ticket and short-term lodging industries in
response to the ANPR and the NPRM. See, e.g., FTC-2023-0064-0820
(Individual Commenter stated ``I was just considering buying some
event tickets on Vivid Seats and was shocked to see that they add a
full 33% in bogus fees.''); FTC-2023-0064-0058 (Individual Commenter
stated: ``The worst offenders are ticket sellers/resellers, who
advertise baseline ticket prices in their search engines and then
include some unknown amount of fees when it's time to pay.''); FTC-
2023-0064-0102 (Individual Commenter stated: ``I recently went to a
MLB game and the fees were $21 for a $75 ticket or greater than 20%.
I went to a concert and the tickets were $55 but the fees brought
the price to over $100. On both cases, the fees were not disclosed
until the payment screen.''); FTC-2023-0064-0145 (Individual
Commenter described purchasing tickets to a musical: ``Nearly 20% of
the total cost was for fees that were not disclosed until I was at
the payment step ($119 ticket + $4.55 order processing fee + $4.00
facility charge + $20.50 service fee). I don't understand what any
of those fees are actually for.''); FTC-2023-0064-0040 (Individual
Commenter described hotel resort fees as ``egregious and opaque''
and stated they learned of an additional $50 per night resort fee
upon check-in: ``I asked what the purpose of the fee was and was
told by the staff person, `I'm not really sure.' ''); FTC-2023-0064-
1462 (Individual Commenter stated: ``Recently I found an
``affordable'' hotel in a city and booked a 4 night stay, but was
not informed until after I checked in that parking cost extra each
day . . . . which made the hotel no longer affordable for me'');
FTC-2023-0064-0977 (Individual Commenter described spending hours
trying to book a hotel to face ``mandatory hotel fees for a pool, a
gym and 24 hour security totalled $50/night''); FTC-2023-0064-0152
(Individual Commenter stated that fees through services including
Airbnb and VRBO are ``often vague and undefined'' and described fees
including a ``host fee,'' ``booking fee,'' ``safety fee,'' and
``resort fee'').
---------------------------------------------------------------------------
B. Manner and Context in Which the Acts or Practices Are Deceptive or
Unfair
The final rule curbs certain unfair or deceptive pricing practices
by requiring
[[Page 2078]]
truthfulness and transparency in pricing for live-event ticketing and
short-term lodging. Truthful, timely, and transparent pricing,
including the nature, purpose, and amount of any fees or charges
imposed, is critical for consumers--and also for honest businesses. The
legal underpinning of the rule, or the manner and context in which the
acts or practices defined by the rule are unfair or deceptive, is not
complex. By identifying and targeting pricing tactics that hide the
true price of live-event tickets and short-term lodging from consumers,
the rule's central provisions prohibit conduct that is inherently
deceptive or unfair, including: (1) offering prices that do not include
all mandatory fees or charges and (2) misrepresenting the nature,
purpose, amount, and refundability of fees or charges, and the identity
of the good or service for which the fees or charges are imposed. Thus,
the final rule will allow American consumers to make better-informed
purchasing decisions when purchasing live-event tickets or deciding
where to stay on a short-term basis and level the playing field for
honest businesses in these industries that truthfully, timely, and
transparently disclose their pricing information.
A representation, omission, or practice is deceptive under section
5 of the FTC Act if it is likely to mislead consumers acting reasonably
under the circumstances and is material to consumers--that is, it would
likely affect the consumer's conduct or decisions with regard to a good
or service.\108\ Price is a material term.\109\ It is a deceptive
practice to misrepresent the price of a good or service,\110\ including
through a deceptive first contact.\111\ Through its false savings
cases, the Commission repeatedly found that it was deceptive under
section 5 to present an inflated list price or comparison price, from
which consumers were misled to believe that the business offered a
lower-than-normal price.\112\ The inverse--luring consumers to a good
or service with a false low price--is also deceptive.\113\ For example,
in In re Filderman Corp., 64 F.T.C. 427 (1964), the Commission found
that the defendant violated section 5 both when it displayed misleading
list prices and when it later imposed mandatory service charges on top
of the advertised price.\114\ Once a consumer has been lured in by
deception, including about the cost of the good or service, it is well
established that a later disclosure cannot cure that deception.\115\
Thus, bait-and-switch pricing, where the initial contact with a
consumer shows a lower or partial price without including mandatory
fees, violates the FTC Act even if the total price is later disclosed.
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\108\ See Fed. Trade Comm'n, FTC Policy Statement on Deception,
103 F.T.C. 174, 175 (1984) (appended to In re Cliffdale Assocs.,
Inc., 103 F.T.C. 110, 174 (1984) (hereinafter ``Deception Policy
Statement''), https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-103/ftc_volume_decision_103_january_-_june_1984pages_103-203.pdf.
\109\ Deception Policy Statement, 103 F.T.C. at 182-83 (listing
claims or omissions involving cost among those that are
presumptively material); see also, e.g., FTC v. FleetCor Techs.,
Inc., 620 F. Supp. 3d 1268, 1303-04, 1311 (N.D. Ga. 2022) (finding
that representations about discounts and transaction fees were
material).
\110\ Deception Policy Statement, 103 F.T.C. at 175 (listing
``misleading price claims'' among those claims that the FTC has
found to be deceptive); see also, e.g., In re Resort Car Rental
Sys., Inc., 83 F.T.C. 234, 281-82, 300 (1973), https://www.ftc.gov/system/files/ftc_gov/pdf/Resort%20Car%20Rental%20System%2C%20Inc.%2083%20FTC%20234%20%281973%29.pdf (finding that using the name ``Dollar-A-Day'' misrepresented
the price of car rentals in violation of section 5 of the FTC Act
where a rental could not be attained for one dollar per day due to
mileage, insurance, and other mandatory charges), aff'd sub. nom.
Resort Car Rental Sys., Inc. v. FTC, 518 F.2d 962, 964 (9th Cir.
1975).
\111\ See, e.g., Opinion of the Commission at 37-40, 47-50, In
re Intuit Inc., No. 9408 (FTC Jan. 22, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/d09408_commission_opinion_redacted_public.pdf (finding that under
the legal doctrine known as the first-contact or deceptive door-
opener rule, respondent's first contact with consumers was deceptive
because its advertising falsely claimed that consumers can file
their taxes for free with TurboTax and that later disclosures did
not cure the deception); Complaint ]] 12, 46-49, In re LCA-Vision,
No. C-4789 (FTC Mar. 13, 2023) (alleging respondent's advertisements
misrepresented the price of surgery and failed to disclose
eligibility limitations for a promotional price); Complaint ]] 8-10,
In re Progressive Chevrolet Company, No. C-4578 (FTC Jun. 16, 2016)
(alleging that respondents represented that consumers could lease
vehicles at advertised down payment and monthly payment amounts, and
deceptively failed to disclose a material condition that meant few
consumers would qualify for the advertised terms); Resort Car Rental
Sys., 518 F.2d at 964 (upholding the Commission's order finding that
the name ``Dollar-A-Day'' was deceptive when charges adding up to
more than one dollar per day were disclosed later).
\112\ E.g., In re Giant Food, Inc., 61 F.T.C. 326, 341-42, 361
(1962), https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-61/ftcd-vol61july-december1962pages306-404.pdf (finding that comparative-price
advertising of household goods and appliances created false,
misleading, and deceptive impressions that induced consumers to make
purchases based on mistaken beliefs); In re George's Radio &
Television Co., 60 F.T.C. 179, 193-94, 196 (1962), https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-60/ftcd-vol60january-june1962pages107-211.pdf (collecting cases and finding that
advertisements including manufacturer's suggested list prices that
were higher than the customary retail prices were deceptive).
\113\ See, e.g., In re Filderman Corp., 64 F.T.C. 427, 442-43,
461 (1964), https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-64/ftcd-vol64january-march1964pages409-511.pdf (finding, among other things, that
respondents unlawfully advertised prices that were later inflated
with mandatory service charges); In re Resort Car Rental Sys., 83
F.T.C. at 281-82, 300; Opinion of the Commission at 37-40, 47-50, In
re Intuit Inc., No. 9408 (finding that respondent's advertising that
falsely claimed that consumers can file their taxes for free with
TurboTax was deceptive); Complaint ]] 12, 46-49, In re LCA-Vision,
No. C-4789 (alleging respondent's advertisements misrepresented the
price of surgery and failed to disclose eligibility limitations for
a promotional price). See also cases cited supra note 61 (collecting
FTC enforcement actions alleging that bait-and-switch pricing
tactics concerning hidden fees violated section 5).
\114\ In re Filderman Corp., 64 F.T.C. at 461 (ordering
respondents to stop ``[r]epresenting, directly or by implication:
That any amount is the price of merchandise when an additional
amount is required to be paid before the merchandise will be
sold.'')
\115\ Fed. Trade Comm'n, Enforcement Policy Statement on
Deceptively Formatted Advertisements 7 n.25 (2015), https://www.ftc.gov/system/files/documents/public_statements/896923/151222deceptiveenforcement.pdf; see also Opinion of the Commission
at 28-30, In re Intuit Inc., No. 9408, https://www.ftc.gov/system/files/ftc_gov/pdf/d09408_commission_opinion_redacted_public.pdf
(finding that disclosures on Intuit's websites were ``inadequate to
cure a misimpression for Intuit's ads,'' which used ``false claims
to engage consumers and induce them to further interact with the
company''); Resort Car Rental Sys, 518 F.2d at 964 (``The Federal
Trade [Commission] Act is violated if it induces first contact
through deception, even if the buyer later becomes fully informed
before entering the contract.'') (bracketed text added); Exposition
Press, Inc. v. FTC, 295 F.2d 869 (2d Cir. 1961) (``The law is
violated if the first contact is secured by deception, even though
the true facts are made known to the buyer before he enters into the
contract of purchase.'' (citations omitted)); FTC v. City W.
Advantage, Inc., No. 2:08-cv-00609-BES-GWF, 2008 WL 2844696, at *3
(D. Nev., 123 July 22, 2008) (finding defendant likely employed
``deceptive door openers . . . to induce consumers to stay on the
line'').
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A practice is considered unfair under section 5 if: (1) it causes,
or is likely to cause, substantial injury; (2) the injury is not
reasonably avoidable by consumers; and (3) the injury is not outweighed
by benefits to consumers or competition.\116\ Pricing that is not
truthful or transparent causes or is likely to cause substantial
injury; such injury is not reasonably avoidable by consumers or
outweighed by benefits to consumers or competition.
---------------------------------------------------------------------------
\116\ 15 U.S.C. 45(n).
---------------------------------------------------------------------------
Drip pricing and other bait-and-switch tactics that hide the true
price cause substantial injury, as the Commission discusses in detail
in section V.E, by leading consumers to buy more goods or services, pay
more for those goods or services, and incur higher search costs than
they otherwise would have if they had been presented with the true
price upfront. Studies have shown that consumers spend more money on
the same goods when faced with drip pricing, i.e., when they are not
shown the total price upfront, but instead are shown a base price, with
mandatory fees or charges added later
[[Page 2079]]
throughout the buying process.\117\ Where mandatory fees or charges are
disclosed at the same time as, but separately from, the base price,
consumers are still harmed. The practice of dividing the price into
multiple components without disclosing the total, generally referred to
as partitioned pricing, distorts consumer choice.\118\ Consumers
confronted with partitioned pricing, on average, underestimate the
total price of the good or service, likely because they use mental
shortcuts to estimate price that do not fully account for each
component.\119\
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\117\ Alexander Rasch et al., Drip Pricing and its Regulation:
Experimental Evidence, 176 J. Econ. Behav. & Org. 353 (2020)
(``[E]xperimental evidence suggests that consumers indeed strongly
and systematically underestimate the total price under drip pricing,
and that they make mistakes when searching''); Shelle Santana et
al., Consumer Reactions to Drip Pricing, 39 Mktg. Sci. 188 (2020)
(``Across six studies, we find that drip pricing (versus nondrip
pricing) increases the likelihood that consumers will both initially
and ultimately select a lower base price option, even though the
surcharges for optional add-ons cause this base price to balloon--
making the lower base fare option more expensive than the
alternative''); Tom Blake et al., Price Salience and Product Choice,
40 Mktg. Sci. 619 (2021); Steffen Huck et al., The Impact of Price
Frames on Consumer Decision Making: Experimental Evidence (2015);
Meghan R. Busse & Jorge M. Silva-Risso, ``One Discriminatory Rent''
or ``Double Jeopardy'': Multi-component Negotiation for New Car
Purchases, 100 a.m. Econ. Rev. 470 (2010); Raj Chetty et al.,
Salience and Taxation: Theory and Evidence, 99 a.m. Econ. Rev. 1145
(2009) (``[C]ommodity taxes that are included in posted prices
reduce demand significantly more than taxes that are not included in
posted prices.''); see also FTC-2023-0064-3247 (Private Law Clinic
at Yale Law School).
\118\ Sullivan, supra note 67, at 4; FTC-2023-0064-3271 (U.S.
Senate, Sen. Amy Klobuchar).
\119\ Sullivan, supra note 67, at 22-24; Vicki G. Morowitz et
al., Divide and Prosper: Consumers' Reactions to Partitioned Prices,
35 J. Mktg. Rsch. 453 (1998) (subjects exposed to partitioned prices
recalled significantly lower total product costs than subjects
exposed to combined prices).
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In addition, consumers who wish to compare prices incur additional
search costs to make direct comparisons of goods or services when the
full price is not disclosed upfront.\120\ For example, in an online
transaction to book a hotel room, consumers cannot simply view the
first price displayed on each website, but instead need to navigate to
subsequent pages or even enter all their payment information and reach
the checkout page for each website to determine the true total price of
their hotel stay.\121\ The same is true on live-event ticketing
websites. As TickPick, LLC noted, ``[m]ajor ticketing marketplaces
often require consumers to enter their credit card or other payment
information prior to disclosing mandatory fees. On these marketplaces,
the full purchase price is only disclosed after payment information is
collected.'' \122\ Under such circumstances, consumers waste time and
effort pursuing an offer that is not actually available at the promised
price. Such search costs that result from unfair or deceptive practices
are legally cognizable injuries under the FTC Act.\123\
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\120\ Sullivan, supra note 67, at 4; Fed. Trade Comm'n, ``That's
the Ticket'' Workshop: Staff Perspective 4 (May 2020), https://www.ftc.gov/system/files/documents/reports/thats-ticket-workshop-staff-perspective/staffperspective_tickets_final-508.pdf; see also
Han Hong et al., Using Price Distributions to Estimate Search Costs,
37 RAND J. Econ. 257 (2006) (describing methods of estimating search
costs).
\121\ NPRM, 88 FR 77433 n.170.
\122\ FTC-2023-0064-3212 (TickPick, LLC) (``[On] StubHub's
website, for example, a consumer can be required to click 12 times
after being shown the first price before being shown the total price
they will pay.'')
\123\ See, e.g., Decision & Order at 3-4, In re LCA-Vision, No.
C-4789 (FTC Mar. 13, 2023) (settling allegations that deceptive
advertising caused consumers to ``waste[ ] 90 minutes to two hours
of their time'' responding to a deceptive promotion, Complaint ] 35,
and prohibiting misrepresentations of price and requiring disclosure
of price or discount qualification requirements), https://www.ftc.gov/system/files/ftc_gov/pdf/1923157-lca-vision-consent-package.pdf; Decision & Order at 2-3, In re Credit Karma, LLC, No.
C-4781 (FTC, Jan. 19, 2023) (settling allegations that deceptive
advertising caused consumers to waste significant time in applying
for ``pre-approved'' offers that were denied, Complaint ] 13, and
requiring Credit Karma to pay $3 million in monetary relief),
https://www.ftc.gov/system/files/ftc_gov/pdf/2023138-credit-karma-combined-final-consent-without-signatures.pdf; FTC v. Amazon.com,
Inc., No. C14-1038-JCC, 2016 U.S. Dist. LEXIS 55569, at *17 (W.D.
Wash., Apr. 26, 2016) (finding consumer injury included ``time spent
pursuing those refunds''); FTC v. Neovi, Inc., 598 F. Supp. 2d 1104,
1115 (S.D. Cal. 2008) (finding ``no genuine issue of material fact
that consumers suffered substantial injury'' based on ``considerable
amount of time'' spent by consumers); FTC v. Accusearch, Inc., No.
06-cv-105-D, 2007 U.S. Dist. LEXIS 74905, at *22-23 (D. Wyo., Sept.
28, 2007) (granting summary judgment in favor of FTC based in part
on finding of consumer injury for ``lost time and productivity'').
---------------------------------------------------------------------------
Misrepresented fees also cause or are likely to cause substantial
injury--they harm consumers as well as businesses that do not engage in
these practices. For example, as discussed in section III.C, a hotel
might charge a resort fee when only typical and ordinary accommodations
and amenities are offered, an environmental fee that serves no
environmental purpose, or a fee misrepresented as a government charge.
As TickPick, LLC put it, misrepresented fees trick consumers into
paying more and ultimately inhibit competition by providing an unfair
advantage to businesses that misrepresent their fees.\124\ Likewise,
when businesses misrepresent fees, consumers are unable to make
informed choices about the value of the fee or charge, or the good or
service it represents, because their understanding of the fee or charge
is predicated on false, vague, or otherwise misleading information. As
such, consumers are unable to understand what they have purchased, or
to which charges they have consented.\125\
---------------------------------------------------------------------------
\124\ FTC-2023-0064-3212 (TickPick, LLC).
\125\ Id.
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Consumers cannot reasonably avoid these harms. As explained in the
NPRM, studies suggest that cognitive bias may prevent consumers from
reasonably avoiding injury caused by unfair and deceptive pricing
practices.\126\ Several behavioral studies explain why consumers cannot
reasonably avoid making errors when the true price is not displayed
upfront. Behavioral research shows that consumers who first learn of a
lower price do not properly adjust their calculations when additional
fees are added, thereby underestimating the total price.\127\ It also
shows that consumers attach value to things they perceive to be theirs
and, once consumers begin the purchase process, their perception shifts
so that stopping the transaction feels like a loss.\128\ The research
shows that consumers who already have invested in an endeavor, such as
by taking time to make selections on a travel or live-event ticket
website, continue that endeavor even if they would pay less if they
began again elsewhere.\129\ Lastly, consumers necessarily incur search
costs when mandatory fees are obscured because it takes them longer to
discover the full price within a single transaction and to comparison
shop across transactions.\130\ Notably, it is unlikely that the market
can correct for these injuries because once the practice of displaying
incomplete initial prices takes hold, honest businesses will struggle
to compete. For example, as noted in the NPRM, one market participant
in the live-event ticketing industry, StubHub, unilaterally adopted
all-in pricing in 2014 but soon reverted back to its original model
after it lost significant market share when customers
[[Page 2080]]
incorrectly perceived StubHub's prices to be higher.\131\
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\126\ NPRM, 88 FR 77434 (discussing various cognitive biases
that contribute to the unavoidability of consumer injury, including
the anchoring theory, the endowment theory, and the sunken cost
fallacy).
\127\ Inst. for Policy Integrity, Pet. for Rulemaking Concerning
Drip Pricing 18 (2021), https://policyintegrity.org/documents/Petition_for_Rulemaking_Concerning_Drip_Pricing.pdf.
\128\ Steffen Huck et al., The Impact of Price Frames on
Consumer Decision Making: Experimental Evidence (2015).
\129\ David A. Friedman, Regulating Drip Pricing, 31 Stan. L. &
Pol'y Rev. 51, 55 n.13 (2020).
\130\ See NPRM, 88 FR 77447 (discussing reductions in search
costs from the proposed rule).
\131\ See NPRM, 88 FR 77434 (quoting Fed. Trade Comm'n, ``That's
the Ticket'' Workshop: Staff Perspective 4 (May 2020), https://www.ftc.gov/system/files/documents/reports/thats-ticket-workshop-staff-perspective/staffperspective_tickets_final-508.pdf.). See
also, e.g., https://www.contactlensking.com/faq.aspx (describing a
contact lens company's decrease in traffic and total orders when it
displayed a total price while competitors implemented ``processing''
fees).
---------------------------------------------------------------------------
The consumer injury caused by these bait-and-switch pricing
practices is not outweighed by any benefits to consumers or
competition. Consumers receive no benefit from businesses that use drip
pricing, partitioned pricing, or misleading price presentation while
they obscure the total price. To the extent that consumers could
benefit from itemized information about price components, such
itemization can be done in conjunction with clear total price
information. Consumers receive no benefit from businesses partitioning
or breaking up mandatory price components while they obscuring the
total price.
Likewise, as discussed in section V.E, there is no benefit to
competition, as honest businesses that disclose all-inclusive total
prices lose market share to businesses that do not. Bait-and-switch
pricing and misleading fees undermine the ability of honest businesses
to compete on price and therefore diminish the competitive pressure in
a market that pushes prices downward. As a result, these practices lead
to higher prices than would be supported in a competitive marketplace.
The Antitrust Division of the U.S. Department of Justice noted that
``companies that impose mandatory hidden fees'' have ``an unfair
advantage over honest brokers'' and interfere with consumers' ability
to ``choose between competitors based on the important considerations
of price and what, exactly, the consumer is purchasing.'' \132\ Some
commenters, including those from the live-event ticketing and short-
term lodging industries, noted that bait-and-switch pricing not only
confuses consumers, but harms honest businesses that offer truthful,
timely, and transparent pricing because their prices initially may seem
higher than competitors that use bait-and-switch pricing and misleading
fees. For example, TickPick, LLC commended the Commission for proposing
to curb the widespread practice of bait-and-switch pricing and observed
that ``the proposed rule would significantly benefit consumers and
competition in the live-event ticketing industry.'' \133\ The American
Society of Travel Advisors argued that, in addition to consumer harm,
``the imposition of undisclosed fees also unfairly places honest
retailers--those that do disclose the full, all-in price upfront--at a
competitive disadvantage relative to those that do not.'' \134\
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\132\ FTC-2023-0064-3187 (U.S. Department of Justice, Antitrust
Division, observed that ``[w]hen consumers lack choice and
information, and are saddled with mandatory hidden fees, the
benefits of the competitive process break down.''); see also FTC-
2023-0064-3106 (American Society of Travel Advisors); FTC-2023-0064-
3184 (New York State Sen. Michael Gianaris); FTC-2023-0064-1294
(James J. Angel, Ph.D., CFP, CFA, Professor, Georgetown University,
McDonough School of Business).
\133\ FTC-2023-0064-3212 (TickPick, LLC).
\134\ FTC-2023-0064-3106 (American Society of Travel Advisors).
---------------------------------------------------------------------------
A minority of commenters stated that hidden and misleading fees do
not harm consumers. For instance, the Competitive Enterprise Institute
argued that consumers' search costs do not increase when advertisements
lack a single total price, as the consumer is better informed after
watching the advertisement despite the omission.\135\
---------------------------------------------------------------------------
\135\ FTC-2023-0064-3028 (Competitive Enterprise Institute
argued that consumers already bear a search cost merely by looking
for a product, and that any advertisement that includes some, but
not all, pricing information, benefits the searching consumer if the
information is accurate and non-deceptive.).
---------------------------------------------------------------------------
While the commenter conceded that consumers may benefit more if a
total price is disclosed, the commenter argued that any harm could be
easily avoidable by consumers calculating the total themselves.\136\
Some commenters also argued that these types of fees often benefit
consumers and are openly disclosed.\137\ Indeed, the American Gaming
Association stated that resort fees enhance a consumer's stay,
distinguish resorts from more standard lodging offerings, are openly
disclosed to consumers, and often appear several times throughout the
search and purchasing process. As the Commission already noted, drip
and partitioned pricing and other bait-and-switch pricing harm
consumers for numerous reasons, including because consumers
underestimate the total price of a good or service, overconsume,
overpay, and waste time. The U.S. Chamber of Commerce argued that there
are pro-consumer and pro-competitive justifications for this type of
pricing, including allowing for dynamic pricing strategies and
preventing consumers from paying for services that they do not
use.\138\ The rule, however, does not prohibit the use of dynamic
pricing strategies, itemization, or offering optional goods or services
for consumers to select; it simply prohibits offering a price that is
not inclusive of all mandatory fees and charges, as well as prohibiting
misrepresented fees and charges.
---------------------------------------------------------------------------
\136\ Id.
\137\ FTC-2023-0064-2886.
\138\ FTC-2023-0064-3127 (U.S. Chamber of Commerce noted that,
among these pricing practices, dynamic pricing strategies provide
these benefits to consumers and this was ignored in the conclusions
of the NPRM.).
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As stated herein, the Commission and courts have previously
recognized that price is a material term \139\ and that it is a
violation of section 5 of the FTC Act to misrepresent the price of a
good or service.\140\ Commenters emphasized the materiality of price to
consumers.\141\ The commenters who argue that bait-and-switch pricing
does not harm consumers ignore the large body of literature
demonstrating that drip pricing and partitioned pricing have a negative
impact on consumers and competition. The economic analysis in Section V
provides additional discussion regarding the economic harms from bait-
and-switch pricing tactics, including drip pricing and partitioned
pricing in the live-event and short-term lodging industries.
---------------------------------------------------------------------------
\139\ Deception Policy Statement, 103 F.T.C. at 182-183, 183
n.55 (listing claims or omissions involving cost among those that
are presumptively material); see also, e.g., FleetCor Techs., Inc.,
620 F. Supp. 3d at 1303-04, 1311 (finding that representations about
discounts and transaction fees were material); FTC v. Windward
Marketing, Inc., No. 1:96-CV-615F, 1997 WL-33642380, at *10 (N.D.
Ga., Sept. 30, 1997) (``[A]ny representations concerning the price
of a product or service are presumptively material'').
\140\ Deception Policy Statement, 103 F.T.C. at 175 (listing
``misleading price claims'' among those claims that the FTC has
found to be deceptive); see also, e.g., Resort Car Rental Sys., 518
F.2d at 964 (upholding the Commission's order finding that using the
name ``Dollar-A-Day'' misrepresented the price of car rentals in
violation of section 5 of the FTC Act).
\141\ See, e.g., FTC-2023-0064-3162 (BBB National Programs Inc.
stated that BBB National Advertising Division ``precedent is clear
that the advertised price for a product or service is among one of
the most material terms to a consumer's purchasing decision.'').
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C. The Economic Effect of the Rule
As part of the rulemaking proceeding, the Commission solicited
public comment and data (both qualitative and quantitative) on the
economic impact of the proposed rule and its costs and benefits. In
issuing this final rule, the Commission has carefully considered the
comments received and the costs and benefits of each provision, taking
into account the effects on small businesses and consumers, as
discussed in more detail in sections V and VII.
The record demonstrates that the most significant anticipated
benefits of the final rule are promoting transparent pricing,
facilitating comparison shopping for consumers, and leveling
[[Page 2081]]
the playing field for businesses in the live-event ticketing and short-
term lodging industries. By prohibiting drip pricing, the final rule
also will promote social trust, which is a necessary component of
successful market interactions.\142\ Most participants in a market
transaction do not have prior experience with one another and consumers
must rely on some degree of trust that the business will provide the
good or service in question, at the stated price and quality level.
Without social trust, it would be costlier for both consumers and
businesses to acquire all the necessary information to participate in
the market. While there has been less research on the relationship
between social trust and previous market interactions, there is some
evidence that bad market experiences can reduce social trust.\143\
Thus, prohibiting these types of deceptive and unfair practices will
promote social trust, which can be a measure of a well-functioning
market.\144\
---------------------------------------------------------------------------
\142\ The relationship between social trust and market outcomes
is well established. See, e.g., Paul J. Zak & Stephen Knack, Trust
and growth. 111 Econ. J., 470 (Mar. 2001), https://doi.org/10.1111/1468-0297.00609; Philip Keefer & Stephen Knack, Does Social Capital
Have an Economic Payoff? A Cross-Country Investigation, 112 Q.J.
Econ. 4 (Nov. 1997), https://doi.org/10.1162/003355300555475. Social
trust is particularly necessary for participation in financial
markets. See Jesse Bricker & Geng Li, Fed. Reserve Bd., Credit
Scores, Social Trust, and Stock Market Participation, Finance and
Economics Discussion Series 2017-008r1, https://doi.org/10.17016/FEDS.2017.008r1; Luigi Guiso, Paola Sapienza, & Luigi Zingales,
Trust the Stock Market, 63 J. Fin. (Dec. 2008), https://www.jstor.org/stable/20487944?seq=1.
\143\ Ginny Seung Choi & Virgil Henry Storr, Market
interactions, trust and reciprocity, 15 PLOS One 5 (May 7, 2020),
https://doi.org/10.1371/journal.pone.0232704.
\144\ Joshua Kleinfeld & Hadar Dancig-Rosenberg, Social Trust in
Criminal Justice: A Metric, 98 Notre Dame L. Rev. 815 (2022),
https://scholarship.law.nd.edu/ndlr/vol98/iss2/6.
---------------------------------------------------------------------------
Another beneficial consequence would be the expansion of the
remedies available for violations of the final rule, including the
ability to more effectively obtain monetary relief for consumers who
have been deceived about the true total price of live-event tickets or
short-term lodging. This is particularly critical given the U.S.
Supreme Court's decision in AMG Capital Mgmt., LLC v. FTC, 593 U.S. 67
(2021), which held that equitable monetary relief, including consumer
redress, is not available under section 13(b) of the FTC Act.\145\
Under the final rule, the Commission will now be able to seek court-
ordered consumer redress in one Federal district court action brought
under section 19(a)(1), rather than the longer, less efficient, two-
step process for obtaining redress under section 19(a)(2).\146\ By
allowing the Commission to secure redress more efficiently, this rule
will also allow the Commission to conserve its limited enforcement
resources for other mission priorities.
---------------------------------------------------------------------------
\145\ AMG Cap. Mgmt., 593 U.S. at 82.
\146\ See 15 U.S.C. 57b(a)(1) and (2); see also NPRM, 88 FR
77438 (discussing impact of AMG Cap. Mgmt.). When the Commission has
reason to believe that the rule has been violated, the Commission
can commence a Federal court action to ask a Federal judge to
determine liability and, if proven, require violators to provide
redress. See 15 U.S.C. 57b(a)(1), (b). Without the rule, the path to
court-ordered redress is longer. The Commission must first conduct
an administrative proceeding to determine whether the respondent
engaged in unfair or deceptive acts or practices in violation of
section 5(a) of the FTC Act. If the Commission finds that the
respondent did so, the Commission issues a cease-and-desist order,
which might not become final until after the resolution of any
resulting appeal to a Federal court of appeals. Then, to obtain
redress, the Commission must initiate a second action in Federal
district court, in which it must prove that the violator engaged in
objectively fraudulent or dishonest conduct in order to obtain
court-ordered redress. See 15 U.S.C. 57b(a)(2), (b).
---------------------------------------------------------------------------
As an additional benefit, the rule will enable the Commission to
seek civil penalties against violators. The FTC Act generally does not
allow the Commission to obtain civil penalties against those who engage
in unfair or deceptive acts or practice in violation of section 5(a) of
the FTC Act. Section 5(m)(1)(A) of the FTC Act does, however, authorize
the Commission to seek civil penalties in court for violations of trade
regulation rules, such as the final rule here.\147\ The ability to
obtain civil penalties provides two benefits. First, court-ordered
civil penalties give the Commission the ability to ensure that
violators do not retain the profits they earn by engaging in the unfair
or deceptive pricing practices prohibited by the rule. Second, the
potential for civil penalties will deter violations and provide a
strong incentive for businesses providing live-event tickets and short-
term lodging to provide truthful and transparent pricing information in
compliance with the rule, which will have consumer welfare benefits and
will benefit honest competition.\148\
---------------------------------------------------------------------------
\147\ See section 5(m)(1)(A) of the FTC Act, 15 U.S.C.
45(m)(1)(A) (providing that those who violate a trade regulation
rule ``with actual knowledge or knowledge fairly implied on the
basis of objective circumstances that such act is unfair or
deceptive and is prohibited by such rule'' are liable for civil
penalties for each violation). In addition, any entity or person who
violates such a rule (irrespective of the state of knowledge) is
liable for any injury caused to consumers by the rule violation. The
Commission may pursue such recovery in a suit under section 19(a)(1)
of the FTC Act, 15 U.S.C. 57b(a)(1).
\148\ NPRM, 88 FR 77447-48.
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When promulgating a final rule, the Commission must prepare a final
regulatory analysis, which is contained in section V. The final
regulatory analysis contains an estimated cost-benefit analysis of the
final rule, as well as a more in-depth discussion of the comments the
Commission received in response to the NPRM. In addition, the
Commission's final regulatory flexibility analysis, which is contained
in section VII, discusses the final rule's economic impact on small
entities.
III. Section-by-Section Analysis
The Commission has carefully considered the rulemaking's extensive
comment record. It has weighed considerations raised by individual
consumers, businesses (including small businesses), industry advocates,
consumer advocates, labor representatives, academics, and other law
enforcement bodies. After considering these comments, the Commission
finalizes this rule to address a subset of the specific unfair and
deceptive practices identified in the NPRM. The rule will help ensure
that consumers shopping for live-event tickets and short-term lodging
see advertised prices that include all mandatory fees, can obtain such
goods or services at those prices, and know what they are paying for.
The rule promotes honest and transparent pricing for consumers and a
level playing field for businesses.
Numerous public comments in support of and in opposition to the
rule included discussions of the definitions and substantive provisions
of the proposed rule, and made various recommendations. The Commission
considered comments pointing out confusion about specific phrases in
the proposed rule, particularly phrases that commenters found vague or
overbroad. The Commission also took notice of comments that suggested
some entities or transactions would be subject to overlapping Federal
regulations regarding pricing disclosures that could result in
confusion to consumers or businesses. In addition, the Commission
appreciated comments from industry that identified potential gaps in
how the proposed rule would interact with certain types of pricing
practices.
The Commission makes a number of changes to the final rule.
Notably, the Commission narrows the application of the final rule to
offers, displays, or advertisements of a covered good or service--i.e.,
live-event tickets or short-term lodging. The Commission recognizes
that many comments to the proposed rule focused on the application of
the rule to specific industries or pricing scenarios. As a result of
the Commission's decision to limit this final rule to live-event
ticketing and short-term lodging, the
[[Page 2082]]
Commission need not respond to each of these comments at this time.
In addition, wherever possible, the Commission works to reduce
burden on, and maintain pricing flexibility for, businesses. Finally,
the Commission provides guidance and explanation to respond to specific
questions and hypotheticals posed by commenters to help give additional
clarity to businesses. The following discussion provides a section-by-
section analysis of the NPRM's proposed provisions and the provisions
adopted in the final rule, as well as a discussion of the comments
received and the Commission's responses.
A. Sec. 464.1 Definitions
Proposed Sec. 464.1 contained definitions for the following terms:
``ancillary good or service''; ``business''; ``clear(ly) and
conspicuous(ly)''; ``government charges''; ``pricing information'';
``shipping charges''; and ``total price.'' The Commission received
various comments with respect to these definitions, including
particular industries' requests for exemption from the definition of
``business'' and other suggestions. Section 464.1 of the final rule
adopts these definitions, in some instances with minor modifications
for clarification, and adds a definition for ``covered good or
service.'' In the definition-by-definition analysis, the Commission
discusses each definition proposed in the NPRM, any changes to the
definition's text, the added definition, and other comments relevant to
the definitions section that are not otherwise addressed in the
discussion of the final rule's substantive provisions.
1. Ancillary Good or Service
Proposed Sec. 464.1(a) in the NPRM defined ``ancillary good or
service'' as ``any additional good(s) or service(s) offered to a
consumer as part of the same transaction.'' This definition was
relevant to the definition of ``total price,'' in proposed Sec.
464.1(g), which specified that any mandatory fees or charges for such
goods or services would be included in total price. Commenters proposed
modifications to the definition of ``ancillary good or service'' but,
following review of those comments and as discussed in this section,
the Commission declines to adopt the suggested modifications. Final
Sec. 464.1 adopts the definition of ``ancillary good or service''
without modification.
Several commenters recommended that the Commission modify the
definition of ``ancillary good or service'' to state that fees charged
by a third party must be included in total price if those fees are part
of the same transaction.\149\ As stated in the NPRM, if a business
advertises a price for a good or service that requires an ancillary
good or service provided by another entity, the charge for the
mandatory ancillary good or service must be included in total price.
Additionally, the NPRM made clear that the definition includes goods
and services (whether from the seller or third parties) offered as part
of the same transaction, because it included examples of mandatory
ancillary goods or services that may be offered by third-party
providers but are part of the same transaction, such as a payment
processing fee for an online transaction. Accordingly, the Commission
does not believe that it is necessary to modify the definition of
``ancillary good or service'' to clarify that fees charged by a third
party must be included in total price if those fees are part of the
same transaction.
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\149\ FTC-2023-0064-3191 (Community Catalyst et al.); FTC-2023-
0064-3283 (National Consumer Law Center, Prison Policy Initiative,
and advocate Stephen Raher).
---------------------------------------------------------------------------
Several commenters also suggested that the Commission add language
referring to a reasonable consumer in the definition of ``ancillary
good or service,'' to clarify that only goods or services that a
``reasonable consumer'' would expect to be included must be included in
total price.\150\ The Commission does not believe that adding
``reasonable consumer'' to the definition of ``ancillary good or
service'' is necessary, as the reasonable consumer standard is implicit
in the rule text. Under longstanding precedent, the Commission examines
conduct from the perspective of a consumer acting reasonably under the
circumstances.\151\ If a representation or practice affects or is
directed primarily to a particular group, the Commission examines
reasonableness from the perspective of an ordinary member of that
group.\152\ Accordingly, the Commission does not believe it is
necessary to modify the definition of ``ancillary good or service'' to
refer to a reasonable consumer.
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\150\ FTC-2023-0064-3268 (Housing & Eviction Defense Clinic,
University of Connecticut School of Law, commented ``the definition
of an `Ancillary Good or Service' should be amended to include all
fees that are not reasonably avoidable and all fees or charges for
goods or services that a reasonable consumer would expect to be
included with the purchase.''); FTC-2023-0064-3275 (Berkeley Center
for Consumer Law & Economic Justice et al. recommended the
definition of ``Ancillary Good or Service'' be revised ``to mean
`any optional, additional good(s) or service(s), offered to a
consumer as part of the same transaction, that a reasonable consumer
would not expect to be included with the purchase of the advertised
good or service.''); FTC-2023-0064-3160 (Consumer Federation of
America et al. proposed the definition of ``Ancillary Good or
Service'' be modified to ``any optional, additional good(s) or
service(s), offered to a consumer as part of the same transaction,
that a reasonable consumer would not expect to be included with the
purchase of the advertised good or service.'').
\151\ Deception Policy Statement, 103 F.T.C. at 175, 177-82; see
also FTC v. Cantkier, 767 F. Supp. 2d 147, 151-52 (D.D.C. 2011)
(applying deception standard set forth in the Deception Policy
Statement); POM Wonderful, LLC v. FTC, 777 F.3d 478, 490, 500 (D.C.
Cir. 2015) (applying deception standard set forth in the Deception
Policy Statement and upholding administrative law judge
determination that `` `a significant minority' of `reasonable'
consumers `would interpret [the ad] to be claiming that drinking
eight ounces of POM Juice daily prevents or reduces the risk of
heart disease.' ''); FTC v. World Travel Vacation Brokers, Inc., 861
F.2d 1020, 1029 (7th Cir. 1988) (upholding lower court's
determination that `` `the $29 airfare promotion constituted the
type of misrepresentation upon which a reasonably prudent person
would rely' ''); Fed. Trade Comm'n, FTC Policy Statement on
Unfairness (appended to In re Int'l Harvester Co., 104 F.T.C. 949,
1070, 1073 (1984), (hereinafter ``Unfairness Policy Statement''),
https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-104/ftc_volume_decision_104__july_-_december_1984pages949_-_1088.pdf
(``To justify a finding of unfairness the [consumer] injury must . .
. be an injury that consumers themselves could not reasonably have
avoided.'').
\152\ Deception Policy Statement, 103 F.T.C. at 175, 179 (``For
instance, if a company markets a cure to the terminally ill, the
practice will be evaluated from the perspective of how it affects
the ordinary member of that group.'').
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One commenter argued, in the context of online movie ticket
purchases, that online convenience fees are reasonably avoidable
because consumers can purchase tickets in-person at a theater without
incurring the fees.\153\ Although a movie ticket is not a covered good
or service, similar convenience fees are common in the live-event
ticketing industry. The Commission disagrees with the commenter that
online convenience fees are reasonably avoidable: If a consumer must
pay a service or other fee in order to purchase tickets online (i.e.,
as part of the same transaction), then such a fee must be included in
total price when it appears online. In addition, using vague fee
descriptions, such as an unspecified ``convenience'' fee, may violate
Sec. Sec. 464.2(c) and 464.3 by failing to disclose clearly and
conspicuously, and by misrepresenting, the nature or purpose of fees or
the identity of the good or service for which fees or charges are
imposed.
---------------------------------------------------------------------------
\153\ FTC-2023-0064-3292 (National Association of Theatre
Owners).
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Another commenter argued that the definition of ``ancillary good or
service'' should ``not turn on whether the good or service is `offered'
to a consumer but whether it is `required to be purchased' by the
consumer.'' \154\ The commenter proposed that the Commission
[[Page 2083]]
incorporate the word ``mandatory'' into the definition of ``ancillary
good or service.'' The Commission disagrees with this proposed
modification. As discussed in the NPRM, an ancillary good or service
may be mandatory or optional. Whether the cost of the ancillary good or
service must be incorporated into total price turns on whether the good
or service is mandatory, which depends on the facts of a
transaction.\155\ For example, if a hotel offers a consumer the option
to purchase or decline a trip protection plan with a room reservation,
the plan would be an optional ancillary good or service because the
consumer has the option to decline the trip insurance. Conversely, a
hotel may require all guests to purchase a daily breakfast voucher. In
this case, the hotel guest cannot avoid being charged for the voucher,
and it is a mandatory ancillary good or service. If a business charges
payment processing fees that the consumer cannot reasonably avoid, such
fees would be for a mandatory ancillary good or service.
---------------------------------------------------------------------------
\154\ FTC-2023-0064-3206 (Motor Vehicle Protection Products
Association et al.).
\155\ See infra section III.A.8.a.
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It is also possible that a good or service may be mandatory in one
transaction but optional in another.\156\ For example, if a hotel
allows a guest to purchase amenities such as bottled water or pool
towels for an additional fee but permits each guest to supply their own
water or pool towels, such amenities would be optional ancillary goods
or services. If, however, the hotel requires all patrons to use the
hotel-provided amenities for a fee, then the amenities would be
mandatory ancillary goods or services. Because ancillary goods or
services may be either mandatory or optional, the Commission declines
to add the word ``mandatory'' into the definition of ``ancillary good
or service.''
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\156\ The Commission notes that several commenters
misinterpreted the definition of ``Ancillary Good or Service'' as
necessarily being optional. See, e.g., FTC-2023-0064-3145
(Association of National Advertisers, Inc. stated that ``Ancillary
fees, by definition, are not `mandatory' and should not be
characterized as `mandatory' fees subject to the proposed disclosure
requirements.''); FTC-2023-0064-1425 (Iowa Bankers Association
stated, ``While the definition of Total Price includes `mandatory'
Ancillary Goods or Services, the actual definition [of Ancillary
Good or Service] seems to speak to the discretionary aspect of this
term.''). The Commission reiterates that the rule text is clear:
Ancillary Goods or Services may be mandatory or optional, depending
on the facts of a particular transaction.
---------------------------------------------------------------------------
Some commenters also asked the Commission for additional guidance
as to when a good or service might be considered ancillary,
particularly if a good or service includes variable costs.\157\ The
Commission addresses pricing scenarios, including those pertaining to
contingent or variable fees, in section III.B.1.a. Another commenter
stated that the use of the word ancillary was unclear, because it
``implies a relationship between a primary object and the ancillary
object'' and does not include guidance concerning the primary
object.\158\ The Commission cannot identify in every possible situation
which good or service would be the ``primary object'' versus an
ancillary good or service because such a determination is fact-specific
and will depend on the goods or services offered by individual
businesses.
---------------------------------------------------------------------------
\157\ FTC-2023-0064-3172 (New Jersey Apartment Association);
FTC-2023-0064-3296 (Bay Area Apartment Association).
\158\ FTC-2023-0064-3206 (Motor Vehicle Protection Products
Association et al.).
---------------------------------------------------------------------------
For the foregoing reasons, and based on its review of the comments
received, the Commission adopts the definition of ``ancillary good or
service'' set forth in the NPRM. As discussed in section III.A.8, to
address comments and clarify the rule, the Commission modifies the
definition of total price to further clarify that under final Sec.
464.2(a), Businesses may exclude from total price fees or charges for
any optional ancillary good or service.
2. Business
Proposed Sec. 464.1(b) defined ``business'' as ``an individual,
corporation, partnership, association, or any other entity that offers
goods or services, including, but not limited to, online, in mobile
applications, and in physical locations.'' As part of the NPRM, the
Commission also proposed a carve-out for certain motor vehicle dealers
required to comply with the Combating Auto Retail Scams Trade
Regulation Rule (``CARS Rule''),\159\ and for the carve-out to become
effective upon the CARS Rule's effective date. The CARS Rule provides
for certain pricing disclosure requirements and prohibits
misrepresentations. Final Sec. 464.1 adopts the first sentence of the
proposed definition of ``business,'' but removes the carve-out for
motor vehicles required to comply with the CARS Rule because of the
final rule's narrowed scope.
---------------------------------------------------------------------------
\159\ 16 CFR part 463.
---------------------------------------------------------------------------
In the NPRM, the Commission sought input as to whether it should
modify the proposed definition of ``business'' to exclude certain
businesses, or whether it should add a definition of ``covered
business'' to narrow the businesses subject to the rule. The NPRM also
included several questions concerning how to define ``covered
business'' in the event the Commission opted to adopt such a
definition. The Commission received broad support for an industry-
neutral rule from individual commenters, consumer groups, and industry
organizations. Commenters cited the prevalence of hidden and deceptive
fees across a variety of industries and argued that broad exemptions
would create an uneven economic playing field and confuse consumers by
creating unpredictability across industries.\160\ Conversely, the
Commission received numerous comments asking that it narrow the rule to
specific industries, including, for example, live-event ticketing and
short-term lodging. Several commenters also urged the Commission to
exempt certain industries, arguing that the rule would pose challenges
for those industries or that those industries are already subject to
existing regulations.
---------------------------------------------------------------------------
\160\ See, e.g., FTC-2023-0064-2887 (Progressive Policy
Institute); FTC-2023-0064-3160 (Consumer Federation of America et
al.); FTC-2023-0064-3275 (Berkeley Center for Consumer Law &
Economic Justice et al.).
---------------------------------------------------------------------------
Following its review of the comments, the Commission narrows
application of the final rule to covered goods or services, those
involving live-event tickets or short-term lodging. While the comments
demonstrated that bait-and-switch pricing and misleading fees and
charges inflict harms on consumers across the economy, the rulemaking
record reveals longstanding concerns with these unfair and deceptive
practices within the live-event ticketing and short-term lodging
industries in particular. The final rule addresses these industries
first. The Commission addresses the definition of ``covered good or
service'' in section III.A.4.
The Commission received comments requesting modifications to
various definitions, including the definition of ``business,'' or
wholesale exemptions from the proposed rule's coverage related to
issues in particular industries, including auto dealers and service
providers,\161\ app-based delivery platforms,\162\ financial services
[[Page 2084]]
providers,\163\ franchised businesses,\164\ funeral service
providers,\165\ rental housing,\166\ restaurants and other food and
beverage service providers,\167\ telecommunications providers,\168\
vending machine retailers,\169\ movie theaters,\170\ health and fitness
centers,\171\ higher education institutions,\172\ recreational vehicles
and marine crafts,\173\ and towing companies.\174\ The Commission's
decision to narrow the final rule to covered goods or services renders
these requests inapplicable, and as such, the Commission does not
address them at this time.
---------------------------------------------------------------------------
\161\ E.g., FTC-2023-0064-3276 (Automotive Service Association);
FTC-2023-0064-3206 (Motor Vehicle Protection Products Association et
al.); FTC-2023-0064-3189 (National Automobile Dealers Association);
FTC-2023-0064-3121 (National Independent Automobile Dealers
Association).
\162\ E.g., FTC-2023-0064-3263 (Flex Association); FTC-2023-
0064-3202 (TechNet); FTC-2023-0064-3238 (Gibson, Dunn & Crutcher
LLP).
\163\ E.g., FTC-2023-0064-3139 (American Bankers Association and
Consumer Bankers Association); FTC-2023-0064-2893 (America's Credit
Unions); FTC-2023-0064-3168 (American Financial Services
Association); FTC-2023-0064-3147 (American Land Title Association);
FTC-2023-0064-1425 (Iowa Bankers Association); FTC-2023-0064-1941
(Independent Bankers Association of Texas); FTC-2023-0064-3182
(Massachusetts Bankers Association); FTC-2023-0064-3119 (Money
Services Business Association, Inc.); FTC-2023-0064-3144 (Mortgage
Bankers Association); FTC-2023-0064-3127 (U.S. Chamber of Commerce).
\164\ E.g., FTC-2023-0064-3294 (International Franchise
Association); FTC-2023-0064-3141 (Coalition of Franchisee
Associations); FTC-2023-0064-3211 (American Association of
Franchisees & Dealers).
\165\ E.g., FTC-2023-0064-3210 (Service Corporation
International); FTC-2023-0064-3065 (Carriage Services, Inc.); FTC-
2023-0064-3130 (International Cemetery, Cremation & Funeral
Association).
\166\ E.g., FTC-2023-0064-3152 (Building Owners & Managers
Association et al.); FTC-2023-0064-3116 (Manufactured Housing
Institute); FTC-2023-0064-3133 (National Multifamily Housing Council
and National Apartment Association); FTC-2023-0064-3172 (New Jersey
Apartment Association); FTC-2023-0064-3289 (Zillow Group). As
explained in section III.A.4, the Commission does not intend to
cover rental housing providers in its definition of ``Covered Good
or Service'' at this time.
\167\ E.g., FTC-2023-0064-0264 (Individual Commenter); FTC-2023-
0064-2953 (Individual Commenter); FTC-2023-0064-2124 (Individual
Commenter); FTC-2023-0064-3022 (Individual Commenter); FTC-2023-
0064-3021 (Individual Commenter); FTC-2023-0064-3300 (National
Restaurant Association); FTC-2023-0064-3219 (Georgia Restaurant
Association); FTC-2023-0064-3180 (Independent Restaurant Coalition);
FTC-2023-0064-3078 (Washington Hospitality Association); FTC-2023-
0064-3080 (UNITE HERE); FTC-2023-0064-2918 (Elite Catering + Event
Professionals).
\168\ E.g., FTC-2023-0064-3234 (CTIA--The Wireless Association);
FTC-2023-0064-3295 (USTelecom--The Broadband Association); FTC-2023-
0064-2884 (NTCA--The Rural Broadband Association); FTC-2023-0064-
3143 (ACA Connects).
\169\ E.g., FTC-2023-0064-2919 (National Automatic Merchandising
Association).
\170\ E.g., FTC-2023-0064-3292 (National Association of Theatre
Owners).
\171\ E.g., FTC-2023-0064-3269 (IHRSA--The Health & Fitness
Association).
\172\ E.g., FTC-2023-0064-2906 (National Association of College
& University Business Officers et al.).
\173\ E.g., FTC-2023-0064-3249 (Marine Retailers Association of
the Americas); FTC-2023-0064-3251 (National RV Dealers Association).
\174\ Towing & Recovery Association of America, Inc. submitted a
late comment, which the Commission considered in its discretion and
makes available at https://www.ftc.gov/system/files/ftc_gov/pdf/R207011TRAAComment.pdf.
---------------------------------------------------------------------------
The Commission received comments from various third-party travel
service providers, including online travel agencies and travel
advisors, arguing that third-party travel intermediaries and advisors
are situated differently from underlying travel service providers and
may be subject to existing Department of Transportation (``DOT'')
regulations. Online travel agencies and travel advisors routinely
offer, display, or advertise prices of covered goods or services to
consumers, including businesses, which is conduct covered by the final
rule. One industry group representing travel advisors argued that
travel advisors do not set the price of underlying travel products and
rely on the sellers of such products to provide accurate pricing
information.\175\ The commenter requested that the Commission include a
``safe harbor mechanism'' to protect travel advisors who may rely on
inaccurate pricing information provided by sellers. The Commission
declines to exclude travel advisors from the rule or to provide them
with a safe harbor. The Commission addresses in section III.B.1.f
requests for immunity for third-party intermediaries.
---------------------------------------------------------------------------
\175\ FTC-2023-0064-3106 (American Society of Travel Advisors).
---------------------------------------------------------------------------
The Commission also received comments from online travel agencies
seeking an exemption from the rule for airfare or bundled products that
include airfare, arguing that the FTC Act does not confer jurisdiction
over airlines and, further, that DOT's Full Fare Advertising Rule
requires certain pricing disclosures for airfare.\176\ As noted in the
NPRM, the Commission's enforcement of its rule is subject to all
existing limitations of the law and the Commission cannot bring a
complaint to enforce its rule if doing so would exceed the Commission's
jurisdiction or constitutional limitations. The Commission declines to
exempt online travel agencies from the rule. However, the Commission
notes that, where there is overlap between this rule and the DOT's Full
Fare Advertising Rule on the treatment of government charges (i.e., in
the context of bundled travel packages, such as for airfare and hotels,
the Full Fare Advertising Rule requires the inclusion of government
taxes and fees in the total price), complying with both rules is
feasible. While this rule permits businesses to exclude government
charges from total price, it does not require them to do so.
---------------------------------------------------------------------------
\176\ See, e.g., FTC-2023-0064-3293 (Travel Technology
Association); FTC-2023-0064-3262 (Skyscanner).
---------------------------------------------------------------------------
The Commission received a comment from a gaming association seeking
an exemption for Federally recognized Indian Tribes and Tribal entities
as governments that act for the benefit of their tribal citizens.\177\
The commenter asserted that the Commission does not generally exercise
regulatory authority over such entities. The comment focused on Tribal
government casinos and explained that Tribal casino revenues are used
for essential Tribal government services and community development,
including education, healthcare services, housing, and infrastructure
development.\178\
---------------------------------------------------------------------------
\177\ FTC-2023-0064-3120 (Arizona Indian Gaming Association).
\178\ Id.
---------------------------------------------------------------------------
The Commission recognizes that some Tribal Government casinos and
other businesses may operate as hotels or live-event venues, or may
otherwise offer goods or services that fit within the definition of
covered good or service. Nevertheless, the Commission declines to
exempt Federally recognized Indian Tribes and Tribal entities from
coverage under the final rule. The FTC Act is a law of general
applicability that applies to such entities, as well as individual
members thereof.\179\ The Commission recognizes that, in some
instances, these entities may be organized in such a way that they are
outside FTC jurisdiction, but whether a given Tribe or Tribal business
is a corporation within the scope of the FTC Act is a fact-dependent
inquiry.\180\ The Commission is not aware of any evidence to suggest
that the final rule would disproportionately impact such entities or
that it would have any impact on their ability to continue to use
revenues for government services or community development.
---------------------------------------------------------------------------
\179\ See Fed. Power Comm'n v. Tuscarora Indian Nation, 362 U.S.
99, 116-17 (1960) (examining case law supporting the conclusion that
``a general statute in terms applying to all persons includes
Indians and their property interests''); FTC v. AMG Servs., Inc.,
No. 2:12-CV-00536-GMN, 2013 WL 7870795, at * 16-21 (D. Nev. July 16,
2013), R. & R. adopted, 2014 WL 910302 (D. Nev. Mar. 7, 2014)
(discussing the FTC Act's applicability to Federally recognized
Tribes and Tribal businesses).
\180\ See, e.g., AMG Servs., 2013 WL 7870795, at * 22-23
(holding there was a genuine dispute of material fact barring
summary judgment on question of whether Tribal chartered
corporations were for-profit corporations under the FTC Act).
---------------------------------------------------------------------------
The Commission received a comment seeking an exemption for all
franchised businesses. The commenter raised concerns that franchised
businesses may lose out on the benefit of national
[[Page 2085]]
advertising campaigns, asserting that ``[u]nder the Proposed Rule,
national marketing campaigns are only workable if all franchised
businesses in a franchise system adhere to the same pricing regime
(including pass-through fees), regardless of the economic demands of
the market in which they operate.'' \181\ The commenter also raised
concerns particular to restaurant franchises.\182\
---------------------------------------------------------------------------
\181\ FTC-2023-0064-3294 (International Franchise Association).
\182\ Id.
---------------------------------------------------------------------------
The Commission declines to exclude franchised businesses from the
final rule. As the commenter notes, franchised businesses include
hotels, restaurants, and fitness centers, among other businesses. The
Commission's addition of the ``covered good or service'' definition
narrows the rule's application to businesses that make available live-
event tickets or short-term lodging and moots the commenter's concerns
regarding restaurants or other franchises. Further, the final rule
applies equally to franchised and non-franchised businesses, including
hotels. The commenter has not provided any evidence to suggest that the
rule will disproportionately impact franchised businesses. As to the
commenter's contention that application of the rule will negatively
impact franchised businesses' ability to benefit from national
advertising campaigns, the Commission addresses commenters' questions
and concerns about national advertising campaigns in section III.B.1.d.
The commenter also urged the Commission to exclude from the rule
sellers of franchises (``franchisors'') subject to the FTC's Disclosure
Requirements and Prohibitions Concerning Franchising Rule (``Franchise
Rule''), arguing that the rule's total price requirement would
undermine the Franchise Rule's requirement to itemize specific
fees.\183\ Two commenters representing franchised businesses
(``franchisees''), however, urged the Commission to address ``the types
of fees that are charged to franchisees by franchisors,'' which are not
subject to the Franchise Rule.\184\
---------------------------------------------------------------------------
\183\ Id.
\184\ FTC-2023-0064-3141 (Coalition of Franchisee Associations);
FTC-2023-0064-3211 (American Association of Franchisees & Dealers).
---------------------------------------------------------------------------
The Franchise Rule, 16 CFR part 436, requires franchisors, in
connection with the offer or sale of a franchise, to provide
prospective franchisees with specific information about the fees and
charges necessary to begin operation of the franchised business,
including the estimated initial investment, expected fees, and other
expenses.\185\ Because the final rule is limited to prices for covered
goods or services and ancillary goods or services offered as part of
the same transaction, it would not apply to an offer or sale of a
franchise, including a hotel franchise. However, the Commission
reiterates that franchised businesses must comply with the final rule
in its entirety when selling covered goods or services.
---------------------------------------------------------------------------
\185\ 16 CFR 436.5; see also Fed. Trade Comm'n, Staff Guidance
on the Unlawfulness of Undisclosed Fees Imposed on Franchisees (July
2024), https://www.ftc.gov/system/files?file=ftc_gov/pdf/Franchise-Staff-Guidance.pdf.
---------------------------------------------------------------------------
One industry group recommended that the definition of ``business''
be limited to ``an individual, corporation, partnership, association,
or any other entity that offers goods or services to consumers,'' with
the purpose of exempting business-to-business transactions from the
scope of the final rule.\186\ Another industry group similarly
requested that the Commission exempt business-to-business transactions
from the scope of the final rule.\187\ As set forth in section
III.B.1.f, the Commission believes that application of the rule to
business-to-business transactions is appropriate and necessary to
provide the Commission with the tools necessary to seek redress from
businesses that violate the law. The final rule covers both business-
to-consumer transactions and business-to-business transactions, so no
modification to the definition of ``business'' is required.
---------------------------------------------------------------------------
\186\ FTC-2023-0064-3189 (National Automobile Dealers
Association).
\187\ FTC-2023-0064-3294 (International Franchise Association).
---------------------------------------------------------------------------
3. Clear(ly) and Conspicuous(ly)
Proposed Sec. 464.1(c) in the NPRM defined ``clear(ly) and
conspicuous(ly),'' consistent with longstanding FTC practice, as ``a
required disclosure that is difficult to miss (i.e., easily noticeable)
and easily understandable,'' and listed proposed specifications for
``visual disclosure[s],'' ``audible disclosure[s],'' and ``any
communication using an interactive electronic medium.'' Among other
specifications, the definition explained that the disclosure ``must be
made through the same means through which the communication is
presented.'' The proposed definition also provided that disclosures
``must use diction and syntax understandable to ordinary consumers and
must appear in each language in which the representation that requires
disclosure appears'' and ``must not be contradicted or mitigated by, or
inconsistent with, anything else in the communication.'' The proposed
definition further made clear that for ``representations or sales
practice[s]'' targeting specific audiences, ``such as children, older
adults, or the terminally ill, `ordinary consumers' includes reasonable
members of that group.'' The Commission finalizes the definition of
``clear(ly) and conspicuous(ly)'' proposed in Sec. 464.1(c) with minor
clarifications to harmonize the language and terminology used in this
provision with the terminology used in recent rulemakings and agency
guidance.
Specifically, proposed Sec. 464.1(c) provided that a required
disclosure must be ``difficult to miss (i.e., easily noticeable).''
Final Sec. 464.1 reverses the order of the phrases ``easily
noticeable'' and ``difficult to miss,'' and, thus, provides that a
required disclosure must be ``easily noticeable (i.e., difficult to
miss).'' Additionally, in final Sec. 464.1, the Commission adds
language to clarify that required disclosures must be ``easily
understandable by ordinary consumers.'' In final Sec. 464.1, the
Commission deletes reference to ``reasonable'' members of a
specifically targeted group. Each of these modifications is to comport
with the Commission's recently finalized Trade Regulation Rule on the
Use of Consumer Reviews and Testimonials and the Negative Option Rule,
as well as the Commission's Endorsement Guides.\188\ Moreover, as noted
in section II.B., the Commission examines conduct from the perspective
of a consumer acting reasonably under the circumstances, and if a
representation or practice affects or is directed primarily to a
particular group, the Commission examines reasonableness from the
perspective of an ordinary member of that group.\189\ In final Sec.
464.1, the Commission also includes ``mobile
[[Page 2086]]
applications'' within the definition of ``clear(ly) and
conspicuous(ly).'' This addition clarifies that ``mobile applications''
constitute interactive media devices under item (4) of the definition.
The Commission does not believe that these modifications substantively
alter the definition of ``clear(ly) and conspicuous(ly).''
---------------------------------------------------------------------------
\188\ See Promulgation of Trade Regulation Rule and Statement of
Basis and Purpose: Rule Concerning Recurring Subscriptions and Other
Negative Option Programs, 89 FR 90476 (Nov. 15, 2024), https://www.federalregister.gov/documents/2024/11/15/2024-25534/negative-option-rule (amending 16 CFR 425.4); 16 CFR part 465; Promulgation
of Trade Regulation Rule and Statement of Basis and Purpose: Rule on
the Use of Consumer Reviews and Testimonials, 89 FR 68034 (Oct. 22,
2024), https://www.federalregister.gov/documents/2024/08/22/2024-18519/trade-regulation-rule-on-the-use-of-consumer-reviews-and-testimonials; Guides Concerning Use of Endorsements and Testimonials
in Advertising, 16 CFR 255.0(f). The Commission notes that it
declines to adopt every modification adopted in the finalized Rule
on the Use of Consumer Reviews and Testimonials, based on the goals
of each rule and the comment record.
\189\ See Deception Policy Statement, 103 F.T.C. at 175, 177-82;
Unfairness Policy Statement, 104 F.T.C. at 1073; and other sources
cited supra notes 151-52.
---------------------------------------------------------------------------
The Commission declines to adopt several modifications to the
definition of ``clear(ly) and conspicuous(ly)'' proposed by a consumer
group. First, the commenter suggested that the Commission add ``limited
English proficient consumers'' to the list of specific audience-types
that a representation or sales practices may target in proposed Sec.
464.1(c)(8) to make clear that disclosures are understandable for both
English and limited-English speakers.\190\ The Commission does not
believe such a modification is necessary. While the definition includes
examples of specific audiences who may be targeted by particular sales
practices or representations, the use of ``such as'' is intended to
make clear these are examples, rather than an exhaustive list of
categories of consumers who may be targeted. The Commission further
notes that final Sec. 464.1 requires that the disclosures ``must
appear in each language in which the representation that requires the
disclosure appears.''
---------------------------------------------------------------------------
\190\ FTC-2023-0064-3160 (Consumer Federation of America et
al.).
---------------------------------------------------------------------------
The commenter also suggested that the Commission add language to
require that disclosures on interactive electronic media ``be capable
of being printed and saved in an easily readable format.'' \191\ The
Commission does not believe such a modification is necessary. The
definition considers the various types of media through which consumers
and businesses transact and, for all types of media, the definition
requires the disclosures to be ``easily noticeable (i.e., difficult to
miss).'' Thus, the Commission believes that the definition provides
businesses with flexibility to continue transacting effectively and
efficiently through different media, while ensuring sufficient consumer
understanding of required disclosures. The commenter further proposed
that the rule clarify that disclosures must be concise to discourage
businesses from ``listing hundreds of optional fees, identifying fees
that would not be applicable to the consumer, providing a description
that uses complex jargon, [or is] unnecessarily lengthy.'' \192\ The
definition already addresses these concerns by setting forth what
``clear(ly) and conspicuous(ly)'' means: using simple terms that
provide sufficient information about how businesses can formulate
disclosures that are easily understandable and noticeable to consumers.
The definition provides that disclosures ``must stand out from any
accompanying text or other visual elements'' to be ``easily noticed,
read, and understood.''
---------------------------------------------------------------------------
\191\ Id.
\192\ Id.
---------------------------------------------------------------------------
An automobile industry group urged the Commission to remove
``required disclosure'' from the definition of ``clear(ly) and
conspicuous(ly),'' arguing that ``the NPRM is silent on what those
required disclosures actually are.'' \193\ The Commission disagrees and
notes that the final rule modifies Sec. 464.2(a) through (c) to
provide greater clarity concerning what needs to be disclosed,
including total price and other information related to fees or charges
that were excluded from total price, and the nature, timing, and
prominence of those disclosures. Those modifications are discussed in
detail in section III.B.
---------------------------------------------------------------------------
\193\ FTC-2023-0064-3206 (Motor Vehicle Protection Products
Association et al.).
---------------------------------------------------------------------------
One commenter on behalf of members in the financial services
industry asserted that the definition of ``clear(ly) and
conspicuous(ly)'' may conflict with requirements of certain financial
services regulations, which do not generally require a certain text
size or placement, but do require that certain disclosures be made with
``equal prominence and in close proximity to certain trigger terms.''
\194\ The Commission does not believe that financial services
regulations are implicated by the final rule's more narrow application
to covered goods or services. Nonetheless, the Commission notes that
the definition does not require a particular text size or placement;
the definition states that ``clear(ly) and conspicuous(ly)'' requires a
visual disclosure to ``stand out from any accompanying text or other
visual elements so that it is easily noticed, read, and understood.''
---------------------------------------------------------------------------
\194\ FTC-2023-0064-1425 (Iowa Bankers Association).
---------------------------------------------------------------------------
A commenter on behalf of marketing and advertising businesses
criticized the proposed definition of ``clear(ly) and conspicuous(ly)''
as imposing ``prescriptive visual and audio disclosure[s] . . . that
may not cleanly map onto all advertising mediums'' and argued that a
business's compliance obligations may not be clear if the business
relies on advertising mediums not mentioned in the definition.\195\ The
commenter urged the Commission to allow for sufficient flexibility ``to
better accommodate current and future advertising mediums that may not
allow for the contemplated disclosures,'' in particular to make it
easier for small businesses to comply with the rule.\196\ The commenter
did not provide any examples of advertising media that would make it
difficult to comply with the rule and did not suggest alternative
language. Similarly, a commenter representing app-based delivery
platforms noted the limited space for disclosures on delivery platforms
and asserted that the rule lacked clarity as to how such platforms
should comply.\197\
---------------------------------------------------------------------------
\195\ FTC-2023-0064-3145 (Association of National Advertisers,
Inc.).
\196\ Id.
\197\ FTC-2023-0064-3263 (Flex Association).
---------------------------------------------------------------------------
The Commission believes that the definition of ``clear(ly) and
conspicuous(ly)'' provides basic, common-sense, and flexible principles
to address current and future advertising media. For example, the
definition requires that visual disclosures be in a size and font that
consumers will easily notice and not be obscured by other text and that
audible disclosures be at a volume, speed, and cadence that consumers
will easily understand. In keeping with longstanding Commission
interpretation and guidance, the definition does not mandate specific
fonts, text-size, or volume, or otherwise impose a one-size-fits-all
approach. Instead, it provides substantial flexibility to businesses in
meeting the rule's disclosure requirements so long as consumers take
away an accurate understanding of the disclosure. The Commission has
published multiple resources to assist businesses in ensuring that
disclosures are clear and conspicuous, including a guide specifically
geared toward digital and mobile advertising.\198\
---------------------------------------------------------------------------
\198\ See Fed. Trade Comm'n, Bureau of Consumer Protection
Business Guidance, .com Disclosures: How to Make Effective
Disclosures in Digital Advertising 7, 18 (Mar. 2013), https://www.ftc.gov/system/files/documents/plain-language/bus41-dot-com-disclosures-information-about-online-advertising.pdf.
---------------------------------------------------------------------------
4. Covered Good or Service
In the NPRM, the Commission solicited comment on whether it should
narrow the businesses covered by the rule to particular industries or
to covered businesses, and if so, how to define covered
businesses.\199\ The final rule includes a definition for ``covered
good or service'' to include: (1) Live-event tickets; or (2) Short-term
lodging, including temporary sleeping accommodations at a hotel, motel,
inn, short-term rental, vacation rental or other place of lodging.
Under Sec. 464.2(a),
[[Page 2087]]
the final rule requires businesses that offer, display, or advertise
any price of a covered good or service to clearly and conspicuously
disclose the total price. In addition, Sec. 464.3 of the final rule
prohibits businesses that offer, display, or advertise a covered good
or service from misrepresenting any fees or charges.
---------------------------------------------------------------------------
\199\ NPRM, 88 FR 77481, Question 14.
---------------------------------------------------------------------------
The Commission received comments encouraging it to adopt an
industry-neutral rule and urging it not to limit the rule's application
to particular industries, as well as comments conversely urging it to
limit the rule to live-event ticketing and short-term lodging
industries. One advocacy group argued that narrowing application of the
final rule to a subset of industries would ``create an unlevel playing
field'' and alter competitive incentives.\200\ Other commenters argued
that hidden or deceptive fees are present across industries and often
impact vulnerable populations.\201\ Several commenters did not
specifically address the Commission's question regarding whether to add
a definition of ``covered business'' or how to define ``covered
business,'' but instead submitted comments highlighting unfair and
deceptive pricing practices in certain industries, and encouraging the
Commission to adopt a final rule applicable to those industries. Those
included comments concerning the motor vehicle industry; \202\ delivery
applications; \203\ the financial services industry; \204\ the
restaurant industry; \205\ the movie theater industry; \206\ tax
preparation services; \207\ and the health care industry.\208\
---------------------------------------------------------------------------
\200\ FTC-2023-0064-2887 (Progressive Policy Institute).
\201\ FTC-2023-0064-1519 (NYC Consumer and Worker Protection
argued that ``[c]onsumers deserve every business to be transparent
and fair about prices.''); FTC-2023-0064 (Berkeley Law stated that
``[r]estricting the Rule to particular industries would exclude some
of the most critical sectors that low-income people especially rely
on,'' including ``the rental housing market, tax preparation
services, payday lenders, and gift card merchants''); FTC-2023-0064-
3282 (NCLC highlighted hidden or deceptive fees in ``businesses that
offer credit, lease, or savings products'')
\202\ See, e.g., FTC-2023-0064-3160 (Consumer Federation of
America et al.); FTC-2023-0064-3270 (Consumer Federation of America,
National Consumer Law Center, National Association of Consumer
Advocates); see also FTC-2023-0064-2853 (Performance Auto Inc., an
individual car dealership, supported application of the rule to car
dealers.).
\203\ See, e.g., FTC-2023-0064-1939 (Tzedek DC).
\204\ See, e.g., FTC-2023-0064-3160 (Consumer Federation of
America et al.); FTC-2023-0064-3275 (Berkeley Center for Consumer
Law & Economic Justice et al.); see also FTC-2023-0064-0199 (``I
don't understand why I have to pay to have my credit card bill
mailed to me . . . .''); FTC-2023-0064-0258 (``I checked our account
and discovered that they had charged $10.00 for maintenance
fees.''); FTC-2023-0064-0418 (``Even credit unions are charging
insane fees it is bleeding us dry if we are broke already why are we
getting hit with fees for being poor''); FTC-2023-0064-0396 (``My
son is on SSI, and his bank charges him fees when his account goes
below $100! . . . How does this make sense? Banks should not have
fees like this. It [is] penalizing the poorest people!''); FTC-2023-
0064-0425 (``What bothers me is that my bank charges me $35 for
every overdraft!! I find that excessive! It's a lot of money,
especially when you don't have enough in the first place. It's like
being punished for being poor.''); FTC-2023-0064-0762 (``We have and
continue to pay unnecessary costs for services especially personal
loans and credit card debt. This makes payments for these loans much
more of a hardship than the initial being in need of the card or
loans was in the first place.'').
\205\ See, e.g., FTC-2023-0064-3248 (DC Jobs With Justice on
behalf of Fair Price, Fair Wage Coalition encouraged the Commission
to maintain an industry-neutral rule applicable to the restaurant
industry); FTC-2023-0064-2885 (AARP commented that many consumers
``feel deceived when faced with an unexpected mandatory charge,''
such as ``service fees,'' ``living wage fees,'' or ``kitchen fees,''
and ``would prefer these costs be incorporated into the price of
food so that they better understand restaurants' costs upfront.'');
FTC-2023-0064-0103 (Individual Commenter stated: ``[R]estaurants are
adding surcharges [for] providing health insurance, or to make sure
that kitchen crew receives a tip. But these are existing operating
costs that can and should be factored into the price. . . . On at
least a couple occasions, the add-on fee wasn't even disclosed until
the check.''); FTC-2023-0064-0119 (Individual Commenter stated:
``Fees of approximately 5-20% are often added to restaurant bills. .
. . They are often written in small font in inconspicuous places on
the menu or past blank space on websites. It's often unclear where
these additional fees are going and should be simply incorporated
into the menu prices.''); FTC-2023-0064-0120 (Individual Commenter
stated: ``Now restaurants are adding service fees instead of
increasing food price. I want to buy goods and services, I want to
know the full price, with all the extra fees and taxes before, not
after selecting a goods or service.''); FTC-2023-0064-0152)
(Individual Commenter stated: ``Tipping since covid is crazy now
too--and now these add on fees appear to be creeping into
restaurants. A local pizza restaurant added a 20% `gratuity fee' on
the bill--this was not a tip but an additional charge for `business
costs' and does not go to employees.''); FTC-2023-0064-0065
(Individual Commenter stated: ``A number of restaurants here in
Chicago are now adding surcharges that are only disclosed after you
get the check, or they are disclosed in small print on the menu,
which effectively makes the prices displayed on the menu
deceptive.''); FTC-2023-0064-0052 (Individual Commenter stated:
``Small businesses, particularly restaurants, have grown their use
of the type of non-transparent pricing practices that this rule aims
to address . . ., such as the inclusion in bills of various fees
that cannot be avoided (and that therefore should be part of the
total price)'').
\206\ See, e.g., FTC-2026-0064-1303 (Individual Commenter
stated: ``Just last night I tried to buy movie tickets (from the
movie theater's own app no less!) but the fees added 25% more to the
cost of the ticket! Ten dollars in fees on an app that the big movie
chain runs on its own!''); FTC-2023-0064-1469 (Individual Commenter
stated: ``I'm sick of paying for `convenience fees' when purchasing
tickets online (to live events and even the local movie theater),
even though there is no other way to purchase them.''); see also
FTC-2023-0064-3104 (Truth in Advertising, Inc.) (highlighting class
action lawsuits alleging failure to disclose the total cost of movie
ticket prices, inclusive of fees, in violation of New York State
law).
\207\ See, e.g., FTC-2023-0064-3275 (Berkeley Center for
Consumer Law & Economic Justice et al.).
\208\ See, e.g., FTC-2023-0064-3191 (Community Catalyst et al.).
---------------------------------------------------------------------------
Several commenters specifically urged the Commission to ensure that
the rental housing industry would be subject to the final rule,
including in any definition of ``covered business,'' to mitigate unfair
or deceptive fees imposed on renters.\209\ The Commission also received
numerous comments from individual consumers, consumer and policy
organizations, elected officials, legal service providers, and housing
advocates highlighting unfair and deceptive fees in the rental housing
industry.\210\ Conversely, advocates from
[[Page 2088]]
the rental housing industry urged the Commission to exempt rental
housing providers from any definition of ``covered business.'' \211\ A
rental housing advertising platform urged the Commission to adopt a
definition of ``covered business'' that excludes third-party
advertising platforms, arguing that third-party platforms do not direct
pricing and ``are not best positioned to meet the requirements of the
proposed rule.'' \212\
---------------------------------------------------------------------------
\209\ FTC-2023-0064-2888 (Housing Policy Clinic, University of
Texas School of Law stated, ``it is essential for the rule to cover
the rental housing industry in order to mitigate the harmful impacts
of unfair and deceptive fees on renters.''); FTC-2023-0064-2858
(U.S. House of Representatives, Rep. Maxwell Alejandro Frost, Rep.
Jimmy Gomez, Rep. Barbara Lee, Rep. Rashida Tlaib, Rep. Kevin
Mullin, Rep. Dwight Evans, Rep. Judy Chu, Rep. Greg Casar, Rep. Dan
Goldman, and Rep. Salud Carbajal encouraged an industry-neutral rule
but urged the Commission at minimum to include live-event ticketing,
short-term lodging, and the rental housing industries in the final
rule.); FTC-2023-0064-3275 (Berkeley Center for Consumer Law &
Economic Justice et al. commented that: ``Exempting landlords from
the Rule as other commenters have proposed would deprive the
Commission of a critical tool to challenge purveyors of junk fees
charged in connection with a basic necessity of life, one that is
disproportionately relevant to low-income consumers.'').
\210\ See, e.g., FTC-2023-0064-3218 (National Consumer Law
Center collected consumer comments highlighting: ``a `technology
fee' addendum that adds 1% fee of total rent on top of rental
cost''; ``an extra $255 in mandatory fees, for services I don't even
want''; and ``water, sewer, and garbage fees would be charged over
and above the base rent we agreed to . . . [that] could add as much
as $250 extra per month to our rent.''); FTC-2023-0064-3271 (U.S.
Senator Amy Klobuchar commented discussing a hearing conducted
concerning rental housing competition and noting that: ``[R]enters
are often hit with numerous junk fees that are only disclosed to
them when signing a lease--frequently after the renter has already
given notice to end a prior lease. . . . As a result, renters
struggle to meaningfully compare the cost of various housing
options.''); FTC-2023-0064-2888 (Housing Policy Clinic, University
of Texas School of Law commented: ``This lack of transparency robs
tenants of their opportunity to fairly participate in comparison
shopping in the rental housing market and can seriously disrupt
their financial well-being and housing stability.''); FTC-2023-0064-
3218 (National Consumer Law Center commented: ``With respect to the
rental housing market, the proposed rule would benefit consumers and
competition. By requiring disclosure of the actual cost of an
apartment, the rule would help renters to comparison shop and enable
them to find housing that fits their budget.''); FTC-2023-0064-3225
(CED Law described undisclosed fees experienced by its clients and
stated: ``Up front disclosure of all mandatory fees and accurate
representation of all fees charged would go a long way towards
ensuring low income renters like those we represent in Colorado
understand what their monthly housing expenses will be before being
locked into a lease agreement.''); FTC-2023-0064-0146 (Individual
Commenter stated they pay fees including for trash, electricity, and
``some other junk fees'' and argued that rental providers ``should
be forced to disclose all fees before lease signing and never be
able to add fees after the lease has been signed.''); FTC-2023-0064-
0157 (Individual Commenter highlighted mandatory added fees and
charges not disclosed in listed rental prices and stated:
``Landlords should not be allowed to force tenants into paying these
fees with no opt out or if the fees are allowed, then the landlord
must add that to the total monthly rent in advertisements so
prospective tenants have an accurate scope of what the real monthly
costs are.''); FTC-2023-0064-0229 (Individual Commenter described an
apartment company with fees: ``[I]ncluding a $20 mos. fee for
package delivery. It's a mandatory add-on. Many people do not get
packages. Including myself.''); FTC-2023-0064-0923 (Individual
Commenter stated their rental ``requires a number of fixed, non-
negotiable mandatory fees. . . . In my opinion, these fees allow the
company to advertise a lower monthly rental rate, intentionally
making it difficult for a prospective tenant to comparison shop and
compare rents from different organizations.'').
\211\ See, e.g., FTC-2023-0064-3172 (New Jersey Apartment
Association supported the rule's inclusion of a definition of
Covered Business and asked that rental housing providers be excluded
from the scope of Covered Business); see also FTC-2023-0064-3133
(National Multifamily Housing Council and National Apartment
Association).
\212\ FTC-2023-0064-3289 (Zillow Group).
---------------------------------------------------------------------------
On the other hand, the Commission also received comments in support
of a narrow definition of ``covered business'' limited to the live-
event ticketing and short-term lodging industries, including from
members of those industries.\213\ The U.S. Chamber of Commerce
recommended limiting the definition of covered businesses to ``the
live-event ticketing and/or short-term lodging industries,'' arguing
that unique aspects of these markets, including a robust secondary
market for live-event tickets and pressures on third-party lodging
intermediaries ``to advertise the lowest price to consumers to optimize
search outcomes,'' have shaped FTC research on all-in pricing and
appropriate remedies.\214\ One academic commenter likewise recommended
a definition of ``covered business'' limited to live-event ticketing
and short-term lodging, stating that these industries have been subject
to extensive research showing ``their use of across-the-board drip
pricing to be harmful.'' \215\
---------------------------------------------------------------------------
\213\ See, e.g., FTC-2023-0064-3127 (U.S. Chamber of Commerce);
FTC-2023-0064-2891 (Mary Sullivan, George Washington University,
Regulatory Studies Center); FTC-2023-0064-3233 (NCTA--The internet &
Television Association); see also FTC-2023-0064-3300 (National
Restaurant Association urged the Commission to exclude small
restaurants from a definition of ``Covered Business'').
\214\ FTC-2023-0064-3127 (U.S. Chamber of Commerce).
\215\ FTC-2023-0064-2891 (Mary Sullivan, George Washington
University, Regulatory Studies Center also stated that a rule
focused on the short-term lodging and live-event ticketing
industries would ``increase the chance of [the rule's] success'' and
provide well-defined limits for those Covered Businesses.)
---------------------------------------------------------------------------
Commenters from the live-event ticketing industry supported a rule
applicable to their industry, emphasizing that a total price
requirement will aid consumers and businesses alike if applied across
the entire industry.\216\ For example, TickPick, a secondary ticket
marketplace, commented that it already provides consumers with all-in
pricing and supports ``eliminating drip pricing from the live-event
ticketing industry,'' arguing that ``widespread use of hidden and/or
misleading fees harms consumers and market competition.'' \217\ StubHub
similarly commented that it ``strongly supports efforts to increase
price transparency for consumers nationwide with the federal adoption
of all-in pricing'' in the live-event ticketing industry. According to
StubHub, in 2014, it decided to display the all-in price to consumers
in the hopes of encouraging the remainder of the industry to follow
suit; however, it ``had no choice but to revert to its former pricing
display,'' which used dripped fees, because other platforms continued
to rely on drip pricing, making StubHub's all-in prices appear higher
than other platforms.\218\ Live Nation and its subsidiary, Ticketmaster
North America, likewise expressed concern that, absent a nationwide
rulemaking to implement all-in pricing, ``the current market realities
present barriers to implementing all-in pricing,'' because adopting
all-in pricing ``absent a mandate creates a first-mover disadvantage.''
\219\ Live Nation stated that the rule would ``increase pricing
transparency for fans and support competition in the ticketing
industry.'' \220\
---------------------------------------------------------------------------
\216\ See, e.g., FTC-2023-0064-3212 (TickPick, LLC stated that
it ``supports the Commission using its authority under Section 18 of
the FTC Act to address unfair and deceptive acts or practices
involving hidden and misleading fees.''); FTC-2023-0064-3266
(StubHub, Inc. commented that it ``strongly supports efforts to
increase price transparency for consumers nationwide with the
federal adoption of all-in pricing.''); FTC-2023-0064-3105
(Charleston Symphony commented: ``[R]equiring sellers to disclose
the total price clearly and conspicuously[ ] addresses a pressing
issue. . . . Predatory practices in the secondary ticket sales
market pose a significant threat to artists, venues, audiences, and
the future of nonprofit arts organizations, impacting the integrity
of the ticket-buying process and eroding audience confidence.'');
FTC-2023-0064-3122 (Vivid Seats stated that it ``supports additional
consumer disclosures, including all-in pricing,'' but the rule
should ``apply equally across all parts of the live-events ticketing
industry,'' so consumers can compare prices and businesses that
display total prices will not be at a competitive disadvantage.);
FTC-2023-0064-3241 (National Association of Ticket Brokers submitted
a comment supporting all-in pricing, but noting that it would only
work if ``(i) it was required of every ticket seller and (ii) there
was rigorous and expeditious enforcement.''); FTC-2023-0064-3306
(Live Nation Entertainment and its subsidiary Ticketmaster North
America commented that they ``support[ ] a definition of all-in
pricing that requires the first price for a live-event ticket shown
to consumers to be the price ultimately charged at checkout
(exclusive of state and local taxes and optional add-ons).''); see
also FTC-2023-0064-3264 (Mark J. Perry, Ph.D., Professor Emeritus of
Economics at University of Michigan-Flint and Senior Fellow Emeritus
at the American Enterprise Institute, ``urge[d] the FTC to ensure
that any rule requiring all-in pricing in live events apply equally
to all market participants.''). The Commission addresses other
comments and factual scenarios raised by commenters concerning live-
event ticketing, including those concerning ticket service fees, in
section III.B.1.b.
\217\ FTC-2023-0064-3212 (TickPick, LLC).
\218\ FTC-2023-0064-3212 (StubHub).
\219\ FTC-2023-0064-3306 (Live Nation Entertainment).
\220\ Id.
---------------------------------------------------------------------------
The Commission also received support from the representatives of
the short-term lodging industry for the rule's application to that
industry. The American Society of Travel Advisors commented that ``the
rule as proposed would greatly benefit consumers of hotel and other
short-term lodging services'' and applauded the proposed rule's
prohibition on misleading fees.\221\ The American Hotel & Lodging
Association also expressed support for implementation of clear total
price requirements and encouraged the Commission to ``ensure that any
final rule it promulgates . . . apply broadly to all industry
participants,'' including intermediaries such as online travel
agencies, short-term rental platforms, and metasearch sites.\222\ The
American Gaming Association, a trade group representing the casino
industry, contended that fees are adequately disclosed and provide
value to consumers, but stated that, if applied to the lodging
industry, the rule should be applied ``equitably across the industry. .
. . including search engines, online travel agencies, and other third-
party vendors.'' \223\
---------------------------------------------------------------------------
\221\ FTC-2023-0064-3106 (American Society of Travel Advisors).
\222\ FTC-2023-0064-3094 (American Hotel & Lodging Association).
\223\ FTC-2023-0064-2886 (American Gaming Association). As
discussed in section II, bait-and-switch pricing, including drip
pricing, harms consumers even when charges are subsequently
disclosed.
---------------------------------------------------------------------------
[[Page 2089]]
As described in section II, the Commission has determined, in its
discretion, to focus this final rule on the live-event ticketing and
short-term lodging industries. The Commission recognizes that
substantial evidence exists to support a finding of the prevalence of
bait-and-switch pricing and misleading fees throughout the economy;
nevertheless, the Commission elects to use its rulemaking authority
incrementally by first combatting these unfair and deceptive practices
in the two industries in which the Commission first began evaluating
drip pricing and that have a history of bait-and-switch pricing tactics
and misleading fees. Indeed, commenters representing the live-event
ticket and short-term lodging industries recognized the need for the
Commission's rulemaking and generally supported the rule's application
to those industries.
As described in this section, the Commission received comments
supporting a definition of ``covered business'' that is limited to the
live-event ticketing and short-term lodging industries.\224\ The
Commission also received comments emphasizing the need for a level
playing field among businesses and allowing consumers to comparison
shop.\225\ For reasons described herein, the final rule applies to a
defined set of covered goods or services, rather than to covered
businesses. Because some businesses in the live-event ticketing and
short-term lodging industries provide goods or services outside of
those industries, a narrowing of the businesses covered by the rule
rather than a narrowing of the goods or services covered by the rule,
might unintentionally create an uneven playing field. As a result, the
Commission instead narrows the rule to the defined covered goods and
services of live-event tickets and short-term lodging. The Commission
notes that the rule also applies to ancillary goods or services,
defined as additional goods or services offered to consumers as part of
the same transaction.
---------------------------------------------------------------------------
\224\ See, e.g., FTC-2023-0064-3212 (TickPick, LLC); FTC-2023-
0064-3106 (American Society of Travel Advisors).
\225\ See, e.g., FTC-2023-0064-2886 (American Gaming
Association); FTC-2023-0064-3106 (American Society of Travel
Advisors); FTC-2023-0064-3266 (StubHub, Inc.); FTC-2023-0064-3264
(Mark J. Perry, Ph.D., Professor Emeritus of Economics at University
of Michigan-Flint and Senior Fellow Emeritus at the American
Enterprise Institute); FTC-2023-0064-3162 (BBB National Programs,
Inc.); FTC-2023-0064-1000 (Individual Commenter).
---------------------------------------------------------------------------
The NPRM also solicited comment as to how to define businesses that
offer either live-event ticketing or short-term lodging, if the final
rule were narrowed to covered businesses.\226\ A third-party ticketing
marketplace commented that it ``supports inclusion of the live-event
ticketing industry as a `covered business' and is comfortable with the
proposed definition of `businesses in the live-event ticketing industry
. . . .' '' \227\ The final rule's inclusion of live-event tickets in
the definition of ``covered good or service'' is consistent with the
proposed definition of covered business in the NPRM.
---------------------------------------------------------------------------
\226\ NPRM, 88 FR 77481, Question 14(a)(i) (proposing to define
Businesses in the live-event ticketing as ``any Business that makes
live-event ticketing available, directly or indirectly, to the
general public''); Question 14(a)(ii) (proposing to define Business
in the short-term lodging industry as ``any Business that makes
temporary sleeping accommodations available, directly or indirectly,
to the general public'').
\227\ FTC-2023-0064-3212 (TickPick, LLC).
---------------------------------------------------------------------------
With respect to the proposed definition of the short-term lodging
industry, the American Hotel & Lodging Association commented that the
Commission should define short-term lodging as: ``a hotel, motel, inn,
short-term rental, or other place of lodging that advertises at a price
that is a nightly, hourly, or weekly rate.'' \228\ One commenter
representing the rental housing industry expressed concern that the
proposed definition of short-term lodging ``could mean different things
to different people, and that could be (mis)applied to rental housing
industry,'' including, for example, where an apartment community
provides temporary corporate housing subject to the same leasing
agreements as longer-term tenants or where a resident extends a lease
agreement for a few weeks or months.\229\ Conversely, another commenter
representing the rental housing industry explained that for rental
housing, ``the landlord-tenant relationship involves an ongoing
contractual relationship, typically at least a year-long commitment.''
\230\
---------------------------------------------------------------------------
\228\ FTC-2023-0064-3094 (American Hotel & Lodging Association).
\229\ FTC-2023-0064-3296 (Bay Area Apartment Association).
\230\ FTC-2023-0064-3133 (National Multifamily Housing Council
and National Apartment Association).
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The final rule incorporates portions of the American Hotel &
Lodging Association's suggested definition of short-term lodging and
the Commission modifies the rule text proposed in the NPRM to refer to
hotels, motels, inns, short-term rentals, vacation rentals, or other
places of lodging. The Commission declines to limit the definition of
short-term lodging based on the advertised payment period or length of
stay. In some instances, short-term lodging may include home shares and
vacation rentals, such as through platforms like Airbnb or VRBO, that
offer short-term rental accommodations for durations as long as several
months. The Commission clarifies that, with the addition of a
definition for ``covered good or service,'' it does not intend to cover
rental housing providers at this time. When a rental housing provider
offers a short-term extension on a lease, the extension typically would
not be considered short-term lodging under the rule. Similarly, an
apartment community that offers temporary corporate housing subject to
the same conditions as its long-term leases typically would not be
considered short-term lodging under the rule. On the other hand, a
hotel that offers discounted extended stays typically would be
considered short-term lodging under the rule. Whether any particular
good or service is short-term lodging within the rule's definition of
``covered good or service'' will depend on the specific factual
circumstances. In addition, the Commission may provide additional
business guidance to address nuanced pricing scenarios that may arise.
5. Government Charges
Proposed Sec. 464.1(d) in the NPRM defined ``government charges''
as ``all fees or charges imposed on consumers by a Federal, State, or
local government agency, unit, or department,'' and specified that
government charges did not encompass fees or charges that the
government imposes on a business and that a business chooses to pass on
to consumers. The proposed rule permitted businesses to exclude
government charges from total price. The Commission received comments
supporting and critiquing the proposed rule's treatment of government
charges. Final Sec. 464.1 adopts this provision with minor
modifications to add ``Tribal'' fees and charges and to clarify that
the definition of ``government charges'' includes ``the fees or charges
imposed on the transaction by a Federal, State, Tribal, or local
government agency, unit, or department.''
One consumer group supported the NPRM's exclusion of fees or
charges that businesses choose to pass onto consumers from the
definition of ``government charges'' (thus requiring their inclusion in
total price), and expressed concern that businesses may inflate such
fees to pad profits, rather than accurately reflect amounts paid in
fees or charges to the government.\231\ Two academic commenters
similarly supported the distinction between fees
[[Page 2090]]
or charges imposed on consumers and those that a business chooses to
pass onto consumers, stating that the latter should be incorporated
into total price to avoid creating a loophole that would undermine the
rule.\232\
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\231\ FTC-2023-0064-3290 (U.S. Public Interest Research Group
Education Fund).
\232\ FTC-2023-0064-1467 (Richard J. Peltz-Steele, Chancellor
Professor, University of Massachusetts Law School); FTC-2023-0064-
1294 (James J. Angel, Ph.D., CFP, CFA, Professor, Georgetown
University, McDonough School of Business).
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On the other hand, the Commission received several comments
expressing concern over the NPRM's definition of ``government charges''
as including only those charges ``imposed on consumers.'' Two
commenters argued that the proposed definition failed to consider
nuances in tax law across States and localities. They pointed out, for
example, that several State laws formally impose sales tax on
businesses, rather than on consumers.\233\ Under the proposed
definition, sales tax in those States would need to be included in
total price, while sales tax in other States could be excluded from
total price. These and other commenters also noted that many States
prohibit the inclusion of sales tax in total price, which would result
in direct conflict between the proposed rule and State laws that
formally impose sales tax on businesses.\234\ Relatedly, one tax policy
organization noted variation in how State laws treat hotel occupancy
taxes, with most State laws defining hotel occupancy taxes as imposed
on the hotel operator and just six States defining hotel occupancy
taxes as imposed on the consumer. Under the proposed definition of
``government charges,'' the commenter stated, hotel operators in all
but six States would be required to include occupancy taxes in total
price.\235\ As such, these commenters argued that the proposed
definition is unworkable and noted that businesses will spend
considerable time and resources in understanding the legal incidence of
Federal, State, and local taxes.\236\
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\233\ FTC-2023-0064-3126 (Tax Foundation stated: ``In several
states, at least including Alabama, Arizona, Hawaii, and New Mexico,
and possibly California, the state sales tax would not meet the
Rule's definition of a government charge, since its legal incidence
(per statute, regulation, or court determination) is on the
seller.''); FTC-2023-0064-3258 (National Taxpayers Union Foundation
commented: ``Arizona, California, Hawaii, and New Mexico structure
their sales taxes as taxes on the business, as measured by its gross
receipts.'').
\234\ See, e.g., FTC-2023-0064-3127 (U.S. Chamber of Commerce);
FTC-2023-0064-3258 (National Taxpayers Union Foundation stated,
``[n]early all states with sales tax prohibit retailers from
including sales taxes, including taxes collected from both suppliers
and consumers, in the sales price,'' and cited to states including
Alabama, Florida, Georgia, Indiana, Maryland, Massachusetts,
Oklahoma, Pennsylvania, and others.); FTC-2023-0064-3126 (Tax
Foundation stated, ``many states prohibit sales tax-inclusive
pricing,'' highlighting Alabama as a State in which the legal
incidence of sales tax on the seller may ``obligate a vendor, per
the proposed Rule, to list the sales tax-inclusive price if selling
to an Alabama resident--which not only presupposes advance knowledge
of the consumer's location, but forces the vendor to disregard
Alabama's requirement that the list price not include sales tax.'').
\235\ FTC-2023-0064-3258 (National Taxpayers Union Foundation).
\236\ Id.
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Industry groups also urged the Commission to modify the definition
of ``government charges'' to include charges and fees that the
government expressly permits, and sometimes requires, businesses to
pass through to consumers.\237\ One commenter noted that businesses may
be required to ``unfairly absorb'' the cost of these government
charges.\238\ Commenters also expressed concern that incorporating
pass-through taxes that consumers understand and have come to expect
into total price would obscure government fees, resulting in less
pricing transparency, because consumers will not understand that the
additional costs stem from the imposition of government fees.\239\
Relatedly, two industry groups argued that consumers should be made
aware through transparent pricing that additional costs stem from
government taxes and fees, rather than requiring businesses to include
them in total price.\240\
---------------------------------------------------------------------------
\237\ See, e.g., FTC-2023-0064-3100 (Civitas Advisors, Inc.);
FTC-2023-0064-3217 (Bowling Proprietors' Association of America);
FTC-2023-0064-3127 (U.S. Chamber of Commerce); FTC-2023-0064-3233
(NCTA--The internet & Television Association).
\238\ FTC-2023-0064-3234 (CTIA--The Wireless Association).
\239\ See, e.g., id.; FTC-2023-0064-3217 (Bowling Proprietors'
Association of America); FTC-2023-0064-3295 (USTelecom--The
Broadband Association).
\240\ FTC-2023-0064-3233 (NCTA--The internet & Television
Association); FTC-2023-0064-3127 (U.S. Chamber of Commerce).
---------------------------------------------------------------------------
After considering the comments, the Commission modifies the
definition of ``government charges'' from those fees or charges
``imposed on consumers'' to those ``imposed on the transaction.'' As
such, it eliminates the potential distinction between fees and charges
for the transaction a government imposes directly on consumers and
those imposed on businesses. Businesses may not exclude from total
price fees and charges that are wholly distinct from the relevant
transaction, such as a proportional share of a business's income or
property taxes, because they would not be government charges that were
``imposed on the transaction by a Federal, State, Tribal, or local
government agency, unit, or department.''
An online travel agency submitted a comment identifying concerns
about a potential conflict between the definition of ``government
charges'' and DOT's Full Fare Advertising Rule, 14 CFR 399.84, which
requires tax-inclusive pricing for certain travel products, including
airline tickets and bundled vacation packages (e.g., airline tickets
and hotel stays purchased together).\241\ Specifically, the commenter
asserted that the final rule should require that hotels and short-term
lodging providers incorporate government charges into total price
because, otherwise, consumers shopping for bundled vacation packages--
which are subject to the Full Fare Advertising Rule--could see
different prices from consumers who shop separately for flights and
lodging. The commenter also argued that the rule should require that
taxes and government-imposed fees be included in advertised lodging
prices, consistent with DOT's Full Fare Advertising Rule. The
Commission declines to require only short-term lodging providers, as
opposed to live-event ticket sellers and other businesses covered by
the rule, to incorporate government charges into total price. However,
the Commission notes that while the final rule provides that businesses
``may'' exclude government charges from total price, nothing in the
rule prevents businesses from advertising prices inclusive of those
charges, as required by DOT's Full Fare Advertising Rule.
---------------------------------------------------------------------------
\241\ FTC-2023-0064-3204 (Expedia Group).
---------------------------------------------------------------------------
Finally, an industry group representing certain Federally
recognized Arizona Indian Tribes that operate gaming entities urged the
Commission to include fees or charges imposed on consumers by
``tribal'' agencies, units, or departments in the definition of
``government charges,'' to recognize taxes or fees that Tribes might
impose.\242\ The Commission agrees and adds the word ``Tribal'' to the
definition of ``government charges'' to clarify that businesses may
exclude from total price fees or charges imposed on a transaction by a
Tribal government.
---------------------------------------------------------------------------
\242\ FTC-2023-0064-3120 (Arizona Indian Gaming Association).
---------------------------------------------------------------------------
The Commission notes that the modifications in the final rule to
the definition of ``government charges'' represent a narrowing of the
final rule. businesses must still make the disclosures required by
Sec. 464.2(c) in connection with government charges and are prohibited
by Sec. 464.3 from misrepresenting the nature, purpose,
[[Page 2091]]
amount, or refundability of government charges.
6. Pricing Information
Proposed Sec. 464.1(e) in the NPRM defined ``pricing information''
as ``any information relating to any amount a consumer may pay.'' The
final rule references pricing information in one provision: Sec.
464.2(b). As discussed in section III.B.2, final Sec. 464.2(b) is
limited to covered goods or services and requires that, in any offer,
display, or advertisement that represents any price of a covered good
or service, a business disclose the total price more prominently than
any other pricing information. However, where the final amount of
payment for the transaction is displayed, the final amount of payment
must be disclosed more prominently than, or as prominently as, the
total price.
A commenter from the financial services industry asserted that the
proposed definition of ``pricing information'' would be inappropriate
for ``standard bank products, such as checking, savings, CDs, consumer
loans, etc.'' and failed to address the treatment of interest rates for
products and services governed by existing financial regulations.\243\
The commenter's concerns about the definition of ``pricing
information'' are inapplicable because the final rule, including Sec.
464.2(b), is limited to covered goods or services. Accordingly, the
final rule adopts the proposed definition of ``pricing information'' at
Sec. 464.1 without modification.
---------------------------------------------------------------------------
\243\ FTC-2023-0064-1425 (Iowa Bankers Association argued that
the definition of ``Pricing Information'' is inappropriate for
``standard bank products'' and products earning interest).
---------------------------------------------------------------------------
7. Shipping Charges
Proposed Sec. 464.1(f) in the NPRM defined ``shipping charges'' as
``the fees or charges that reasonably reflect the amount a business
incurs to send physical goods to a consumer through the mail, including
private mail services.'' The NPRM made clear that businesses are not
permitted to artificially inflate the cost of shipping, and, instead,
shipping charges must reasonably reflect the cost incurred to send
goods to consumers. Final Sec. 464.1 adopts the proposed definition of
``shipping charges,'' with a minor modification to clarify that
shipping charges incurred through private mail and shipping services
such as FedEx and UPS, or by freight, fall within the definition.
One trade association raised numerous concerns about the proposed
definition of ``shipping charges.'' First, the commenter argued that
the proposed definition fails to consider the unpredictability of
shipping fees, noting that precise costs are difficult for retailers to
determine because shipping costs are frequently based on quotes or
estimates subject to change based on the carrier.\244\ The commenter
noted that businesses may face challenges using certain shipping
methods, including consolidating shipment of multiple orders or using
rail service for partial shipment, which it argued can be particularly
difficult to predict. Second, the commenter asked that the Commission
modify the definition of ``shipping charges'' to explicitly permit the
use of flat rate shipping, explaining that many businesses have
existing agreements with major freight carriers to provide flat rate
shipping. For example, the commenter asked whether the use of flat rate
shipping charges would be considered unlawful if the business shipped a
small, lightweight item for which the actual shipping costs are less
than the flat rate to ship. Finally, the commenter argued that the use
of the phrase ``reasonably reflect'' in the definition is ambiguous and
asked that the Commission clarify whether the definition includes a
scienter requirement. Two commenters also asserted that the rule would
``force'' businesses to disclose proprietary shipping calculations in a
threat to free market competition.\245\
---------------------------------------------------------------------------
\244\ FTC-2023-0064-3267 (National Retail Federation).
\245\ Id.; FTC-2023-0064-2901 (E-Merchants Trade Council).
---------------------------------------------------------------------------
The Commission's use of the phrase ``reasonably reflect'' is
intended to allow for flexibility in determining shipping costs. The
Commission recognizes that precise shipping costs may not be knowable
until the end of a transaction, and, for that reason, the final rule
permits businesses to exclude shipping charges from total price. The
rule does not require that the cost of shipping reflect an exact
certainty. Moreover, the rule does not require businesses to disclose
proprietary information pertaining to relationships with freight or
shipping providers because the rule does not require that shipping
charges be excluded from total price; instead, the rule permits
businesses to exclude shipping charges from total price if they choose.
The final rule does not prohibit businesses from incorporating the cost
of shipping into total price and thereby providing shipping to
consumers at no additional charge. Nor does the final rule prohibit the
use of flat rate shipping or shipping costs based on national averages.
Instead, the language is intended to prevent businesses from
inappropriately excluding from total price costs unrelated to shipping.
One live-event ticket platform supported the proposed rule's
exclusion of certain shipping costs from total price, noting that the
cost to ship physical tickets may vary based on factors determined
later in the transaction, such as the location of the buyer.\246\ The
commenter also noted that a variety of delivery and shipping methods
may be available to consumers purchasing live-event tickets, some of
which may be mandatory and therefore included in total price.\247\ The
Commission emphasizes that certain fees do not fall within the
definition of ``shipping charges,'' including online ``convenience'' or
other fees charged, for example, by online ticket agencies to
electronically ``deliver'' tickets or other processing fees associated
with certain online purchases. The Commission further notes that an
online convenience or other fee for electronic delivery of a ticket
should be included in total price if a consumer cannot obtain the
ticket as part of the same transaction (i.e., online) without incurring
a fee. While the Commission received comments raising concerns about
incorporating the cost of delivery, as opposed to shipping, into total
price,\248\ the Commission is not aware of any evidence that such
concerns would apply to sales of live-event tickets or short-term
lodging.
---------------------------------------------------------------------------
\246\ FTC-2023-0064-3266 (StubHub, Inc.).
\247\ Id.
\248\ See, e.g., FTC-2023-0064-3263 (Flex Association); FTC-
2023-0064-3137 (Chamber of Progress); FTC-2023-0064-3186 (National
LGBT Chamber of Commerce and National Asian/Pacific Islander
American Chamber of Commerce & Entrepreneurship); FTC-2023-0064-3238
(Gibson, Dunn & Crutcher LLP); FTC-2023-0064-3267 (National Retail
Federation).
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Finally, the Commission also received a range of comments regarding
handling costs. Some commenters urged the Commission to amend the
definition of ``shipping charges'' to clarify that internal handling
costs do not constitute shipping costs and therefore must be included
in total price.\249\ The comments related to handling costs involving
goods or services covered by the broader proposed rule in the
NPRM.\250\ While the Commission has not received any evidence that the
[[Page 2092]]
concerns raised in these comments would impact covered goods or
services, the Commission clarifies that internal handling costs must be
included in total price. The Commission does not believe that a
modification to the ``shipping charges'' definition is necessary,
however, because the definition specifically states that shipping
charges include only those costs that reasonably reflect the cost to
``send physical goods'' to consumers. The Commission does not believe
that handling charges, like the cost to store goods or labor costs
associated with preparing items for shipment, reflect the costs to
``send physical goods'' to consumers. Accordingly, handling charges are
not shipping charges and must be included in total price.
---------------------------------------------------------------------------
\249\ See, e.g., FTC-2023-0064-3146 (Institute for Policy
Integrity, New York University School of Law); FTC-2023-0064-1294
(James J. Angel, Ph.D., CFP, CFA, Professor, Georgetown University,
McDonough School of Business).
\250\ FTC-2023-0064-3146 (Institute for Policy Integrity, New
York University School of Law); FTC-2023-0064-1294 (James J. Angel,
Ph.D., CFP, CFA, Professor, Georgetown University, McDonough School
of Business); FTC-2023-0064-3267 (National Retail Federation).
---------------------------------------------------------------------------
8. Total Price
Proposed Sec. 464.1(g) in the NPRM defined ``total price'' as
``the maximum total of all fees or charges a consumer must pay for a
good or service and any mandatory ancillary good or service, except
that shipping charges and government charges may be excluded.''
Although some commenters stated that the proposed definition was not
flexible enough to account for all pricing models, the Commission
believes the modified definition of ``total price'' is narrowly
tailored to protect consumers by addressing the identified unfair and
deceptive practice of hiding costs by omitting mandatory fees from
advertised prices for covered goods or services. Consumers must be able
to purchase and use goods or services at the advertised total price.
Final Sec. 464.1 differs from the proposed definition of ``total
price'' \251\ to the extent the definitions of ``government charges''
and ``shipping charges,'' as discussed in section III at A.5 and A.7,
are modified. In addition, the Commission clarifies in final Sec.
464.1 that businesses also may exclude from total price any fees or
charges for optional ancillary goods or services. Further, the
Commission notes herein that the rule does not directly address
concerns that fees imposed in connection with covered goods or services
are ``excessive''; the rule does not cap, ban, or prohibit the charging
of any fees, but requires certain disclosures and prohibits
misrepresentations to prevent unfair or deceptive pricing practices.
---------------------------------------------------------------------------
\251\ Although one commenter expressed concern that businesses
would use different terms for Total Price, and thereby create
confusion, the rule does not mandate that Businesses use the term
Total Price. See FTC-2023-0064-3290 (U.S. Public Interest Research
Group Education Fund).
---------------------------------------------------------------------------
As detailed herein, the Commission declines to accept commenters'
recommendations to define ``mandatory,'' to exclude ancillary goods or
services from the ``total price'' definition, to modify the ``maximum
total'' requirement, or to require the inclusion of shipping charges
and government charges in total price. However, the Commission
clarifies in final Sec. 464.2(c) that businesses must disclose the
final amount of payment for the transaction before a consumer consents
to pay.
(a) Mandatory Fees
Commenters noted that the rule does not define ``mandatory,'' and
expressed concern about identifying mandatory fees to be included in
total price.\252\ Some commenters recommended that the Commission
clarify the distinction between ``core'' goods and services and
ancillary goods or services,\253\ provide guidance as to which
ancillary goods or services are mandatory,\254\ and modify the ``total
price'' definition to exclude the reference to mandatory ancillary
goods or services.\255\
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\252\ See, e.g., FTC-2023-0064-3133 (National Multifamily
Housing Council and National Apartment Association); FTC-2023-0064-
3134 (U.S. Department of Transportation, Federal Motor Carrier
Safety Administration); FTC-2023-0064-3145 (Association of National
Advertisers, Inc.).
\253\ See, e.g., FTC-2023-0064-2888 (Housing Policy Clinic,
University of Texas School of Law).
\254\ See, e.g., FTC-2023-0064-3267 (National Retail
Federation).
\255\ See, e.g., FTC-2023-0064-3160 (Consumer Federation of
America et al.); FTC-2023-0064-3258 (National Taxpayers Union
Foundation); FTC-2023-0064-3275 (Berkeley Center for Consumer Law &
Economic Justice et al.).
---------------------------------------------------------------------------
The Commission has considered these comments and declines to accept
these proposed modifications to the definition of ``total price.'' The
definition of ``total price'' specifies that it includes the cost of
the goods and services being offered and any mandatory ancillary goods
or services, subject to certain exceptions. The Commission retains in
the definition of ``total price'' fees and charges for ``any mandatory
ancillary good or service'' as necessary to protect consumers from the
identified unfair and deceptive practice of hidden fees.
The Commission also declines to modify the rule to add a definition
of ``mandatory fees.'' The Commission cannot identify in advance a
definitive list of mandatory fees because whether a particular fee will
be mandatory or optional will depend on the specific facts of an
individual business transaction, as described in section III.A.1.
Ancillary goods or services can be either optional or mandatory
depending on whether businesses require consumers to purchase them or
if they are necessary to make the principal goods or services fit for
their intended purpose. If businesses offer ancillary goods or services
and require consumers to purchase them to complete transactions for or
to use the covered goods or services being offered, the ancillary goods
or services are mandatory and their cost must be included in total
price.
In the NPRM, the Commission sought comment on whether it was clear
that the reference in the definition of ``total price'' to ``all fees
or charges a consumer must pay for a good or service and any mandatory
ancillary good or service'' includes (1) all fees or charges that are
not reasonably avoidable and (2) all fees or charges for goods or
services that a reasonable consumer would expect to be included with
the purchase.\256\ Commenters disagreed on whether the rule text is
clear that ``total price'' includes unavoidable fees and fees based on
consumer expectations, and recommended clarifying the definition of
``total price'' in this regard or adding a definition of mandatory
fees.\257\ Other commenters argued that the two types of fees described
are themselves vague and unclear.\258\
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\256\ NPRM, 88 FR 77482, Question 19.
\257\ See, e.g., FTC-2023-0064-3134 (U.S. Department of
Transportation, Federal Motor Carrier Safety Administration); FTC-
2023-0064-3160 (Consumer Federation of America et al.); FTC-2023-
0064-3196 (South Carolina Department of Consumer Affairs); FTC-2023-
0064-3248 (DC Jobs With Justice on behalf of Fair Price, Fair Wage
Coalition); FTC-2023-0064-3146 (Institute for Policy Integrity, New
York University School of Law).
\258\ See, e.g., FTC-2023-0064-3233 (NCTA--The internet &
Television Association); FTC-2023-0064-3172 (New Jersey Apartment
Association).
---------------------------------------------------------------------------
Businesses should consider, in the context of their specific
business practices, the Commission's guidance that mandatory fees
include charges that consumers cannot reasonably avoid and charges for
goods or services that a reasonable consumer would expect to be
included with the purchase because they are necessary to make primary
goods or services fit for their intended purpose. The Commission
reiterates the guidance about total price that it provided in the NPRM:
It is well established that it is deceptive to offer goods or services
that are not fit for the purpose for which they are sold. By offering
goods or services, businesses impliedly represent that the goods or
services are fit for their intended purpose; reasonable consumers would
expect that, when they purchase a good or service, they will be able to
use it for
[[Page 2093]]
that purpose.\259\ It is therefore deceptive to advertise a total price
for a primary good or service that does not include fees for additional
purchases that are necessary to render the primary good or service fit
for its intended purpose.
---------------------------------------------------------------------------
\259\ NPRM, 88 FR 77432.
---------------------------------------------------------------------------
Further, businesses cannot treat additional purchases that are
necessary to render covered goods or services fit for their intended
purpose as optional and exclude the costs of these additional purchases
from total price. For example, businesses cannot treat credit card
surcharges or processing fees as optional and exclude them from total
price if they do not provide consumers with other payment options. The
rule does not require, as some commenters suggested, the inclusion of
fees for truly optional ancillary goods or services in total
price.\260\ Nonetheless, such fees and their nature, purpose, and
amount still must be clearly and conspicuously disclosed before the
consumer consents to pay and cannot be misrepresented.
---------------------------------------------------------------------------
\260\ See, e.g., FTC-2023-0064-2891 (Mary Sullivan, George
Washington University, Regulatory Studies Center, noted that
``purely optional'' subscription services, such ``optional features
that are installed in automobiles, like satellite radio'' are ``not
deceptive and unfair'' but are instead efficient. She further
contended that the proposed rule lacks specificity as to these types
of ``purely optional'' services.)
---------------------------------------------------------------------------
Commenters expressed the concern that businesses could misrepresent
mandatory fees as optional, for example, by including them by default
in bills, requiring consumers to opt out from them, or using other
deceptive practices, and recommended that the Commission include
safeguards in the rule to prevent these practices.\261\ The Commission
determines that the rule adequately protects consumers from the posited
scenarios without modification. businesses cannot characterize fees as
optional and exclude them from total price when businesses require
consumers to purchase the good or service for which the fees are
charged and employ practices, such as default billing or opt-out
provisions, that effectively take away consumers' ability to consent to
the fees. For example, a previously undisclosed resort fee that a hotel
discloses at check-in is not an optional fee if the hotel will charge
the fee unless the guest challenges the fee. Final Sec. 464.3
prohibits misrepresenting the nature, purpose, amount, and
refundability of fees, including misrepresenting mandatory fees as
optional fees from which consumers must opt out.\262\
---------------------------------------------------------------------------
\261\ See, e.g., FTC-2023-0064-3275 (Berkeley Center for
Consumer Law & Economic Justice et al.); FTC-2023-0064-3160
(Consumer Federation of America et al.); FTC-2023-0064-3248 (DC Jobs
With Justice on behalf of Fair Price, Fair Wage Coalition); FTC-
2023-0064-0915 (Individual Commenter noted that businesses may
misrepresent optional fees as mandatory and ``[t]he consumer may not
realize they are optional when receiving a bill and may not realize
they can be removed.'').
\262\ See discussion infra section III.C and note 349.
---------------------------------------------------------------------------
Whether fees for ancillary goods or services must be included in
total price will depend on the specific factual circumstances. The
inclusion of the defined term ``ancillary good or service'' in the
definition of ``total price'' clarifies that total price includes
``additional good(s) or service(s) offered to a consumer as part of the
same transaction.'' Businesses cannot exclude mandatory fees from total
price simply by characterizing them as not part of the same transaction
if, in fact, they are.
(b) Maximum Total
The rule provides that ``total price'' is the ``maximum total'' of
all mandatory fees except identified permissible exclusions. Some
commenters objected to defining ``total price'' as the maximum total,
arguing that it could discourage advertising discounted rates or
misrepresent actual costs and interfere with comparison shopping.\263\
Other commenters suggested that the reference to maximum total would
require businesses that enter into continuous service contracts with
consumers (e.g., subscriptions) to include in total price all mandatory
fees that might arise over the duration of a contract, which they
argued would be difficult to determine at the time the rule requires a
total price disclosure.\264\ Some commenters argued that continuous
service contracts that reflect negotiated transactions do not raise
``bait and switch'' concerns and that total price is adequately
disclosed in such contracts.\265\
---------------------------------------------------------------------------
\263\ See, e.g., FTC-2023-0064-3293 (Travel Technology
Association); FTC-2023-0064-3233 (NCTA--The internet & Television
Association).
\264\ See, e.g., FTC-2023-0064-3116 (Manufactured Housing
Institute); FTC-2023-0064-3172 (New Jersey Apartment Association);
FTC-2023-0064-3121 (National Independent Automobile Dealers
Association); FTC-2023-0064-1425 (Iowa Bankers Association).
\265\ See, e.g., FTC-2023-0064-3289 (Zillow Group stated that
``rental housing market fees are distinct from fees in other
economic sectors'' because they are not charged in ``click-to-
purchase'' transactions, but involve an ``interactive process'' over
a ``much longer period of time'' and involved ``written agreements
that include all relevant binding terms and conditions, including
the total price.''); FTC-2023-0064-3269 (IHRSA--The Health & Fitness
Association).
---------------------------------------------------------------------------
The Commission has considered comments relating to the ``maximum
total'' requirement and retains that language in the definition of
``total price.'' The Commission determines that such language is
necessary to protect consumers from advertised total prices that are
deceptively lower than what businesses actually charge. As the
Commission noted in the NPRM, ``[t]he use of the phrase `maximum total'
would allow businesses to apply discounts and rebates after disclosing
total price.'' \266\ Since all businesses are subject to the maximum
total requirement for covered goods or services, the resulting level
playing field would allow for comparison shopping. The Commission does
not agree that disclosures in contracts or agreements adequately
protect consumers from deceptive advertising that omits mandatory fees.
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\266\ NPRM, 88 FR 77439.
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Commenters questioned how businesses should handle conditions or
limitations on advertised prices.\267\ Businesses must comply with the
rule and other disclosure requirements, including those related to
material conditions or limitations.\268\ Businesses that advertise
prices that are not attainable by consumers because the prices are
conditioned on undisclosed material conditions, restrictions, or
limitations may fail to disclose and misrepresent total price.
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\267\ See, e.g., FTC-2023-0064-3162 (BBB National Programs, Inc.
commented that the definition of ``Total Price'' does not
specifically address ``how advertisers should disclose material
limitations to obtaining an advertised price.''); FTC-2023-0064-1294
(James J. Angel, Ph.D., CFP, CFA, Professor, Georgetown University,
McDonough School of Business, commented that ``[i]f there are any
restrictions, they must be as clear and conspicuous as the
price.'').
\268\ See, e.g., supra note 111.
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(c) Itemization
The rule neither requires, nor prohibits, the itemization of
mandatory fees that must be included in total price. The Commission
notes that final Sec. 464.2(c) requires disclosure of the nature,
purpose, and amount of fees or charges imposed on the transaction that
have been excluded from total price but declines to modify the
regulatory text proposed in the NPRM to otherwise require or prohibit
the itemization of fees.
Some commenters recommended that the rule not require
itemization.\269\ Other commenters stated that including mandatory fees
in total price would obscure the nature and purpose of the fees and
provide less information to consumers,\270\ while others
[[Page 2094]]
recommended that the rule require itemization to provide more
information to consumers and to protect other transaction participants
by disclosing where mandatory fees go.\271\ Other commenters
recommended that the rule prohibit itemization because fees could be
arbitrary or invented by businesses and itemizing them could
misrepresent their nature and purpose.\272\
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\269\ See, e.g., FTC-2023-0064-3293 (Travel Technology
Association ``recommends that any final rule refrain from imposing
an obligation to itemize mandatory fees.'').
\270\ See, e.g., FTC-2023-0064-3173 (Center for Individual
Freedom); FTC-2023-0064-3137 (Chamber of Progress); FTC-2023-0064-
3208 (FreedomWorks); FTC-2023-0064-3263 (Flex Association); FTC-
2023-0064-3258 (National Taxpayers Union Foundation).
\271\ See, e.g., FTC-2023-0064-3304 (Recording Academy stated:
``Price itemization is the only way to ensure pricing is transparent
and that all parties involved in setting the ticket's total price
are held accountable for what they charge.''); FTC-2023-0064-3230
(Future of Music Coalition); FTC-2023-0064-3250 (National
Independent Talent Organization); FTC-2023-0064-3283 (National
Consumer Law Center, Prison Policy Initiative, and advocate Stephen
Raher stated that itemization is necessary to clarify opaque charges
in the context of consumer correctional services.); FTC-2023-0064-
3290 (U.S. Public Interest Research Group Education Fund).
\272\ See, e.g., FTC-2023-0064-3212 (TickPick, LLC).
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The Commission has considered the comments and declines to require
or prohibit the itemization of mandatory fees, except as provided by
Sec. 464.2(c). Section 464.2 of the rule permits, but does not
require, itemization of the components of total price, and therefore
allows businesses to break out transaction inputs, consistent with laws
that require itemization. When businesses choose to itemize mandatory
fees that are a part of total price or itemize fees pursuant to Sec.
464.2(c), total price must be displayed more prominently than itemized
fees. Further, Sec. 464.3 prohibits misrepresenting itemized fees.
(d) Exclusions From Total Price
The definition of ``total price'' in final Sec. 464.1 is modified
from the proposed definition to the extent that the definitions of
``government charges'' and ``shipping charges'' are modified, as
discussed in section III at A.5 and A.7. Finally, the definition of
``total price'' clarifies that businesses may exclude fees or charges
for optional ancillary goods or services.
(e) Intersection With IRS Requirements
One commenter sought clarification as to the intersection of the
total price requirements with Internal Revenue Service (``IRS'')
requirements regarding charitable gifts.\273\ The commenter
specifically highlighted a scenario in which charitable contributions
are made concurrent with ticket sales. The Commission is not aware of--
and indeed, the commenter did not cite to--any specific conflict with
the final rule. Instead, the commenter asked about the rule's
intersection with the IRS's Substantiation and Disclosure Requirements.
Based on the Commission's review, the IRS Substantiation and Disclosure
Requirements pertain to substantiation requirements for donors who
contribute to charitable organizations or causes, and disclosure
requirements for charitable organizations that provide goods or
services to donors for certain contributions. The Commission's rule has
no bearing on, and does not change or impact, any of these IRS
requirements. The commenter also stated that ``the concept of
`refundability''' is ``not common in charitable giving.'' As set forth
in section III.B.3, the Commission eliminates the requirement that
businesses affirmatively disclose the refundability of each fee or
charge imposed; however, Sec. 464.3 still prohibits businesses from
misrepresenting a fee's refundability.
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\273\ FTC-2023-0064-3195 (League of American Orchestras et al.).
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B. Sec. 464.2 Hidden Fees Prohibited
Proposed Sec. 464.2(a) and (b) in the NPRM provided, respectively,
that it would be a violation of the rule for a business to ``offer,
display, or advertise an amount a consumer may pay without clearly and
conspicuously disclosing total price'' and that ``[i]n any such offer,
display, or advertisement that contains an amount a consumer may pay, a
business must display total price more prominently than any other
pricing information.'' As discussed herein, final Sec. 464.2 makes
certain modifications to proposed Sec. 464.2(a) and (b) and
consolidates all provisions related to disclosures by relocating
proposed Sec. 464.3(b), with certain modifications, to final Sec.
464.2(c).
As discussed in section III.B.1 and III.B.2, to address commenter
concerns that ``an amount a consumer may pay'' is vague and overbroad,
the Commission modifies final Sec. 464.2(a) and (b) as compared to the
NPRM proposals to focus their required disclosures on offers, displays,
or advertisements that include ``any price of a covered good or
service.'' Final Sec. 464.2(b) also clarifies that, in any offer,
display, or advertisement that represents any price of a covered good
or service, total price must be more prominent than other pricing
information, except if the final amount of payment for a transaction is
displayed, the final amount of payment must be more prominent than, or
as prominent as, total price.
As discussed in section III.B.3, the Commission also consolidates
all provisions related to required disclosures under Sec. 464.2 of the
rule and, therefore, codifies proposed Sec. 464.3(b) with certain
modifications at final Sec. 464.2(c). Proposed Sec. 464.3(b)
specified that businesses must disclose clearly and conspicuously, and
before the consumer consents to pay, the nature and purpose of any
amount a consumer may pay that is excluded from total price. The
Commission clarifies that, in line with the narrower scope of the rule,
the trigger requiring disclosures in final Sec. 464.2(c) is ``before
the consumer consents to pay for any covered good or service.'' As with
final Sec. 464.2(a) and (b), final Sec. 464.2(c) also eliminates the
reference to ``any amount a consumer may pay'' to narrow the focus of
the disclosures required by Sec. 464.2(c)(1) to ``any fee or charge
imposed on the transaction that has been excluded from total price.''
Final Sec. 464.2(c) also differs from the NPRM proposal in that it
explicitly requires disclosure of the amount, nature, and purpose of
any fees or charges imposed on the transaction that have been excluded
from total price and the identity of the good or service for which the
fees or charge is imposed, as well as the final amount of payment for
the transaction. Importantly, to preserve choice and control for
businesses, Sec. 464.2(c)'s disclosures with respect to government
charges and shipping charges are only required if a business elects to
permissibly exclude such charges from total price. Similarly, Sec.
464.2(c)'s disclosures with respect to fees for optional ancillary
goods or services are only required if the consumer has elected to
purchase such goods or services as part of the same transaction and the
business has excluded their fees from total price. Nothing in the final
rule requires a business to disclose commercially sensitive information
regarding the components of its total price.
The Commission discusses herein changes to the text of the proposed
provisions and addresses substantive comments about these provisions,
including how Sec. 464.2 would apply to specific pricing scenarios
discussed in the comment record.
1. Sec. 464.2(a)
Proposed Sec. 464.2(a) in the NPRM provided that it would be a
violation of the rule for a business to ``offer, display, or advertise
an amount a consumer may pay without clearly and conspicuously
disclosing total price,'' which was defined in proposed Sec. 464.1(g)
as ``the maximum total of all fees or charges a consumer must pay for a
good or service and any mandatory ancillary good or service, except
that shipping charges
[[Page 2095]]
and government charges may be excluded.'' In final Sec. 464.2(a), the
Commission changes the reference to ``an amount a consumer may pay'' to
the more limited ``any price of a covered good or service.'' Final
Sec. 464.2(a) also further clarifies that businesses may exclude from
total price fees or charges for any optional ancillary good or service.
The Commission makes these modifications to address NPRM comments and
to clarify the rule. The comments relating to the exclusion from total
price of charges for any optional ancillary good or service, and the
Commission's reasons for allowing these exclusions, are discussed in
section III at A.1 and A.8.
Commenters argued that the reference to ``an amount a consumer may
pay'' in proposed Sec. 464.2(a) and in other sections (i.e., proposed
Sec. Sec. 464.2(b) and 464.3(b)) was overbroad and that the Commission
failed to consider its application to various pricing scenarios.\274\
In response to these comments, the Commission finalizes Sec. 464.2(a)
with modification to limit the total price disclosure requirement from
each time businesses ``offer, display, or advertise an amount a
consumer may pay'' to only when they ``offer, display, or advertise any
price of a covered good or service.'' The Commission also provides
guidance regarding the application of Sec. 464.2(a) to various types
of fees and pricing scenarios, including: contingent fees; ticket
service fees; credit card surcharges; dynamic pricing and national
advertising; rebates, bundled pricing, and discounts; and online
marketplaces in section III.B.1.a through f.
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\274\ See, e.g., FTC-2023-0064-3206 (Motor Vehicle Protection
Products Association et al. commented that proposed Sec. 464.3, in
referring to any amount a consumer may pay, goes ``far broader than
`fees''' and ``the use of the verb `may' suggests that even offers
of goods or services--or, frankly, even goods or services that `may
be' available but not actually offered--impermissibly and
imprudently stretches this section.'').
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(a) Contingent Fees
Under certain circumstances discussed herein, total price can
exclude certain fees that businesses cannot calculate in advance
because they necessarily are contingent on consumer behavior or choice;
unknown, external factors; or pricing models that include variable
fees. The Commission notes that whether certain contingent fees cannot
be calculated and are truly unknown at the time the rule requires
disclosures may depend on the specific factual circumstances. The
Commission is not persuaded by the comments to change the rule as it
applies to contingent fees.
Certain commenters remarked that, in some instances, businesses
cannot quote an all-inclusive price due to unknown fees arising from
consumer behavior and choices during and after the purchasing process;
unknown, external factors; or pricing models that have variable rates
such as hourly rates or rates based on guest count and consumption.
Indeed, some commenters argued that the Commission's failure to
recognize the existence of variable marketplace fees is a significant
oversight of the proposed rule.\275\ Other commenters observed that
concerns about variable marketplace fees are overblown and stated that
the Commission should prohibit charging such fees if the full amount of
such fees cannot be calculated in the upfront price.\276\
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\275\ See, e.g., FTC-2023-0064-3127 (U.S. Chamber of Commerce
stated that variable fees should be excluded from Total Price
because: fees that ``vary based on volume, transaction type, and
region'' cannot be assessed until consumers take some action;
requiring their inclusion in Total Price ``could less efficiently
spread costs, undermine consumer choice, and eliminate price
competition on certain cost inputs''; and ``[t]he NPRM also provides
no reason to think that variable or dynamic pricing is necessarily
deceptive or unfair across all industries and sectors of the
economy.''); FTC-2023-0064-3137 (Chamber of Progress expressed
concern about the rule's impact on variable pricing models,
including delivery platforms, where ``the prices for delivery or
other services increase as the size of the order increases,'' which
it asserts is ``a more efficient way of distributing costs than flat
rates'' and asserted it is not clear how such platforms would comply
with the rule ``without creating confusion for customers or
misrepresenting prices.''); FTC-2023-0064-3173 (Center for
Individual Freedom argued that: ``Acknowledging the distinct roles
and objectives of both flat and variable fees in different
industries is crucial, and the proposed rule's failure to recognize
the benefits of variable pricing structures, which allow fees to
scale based on the nature of the items or services purchased, is a
significant oversight.''); FTC-2023-0064-3258 (National Taxpayers
Union Foundation stated that under the rule, ``it will be nearly
impossible for businesses using variable prices to display the Total
Price at all times, because businesses are unable to predict
consumer's choices.''); FTC-2023-0064-3202 (TechNet urged the
Commission to exclude from Total Price ``fees that are variable or
unknowable,'' such as in e-commerce marketplaces, or the rule
``would complicate the communication of pricing in situations where
the `total price cannot practically be determined' in advance.'');
FTC-2023-0064-3263 (Flex Association commented that app-based
delivery platforms could be ``forced to change the way they price
entirely--moving from variable . . . to static fees . . . that would
not benefit consumers''); FTC-2023-0064-3238 (Gibson, Dunn &
Crutcher LLP commented that the proposed rule failed to consider
reliance on dynamic pricing that depends on consumer choices
throughout the buying process).
\276\ See, e.g., FTC-2023-0064-3134 (U.S. Department of
Transportation, Federal Motor Carrier Safety Administration
recommended that the rule prohibit ``charging variable mandatory
ancillary fees if the full amount of such variable fees cannot be
calculated in the upfront price.''); FTC-2023-0064-3275 (Berkeley
Center for Consumer Law & Economic Justice et al. asserted that
concerns ``that it is impossible to accurately estimate all fees in
advance of providing a complex service'' or fees dependent on
consumer choice, are ``easily resolvable with minimal effort and
creativity on the part of vendors.'').
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The Commission finds that, to the extent that certain fees are
contingent on later conduct or choices by a consumer after purchase
(e.g., pet fees, fees for late payments, fees for property damage at a
rental accommodation, or smoking in a non-smoking hotel room), these
fees are not mandatory for purposes of the transaction, and as such, do
not need to be included in total price.\277\ The Commission notes that
fees that are unavoidable by the consumer, regardless of conduct or
choices, are not contingent. Ultimately, if a business cannot ascertain
whether certain fees or charges apply until after concluding a purchase
or transaction, the business need not include such fees or charges in
total price. Whether mandatory fees are truly unknown due to reasons
beyond a business's control will depend on specific factual
circumstances.
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\277\ See, e.g., FTC-2023-0064-3233 (NCTA--The internet &
Television Association commented that the definition of ``Total
Price'' is ambiguous as ``it does not clearly address fees that are
contingent on later actions by particular consumers . . . such as
for unreturned equipment or late payment of the consumer's bill''
and encouraged the Commission to ``resolve the ambiguity by, among
other things, making clear in the rule itself that contingent or
avoidable fees are to be excluded from the Total Price.'').
---------------------------------------------------------------------------
Businesses should include in total price other fees that may vary
depending on a consumer's choices during the purchase process or
transaction as soon as consumers provide the business with the
information needed to determine the applicability or amount of those
fees. Indeed, some commenters discussed different scenarios in which
total price depends on a consumer's choices while buying a good or
service, such as season and flexible ticket packages for the arts.\278\
According to some commenters, consumers expect fees arising from their
personal choices and customizations to be disclosed only after
providing additional information to, or negotiating with, sellers.
Businesses can include in their advertisements ``starting at'' or base
prices to deal with situations in which ultimate price may depend on a
consumer's selection of various ticketing and lodging options, but only
if consumers can in fact obtain the
[[Page 2096]]
advertised ticket or lodging for the ``starting at'' or base
price.\279\
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\278\ See, e.g., FTC-2023-0064-3195 (League of American
Orchestras et al. requested the Commission's ``consideration for
season-based and flexible ticket packages in which multiple and
variable options are available to ticket-buyers, and the total price
will vary based on selection.'').
\279\ In some instances, advertising prices as a base or
starting price can be deceptive, depending on the relevant limiting
or qualifying criteria. In such instances, the material terms,
conditions and obligations upon which receipt and retention of the
base or starting price are contingent should be set forth clearly
and conspicuously at the outset of the offer so as to leave no
reasonable probability that the terms of the offer might be
misunderstood.
---------------------------------------------------------------------------
Businesses still must clearly and conspicuously disclose the
nature, purpose, and amount of such fees or charges and the identity of
the good or service for which they are imposed, and the final amount of
payment, before a consumer consents to pay or, if the applicability of
a fee or charge is contingent on later conduct or choices by a consumer
after purchase, as soon as such circumstances arise. Businesses also
must not mispresent those or other fees or charges, including total
price.
(b) Ticket Service Fees
Businesses operating in the live-event ticketing industry,
including venues, ticket sellers, and ticket resellers, historically
have imposed on consumers a host of charges in addition to the ticket's
face value that are dripped in throughout the purchasing process. One
of the rule's principal purposes is to give consumers upfront knowledge
of the true cost of a good or service, including mandatory charges,
without being forced to navigate through a time-intensive search and
transaction. A broad swath of industry members supported a nationwide
total price requirement for ticket pricing,\280\ although some industry
commenters expressed concerns with certain aspects of the rule. The
Commission addresses commenters' concerns herein.
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\280\ See, e.g., FTC-2023-0064-3266 (StubHub, Inc. submitted a
comment supporting nationwide all-in pricing and including Total
Price in every advertisement to consumers and throughout the
transaction.); FTC-2023-0064-3105 (Charleston Symphony commented:
``[R]equiring sellers to disclose the total price clearly and
conspicuously[ ] addresses a pressing issue. . . . Predatory
practices in the secondary ticket sales market pose a significant
threat to artists, venues, audiences, and the future of nonprofit
arts organizations, impacting the integrity of the ticket-buying
process and eroding audience confidence.''); FTC-2023-0064-3122
(Vivid Seats stated that it ``supports additional consumer
disclosures, including all-in pricing,'' but the rule should ``apply
equally across all parts of the live-events ticketing industry,'' so
consumers can compare prices and businesses that display total
prices will not be at a competitive disadvantage.); FTC-2023-0064-
3241 (National Association of Ticket Brokers submitted a comment
supporting all-in pricing, but noting that it would only work if
``(i) it was required of every ticket seller and (ii) there was
rigorous and expeditious enforcement.''); FTC-2023-0064-3306 (Live
Nation Entertainment and its subsidiary Ticketmaster North America
commented that they ``support[ ] a definition of all-in pricing that
requires the first price for a live-event ticket shown to consumers
to be the price ultimately charged at checkout (exclusive of state
and local taxes and optional add-ons).''); see also FTC-2023-0064-
3264 (Mark J. Perry, Ph.D., Professor Emeritus of Economics at
University of Michigan-Flint and Senior Fellow Emeritus at the
American Enterprise Institute, ``urge[d] the FTC to ensure that any
rule requiring all-in pricing in live events apply equally to all
market participants.''); FTC-2023-0064-2856 (National Football
League stated that if the live-event ticket industry is included in
the rule's coverage, the Commission must ``include all sellers of
live-event tickets to prevent inconsistencies in its
application.'').
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Some industry members emphasized that the added fees are their
primary source of revenue, since they typically do not share in the
revenue from the ticket's face value.\281\ Industry members and an
academic commenter also stated that certain added fees pay for valuable
services such as delivery and the convenience of selecting a seat from
home.\282\ An industry member emphasized, however, that although
consumers do expect additional fees, businesses nonetheless should
clearly disclose a ticket's true, all-in price (i.e., total
price).\283\ Another industry member commented that unless an added fee
is truly optional, it should be included in total price.\284\ The
Commission reiterates that businesses are not prohibited from charging
fees; instead Sec. 464.2(a) requires the disclosure of total price,
including fees for mandatory ancillary goods or services, when a price
for a good or service is displayed, while Sec. 464.2(c) requires
disclosures about fees being imposed on the transaction that have been
permissibly excluded from total price, including for optional ancillary
goods or services, before a consumer consents to pay for a covered good
or service. The Commission further reiterates that, in an online
transaction, fees such as for payment processing, electronic ticket
``delivery,'' ``convenience,'' or similar add-on ticketing fees are
mandatory and must be included in total price if a consumer cannot
obtain the covered good or service as part of the same transaction
(e.g., online) without incurring the fee. Final Sec. 464.3 also
prohibits businesses from misrepresenting the nature or purpose, or the
identity of the good or service for which fees are imposed.
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\281\ See, e.g., FTC-2023-0064-3122 (Vivid Seats commented that
service fees ``are the TRM's [ticket resale marketplace's] sole
source of revenue and provide the capital necessary to operate the
TRM.''); FTC-2023-0064-3306 (Live Nation Entertainment and its
subsidiary Ticketmaster North America commented that a ticket
service charge ``compensates the venue for hosting the event and the
ticketing company for distributing tickets and related services--
important since venues and ticketing companies typically do not
share in revenues attributable to a ticket's face value.'').
\282\ See, e.g., FTC-2023-0064-3122 (Vivid Seats commented that
delivery fees cover costs associated with delivering a ticket.);
FTC-2023-0064-3306 (Live Nation Entertainment and its subsidiary
Ticketmaster North America); FTC-2023-0064-3292 (National
Association of Theatre Owners commented: ``These fees allow
moviegoers to purchase tickets and select their seats from home, and
this service requires ongoing support and management, entailing
operational costs that are offset by convenience fees. At the same
time customers can avoid the convenience fee altogether by
purchasing directly at the box office.'') FTC-2023-0064-3264 (Mark
J. Perry, Ph.D., Professor Emeritus of Economics at University of
Michigan-Flint and Senior Fellow Emeritus at the American Enterprise
Institute, commented that ticket resale marketplaces offer numerous
valuable services to ticket sellers and buyers that a single seller
or buyer could not access otherwise, including access to buyers or
tickets, inventory management, seller and customer support, secure
financial transactions, and guarantees.'').
\283\ FTC-2023-0064-3306 (Live Nation Entertainment and its
subsidiary Ticketmaster North America commented: ``Because the
practice of adding these charges to the ticket's face value has been
so longstanding, consumers have come to expect service fees when
purchasing a ticket to a live entertainment event--but it is
impossible for consumers to anticipate the amount of applicable fees
because those rates are set by hundreds of different venues and can
vary accordingly.'' The commenter continued, ``Consumers therefore
need clear disclosures about the true price of a ticket, including
the elements that constitute the all-in price.'').
\284\ FTC-2023-0064-3266 (StubHub, Inc. supported the exclusion
of ``fees for optional add-on features selected at the discretion of
the consumer.'' As an example, the commenter stated, ``[I]n some
instances, consumers may not have a choice on delivery method. In
those cases, delivery fees are mandatory and should be included in
the [Total Price] because the consumer has no discretion to choose.
In other instances, consumers have multiple delivery options at
different price points.'').
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Some industry members expressed concern that the rule would
prohibit itemization of fees in addition to total price, while others
argued that it should prohibit such itemization.\285\ The Commission
clarifies that, so long as total price is displayed clearly and
conspicuously, and more prominently than any itemized fees, the rule
does not prohibit businesses from itemizing the
[[Page 2097]]
charges imposed on a transaction. However, any such itemization must
not misrepresent the nature, purpose, amount, or refundability of the
itemized fees, including the identity of the goods or services for
which they are being charged.
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\285\ See, e.g., FTC-2023-0064-3230 (Future of Music Coalition
commented that ``adopting all in pricing without itemization [of the
base ticket price or face value and of fee amounts] would be a gift
to . . . predatory resellers.''); FTC-2023-0064-3250 (National
Independent Talent Organization stressed ``the need for an itemized
breakdown of ticket fees'' and called for ``fees to be clearly
itemized throughout the purchasing process.''); FTC-2023-0064-3304
(Recording Academy commented: ``Price itemization is the only way to
effectively regulate transparent pricing in a manner that truly
informs the consumer about how their dollar is being spent . . . .
Additionally, price itemization is the only way to effectively hold
third party fees and charges in check.''). But see FTC-2023-0064-
3212 (TickPick, LLC commented that the rule ``must prohibit the
itemization of fees and charges that make up the Total Price (other
than breaking out government taxes and shipping fees) in order to
prevent harm from hidden and/or misleading fees.'' The commenter
stated concerns that such fees were ``arbitrary'' and ``any
secondary ticketing marketplace that itemizes mandatory fees and
charges is arguably misrepresenting the `nature and purpose of any
amount a consumer may pay.' '').
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(c) Credit Card and Other Payment Processing Surcharges
The rule requires businesses to include credit card surcharges or
processing fees in total price only if they choose to make payment by
credit card mandatory. If, on the other hand, credit card use is
optional because consumers can use multiple payment options, those fees
do not need to be included in total price. If the consumer chooses to
use a credit card, businesses must clearly and conspicuously disclose
the nature, purpose, and amount of any credit card surcharge before the
consumer consents to pay. Some commenters expressed concern about the
rule's application to credit card fees but, as discussed herein, the
Commission was not persuaded by the comments to change the proposed
rule as it applies to such fees.
Many commenters expressed concern that the rule would require total
price to include credit card processing fees or prohibit businesses
from passing through such fees to consumers. This was of particular
concern to small businesses.\286\ Numerous industry members also
commented that requiring such fees to be part of total price would
reduce price transparency and penalize customers who want or need to
pay with cash.\287\
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\286\ See, e.g., FTC-2023-0064-3217 (Bowling Proprietors'
Association of America); FTC-2023-0064-2755 (Caffe! Caffe!); FTC-
2023-0064-3114 (Shine Beer Sanctuary); FTC-2023-0064-1456 (MED
Murphy St. Enterprise); see also, e.g., FTC-2023-0064-2953; FTC-
2023-0064-2972 (Over 4,600 comments submitted through a National
Restaurant Association mass mailing campaign misinterpreted the rule
as ``eliminating the use of fees and surcharges.'').
\287\ See, e.g., FTC-2023-0064-3300 (National Restaurant
Association); FTC-2023-0064-3128 (Merchants Payments Coalition);
FTC-2023-0064-3219 (Georgia Restaurant Association); FTC-2023-0064-
3180 (Independent Restaurant Coalition).
---------------------------------------------------------------------------
Various commenters suggested that if businesses properly disclose
credit card processing charges and provide alternate payment methods,
both consumers and businesses would benefit.\288\ Commenters noted
that, when appropriately disclosed, consumers can avoid such fees by
choosing another form of payment.\289\ An academic commenter suggested
that prominent disclosure of a credit card surcharge in advance, so
consumers can avoid it, would benefit consumers and reduce business
costs more than requiring such charges to be included in total
price.\290\ A tenant advocacy legal clinic that generally supported
requiring credit card processing charges to be included in total price,
suggested that such charges might be reasonably avoidable if disclosed
in advance to let consumers use a different payment method.\291\
Another academic commenter recommended that the Commission clarify
that, while credit card surcharges need not be included in total price,
a business can only pass through the actual amount of the charge and
must clearly and conspicuously disclose any markup it imposes.\292\
---------------------------------------------------------------------------
\288\ See, e.g., FTC-2023-0064-3180 (Independent Restaurant
Coalition commented: ``Clearly and prominently displaying any fees
promotes transparency and fairness as well as allowing restaurants
to meet the needs of their workers and customers.''); FTC-2023-0064-
2891 (Mary Sullivan, George Washington University, Regulatory
Studies Center).
\289\ See, e.g., FTC-2023-0064-3128 (Merchants Payments
Coalition); FTC-2023-0064-3140 (Merchant Advisory Group stated:
``When appropriately disclosed, consumers can typically avoid these
fees by simply choosing lower-cost forms of payment, and this could
help keep prices down for consumers overall.''); FTC-2023-0064-3300
(National Restaurant Association commented: ``When a credit card
surcharge is properly disclosed via in-store signage, on the menu,
and on the receipt, customers have a clear understanding that the
fee is a product of the card companies, not the restaurant.'').
\290\ FTC-2023-0064-2891 (Mary Sullivan, George Washington
University, Regulatory Studies Center).
\291\ FTC-2023-0064-3268 (Housing & Eviction Defense Clinic,
University of Connecticut School of Law).
\292\ FTC-2023-0064-1294 (James J. Angel, Ph.D., CFP, CFA,
Professor, Georgetown University, McDonough School of Business).
---------------------------------------------------------------------------
The Commission notes that the rule does not prohibit a business
from charging or passing through credit card fees if otherwise allowed
by law. The rule does not affect State laws that prohibit credit card
surcharges. Whether credit card charges must be included in total
price, however, depends on whether a business makes such fees
mandatory, for example, by not providing any other payment option for
the transaction. For example, if a consumer is purchasing a ticket
online, there must be another online payment option that does not
require a fee, not merely an option to go in person to the box office
to purchase the ticket with cash for no additional fee.
In other words, if there is no other payment option for an offered
transaction, or if every payment option requires a fee or charge, such
fees are mandatory and must be included in total price.\293\ But, if a
business offers consumers multiple viable payment options for the
offered transaction, so that paying with a credit card is optional,
then credit card fees need not be included in total price. The same is
true for debit card surcharges and other payment processing fees.
---------------------------------------------------------------------------
\293\ This approach is consistent with the Telemarketing Sales
Rule, which requires sellers and telemarketers to disclose, in a
clear and conspicuous manner, the total cost of a good or service,
which would include any applicable credit card or other payment
processing charges, before a consumer consents to pay for that good
or service. 16 CFR 310.3(a)(1)(i) and (a)(2)(i).
---------------------------------------------------------------------------
A business that provides at least one viable method to pay for the
offered transaction without a fee, chooses to pass through payment
processing fees to consumers, and excludes such fees from total price
would have to clearly and conspicuously disclose the nature, purpose,
and amount of the processing fees before a consumer consents to pay. In
addition, nothing in the rule prohibits businesses that accept multiple
viable forms of payment from advertising two prices, one that includes
credit card or other payment processing fees and one that does not. It
is the Commission's understanding that some businesses already do this,
and such a strategy is consistent with the rule.
In addition, under final Sec. 464.3, a business that offers,
displays, or advertises a covered good or service cannot misrepresent
the nature, purpose, amount, or refundability of credit card or other
fees. Since the rule does not prohibit itemization, a business may
choose to also itemize mandatory credit card fees so long as they are
included in total price and total price is displayed more prominently.
The voluntary itemization of mandatory credit card fees addresses
commenters' concerns that consumers will not understand the different
costs affecting businesses.
(d) Dynamic Pricing and National Advertising
Some commenters expressed concern that the total price requirements
will interfere with dynamic pricing strategies where total price is not
fixed but changes based on supply, demand, or other factors.\294\ The
rule does not bar
[[Page 2098]]
businesses from engaging in dynamic pricing, but adjusted prices must
include all known mandatory fees and the advertised good or service
must be actually available to consumers at the quoted price. The
Commission's review of the comments did not identify any persuasive
reason to change the rule as it applies to dynamic pricing.
---------------------------------------------------------------------------
\294\ See, e.g., FTC-2023-0064-3195 (League of American
Orchestras et al. observed: ``It would be harmful to paint all
dynamic pricing strategies as `unfair.' Nonprofit performing arts
organizations often use variable pricing strategies to both maximize
the earned revenue that supports the nonprofit performing arts
workforce, as well as to offer reduced or free-of-charge ticketing
options for community-based partners.''); FTC-2023-0064-3230 (Future
of Music Coalition stated that dynamic pricing ``can certainly be
used in ways that frustrate consumers'' but ``can also solve
practical problems.'' It is ``often used by nonprofit arts
presenters in non-problematic ways.'' The commenter noted, however,
that ``disclosure of specific dynamic pricing strategies and tools,
whether manual or algorithmic[,] will only help predatory resellers
make purchasing decisions and maximize their extraction of
value.'').
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A few commenters noted that the rule could interfere with
businesses' ability to engage in national advertising or to advertise
to a broad audience because mandatory fees may vary by location, as is
often the case with franchisee costs and delivery costs.\295\ One
commenter argued that the rule would require either impractical and
challenging geo-targeted advertising or advertising a ``maximum total
price'' to any potential consumer in the businesses' footprint, which
would overstate the price that most consumers need to pay and defeat
comparison shopping.\296\ The commenter also noted that
``[a]lternatively, companies might respond to the proposed rule by
omitting pricing from advertising altogether, an option that would
defeat the [Commission's] goal of ensuring consumers have access to
accurate and reliable cost information as they shop for services.''
\297\
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\295\ See, e.g., FTC-2023-0064-3127 (U.S. Chamber of Commerce
commented that the Total Price requirements ``may eliminate the
opportunity for national advertising campaigns'' because
``[m]andatory fees [such as regional sports fees] may vary by
location or tie to specific franchisee costs.'' The commenter
recommended that the FTC ``consider revising the definition of
`Total Price' to exclude all charges that vary based on geographic
region.''); FTC-2023-0064-3294 (International Franchise Association
commented: ``Under the Proposed Rule, national marketing campaigns
are only workable if all franchised businesses in a franchise system
adhere to the same pricing regime (including pass-through fees),
regardless of the economic demands of the markets in which they
operate.''); FTC-2023-0064-3300 (National Restaurant Association
commented: ``Like `Shipping Charges,' delivery fees should be
excluded from the `Total Price' requirement since local or national
advertising may feature the cost of the food item but cannot
reasonably predict how regional market conditions will alter the
price of delivery.'').
\296\ See, e.g., FTC-2023-0064-3233 (NCTA--The Internet &
Television Association stated that the rule would interfere with
``efforts to advertise pricing nationwide or to a broad audience''
and would require impractical and technically challenging geo-
targeted advertising. The commenter further stated that businesses
may be incentivized to ````advertis[e] a Total Price for a
particular service option that overstates the price that most
consumers would actually end up paying at their service location
(i.e., the Total Price would be the maximum price that any potential
customer in the provider's footprint would have to pay for the
service),'' which would ``confuse consumers and undermine the type
of comparison-shopping the FTC is aiming to facilitate. Bundled
pricing would be even more challenging to calculate and represent in
advertising, given that each bundled service could have multiple
different applicable taxes or surcharges.'').
\297\ Id.
---------------------------------------------------------------------------
The Commission determines that shipping charges may be excluded
from total price. As to other charges that may vary by time or
location, businesses can comply with the rule by advertising a maximum
total price either by region or nationwide. The Commission understands
that many businesses already engage in regional or geo-targeted
advertising that enables flexibility for pricing by time and locality.
Since the rule applies to all businesses offering covered goods or
services, it levels the playing field and preserves comparison-shopping
even when advertised prices are maximum totals.
(e) Rebates, Bundled Pricing, and Other Discounts: Compliance When
Promotional Pricing Models Have Different Fees
Promotional pricing models, such as two-for-one deals, bulk or
bundled pricing, unbundled or a la carte pricing, rebates, or other
discounts, can change the price a consumer ultimately may pay. Section
464.2(a)'s total price disclosure requirement applies whether a
consumer is purchasing a single covered good or service, multiple
covered goods or services, or covered goods or services combined with
ancillary goods or services, as well as when a discount or other
promotion affects the final amount of payment. If a consumer applies a
discount or otherwise qualifies for a promotional price, the business
can update the total price displayed. The Commission provides
clarification herein to address commenter concerns about the rule as it
applies to promotional pricing models.
Some commenters expressed concern that the rule's total price
requirement would prohibit or discourage businesses from offering
promotional prices to consumers.\298\ Two industry groups commented
that the potential difficulty of incorporating promotions into total
price might discourage businesses from offering them.\299\ A
competition policy group agreed and suggested modifications might be
``necessary to ensure that the proposed rules do not interfere with
such pricing models.'' \300\
---------------------------------------------------------------------------
\298\ See, e.g., FTC-2023-0064-2919 (National Automatic
Merchandising Association) (expressing concern that the rule would
ban offering cash discounts); see also, FTC-2023-0064-3217 (Bowling
Proprietors' Association of America) (stating that requiring
businesses to consolidate ``diverse pricing models into a single
displayed price could lead to significant consumer confusion and
dissatisfaction.'').
\299\ FTC-2023-0064-3263 (Flex Association commented that some
fees cannot be calculated at the start of a transaction, including
for discounts and special offers: ``For example, a `two-for-one'
offer cannot be activated until two eligible items are added to a
shopping cart.''); FTC-2023-0064-3137 (Chamber of Progress commented
that sellers may abandon discounts on bundles of goods or bulk
orders, because ``the total price of each good could vary depending
on the other items in the customer's cart.'').
\300\ FTC-2023-0064-2887 (Progressive Policy Institute
commented, ``the proposed disclosure requirements may interfere with
the use of different pricing models that provide value to consumers
and are the basis upon which some firms compete,'' such as unbundled
pricing models when ``the total price may not be known until the
consumer completes the purchase process,'' and therefore, a
``requirement to display prices before the purchase . . . may
mislead consumers and distort competition.'').
---------------------------------------------------------------------------
The Antitrust Division of the U.S. Department of Justice commented
that ``[c]ompetition between companies that offer bundled and unbundled
pricing for core products and value-added features can play an
important role in preserving consumer choice . . . and unbundled
pricing can empower consumers who prefer to pay only for what they
value.'' \301\ The Antitrust Division further commented that the
proposed rule ``does not affect companies' ability to offer consumers a
choice whether to buy unbundled features that do not impose mandatory
fees.'' \302\ However, it asserted that ``[w]hen companies use
unbundled offerings to disguise mandatory fees, they undermine the
value to competition of that unbundled option.'' \303\
---------------------------------------------------------------------------
\301\ FTC-2023-0064-3187 (U.S. Department of Justice, Antitrust
Division).
\302\ Id.
\303\ Id.
---------------------------------------------------------------------------
The rule does not prohibit businesses from using bundled, discount,
or similar pricing models if, when the business advertises any price of
a covered good or service, it discloses the total price the consumer
must pay for the good or service. The rule also does not require
businesses to incorporate different pricing models into a single price;
rather, under the rule, businesses advertising any price of a covered
good or service must only display the maximum total price. For example,
a hotel can display a regular total price and a loyalty program member
total price. Businesses also can display total price under a
promotional pricing model, such as a bundled price or a promotion
advertising, ``stay three nights, get one night free,'' when and to the
extent that model applies. The Commission notes that offering,
displaying, or advertising a general [x]% or $[y] discount, without
displaying the price of a covered good or service, does not require the
disclosure of total price under the rule.
[[Page 2099]]
(f) Online Marketplaces
The rule covers sellers and online marketplace platforms or other
intermediaries in the same manner as other businesses that offer
covered goods or services. Various commenters, however, highlighted the
challenges some businesses may face in implementing the rule if it is
applied equally to all online marketplace stakeholders. The
Commission's review of the comments, as discussed herein, did not
identify any persuasive reason to change the rule as it applies to
online marketplaces for covered goods or services.
Some commenters stated that certain businesses offering,
displaying, or advertising goods and services in an online marketplace
often must rely on other entities for accurate information about
pricing and expressed concern about liability under the rule if they
receive inaccurate pricing information. This concern arose both from
intermediaries that display prices provided by sellers and from sellers
who offer their goods or services through an intermediary.
Intermediaries are concerned about facing liability if they post prices
that are inaccurate because the seller of the good or service did not
provide complete and accurate pricing information. Commenters also
expressed concern about liability when sellers list their good or
service for sale on a platform but are not in control of how the
platform displays information about pricing.\304\
---------------------------------------------------------------------------
\304\ See, e.g., FTC-2023-0064-3258 (National Taxpayers Union
Foundation stated that Total Price may be difficult or impossible to
implement with third-party marketplaces because ``while the platform
may control the display of prices, it is sellers and not the
platform that sets [sic] the prices.''); FTC-2023-0064-3293 (Travel
Technology Association stated that intermediaries may be ``similarly
situated to consumers in that they are also dependent on Travel
Service Providers such as hotels to provide accurate, complete, and
timely information before booking.''); FTC-2023-0064-3262
(Skyscanner Ltd. highlighted ``the numerous and complex ways in
which metasearch sites receive pricing information directly from
hotels and other short-term lodging providers'').
---------------------------------------------------------------------------
Travel Technology Association (``Travel Tech''), for instance,
observed the complex and multi-layered information flow from travel
service providers, such as hotels, motels, inns, vacation rentals, and
other short-term lodging providers, to different types of
intermediaries which operate either as business-to-business, consumer-
facing, or both, and include online travel agents, metasearch engines,
global distribution systems, travel management companies, short-term
rental platforms, ``brick-and-mortar'' or offline travel agents, tour
operators, and wholesalers.\305\ Travel Tech explained that travel
service providers determine the rates, terms, and mandatory fees,
including resort fees, applicable to their travel services, and that
only travel service providers know whether the nature and purpose of
any fee they impose is accurate.\306\ Travel Tech members, which
consist of the aforementioned intermediaries, use the information
provided to them directly from travel service providers, or indirectly
through other intermediaries, to aggregate, sort, and display offers on
their sites and applications, and consumers in turn use this
information to compare offers and make informed choices.\307\ Travel
Tech and one of its members, Skyscanner, a metasearch engine, suggested
that the rule should immunize intermediaries from liability if travel
service providers or other upstream distributors ``fail to provide
accurate, complete, and timely pricing information and such downstream
[i]ntermediaries have made reasonable efforts to receive such
information.'' \308\ Both commenters further requested that the
Commission make clear that travel service providers would be engaging
in an unfair or deceptive practice if they provide inaccurate,
incomplete, or untimely pricing information to intermediaries or seek
remuneration from intermediaries for information necessary for them to
comply with any final rule.\309\ Finally, Travel Tech further requested
that the Commission clarify that the rule applies to any business that
supplies or advertises pricing to consumers so all are held to the same
standard.\310\
---------------------------------------------------------------------------
\305\ FTC-2023-0064-3293 (Travel Technology Association).
\306\ Id.
\307\ Id.
\308\ FTC-2023-0064-3293 (Travel Technology Association); FTC-
2023-0064-3262 (Skyscanner Limited).
\309\ Id.
\310\ FTC-2023-0064-3293 (Travel Technology Association).
---------------------------------------------------------------------------
The American Hotel & Lodging Association, a national association
representing all segments of the U.S. lodging industry, including hotel
owners, beds & breakfasts, State hotel associations, and industry
suppliers, also stressed that a final rule must apply broadly to all
industry participants, including online travel agencies, short-term
rental platforms, and metasearch sites.\311\ The commenter noted that
the industry broadly is moving to implement the clear publishing of
total price (including all mandatory, non-government fees) for lodging,
so that consumers can more easily navigate the myriad of choices they
have when it comes to places to stay.\312\
---------------------------------------------------------------------------
\311\ FTC-2023-0064-3094 (American Hotel & Lodging Association).
\312\ Id.
---------------------------------------------------------------------------
The Commission declines to adopt blanket immunity from the rule for
intermediaries that depend on providers of live-event tickets and
short-term lodging for accurate pricing information. The Commission,
clarifies, however, that the final rule applies to business-to-business
(``B2B'') transactions as well as business-to-consumer transactions.
Businesses such as travel service providers that sell or advertise
through intermediaries must provide such entities with accurate pricing
information (including about total price, as well as mandatory and
optional fees). Platforms and other intermediaries that offer, display,
or advertise covered goods or services and ancillary goods or services
or allow third party sellers to do so must disclose the total price of
the goods and services, including all mandatory and optional fees and,
if applicable, provide third-party sellers with all necessary
information to calculate the total price. The rule's coverage of B2B
transactions in this manner protects not only individual consumers from
hidden and misleading fees, but also businesses.
The Commission also notes that at least one commenter, the
International Franchise Association, argued that the rule should exempt
B2B transactions, without providing any compelling justification for
why bait-and-switch pricing, including drip pricing, and the
misrepresentation of fees and charges should be allowed in transactions
involving businesses.\313\ This commenter noted that, for example,
``[f]ranchised hotels advertise large event spaces for consumers'
weddings and business conventions'' and the rule ``could be applied
against these businesses if they fail to display total price even
though no consumer is ever misled or deceived.'' \314\ The prohibition
in section 5 of the FTC Act against unfair or deceptive acts or
practices does not include any limitation on the ``consumers'' who can
be injured. Relying on this authority, the Commission has long
interpreted the FTC Act to apply to cases where the harmed consumers
are businesses, particularly small- and medium-sized businesses.\315\
---------------------------------------------------------------------------
\313\ FTC-2023-0064-3294 (International Franchise Association).
\314\ Id.
\315\ See, e.g., Complaint ]] 1-7, 13-87, FTC v. Arise Virtual
Solutions, Inc., No. 24-cv-61152 (S.D. Fla. July 2, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/arise_complaint.pdf (alleging
defendants made misleading and unsubstantiated earnings claims in
selling its Arise business opportunity to gig worker consumers
seeking to work from home in customer service and failed to provide
the disclosures required by the Business Opportunity Rule);
Complaint ]] 7-51, In re Amazon.com, Inc., 171 F.T.C. 860, 861-71
(2021), https://www.ftc.gov/system/files/ftc_gov/pdf/DV171.pdf
(alleging defendants deceptively claimed they would give their
Amazon Flex drivers 100% of consumer tips when in fact they withheld
nearly a third of the tips from their drivers); Complaint ]] 13-65,
FTC v. First American Payment Systems, LLC, No. 4:22-cv-00654 (E.D.
TX July 29, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/Complaint%20%28file%20stamped%29_0.pdf (alleging defendants made
false claims about their payment processing services, including
about total monthly fees, savings opportunities, and the ease of
cancelling automatically-renewing accounts, to small business
consumers such as restaurants, nail salons, or small retail
businesses); Complaint ]] 12-50, FTC v. Yellowstone Capital LLC, No.
1:20-cv-06023 (S.D.N.Y. Aug. 3, 2020), https://www.ftc.gov/system/files/documents/cases/1823202yellowstonecomplaint.pdf (alleging
defendants engaged in a pattern of deceptive and unfair conduct
involving their ``merchant cash advances'' to small business
consumers and made excess, unauthorized withdrawals from consumers'
accounts after consumers already repaid the full amount they owed);
Complaint ]] 9-104, FTC v. Fleetcor Technologies, Inc., No. 1:19-cv-
05727-ELR (N.D. Ga. December 20, 2019), https://www.ftc.gov/system/files/documents/cases/fleetcor_complaint_with_exhibits_002.pdf
(alleging defendants marketed fuel cards to business consumers that
operate vehicle fleets, including many small businesses and made
false claims about the fuel card's savings, fraud controls, and lack
of set-up, transaction, and membership fees, instead charging these
businesses hundreds of millions of dollars in unexpected fees); see
also Fed. Trade Comm'n, Policy Statement on Enforcement Related to
Gig Work (2022), https://www.ftc.gov/system/files/ftc_gov/pdf/Matter%20No.%20P227600%20Gig%20Policy%20Statement.pdf (noting that
protecting gig workers ``from unfair, deceptive, and anticompetitive
practices is a priority,'' and the FTC ``will use its full authority
to do so'').
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[[Page 2100]]
The Commission clarifies that it does not intend to treat
intermediaries as the publisher or speaker of information about pricing
or as controlling the manner of its display where the intermediary is
not responsible, in whole or in part, for such content or display.\316\
However, if intermediaries are responsible, in whole or in part, for
offering, displaying, or advertising any price, including any portion
thereof, of a covered good or service, then within the scope of that
responsibility, they must give sellers the information necessary to
calculate total price and, when uniquely situated to do so, such
intermediaries must ensure that they display total price. For example,
if an intermediary charges a fee for access to its platform and the
seller passes the fee through to consumers, the intermediary must
provide the seller with accurate information about the fee's amount so
the seller can accurately calculate total price, or otherwise ensure
that the total price is displayed. Travel service providers and other
sellers, by the same token, must provide intermediaries with accurate
price information.
---------------------------------------------------------------------------
\316\ See, e.g., FTC-2023-0064-3202 (TechNet stated: ``The FTC's
proposed rule also poses significant harm to online marketplaces by
potentially creating liability for platforms that merely display
pricing advertised by others. As publishers, such platforms are
likely protected from such responsibility by Section 230 of the
Communications Decency Act of 1996.'').
---------------------------------------------------------------------------
Whether an intermediary, seller, or other business is responsible
for offering, displaying, or advertising a price of a covered good or
service, may be a fact- and law-specific determination in which the
Commission can consider issues of participation in, and control of,
unfair or deceptive practices, as well as contractual obligations
between sellers and platforms and other intermediaries, and the
applicability of other Federal laws. The Commission will consider
issuing and updating business guidance to address particular or nuanced
scenarios, as it has done as a complement to other rulemakings.\317\
---------------------------------------------------------------------------
\317\ See, e.g., Fed. Trade Comm'n, Bureau of Consumer
Protection Business Guidance, FTC Safeguards Rule: What Your
Business Needs to Know (May 2022), https://www.ftc.gov/business-guidance/resources/ftc-safeguards-rule-what-your-business-needs-know; Fed. Trade Comm'n, Bureau of Consumer Protection Business
Guidance, FAQs: Complying with the Contact Lens Rule (June 2020),
https://www.ftc.gov/business-guidance/resources/faqs-complying-contact-lens-rule; Fed. Trade Comm'n, Bureau of Consumer Protection
Business Guidance, Complying with the Funeral Rule (Aug. 2012),
https://www.ftc.gov/business-guidance/resources/complying-funeral-rule.
---------------------------------------------------------------------------
2. Sec. 464.2(b)
Proposed Sec. 464.2(b) in the NPRM required businesses to display
total price more prominently than any other pricing information in any
offer, display, or advertisement that contains an amount a consumer may
pay. Following review of the comments, the Commission finalizes Sec.
464.2(b) with three modifications. First, as already discussed in this
section, the Commission limits the requirements of Sec. 464.2,
including Sec. 464.2(b), to covered goods or services. Second, as
discussed in section III.B.1, the Commission narrows the disclosure
trigger in Sec. 464.2(a) and (b) to ``an offer, display, or
advertisement that represents any price of a covered good or service.''
Third, as discussed herein, final Sec. 464.2(b) clarifies the
prominence requirement with respect to the final amount of payment for
a transaction. Final Sec. 464.2(b) thus provides that, in any offer,
display, or advertisement that represents any price of a covered good
or service, a business must disclose the total price more prominently
than any other pricing information. However, where the final amount of
payment for the transaction is displayed, the final amount of payment
must be disclosed more prominently than, or as prominently as, the
total price.
Various commenters voiced support for proposed Sec. 464.2(b)'s
requirement that total price must be displayed more prominently than
other pricing information.\318\ Certain commenters stated that the
prominence requirement will prevent consumer confusion as to the true
price of a good or service.\319\ Some commenters suggested
strengthening the prominence requirement or adding guidance about
it.\320\ Other commenters also suggested clarifying that the phrase
``an amount a consumer may pay'' refers only to truly mandatory
ancillary goods or services.\321\ On the other hand, some
[[Page 2101]]
industry commenters stated that the prominence requirement may have
unintended consequences that could harm consumers, such as consumers
not noticing an offered discount or a business deciding not to provide
any pricing information.\322\ As noted in section III.B.1.e, nothing in
the rule prohibits a business from adjusting total price to account for
any applied discounts or other promotional pricing and, given strong
market incentives, the Commission disagrees with comments that the
rule's prohibitions against hidden and misleading fees will deter
businesses from advertising prices.\323\
---------------------------------------------------------------------------
\318\ See, e.g., FTC-2023-0064-3266 (StubHub, Inc. agreed with
the FTC's proposal to require Total Price in every offer, display,
or advertisement presented to consumers and that Total Price must be
consistently displayed throughout the transaction); FTC-2023-0064-
3306 (Live Nation Entertainment and its subsidiary Ticketmaster
North America supported ``requir[ing] the first price for a live-
event ticket shown to consumers to be the price ultimately charged
at checkout (exclusive of state and local taxes and optional add-
ons). This price should be clearly displayed on the initial landing
page and easily discernible.'' The commenter proposed adding the
phrase, ``from the first instance a consumer sees a price for a good
or service'' to the end of proposed Sec. 464.2(a) and moving the
phrase, ``as soon as pricing information is provided to the
consumer'' before ``more prominently than any other Pricing
Information'' in proposed Sec. 464.2(b).); FTC-2023-0064-3290 (U.S.
Public Interest Research Group Education Fund commented: ``[T]he
Total Price should be provided first and with the most prominence.
Businesses must not be allowed to confuse consumers with a barrage
of numbers.''); FTC-2023-0064-1939 (Tzedek DC).
\319\ See, e.g., FTC-2023-0064-3290 (U.S. Public Interest
Research Group Education Fund); FTC-2023-0064-1939 (Tzedek DC
commented that proposed Sec. 464.2(b) ``will prevent companies from
hiding the real cost of goods and services in fine print or making
the total cost difficult to find.'').
\320\ See, e.g., FTC-2023-0064-3196 (South Carolina Department
of Consumer Affairs commented: ``Guidance on how the business can
simultaneously comply with the `Clearly and Conspicuously'
requirement and the prominence requirement may help with business
comprehension and compliance.'' The commenter suggested adding ``a
definition addressing the different mediums by which the offer,
display or advertisement may be relayed to a consumer (visual,
audio, print, online)'' and providing ``examples of compliance with
the requirement of prominent display'' such as ``in a visual
disclosure presentation of the Total Price in bolded typeface at
least two points larger than any other Pricing Information or 14-
point font, whichever is larger, satisfies the prominence
requirement.'').
\321\ See, e.g., FTC-2023-0064-3275 (Berkeley Center for
Consumer Law & Economic Justice et al. suggested modifying proposed
Sec. 464.2(b) to include: ``[A] Business must not automatically
include Ancillary Goods or Services in the Total Price or
automatically select Ancillary Goods or Services for purchase on
behalf of the consumer.''); FTC-2023-0064-3160 (Consumer Federation
of America et al. made a similar suggestion and stated it would
``ensure that `must pay' is interpreted to include any fee or charge
that is included by default and that the consumer must pay unless
they take affirmative action to opt-out or avoid it.'' The commenter
proposed adding guidance that: ``A consumer must pay a fee or charge
if the fee or charge is not reasonably avoidable or if the consumer
must pay the fee or charge unless they take affirmative action to
avoid it. An ancillary good or service is mandatory if a reasonable
consumer would expect the good or service to be included with the
purchase.'').
\322\ See, e.g., FTC-2023-0064-3293 (Travel Technology
Association commented that if Total Price is ``clearly and
conspicuously'' displayed, a prominence requirement is unnecessary
and ``discounts would have to be less prominent than the Total
Price, potentially leading to a consumer missing out on a deal that
may have saved them money or led to a more enjoyable vacation.'' The
commenter suggested that the rule be more flexible ``so that
Intermediaries can use their expertise to relay the most appropriate
information to consumers.''); FTC-2023-0064-3296 (Bay Area Apartment
Association commented that the prominence requirement could have a
``chilling effect on the content of commercial speech,'' with some
rental housing providers choosing ``not to include pricing
information in their advertisements, and instead invite prospective
residents to learn about pricing on their website or to call their
leasing office,'' thereby ``undermining a key objective (better
consumer awareness of the price of goods and service[s]) the rule is
intended to accomplish.'').
\323\ See also Bates v. State Bar of Ariz., 433 U.S. 350, 383-84
(1977) (``Since the advertiser knows his product and has a
commercial interest in its dissemination, we have little worry that
regulation to assure truthfulness will discourage protected
speech.'') (citing Va. State Bd. of Pharm. v. Va. Citizens Consumer
Council, Inc., 425 U.S. 748, 771-772, 771 n. 24 (1976)).
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Final Sec. 464.2(b) also clarifies how the prominence requirement
applies to the final amount of payment for a transaction. The
Commission recognizes that the final amount of payment, now an
explicitly required disclosure under final Sec. 464.2(c), may differ
from total price due to various factors, such as the exclusion from
total price of certain fees or charges, including for any optional
ancillary good or service, or the application of promotional pricing
models. The Commission determines that both total price and the final
amount of payment are material to consumers. The Commission therefore
clarifies that, when the final amount of payment is displayed, it must
be displayed as prominently as, or more prominently than, total price.
The modification avoids a potential unintended consequence of the rule,
which may have been read to require total price to obscure the final
amount of payment.
The Commission determines that, with these modifications, Sec.
464.2(b)'s prominence requirement is clear, understandable, and
unambiguous.
3. Sec. 464.2(c)
In final Sec. 464.2, the Commission consolidates all proposed
disclosure requirements; therefore, proposed Sec. 464.3(b) is codified
at final Sec. 464.2(c). Proposed Sec. 464.3(b) would have required
businesses to disclose clearly and conspicuously, before the consumer
consents to pay, the nature and purpose of any amount a consumer may
pay that is excluded from total price, including the fee's
refundability and the identity of the good or service for which the fee
is charged. Final Sec. 464.2(c) largely adopts the disclosure
requirements of proposed Sec. 464.3(b), with certain modifications.
Specifically, final Sec. 464.2(c) requires businesses to disclose
clearly and conspicuously, before the consumer consents to pay for any
covered good or service: The nature, purpose, and amount of any fee or
charge imposed on the transaction that has been excluded from total
price and the identity of the good or service for which the fee or
charge is imposed, but not the fee's refundability; and the final
amount of payment for the transaction.
The Commission makes these modifications, as discussed herein, in
response to the comments and to address related concerns. One commenter
recommended that the Commission provide greater specificity about which
fees excluded from total price must be disclosed under this provision,
and require the itemized disclosure of such fees.\324\ Some commenters
argued that the provision was vague and overbroad, and that its
application to ``any amount a consumer may pay'' would make complying
with the provision impracticable and result in excessive disclosures
that would confuse consumers into believing that all disclosed fees
apply to them when they might not.\325\ One commenter recommended that
the rule allow the required disclosures to be made at the time goods or
services are selected.\326\ Commenters argued that requiring businesses
to explain how fees will be used is not reasonable and may require the
disclosure of confidential, proprietary, or commercially sensitive
information, such as the business rationale for imposing fees and the
specific uses to which businesses put fees.\327\ Other commenters
recommended that the rule require the disclosure of the optional nature
of optional fees \328\ and regulate opt-in and opt-out procedures for
fees.\329\
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\324\ FTC-2023-0064-3283 (National Consumer Law Center, Prison
Policy Initiative, and advocate Stephen Raher).
\325\ See, e.g., FTC-2023-0064-3094 (American Hotel & Lodging
Association asserted: ``The language of the proposed rule is vague,
overbroad, and not sufficiently specific to provide notice of what
types of fees businesses are required to display . . . . Businesses
could reasonably differ in their approaches to disclosing the
`nature and purpose' or `identity' of such fees.''); FTC-2023-0064-
3133 (National Multifamily Housing Council and National Apartment
Association commented that disclosing the nature and purpose of fees
is ``impracticable'' and requiring rental housing providers to
furnish prospective tenants ``with any fee or charge excluded from
the total price that the customer may (or may not) have to pay at
some point during the lease practically means housing providers will
need to disclose all possible fees.''); FTC-2023-0064-3263 (Flex
Association asserted that the ``requirement to disclose the `nature
and purpose' of a fee is vague'' and ``provide[s] no material
benefit to consumers.''); see also, FTC-2023-0064-2981 (Apartment &
Office Building Association of Metropolitan Washington); FTC-2023-
0064-3042 (Nevada State Apartment Association); FTC-2023-0064-3044
(San Angelo Apartment Association); FTC-2023-0064-3045 (Chicagoland
Apartment Association); FTC-2023-0064-3111 (Houston Apartment
Association); FTC-2023-0064-3116 (Manufactured Housing Institute);
FTC-2023-0064-3233 (NCTA--The internet & Television Association);
FTC-2023-0064-3296 (Bay Area Apartment Association); FTC-2023-0064-
3311 (Greater Cincinnati Northern Kentucky Apartment Association).
\326\ FTC-2023-0064-3094 (American Hotel & Lodging Association).
\327\ See, e.g., FTC-2023-0064-1425 (Iowa Bankers Association);
FTC-2023-0064-3263 (Flex Association asserted that ``[i]t appears
that the Commission seeks to require disclosure of the business
rationale for imposing a fee and the specific uses to which proceeds
of a given fee will go,'' which would require businesses to
``divulge commercially sensitive information that could seriously
alter competition in a given marketplace.'').
\328\ See, e.g., FTC-2023-0064-2888 (Housing Policy Clinic,
University of Texas School of Law).
\329\ See, e.g., Id.; FTC-2023-0064-2883 (District of Columbia,
Office of the People's Counsel); FTC-2023-0064-3146 (Institute for
Policy Integrity, New York University School of Law).
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The Commission modifies the NPRM proposal so that final Sec.
464.2(c) requires businesses to disclose separately the amount, as well
as the nature and purpose, of each fee or charge imposed on the
transaction for the covered good or service that is excluded from total
price, and the final amount of payment, before the consumer consents to
pay. The Commission determines that these modifications are necessary
for price transparency and to protect consumers who would reasonably
expect to know the nature, purpose, and amount of fees they will have
to pay, as well as the
[[Page 2102]]
final amount of payment, before they consent to pay.
To provide clarification and address commenter concerns about
potential overbreadth and vagueness, the Commission narrows the NPRM
proposal so that final Sec. 464.2(c) requires the disclosures in
connection with ``any fee or charge imposed on the transaction that has
been excluded from total price'' instead of ``any amount a consumer may
pay.'' The provision therefore requires the disclosure, before the
consumer consents to pay, of the nature, purpose, and amount of
government charges, shipping charges, and any other fee or charge, such
as for optional ancillary goods or services, that permissibly were
excluded from total price but are being imposed on the transaction.
Final Sec. 464.2(c) also explicitly requires disclosure of ``the
final amount of payment for the transaction,'' as that amount may
differ from total price due to, for example, the application of
promotional pricing or the addition of any fees or charges permissibly
excluded from total price, including for any optional ancillary goods
or services. Where the final amount of payment is displayed, as
discussed in section III.B.2, final Sec. 464.2(b) requires it to be at
least as prominent as, or more prominent than, total price.
In most instances, the disclosure about the nature, purpose, and
amount of the excluded charge or fee will be minimal. For example,
using the defined term ``shipping charges'' is likely to convey the
nature and purpose of such charges. For government charges, a phrase
like ``sales tax'' or ``hotel occupancy tax'' would convey the nature
and purpose of an imposed sales tax or hotel occupancy tax. Similarly,
in most instances, simply identifying the ancillary good or service for
which a charge applies, such as ``valet parking,'' will sufficiently
convey the nature and purpose of the charge.
Some commenters observed that the timing of ``before the consumer
consents to pay'' is unclear. One commenter cautioned that the language
of the rule may open the door to the types of bait-and-switch pricing
that the total price disclosure requirement is meant to prevent.\330\
Other commenters recommended that the Commission clarify the meaning of
the phrase ``before the consumer consents to pay'' and the timing of
the required disclosures, for example, by specifying that it means
before businesses obtain consumers' billing information.\331\
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\330\ FTC-2023-0064-3160 (Consumer Federation of America et
al.).
\331\ See, e.g., FTC-2023-0064-3160 (Consumer Federation of
America et al.); FTC-2023-0064-3146 (Institute for Policy Integrity,
New York University School of Law); FTC-2023-0064-3283 (National
Consumer Law Center, Prison Policy Initiative, and advocate Stephen
Raher); FTC-2023-0064-3191 (Community Catalyst et al.).
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The Commission clarifies that, although when a consumer consents to
pay may depend on the facts and circumstances surrounding the
transaction, Sec. 464.2(c) requires businesses to clearly and
conspicuously disclose the nature, purpose, and amount of any fees or
charges imposed on the transaction that have been excluded from total
price and the identity of the good or service for which the fee or
charge is imposed, as well as the final amount of payment for the
transaction, before consumers are required to pay cash or provide their
payment information. The Commission notes that a default setting that
automatically opts-in consumers to pay for goods or services does not
constitute consent to pay nor does it satisfy Sec. 464.2(c)'s
disclosure requirements.
As part of final Sec. 464.2(c), the Commission does not adopt the
NPRM's proposed requirement to affirmatively disclose each fee's
refundability. The Commission determines that requiring clear and
conspicuous disclosure of each fee's refundability may be impractical
for businesses and confusing to consumers due to extensive
qualifications or other requirements for refunds. Such extensive,
itemized disclosures may impede the Commission's goal of ensuring
consumers receive clear and accurate pricing information. However, the
Commission finalizes Sec. 464.3's prohibition on misrepresenting a
fee's refundability.
C. Sec. 464.3 Misleading Fees Prohibited
Both practices that the Commission identified in the NPRM as unfair
or deceptive involve misleading practices: (1) bait-and-switch pricing
that hides the total price of goods or services by omitting mandatory
fees from advertised prices, including through drip pricing, and (2)
misrepresenting the nature, purpose, amount, and refundability of fees
or charges. Proposed Sec. 464.3(a) would have prohibited any business
from misrepresenting the nature and purpose of any amount a consumer
may pay, including the refundability of such fees and the identity of
any good or service for which fees are charged.\332\
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\332\ As noted supra section III.B, the Commission redesignates
proposed Sec. 464.3(b) as final Sec. 464.2(c) to consolidate all
provisions related to disclosures in final Sec. 464.2.
---------------------------------------------------------------------------
The Commission finalizes proposed Sec. 464.3(a) in Sec. 464.3
with some modifications. Specifically, final Sec. 464.3 prohibits any
business, in any offer, display, or advertisement for a covered good or
service, from misrepresenting any fee or charge, including its nature,
purpose, amount or refundability, and the identity of the good or
service for which it is imposed. The Commission adds the phrase
``covered goods or services'' to reflect the narrower scope of the
final rule. The Commission also adds ``amount'' to ``nature'' and
``purpose,'' and clarifies that the prohibited misrepresentations
concern ``any fee or charge'' instead of ``any amount a consumer may
pay.'' This modified provision makes plain that, in connection with
covered goods or services, businesses cannot misrepresent the nature,
purpose, amount, or refundability of any fee or charge, including
government charges, shipping charges, any fees or charges for optional
ancillary goods or services, or any mandatory fees or charges. In
making these modifications, the Commission has considered
recommendations and alternatives suggested in NPRM comments, discussed
herein.
The Commission noted in the NPRM that it had received comments in
response to the ANPR stating that sellers often misrepresent the nature
or purpose of fees, leaving consumers wondering what they are paying
for, believing fees are arbitrary, or concerned that they are getting
nothing for the fees charged. The Commission received similar comments
in response to the NPRM.
The Attorneys General of nineteen States and the District of
Columbia commented that fee misrepresentations ``mislead consumers and
make it more difficult for truthful businesses to compete on price.''
\333\ Commenters supported prohibiting fee misrepresentations because
truthful information benefits both consumers and businesses.\334\ A
commenter
[[Page 2103]]
recommended that the Commission clarify that the provision includes
misrepresentations about fees included in total price and fees excluded
from total price.\335\
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\333\ FTC-2023-0064-3215 (Attorneys General of the States of
North Carolina and Pennsylvania, along with Attorneys General of the
States or Territories of Arizona, Colorado, Connecticut, Delaware,
District of Columbia, Hawaii, Illinois, Maine, Michigan, Minnesota,
New Jersey, New York, Oklahoma, Oregon, Vermont, Washington, and
Wisconsin stated: ``[C]harges that misrepresent their nature and
purpose are unfair and deceptive because they mislead consumers and
make it more difficult for truthful businesses to compete on
price.'' The Attorneys General asserted that ``this provision is
another straightforward, commonsense approach that should not
significantly burden businesses.'').
\334\ See, e.g., FTC-2023-0064-3275 (Berkeley Center for
Consumer Law & Economic Justice et al. asserted: ``Prohibiting
misrepresentation of the identity and nature of fees further serves
the Commission's mandate to promote fair business practices and
competition.''); FTC-2023-0064-2892 (Community Legal Services of
Philadelphia stated that the rule's ``prohibition on
misrepresentation regarding the nature and cost of fees would also
be extremely beneficial for low-income renters, who often face
inflated fees that can contribute to housing insecurity.''); FTC-
2023-0064-3268 (Housing and Eviction Defense Clinic, University of
Connecticut School of Law stated: ``Prohibiting misleading fees will
not only properly inform the tenants of the charges but also hold
the landlords accountable for their fees.'').
\335\ FTC-2023-0064-3283 (National Consumer Law Center, Prison
Policy Initiative, and advocate Stephen Raher stated that Sec.
464.3(a) should make clear that it prohibits misrepresentations
regarding any amount included in Total Price as well as any other
fee or charge the consumer may pay, including ``Shipping Charges,
Government Charges, fines, penalties, optional charges, voluntary
gratuities, and invitations to tip,'' and proposed adding specific
text to that effect.).
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Commenters stated that businesses misrepresent fees by using
language that is vague and not understandable to consumers,\336\ and
provided examples of various types of misrepresentations about the
nature and purpose of fees, such as ``service'' fees that may not go to
service employees, ``environmental'' fees that may not have an
environmental purpose, ``resort'' fees for ordinary accommodations or
amenities,\337\ and fees misrepresented as government charges.\338\
Commenters also stated that businesses may misrepresent the mandatory
or optional nature of fees, or their amount, and recommended that the
Commission clarify that prohibiting misrepresentations about the nature
and purpose of fees includes misrepresentations about their mandatory
or optional nature.\339\ Another commenter argued that businesses can
misrepresent fees when they itemize mandatory fees that are arbitrary
and are not for identified goods or services, and recommended that the
Commission clarify that businesses must have adequate substantiation
for itemized fees.\340\ Commenters also argued that businesses
misrepresent fees when they do not provide the goods or services for
which fees are charged or provide nothing of value,\341\ and when fees
fail to reflect the cost of the goods or services provided.\342\
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\336\ See, e.g., FTC-2023-0064-3268 (Housing & Eviction Defense
Clinic, University of Connecticut School of Law stated that rental
fees may be ``for something the landlord/property manager cannot
explain.''); FTC-2023-0064-3283 (National Consumer Law Center,
Prison Policy Initiative, and advocate Stephen Raher stated the rule
should clarify that descriptions of fees which are not
understandable to reasonable consumers misrepresent their nature and
purpose.); FTC-2023-0064-3275 (Berkeley Center for Consumer Law &
Economic Justice et al. cited research showing that ``many
businesses characterize their hidden and unexpected fees using vague
or anodyne language that fails to succinctly explain to the consumer
exactly what the fee is for.'').
\337\ See, e.g., FTC-2023-0064-1939 (Tzedek DC expressed support
for the misleading fees provision because it ``will prevent
companies from making misleading claims about a fee, in example, a
company charging a `staff service fee' that does not go to
employees.''); FTC-2023-0064-3106 (American Society of Travel
Advisors noted: ``While admittedly there is no universally accepted
industry definition of what constitutes a `resort,' hotels offering
only typical or ordinary accommodations and/or amenities but
nevertheless characteriz[ing] their fees as such misrepresent the
nature of the property being booked.''); FTC-2023-0064-3275
(Berkeley Center for Consumer Law & Economic Justice et al.
identified ``environmental fees'' as one example of fees that may
``serve[ ] no apparent environmental sustainability or conservation
purpose.'').
\338\ See, e.g., FTC-2023-0064-3275 (Berkeley Center for
Consumer Law & Economic Justice et al. stated that ``environmental''
fees ``are likely designed to trick consumers into thinking that the
added cost is either a government-imposed tax to protect the
environment, or a salutary contribution to somehow `offset' any
negative environmental impact caused by the good or service'' when
they may be ``charged simply to boost a business's profits.''); FTC-
2023-0064-3106 (American Society of Travel Advisors noted that ``use
of terms such as `destination fee' . . . will inevitably mislead
many consumers into mistakenly believing that it represents a tax or
government surcharge that must be collected from the consumer and
passed on to a local jurisdiction.'').
\339\ See, e.g., FTC-2023-0064-3275 (Berkeley Center for
Consumer Law & Economic Justice et al. argued that the rule could be
strengthened by clarifying that the misleading fees provision
applies to mandatory and optional fees.); FTC-2023-0064-3160
(Consumer Federation of America et al. stated that the FTC should
make clear that the misleading fees provision applies to mandatory
and optional fees.).
\340\ FTC-2023-0064-3212 (TickPick, LLC argued: ``Due to the
arbitrary nature of the components that make up the Total Price of a
ticket, any secondary ticketing marketplace that itemizes mandatory
fees and charges is arguably misrepresenting the `nature and purpose
of any amount a consumer may pay.' '' The commenter proposed that
the Commission ``define any breakdown of the amounts that a consumer
may pay as a representation that requires adequate
substantiation.'').
\341\ See, e.g., FTC-2023-0064-3102 (Corporation for Supportive
Housing noted that landlords and property managers may collect
``fees for services that were not performed (e.g., running a
background check, credit check), [and] charg[e] fees in excess of
the actual amount to perform the service/run the check to generate
profit.''); FTC-2023-0064-3278 (Southeast Louisiana Legal Services
noted that low-income renters face unfair and deceptive fees during
residential leases that are ``frequently for services not
rendered.'' The commenter further noted: ``Without any restrictions
on hidden or misleading fees, landlords are free to use rental
applications as an independent source of profit for which there may
be no real service provided.''); FTC-2023-0064-1431 (McPherson
Housing Coalition stated that rental housing applicants who pay
application fees and do not get approved lose their money.); FTC-
2023-0064-2862 (Legal Aid Foundation of Los Angeles gave as examples
of misleading fees a repairs fee when the landlord is legally
obligated to provide the repairs and a parking fee when the tenant
does not have or park a car.); FTC-2023-0064-2920 (Colorado Poverty
Law Clinic stated, ``we often see fees added for services that the
tenant does not receive, or that are basic services that should only
reasonably be included in the tenant's monthly rent,'' such as for
common area maintenance or utilities.); FTC-2023-0064-3242 (William
E. Morris Institute for Justice expressed concern that ``housing
providers and landlords are charging junk fees untethered to any
real cost or business expense . . . or to any value or benefit
delivered to rental housing applicants.'').
\342\ See, e.g., FTC-2023-0064-3106 (American Society of Travel
Advisors noted that ``even where use of the term `resort' to
describe the property may be warranted, often the amount of the fee
collected appears arbitrary and bears no relationship to the value
of the services purportedly being provided.''); FTC-2023-0064-3278
(Southeast Louisiana Legal Services commented that rental housing
providers charge misleading fees when ``they do not appear to
correspond to the cost of service provided'' or are vaguely
identified, such as an ``administrative fee'' that causes
``confusion for tenants who believe it to be a security deposit.'');
FTC-2023-0064-3253 (Fortune Society commented that ``application
fees often do not reflect the actual costs of submitting a rental
application.'').
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The American Hotel & Lodging Association and other commenters
described the misleading fees provision as unnecessary given the
Commission's existing authority under section 5 of the FTC Act to
police misleading fees.\343\ It is true that section 5, which prohibits
unfair or deceptive practices, has long been used to protect against
misrepresentations regarding material terms of a transaction, including
price. False claims about fees or charges, as well as those claims that
lack a reasonable basis, are inherently likely to mislead. However, the
Commission disagrees with commenters' contentions that the rule's
prohibitions on misrepresentations are unnecessary given the existing
section 5 authority. As explained in section V, the final rule is
necessary to: (1) ensure all businesses offering covered goods or
services are held to the same standard so that consumers can
effectively comparison shop; (2) level the playing field for these
businesses so that they can compete based on truthful pricing
information; and (3) increase deterrence by allowing courts to impose
civil penalties and enabling the Commission to more readily obtain
redress and damages for consumers through section 19(b) of the FTC Act.
As it has become increasingly common for businesses offering covered
goods or services to charge or itemize discrete fees over the course of
a transaction, a specific prohibition on pricing misrepresentations is
necessary to ensure consumers receive truthful information about the
charges and fees they incur, and businesses are able to compete based
on truthful information.\344\
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\343\ See, e.g., FTC-2023-0064-3094 (American Hotel & Lodging
Association).
\344\ Given the prevalence of the defined unfair or deceptive
practices regarding the misrepresentation of total costs and the
nature and purpose of fees, the Commission finds that it is
necessary to require both affirmative disclosures and a prohibition
of misrepresentations, instead of limiting the rule to prohibiting
misrepresentations. See supra Parts II.A and II.B.
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[[Page 2104]]
Other commenters described the misrepresentations provision as
vague and overbroad.\345\ The Commission carefully considered comments
that suggested the language proposed in the NPRM prohibiting
misrepresentations lacked specificity and was vague or overbroad,
particularly the phrase ``any amount a consumer may pay.'' In final
Sec. 464.3, the Commission modifies the NPRM proposal to replace ``any
amount a consumer may pay'' with a reference to ``any fee or charge.''
In the NPRM, the Commission stated that ``[o]ther characteristics
included in the nature and purpose of a charge, such as the amount of
the charge and whether it is refundable, are also material.'' \346\ To
elaborate on this point in the final rule text, the Commission
specifies that the ``amount'' of any fee or charge cannot be
misrepresented. Taken together, these modifications provide clarity to
businesses that they cannot misrepresent the nature, purpose, amount,
or refundability of any fee or charge excluded from total price,
including government charges, shipping charges, any fees or charges for
optional ancillary goods or services, or any other itemized or totaled
fee or charge, including total price and the final amount of payment.
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\345\ See, e.g., FTC-2023-0064-3094 (American Hotel & Lodging
Association); FTC-2023-0064-3206 (Motor Vehicle Protection Products
Association et al.).
\346\ NPRM, 88 FR 77434.
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Final Sec. 464.3 prohibits misrepresentations about material
pricing terms of a transaction. The nature, purpose, amount, and
refundability of fees or charges and the identity of the good or
service for which they are imposed are material characteristics that
affect the value to consumers of the covered goods or services being
offered and businesses' ability to compete on price. As the Commission
noted in the NPRM, whether a consumer is required to pay a charge, the
amount of the charge, and what goods or services they will receive in
exchange for the charge, is necessarily material information that
affects a consumer's choice about whether to consent to a charge.\347\
Other characteristics included in the nature, purpose, and amount of a
charge, such as whether it is refundable, are also material.
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\347\ NPRM, 88 FR 77432; Deception Policy Statement, 103 F.T.C.
110, 175, 182-183, 183 n.55 (listing, respectively, ``misleading
price claims'' among those that the FTC has found to be deceptive,
and claims or omissions involving cost among those that are
presumptively material); see also FTC v. FleetCor Techs, Inc., 620
F. Supp. 3d 1268, 1303-04 (N.D. Ga. 2022) (finding that
representations about transaction fees and discounts were material).
---------------------------------------------------------------------------
Under final Sec. 464.3, businesses cannot misrepresent the nature,
purpose, amount, or refundability of fees or charges and the identity
of the goods or services for which they are imposed.\348\ For example,
it would be a misrepresentation to characterize fees as mandatory when
they are optional, or to characterize fees as optional when they are
mandatory or consumers are automatically opted-in to pay them.\349\
Representations that fees are for identified goods or services when
those goods or services are not provided would also be a
misrepresentation. Further, although the rule does not govern how
businesses set their prices, if a business represents that it is
charging a fee for a specific good or service, but the amount of the
fee does not reflect the cost of that good or service, that may be
evidence that the business has misrepresented the nature or purpose of
the fee.
---------------------------------------------------------------------------
\348\ As the Commission noted in the NPRM, if a delivery
application includes an invitation to tip a delivery driver without
disclosing that a portion of the tip is allocated to offset the
delivery driver's base wages or benefits, it would violate Sec.
464.3 in addition to other laws or regulations relating to the
distribution of tips. See Complaint ]] 50-51, In re Amazon.com, Inc.
(``Amazon Flex''), No. C-4746 (FTC June 9, 2021) (alleging
respondents falsely represented that 100% of tips would go to the
driver in addition to the pay respondents offered drivers).
\349\ See discussion of optional and mandatory fees supra Parts
III.A.1 and III.A.8.a; see also, e.g., Fed. Trade Comm'n, Bringing
Dark Patterns to Light: Staff Report 9, 15, 15 n.122, 22 (stating
``companies must not mislead consumers to believe that fees are
mandatory when they are not'' and describing the use of pre-selected
checkboxes as a dark pattern that tricks consumers into buying
unwanted goods and services) (Sept. 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/P214800%20Dark%20Patterns%20Report%209.14.2022%20-%20FINAL.pdf;
Stipulated Order for Permanent Injunction, Monetary Judgment, and
Other Relief as to Defendants Rhinelander Auto Grp. LLC, et al., FTC
v. Rhinelander Auto Ctr., Inc., No. 3:23-cv-00737-wmc (W.D. Wis.
Nov. 6, 2023) (settling allegations that defendants misrepresented
that consumers were required to purchase add-on products to
purchase, lease, or finance a vehicle and, among other provisions,
enjoining defendants from misrepresenting whether charges, products,
or services are optional or required), https://www.ftc.gov/system/files/ftc_gov/pdf/18-ConsentJudgmentEnteredastoRAGRMGandTowne.pdf.
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Misrepresentations can result from failing to disclose material
conditions or limitations relating to fees and charges, for example,
material conditions or limitations that would affect consumers' ability
to purchase covered goods or services at advertised prices.\350\
Describing a good or service as fully refundable without disclosing
material limitations on refundability (e.g., refunds are only accepted
for a specified amount of time) would also be misleading.
---------------------------------------------------------------------------
\350\ See, e.g., cases cited supra note 111.
---------------------------------------------------------------------------
The American Hotel & Lodging Association expressed the concern that
businesses may use inconsistent descriptions of similar fees and
confuse consumers in disclosing the nature and purpose of fees or the
identity of the goods or services for which fees are imposed.\351\
Using vague language or fee descriptions (e.g., unspecified service or
convenience fees) that do not accurately inform consumers of the nature
or purpose of fees or charges or the identity of the good or service
for which the fee or charge is imposed misrepresents those fees. In
addition, it would be misleading if a business conflates fees so that
consumers are unable to determine their nature, purpose, or the
identity of the goods or services for which the fees are charged.
Whether fee descriptions are adequate to avoid misrepresenting their
nature, purpose, or the identity of goods or services for which they
are charged will be case specific and may depend on the context.
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\351\ FTC-2023-0064-3094 (American Hotel & Lodging Association).
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Another commenter argued that the rule would unfairly hold online
travel agencies and other intermediaries liable for fee
misrepresentations when only travel service providers can know whether
representations about the nature and purpose of fees are accurate.\352\
As discussed in section III.B.1.f, complying with the rule would
require businesses that sell or advertise covered goods or services
through platforms to provide the platforms with accurate pricing
information. Contractual relationships and the rule's application to
B2B transactions should ensure that businesses that rely on other
parties for pricing information receive accurate pricing information.
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\352\ FTC-2023-0064-3293 (Travel Technology Association).
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One commenter argued that charging consumers for ``speculative
tickets'' in the live-event sector is deceptive because it is
tantamount to ``charging consumers for something that doesn't exist,''
and suggested the rule should ``prohibit sellers or resellers from
charging the consumer for buying something the seller doesn't own, or
that does not even exist.'' \353\ The
[[Page 2105]]
Commission notes that the final rule does not directly address the sale
of speculative tickets. However, a business that represents that
tickets are in fact available when they are not may violate Sec. Sec.
464.2(c) and 464.3 by failing to disclose clearly and conspicuously,
and by misrepresenting, the identity of the good or service for which
fees or charges are imposed.
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\353\ FTC-2023-0064-3108 (Christian L. Castle, Esq.; Mala
Sharma, President, Georgia Music Partners; and Dr. David C. Lowery,
founder of musical groups Cracker and Camper Van Beethoven, and a
lecturer at the University of Georgia Terry College of Business).
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Commenters opposed the misrepresentation provision in the context
of negotiated contracts because negotiations arguably allow consumers
to seek clarification about fees.\354\ The Commission, however, has not
identified any justification for excluding contracts from the
misleading fees provision. Truthful fee disclosures in contract
negotiations are material to consumers. One commenter recommended
providing a safe harbor from the misleading fees provision if
businesses clearly and conspicuously disclose fees and make either no
statement or an accurate statement about the nature and purpose of
fees.\355\ The Commission declines to grant a safe harbor from the
misleading fees provision when businesses make affirmative disclosures.
Whether disclosures are adequate, clear and conspicuous, and not
misleading are issues that may depend on the specific facts and
circumstances of the transaction.
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\354\ See, e.g., FTC-2023-0064-2918 (Elite Catering + Event
Professionals opposed the misrepresentations provision for private
food services contracts because ``[t]hroughout the contracting
process, there are ample opportunities for the customer to seek
clarification or negotiate the applicability of the price and
fees.'').
\355\ FTC-2023-0064-3016 (National Federation of Independent
Business proposed modifying the rule as follows: ``(a) . . . [I]t is
an unfair and deceptive practice . . . for a Business to: (i)
misrepresent the total cost of a good or service by omitting a
mandatory fee from the advertised price of the good or service; or
(ii) misrepresent the nature and purpose of such a mandatory fee.''
The commenter also proposed exempting any business from that
requirement if it discloses the fee clearly and conspicuously
``before a consumer becomes obligated to pay the fee'' and ``either
makes no statement about the nature and purpose of the fee or makes
an accurate statement of the nature and purpose of the fee.'').
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The NPRM identified and sought comment on the proposed rule's
intersection with existing Federal rules and regulations containing
prohibitions on misrepresentations: the Business Opportunity Rule,\356\
the Mortgage Acts and Practices Advertising Rule (Regulation N),\357\
the Mortgage Assistance Relief Services Rule (Regulation O),\358\ the
amendments to the Negative Option Rule,\359\ and the Telemarketing
Sales Rule.\360\ The Commission did not receive substantive comments
about overlap or conflict with these rules.\361\ The Commission is not
aware of any evidence that there is a conflict between these rules and
the final rule. The Commission believes it is possible for businesses
to comply with each of them, as applicable.
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\356\ 16 CFR part 437.
\357\ 12 CFR part 1014.
\358\ 12 CFR part 1015.
\359\ Promulgation of Trade Regulation Rule and Statement of
Basis and Purpose: Rule Concerning Recurring Subscriptions and Other
Negative Option Programs, 89 FR 90476 (Nov. 15, 2024), https://www.federalregister.gov/documents/2024/11/15/2024-25534/negative-option-rule.
\360\ 16 CFR part 310.
\361\ In addition, the added definition of ``Covered Goods or
Services'' removes any potential overlap between the final rule and
Regulations N and O.
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D. Sec. 464.4 Relation to State laws
Proposed Sec. 464.4 addressed preemption and the proposed rule's
relation to State statutes, regulations, orders, or interpretations,
including State common law (hereinafter ``State law''). Proposed Sec.
464.4(a) provided that the rule would not supersede or otherwise affect
any State law unless the State law is inconsistent with the rule, and
then only to the extent of the inconsistency. Proposed Sec. 464.4(b)
specified that a State law providing consumers with greater protections
than the rule does not, solely for that reason, make the State law
inconsistent with the rule. When a State law offers greater (or, in
some circumstances, even lesser) protection than the rule, if
businesses can comply with both, they are not inconsistent. Thus, as
commenters noted, the rule would establish a regulatory floor rather
than a ceiling.\362\ After reviewing the comments, the Commission
adopts the provision as proposed in the NPRM.
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\362\ See, e.g., FTC-2023-0064-3150 (Attorney General of the
State of California ``appreciate[d] that the FTC's rule respects the
states' role in protecting consumers from deceptive price
advertising, and the rule's clear intent to create a federal floor,
rather than a ceiling, for consumer protection.''); FTC-2023-0064-
3212 (TickPick, LLC).
---------------------------------------------------------------------------
The Commission finds it has the authority to promulgate regulations
that preempt inconsistent State laws under section 5 of the FTC Act.
Even without an express preemption provision, Federal statutes and
regulations preempt conflicting State laws. Under the Supreme Court's
conflict preemption doctrine, a Federal statute or regulation impliedly
preempts State law when it is impossible for the regulated parties to
comply with both the Federal and the State law, or when a State law is
an obstacle to achieving the full purposes and objectives of the
Federal law.\363\ ``Federal regulations have no less pre-emptive effect
than [F]ederal statutes.'' \364\ Accordingly, the rule preempts a State
law only to the extent it is inconsistent with the rule and compliance
with both is impossible, or it is an obstacle to achieving the full
purposes and objectives of the rule. To provide a clear explanation of
the Commission's intent and the rule's scope of preemption, the rule
includes an express preemption provision at Sec. 464.4.\365\
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\363\ See, e.g., Cong. Rsch. Serv., R45825, Federal Preemption:
A Legal Primer 23 (2023), https://crsreports.congress.gov/product/pdf/R/R45825/3.
\364\ Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141,
153 (1982).
\365\ Many FTC regulations, including regulations promulgated
under section 18 of the FTC Act, include provisions addressing State
laws and preemption. See, e.g., Funeral Rule, 16 CFR 453.9
(exempting from preemption State laws that ``afford[ ] an overall
level of protection [that] is as great as, or greater than, the
protection afforded by'' the FTC's Rule); Rule Concerning Cooling
Off Period for Sales Made at Homes or at Certain Other Locations, 16
CFR 429.2(b) (exempting laws and ordinances that provide ``a right
to cancel a door-to-door sale that is substantially the same or
greater than that provided in this part''); Business Opportunity
Rule, 16 CFR 437.9(b) (``The FTC does not intend to preempt the
business opportunity sales practices laws of any state or local
government, except to the extent of any conflict with this part. A
law is not in conflict with this Rule if it affords prospective
purchasers equal or greater protection . . . .''); Mail, Internet,
or Telephone Order Merchandise Rule, 16 CFR 435.3(b) (``This part
does supersede those provisions of any State law, municipal
ordinance, or other local regulation which are inconsistent with
this part to the extent that those provisions do not provide a buyer
with rights which are equal to or greater than those rights granted
a buyer by this part.''); Franchise Rule, 16 CFR 436.10(b) (``The
FTC does not intend to preempt the franchise practices laws of any
state or local government, except to the extent of any inconsistency
with part 436. A law is not inconsistent with part 436 if it affords
prospective franchisees equal or greater protection . . . .'');
Labeling and Advertising of Home Insulation, 16 CFR 460.24(b)
(preemption of ``State and local laws and regulations that are
inconsistent with, or frustrate the purposes of, this regulation'').
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Numerous commenters supported proposed Sec. 464.4(b)'s targeted
approach of preempting only inconsistent parts of State laws.\366\ Some
commenters,
[[Page 2106]]
however, stated that the rule should completely preempt all State laws
to provide greater consistency and clarity and to lower compliance
costs,\367\ particularly when State laws provide greater
protections.\368\ However, if a business subject to both the rule and a
State law that imposes greater protections does not want to use
different practices for that State versus the rest of the country, it
can choose to comply with both by using a single set of practices
consistent with the greater protections afforded under the applicable
State law. Nothing in the rule prohibits businesses from giving
consumers greater protections than the rule requires. Another commenter
expressed concern that some State laws create loopholes that allow
businesses to mischaracterize fees as government charges that they then
can exclude from total price.\369\ The Commission discusses issues
related to the rule's treatment of government charges in section
III.A.5 and notes here that final Sec. 464.3 would prohibit
misrepresenting that a fee is a Government Charge, or otherwise
misrepresenting the nature, purpose, amount, or refundability of any
fee or charge.
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\366\ See, e.g., FTC-2023-0064-3150 (Attorney General of the
State of California commented that consumer protection is also a
state concern, so, ``it is appropriate, then, that the rule does not
preempt a state law unless the rule and the state law conflict and
then only to the extent of the inconsistency.''); FTC-2023-0064-3215
(Attorneys General of the States of North Carolina and Pennsylvania,
along with Attorneys General of the States or Territories of
Arizona, Colorado, Connecticut, Delaware, District of Columbia,
Hawaii, Illinois, Maine, Michigan, Minnesota, New Jersey, New York,
Oklahoma, Oregon, Vermont, Washington, and Wisconsin, supported the
rule's preemption provision because it ``recognizes and preserves
the interest that individual states have in combatting unfair or
deceptive acts or practices committed in our respective
jurisdictions.''); FTC-2023-0064-3275 (Berkeley Center for Consumer
Law and Economic Justice et al. commented that the rule is ``an
invaluable complement to state and private actions to challenge
hidden and deceptive pricing practices.''); FTC-2023-0064-3293
(Travel Technology Association); FTC-2023-0064-3262 (Skyscanner);
FTC-2023-0064-3266 (StubHub, Inc.); FTC-2023-0064-3212 (TickPick,
LLC); FTC-2023-0064-3267 (National Retail Federation).
\367\ See, e.g., FTC-2023-0064-2886 (American Gaming
Association); FTC-2023-0064-3094 (American Hotel & Lodging
Association); FTC-2023-0064-3122 (Vivid Seats); FTC-2023-0064-3204
(Expedia Group); FTC-2023-0064-3137 (Chamber of Progress); FTC-2023-
0064-3127 (U.S. Chamber of Commerce); FTC-2023-0064-3233 (NCTA--The
Internet & Television Association); FTC-2023-0064-3238 (Gibson, Dunn
& Crutcher LLP); FTC-2023-0064-2856 (National Football League).
\368\ See, e.g., FTC-2023-0064-3127 (U.S. Chamber of Commerce);
FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\369\ FTC-2023-0064-3137 (Chamber of Progress).
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Other commenters suggested that the Commission provide compliance
guidance that addresses when State law differs from the rule and
identify which State laws are not preempted.\370\ Some commenters
suggested that existing State and local industry regulations can make
the rule unnecessary, duplicative, and confusing due to conflicting
requirements.\371\ The Commission reiterates that a State law is
preempted only to the extent it conflicts with the rule's requirements
and complying with both is impossible, or it is an obstacle to
achieving the full purposes and objectives of the rule. A State law can
provide greater protections and, solely for that reason, will not be
inconsistent with the rule; a business can comply with both. A business
also can comply with both when the State law provides lesser
protections, although businesses still would have to comply with the
greater protections of the rule. Only if a State law provides
conflicting requirements, and a business cannot comply with both, or it
is an obstacle to achieving the full purposes and objectives of the
rule, will the State law be preempted, and then only to the extent of
that conflict or obstacle.
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\370\ See, e.g., FTC-2023-0064-3244 (Vacation Rental Management
Association); FTC-2023-0064-3206 (Motor Vehicle Protection Products
Association et al.); FTC-2023-0064-3143 (ACA Connects--America's
Communications Association).
\371\ See, e.g., FTC-2023-0064-3152 (Building Owners & Managers
Association et al.); FTC-2023-0064-3133 (National Multifamily
Housing Council and the National Apartment Association); FTC-2023-
0064-3115 (National Association of Residential Property Managers);
FTC-2023-0064-3116 (Manufactured Housing Institute); FTC-2023-0064-
3172 (New Jersey Apartment Association); FTC-2023-0064-3289 (Zillow
Group).
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Moreover, preemption furthers a primary goal of the final rule,
discussed in section V.A: to provide a uniform, minimum standard for
pricing disclosures for covered goods or services that is easy for
businesses and consumers to understand. The Commission also determines,
as discussed in section V.B, that declining to issue this final rule
and continuing to rely solely on State laws and piecemeal adjudication
would be less effective. The Commission believes the final rule's
establishment of nationwide minimum standard will functionally reduce
many variations among State laws,\372\ because businesses will have to
conform their practices to meet the rule's standards for covered goods
or services to the extent those standards exceed or directly conflict
with State law requirements. Moreover, to the extent State law is not
inconsistent with the final rule, additional State authority and
resources will only serve to further protect consumers and competition.
To that end, the Commission will continue to work with its State law
enforcement partners in battling unfair and deceptive pricing
disclosure practices.\373\ For the reasons stated herein, the
Commission adopts Sec. 464.4 as proposed.
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\372\ The Commission has made similar findings in previous
regulations. See, e.g., Final rule: Non-Compete Clause Rule, 89 FR
38342, 38453-54 (May 7, 2024) (finding that the Non-Complete Clause
Rule sets a Federal floor that will reduce the variations in a
patchwork of State regulations); Promulgation of Trade Regulation
Rule and Statement of Its Basis and Purpose: Cooling-Off Period for
Door-to-Door Sales, 37 FR 22934, 22958 (Oct. 26, 1972) (finding
that, when State laws ``give the consumer greater benefit and
protection . . ., there seems to be no reason to deprive the
affected consumers of these additional benefits,'' but when State
laws do not, ``the rule would supply the needed protection or be
construed to supersede the weak statute to the extent necessary to
give the consumer the desired protection.'').
\373\ See, e.g., Final Trade Regulation Rule: Trade Regulation
Rule; Funeral Industry Practices, 47 FR 42260, 42287 (Sept. 24,
1982) (codified at 16 CFR part 453) (noting the purpose of the
rule's provision addressing relation of the rule to State law is
``to encourage federal-state cooperation by permitting appropriate
state agencies to enforce their own state laws that are equal to or
more stringent than the trade regulation rule'').
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E. Sec. 464.5 Severability
The Commission includes a severability clause at final Sec. 464.5,
which provides that, if any provision of the final rule is held to be
invalid or unenforceable either by its terms, or as applied to any
person, industry, or circumstance, or stayed pending further agency
action, the provision shall be construed to continue to give the
maximum effect to the provision permitted by law. It further provides
that any such invalidity shall not affect the application of the
provision to other persons, industries, or circumstances, or the
validity or application of other provisions. Final Sec. 464.5 also
states that, if any provision or application of the final rule is held
to be invalid or unenforceable, the provision or application shall be
severable from the final rule and shall not affect the remainder
thereof. This provision confirms the Commission's intent, as discussed
herein, that the final rule be given the maximum effect permitted by
law even if a reviewing court stays or invalidates any provision, any
component of any provision, or any application of the rule, in whole or
in part, to any person, industry, or circumstance.
In issuing this final rule, as discussed in section II.A and II.B,
the Commission finds bait-and-switch pricing tactics and misleading fee
practices to be unfair and deceptive because they deceive consumers
about the true cost of goods and services, prevent price comparison,
and harm competitors that do accurately disclose true cost. The
Commission also finds such practices to be widespread and to affect
many types of consumer purchasing transactions, particularly with
respect to covered goods or services. The Commission adopts this rule
to comprehensively address the practices and to provide a consistent,
administrable standard with respect to covered goods or services. The
Commission finds in section V.E that, for covered goods or services,
the benefits of the rule exceed its costs.
At the same time, the Commission finds that each of the provisions,
[[Page 2107]]
components of the provisions, and applications of the final rule
operate independently, and that the evidence and findings supporting
each stand independent of one another. The Commission finds that
realizing the benefits of the rule does not require the joint adoption
or operation of each provision. In addition, while the Commission
believes applying the same restrictions to all pricing representations
would provide even greater overall benefits, as explained in Parts II.B
and V.B, the Commission finds the benefits of the final rule exceed the
costs as to covered goods or services, both overall and with respect to
each substantive provision of the rule. For covered goods or services,
as discussed in section V.E, ample data show the rule would have
positive quantified net benefits, including by reducing search costs,
as well as unquantified reductions in deadweight loss and consumer
frustration. Similarly, consumers would benefit from the misleading
fees prohibition even if the requirement to disclose total price were
stayed or invalidated. The benefits would also justify the costs if the
total price provision were further limited to either just the live-
event ticketing or just the short-term lodging industry.
Based on the available data, the Commission concludes that, even if
the rule were more limited in scope or if it applied to a more limited
set of transactions, such as to a single industry or to particular
circumstances, it would still achieve some of the Commission's
objectives and the benefits of the rule would still exceed the costs.
Although a more limited scope or application would change the magnitude
of the overall benefit of the final rule, it would not undermine the
valid and measurable benefit of, and justification for, the remaining
provisions or applications of the final rule. Thus, were a court to
stay or invalidate any provision, any component of any provision, or
any application of the rule, the Commission intends the remainder of
the rule to remain in force.
As described in section V.B, the Commission considered alternatives
to the final rule that would have applied the rule to other
transactions or industries or expanded it to all goods and services
within the Commission's jurisdiction. The Commission finds that each
such alternative would be an appropriate exercise of the Commission's
authority under sections 5 and 18 of the FTC Act as stand-alone
regulations because disclosure of total price in any type of
transaction or industry--whether or not the same is required in other
transactions or industries--mitigates the harms caused by the unfair or
deceptive pricing tactics in those transactions or industries to which
the rule does apply. At the same time, as discussed in parts I and
II.A, the Commission finds bait-and-switch pricing tactics and
misleading fee practices are widespread and potentially growing. As a
result, the Commission may later find that a rule of expanded or even
general applicability, to the extent of its jurisdiction, would be
appropriate and would result in benefits to consumers and competition
that are greater in magnitude than a rule with more limited
applicability. However, such findings do not invalidate this final
rule's quantifiable positive benefits, in whole or in part.
Accordingly, the Commission considers and intends each of the
provisions adopted in the final rule to be severable, within each
provision, from other provisions in Part 464, and as applied to
different persons, industries, or circumstances. In the event of a stay
or invalidation of any provision, any component of any provision, or of
any provision as it applies to certain persons, conduct, or industry,
the Commission's intent is to otherwise preserve and enforce the final
rule to the fullest possible extent. Therefore, if a reviewing court
were to stay or invalidate a particular application of the final rule,
or a provision thereof, as to certain persons, industries, or
circumstances, other businesses that remain covered by the rule should
be required to comply with the applicable provisions of the final rule
that remain in effect.
IV. Challenges to the FTC's Legal Authority To Promulgate the Rule
As explained in the NPRM and section II, this rule is consistent
with decades of FTC adjudications and enforcement actions addressing
the standards governing unfair or deceptive pricing practices.\374\ The
Commission issues this rule to prevent prevalent unfair or deceptive
acts or practices and to promote compliance in a manner that accounts
for and balances the needs of consumers and regulated entities. The
rule falls squarely within the Commission's legal authority, is based
on substantial evidence in the rulemaking record, and clearly defines
specific unfair and deceptive practices regarding fees or charges.
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\374\ See, e.g., In re Filderman Corp., 64 F.T.C. 427, 442-43,
461 (1964), https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-64/ftcd-vol64january-march1964pages409-511.pdf; In re Resort Car Rental Sys., Inc., 83
F.T.C. 234, 281-82, 300 (1973), https://www.ftc.gov/system/files/ftc_gov/pdf/Resort%20Car%20Rental%20System%2C%20Inc.%2083%20FTC%20234%20%281973%29.pdf, aff'd sub. nom. Resort Car Rental Sys., Inc. v. FTC, 518 F.2d
962, 964 (9th Cir. 1975); Opinion of the Commission at 28-30, 47-50,
In re Intuit Inc., No. 9408 (FTC Jan. 22, 2024), https://www.ftc.gov/system/files/ftc_gov/pdf/d09408_commission_opinion_redacted_public.pdf; In re George's Radio
& Television Co., 60 F.T.C. 179, 193-94 (1962), https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-60/ftcd-vol60january-june1962pages107-211.pdf (collecting cases
involving false savings claims); cases cited supra notes 61-62
(collecting FTC enforcement actions alleging, respectively, that
bait-and-switch pricing tactics concerning hidden fees and
misrepresentations regarding the nature and purpose of fees violated
section 5); NPRM, 88 FR 77435-37 (section III.C (``Law Enforcement
Actions and Other Responses'')). See also supra note 115 (collecting
cases holding that later disclosures cannot cure deceptive door
openers).
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The Commission received comments supporting, discussing, or
questioning its authority to promulgate the final rule. Commenters
supporting the Commission's authority noted the rule falls squarely
within the Commission's mandate to prevent unfair and deceptive acts
and practices through rulemaking under sections 5 and 18 of the FTC
Act.\375\ Commenters questioning the Commission's rulemaking authority
typically advanced one of three arguments. First, some commenters
argued that requiring disclosures related to pricing is a major
question that Congress has not given the Commission authority to
address.\376\ Second, some commenters argued that if the rule was in
fact consistent with the Commission's authority under sections 5 and 18
of the FTC Act, Congress had impermissibly delegated this authority to
the Commission.\377\ Third, some commenters argued that the disclosures
required by the rule violate the First Amendment.\378\ In addition to
these arguments, one commenter asserted that the rule is invalid
because the
[[Page 2108]]
Commission is unconstitutionally structured.\379\ Finally, some
commenters asserted the Commission has not complied with the
Administrative Procedure Act (``APA'').\380\
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\375\ See, e.g., FTC-2023-0064-2883 (District of Columbia,
Office of the People's Counsel); FTC-2023-0064-3104 (Truth in
Advertising, Inc.); see also FTC-2022-0069-6077 (ANPR) (Institute
for Policy Integrity, New York University School of Law).
\376\ FTC-2023-0064-3127 (U.S. Chamber of Commerce); FTC-2023-
0064-3133 (National Multifamily Housing Council and National
Apartment Association); FTC-2023-0064-3152 (Building Owners &
Managers Association et al.); FTC-2023-0064-3202 (TechNet); FTC-
2023-0064-3238 (Gibson, Dunn & Crutcher LLP); FTC-2023-0064-3251
(National RV Dealers Association); FTC-2023-0064-3263 (Flex
Association); FTC-2023-0064-3294 (International Franchise
Association).
\377\ FTC-2023-0064-3233 (NCTA--The internet & Television
Association); FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP); FTC-
2023-0064-3294 (International Franchise Association).
\378\ FTC-2023-0064-3016 (National Federation of Independent
Business, Inc.); FTC-2023-0064-3028 (Competitive Enterprise
Institute); FTC-2023-0064-3233 (NCTA--The internet & Television
Association); FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP); FTC-
2023-0064-3267 (National Retail Federation).
\379\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\380\ See, e.g., id.; FTC-2023-0064-3133 (National Multifamily
Housing Council and National Apartment Association); FTC-2023-0064-
3152 (Building Owners & Managers Association et al.); FTC-2023-0064-
3263 (Flex Association); FTC-2023-0064-3294 (International Franchise
Association).
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Most of the commenters challenging the Commission's authority
represent businesses that offer goods or services other than covered
goods or services. Thus, the concerns raised by these commenters may
not be relevant to the narrowed scope of the final rule. Further, the
NPRM's industry-neutral approach was central to nearly all of the
critiques of the rule that raised questions regarding the Commission's
authority to promulgate the rule; while the Commission disagrees with
such critiques, they are not applicable to this final rule, which
focuses on two industries, live-event tickets and short-term lodging.
Notably, the vast majority of comments from businesses offering live-
event tickets and short-term lodging and their direct representatives
did not raise challenges to the Commission's authority to promulgate
the rule.\381\ Nevertheless, the Commission has considered the comments
challenging its authority and explains in this section why it disagrees
with those.
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\381\ The International Franchise Association, which represents
franchised businesses offering short-term lodging, raised challenges
to the Commission's authority to promulgate the rule. IFA's comment,
however, primarily focused on the NPRM's industry-neutral scope and
its implications for franchised businesses that do not offer Covered
Goods or Services. Regarding the short-term lodging industry
specifically, IFA's comment challenged certain aspects of the
Commission's estimate of compliance costs, which are addressed in
section V. See FTC-2023-0064-3294 (International Franchise
Association).
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A. Major Questions Doctrine
Some commenters invoked the major questions doctrine to argue that
the Commission lacks authority to adopt the rule. Commenters argued the
rule raises a major question because addressing consumer fees and
pricing across industries is of vast political and economic
significance.\382\ Some commenters also argued that the rule is broader
than the agency's prior rules, based on the assertion that the rule
regulates pricing.\383\ Commenters concluded that Congress has not
authorized the Commission to promulgate the rule.\384\
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\382\ See, e.g., FTC-2023-0064-3263 (Flex Association); FTC-
2023-0064-3127 (U.S. Chamber of Commerce); FTC-2023-0064-3152
(Building Owners & Managers Association et al.); FTC-2023-0064-3202
(TechNet); FTC-2023-0064-3133 (National Multifamily Housing Council
and National Apartment Association); FTC-2023-0064-3238 (Gibson,
Dunn & Crutcher LLP). While commenters suggested that the rule would
have ``political and economic significance,'' no commenters pointed
to any specific political significance.
\383\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP); FTC-
2023-0064-3127 (U.S. Chamber of Commerce).
\384\ FTC-2023-0064-3127 (U.S. Chamber of Commerce); FTC-2023-
0064-3238 (Gibson, Dunn & Crutcher LLP); FTC-2023-0064-3152
(Building Owners & Managers Association et al.); FTC-2023-0064-3202
(TechNet); FTC-2023-0064-3133 (National Multifamily Housing Council
and National Apartment Association).
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The major questions doctrine, as the Supreme Court recently
explained in West Virginia v. EPA, 597 U.S. 697 (2022), applies to ``
`extraordinary cases' . . . in which the `history and the breadth of
the authority that [the agency] has asserted,' and the `economic and
political significance' of that assertion, provide a `reason to
hesitate before concluding that Congress' meant to confer such
authority.'' \385\ When an agency claims a `` `transformative expansion
in [its] regulatory authority,' '' it ``must point to `clear
congressional authorization' for the power it claims.'' \386\
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\385\ West Virginia v. EPA, 597 U.S. at 721 (quoting FDA v.
Brown & Williamson Tobacco Corp., 529 U.S. 120, 159-60 (2000)).
\386\ Id. at 723-24 (quoting Util. Air Regulatory Group v. EPA,
573 U.S. 302, 324 (2014).
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Having considered the factors that the Supreme Court has used to
identify major questions, the Commission, as discussed herein,
concludes that the final rule does not implicate the major questions
doctrine. The FTC does not claim a transformative change in its
rulemaking authority. The final rule comports with the history and
breadth of prior rules that the FTC has promulgated pursuant to its
existing rulemaking authority, which Congress conferred to allow the
Commission to address prevalent unfair or deceptive practices. Even if
the major questions doctrine did apply, the Commission concludes that
Congress provided clear authorization for the Commission to promulgate
this rule.
1. The Rule Does Not Address a Major Question
(a) The Commission Has a Long History of Addressing Unfair or Deceptive
Acts or Practices Related to Pricing Information
Identifying unfair or deceptive acts or practices related to the
disclosure of the price and purpose of goods and services is at the
core of the Commission's mandate under section 5.\387\ The Commission
has the authority to address these unfair or deceptive acts or
practices both through case-by-case enforcement, either
administratively or in Federal court, or through rulemaking if the
unfair or deceptive practices are prevalent as established by the
rulemaking record. The Commission may choose case-by-case adjudication
or rulemaking at its discretion.\388\
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\387\ See generally supra section II.B; NPRM, 88 FR 77432,
77434.
\388\ Cf. NLRB v. Bell Aerospace Co., 416 U.S. 267, 294 (1974)
(holding that ``the Board is not precluded from announcing new
principles in an adjudicative proceeding,'' that ``the choice
between rulemaking and adjudication lies in the first instance
within the Board's discretion,'' and that the agency's choice
between adjudication and rulemaking was ``entitled to great
weight''); SEC v. Chenery Corp., 332 U.S. 194, 203 (1947) (``[T]he
choice made between proceeding by general rule or by individual, ad
hoc litigation is one that lies primarily in the informed discretion
of the administrative agency.'').
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The Commission's authority to promulgate rules to define with
specificity unfair or deceptive acts or practices under section 18 of
the FTC Act, 15 U.S.C. 57a, is not extraordinary and is undisputed,
resting on firm historical footing.\389\ Indeed, when consumers have
faced bait-and-switch tactics in the past, including being unable to
get accurate material information about what they must pay and what
they will receive in return, the Commission has repeatedly issued rules
that define unfair or deceptive acts or practices related to the
disclosure of that material information.\390\ For example,
[[Page 2109]]
the Commission initiated the rulemaking resulting in the Rule on Retail
Food Store Advertising and Marketing Practices (the ``Unavailability
Rule''), 16 CFR part 424, based in part on findings in a Commission
report that items priced at or below the advertised price were
frequently unavailable and that in ``a very substantial majority of the
instances of the deviations, the prices marked on the items were higher
than the advertised price.'' \391\
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\389\ Congress added section 18, 15 U.S.C. 57a, to the FTC Act
in 1975, and that section provides the process the Commission must
follow to promulgate rules defining unfair or deceptive acts or
practices. See Magnuson-Moss Warranty--Federal Trade Commission
Improvement Act, Public Law 93-637, sec. 202, Sec. 18, 88 Stat.
2183, 2193 (1975) (hereinafter ``Magnuson-Moss Warranty Act''); see
also Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957, 967 (D.C. Cir.
1985) (summarizing the historical backdrop to the Commission's
authority to prevent unfair or deceptive acts or practices including
the adoption of the Magnuson-Moss Warranty Act, which codified
section 18 of the FTC Act and confirmed the Commission's authority
to promulgate rules defining acts or practices that are unfair or
deceptive).
\390\ See, e.g., Franchise Rule, 16 CFR 436.2(a), 436.5(e) and
(f) (defining as an unfair or deceptive act or practice to fail to
provide prospective franchisees with the franchisor's disclosure
document, which includes, among other things, disclosure of
``initial fees''--i.e., ``all fees and payments, or commitments to
pay . . . whether payable in lump sum or installments'' and of ``all
other fees that the franchisee must pay to the franchisor or its
affiliates''); Business Opportunity Rule, 16 CFR 437.4(d) (defining
as an unfair or deceptive act or practice to ``[f]ail to notify any
prospective purchaser in writing of any material changes affecting
the relevance or reliability of the information contained in an
earnings claim statement before the prospective purchaser . . .
makes a payment''); Business Opportunity Rule, 16 CFR 437.6(h)
(defining as an unfair or deceptive act or practice to
``[m]ispresent the cost . . . of the business opportunity or the
goods or services offered to a prospective purchaser''); Funeral
Rule, 16 CFR 453.2(a) and (b) (defining as an unfair or deceptive
act or practice to ``fail to furnish accurate price information
disclosing the cost to the purchaser for each of the specific
funeral goods and funeral services used in connection with the
disposition of deceased human bodies'' and requiring funeral
providers to provide specific price lists in writing).
\391\ Statement of Basis and Purpose: Retail Food Store
Advertising and Marketing Practices, 36 FR 8777, 8777-78 (May 13,
1971) (citing a Bureau of Economics staff report titled ``Economic
Report on Food Chain Selling Practices in the District of Columbia
and San Francisco''). Similarly, when the Commission later amended
the Unavailability Rule, it again stressed that food retailers must
not engage in bait and switch advertising--where the seller
advertises an unavailable good at a low price to get the consumer in
the door--or deception regarding availability of advertised goods.
Final amendments to trade regulation rule: Amendment to Trade
Regulation Rule Concerning Retail Food Store Advertising and
Marketing Practices, 54 FR 35456, 35462-63 (Aug. 28, 1989).
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As discussed in parts I and II, there is nothing new about
businesses using bait-and-switch tactics to reel in and deceive
consumers, just as there is nothing new about the Commission exercising
its authority to limit such tactics and the harms they cause.\392\ This
rule is tailored to address practices squarely within the scope of the
Commission's core work to protect consumers: bait-and-switch pricing
tactics, including drip pricing, and misrepresentations regarding a
material term. As described in section II.A and II.B, the Commission
adopts this rule now because bait-and-switch tactics, including drip
pricing, and misrepresentations as to the nature and purpose of fees
and charges are prevalent and continue to harm consumers. This is
precisely what section 18 of the FTC Act envisions and is consistent
with the Commission's exercise of the same authority in the past.
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\392\ E.g., In re Filderman Corp., 64 F.T.C. 427, 442-43, 461
(1964); Resort Car Rental Sys., 83 F.T.C. at 281-82, 300 (1973);
Complaint ]] 12, 46-49, In re LCA-Vision, No. C-4789 (FTC Mar. 13,
2023); Opinion of the Commission at 37-40, 47-50, In re Intuit Inc.,
No. 9408 (FTC Jan. 22, 2024). See generally supra section I.A.-I.C
(discussing the comment and hearing record in response to the ANPR
and NPRM); section II.A (discussing the prevalence of the practices
that the rule addresses).
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(b) Commenters' Claims About the Scope of the Acts or Practices Covered
by the Rule Are Inapplicable or Overstated
Commenters suggested that the major questions doctrine is
implicated simply because the rule proposed by the NPRM was industry-
neutral.\393\ The Commission disagrees. Congress authorized the
Commission to prevent unfair or deceptive practices in or affecting
commerce across the economy while specifying a limited number of
industries, activities, or entities that are exempt.\394\ These
comments are inapposite, however, because the final rule is limited to
covered goods or services: live-event ticketing and short-term lodging.
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\393\ See, e.g., FTC-2023-0064-3263 (Flex Association); FTC-
2023-0064-3127 (U.S. Chamber of Commerce); FTC-2023-0064-3152
(Building Owners & Managers Association et al.); FTC-2023-0064-3202
(TechNet); FTC-2023-0064-3133 (National Multifamily Housing Council
and National Apartment Association).
\394\ 15 U.S.C. 45.
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Commenters also contended that the rule implicates a major question
because it regulates pricing practices broadly or supposedly will have
effects on a wide array of pricing strategies.\395\ The Commission
disagrees. The rule focuses on hidden mandatory fees or charges that
obscure the total price of a covered good or service and
misrepresentations about the nature, purpose, amount, and refundability
of fees or charges. The rule has no effect on many pricing practices
and strategies, including a business's fundamental decision about what
price to charge consumers for its goods or services.\396\ Nor does the
rule affect a business's ability to use dynamic pricing, to offer or
use sales, discounts, rebates, or special offers, or to truthfully
itemize fees and costs so long as the business accurately describes the
total price upfront.\397\ With respect to mandatory fees, the rule does
not prevent businesses from continuing to charge such fees as a pricing
strategy, itemizing them in addition to stating the total price, or
from providing non-misleading information about those fees. Indeed, a
number of commenters have misunderstood the rule to act as a
prohibition or limitation on itemization; as explained in section III,
truthful itemization is not prohibited.
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\395\ Commenters did not argue or provide substantive support
for any argument that a major question was raised by proposed Sec.
464.3(a), which would have prohibited any Business from
misrepresenting the nature and purpose of any amount a consumer may
pay, including its refundability and the identity of any good or
service for which it is charged. The Commission is finalizing Sec.
464.3 more narrowly to prohibit any Business, in any offer, display,
or advertisement for a Covered Good or Service, from misrepresenting
any fee or charge, including its nature, purpose, amount, or
refundability, and the identity of the good or service for which it
is imposed.
\396\ See supra section I (``The discretion to set prices
remains squarely with businesses; the rule simply requires that they
tell consumers the truth about those prices.'').
\397\ See supra section III.A.8.c (``The rule neither requires,
nor prohibits, the itemization of mandatory fees that must be
included in Total Price.''); section III.B.1.d-e (responding to
comments about dynamic pricing, rebates, bundled pricing, and other
discounts).
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In sum, the rule does not address a major question because it
focuses on traditional types of unfair or deceptive acts or practices
that have long been the subject of Commission rulemaking and
enforcement activity and targets only those acts or practices.
2. Congress Provided the Commission With a Clear Grant of Authority To
Promulgate This Rule
Even if the final rule did present a major question, the FTC Act
provides clear authorization for the rule. In cases involving major
questions, courts expect Congress to ``speak clearly'' if it wishes to
assign the disputed power.\398\ In the FTC Act, Congress vested the
Commission with enforcement powers and the authority to promulgate
rules to carry out the Commission's mandate to prevent unfair or
deceptive acts or practices.\399\ Rather than trying to define all
unfair or deceptive acts and practices, Congress empowered the
Commission to respond to changing market conditions and to identify
conduct that is unfair or deceptive.\400\
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\398\ West Virginia v. EPA, 597 U.S. at 716, 723 (quoting Util.
Air, 573 U.S. at 324).
\399\ 15 U.S.C. 45, 57a.
\400\ See S. Rep. No. 75-221, at 2 (1937) (report on Amendments
to the Federal Trade Commission Act (S.1077), explaining Congress's
reasoning in granting the Commission authority in 1914 to define
specific unfair methods of competition, and then applying the same
reasoning to the proposed grant of authority to prohibit unfair or
deceptive acts or practices: ``The committee gave careful
consideration to the question as to whether it would attempt to
define the many and variable unfair practices . . . or whether it
would by a general declaration . . . condemn[ ] unfair practices,
leav[ing] it to the Commission to determine what practices were
unfair.'' The Committee ``concluded that the latter course would be
the better, for the reason . . . that there were too many unfair
practices to define, and after writing 20 of them into the law it
would be quite possible to invent others.''); see also H.R. Rep. No.
93-1606, at H 12060 (1974) (Conf. Rep.) (report on Consumer Product
Warranty and Federal Trade Commission Improvement Act, stating:
``[section 18] is an important power by which the Commission can
fairly and efficiently pursue its important statutory mission.''
Further, ``[b]ecause the prohibitions of section 5 of the Act are
quite broad, trade regulation rules are needed to define with
specificity conduct that violates the statute and to establish
requirements to prevent unlawful conduct.'').
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When the Commission was created by the FTC Act in 1914, the Act
prohibited ``unfair methods of competition'' in
[[Page 2110]]
section 5 and granted the Commission authority to promulgate rules to
effectuate the Act's provisions in section 6(g), including the
prohibition on unfair methods of competition.\401\ The Act did not
expressly prohibit deception. While deception could qualify as an
unfair method of competition, courts required the Commission to show
harm to competition or rivals in each instance; harm to consumers alone
was insufficient to meet the standard.\402\ In response, Congress
amended the FTC Act in 1938 to include a prohibition, not just against
unfair methods of competition, but against unfair or deceptive acts or
practices as well.\403\
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\401\ Federal Trade Commission Act, Public Law 63-203, secs. 5,
6(g), 38 Stat. 717, 719, 722 (1914).
\402\ FTC v. Raladam Co., 283 U.S. 643, 647-49 (1931) (``The
paramount aim of the [FTC] act is the protection of the public from
the evils likely to result from the destruction of competition or
the restriction of it in a substantial degree. . . . Unfair trade
methods are not per se unfair methods of competition.'').
\403\ Federal Trade Commission Act Amendments of 1938 (Wheeler-
Lea Act), Public Law 75-447, sec. 3, sec. 5, 52 Stat. 111, 111
(1938).
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Congress affirmed the Commission's authority to issue rules like
the one here through amendments to the FTC Act in 1975 and 1980. First,
in the Magnuson-Moss Warranty Act of 1975, Congress added section 18 of
the FTC Act, 15 U.S.C. 57a, confirming the Commission's authority to
issue rules that ``define with specificity acts or practices which are
unfair or deceptive acts or practices,'' and requiring the Commission
to follow specific procedures for promulgating rules.\404\ Among the
substantially completed rules at the time were the Rule on the
Preservation of Consumers' Claims and Defenses \405\ and the Mail Order
Rule,\406\ which proposed to define as an unfair or deceptive act--and
upon promulgation did so define--certain conduct that the rulemaking
record showed was causing harm across various industries. As Congress
added procedural requirements to the Commission's rulemaking authority
through section 18, Congress did not limit these existing cross-
industry rules targeting unfair or deceptive acts or practices, but
instead created an exception under which the Commission could finalize
them without following section 18's procedural requirements.\407\
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\404\ Magnuson-Moss Warranty--Federal Trade Commission
Improvement Act, Public Law 93-637, sec. 202, sec. 18, 88 Stat.
2183, 2193 (1975) (codified at 15 U.S.C. 57a).
\405\ Promulgation of Trade Regulation Rule and Statement of
Basis and Purpose: Preservation of Consumers' Claims and Defenses
(Holder Rule), 40 FR 53506 (Nov. 18, 1975).
\406\ Promulgation of Trade Regulation Rule and Statement of
Basis and Purpose: Mail Order Merchandise, 40 FR 51582 (Nov. 5,
1975).
\407\ Magnuson-Moss Warranty--Federal Trade Commission
Improvement Act, Public Law 93-637, sec. 202, sec. 18(c)(1), 88
Stat. 2183, 2198 (1975) (Specifically, section 18(c)(1) provided
that ``[a]ny proposed rule under section 6(g)'' with certain
components that were ``substantially completed before'' section 18's
enactment ``may be promulgated in the same manner and with the same
validity as such rule could have been promulgated had this section
not been enacted.'').
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Congress again confirmed the Commission's authority to promulgate
rules defining unfair and deceptive acts or practices in 1980 when it
enacted section 22 of the FTC Act, 15 U.S.C. 57b-3(b), as part of the
Federal Trade Commission Improvements Act of 1980.\408\ Section 22
imposes certain additional procedural requirements the Commission must
follow when it promulgates any ``rule,'' including rules promulgated
under section 18. Section 22(b) contemplates the FTC's authority to
promulgate rules that are substantive and economically significant by
requiring, for example, that the Commission conduct a cost-benefit
analysis.\409\ In addition, section 22(a) imposes the same requirements
on amendments to existing rules if they may ``have an annual effect on
the national economy of $100,000,000 or more,'' ``cause a substantial
change in the cost or price of goods or services,'' or ``have a
significant impact upon'' persons and consumers.\410\ Thus, Congress
explicitly authorized the Commission to issue rules and amendments that
address major economic questions, so long as the rulemaking complies
with section 22.
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\408\ Federal Trade Commission Improvements Act of 1980, Public
Law 96-252, sec. 15, sec. 22, 94 Stat. 374, 388 (1980) (codified at
15 U.S.C. 57b-3).
\409\ 15 U.S.C. 57b-3(b).
\581\ 15 U.S.C. 57b-3(a).
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The Commission has exercised its authority to promulgate numerous
rules and rule amendments defining unfair or deceptive acts or
practices pursuant to sections 18 and 22.\411\ Central to many of these
rules is a rulemaking record establishing that businesses misrepresent
or fail to disclose certain material terms in a transaction, including
information related to price, and that these practices are unfair or
deceptive.\412\ Unlike in West Virginia v. EPA, courts have upheld
Commission rules similar to the one here--that prohibit
misrepresentations, define unfair or deceptive conduct, and require
specific disclosures to avoid deception--against a myriad of legal
challenges.\413\
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\411\ See, e.g., Franchise Rule, 16 CFR part 436; Business
Opportunity Rule, 16 CFR part 437; Funeral Rule, 16 CFR part 453;
Negative Option Rule, 16 CFR part 425; Cooling Off Rule, 16 CFR part
429; see also discussion supra section IV.1.a.
\412\ See, e.g., 16 CFR 437.6(d), (h), (i) (The Business
Opportunity Rule provides that it is an ``unfair or deceptive act or
practice'' to misrepresent, among other information, ``the amount of
sales, or gross or net income or profits a prospective purchaser may
earn''; ``the cost, or the performance, efficacy, nature, or central
characteristics of the business opportunity or the goods or services
offered''; or ``any material aspect of any assistance offered to a
prospective purchaser''); 16 CFR 436.9(a) and (c) (The Franchise
Rule provides that it is an ``unfair or deceptive act or practice''
to ``[m]ake any claim or representation . . . that contradicts'' the
required disclosures, which include certain pricing information and
fees, or to ``[d]isseminate any financial performance
representations to prospective franchisees unless the franchisor has
a reasonable basis and written substantiation for the
representation[.]'').
\413\ See, e.g., Harry & Bryant Co. v. FTC, 726 F.2d 993, 999-
1001 (4th Cir. 1984) (holding that petitioners challenging Funeral
Rule were not denied procedural due process, and that the rule was
within the Commission's statutory authority and supported by
substantial evidence); Am. Fin. Servs. Ass'n v. FTC, 767 F.2d 957,
983-88, 991 (D.C. Cir. 1985) (holding that the FTC did not exceed
its authority when promulgating the Trade Regulation Rule on Credit
Practices under sections 5 and 18 of the FTC Act, and that the rule
was supported by substantial evidence and not arbitrary, capricious,
or an abuse of discretion); Consumers Union of U.S., Inc. v. FTC,
801 F.2d 417, 422, 426 (D.C. Cir. 1986) (denying petition for review
of FTC Used Car Rule and holding that Commission's decision to omit
a proposed disclosure requirement from the rule had evidentiary
support under both the FTC's substantial evidence test and the APA's
arbitrary and capricious test, which are one and the same as to the
requisite degree of evidence); Pa. Funeral Dirs. Ass'n v. FTC, 41
F.3d 81, 92 (3d Cir. 1994) (denying petition for review of Funeral
Rule and finding that Commission decision to regulate casket
handling fees was not arbitrary or capricious and was supported by
substantial evidence).
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In sum, this is a far cry from a situation where Congress
``conspicuously and repeatedly'' declined to grant the agency the
claimed power.\414\ Quite the opposite--Congress has conspicuously and
repeatedly confirmed that promulgating a rule like this final rule is
precisely how Congress expects the Commission to use its rulemaking
authority. For these reasons, even if the final rule involves a major
question, Congress has clearly delegated to the Commission the
authority to address that question.
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\414\ West Virginia v. EPA, 597 U.S. at 724.
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B. Non-Delegation Doctrine
One commenter contended that the Commission's issuance of the rule
violates the non-delegation doctrine.\415\ The commenter argued that,
given the rule's breadth, section 5 lacks an intelligible principle if
it authorizes the Commission to promulgate the rule. The commenter
asserted that the rule regulates pricing economy-wide and that Congress
has not made ``the necessary fundamental policy-decision'' underlying
the rule. The commenter
[[Page 2111]]
also asserted that the Commission's authority to promulgate the rule is
an unconstitutional delegation under a ``history and tradition test,''
citing to a dissenting opinion in Gundy v. United States, 588 U.S. 128
(2019).\416\ The Commission disagrees. The Commission notes that this
commenter's argument that the proposed rule violated the non-delegation
doctrine was predicated on its assertion that the proposed rule
regulated ``the disclosing and collecting [of] consumer fees for all
businesses.'' \417\ Since the focus of the final rule is narrowed to
covered goods or services, the comment may not be relevant to the final
rule. Nevertheless, the Commission addresses the arguments herein.
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\415\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\416\ Id. (citing Gundy, 588 U.S. at 159 (Gorsuch, J.,
dissenting, joined by Roberts, C.J. and Thomas, J.)).
\417\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
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``Only twice in this country's history has the Court found a
delegation excessive, in each case because `Congress had failed to
articulate any policy or standard' to confine discretion.'' \418\
Article I of the Constitution vests the Federal government's
legislative powers in Congress, and Congress may not delegate those
powers to an executive agency absent an intelligible principle to guide
the exercise of discretion.\419\ The ``intelligible principle''
standard is ``not demanding.'' \420\ This is because of the practical
understanding that `` `in our increasingly complex society, replete
with ever changing and more technical problems,' . . . `Congress simply
cannot do its job absent an ability to delegate power under broad
general directives.' '' \421\ For that reason, the Supreme Court has
repeatedly held that ``a statutory delegation is constitutional as long
as Congress `lay[s] down by legislative act an intelligible principle
to which the person or body authorized to [exercise the delegated
authority] is directed to conform.' '' \422\
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\418\ Gundy, 588 U.S. at 130 (plurality op.) (quoting Mistretta
v. United States, 488 U.S. 361, 373 n.3 (1989)).
\419\ U.S. Const. art. I, sec. 1; see also, e.g., Mistretta, 488
U.S. at 372.
\420\ Gundy, 588 U.S. at 146.
\421\ Id. at 135 (quoting Mistretta, 488 U.S. at 372).
\422\ Id. (quoting J.W. Hampton, Jr., & Co. v. United States,
276 U.S. 394, 409 (1928)) (brackets in original).
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As described throughout section IV.A, Congress, the Commission, and
the courts have long understood the Commission's mandate to prevent
both unfair and deceptive acts or practices as providing intelligible
principles to guide the exercise of the Commission's discretion. In
A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935),
the Court observed that conduct that fell within the ambit of section 5
of the FTC Act was ``to be determined in particular instances, upon
evidence, in the light of particular competitive conditions and of what
is found to be a specific and substantial public interest.'' \423\ The
Court ultimately concluded that Congress properly delegated authority
to the FTC under the FTC Act based, among other things, on the subject
matter and procedural requirements Congress placed on the Commission--
which involves ``notice and hearing,'' ``appropriate findings of fact
supported by adequate evidence,'' and ``judicial review.'' \424\
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\423\ A.L.A. Schechter, 295 U.S. at 532-33. In so holding, the
Supreme Court in A.L.A. Schechter referred to cases in which both
unfair and deceptive practices were determined to be unfair methods
of competition. 295 U.S. at 532-33 (citing FTC v. R.F. Keppel, 291
U.S. 304 (1934) and FTC v. Algoma Lumber Co., 291 U.S. 67 (1934)).
Congress later clarified in the Wheeler-Lea Act of 1938 that unfair
and deceptive practices are unlawful under the FTC Act independent
of any effect they may have on competition. 52 Stat. 111.
Accordingly, the A.L.A. Schechter Court's conclusion that Congress's
grant of authority to the Commission is guided by intelligible
principles applies equally to the Commission's authority to identify
unfair or deceptive acts or practices and to the Commission's
authority to identify unfair methods of competition.
\424\ A.L.A. Schechter, 295 U.S. at 533-36.
---------------------------------------------------------------------------
FTC rulemaking under section 18 features similar procedural
safeguards to FTC adjudication and thus comports with the nondelegation
doctrine for the same reasons. For example, section 18's rulemaking
process requires the Commission to: (1) notify Congress; (2) publish
multiple public notices of the proposed rulemaking; (3) provide all
interested persons the opportunity to ``submi[t] . . . written data,
views, or arguments''; (4) consider all submissions; (5) provide the
opportunity for an informal hearing; (6) determine, based on all
available information, that the unfair or deceptive acts or practices
are prevalent; and (7) determine, based on the rulemaking record, that
the final rule is appropriate. In addition, once the rule is finalized,
it is subject to judicial review in a court of appeals.\425\ The
rulemaking process thus ``may actually be fairer to regulated parties
than total reliance on case-by-case adjudication'' because the process
allows all interested parties the opportunity to weigh in by submitting
data, views, and arguments and by participating in a hearing.\426\ In
this rulemaking, interested parties had numerous opportunities to be
heard by the Commission, including through ninety-day public comment
periods on both an advance notice of proposed rulemaking and a notice
of proposed rulemaking, as well as an informal hearing. These
procedures helped to ensure that the Commission properly applied its
statutory mandate when adopting the rule to prevent prevalent unfair
and deceptive practices concerning hidden and misleading fees.
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\425\ 15 U.S.C. 57a(b)(1)-(2). Section 18 requires both an
advance notice of proposed rulemaking and a notice of proposed
rulemaking to engage with and solicit comment from interested
parties.
\426\ Nat'l Petroleum Refiners Ass'n v. FTC, 482 F.2d 672, 681-
83 (D.C. Cir. 1973).
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Like the FTC's Act's procedural requirements, the subject matter
requirements that apply to the FTC's statutory authority are well
established. With respect to unfairness, Congress articulated in
section 5(n) of the FTC Act the factors the Commission must apply.\427\
For deception, virtually all courts have adopted the three-part test
put forward by the Commission in its Deception Policy Statement: (1)
there is a representation, omission, or practice that (2) is likely to
mislead consumers acting reasonably under the circumstances, and (3)
the representation, omission, or practice is material.\428\ For
decades, courts have reviewed and upheld the Commission's application
of unfairness and deception authority in enforcement actions and rules.
Moreover, the Supreme Court has recognized the ability of regulators,
courts, and regulated entities to distinguish deceptive from
nondeceptive claims or advertisements under section 5 of the FTC
Act.\429\ In sum, the subject matter requirements of the FTC Act's
statutory authority as to unfair and deceptive practices are well
settled.
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\427\ 15 U.S.C. 45(n).
\428\ Fed. Trade Comm'n, FTC Policy Statement on Deception, 103
F.T.C. 174, 175 (1984) (sent by letter to Congress on October 14,
1983 and appended to In re Cliffdale Assocs., Inc., 103 F.T.C. 110,
174 (1984) (hereinafter ``Deception Policy Statement''), https://www.ftc.gov/system/files/ftc_gov/pdf/Cliffdale-Assocs-103-FTC-110.pdf.
\429\ FTC v. Colgate-Palmolive Co., 380 U.S. 374, 387 (1965);
Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 645-46
(1985).
---------------------------------------------------------------------------
Finally, the Supreme Court has not adopted the commenter's
suggested ``history and tradition test'' as the applicable standard for
determining whether congressional delegation of authority is
constitutional. The intelligible principle test is binding precedent on
that question, and the final rule complies with the intelligible
principle test.
C. First Amendment
Some commenters argued that Sec. 464.2 impermissibly prohibits and
compels speech in violation of the First
[[Page 2112]]
Amendment.\430\ The Commission disagrees. The rule addresses unfair and
deceptive conduct and does not otherwise affect businesses' ability to
express truthful and accurate price information.
---------------------------------------------------------------------------
\430\ See, e.g., FTC-2023-0064-3028 (Competitive Enterprise
Institute); FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP); FTC-
2023-0064-3233 (NCTA--The internet and Television Association); FTC-
2023-0064-3016 (National Federation of Independent Business). In
opposing Sec. 464.2, the commenters did not argue that Sec. 464.3,
which simply prohibits misrepresentations related to prices and
fees, implicates the First Amendment.
---------------------------------------------------------------------------
1. Comments
Some commenters argued the rule's disclosure requirements compel
speech in violation of the First Amendment. Some commenters also
contended that Sec. 464.2 would prohibit businesses from advertising
aspects or parts of truthful and accurate price information. They
argued that conditioning the ability to provide some truthful
information--such as a partial price without including certain fees--on
total price being disclosed violates the First Amendment.\431\
Commenters asserted that consumers are not injured where a business
presents a price that omits fees or fails to add up the fees for the
consumer. They argued that this type of price information is useful and
truthful even if it is only partial. A commenter argued that how the
price of goods and services is displayed is a message under the First
Amendment and the rule's requirement that total price be displayed
clearly and conspicuously is unconstitutional compelled speech.\432\
One academic commenter supported the rule and argued it does not
unconstitutionally compel speech because it only requires disclosure of
factual, non-controversial information, without which the prices
disclosed or advertised would be misleading.\433\
---------------------------------------------------------------------------
\431\ E.g., FTC-2023-0064-3028 (Competitive Enterprise Institute
provided examples of pricing information it argued was not unfair or
deceptive that involve drip pricing with disclaimers, contingent
pricing, and partition pricing.) The Commission addresses in section
III.B.1 when and to what extent the rule covers these types of
information and also explains why the omission of Total Price is
unfair and deceptive in those circumstances.
\432\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\433\ FTC-2023-0064-3275 (Berkeley Law Center for Consumer Law &
Economic Justice et al.).
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Some commenters argued the requirement to disclose total price
clearly and conspicuously should be subject to strict scrutiny,\434\
while others argued it should be reviewed under a heightened scrutiny
standard \435\ or intermediate scrutiny.\436\ One commenter argued that
the rule is a content-based regulation subject to strict scrutiny
because, where a business presents any type of price information, it is
required to display total price and in a particular way--i.e., clearly,
conspicuously, and prominently.\437\ The commenter argued that the
Commission failed to demonstrate the rule directly advances any
compelling government interest. Another commenter argued that price
information is commercial speech subject to intermediate scrutiny and
that the rule fails to meet the standard because, even if some price
displays without total price are deceptive, not all such displays are
deceptive.\438\
---------------------------------------------------------------------------
\434\ FTC-2023-0064-3028 (Competitive Enterprise Institute);
FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\435\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\436\ FTC-2023-0064-3016 (National Federation of Independent
Business).
\437\ FTC-2023-0064-3028 (Competitive Enterprise Institute).
\438\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
---------------------------------------------------------------------------
Some commenters asserted that the rule's application to credit card
surcharges and government charges violated the First Amendment. An
industry commenter interpreted the rule to require all credit card
surcharges to be included in total price. The commenter argued that
this amounts to a ban on presenting credit card surcharges to
consumers, which is regulation of commercial speech that violates
merchants' First Amendment rights. The commenter cited to several State
laws banning credit card surcharges or fees, but allowing cash
discounts, that were struck down by Federal courts of appeals.\439\ Two
commenters argued that the rule's allowance for government charges to
be excluded from total price--while other fees or charges cannot be
excluded--amounts to content-based regulation of speech that provides
preferential treatment to the government.\440\ One commenter argued
that the rule would allow businesses to conceal government charges and
shows favoritism for government speech to assist it in raising tax
revenues; the commenter proposed the alternative of marginally raising
the tax rate.\441\ The commenter also argued that the rule is
underinclusive because total price does not include government charges,
arguing that consumers suffer the same harm of being surprised by
government fees as with non-government charges required to be included
in total price. Finally, other commenters recommended that the
Commission adopt a rule that only prohibits deceptive conduct without
requiring specific affirmative disclosures.\442\
---------------------------------------------------------------------------
\439\ FTC-2023-0064-3128 (Merchants Payments Coalition).
\440\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP); FTC-
2023-0064-3233 (NCTA--The Internet & Television Association).
\441\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP
``assume[d]'' that in allowing government charges to be excluded
from Total Price, the Commission aims to ``rais[e] tax revenues''
because the Commission believes ``disclosing a tax upfront will lead
to fewer people making purchases, resulting in a decline in
revenue''). The commenter did not address the fact that the
Commission does not have authority over taxation, or whether the
commenter's proposed alternative of raising marginal tax rates would
fulfill the Commission's goal in this rulemaking of preventing
unfair or deceptive conduct related to mandatory fees and charges.
The Commission finds that marginally raising the tax rate is not a
viable alternative because the Commission does not have taxing
authority and raising the tax rate would not achieve the
Commission's stated goal of preventing unfair or deceptive conduct.
\442\ FTC-2023-0064-3016 (National Federation of Independent
Business); FTC-2023-0064-3028 (Competitive Enterprise Institute).
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2. Legal Standard
The Commission finds that businesses' First Amendment rights are
adequately protected because Sec. 464.2's compelled disclosures are in
a commercial context and meet the longstanding legal standards
governing commercial speech. Courts apply one of two standards in the
context of commercial speech. In Cent. Hudson Gas & Electric Corp. v.
Pub. Serv. Comm'n of N.Y., 447 U.S. 557, 563-64 (1980), the Supreme
Court established the analytical framework for determining the
constitutionality of a regulation of commercial speech that is not
misleading and does not involve illegal activity. Under that framework,
described as intermediate scrutiny, the regulation must: (1) serve a
substantial governmental interest; (2) directly advance this interest;
and (3) not be more extensive than necessary to serve the government's
interests.\443\ The third prong does not require the government to
adopt the least restrictive means. Instead, it simply calls for a ``
`fit' between the legislature's ends and the means chosen to accomplish
those ends . . . a fit that is not necessarily perfect, but
reasonable.'' \444\
---------------------------------------------------------------------------
\443\ Cent. Hudson Gas & Elec. Corp., 447 U.S. at 564.
\444\ Bd. of Trs. of State Univ. of N.Y. v. Fox, 492 U.S. 469,
480 (1989) (internal citations omitted).
---------------------------------------------------------------------------
The Supreme Court's ``precedents have applied a lower level of
scrutiny to laws that compel disclosures in certain contexts,'' such as
in commercial speech, as set forth in Zauderer v. Office of
Disciplinary Counsel, 471 U.S. 626 (1985).\445\ Contrary to commenters'
[[Page 2113]]
assertions, compelled speech in the commercial context is neither
unequivocally prohibited nor subject to strict scrutiny under the First
Amendment. Rather, the First Amendment permits required disclosures
that are: (1) factual and uncontroversial; (2) reasonably related to
the government's interest--here, preventing unfair and deceptive
commercial practices that harm consumers; and (3) not ``unjustified or
unduly burdensome.'' \446\ The final rule's disclosure requirements
satisfy these parameters.
---------------------------------------------------------------------------
\445\ Zauderer, 471 U.S. at 650-53; Nat'l Inst. of Family & Life
Advocates v. Becerra (``NIFLA''), 585 U.S. 755, 768 (2018); see also
Milavetz, Gallop & Milavetz P.A. v. United States, 559 U.S. 229,
249-50 (2010) (applying ``the less exacting scrutiny described in
Zauderer'' and upholding a requirement that advertisements include a
disclosure ``intended to combat the problem of inherently misleading
commercial advertisements'').
\446\ Zauderer, 471 U.S. at 653; see also Am. Meat Inst. v.
USDA, 760 F.3d 18, 22-23 (D.C. Cir. 2014) (en banc) (holding
Zauderer applies to compelled commercial speech in service of
government interests in addition to preventing and correcting
deception); CTIA--The Wireless Ass'n v. City of Berkeley, 928 F.3d
832, 844 (9th Cir. 2019) (holding Zauderer applies to compelled
commercial health and safety disclosures if they further a
substantial government interest) (citing Central Hudson Gas & Elec.
Corp., 447 U.S. at 564; NIFLA, 585 U.S. at 768, 775)); Pharm. Care
Mgmt. Ass'n v. Rowe, 429 F.3d 294, 310, 310 n.8 (1st Cir. 2005)
(clarifying that the application of Zauderer is not limited to cases
in which the compelled disclosure prevents deception and upholding
compelled commercial disclosures based on government interests in
preventing deception and ``increasing public access to prescription
drugs''); Nat'l Elec. Mfrs. Ass'n v. Sorrell, 272 F.3d 104, 116 (2d
Cir. 2001) (applying Zauderer to compelled commercial disclosure
even though it ``was not intended to prevent `consumer confusion or
deception' per se, . . . but rather to better inform consumers about
the products they purchase'') (internal citation and quotation marks
omitted) (citing Zauderer, 471 U.S. at 651).
---------------------------------------------------------------------------
3. The Rule's Disclosure Requirements Are Constitutional Under Zauderer
Section 464.2 applies to speech that is, at its core, commercial--
the disclosure and advertising of the price for goods and
services.\447\ It requires precisely the type of disclosure the Supreme
Court has confirmed is constitutional under Zauderer.\448\ In Zauderer,
the Supreme Court considered a challenge to government-compelled
commercial speech in an advertisement by an attorney. The advertisement
stated that certain types of cases were handled on a contingent fee
basis for which the client owed no legal fees if the lawsuit was
unsuccessful. The State required such advertisements to disclose that
clients may be liable for litigation costs even if their lawsuit is
unsuccessful. The attorney argued such a requirement was compelled
speech in violation of the First Amendment. The Supreme Court
disagreed. Noting that the disclosure applied to commercial
advertising, the Court held that an advertiser's ``constitutionally
protected interest in not providing any particular factual information
in his advertising is minimal.'' \449\ The Court concluded, ``The
State's position that it is deceptive to employ advertising that refers
to contingent-fee arrangements without mentioning the client's
liability for costs is reasonable enough to support a requirement that
information regarding the client's liability for costs be disclosed.''
\450\ The Court also noted that attorneys were not prevented from
conveying information to the public--they were merely required ``to
provide somewhat more information than they might otherwise be inclined
to present . . . in order to dissipate the possibility of consumer
confusion or deception.'' \451\
---------------------------------------------------------------------------
\447\ See Expressions Hair Design v. Schneiderman, 581 U.S. 37,
48 (2017) (reviewing State law regulating disclosure of
differentiation of prices for credit card versus other types of
payment and remanding for determination of whether the statute ``is
a valid commercial speech'' regulation); City of Cincinnati v.
Discovery Network, Inc., 507 U.S. 410, 422 (1993) (``Most of the
appellee's mailings consisted primarily of price and quantity
information, and thus fell within the core notion of commercial
speech--speech which does `no more than propose a commercial
transaction.''') (cleaned up) (citing Bolger v. Young's Prods.
Corp., 463 U.S. 60, 66 (1983)); see generally Cent. Hudson Gas &
Elec. Corp., 447 U.S. at 561 (referring to commercial speech as
``expression related solely to the economic interests of the speaker
and its audience''); Va. State Bd. of Pharmacy v. Va. Citizens
Consumer Council, Inc., 425 U.S. 748, 762 (1976) (commercial speech
includes speech that does ``no more than propose a commercial
transaction'' (internal citations omitted)); see also Bates v. State
Bar of Ariz., 433 U.S. 350, 383 (1977) (``the advertiser knows his
product and has a commercial interest in its dissemination''; ``any
concern that strict requirements for truthfulness will undesirably
inhibit spontaneity seems inapplicable because commercial speech
generally is calculated. Indeed, the public and private benefits
from commercial speech derive from confidence in its accuracy and
reliability.'').
\448\ Zauderer, 471 U.S. at 651-53; see also NIFLA, 585 U.S. at
768-69 (restating the Zauderer standard, noting that ``purely
factual and uncontroversial information about the terms under which
. . . services will be available . . . should be upheld unless they
are unjustified or unduly burdensome'' (internal citations
omitted)).
\449\ Zauderer, 471 U.S. at 651.
\450\ Id. at 653.
\451\ Id. at 650-51 (internal quotation omitted).
---------------------------------------------------------------------------
Section 464.2 satisfies all prongs of Zauderer. First, Sec. 464.2
only requires businesses to disclose factual and noncontroversial
pricing information, by incorporating known mandatory fees or charges
into total price, with exceptions, and by disclosing certain other
customary pricing information before a consumer consents to pay. As
described in section II.B, the purpose of the rule is to ensure that
consumers know the total amount they will have to pay because this
information is material to consumer decision making.
Second, parts II.B and III lay out in detail how the rule is
reasonably related to--and, in fact, directly advances--the
government's interest in preventing unfairness and deception in the
marketplace. Preventing unfair and deceptive conduct is the
Commission's mandate under sections 5 and 18 of the FTC Act.\452\ And
based on voluminous comments from the public as well as significant
empirical evidence, the Commission finds that consumers seeking to
purchase covered goods or services are likely to be deceived and harmed
if the required disclosures are not made.
---------------------------------------------------------------------------
\452\ 15 U.S.C. 45, 57a.
---------------------------------------------------------------------------
Finally, Sec. 464.2 is neither unduly burdensome nor unjustified.
The Commission set forth the justification for the required disclosures
in parts II and III, including the harms to consumers and to
competition from drip or partitioned pricing. Further, the rule does
not impose an undue burden; businesses offering covered goods or
services are simply required ``to provide somewhat more information
than they might otherwise be inclined to present.'' \453\ The rule
merely requires clear and conspicuous display of total price if other
pricing information is displayed, and requires certain pricing and
informational disclosures before the consumer consents to pay. As
described in detail in section III, the final rule permits businesses
to exclude from total price certain mandatory fees or charges that
industry commenters stated would be impractical or burdensome for
inclusion in total price.
---------------------------------------------------------------------------
\453\ Zauderer, 471 U.S. at 650.
---------------------------------------------------------------------------
The Commission disagrees with a commenter who seemed to argue that
because the rule imposes disclosure requirements as to ``how'' total
price is displayed, the rule ``offends the First Amendment'' by
compelling speech.\454\ In so arguing, the commenter cited to 303
Creative, LLC v. Elenis, 600 U.S. 570 (2023). The Supreme Court in 303
Creative considered an as-applied challenge to the Colorado Anti-
Discrimination Act (``CAD'') by a sole proprietor who designed
individualized websites the Court concluded ``qualify as pure speech,''
with each website being an ``original, customized creation.'' \455\
While the Court in that case held that the CAD violated the First
Amendment as applied to the plaintiff, the rule here is distinguishable
from the facts of 303 Creative. First, both price
[[Page 2114]]
and how price is displayed (here, how total price is displayed) relate
solely to proposing a commercial transaction and to the economic
interests of the speaker and its audience.\456\ Second, the Court based
its decision in 303 Creative on the unique nature of the plaintiff's
work, noting the plaintiff ``does not seek to sell an ordinary
commercial good.'' \457\ In comparison, the rule merely requires the
display of the total price of a covered good or service--live-event
tickets and short-term lodging--which is core commercial speech.
---------------------------------------------------------------------------
\454\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\455\ 303 Creative, 600 U.S. at 587-88.
\456\ See cases cited supra note 447 (defining commercial
speech).
\457\ 303 Creative, 600 U.S. at 593-94.
---------------------------------------------------------------------------
Therefore, the Commission finds that the disclosure requirements
are consistent with the compelled speech analysis under Zauderer.
Clear, conspicuous, and prominent disclosure of total price in
advertisements, displays, or offers, and the disclosure of complete
pricing information of covered goods or services before the consumer
consents to pay, directly advance the Commission's interest in
preventing deception and harm. The rule's requirements enable consumers
to receive the information they need to make informed purchasing
decisions about live-event tickets and short-term lodging based on
complete and truthful information.
4. The Rule Does Not Prohibit Truthful Speech
Commenters asserted that the rule amounts to a prohibition on the
display of truthful price information in violation of the First
Amendment because the rule prohibits certain information (like partial
prices without mandatory fees) from being displayed without displaying
total price. Commenters also asserted that, because the rule prohibits
certain displays of price, like parts of prices without fees, it should
be evaluated under Central Hudson. The Commission disagrees. First, the
commenters ``overlook[ ] material differences between disclosure
requirements and outright prohibitions on speech.'' \458\ The rule does
not prevent businesses from conveying information to the public and, in
particular, it does not prohibit the disclosure of the components of
total price. Businesses remain free to describe, disclose, or convey
price, fee, and charge information.\459\ Put differently, the rule
permits any truthful pricing claims an advertiser wants to make; what
it forbids is half-truths that omit total price.
---------------------------------------------------------------------------
\458\ Zauderer, 471 U.S. at 650.
\459\ Of course, Businesses offering, displaying, or advertising
a Covered Good or Service cannot misrepresent the nature, purpose,
amount, or refundability of any fee or charge under Sec. 464.3;
this requirement is consistent with the First Amendment. See Ibanez
v. Fla. Dep't of Bus. & Prof'l. Regul., 512 U.S. 136, 142 (1994)
(``false, deceptive, or misleading commercial speech may be banned''
(citations omitted)). Commenters did not argue Sec. 464.3 violates
the First Amendment.
---------------------------------------------------------------------------
Section 464.2 does require a business that displays certain pricing
information about covered goods or services to also provide factual and
non-controversial information in the form of total price. Although
total price may be ``somewhat more information than they might be
otherwise inclined to present,'' such a requirement is allowed by
Zauderer.\460\ With the rule's requirement that total price be clear,
conspicuous, and prominent, the Commission balances industry
commenters' stated desire to display other price information with its
finding that total price is a necessary piece of price information for
consumers if any other price information is displayed.\461\
---------------------------------------------------------------------------
\460\ Zauderer, 471 U.S. at 650.
\461\ Indeed, the Zauderer Court noted that ``because disclosure
requirements trench much more narrowly on an advertiser's interests
than do flat prohibitions on speech, `warning[s] or disclaimer[s]
might be appropriately required . . . in order to dissipate the
possibility of consumer confusion or deception.' '' Id. at 651
(citation omitted).
---------------------------------------------------------------------------
Because the rule does not restrict truthful speech, and because the
conduct the rule addresses (advertising prices without mandatory fees)
is deceptive, the Commission need not apply the Central Hudson factors.
Nevertheless, the rule would meet them. Under Central Hudson, the
regulation must serve a substantial governmental interest, must
directly advance that interest, and must not be more extensive than
necessary to serve the government's interest.\462\ As outlined in parts
II and III, the rule serves the substantial governmental interest of
providing material price information to consumers purchasing live-event
tickets and short-term lodging to allow them to make accurate price
comparisons and informed purchasing decisions, and to allow businesses
to compete on price in a level playing field. And consistent with the
third prong of Central Hudson, the rule is no more extensive than
necessary to serve the government's interests in preventing unfairness,
deception, and harm, as the rule simply requires clear, conspicuous,
and prominent display of total price. Central Hudson acknowledges that
the government can regulate the format of advertising, including by
requiring a disclosure.\463\
---------------------------------------------------------------------------
\462\ Cent. Hudson Gas & Elec. Corp., 447 U.S. at 566.
\463\ See id. at 570-71 (``To further its policy of
conservation, the Commission could attempt to restrict the format
and content of Central Hudson's advertising. It might, for example,
require that the advertisements include information about the
relative efficiency and expense of the offered service, both under
current conditions and for the foreseeable future.'').
---------------------------------------------------------------------------
The Commission also disagrees with commenters arguing the rule
violates is overinclusive and would prohibit some displays of partial
price that are not deceptive or unfair without the display of total
price. Again, because truthful itemization of price components is not
prohibited by the rule, commenters' contention that the rule is a
prohibition on speech misses the mark. The Commission finds, however,
that the display of the price of a good or service without disclosing
total price clearly, conspicuously, and prominently is unfair and
deceptive and harms consumers and honest competitors. Because the third
prong of Central Hudson does not require the government to use the
least restrictive means necessary to advance its interest, the rule
would be constitutional even if it prohibited displaying partial price
in instances that, in isolation, may not be unfair or deceptive. The
same is true under Zauderer, where the Court held that the State's
``assumption that substantial numbers of potential clients would be . .
. misled'' about the possibility that they would be responsible for
litigation costs--in contrast to proving that all potential clients
would be misled--was sufficient to meet the standard.\464\
---------------------------------------------------------------------------
\464\ Zauderer, 471 U.S. at 652-53.
---------------------------------------------------------------------------
The Commission addresses in section III commenters who argued that
it should adopt alternative policies, such as prohibiting
misrepresentations and allowing businesses to disclose amounts or fees
as they wish. As relevant here, commenters argued that the Commission
should adopt those alternatives because they would not violate the
First Amendment. The Commission finds that the rule, including Sec.
464.2, does not violate the First Amendment. Given the Commission's
finding that failure to disclose total price is unfair and deceptive,
the rule's affirmative disclosure requirements are needed to achieve
the Commission's goal of preventing this unfair and deceptive conduct.
[[Page 2115]]
5. The Rule's Treatment of Credit Card Fees and Government Charges Does
Not Violate the First Amendment
The rule does not violate the First Amendment in its treatment of
credit card fees and government charges. First, as noted in section
III.B.1.c, the rule does not prohibit a business from charging or
passing through credit card fees if otherwise allowed by law. The rule
also does not affect State laws that prohibit credit card surcharges.
Whether credit card charges must be included in total price depends on
whether a business makes such fees mandatory. If a business offers
consumers multiple viable payment methods for the offered transaction,
so that paying with a credit card is optional, then credit card fees
are not for a ``mandatory ancillary good or service'' under the rule
and need not be included in total price. In addition, where credit card
fees are mandatory, the rule does not prohibit businesses from
itemizing them as long as they are also included in total price.
Accordingly, there is no merit to commenters' concerns that consumers
will not understand the impact of costs affecting businesses, since
businesses can itemize those costs under the rule.
The Commission also disagrees with commenters' argument that Sec.
464.2 violates the First Amendment as a content-based regulation
because it does not require businesses to include government charges in
total price. One commenter, who argued the point in detail, relied on
Barr v. American Ass'n of Political Consultants, Inc., 591 U.S. 610
(2020), in which the Supreme Court held that an exclusion for
collectors of government debt from the Telephone Consumer Protection
Act (``TCPA''), which generally prohibits robocalls, violated the First
Amendment. A majority agreed that the exclusion for collectors of
government debt was severable--the prohibition on robocalls was upheld.
The exclusion provision in the TCPA addressed in Barr is
distinguishable from the final rule in several ways. At the outset, the
rule does not favor government charges unequivocally. While the rule
allows businesses to exclude government charges from total price, it
does not require businesses to do so. Businesses have a choice--they
may include government charges in total price. Second, the commenter
makes specific and erroneous assumptions about the Commission's
reasoning for excluding government charges from total price, such as
that the Commission's interest in adopting the rule includes favoring
taxes and increasing tax revenue. Tax revenues have no bearing on the
Commission's decision to adopt this rule. As noted in section III.A.5,
consumers have come to understand and expect sales tax to be added at
the end of a purchase, and there are other Federal, State, and local
laws that have specific requirements about disclosing taxes and other
government charges. In addition, in many online transactions,
businesses are unable to fully calculate certain components of
government charges until a consumer provides their location
information. Thus, the Commission has good reason to allow businesses
to exclude government charges from total price if they choose.\465\
---------------------------------------------------------------------------
\465\ The Commission modifies the definition of ``Government
Charges'' from those fees or charges ``imposed on consumers'' to
those ``imposed on the transaction'' to limit the potential
distinction between fees and charges imposed directly on consumers
and those imposed on Businesses. See supra section III.A.5.
---------------------------------------------------------------------------
D. Commission Structure
One commenter argued the Commission is unconstitutionally
structured because the Commissioners are shielded from removal and
asserts that Humphrey's Executor v. United States, 295 U.S. 602 (1935),
either no longer applies or was wrongly decided by the Supreme
Court.\466\ The same commenter asserted that the Commission's
administrative law judges are unconstitutionally appointed by the
Commission Chair and are unconstitutionally shielded from removal.\467\
The Commission disagrees.
---------------------------------------------------------------------------
\466\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\467\ Id.
---------------------------------------------------------------------------
In Humphrey's Executor, the Supreme Court addressed the crux of the
commenter's first argument and concluded that the Commission's
structure is constitutional. In that case, President Roosevelt sought
to remove a Commissioner without cause. The Court held that the FTC Act
authorized removal of Commissioners only on the grounds specified in
the statute (``inefficiency, neglect of duty, or malfeasance in
office'') and that this limitation on the President's removal power was
constitutional given the ``character of the [C]ommission and the
legislative history which accompanied and preceded the passage of the
act.'' \468\ The commenter's arguments that Humphrey's Executor is no
longer applicable are unavailing. The Supreme Court's decision is not
rendered any less binding because Congress has refined the Commission's
authorities during the course of its more than 100-year tenure.\469\
The key policy rationale underlying Humphrey's Executor remains valid
today. The Commissioners collectively act as an adjudicatory body, and
the for-cause removal standard ensures that they are free from
``suspicion of partisan direction'' or ``political domination or
control.'' \470\ Congress has similarly provided for-cause removal
standards for the members of many other non-Article III tribunals
composed of multiple members who perform adjudicatory functions as an
expert body within a specific area of the law.\471\
---------------------------------------------------------------------------
\468\ Humphrey's Executor, 295 U.S. at 624-32.
\469\ See FTC v. Am. Nat'l Cellular, Inc., 810 F.2d 1511, 1513-
14 (9th Cir. 1987) (enactment of section 13(b) of the FTC Act did
not render Humphrey's Executor inapposite).
\470\ Humphrey's Executor, 295 U.S. at 625.
\471\ See Collins v. Yellen, 594 U.S. 220, 250 n.18 (2021);
Wiener v. United States, 357 U.S. 349, 353 (1958).
---------------------------------------------------------------------------
Next, the commenter incorrectly asserted that administrative law
judges are appointed by the Chair and are unconstitutionally shielded
from removal. The commenter argued that under Free Enter. Fund v. Pub.
Co. Accounting Oversight Bd., 561 U.S. 477 (2010), administrative law
judges must be appointed by the full Commission and that the
appointment process for administrative law judges at the FTC is
unconstitutional because administrative law judges are appointed by the
Commission Chair alone.\472\ The commenter is mistaken. The Commission
voted in December 2023 to approve the appointment of Administrative Law
Judge Jay L. Himes.\473\ The Chief Presiding Officer--here, the Chair
pursuant to 16 CFR 0.8--then selected Judge Himes to be the presiding
officer for this rulemaking, and Judge Himes was properly designated as
the presiding officer in the Commission's notice of informal
hearing.\474\
---------------------------------------------------------------------------
\472\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\473\ Press Release, Fed. Trade Comm'n, FTC Announces
Appointment of Jay L. Himes as New Administrative Law Judge (Mar.
12, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/03/ftc-announces-appointment-jay-l-himes-new-administrative-law-judge.
\474\ Initial notice of informal hearing; final notice of
informal hearing; list of Hearing Participants; requests for
submissions from Hearing Participants: Trade Regulation Rule on
Unfair or Deceptive Fees, 89 FR 21216 (Mar. 27, 2024); see also 16
CFR 0.8, 1.13.
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In response to the commenter's contention that the removal
protections for the Commission's administrative law judges are
unconstitutional, the Commission notes that the Supreme Court has
recognized in recent decisions that Congress may constitutionally
[[Page 2116]]
restrict the President's at-will removal power with regard to inferior
officers.\475\ In Collins v. Yellen, 594 U.S. 220 (2021), for example,
the Court declined to ``revisit . . . prior decisions allowing certain
limitations on the President's removal power,'' \476\ which include the
``good cause'' protections for inferior officers ``with limited duties
and no policymaking or administrative authority'' described by the
Court in Seila Law LLC v. CFPB, 591 U.S. 197 (2020).\477\ In Free
Enter. Fund, the Court held removal protections for Public Company
Accounting Oversight Board members unconstitutional and contrasted the
duties of those members with the lesser duties of administrative law
judges: ``[U]nlike members of the [Public Company Accounting Oversight]
Board,'' administrative law judges (1) ``perform adjudicative rather
than enforcement or policy making functions,'' or (2) ``possess purely
recommendatory powers.'' \478\ The FTC's administrative law judges fit
squarely within both of those descriptions.
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\475\ See, e.g., Decker Coal Co. v. Pehringer, 8 F.4th 1123,
1133-36 (9th Cir. 2021) (holding that administrative law judge
removal protections are constitutional).
\476\ Collins, 594 U.S. at 250-51 (discussing Seila Law LLC v.
CFPB, 591 U.S. 197 (2020)).
\477\ Seila Law, 591 U.S. at 217-18.
\478\ Free Enter. Fund, 561 U.S. at 507 n.10.
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Even if the appointment procedures and removal protections of
administrative law judges were unconstitutional because of their role
as inferior officers under Article II, the constitutionality of the
rule would not be in question because presiding officers under section
18 are not ``officers'' under Article II. Notably, while the presiding
officer in the Informal Hearing for this rulemaking happened to be an
administrative law judge, neither section 18(c)(1)(B) nor the
Commission's rules implementing that provision require an
administrative law judge to preside over section 18 informal
hearings.\479\
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\479\ 15 U.S.C. 57a(c)(1)(B); 16 CFR 1.13.
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Instead, the presiding officer is a specific, temporary designation
made under section 18(c) and its implementing rules, 16 CFR 1.11
through 1.13. The Supreme Court's framework for distinguishing between
officers and employees asks whether an individual ``exercise[s]
significant authority pursuant to the laws of the United States'' and
occupies a position that is ``continu[ous] and permanent.'' \480\ For
presiding officers, neither is true. As relevant here, the role of the
presiding officer in section 18 rulemakings--assisting in the
collection of necessary information for the rulemaking to proceed,
ensuring hearings proceed methodically, and maintaining the rulemaking
record \481\--is not policymaking; that role is reserved for the
Commission.\482\ Moreover, an administrative law judge, whether or not
he or she is serving as a presiding officer, cannot initiate a
rulemaking, decide its subject, decide whether a rule should issue, or
establish its content. The Commission performs all of these
functions.\483\
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\480\ Lucia v. SEC, 585 U.S. 237, 245 (2018) (in the ``Court's
basic framework for distinguishing between officers and employees[,]
. . . an individual must occupy a `continuing' position established
by law to qualify as an officer . . . [and] `exercise[ ] significant
authority pursuant to the laws of the United States' '' (citations
omitted)).
\481\ 15 U.S.C. 57a; 16 CFR 0.14.
\482\ 16 CFR 1.13.
\483\ 16 CFR 1.9, 16 CFR 1.13(i), 16 CFR 1.14, 16 CFR 1.25, 16
CFR 1.26(d).
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As an initial matter, the Commission determines whether an informal
hearing will be conducted; presiding officers do not have discretion
over whether the hearing will occur. The presiding officer simply
``presides over the rulemaking proceedings'' and, when appropriate,
makes a ``recommended decision based upon the findings and conclusions
of such officer.'' \484\ The presiding officer's powers in the conduct
of the hearing are also limited. For example, the officer may not
extend the time allotted for the informal hearing beyond a certain
period ``unless the Commission, upon a showing of good cause, extends
the number of days for the hearing.'' \485\ The commenter is correct
that the presiding officer is initially chosen by the ``chief presiding
officer,'' who is the Chair of the FTC under 16 CFR 0.8. However, the
formal assignment of that presiding officer to a particular hearing is
in the initial notice of informal hearing, which is issued by vote of
the Commission. Although the presiding officer reports to the chief
presiding officer, again, the powers of the two together amount to no
more than conducting the informal hearing and making a recommended
decision based on the presiding officer's findings to the
Commission.\486\ All substantive decisions are made by the Commission.
These are temporary assignments that begin and end with the informal
hearing process.
---------------------------------------------------------------------------
\484\ 15 U.S.C. 57a(c).
\485\ 16 CFR 1.13(a)(2)(ii).
\486\ 16 CFR 1.13.
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Accordingly, neither the Commission's structure nor the role of the
presiding officer in section 18 violates the Constitution.
E. Administrative Procedure Act
Several commenters asserted the Commission has not complied with
the APA.\487\ The Commission disagrees. The Commission complies with
the APA's requirements, including by explaining the rule's relationship
to the unfair and deceptive conduct the Commission seeks to prevent and
by responding to all significant comments.\488\ As explained herein,
the Commission also complies with the additional requirements of
sections 18 and 22 of the FTC Act.
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\487\ FTC-2023-0064-3133 (National Multifamily Housing Council
and National Apartment Association); FTC-2023-0064-3152 (Building
Owners & Managers Association et al.); FTC-2023-0064-3238 (Gibson,
Dunn & Crutcher LLP); FTC-2023-0064-3263 (Flex Association); FTC-
2023-0064-3294 (International Franchise Association).
\488\ Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto Ins.,
463 U.S. 29, 43 (1983) (holding that an agency must articulate a
satisfactory explanation for its action including a ``rational
connection between the facts found and the choices made.'' (citing
Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168
(1962))).
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Commenters claimed that the rule is arbitrary and capricious
because it is not based on sufficient facts or data, and lacks a
rational connection between the facts and the regulatory choices.\489\
These commenters argued that the factual record does not support the
Commission's decision to promulgate an industry-neutral rule or to
apply the rule to particular industries.\490\ One commenter criticized
various substantive aspects of the rule including its breadth,
consideration of alternatives, and costs.\491\ The commenter also
argued that the rule is duplicative and could lead to regulatory
confusion.\492\
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\489\ See, e.g., FTC-2023-0064-3294 (International Franchise
Association); FTC-2023-0064-3133 (National Multifamily Housing
Council and National Apartment Association); FTC-2023-0064-3152
(Building Owners & Managers Association et al.); FTC-2023-0064-3263
(Flex Association).
\490\ See, e.g., FTC-2023-0064-3294 (International Franchise
Association); FTC-2023-0064-3133 (National Multifamily Housing
Council and National Apartment Association); FTC-2023-0064-3152
(Building Owners & Managers Association et al.); FTC-2023-0064-3263
(Flex Association).
\491\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\492\ Id.
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The Commission has carefully reviewed and considered the comments
and information it received in this rulemaking. As a preliminary
matter, the NPRM engaged in extensive discussion concerning the
comments received in response to the ANPR and followed up with
additional questions and requests for empirical data and proposed rule
text. Likewise, the analysis contained throughout this SBP,
particularly Parts III-VII, similarly
[[Page 2117]]
engages with and considers the additional significant comments and
information received in response to the NPRM. Commenters raising
questions regarding APA compliance primarily critiqued the industry-
neutral nature of the proposal advanced in the NPRM. The Commission
disagrees with these critiques. The Commission, however, has determined
to limit this final rule to covered goods or services and need not
address arguments regarding the application of the rule to a wide range
of industries at this time. Further, both the NPRM and this SBP explain
in detail the factual record and its relationship to the provisions
finalized in the rule. While empirical data is not required, the
Commission in section V presents an analysis for the final rule,
identifying benefits, such as reductions in consumer search cost time
and deadweight loss, and quantifying compliance costs. Finally, in
section V.E.2.d, the Commission finds that the rule's benefits to the
public will exceed its costs.
V. Final Regulatory Analysis Under Section 22 of the FTC Act
Under section 22 of the FTC Act, when the Commission promulgates
any final rule as a ``rule'' as defined in section 22(a)(1), it must
include a ``final regulatory analysis.'' 15 U.S.C. 57b-3(b)(2). The
final regulatory analysis must contain: (1) a concise statement of the
need for, and objectives of, the final rule; (2) a description of any
alternatives to the final rule that were considered by the Commission;
(3) an explanation of the reasons for the Commission's determination
that the final rule will attain its objectives in a manner consistent
with applicable law and the reasons the particular alternative was
chosen; (4) an analysis of the projected benefits, any adverse economic
effects, and any other effects of the final rule; and (5) a summary of
any significant issues raised by the comments submitted during the
public comment period in response to the Preliminary Regulatory
Analysis, and the Commission's assessment of such issues. 15 U.S.C.
57b-3(b)(2)(A) through (E). The Commission analyzes each of these
components in the following final regulatory analysis.
The Commission has the authority to promulgate this rule under
section 18 of the FTC Act, 15 U.S.C. 57a, which authorizes the
Commission to promulgate, modify, and repeal trade regulation rules
that define with specificity acts or practices in or affecting commerce
that are unfair or deceptive within the meaning of section 5(a)(1) of
the FTC Act, 15 U.S.C. 45(a)(1). In explaining the need for, and
objectives of, the rule, the Commission observes that a clear rule is
the best way to accomplish its goals of: (1) ensuring that consumers
receive truthful, timely, and transparent information about price to
permit them to comparison shop effectively and (2) leveling the playing
field for honest competitors. In addition, a clear rule would deter the
defined unfair or deceptive pricing practices by enabling the
Commission to more readily obtain monetary relief and civil penalties.
The Commission carefully considered several alternatives to the rule,
including terminating the rulemaking and pursuing a broader, industry-
neutral alternative. The Commission determined that the alternative of
terminating the rulemaking would not accomplish these objectives. As
explained in section II, the Commission finds that bait-and-switch
pricing and misleading fees and charges are prevalent economy-wide, but
chooses to begin by tackling these practices in the live-event
ticketing and short-term lodging industries, where the Commission first
began evaluating drip pricing more than a decade ago and which have a
long history of harming consumers and businesses. The final rule will
attain its objectives of promoting truthful, timely, and transparent
pricing, comparison shopping, and fair competition in the live-event
ticketing and short-term lodging industries in a manner consistent with
applicable law. The Commission will rely on its existing section 5
authority in pursuing case-by-case enforcement actions against
businesses in other industries that engage in the specific unfair and
deceptive pricing practices that are the subject of the industry-
specific coverage in this rule.
The Commission's final regulatory analysis indicates that adoption
of the rule will result in benefits to the public that exceed the
costs. As described further herein, the rule will not only result in
significant benefits to consumers but also improve the competitive
environment in the live-event ticketing and short-term lodging
industries, particularly for small, independent, or new firms. One such
benefit is that the final rule will reduce deadweight loss.
``Deadweight loss'' is a term used to describe the loss of efficiency
or economic welfare, a cost to society, that occurs when resources are
not used as efficiently as possible. At a competitive equilibrium, in
which the marginal benefit for consumers equals the marginal cost for
firms, there is no deadweight loss. When firms, including those in the
live-event ticketing and short-term lodging industries, engage in bait-
and-switch tactics, consumers purchase more goods and services than
they would otherwise because they do not understand the full price. In
other words, in such cases, consumers overconsume beyond the quantity
necessary for competitive equilibrium. This overconsumption is a
deadweight loss because, if they had full information, consumers would
shift their spending toward more beneficial and efficient spending
patterns that reflect their true preferences. Deadweight loss is
discussed more fully in section V.E.2.a.ii.
The rule provides a net benefit to society if its benefits exceed
its costs. The Commission quantifies the incremental benefits for the
live-event ticketing and short-term lodging industries and shows that
the rule's benefits exceed the costs in these industries.
The Commission reviewed the comments relating to its Preliminary
Regulatory Analysis, some of which challenged the Commission's
estimation of the rule's potential costs and benefits. In response to
these comments, the Commission herein clarifies its analysis and adds a
sensitivity analysis to the baseline estimation. The Commission
concludes that these comments do not affect the Commission's finding
that the potential benefits of the rule exceed the potential costs.
A. Concise Statement of the Need for, and Objectives of, the Final Rule
The Commission believes the final rule is needed to ensure that
consumers receive truthful, timely, and transparent information about
the total price of goods or services, including the nature, purpose,
and amount of any fees or charges imposed on the transaction, so that
they can effectively comparison shop and budget their spending dollars
when deciding what live-event tickets to purchase or where to stay when
traveling. Although bait-and-switch pricing and misleading fees are
already unlawful unfair or deceptive acts or practices under section 5
of the FTC Act, the Commission concludes that a clear rule is the best
way to accomplish its goal of preventing the rule's defined, specific
unfair and deceptive pricing practices in the live-event ticketing and
short-term lodging industries while fostering a level playing field for
honest competitors to be able to compete truthfully and fairly based on
price. In addition, the final rule aims to increase deterrence of the
defined unfair or deceptive pricing practices in these industries by
enabling the Commission
[[Page 2118]]
to more readily obtain redress for injury to consumers through section
19(a)(1) of the FTC Act, 15 U.S.C. 57b(a)(1), and by allowing courts to
impose civil penalties where appropriate. The Commission believes that
the rule will accomplish these goals without significantly burdening
businesses and will provide significant benefits to consumers and
honest competitors.
The record of this rulemaking is replete with comments from
consumers, consumer groups, industry members, academics, and policy
organizations, as well as officials and agencies across all levels of
government, emphasizing the importance of consumers' ability to
effectively comparison shop and businesses' ability to honestly compete
against each other based on price. Regardless of industry, consumers
want to comparison shop when deciding where to purchase their goods or
services from among various competing offers. In many instances,
consumers have found it increasingly difficult, if not impossible, to
effectively comparison shop because businesses fail to provide the
total price when they display a purported amount a consumer will pay
for a good or service. Consumers are also misled as to the nature,
purpose, amount, and refundability of fees and charges, and are unable
to make informed choices about the value of the fee or charge, or the
good or service it represents, because their understanding of the fee
or charge is predicated on deceptive omissions or false or misleading
information. As a result, consumers are harmed because they consume
more goods or services, pay more for a good or service, and incur
higher search costs than they otherwise would have if they had been
presented with the total price upfront and truthful, timely, and
transparent information regarding fees and charges. Businesses that
honestly present the total price of a good or service and accurately
disclose the nature, purpose, and amount of fees and charges are at a
competitive disadvantage to those that mislead consumers by presenting
purportedly lower prices and inaccurate information about fees and
charges. As explained in section II, the record, as well as the
Commission's law enforcement actions, outreach, and other engagement
with businesses and consumers, support a finding that these practices
pervade the economy across industries. Fundamentally, the rule will
help consumers make informed decisions when comparison shopping and
level the playing field for honest businesses in the live-event
ticketing and short-term lodging industries, two industries that have a
long history of bait-and-switch pricing and misrepresentations
regarding fees and charges.
In addition, the final rule is necessary to allow the Commission to
recover redress more efficiently in cases where there is quantifiable
consumer harm resulting from bait-and-switch pricing and misleading
fees and charges. The final rule will also deter live-event ticketing
and short-term lodging businesses from engaging in these practices by
allowing for the imposition of monetary relief in the form of consumer
redress and civil penalties.
In 2021, the Supreme Court in AMG Capital Mgmt., LLC v. FTC, 593
U.S. 67, 82 (2021), held that section 13(b) of the FTC Act \493\ did
not authorize the Commission to seek, or a court to order, equitable
monetary relief for consumers such as restitution or disgorgement. The
AMG ruling has made it significantly more difficult for the Commission
to return money to injured consumers, particularly in cases that do not
involve rule violations.\494\
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\493\ 15 U.S.C. 53(b).
\494\ See NPRM, 88 FR 77436-38, nn.122, 211, 232 (discussing
AMG).
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Since AMG, the primary means for the Commission to return money
unlawfully taken from consumers has been through section 19 of the FTC
Act, 15 U.S.C. 57b, which provides two paths for consumer redress. One
path, under section 19(a)(2), typically requires the Commission to
first conduct an administrative proceeding to determine whether the
respondent violated the FTC Act; if the Commission finds that the
respondent did so, the Commission can issue a cease-and-desist order,
which might not become final until after the resolution of any appeals.
To obtain monetary relief, the Commission then must initiate a separate
action in Federal court under section 19 and, in that action, the
Commission must prove that the violator in the administrative action
engaged in objectively fraudulent or dishonest conduct.\495\
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\495\ See 15 U.S.C. 57b(a)(2) (``If the Commission satisfies the
court that the act or practice to which the cease and desist order
relates is one which a reasonable man would have known under the
circumstances was dishonest or fraudulent, the court may grant
relief under subsection (b) of this section.'').
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The more efficient path to monetary relief is under section
19(a)(1), which allows the Commission to recover redress in a single
Federal court action for violations of a Commission rule relating to
unfair or deceptive acts or practices.\496\ Under the rule, the
Commission will now be able to use the section 19(a)(1) pathway to
obtain redress for losses attributable to the specific unfair or
deceptive practices the rule defines and prohibits.
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\496\ Certain statutes, such as the Restore Online Shoppers'
Confidence Act, 15 U.S.C. 8401 through 8405, include provisions that
treat violations of the statute as a violation of a rule for
purposes of section 19(a)(1). See, e.g., 15 U.S.C. 8404(a).
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In addition, the final rule will allow courts to impose civil
penalties under section 5(m)(1)(A) of the FTC Act, 15 U.S.C.
45(m)(1)(A). Civil penalties will provide the deterrence necessary to
incentivize compliance with the law, even in cases when it is difficult
to quantify consumer harm.
Overall, the rule's prohibition of bait-and-switch pricing tactics,
including drip pricing, and misleading fees in the live-event ticketing
and short-term lodging industries expands the Commission's enforcement
toolkit and allows it to deliver on its consumer protection mission by
stopping and deterring harmful conduct in these industries and making
consumers whole when they have been harmed. The unfair or deceptive
acts or practices involving bait-and-switch pricing and misleading fees
encompassed by this final rule are prevalent and harmful to consumers
and honest competitors. Thus, the unlocking of additional remedies
through this rulemaking--particularly, the ability to obtain redress
for consumers injured by misconduct and civil penalties against
violators, where appropriate--will allow the Commission to more
effectively police and deter unfair or deceptive pricing practices in
these industries.
B. Alternatives to the Final Rule the Commission Considered, Reasons
for the Commission's Determination That the Final Rule Will Attain Its
Objectives in a Manner Consistent With Applicable Law, and the Reasons
the Particular Alternative Was Chosen
In analyzing the potential costs and benefits of the proposed rule,
the Commission considered several alternatives, including terminating
the rulemaking and a broader rule alternative. As the Commission
observed in the NPRM, one potential alternative is to terminate the
rulemaking and rely instead on the Commission's existing tools to
combat unfair or deceptive practices relating to pricing, such as
consumer education and enforcement actions brought under sections 5 and
19(a)(2) of the FTC Act. However, terminating the rulemaking would
deprive consumers of live-event tickets and short-term lodging of
quantifiable time savings, and unquantifiable benefits including
reduced frustration, less consumer
[[Page 2119]]
stress, and improved economic efficiency through a reduction of
deadweight loss, as outlined in section V. Implementation of the rule
also strengthens the Commission's enforcement program against unfair or
deceptive pricing practices in the live-event ticketing and short-term
lodging industries.
As noted in the NPRM, given the strong indicators that bait-and-
switch pricing, including drip pricing, and misleading fees and charges
are prevalent and worsening across industries, the Commission
considered adopting a final rule that would have applied to all
industries nationwide. The Commission declines to adopt such an
industry-neutral rule at this time and instead chooses, in its
discretion, to use its rulemaking authority incrementally. The
Commission's rule first targets the two industries where the Commission
first began evaluating drip pricing more than a decade ago and where
consumer harm has been longstanding and continues to be pronounced. As
noted in section II, most transactions in the live-event ticketing and
short-term lodging industries occur online, where bait-and-switch
pricing and misleading fees and charges have the highest potential to
thwart the rule's stated objectives, namely price transparency and
timeliness, as well as comparison shopping. In addition, consumers are
often presented with identical offers (as is the case with live-event
ticketing) or near-identical offers (as is the case with short-term
lodging), and as such, price is the most salient feature for consumers
in these transactions.
The NPRM also discussed, and the Commission also considered, a
small business exemption. Small businesses, which may have smaller
profit margins, may be disproportionately affected by initial
compliance costs associated with Sec. 464.2's disclosure requirements.
On the other hand, a rule exempting small businesses would fail to
accomplish the rule's core objectives of transparency in pricing and
facilitating comparison shopping because consumers would continue to be
subject to a mix of pricing disclosures in the live-event ticketing and
short-term lodging industries that could include bait-and-switch
pricing and misleading fees. As one commenter noted, ``Small businesses
will benefit from the rule because it eliminates the deceptive
practices that keep consumers from being able to comparison shop.''
\497\ The commenter also stated that a small business ``exception will
undermine the ability of consumers to make purchasing decisions based
on transparent and honest information.'' \498\ A small business
exemption could also reduce consumer benefits arising from increased
price transparency across markets and lower consumer confidence
regarding whether the rule applies to specific purchases.
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\497\ FTC-2023-0064-3302 (Public Citizen).
\498\ Id.
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Excluding small businesses could also harm honest competition
because such an exemption might impose more uncertainty and compliance
costs for businesses to determine whether the rule applies to them. In
addition, as noted in section III, some industry commenters favored a
rule that applied equally to all industry members, to facilitate
comparison shopping and avoid the creation of competitive advantages.
Some commenters, as noted in section III, expressed frustration
with fees or charges they described as ``excessive'' or ``worthless.''
As discussed in the NPRM, an alternative to the final rule could be to
explicitly prohibit excessive or worthless fees or charges in the live-
event ticketing and short-term lodging industries. This alternative may
benefit consumers who pay excessive amounts for goods or services in
these industries or for fees or charges that provide them little to no
value, allowing them instead to save their money or spend it elsewhere.
The Commission declines to adopt an alternative rule prohibiting
worthless or excessive fees or charges, because doing so may raise
additional questions for these industries and for the Commission
regarding how to assess the value of fees or charges. In addition, the
final rule may already accomplish some of the benefits of such an
alternative. For example, the final rule requires total price to
include all mandatory fees or charges (with limited exceptions for
government charges and shipping charges). Transparency and competition
on price could then disincentivize live-event ticketing and short-term
lodging businesses from incorporating such fees into their pricing
schemes altogether. In addition, consumer confusion related to the
purpose or value of fees or charges would be addressed by the final
rule's requirement to disclose the nature, purpose, and amount of any
fees or charges lawfully excluded from total price, as well as the
prohibition against misrepresenting any fees or charges.
In sum, the rule accomplishes the Commission's objectives in the
areas of live-event ticketing and short-term lodging consistent with
applicable law, while providing the Commission additional time to
consider further action. As explained in section V.E, the Commission
believes the rule's benefits exceed the costs of the rule. Notably, the
Commission believes, as detailed in Parts II, III, and V, that the rule
also will result in additional tangible benefits from consumers'
ability to accurately comparison shop for live-event tickets and short-
term lodging. Therefore, the Commission finds in this final regulatory
analysis that adoption of the rule will result in benefits to the
public that exceed the costs.
C. The NPRM's Preliminary Regulatory Analysis
In the Economic Analysis of Costs and Benefits of the Proposed Rule
in section VII.C of the NPRM (hereafter, ``Preliminary Regulatory
Analysis''), the Commission described the anticipated effects of the
proposed rule and quantified the expected benefits and costs to the
extent possible. For each benefit or cost quantified, the analysis
identified the data sources relied upon and, where relevant, the
quantitative assumptions made. The Preliminary Regulatory Analysis
measured the benefits and costs of the proposed rule against a baseline
in which the Commission did not promulgate a rule addressing the unfair
or deceptive practices of presenting incomplete or inaccurate pricing
information that obscures total price and misrepresenting the nature
and purpose of fees. Several of the benefits and costs were
quantifiable for specific industries, but the Commission found that
benefits at the economy-wide level were not quantifiable. The
Preliminary Regulatory Analysis discussed the bases for uncertainty in
the estimates.
In the Preliminary Regulatory Analysis, the Commission performed a
break-even analysis under various assumptions to determine the required
benefits necessary to justify the estimated costs. Under the
assumptions of high-end compliance costs and a 7% discount rate, the
Commission found that if the average benefit to consumers from the
proposed rule exceeded $6.65 per year over ten years, then the proposed
rule's benefits would exceed its quantified economy-wide compliance
costs. The expected benefit could be a result of reduced consumer
search time, of increased consumer surplus from more efficient
purchasing decisions, or a combination of the two. The Commission found
in the Preliminary Regulatory Analysis that if the proposed rule
resulted in savings from reduced search time that exceeded 15.82
minutes per consumer per year over ten years, then the benefits from
reduced search time alone would
[[Page 2120]]
exceed quantified compliance costs under the assumption of high-end
costs and a 7% discount rate.
D. Significant Issues Raised by Comments, the Commission's Assessment
and Response, and Any Changes Made as a Result
In this section, the Commission summarizes its assessment of, and
response to, the major concerns, comments, and suggestions raised by
commenters about the Preliminary Regulatory Analysis. The Commission
received comments about the Preliminary Regulatory Analysis from
industry groups, law firms, consumer advocacy groups, think tanks,
consumers, and business owners. Section V.D.1 addresses comments about
the Commission's cost estimates, section V.D.2 addresses comments about
the Commission's the benefits estimates, and section V.D.3 addresses
comments specific to the economy-wide break-even analysis.
1. Comments on Costs
In section V.D.1.a through d, the Commission addresses four major
comments regarding the NPRM's cost estimates: (a) the estimated costs
are too low; (b) there are unquantified costs to firms; (c) there are
unquantified costs to consumers; and (d) there are unquantified costs
to third parties. Section V.D.1.e addresses commenter concerns about
costs that may stem from applying the rule to variable, dynamic, or
contingent fees.
(a) Public Comments: Estimated Costs Are Too Low
Commenters from members and representatives of the live-event
ticketing and short-term lodging industries, among others, argued that
estimated costs in the NPRM were too low because the analysis
underestimated the number of attorney, data scientist, and web
developer hours needed to comply with the proposed rule.\499\ These
commenters contended that some businesses will require more time than
the assumed average estimates of labor hours used in the Preliminary
Regulatory Analysis. The Commission acknowledges the possibility that
some businesses will incur a greater number of hours to comply with the
final rule, but notes that this is consistent with the Preliminary
Regulatory Analysis because the employee hour estimates used represent
averages. These estimates capture the fact that some businesses will
require more time than the average and some will require less. The
Commission received additional comments with similar concerns about the
Commission's compliance hours estimates as they apply to other specific
industries such as movie theater ticketing, delivery apps, restaurants,
bowling, and cable and broadband, which are no longer subject to the
final rule.\500\ However, the Commission's argument that the compliance
hours represent averages holds more broadly.
---------------------------------------------------------------------------
\499\ FTC-2023-0064-2856 (National Football League); FTC-2023-
0064-3127 (U.S. Chamber of Commerce); FTC-2023-0064-3238 (Gibson,
Dunn, & Crutcher LLP); FTC-2023-0064-3122 (Vivid Seats); FTC-2023-
0064-3094 (American Hotel & Lodging Association); FTC-2023-0064-3292
(National Association of Theatre Owners); FTC-2023-0064-3293 (Travel
Technology Association); FTC-2023-0064-3294 (International Franchise
Association).
\500\ FTC-2023-0064-3263 (Flex Association); FTC-2023-0064-3300
(National Restaurant Association); FTC-2023-0064-3217 (Bowling
Proprietors' Association of America); FTC-2023-0064-3233 (NCTA--The
internet & Television Association).
---------------------------------------------------------------------------
Two commenters in the live-event ticketing industry provided
alternative estimates of average employee hours necessary to comply
with the rule. Vivid Seats stated that, from its experience
implementing upfront pricing as a ticket seller in three states, the
Commission underestimated the employee hours needed for live-event
ticket sellers by at least a factor of five.\501\ Conversely, another
live-event ticket seller, TickPick, commented that, for the most part,
live-event ticketing companies would incur an immaterial cost to
implement all-in pricing because ``the technology already exists within
ticketing platforms to eliminate drip pricing and would simply need to
be applied to events in the U.S.'' \502\ Again, the Commission notes
that the estimated employee hours reflect an average and, as these
commenters stated, it is possible that firms like Vivid Seats may
require more hours, while others, like TickPick, may require fewer.
---------------------------------------------------------------------------
\501\ FTC-2023-0064-3122 (Vivid Seats).
\502\ FTC-2023-0064-3212 (TickPick, LLC).
---------------------------------------------------------------------------
The National Restaurant Association stated that it would take
restaurants at least twenty hours a year to reoptimize menu prices
because the Commission's estimates did not account for supply chain
issues that may change prices or consider that some restaurants may
offer seasonal menus.\503\ The Preliminary Regulatory Analysis omitted
these costs because they are not a result of the rule; restaurants will
face supply chain fluctuations and seasonal changes to their menus
regardless of the rule.\504\ However, this is no longer a concern in
the final rule, which does not apply to restaurants.
---------------------------------------------------------------------------
\503\ FTC-2023-0064-3300 (National Restaurant Association).
\504\ See, e.g., id. (National Restaurant Association commented
that there are ``common supply chain issues that may cause certain
food items to increase or decrease in price'' and ``thousands of
restaurants . . . offer varying seasonal menus with completely
different offerings''); FTC-2023-0064-2992 (Individual Commenter who
owns a restaurant commented that complying with the rule would not
be complex for restaurants because ``[t]hey reprice and change
dishes frequently''); FTC-2023-0064-3219 (Georgia Restaurant
Association also referred to ``rising food costs [and] supply chain
disruptions''); FTC-2023-0064-3180 (Independent Restaurant Coalition
commented about ``increasing food costs''); FTC-2023-0064-3078
(Washington Hospitality Association referred to supply chain issues,
inflation, and other rising costs).
---------------------------------------------------------------------------
The Office of Advocacy of the United States Small Business
Administration (``SBA Office of Advocacy'') argued that costs estimated
in the Preliminary Regulatory Analysis are too low because data
scientist and web developer hours should be ongoing costs, rather than
one-time costs.\505\ It argued that ``the FTC should assume a
percentage of firms that in the previous year were in compliance will
not be the following year.'' The Commission does not believe that these
ongoing costs are attributable to the rule. Once firms have adjusted to
the rule, making sure new pricing strategies comply with the rule is
considered a part of the normal course of business, as is ensuring
compliance with other existing laws and regulations.
---------------------------------------------------------------------------
\505\ U.S. Small Bus. Admin., Office of Advocacy, Re: Trade
Regulation Rule on Unfair or Deceptive Fees FTC-2023-0064-0001,
https://advocacy.sba.gov/wp-content/uploads/2024/03/Comment-Letter-Trade-Regulation-Rule-on-Unfair-or-Deceptive-Fees.pdf.
---------------------------------------------------------------------------
Some commenters identified purported costs that were either already
captured in the economic analysis or would not be affected by the rule.
The U.S. Chamber of Commerce and SBA Office of Advocacy argued that the
Preliminary Regulatory Analysis did not account for the time needed to
train staff to provide new upfront prices to customers for in-person,
online, and phone sales.\506\ The Commission believes training time, to
the extent that it exists, is already captured in the assumed range of
data scientist and web developer hours, which the Commission has noted
serves as a proxy for any rule-associated costs from adjusting pricing
strategies and displaying prices to consumers. Another commenter argued
that businesses would need to ``hire graphic designers to make
advertisements look appealing and web designers or software engineers
to rebuild entire websites.'' \507\ In addition, it argued that the
Preliminary Regulatory Analysis did not account for
[[Page 2121]]
costs needed to replace physical ads, subway ads, and billboards and
speculated that would take ``thousands of hours.'' The final rule has
no bearing on a firm's decision to engage graphic designers to ensure
its advertisements are ``appealing,'' and the Commission does not
believe--and commenters have failed to cite evidence demonstrating--
that the need to update prices will require rebuilding entire websites.
Moreover, as discussed in more detail in section V.E.3.a, the estimated
range of web developer time is a proxy for any costs associated with
changing price displays to comply with the rule.
---------------------------------------------------------------------------
\506\ See, e.g., id.; FTC-2023-0064-3127 (U.S. Chamber of
Commerce).
\507\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
---------------------------------------------------------------------------
Two commenters argued that the Preliminary Regulatory Analysis
underestimated costs because the wage rates for attorneys and data
scientists were too low and were not the same as, for example,
attorneys fees.\508\ One commenter stated that the estimated wages did
not account for overhead costs or reflect the higher costs of hiring
outside counsel and data scientists and suggested using $306 in
attorney wages and $59 in data scientist wages to reflect these higher
costs.\509\ In response to these suggestions, the Commission conducted
a sensitivity analysis that multiplied wage rates by two to reflect
overhead and hiring costs for the short-term lodging and live-event
ticket industries. The results of the sensitivity analysis are provided
in section V.E.3.b.i and do not impact the Commission's assessment that
the benefits exceed the costs. The Commission received two additional
comments with similar concerns about the Commission's wage estimates as
they apply to the restaurant industry and the innovation economy, which
are no longer subject to the final rule.\510\
---------------------------------------------------------------------------
\508\ Id.; U.S. Small Bus. Admin., Office of Advocacy, Re: Trade
Regulation Rule on Unfair or Deceptive Fees FTC-2023-0064-0001,
https://advocacy.sba.gov/wp-content/uploads/2024/03/Comment-Letter-Trade-Regulation-Rule-on-Unfair-or-Deceptive-Fees.pdf.
\509\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\510\ FTC-2023-0064-3300 (National Restaurant Association); FTC-
2023-0064-3202 (TechNet).
---------------------------------------------------------------------------
(b) Public Comments: Unquantified Costs to Firms
The NPRM noted that there are unquantified costs of the rule,
primarily in the form of unintended consequences to consumers as they
adjust to upfront pricing. In addition, commenters identified
additional types of unquantified costs to firms.
An academic commenter argued that there may be unintended
consequences to firms from partial compliance.\511\ The commenter
stated that no firm would want to be the first in its market to comply,
and the resulting ``partial or uneven compliance would cause compliant
firms to lose business to firms that ignored the rule. Implementing
coordinated compliance for the entire economy would be difficult with
the [Commission's] limited resources.'' The Commission believes that
the partial compliance described by this commenter is the current
status quo in the absence of a rule. Currently, some firms impose drip
pricing, and these firms may have a competitive advantage over those
that do not impose drip pricing. Under the rule, the Commission expects
all firms in the short-term lodging and live-event ticket industries to
provide total price, which is an improvement relative to the status
quo. If, as the commenter argues, some degree of partial compliance
remains, the potential competitive advantage from non-compliance would
be similar to the status quo, with the additional risk to non-compliant
firms of law enforcement actions with potential exposure to consumer
redress and penalties. In other words, even with some degree of partial
compliance after the final rule, such an equilibrium would still result
in more benefits for consumers than a world without the final rule. The
commenter's concern that implementing coordinated compliance for the
whole economy may be difficult is mitigated in the final rule, which
only applies to two industries. In addition, while the Commission may
have limited enforcement resources, it expects consumer behavior
regarding fees to adjust over time due to the final rule. Once upfront
pricing becomes the new norm, consumers will expect to see total prices
displayed upfront and will be more likely to punish firms that ignore
the rule by taking their business elsewhere. Therefore, any partial
compliance is likely to be temporary.
---------------------------------------------------------------------------
\511\ FTC-2023-0064-2891 (Mary Sullivan, George Washington
University, Regulatory Studies Center).
---------------------------------------------------------------------------
Nine commenters stated the NPRM's assertion that the rule will
provide a harmonized legal framework for all States is incorrect
because, as discussed in section III, the rule only preempts State laws
if they are inconsistent with the rule.\512\ Commenters noted that an
added layer of regulation is an additional cost for businesses as they
determine whether they are compliant with the various rules to which
they are subject. The Commission updates the final regulatory analysis
to reflect this concern as it applies to covered goods or services, but
notes that the cost was already captured by the assumption that all
firms within the live-event ticketing and short-term lodging industries
will spend on average one hour to determine whether the rule applies to
them.
---------------------------------------------------------------------------
\512\ FTC-2023-0064-2856 (National Football League); FTC-2023-
0064-2887 (Progressive Policy Institute); FTC-2023-0064-3122 (Vivid
Seats); FTC-2023-0064-3127 (U.S. Chamber of Commerce); FTC-2023-
0064-3133 (National Multifamily Housing Council and National
Apartment Association); FTC-2023-0064-3143 (ACA Connects--America's
Communications Association); FTC-2023-0064-3233 (NCTA--The internet
& Television Association); FTC-2023-0064-3238 (Gibson, Dunn &
Crutcher LLP); FTC-2023-0064-3258 (National Taxpayers Union
Foundation).
---------------------------------------------------------------------------
One commenter asserted that ``[t]he Commission erroneously
disclaims the possibility of losses to producer surplus.'' \513\ The
commenter argued that the Commission's statement that consumer surplus
is reduced due to consumer search costs under drip pricing ignores the
countervailing increase of producer surplus. The commenter further
contended that the Preliminary Regulatory Analysis omits that, under
drip pricing, consumers purchase more expensive products, which
amounts, in part, to a transfer of surplus from consumers to sellers.
The Commission acknowledges the transfer of surplus due to higher
prices. However, the commenter incorrectly assumes that the movement of
surplus from consumers to producers will be a one-to-one transfer and
presupposes that there will be no increase in consumer search time or
deadweight loss. As is discussed in section V.E.2.a.i, the increased,
unnecessary consumer search time due to drip pricing results in a net
cost to society--no one benefits from the additional hours consumers
collectively spend searching for price information and then being
surprised with a higher final amount at the time of purchase. In
addition, as is discussed in section V.E.2.a.ii, inefficient
overconsumption under drip pricing generates a deadweight loss.
Inefficiently high spending under drip pricing thus results in a cost
to society in the form of higher search costs and a deadweight loss in
addition to a transfer of surplus from consumers to sellers in the form
of higher seller revenue. Overall, this results in a net loss to
society.
---------------------------------------------------------------------------
\513\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
---------------------------------------------------------------------------
Lastly, some commenters representing the communications services
industry noted that there are unquantified costs to cable, broadband,
and wireless providers due to similar upfront pricing requirements from
the FCC.\514\ The
[[Page 2122]]
Commission's decision to narrow the final rule to covered goods or
services renders these comments inapplicable.
---------------------------------------------------------------------------
\514\ FTC-2023-0064-2884 (NTCA--The Rural Broadband
Association); FTC-2023-0064-3143 (ACA Connects--America's
Communications Association); FTC-2023-0064-3233 (NCTA--The internet
& Television Association); FTC-2023-0064-3234 (CTIA--The Wireless
Association).
---------------------------------------------------------------------------
(c) Public Comments: Unquantified Costs to Consumers
The NPRM noted that there may be unquantified costs of the rule in
the form of consumer confusion as consumers adjust to upfront pricing.
Commenters argued there were several additional unquantified costs to
consumers. One commenter suggested that consumers would experience
higher search time if companies limit or eliminate price advertising to
avoid the regulatory risk of providing an inaccurate total price.\515\
The Commission reiterates that the rule does not require firms to
eliminate price advertising; rather the rule requires covered firms to
present total price to consumers whenever businesses offer, display, or
advertise any price of a covered good or service. The Commission
believes that unnecessarily high consumer search time and
anticompetitive effects resulting from different pricing strategies are
already a problem absent the rule, where firms advertise a mix of
dripped prices, upfront prices, and no prices. The commenter did not
provide evidence for why, under the rule, some firms are, or would be,
unable to advertise total price or why it would result in higher search
time and a less competitive equilibrium than the status quo. The
Commission received two additional comments with similar concerns as
they apply to the telecommunications and rental housing industries,
which are no longer subject to the final rule.\516\
---------------------------------------------------------------------------
\515\ FTC-2023-0064-3127 (U.S. Chamber of Commerce).
\516\ FTC-2023-0064-3143 (ACA Connects--America's Communication
Association; FTC-2023-0064-3296 (Bay Area Apartment Association).
---------------------------------------------------------------------------
Two commenters also suggested there might be potentially higher
consumer search time if businesses unbundle previously bundled options
in an effort to reduce the advertised price in response to the rule,
stating that hotels, for example, may make amenities such as wi-fi, gym
access, and parking pay-per-use.\517\ The Commission acknowledges that
some businesses may unbundle previously bundled options but reiterates
that the rule prohibits businesses from treating features as optional
if they are necessary to render the good or service fit for its
intended use. The Commission also notes that consumers are likely to
punish firms that unbundle features that they expect to be included in
total price by taking their business elsewhere. A commenter also
speculated that there may be an increase in deadweight loss if
businesses set inefficiently high prices as they reoptimize prices or
seek to cut costs by reducing the quality of goods and services.\518\
The Commission believes this is unlikely. Under the rule, there will be
competitive pressure to adjust both price and product quality to more
efficient levels when firms must present total price. As discussed in
section V.E.1.b, drip pricing sometimes leads consumers to
underestimate the total price of a good or service. The result is that
consumers start transactions not understanding that the final amount of
payment will be higher than what they are willing or able to pay. For
example, consumers may book premium seats to a concert believing they
could afford the purchase, only to realize afterward that the total
price was understated. Had they understood the final amount of payment,
they would have selected seats at a lower price point or skipped the
concert altogether. The final rule will help ensure that consumers'
preferences, both in terms of cost and quality, can be realized.
---------------------------------------------------------------------------
\517\ FTC-2023-0064-3127 (U.S. Chamber of Commerce); FTC-2023-
0064-3238 (Gibson, Dunn & Crutcher LLP).
\518\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
---------------------------------------------------------------------------
One industry group argued that because intermediary travel websites
rely on short-term lodging firms for accurate price information, the
proposed rule may incentivize these firms to charge intermediaries a
premium for accurate pricing information, ``knowing that the
intermediaries face significant regulatory risk without access to such
information.'' \519\ The commenter suggested that these additional
costs could be passed onto consumers without adding any value. As
explained in section III, the Commission reiterates that the rule
requires businesses that sell or advertise through intermediaries to
provide the intermediaries with accurate pricing information (including
about mandatory and optional fees). The rule's coverage of business-to-
business transactions protects consumers when they purchase goods or
services, the sellers that do business with intermediaries, and the
intermediaries themselves. The Commission further notes that hotels are
already free to charge travel websites and intermediaries money in
exchange for pricing information, yet they do not because these travel
websites and intermediaries allow the hotels to reach more consumers.
In addition, under the status quo, intermediaries already contend with
different fee practices across short-term lodging firms and are
required to ensure they consistently disclose pricing information to
consumers; the final rule should obviate the need for intermediaries to
deal with inconsistent fee practices moving forward. Therefore, the
final rule should not change any incentives relative to the status quo,
and it is unlikely that hotels will change their behavior in this
respect as a result of the rule.
---------------------------------------------------------------------------
\519\ FTC-2023-0064-3293 (Travel Technology Association).
---------------------------------------------------------------------------
A commenter disagreed with the Commission's statement that consumer
confusion will be a temporary cost as prices adjust.\520\ The commenter
also argued that consumers may inefficiently under-consume when
confronted with higher upfront prices. The Commission believes that
consumers who may inefficiently under-consume due to the rule because
they are anticipating hidden fees are the same consumers who are
accurately accounting for hidden fees and efficiently consuming under
the status quo. The percentage of consumers who expect and anticipate
hidden fees is likely to be very small because, as discussed in the
NPRM, empirical and theoretical models consistently show that consumers
strongly and systematically underestimate the full price they will pay
when faced with drip pricing, and they pay more than they otherwise
would in a transparent marketplace.\521\ Therefore, if these consumers
are savvy enough to adjust their expectations and accurately account
for hidden fees under the status quo, then it is likely that they will
quickly adjust their expectations after the final rule becomes
effective and any under-consumption will be temporary.
---------------------------------------------------------------------------
\520\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\521\ Tom Blake et al., Price Salience and Product Choice, 40
Mktg. Sci. 619 (2021), https://doi.org/10.1287/mksc.2020.1261;
Michael R. Baye et al., Search Costs, Hassle Costs, and Drip
Pricing: Equilibria with Rational Consumers and Firms (Nash-Equilibrium.com Working Paper, 2019), http://nash-equilibrium.com/PDFs/Drip.pdf; Alexander Rasch et al., Drip Pricing and its
Regulation: Experimental Evidence, 176 J. Econ. Behav. & Org. 353
(2020), https://doi.org/10.1016/j.jebo.2020.04.007.
---------------------------------------------------------------------------
The commenter also misinterpreted the results of a study conducted
in the live-event ticketing market, Blake et al. (2021) (the ``Blake
Study''), in an effort to support the claim that seeing total price
will deter consumers from making efficient and economically desirable
purchases.\522\ The Blake Study found
[[Page 2123]]
that providing an upfront total price reduces both the quantity and
quality of purchases relative to the inefficiently high levels of
quantity and quality purchased under dripped prices. In other words,
when consumers do not have truthful, timely, and transparent
information about the final price, they purchase goods of higher
quality and make more purchases than they would if they had full
information. The commenter incorrectly implied that this reduction
amounts to inefficient underconsumption when, in fact, it represents a
return to an efficient level and quality of consumption compared to
drip pricing. The authors explicitly concluded: ``Our empirical results
support our hypotheses: price obfuscation distorts both quality and
quantity decisions.'' \523\
---------------------------------------------------------------------------
\522\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP,
discussing Blake, supra note 521).
\523\ Blake, supra note 521.
---------------------------------------------------------------------------
Five industry groups identified what they incorrectly labeled as
three additional types of unquantified costs for consumers. The
``costs'' identified actually are either transfers from consumers to
producers (resulting in no net loss for society) or reflect
misunderstandings of the rule. These commenters claimed that prices
would increase as businesses pass compliance costs onto consumers,\524\
that prohibiting businesses from displaying partitioned pricing would
decrease transparency for consumers,\525\ and that forcing businesses
to display all optional fees upfront would overload and confuse
consumers with often irrelevant information.\526\ None of these are
true costs resulting from the final rule. First, increased prices that
result from the sellers' increased compliance costs are a transfer of
consumer surplus to producer surplus and do not result in a cost to
society. Second, the rule does not prohibit itemization. As long as
total price is clear and conspicuous and most prominent, businesses are
free to display the components of total price if they so choose.
Finally, the rule does not require businesses to display all optional
fees upfront. Rather, businesses must disclose clearly and
conspicuously, before the consumer consents to pay, the nature,
purpose, and amount of any fee or charge imposed on the transaction
that been excluded from total price.
---------------------------------------------------------------------------
\524\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP); FTC-
2023-0064-3033 (The Rebel Lounge et al.).
\525\ FTC-2023-0064-3028 (Competitive Enterprise Institute);
FTC-2023-0064-3208 (FreedomWorks).
\526\ FTC-2023-0064-3127 (U.S. Chamber of Commerce).
---------------------------------------------------------------------------
One policy organization commented on the study \527\ cited in the
NPRM that shows partitioned pricing decreases consumers' ability to
accurately recall total costs and increases their demand.\528\ The
commenter argued that the conclusion cited in the NPRM does not follow
from the study because participants who recalled a lower price could
have known the total cost but misunderstood the question to be asking
for the base price excluding the fees. This interpretation is incorrect
because there was no ambiguity in the study question at issue; it
explicitly asked for the total cost inclusive of all fees.
---------------------------------------------------------------------------
\527\ Vicki G. Morwitz et al., Divide and Prosper: Consumers'
Reactions to Partitioned Prices, 35 J. Mktg. Rsch. 453 (1998),
https://doi.org/10.1177/002224379803500404.
\528\ FTC-2023-0064-3028 (Competitive Enterprise Institute).
---------------------------------------------------------------------------
(d) Public Comments: Unquantified Costs to Third Parties
One commenter argued that, as consumer expectations adjust to
upfront prices, inefficiently low spending may affect other businesses
in the supply chain such as manufacturers, packagers, shippers, and
warehouses.\529\ The commenter also argued that lower spending may
affect live-event venues and ticket resellers due to decreased sales in
food, drinks, and merchandise. In addition, the commenter claimed that
lower spending will lead to lower sales tax revenue for State and local
governments, causing them to borrow more money at high interest rates,
raise taxes, or eliminate services. As discussed in detail in section
V.E.2.c, the Commission believes that any inefficient underconsumption
due to consumer confusion is likely to be temporary, as are any
resulting costs to third parties.
---------------------------------------------------------------------------
\529\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
---------------------------------------------------------------------------
(e) Public Comments: Costs From Incorporating Contingent Fees Into
Total Price
Several commenters, including industry groups, policy
organizations, and an academic, expressed concern that it would be
difficult for firms to display total price in cases where total price
is unknown because it depends on consumer conduct or choices.\530\ In
cases where price is determined through customization, total price may
not be known until after consumers have finalized their selection of
options. The Commission addresses contingent fees in section III.
---------------------------------------------------------------------------
\530\ See, e.g., id.; FTC-2023-0064-3140 (Merchant Advisory
Group); FTC-2023-0064-3180 (Independent Restaurant Coalition); FTC-
2023-0064-3300 (National Restaurant Association); FTC-2023-0064-3202
(TechNet); FTC-2023-0064-3127 (U.S. Chamber of Commerce); FTC-2023-
0064-3173 (Center for Individual Freedom); FTC-2023-0064-3258
(National Taxpayers Union Foundation); FTC-2023-0064-2891 (Mary
Sullivan, George Washington University, Regulatory Studies Center);
FTC-2023-0064-3293 (Travel Technology Association); FTC-2023-0064-
3133 (National Multifamily Housing Council and National Apartment
Association); FTC-2023-0064-3296 (Bay Area Apartment Association).
---------------------------------------------------------------------------
2. Comments on Benefits
Section V.D.2.a addresses the concern of some commenters that the
NPRM's benefit calculations are too high, and section V.D.2.b outlines
several unquantified benefits identified by commenters.
(a) Public Comments: Benefits Are Too High
One commenter argued that benefits are too high because the
Preliminary Regulatory Analysis overestimated consumer search costs
that result from drip pricing.\531\ It argued that consumers benefit
from seeing an advertisement with dripped fees compared to their
position before seeing any advertisement. The Commission believes this
is not the correct comparison to make when determining whether consumer
search time will change as a result of the rule; a more apt comparison
considers consumer benefit when faced with total price versus drip
pricing. The Commission expects that the rule will decrease consumer
search time, because consumers will spend less time searching for total
price under the rule's framework versus a dripped pricing framework.
---------------------------------------------------------------------------
\531\ FTC-2023-0064-3028 (Competitive Enterprise Institute).
---------------------------------------------------------------------------
A commenter argued that the rule's estimated benefits are too high
because the value-of-time estimate of $24.40 is too high.\532\ The
$24.40 figure is calculated by taking 82% of the 2022 mean hourly wage
from the Bureau of Labor Statistics. A meta-analysis of eleven studies
conducted between 2004-2015 finds that the value of time as a
percentage of mean wage is about 82% in the United States.\533\ In
addition, previous studies indicate that, over time, people's time has
become more valuable as a fraction of what they earn.\534\ So, it is
possible that the current percentage in 2024 may actually be higher
than 82%. The final regulatory analysis in section V.E updates the
value of time using the same method but
[[Page 2124]]
with the more recent 2023 mean hourly wage.
---------------------------------------------------------------------------
\532\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
\533\ Daniel S. Hamermesh, What's to Know About Time Use?, 30 J.
Econ. Surv. 198 (2016), https://doi.org/10.1111/joes.12107.
\534\ Id.
---------------------------------------------------------------------------
The commenter further asserted that it would be more accurate to
calculate the value of time as a percentage of the median hourly wage
instead of the mean hourly wage, stating that ``the mean wage is driven
by a few outliers.'' \535\ Relying on the median hourly wage, however,
would be incorrect and reflects a misunderstanding of how the value of
time is calculated. The value of time initially was calculated as an
absolute dollar amount per hour in the studies reviewed by the
Hamermesh (2016) paper, and then expressed as a percentage of the mean
hourly wage at that time. That percentage can be applied to the current
mean hourly wage to calculate an updated value of time. If the
Commission expressed the value of time as a percentage of the median
wage, this would not be a ``more accurate'' calculation of the value of
time as the commenter suggests, but simply a different way of
expressing the same value of time estimated by Hamermesh (2016).
---------------------------------------------------------------------------
\535\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
---------------------------------------------------------------------------
The commenter also argued that the Commission's valuation of time
estimate is inaccurate because some consumers may have lower valuations
of time, such as consumers who earn no wages or lower wages, and
consumers who ``enjoy shopping'' and may not believe they incur costs
from searching.\536\ These concerns are consistent with the
Commission's estimated value of time, which captures an average of a
representative group of American consumers across eleven studies; some
individuals will have lower valuations of time, and some will have
higher.
---------------------------------------------------------------------------
\536\ Id.
---------------------------------------------------------------------------
Furthermore, the Commission distinguishes between efficient and
inefficient searching by consumers. Consumers, based on their
preferences, may find some amount of search, or comparison shopping, to
be beneficial to their consumption choices. A consumer will naturally
choose an efficient level of search such that the marginal benefit of
discovering an additional different price or comparable good equals the
marginal cost of the time and effort to perform the additional search.
The Commission recognizes the purpose of this efficient level of search
and does not count it as a harm. When consumers face drip pricing, they
must spend additional time and effort to acquire full pricing
information allowing them to properly comparison shop. This additional
time and effort results in an inefficient level of search that harms
consumers with no countervailing benefit. In the Commission's final
regulatory analysis, the estimate of cost savings through reduced
search time is based on the estimated difference between consumer
search time under drip pricing and consumer search time under upfront
pricing; that is, the estimate is based solely on the estimate of the
inefficient level of search.
Finally, another commenter argued that benefits are too high in the
short-term lodging calculation because the Preliminary Regulatory
Analysis estimated the reduction in listings viewed as a result of the
proposed rule using data from a study done in the live-event ticketing
market.\537\ However, the Commission's base number of listings viewed
under the status quo was taken from studies conducted in the short-term
lodging industry. The live-event ticketing study provided a scaling
factor that the Commission used to estimate a percentage reduction in
listings viewed in response to the rule. The commenter neither
demonstrated why the Commission's method overestimated the reduction in
listings viewed nor provided the Commission with additional data.
---------------------------------------------------------------------------
\537\ FTC-2023-0064-3127 (U.S. Chamber of Commerce).
---------------------------------------------------------------------------
(b) Public Comments: Unquantified Benefits
The NPRM identified the rule's unquantified benefits, primarily a
reduction in deadweight loss as consumers make more efficient
purchasing decisions. Several comments from consumer and worker
protection groups identified additional unquantified benefits of the
rule to low-income households,\538\ incarcerated people and their
families,\539\ and to restaurant workers.\540\ Although these comments
no longer apply to the final rule, the Commission acknowledges that the
broader rule was likely to positively impact some vulnerable
populations like those discussed in the comments and may have had
second-order effects on housing security and the labor market.
---------------------------------------------------------------------------
\538\ FTC-2023-0064-2883 (District of Columbia, Office of the
People's Counsel).
\539\ FTC-2023-0064-3283 (National Consumer Law Center, Prison
Policy Initiative, and advocate Stephen Raher).
\540\ FTC-2023-0064-3248 (DC Jobs With Justice on behalf of Fair
Price, Fair Wage Coalition).
---------------------------------------------------------------------------
One commenter also recommended that the Commission further explain
or quantify why the rule would result in enforcement resource savings
as stated in the NPRM.\541\ The Commission does not quantify the net
effect of the rule on enforcement resources due to a lack of data, but
discusses in detail the rule's enforcement benefits in section V.A.
Based on its experience, the Commission finds that the resources it
needs to expend under the two-step pathway pursuant to section 19(a)(2)
are typically greater because the Commission needs to initiate two
separate proceedings.
---------------------------------------------------------------------------
\541\ FTC-2023-0064-3146 (Institute for Policy Integrity, New
York University School of Law).
---------------------------------------------------------------------------
3. Comments on the Economy-Wide Break-Even Analysis
In this section, the Commission addresses comments specific to the
economy-wide break-even analysis of the Preliminary Regulatory
Analysis. Section V.D.3.a addresses comments that argued the
Commission's break-even analysis contained incorrect assumptions or
errors; section V.D.3.b addresses comments that claimed a break-even
analysis is not enough to justify an economy-wide rule; and section
V.D.3.c addresses a comment that argued the break-even analysis is
satisfactory and recommended further analysis to strengthen it.
(a) Public Comments: Break-Even Analysis Has Incorrect Assumptions or
Contains Errors
Three commenters argued that the Commission's assumption that 90%
of firms are already in compliance with the proposed rule was
inaccurate.\542\ This comment does not apply to the final rule, which
no longer contains an economy-wide analysis. However, the Commission
reaffirms its break-even calculation in the Preliminary Regulatory
Analysis, and acknowledges uncertainty regarding the number of firms in
the economy that currently employ unfair or deceptive fees or charges
and that would need to incur additional costs to comply with the rule.
To address the uncertainty, the Preliminary Regulatory Analysis
provided both the break-even benefits required if 90% of firms in the
economy are already compliant with the rule, as well as the break-even
benefits required if 50% of the firms were already compliant with the
rule.
---------------------------------------------------------------------------
\542\ FTC-2023-0064-3233 (NCTA--The Internet & Television
Association); FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP); FTC-
2023-0064-3294 (International Franchise Association).
---------------------------------------------------------------------------
[[Page 2125]]
One commenter also argued that the $6.65 average annual per-
consumer benefit number in the Preliminary Regulatory Analysis is too
low because the Commission calculated the necessary break-even benefit
level by dividing estimated costs by all U.S. adults, rather than only
consumers who make live-event ticket and short-term lodging
purchases.\543\ The Commission emphasizes that the $6.65 figure from
the Preliminary Regulatory Analysis is an average per-person benefit.
In the same way that the estimated attorney hours assumes that some
small businesses will not hire an attorney to ensure compliance, the
benefit per consumer figure reflects the fact that some adults will not
encounter dripped fees. The Commission does not dispute that some
consumers will see much higher benefits than others. The same argument
applies to the final rule, where the Commission recalculates the
average annual per-consumer break-even benefit level using only the
costs from covered goods or services.
---------------------------------------------------------------------------
\543\ FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP).
---------------------------------------------------------------------------
Finally, the same commenter contended that both the one-time and
annual costs for the high-end estimates in table 2 of the Preliminary
Regulatory Analysis were calculated incorrectly.\544\ This comment no
longer applies to the final rule, which does not contain an economy-
wide break-even analysis.
---------------------------------------------------------------------------
\544\ Id.
---------------------------------------------------------------------------
(b) Public Comments: Break-Even Analysis Is Not Enough To Justify an
Economy-Wide Rule
Some commenters disagreed that the rule should apply to the whole
economy when the Preliminary Regulatory Analysis quantifies a net
benefit for two industries and relies on a break-even analysis for the
remainder of the economy.\545\ Other commenters similarly stated that
the Preliminary Regulatory Analysis should include an industry-by-
industry cost-benefit analysis.\546\ The final rule is limited to only
covered goods or services, which are offered by the live-event
ticketing and short-term lodging industries.
---------------------------------------------------------------------------
\545\ See, e.g., id.; FTC-2023-0064-3127 (U.S. Chamber of
Commerce); FTC-2023-0064-2891 (Mary Sullivan, George Washington
University, Regulatory Studies Center); FTC-2023-0064-3173 (Center
for Individual Freedom); FTC-2023-0064-3208 (FreedomWorks); FTC-
2023-0064-3143 (ACA Connects--America's Communications Association);
FTC-2023-0064-3258 (National Taxpayers Union Foundation).
\546\ See, e.g., FTC-2023-0064-3133 (National Multifamily
Housing Council and National Apartment Association); FTC-2023-0064-
3143 (ACA Connects--America's Communications Association); FTC-2023-
0064-3258 (National Taxpayers Union Foundation); FTC-2023-0064-3197
(American Beverage Licensees).
---------------------------------------------------------------------------
The Commission emphasizes that a break-even analysis is encouraged
by OMB Circular A-4 when there are unquantifiable costs or benefits,
and affirms that its break-even analysis in the Preliminary Regulatory
Analysis is consistent with OMB guidance.\547\ In the final regulatory
analysis, the Commission identifies some of the unquantified benefits
to the rule and provides a similar break-even analysis for the live-
event ticketing and short-term lodging industries. The Commission also
provides benefit-cost analyses demonstrating that the quantified
benefits exceed the quantified costs.
---------------------------------------------------------------------------
\547\ Office of Mgmt. & Budget, Circular A-4 (Sep. 17, 2003)
(hereinafter, OMB Circular A-4), https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/.
---------------------------------------------------------------------------
(c) Public Comments: Break-Even Analysis Is Satisfactory
Conversely, another commenter noted that the Commission's break-
even analysis is satisfactory and suggested the Commission provide
further analysis to support the conclusion that time savings resulting
from the rule are likely to exceed the break-even threshold.\548\
Although this comment no longer applies to the final rule, which
focuses on addressing hidden and misleading fees in the live-event
ticketing and short-term lodging industries, the Commission
acknowledges that there is economic support for a broader rule.
---------------------------------------------------------------------------
\548\ FTC-2023-0064-3146 (Institute for Policy Integrity, New
York University School of Law).
---------------------------------------------------------------------------
E. Economic Regulatory Analysis of the Final Rule's Costs and Benefits
The Commission has narrowed the application of the final rule to a
limited set of covered goods or services, which comprise live-event
ticketing and short-term lodging. This in turn necessitates revisions
to the Preliminary Regulatory Analysis. The final regulatory analysis
no longer includes the economy-wide break-even analysis. The Commission
provides the per-consumer break-even benefit levels for the live-event
ticketing and short-term lodging industries, as well as quantified
benefits and costs for these industries. After incorporating these
revisions and updating numbers based on recent data releases, the
Commission confirms in the final regulatory analysis that the benefits
of the rule exceed the costs. Specifically, the Commission estimates
that the quantified benefits of the rule will exceed its quantified
costs, and the Commission believes that the total benefits of the rule
(quantified and unquantified) will outweigh its total costs (quantified
and unquantified).
The Commission discusses in the final regulatory analysis the
projected impact of the rule's prohibition on offering, displaying, or
advertising any price of a covered good or service without clearly and
conspicuously disclosing total price, as well as the rule's prohibition
on misrepresentations regarding any fee or charge, including the
nature, purpose, amount, or refundability of any fee or charge, and the
identity of the good or service for which the fee or charge is imposed.
The Commission's analysis also assesses the impact of the rule's
required disclosures of the nature, purpose, and amount of any fee or
charge imposed on the transaction that has been lawfully excluded from
total price, the identity of the good or service for which the fee or
charge is imposed, and the final amount of payment. When possible, the
Commission quantifies the benefits and costs and notes where some
potential benefits and costs are unquantified. If a benefit or cost is
quantified, the sources of the data relied upon are indicated. If an
assumption is needed, the Commission makes clear which quantities are
being assumed.
The Commission uses ten years for the time period of analysis
because the Commission's trade regulation rules are subject to review
every ten years. Tables 1 and 2 summarize the main findings of the
final regulatory analysis. Table 1 presents the potential costs,
benefits, and resulting net benefits for the live-event ticketing and
short-term lodging industries. Quantified benefits in these industries
derive from time savings consumers would experience due to greater
price transparency, leading to more efficient shopping processes.
Quantified costs derive from the costs firms would incur to comply with
the rule.
[[Page 2126]]
The quantified net benefits for the live-event ticketing and short-
term lodging industries are positive. There are also unquantified
benefits, which may arise from a reduction in deadweight loss as
consumers experience greater price transparency and make fewer mistake
purchases. Unquantified costs may stem from potential adjustment costs
or consumer confusion as expectations adjust under the rule.
For both quantified benefits and costs, the final regulatory
analysis provides a range representing the set of assumptions that
result in a ``low-end'' or ``high-end'' estimate. These estimates are
calculated as present values over a ten-year period. Benefits and costs
are more valuable to society the sooner they occur. A discount rate (3%
or 7%) is used to adjust estimated benefits and costs for differences
in timing; a higher discount rate is associated with a greater value
for benefits and costs in the present.\549\
---------------------------------------------------------------------------
\549\ We use 3% and 7% for the discount rate, consistent with
Office of Management and Budget's guidance. OMB Circular A-4, supra
note 547.
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BILLING CODE 6750-01-P
[[Page 2127]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.048
[[Page 2128]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.049
BILLING CODE 6750-01-C
As discussed in more detail in section V.E.3, the Commission only
quantifies benefits from reductions in consumer search costs. However,
the Commission notes there are likely additional consumer benefits in
the form of reduced deadweight loss. Since the Commission is unable to
quantify all of the final rule's potential benefits, the final
regulatory analysis instead calculates the minimum value for the
average consumer that the final rule would need to generate in order
for its benefits to outweigh its quantified costs. Table 2 presents
low-end and high-end estimates of the total quantified costs and the
necessary ``break-even benefit'' per consumer. Under the high-end cost
assumptions with a 7% discount rate, the Commission's analysis finds
that each consumer would need to experience a benefit of $0.33 per year
over ten years for the rule's benefits to exceed its quantified
compliance costs. Under the low-end cost assumptions with a 3% discount
rate, that per-consumer amount is $0.08 per year over ten years. As
noted, the Commission believes that the necessary break-even benefit
per consumer is likely between $0.08 and $0.33 per year over ten years,
depending on which set of assumptions is used.
[GRAPHIC] [TIFF OMITTED] TR10JA25.050
1. Economic Rationale for the Final Rule
The final rule addresses the economic problem of incomplete and
insufficient price information by businesses that shroud the full price
from the consumer during parts of the purchasing process, which harms
both consumers and honest competitors. Not including mandatory fees in
the full price when consumers start the purchasing process for a good
or service may result in a market failure. Firms may shroud the full
price to the consumer through the practice of ``drip pricing,'' which
is ``a pricing technique in which firms advertise only part of a
product's price and reveal other charges later as the customer goes
through the buying process.'' \550\ Discovering the lowest full price
prior to a final purchase by going through the checkout process with
multiple firms is inefficient and involves additional consumer search
costs. In some cases, taking the time to search for the full price from
one firm may result in the consumer losing the opportunity to purchase
the product from another firm. Drip pricing and the resulting
imposition of additional search costs make it more difficult for
consumers to compare prices across platforms, which may soften price
competition in the market.\551\
---------------------------------------------------------------------------
\550\ Howard A. Shelanski et al., Economics at the FTC: Drug and
PBM Mergers and Drip Pricing, 41 Rev. Indus. Org. 303 (2012),
https://doi.org/10.1007/s11151-012-9360-x.
\551\ White House, How Junk Fees Distort Competition (Mar. 21,
2023), https://www.whitehouse.gov/cea/written-materials/2023/03/21/how-junk-fees-distort-competition/; Brian Deese et al., White House,
The President's Initiative on Junk Fees and Related Pricing Practice
(Oct. 26, 2022), https://www.whitehouse.gov/briefing-room/blog/2022/10/26/the-presidents-initiative-on-junk-fees-and-related-pricing-practices/; Glenn Ellison, A Model of Add-On Pricing, 120 Q.J. Econ.
585 (2005), https://www.jstor.org/stable/25098747.
---------------------------------------------------------------------------
[[Page 2129]]
A market failure may also occur when firms shroud full price
through non-aggregated partitioned pricing, in which all of the
components of the full price (base price, fees, etc.) are presented to
consumers without the full price itself.\552\ Non-aggregated
partitioned pricing, like drip pricing, imposes costs on consumers by
requiring them to spend additional time to calculate the full price for
themselves. Consumers tend to underestimate the full price when faced
with partitioned pricing, and this underestimation leads to an increase
in demand. The increased demand from erroneous price calculations, in
turn, leads to inefficient overconsumption by consumers.
---------------------------------------------------------------------------
\552\ Morwitz, supra note 527.
---------------------------------------------------------------------------
(a) Shrouded Pricing as a Cause of Market Failure
A well-functioning market depends, in part, on consumers having
accurate information regarding the price, and other attributes, of the
goods or services being offered. Firms that engage in drip pricing or
employ partitioned pricing create a friction in the operation of the
market by imposing costs on consumers to acquire price information.
Several economic harms may arise from this friction. First, holding
consumer choices and prices fixed, the added search cost to acquire
price information harms consumers with no countervailing benefit to
firms. Second, because shrouded prices make comparison shopping more
difficult, consumers might make suboptimal consumption decisions. In
fact, consumers may find it too costly to search for full and accurate
price information for some or all goods or services under
consideration. The lack of full price information may lead consumer
demand to become less sensitive, i.e., less elastic, to changes in
price, and consumers will accept higher (quality-adjusted) prices than
they would if they were fully informed with clear and upfront pricing.
This, in turn, leads to a third effect: since shrouded prices make it
harder for consumers to compare prices, some firms may gain market
power that allows them to raise prices or decrease quality.\553\ Firms
may further distort the market outcome by changing the products they
offer to consumers relative to a market where prices are transparent.
---------------------------------------------------------------------------
\553\ Baye, supra note 521.
---------------------------------------------------------------------------
The Commission discusses further the first of these effects, the
added search costs incurred by consumers to acquire complete price
information, in section V.E.2.a.i and quantifies these costs in the
live-event ticketing and short-term lodging industries in section
V.E.3.c and V.E.3.d. The Commission discusses the welfare impact of the
second of these effects, the distortion of consumers' decisions due to
lack of full information, in this section. The third effect, firms
increasing their market power in response to increases in search costs,
would exacerbate any welfare losses caused by the distortion of
consumers' decisions due to the lack of full price information.
However, the Commission lacks the data to quantify or distinguish their
effects on deadweight loss.
The distortion of consumers' decisions due to the lack of full
price information, the second effect discussed in the previous
paragraph, can be illustrated through a simple model of supply and
demand. For simplicity of exposition, the analysis assumes that there
are many firms, each selling a homogeneous product (i.e., good or
service). The analysis further assumes that firms can adjust their
prices and pricing strategies, but that the quality of the product is
fixed.\554\
---------------------------------------------------------------------------
\554\ These assumptions are made for exposition purposes to
abstract from the issues of market power in pricing and strategic
interactions between firms. The general ideas from this simple
framework extend to differentiated products and strategic
interactions between a smaller number of firms.
---------------------------------------------------------------------------
A useful starting point is to consider the baseline market outcome
where consumers are fully informed; that is, consumers know the full
price upfront (either because firms state the full price upfront or
because consumers can fully and correctly predict any add-on prices).
Since all firms sell the same product, competition will lead all firms
to set equal prices at marginal cost. Figure 1 illustrates the baseline
market outcome. The curve Dupfront represents consumers' demand when
they are fully informed. The supply curve S represents the marginal
cost to firms of producing a given quantity of the product. The
intersection of Dupfront with S, denoted by point A, at quantity
Qupfront and price Pupfront, represents the outcome. The analysis will
refer to this as the ``fully informed outcome.'' At point A, the
marginal benefit to consumers from consuming one additional unit is
equal to the marginal cost to firms from the production of one more
unit of the product.
As long as there are no externalities (i.e., impacts on third
parties beyond the consumers and firms under consideration) from the
consumption of the product, this outcome is efficient; that is, point A
represents the consumption level of the product that provides the
greatest benefit to society. The benefit to society is measured by the
sum of the benefit to consumers, called consumer surplus, and the
benefit to firms, called producer surplus or profit. Consumer surplus
is the net benefit consumers experience from consuming the product
after accounting for their expenditure on the product. Consumer surplus
is given by the difference between the area of trapezoid ACFG, the
value to consumers from consuming Qupfront units of the product, and
the area of rectangle ABFG, the total expenditure on the product
(Pupfront * Qupfront); thus, consumer surplus is given by the area of
triangle ABC. Producer surplus is the net benefit to firms from selling
the product after accounting for their costs to provide the product.
Producer surplus is given by the difference between rectangle ABFG, the
total revenue from the product, and the area of trapezoid AEFG, the
cost to firms from producing Qupfront units of the product; thus,
producer surplus is given by the area of triangle ABE. The net benefit
to society is then given by the area of triangle ACE.
[[Page 2130]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.000
As previously discussed, shrouded pricing makes it more difficult
for consumers to ascertain the full price of the product. In the case
of drip pricing, consumers will see the base price before seeing
additional mandatory price components such as convenience fees.
Consumers may or may not be unaware of the additional fees at the time
they make a purchase decision. If consumers are fully aware of the
additional fees, or anticipate them correctly, the outcome remains
point A, which is efficient. However, there is evidence that consumers
respond differently to a change in the base price offered upfront than
to changes in the fees disclosed separately from the base price.
Specifically, economic studies provide evidence that consumers react
less to price changes through fees than they do to price changes
through the base price.\555\ That is, consumer demand is less elastic
to the fee component of the full price than it is to the base price.
One possible rationale for this phenomenon is that consumers are fully
aware of base prices but are not, or only partially, aware of fees.
---------------------------------------------------------------------------
\555\ Blake, supra note 521; Raj Chetty et al., Salience and
Taxation: Theory and Evidence, 99 Am. Econ. Rev. 1145 (2009),
https://doi.org/10.1257/aer.99.4.1145.
---------------------------------------------------------------------------
The Commission analyzes the impact drip pricing has on market
outcomes in the previous framework in two stages. The analysis starts
by examining the case where consumers are completely unaware of the
additional fees, namely, they assume that the base price offered
upfront is the full price. The analysis then examines the case where
consumers are aware that a fee might be added later but do not
correctly estimate the size of this fee. Note that this case may arise
under a variety of circumstances. For example, all consumers could be
partially aware of the fees, some consumers could be fully aware of the
fees while others are totally unaware, or there could be a mixture of
consumers exhibiting different degrees of awareness.
In the first stage of the analysis, Pbase,unaware denotes the base
prices firms offer upfront, and Ptotal,unaware denotes the full price
firms charge, which is equal to the base price plus t, the sum of
mandatory per unit fees not included in the base price: Ptotal,unaware
= Pbase,unaware + t.556 Consumers determine their
consumption according to Pbase,unaware, unaware that they are actually
going to pay Ptotal,unaware. This difference between the price
consumers believe they are paying and the price firms are actually
charging leads to an expansion in consumer demand relative to demand
when consumers are fully informed. Specifically, as illustrated by
Figure 2, the firms' deception causes an upward shift in demand equal
to the price difference, t, from Dupfront to Dunaware. The intersection
of Dunaware with S, illustrated by point J, at quantity Qunaware and
price Ptotal,unaware,represents the outcome when consumers are unaware
of the fee and only observe the base price.\557\
---------------------------------------------------------------------------
\556\ For simplicity of exposition, the analysis assumes that
all firms follow the same shrouding strategy and set the same t.
\557\ This shift is entirely analogous to the shift that would
occur from a government subsidy. When a subsidy is provided, the
price consumers pay is lower than the price charged by firms.
---------------------------------------------------------------------------
[[Page 2131]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.001
Consumer surplus is now equal to the area of triangle CHI minus the
area of triangle IJK. Relative to the fully informed outcome, consumer
surplus decreases by the area of trapezoid ABHI, the decrease in
consumer surplus due to the price increase, and the area of triangle
IJK, the decrease in consumer surplus due to the deceptive pricing
strategy. Producer surplus is now equal to the area of triangle EHJ. It
increases, relative to the fully informed outcome, by the area of
trapezoid ABHJ. This trapezoid illustrates the transfer of surplus from
consumers to firms due to the deceptive practice of shrouded pricing.
The net effect on society is now the area of triangle ACE minus the
area of triangle AJK. Relative to the fully informed outcome, the
benefit to society decreases by the area of triangle AJK (the combined
change in consumer and producer surplus). This decrease in social
surplus is the harm, also referred to as deadweight loss, caused by the
full shrouding of the fee.
The analysis now turns to the case where consumers are aware of the
possibility of additional fees but do not fully anticipate their
magnitude. As previously discussed, academic research suggests that
this might be the case.\558\ This reduced salience would increase
quantity demanded and incur a deadweight loss compared to the fully
informed outcome (illustrated in Figure 1), although both the increase
in quantity demanded and the deadweight loss would be smaller than in
the case where consumers were fully unaware of the fees (illustrated in
Figure 2). Essentially, the aggregate demand curve will lie somewhere
between the upfront demand curve in Figure 1 and the fully shrouded
demand in Figure 2. This aggregate demand can come from (the same)
partial awareness by all consumers or a mixture of different degrees of
awareness by different consumers. A technical appendix in section V.E.6
provides a more detailed model of the impact of consumers' partial
awareness.
---------------------------------------------------------------------------
\558\ Blake, supra note 521; Chetty, supra note 555.
---------------------------------------------------------------------------
In summary, the shrouding of prices distorts the market outcome by
leading consumers to consume more than they would if they were fully
aware of the full price. The overconsumption by consumers leads to a
social cost in the form of deadweight loss because the resources used
to produce the product would have been put to better use if consumer
demand had not been distorted in this manner. The deadweight loss from
the inefficient consumption level is one component of the welfare loss
generated by drip pricing, in addition to the increase in consumer
search costs and the possible shift in pricing and product offerings
due to increased market power. Collectively, these effects represent a
market failure.
Shrouded pricing likely cannot be mitigated by competitive forces
alone once it has become pervasive in a market. Although consumers
would prefer upfront full prices, it is unlikely that an individual
firm in a market with shrouded prices could increase its market share
by providing its full price upfront. Under the expectation of shrouded
prices, consumers may inadvertently interpret such a firm's upfront
full price as a higher base price, with fees added separately, leading
the firm to lose, rather than gain, business. The distortion of
consumer expectations caused by shrouded pricing thus prevents a shift
to upfront pricing through competition.
In many markets, goods and services are differentiated, with higher
quality items selling at higher prices. In such markets, drip pricing
may lead to outcomes characterized by inefficiently high qualities in
addition to the inefficiently high quantities previously
discussed.\559\ Consumers may respond to fully disclosed prices in
these markets by purchasing goods or services of lower, more efficient
quality in addition to purchasing lower, more efficient quantities of
goods or services.
---------------------------------------------------------------------------
\559\ This phenomenon has been observed, for example, in the
live-event ticketing industry. See Blake, supra note 521.
---------------------------------------------------------------------------
(b) Shrouded Pricing as a Source of Biased Expectations
As explained in section V.E.1.a, firms have incentives to distort
consumer demand toward an inefficient equilibrium. This inefficiency
may also
[[Page 2132]]
arise in a behavioral context.\560\ By shrouding full prices through
drip or partitioned pricing, a firm may bias its consumers' price
expectations. For example, consumers may respond to dripped prices by
anchoring their beliefs on the base price and, thus, systematically
underestimate the price of the good or service.\561\ This
underestimation, whether by all consumers, or a subset of consumers,
leads to a similarly inefficient equilibrium in which the good or
service is overconsumed and society suffers a deadweight loss.
---------------------------------------------------------------------------
\560\ David Laibson, Harvard U., Drip Pricing: A Behavioral
Economics Perspective, Address at the FTC (May 21, 2012), https://www.ftc.gov/sites/default/files/documents/public_events/economics-drip-pricing/dlaibson.pdf.
\561\ Morwitz, supra note 527.
---------------------------------------------------------------------------
Several studies show how consumer behavior changes because of drip
pricing. One study found that when optional surcharges are dripped,
individuals are more likely to select a more expensive option (after
including surcharges) than what they would have chosen under upfront
pricing.\562\ Even when the participants became aware of the additional
fees, they were reluctant to restart the purchase process because they
perceived high search costs from doing so and inaccurately assumed that
all firms charge the same fees. A different economics experiment found
that consumers encountering drip pricing are more likely to make
purchasing mistakes if they are uncertain about the extent of the drip
pricing.\563\
---------------------------------------------------------------------------
\562\ Shelle Santana et al., Consumer Reactions to Drip Pricing,
39 Mktg. Sci. 188 (2020), https://doi.org/10.1287/mksc.2019.1207.
\563\ Rasch, supra note 521.
---------------------------------------------------------------------------
Another prominent study looked at how consumers respond to the
salience of sales tax on goods, which affects the full price of a
product.\564\ In this study, when the grocery store displayed the full
price of each item on shelves as part of a field experiment, people
purchased fewer goods relative to the control scenario in which sales
tax was added at checkout, despite knowing that the final price being
charged had not changed. In 2014, StubHub conducted an experiment in
which some consumers were presented with upfront prices inclusive of
fees while other consumers were presented a base price upfront with
fees hidden until checkout. This experiment revealed that presenting
consumers with full prices upfront reduced both the quantity and
quality of tickets purchased relative to presenting consumers with
dripped prices.\565\
---------------------------------------------------------------------------
\564\ Chetty, supra note 555.
\565\ See Blake, supra note 521.
---------------------------------------------------------------------------
2. Economic Effects of the Final Rule
The model of incomplete price information, described in section
V.E.1.a, provides a framework for assessing the potential costs,
benefits, and transfers associated with the final rule in the live-
event ticketing and short-term lodging industries. The rule will result
in positive net benefits if it allows consumers to learn total price
more easily, improves consumer comprehension of fees and charges as
they relate to total price, facilitates comparison shopping, reduces
search costs, or otherwise allows consumers to make choices that
increase net welfare. The Commission believes the rule will accomplish
these goals in the live-event ticketing and short-term lodging
industries.
The Commission finds in section V.E.1 that consumer demand in the
live-event ticketing and short-term lodging industries is distorted by
incomplete price information--in simple terms, consumers respond to
lower base prices even if fees are revealed or added up later in a
transaction. Thus, if a seller in these industries uses hidden fees,
that seller may acquire a larger market share by advertising lower
initial prices than other sellers not using hidden fees. Absent the
rule, competitive forces will drive other firms in these industries to
also use hidden fees, as has become evident as noted in section II.B.
If firms do not use hidden fees, they may have to accept a lower market
share, even though their full prices to consumers are similar to (or
lower than) their competitors. Thus, the Commission finds that with the
final rule, firms that currently do not use drip pricing will no longer
face the competitive pressure to employ hidden fees and may experience
higher revenue if consumers can more easily compare prices across
firms. The Commission also finds that the rule will generate costs as
firms that currently employ hidden or misleading fees adjust how they
convey prices to consumers.
Overall, the Commission expects the rule will increase economic
efficiency through improved consumer price calculations, resulting in
reduced deadweight loss and reduced consumer search time that exceeds
the costs to firms of providing more transparent pricing. It may also
facilitate price comparison by consumers, increase competition among
sellers, and put downward pressure on prices. Due to a lack of data, it
is difficult to fully quantify all the potential effects of the final
rule. Where there may be impacts that the Commission is unable to
quantify, it provides a qualitative description.
(a) General Benefits of the Final Rule
Consumers will benefit from the rule in several ways. In addition
to reductions in search costs and deadweight loss, which are described
in greater detail herein, the Commission expects there to be
unquantified benefits for consumers from the rule, including reduced
frustration and consumer stress associated with surprise fees that
distort the purchasing process.
i. Reductions in Search Costs
Consumers will save time searching for the total price of live-
event tickets and short-term lodging as a result of the rule. In a
well-functioning market, consumers find it beneficial to comparison
shop for low prices. When mandatory fees are obscured or
misrepresented, however, consumers learn the full price at the end of
the process and may need to re-assess whether they wish to purchase at
a higher price than originally expected or to look for other options.
Consumers incur longer search times to discover full prices and make
informed purchasing decisions. The final rule will eliminate the need
for additional, inefficient amounts of time to determine total price
from sellers that do not already provide total price upfront. The
Commission quantifies the reduction in search costs in the live-event
ticketing and short-term lodging industries.
ii. Reductions in Deadweight Loss
As discussed in section V.E.1.a, incomplete pricing information may
distort consumer demand. This distortion will lead to an inefficient
market equilibrium and generate deadweight loss, which results from
consumers purchasing higher quantities of the good or service than they
would if fully informed. Under the final rule, consumers will learn
total price upfront. Thus, the rule will likely mitigate distorted
consumer demand and prevent welfare-reducing transactions. Resources
supporting overconsumption will become available for better societal
use, and the deadweight loss will be reduced or eliminated.
The disclosure of total price may also reduce mistake purchases
with respect to product quality. Drip pricing can lead consumers to
purchase goods of inefficient quality; the final rule will allow
consumers to choose more efficient levels of quality. The Commission
does not quantify the reduction in deadweight loss but finds
[[Page 2133]]
that it is a positive benefit to the final rule.
(b) Welfare Transfers
The Commission expects that prices in the live-event ticketing and
short-term lodging industries will adjust in response to the
transparency facilitated by the rule. These price adjustments transfer
welfare from one side of the market to the other; consumer welfare will
increase, and producer profits will decrease by the same amount.
Typically, transfers of welfare from one set of people in the economy
to another are documented in a regulatory analysis, but do not change
net social welfare.\566\ Consequently, while it is likely that the rule
will result in transfers of welfare, the Commission does not attempt to
estimate these transfers.
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\566\ See OMB Circular A-4, supra note 547 (``Transfer payments
are monetary payments from one group to another that do not affect
total resources available to society. A regulation that restricts
the supply of a good, causing its price to rise, produces a transfer
from buyers to sellers.'' Even though a ``net reduction in the total
surplus (consumer plus producer) is a real cost to society, [ ] the
transfer from buyers to sellers resulting from a higher price is not
a real cost since the net reduction automatically accounts for the
transfer from buyers to sellers.'').
---------------------------------------------------------------------------
(c) General Costs of the Final Rule
Firms in the live-event ticketing and short-term lodging industries
will likely do a basic regulatory review to determine how the rule
applies to them.\567\ Firms that are not already in compliance with the
rule may incur additional costs to re-optimize the price of goods and
services. These firms may also incur costs to adjust how they display
pricing information to disclose total price whenever the price of a
good or service is displayed. For example, firms may need to update
websites or reprint advertisements to comply with the rule.
---------------------------------------------------------------------------
\567\ This basic regulatory review also captures the time it
takes for firms to determine how a nationwide rule interacts with
any state-level regulations to which they are already subject.
---------------------------------------------------------------------------
In addition, the Commission notes that there may be other indirect
short-term costs that the Commission cannot quantify. For instance,
consumers who are used to an existing pricing structure that separately
discloses mandatory fees at the end of the purchase process may
mistakenly make inefficient purchases while adjusting to the new regime
of upfront total price. Specifically, consumers accustomed to dripped
live-event ticketing fees may initially under-consume when shopping for
tickets with upfront total price. The societal cost of such
inefficiencies would be temporary and decrease as consumers adjust to
the truthful, timely, and transparent pricing required by the rule.
While the rule allows businesses to exclude shipping charges from
total price until the point at which a consumer may consent to pay, the
rule requires any internal handling costs that were previously
disclosed at the end of the purchase process to be incorporated in
total price. Since shipping and handling charges are sometimes
combined, businesses may have to change how they account for handling
costs and how they advertise shipping and handling costs to comply with
this provision.
3. Quantified Welfare Effects
This section quantifies the potential benefits and costs of the
final rule for the live-event ticketing industry and the short-term
lodging industry. The Commission provides quantitative estimates where
possible for these industries, and it describes benefits and costs that
can only be assessed qualitatively. The Commission estimates that the
quantified benefits will exceed the quantified costs, and the
Commission believes that the total benefits (quantified and
unquantified) will outweigh the total costs (quantified and
unquantified) of the rule.
(a) Quantified Compliance Costs
The Commission quantifies the compliance costs for both industries
utilizing assumptions about the number of hours required to determine
and, if necessary, come into compliance with the final rule. The
Commission expects that, in response to the final rule, firms will
initially determine whether and how the rule applies to their current
pricing and fee disclosure practices. The Commission assumes firms with
current practices that align with the final rule will incur, at most,
one hour of lawyer time to confirm compliance. This hour of lawyer time
is a proxy for the average amount of time firms will need to determine
whether the final rule applies to them. For example, some firms may not
employ an attorney at all but may instead have a staff member review
the rule.
The Commission does not have data on the exact costs noncompliant
firms will incur to comply with the final rule. Some firms already may
have developed tools to comply with the rule because they operate in
jurisdictions, such as California, with existing similar all-in pricing
requirements. Coming into compliance with the rule should be relatively
easy for these firms. For other firms, complying with the final rule
may require additional time and costs. To capture both the variation
and uncertainty of costs across the two industries, the analysis
includes a series of low- and high-end assumptions about the number of
hours required to comply with the rule.\568\ For example, the
Commission's analysis assumes that firms not presently compliant will
employ a low end of five hours and a high end of ten hours of lawyer
time to determine necessary steps to comply with the rule. While some
firms may forgo legal advice, this range of lawyer time serves as a
proxy for any costs associated with understanding and preparing to
comply with the rule.
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\568\ The Commission requested additional information on
potential compliance hours in the NPRM, but it did not receive
consistent data. Therefore, the Commission uses the same set of
assumptions on hours as used in the NPRM but notes that the live-
event ticketing and short-term lodging industries are likely to have
already established systems necessary to comply with the final rule
due to operating in jurisdictions with similar regulations.
---------------------------------------------------------------------------
The final rule's requirement to display total price may lead to
shifts in consumer demand and, consequently, market equilibria. In
response, firms transitioning away from drip pricing may need to
determine new optimal prices. The Commission's analysis assumes that
these price re-optimizations will require firms to incur a one-time,
upfront cost of data scientist time to perform this work. The analysis
assumes firms not presently compliant will employ a low-end of forty
hours and a high-end of eighty hours of data scientist time. Similar to
the use of lawyer hours in estimating compliance costs, this range of
data scientist time serves as a proxy for any costs associated with
adjusting pricing strategies in response to the rule.\569\
---------------------------------------------------------------------------
\569\ It is possible that presently compliant firms would also
need to reoptimize prices in response to shifts in market
equilibria. That is, the shift in an industry's equilibrium
resulting from the rule could be significant enough that all firms
in the industry, compliant or not, would need to adjust prices.
Firms regularly reoptimize prices in response to market shifts, but
it is possible that this price adjustment would require already
compliant firms to incur additional costs. The Commission solicited,
but did not receive, the data necessary to quantify this potential
cost to firms.
---------------------------------------------------------------------------
The Commission expects that the drip pricing employed by firms not
presently compliant with the rule is, in many cases, manifested in
online sales. In such cases, firms also will need to adjust advertised
prices as well as purchase processes for online sales, and the analysis
assumes these adjustments require firms to incur a one-time, upfront
cost of web developer time. The analysis assumes firms not presently
compliant will employ a low end of forty hours and a high end of eighty
hours of web developer time to become
[[Page 2134]]
compliant with the final rule.\570\ Once firms are compliant with the
rule, any future changes to pricing displays or purchasing systems are
not a direct consequence of the rule. Since the rule will not take
effect for four months, some of these pricing display and advertising
updates may come at no additional cost to certain firms. Many firms
regularly update their pricing displays and advertisements. Any firms
that would, in their normal course of business, update their displays
and advertising during the four month window prior to the rule taking
effect would not incur the additional one-time cost of updating their
displays and advertisements in response to the rule. Because the
Commission lacks data on these business practices, the Commission
conservatively assumes that all firms not presently compliant with the
rule will incur these costs. As such, the Commission's analysis likely
represents an overestimate of compliance costs.
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\570\ The U.S. Department of Transportation also uses an
assumption of 80 hours of time to reprogram flight quotation
websites for the Enhancing Airline Passenger Protections II rule.
U.S. Dep't Transp., Preliminary Regulatory Analysis: Enhancing
Airline Passenger Protections II (May 24, 2010), https://www.regulations.gov/document/DOT-OST-2010-0140-0003 (``Consumer Rule
II'').
---------------------------------------------------------------------------
It may be the case that once the firm incurs the one-time
transition costs, there are no additional costs. For a low-end estimate
of costs, the Commission's analysis assumes annual costs are $0 because
there are zero additional hours of labor. However, it may be the case
that, as firms transition into compliance with the final rule, firms
need to reevaluate their pricing policies to ensure continued
compliance by employing additional lawyer time on an annual basis.
Available data do not allow the Commission to estimate the exact annual
compliance costs firms may incur as various industries adapt to the
final rule. For the high-end cost estimate, the Commission's analysis
assumes firms require an average of ten hours of lawyer time for annual
compliance checks. The Commission recognizes some firms may not utilize
lawyer time but may delegate compliance to non-attorney employees and
still incur annual compliance costs. Data on non-lawyer compliance
costs are not available, and these potential annual compliance costs
are proxied with lawyer time with the implicit assumption that non-
attorney employee hourly wages are lower than lawyer wages.
Table 3 presents the total compliance costs as the sum of the
industry-specific compliance costs described in more detail in section
V.E.3.c and V.E.3.d. The cost of employee time is monetized using wages
obtained from the Bureau of Labor Statistics' May 2023 National
Occupational Employment and Wage Estimates for the live-event ticketing
industry.\571\ For the short-term lodging industry, the analysis uses
industry-specific wages associated with the North American Industry
Classification System (``NAICS'') codes.
---------------------------------------------------------------------------
\571\ U.S. Bureau Lab. Stat., Occupational Employment and Wage
Statistics, May 2023 National Occupational Employment and Wage
Estimates United States (May 2023), https://www.bls.gov/oes/current/oes_nat.htm (``OEWS National''); U.S. Bureau Lab. Stat.,
Occupational Employment and Wage Statistics, Occupational Employment
and Wages, May 2023: 15-2051 Data Scientists (May 2023), https://www.bls.gov/oes/current/oes152051.htm (``OEWS Data Scientists'')
(providing the hourly wages for data scientists); U.S. Bureau Lab.
Stat., Occupational Employment and Wage Statistics, Occupational
Employment and Wages, May 20231: 15-1254 Web Developers (May 2023),
https://www.bls.gov/oes/current/oes151254.htm (``OEWS Web
Developers'') (providing the hourly wages for web developers); U.S.
Bureau Lab. Stat., Occupational Employment and Wage Statistics,
Occupational Employment and Wages, May 2023: 23-1011 Lawyers (May
2023), https://www.bls.gov/oes/current/oes231011.htm (``OEWS
Lawyers'') (providing the hourly wages for lawyers). This assumption
is valid if hours spent in compliance activities would otherwise be
spent in other productive work-related activities, the social value
of which is summarized by the employee's wage. To the extent that
these activities can be accomplished using time during which
employees would otherwise be idle in the absence of a rule, our
estimates will overstate the welfare costs of the final rule.
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[[Page 2135]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.051
Table 4 presents the ten-year per-firm annualized compliance costs
for the live-event ticketing and short-term lodging industries,
separated by firms already in compliance, which incur a one-time
compliance check, and firms not presently in compliance, which incur
both one-time and recurring costs. Compliance costs for the short-term
lodging industry are further disaggregated into costs for U.S. hotels
and U.S. home share hosts. Costs to foreign hotels and home share hosts
are discussed in section V.E.3.d.ii.
[[Page 2136]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.052
(b) Break-Even Analysis
To have a positive net benefit, the final rule's benefits must
outweigh its costs. The Commission calculates the break-even benefit
per consumer based on the quantified costs presented in section
V.E.3.b.\572\ That is, the Commission determines the minimum value the
final rule would need to generate for the average consumer for its
total benefits to outweigh its quantified costs. The rule's benefits
may include reduced search costs, reduced deadweight loss, and reduced
psychological distress or frustration from surprise fees. For this
analysis, the Commission considers costs in annualized terms--the
average discounted cost of compliance per year over 10 years.\573\ As
such, the analysis expresses the break-even benefit as an average
benefit per consumer per year over ten years.\574\
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\572\ In section V.E.3.c and V.E.3.d, the Commission quantifies
the final rule's net social benefits for the live-event ticketing
and short-term lodging industries.
\573\ For purposes of discounting and annualizing costs, the
analysis assumes that firms incur one-time costs immediately, at the
beginning of year 1, and potential costs of annual compliance checks
at the end of each year.
\574\ Benefits to consumers, such as reductions in search costs,
will accrue continually over time. For simplicity, the break-even
analysis assumes that annualized benefits accrue all at once at the
end of each year. As such, the break-even analysis may overestimate
the benefits required to outweigh costs.
---------------------------------------------------------------------------
From Table 3, under the assumption that firms and consumers
discount future years at 3%, the Commission's analysis estimates that
the final rule may result in costs as high as $644 million over 10
years. Assuming instead a discount rate of 7% for future years, the
analysis estimates that the final rule may result in costs as high as
$603 million over ten years. To determine the break-even benefit, the
Commission's analysis begins with the total present value of total
costs and calculates the annualized total costs across both
industries.\575\ Next, the Commission calculates what the break-even
benefit would be per consumer, according to the following formula:
---------------------------------------------------------------------------
\575\ While total costs are higher with a smaller discount rate,
annualized costs are higher with a larger discount rate due to
higher upfront costs and lower recurring costs.
Per Consumer Annualized Benefits >= (Annualized Quantified Compliance
---------------------------------------------------------------------------
Costs/Population)
Table 5 presents the results of this break-even analysis. According
to the 2020 Census, there are 258,343,281 adults living in the United
States. Thus, the analysis divides the estimates of annualized costs by
the number of U.S. adults to find the average consumer benefit per year
for 10 years required to exceed quantified compliance costs. For
example, if the final rule results in an average benefit to consumers
that exceeds $0.33 per year over ten years, then the final rule's
benefits exceed its quantified compliance costs under the high-end
assumption and an assumed 7% discount rate.
Table 5 also provides the break-even benefit per consumer in terms
of minutes saved as a result of the final rule. According to the Bureau
of Labor Statistics' Occupational Employment Statistics, the average
hourly wage of U.S. workers in 2023 was $31.48, and recent research
suggests that individuals living in the U.S. value their non-work time
at 82% of average hourly earnings. Thus, the value of non-work time for
the average U.S. worker would be $25.81 per hour.\576\ If the analysis
divides the
[[Page 2137]]
break-even dollar benefit per consumer, using the high-end assumptions
and a discount rate of 7% ($0.33), by the value of saved search time
($25.81/hour) and converts to minutes, the break-even saved search time
per consumer is 0.77 minutes. That is, if the final rule results in
savings from reduced search time that exceed 0.77 minutes per consumer
per year over ten years, then the benefits solely from reduced search
time will exceed quantified compliance costs.\577\ Although the
Commission acknowledges that benefits of the final rule may vary across
consumers, as some consumers may be more likely than others to consume
live-event tickets and/or short-term lodging, the Commission finds it
highly likely that consumers would experience average search time
savings of this amount.
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\576\ See OEWS National, supra note 571 (providing the mean
hourly wage); Hamermesh, supra note 533 (providing the value of
consumer time).
\577\ Assuming a 3% discount rate and the high-end assumptions,
the break-even time saved per consumer per year would be 0.68
minutes.
[GRAPHIC] [TIFF OMITTED] TR10JA25.053
There are a few important caveats to this break-even analysis. This
analysis may overestimate the number of noncompliant firms in the live-
event ticketing and short-term lodging industries. In that case, this
assumption leads to an overestimate of both costs and necessary break-
even benefits. On the other hand, there may be more firms not already
in compliance with the final rule, in which case this assumption
results in an underestimate of both costs and break-even benefits.
The Commission cannot forecast all potential consequences and
costs. This break-even analysis does not account for any unquantified
benefits or costs due to unintended consequences. However, if the
benefits from reduced deadweight loss caused by consumers' incomplete
price information, reduced search time, and beneficial unintended
consequences outweigh the costs from compliance and harmful unintended
consequences, then the rule results in positive net social benefits.
The Commission believes benefits will exceed the costs.
i. Sensitivity Analysis: Assume Higher Wage Rates
The Commission received comments regarding the wage rates used in
the cost estimation. To address these comments, this section provides
the break-even analysis described in section V.E.3.b using rates that
are double the average wage rate obtained from the Bureau of Labor
Statistics May 2023 National Occupational Employment and Wage
Estimates.\578\ Specifically, the wage rates used for this analysis are
$169.68 for lawyer time to review compliance, $114.46 for data
scientist time to re-optimize pricing, and $91.90 for web developer
time. Using these higher wage rates, the break-even benefit required to
exceed quantified compliance costs is provided in Table 6.\579\
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\578\ See sources cited supra note 571, including OEWS National
(providing the mean hourly wage); OEWS Data Scientists (providing
the hourly wages for data scientists); OEWS Web Developers
(providing the hourly wages for web developers); and OEWS Lawyers
(providing the hourly wages for lawyers).
\579\ Wages are doubled in this sensitivity analysis, but the
break-even benefit per consumer does not exactly double because not
all costs depend on wages. One component of the cost calculation in
the short-term lodging industry is the cost to home share hosts of
re-optimizing prices. This cost is evaluated using an estimate of
hosts' hourly value of time rather than wages, which is not doubled.
Therefore, the break-even benefits per consumer presented in Table 6
are slightly less than double those in Table 5.
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[[Page 2138]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.054
The break-even analysis under the assumption of doubled wages
implies that if the final rule results in an average benefit to
consumers that exceeds $0.59 per year over ten years, then the final
rule's benefits exceed its quantified compliance costs under the high-
end assumption and an assumed 7% discount rate. In terms of minutes
saved per consumer, the high-end cost assumptions with doubled wages
and a 7% discount rate imply that if the final rule results in savings
from reduced search time that exceed 1.36 minutes per consumer per year
over ten years, then the benefits solely from reduced search time will
exceed quantified compliance costs.
(c) Quantified Benefits and Costs: Live-Event Ticketing Industry
This section analyzes the final rule's quantified benefits and
costs in the live-event ticketing industry. Quantified benefits are
limited to the expected reductions in search costs to consumers. Since
there is an additional, unquantified benefit of reduced deadweight
loss, which is discussed conceptually in section V.E.2.a.ii, the net
benefit estimated in the following analysis is conservative. The
Commission finds that the quantified benefits and costs indicate that
the rule will have a positive net benefit, even without accounting for
the unquantified benefit of reducing deadweight loss.
Consumers in the live-event ticketing industry are often surprised
by mandatory fees at the end of the purchase process.\580\ In 2022,
online event ticket sales were reported to be $8.1 billion.\581\ Live
events include concerts (30.3%), sporting events (33%), and dance,
opera, and theater productions (12.4%).\582\ For many consumers, there
are no close substitutes for the specific product that they wish to
purchase: a ticket to attend a live event. Thus, when consumers are
presented with surprise mandatory fees, the consumer either pays the
full price including the fees, spends time searching for a new option
such as a different seat or a different seller, or forgoes the purchase
entirely.
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\580\ E.g., White House, How Junk Fees Distort Competition,
supra note 551.
\581\ Michal Dalal, Online Event Ticket Sales in the US, IBIS
World (May 2023) (``Ticket Sales Industry Report'').
\582\ Id.
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The live-event ticketing industry is unique relative to other
industries because there is a large and robust secondary market. A
given ticket to an event may be sold in the primary market, and then
resold multiple times in the secondary market. It is difficult to fully
quantify how many live-event ticket purchases are made in the U.S., how
many involve mandatory fees, and the typical amount of the fee. Many
live-event ticket sellers appear to include some kind of fee, although
the size and type of the fees vary across sellers.\583\ In a non-
generalizable sample, the GAO found live-event ticketing fees in
primary and secondary ticket markets averaged 27% and 31% of the
ticket's price, respectively.\584\
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\583\ Numerous commenters from the live-event ticketing industry
recognized the pervasiveness of various ticketing fees. See, e.g.,
FTC-2023-0064-3212 (TickPick, LLC observed the ``widespread''
deceptive practice of bait-and-switch pricing); FTC-2023-0064-3230
(Future of Music Coalition commented that they have worked to
``deal[ ] with the scourge of junk fees in various parts of the
economy,'' including live touring); FTC-2023-0064-3105 (Charleston
Symphony affirmed that ``requiring sellers to disclose the total
price clearly and conspicuously[ ] addresses a pressing issue in the
nonprofit performing arts sector'').
\584\ U.S. Gov't Accountability Office, Event Ticket Sales:
Market Characteristics and Consumer Protection Issues, (Apr. 12,
2018), (``GAO Report''), https://www.gao.gov/products/gao-18-347.
---------------------------------------------------------------------------
Following White House and Congressional calls for disclosure of
hidden fees, and after the ANPR was announced, some ticket sellers
pledged to show all-in prices when the consumer begins the purchase
process.\585\ However, absent the final rule, market forces would
likely return to the equilibrium of hidden mandatory fees. In fact, the
National Association of Ticket Brokers and StubHub, Inc. submitted
comments to the ANPR in support of a rule requiring all-in pricing, but
commented that such a rule would only be effective if applied to all
ticket sellers and rigorously enforced.\586\ As discussed in section
III.B.1.b, the
---------------------------------------------------------------------------
\585\ See, e.g., White House, President Biden Recognizes Actions
by Private Sector Ticketing and Travel Companies to Eliminate Hidden
Junk Fees and Provide Millions of Customers with Transparent Pricing
(Jun. 15, 2023) https://www.whitehouse.gov/briefing-room/statements-releases/2023/06/15/president-biden-recognizes-actions-by-private-sector-ticketing-and-travel-companies-to-eliminate-hidden-junk-fees-and-provide-millions-of-customers-with-transparent-pricing/. Some
ticket sellers, such as TickPick, LLC, have never used hidden fees;
S. Comm. on Commerce, Sci., & Transp., TICKET Act, https://www.commerce.senate.gov/services/files/071401A3-D280-414C-AEDB-A9B57F276067.
\586\ FTC-2022-0069-6089 (ANPR) (National Association of Ticket
Brokers); FTC-2022-0069-6079 (ANPR) (StubHub, Inc.).
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[[Page 2139]]
Commission received similar comments in response to the NPRM
emphasizing that the benefit of the rule requires industry-wide
coverage so that no single seller is allowed to charge surprise fees at
the end of the transaction. If any seller utilizes hidden fees, they
may capture a larger market share by advertising lower initial prices.
Absent a Federal rule applying to all sellers, competitive forces might
drive ticket sellers to return to the use of hidden fees. Thus, the
Commission's analysis quantifies benefits and costs relative to the
baseline equilibrium where sellers do not disclose total price upfront.
In this final live-event ticketing net benefit analysis, the
Commission updates firm counts, wage rates, any inflation-adjusted
values, value of time, and 10-K live-event ticket revenue information
to reflect the most recent available data. The Commission was unable to
update any numbers from IBISWorld Reports.
i. Live-Event Ticketing: Estimated Benefits of the Final Rule
(a) Consumer Time Savings When Shopping for Live-Event Tickets
The final rule requires disclosure of total price inclusive of all
fees or charges that a consumer must pay in order to use the good or
service for its intended purpose. Required disclosure of total price
and prohibitions on misrepresentations save consumers time when
shopping for a live-event ticket by requiring the provision of salient,
material information upfront and eliminating time spent pursuing ticket
offers priced above the amount the consumer is willing to spend, also
known as the consumer's reservation price.
The Commission's analysis assumes that, as a result of the rule,
the total time spent by a consumer conducting the transaction will
decrease, because some consumers will reduce the number of ticket
listings they view prior to making a ticket purchase. For example, the
Blake Study examined an experiment on StubHub where fees were presented
upfront to some consumers and at the end of the purchase to
others.\587\ The experiment found that the percentage of consumers who
only view one listing is 74% when fees are presented at the end of the
transaction versus 83% when fees are presented upfront. Using the
distribution of listings viewed by consumers as reported in the Blake
Study, the analysis calculates that the reduction in the average number
of listings a consumer views when fees are displayed upfront is 0.1525
listings.
---------------------------------------------------------------------------
\587\ Blake, supra note 521.
---------------------------------------------------------------------------
To calculate the reduction in consumer search time resulting from
upfront pricing, the Commission requires information on the length of
time a consumer spends viewing a single listing. The Commission is not
aware of any data available on this. However, many ticket sellers
utilize a ``countdown clock'' where the selected tickets in the
consumer's shopping cart expire and are returned to the marketplace.
During this countdown clock, a consumer who was unhappy with the
revealed total price could search for another ticket without losing the
original ticket. The Commission uses this range of countdown clock time
as a proxy for a low-end and high-end estimate of the time spent
viewing a listing. These countdown clocks range from five to ten
minutes per ticket transaction.\588\ Multiplying the assumed length of
a ticket transaction of five or ten minutes by the estimated reduction
in viewed listings from the Blake Study results in a search time
savings of 0.7625 to 1.525 minutes per consumer transaction.\589\
---------------------------------------------------------------------------
\588\ Ticketmaster states that the amount of time it imposes
varies by event but references a five-minute purchasing period.
FAQ's: Why does Ticketmaster enforce a time limit when making
purchases online?, Ticketmaster.com.au, https://www.ticketmaster.com.au/h/faq.html. Based on a small, non-
representative sample of ticket purchase attempts, StubHub appears
to generally offer ten minutes to complete a ticket purchase.
\589\ See also Consumer Rule II, supra note 570, at 39. The
Preliminary Regulatory Impact Analysis for Consumer Rule II assumed
airfare consumers would save five minutes of search and estimation
time if all websites provided full-fare information upfront.
---------------------------------------------------------------------------
Next, the Commission's analysis estimates the number of consumer
purchases of live-event tickets. Live Nation (which owns Ticketmaster)
reported selling over 329 million fee-bearing tickets in the primary
and secondary markets using the Ticketmaster system in its 2023 10-K
SEC filing.\590\ However, this figure combines North American and
international ticket sales. Live Nation also reported that slightly
more than two-thirds of concert events were in North America, so the
analysis applies that proportion to the total combined ticket sales and
assumes that Ticketmaster sold more than 221 million tickets in North
America. To estimate the number of tickets sold solely in the U.S., the
analysis then also adjusts the number of tickets by the share of North
American GDP attributable to the U.S. (0.87 in 2023), which results in
an estimated 192 million tickets sold in the primary and secondary
markets by Ticketmaster in the U.S.\591\
---------------------------------------------------------------------------
\590\ Live Nation Entm't Inc., Annual Report (Form 10-K) (Feb.
22, 2024) (``Live Nation 10-K''), https://investors.livenationentertainment.com/sec-filings/annual-reports/content/0001335258-24-000017/0001335258-24-000017.pdf.
\591\ U.S. GDP in 2023 was estimated to be $27.36 trillion and
GDP for North America was estimated to be $31.4 trillion. IMF
DataMapper United States Datasets, IMF.org, https://www.imf.org/external/datamapper/profile/USA; IMF DataMapper North America
Datasets, IMF.org, https://www.imf.org/external/datamapper/profile/NMQ. The Commission's analysis adjusts North American tickets (221
million) by 87% to estimate the number of tickets sold in the United
States, resulting in 192 million.
---------------------------------------------------------------------------
To find the total number of tickets sold in the U.S. by all live-
event ticket sellers, the Commission's analysis extrapolates from
Ticketmaster's ticket sales using its market share. However,
Ticketmaster's market share is uncertain. In 2010, the Department of
Justice found that Ticketmaster had maintained a market share of more
than 80% for the previous fifteen years.\592\ If the Commission's
analysis assumes that Ticketmaster still has an 80% share of the live-
event ticket market (which includes both primary and secondary ticket
markets), it can estimate the total number of tickets sold in the U.S.
by dividing Ticketmaster's ticket sales in the U.S. by 80%. This
provides a low-end estimate of the number of tickets sold in the U.S.
of 240 million tickets.
---------------------------------------------------------------------------
\592\ See Christine A. Varney, Assistant Attorney General,
Antitrust Division, U.S. Dep't of Justice, Remarks at the South by
Southwest Conference: The TicketMaster/Live Nation Merger Review and
Consent Decree in Perspective (Mar. 18, 2010), https://www.justice.gov/atr/speech/ticketmasterlive-nation-merger-review-and-consent-decree-perspective.
\593\ The Live Nation 10-K, supra note 590, does not separate
out tickets sold by Ticketmaster in the primary versus secondary
markets. Ticketmaster now sells tickets on the secondary market,
which includes several other sellers such as StubHub, Inc., Vivid
Seats, TickPick, LLC, Ace Ticket, Alliance Tickets, Coast to Coast
Tickets, and others.
---------------------------------------------------------------------------
However, Ticketmaster did not begin selling in the secondary market
until after it merged with Live Nation. Based on publicly available
information, the Commission is uncertain of Ticketmaster's market share
in the secondary market for tickets.\593\ If Ticketmaster does not have
80% of the ticket market (both primary and secondary), the number of
tickets sold in the U.S. would exceed the low-end estimate of 240
million tickets. To generate a high-end estimate of the total number of
tickets sold in the U.S., the Commission's analysis uses the reported
revenue for the full online ticket sales industry provided by the
private research firm IBISWorld and calculates Ticketmaster's revenue
share of the industry. IBISWorld reports the online ticket sales
industry, including both primary ticket sellers and ticket
[[Page 2140]]
resellers, earned $12.5 billion in revenue in 2023.\594\ The Live
Nation 10-K reported ticketing revenue of $3 billion in 2023, which
suggests that Ticketmaster has a 24% revenue share of the online
ticketing industry.\595\ The Commission's analysis extrapolates a high-
end estimate of the total number of tickets sold in the U.S. by
dividing Ticketmaster ticket sales in the U.S. by 24%, which results in
an estimate of 801 million live-event tickets sold in the U.S.
---------------------------------------------------------------------------
\594\ See https://www.ibisworld.com/industry-statistics/market-size/online-event-ticket-sales-united-states/.
\595\ Assuming Ticketmaster's market share is equivalent to its
revenue share (of the primary and secondary markets) also assumes
that the average price of a ticket sold by Ticketmaster is the same
as (or lower than) the average price of a ticket sold by the rest of
the industry. If, however, the average price of a ticket sold by
Ticketmaster is higher than average prices in the rest of the
industry, then Ticketmaster's revenue share is higher than its
ticket share, and the extrapolation understates the total number of
tickets sold in the U.S.
---------------------------------------------------------------------------
Lastly, the reduction in search time of 0.7625 to 1.525 minutes is
per consumer purchase, not per ticket purchase. The Commission's
analysis assumes that the average consumer purchase is between 1.5 and
3 tickets.\596\ Thus, the total number of tickets sold is divided by
1.5 or 3 to arrive at an estimated range for the number of consumer
purchases. The analysis estimates the range of live event consumer
purchases in the U.S. to be 80 million on the low end and 534 million
on the high end.
---------------------------------------------------------------------------
\596\ The Commission does not currently have information on the
average number of tickets purchased in a transaction. However, there
is reason to believe the average would be greater than one because
most venues limit the number of tickets that can be purchased in a
given transaction, suggesting that there is consumer demand for
purchases of more than a single ticket. The limit is dependent on
the event. Ticketmaster, Why is there a ticket limit?, https://help.ticketmaster.com/hc/en-us/articles/9781245025937-Why-is-there-a-ticket-limit.
---------------------------------------------------------------------------
When multiplied by the number of transactions per year, the
reduction in minutes spent viewing ticket listings will generate a
total time savings of 1.02 million to 13.6 million hours per year.
Using the value of non-work time for the average U.S. worker of $25.81
per hour, the Commission's analysis estimates that the total benefit
from time savings for completed transactions is roughly $26.3 million
to $350.6 million per year, depending on how conservative its
assumptions are. Table 7 presents the expected benefits of time savings
over the next ten years in present value.
BILLING CODE 6750-01-P
[[Page 2141]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.055
BILLING CODE 6750-01-C
(b) Additional Unquantified Benefits: Reductions in Deadweight Loss and
Abandoned Transactions
Due to the incomplete price information problem described in
section V.E.1, the final rule requiring ticket sellers to show total
price of tickets upfront will likely result in a reduction of
deadweight loss. Recent research suggests that when consumers know
total prices for tickets upfront, consumers are better able to find the
tickets that match their desired quantity and quality (seat type or
location).\599\ The analysis does not quantify the reduction in
deadweight loss, but such a reduction is a positive benefit of the
rule.
---------------------------------------------------------------------------
\597\ Live Nation 10-K, supra note 590.
\598\ OEWS National, supra note 571; Hamermesh, supra note 533.
\599\ Blake, supra note 521. Live-event tickets are an example
of a differentiated product; there are higher quality tickets (e.g.,
better views, more comfortable seats, cover from the elements) that
are associated with higher price tiers. Blake et al. find that
consumers who face drip pricing purchase more expensive, higher
quality tickets than they would if provided with upfront pricing.
---------------------------------------------------------------------------
Another unquantified benefit to the final rule is a potential
decrease in abandoned transactions. For example, in some cases, once
the additional information impacting full price is revealed, consumers
may fully abandon the transaction (i.e., not purchase any ticket).
Although the Commission solicited comment in the NPRM on the
[[Page 2142]]
frequency of, and the reasons for, abandoned transactions in the live-
event ticket market to help quantify this benefit, it did not receive
this data and cannot determine the quantity of such abandoned
transactions and the amount of time spent pursuing them. As a result,
this benefit is unquantified.
ii. Live-Event Ticketing: Estimated Costs of the Final Rule
This section describes the potential costs of the final rule's
provisions and provides quantitative estimates where possible. For
live-event ticketing, the cost of employee time is again monetized
using wages obtained from the Bureau of Labor Statistics' May 2023
National Occupational Employment and Wage Estimates.\600\ Because live-
event ticketing is not associated with a specific NAICS code, the
Commission uses wages at the national level rather than the industry-
specific wages that are used to calculate costs for the short-term
lodging industry.
---------------------------------------------------------------------------
\600\ OEWS National, supra note 571.
---------------------------------------------------------------------------
The costs to sellers from the rule include a review of whether the
rule applies, and, if the firm is not currently compliant with the
rule, one-time costs to comply with the rule, as well as recurring
annual costs to review and ensure ongoing compliance. The Commission's
analysis presents two cost scenarios corresponding to different
assumptions of how many hours are required to comply with the rule and
how many firms would be affected by the rule. The analysis presents
these as low-end and high-end cost scenarios.
To estimate costs for the entire live-event ticket-selling
industry, the Commission's analysis calculates the cost per seller and
multiplies that by the number of sellers in the industry. There is some
uncertainty about the number of live-event ticket sellers that would be
affected by the rule because, while the NAICS classification system
does not define a classification solely for ticket sellers, two
different NAICS codes might include ticket sellers. The GAO Report used
the NAICS code 561599, which is ``All Other Travel Arrangement and
Reservation Services.'' \601\ This NAICS category includes 1,442 firms;
some live-event ticket sellers, such as Tickets.com and Vivid Seats,
use this classification.\602\ Other live-event ticket sellers, such as
Ticketmaster and StubHub, however, are classified as NAICS code 7113,
which is ``Promoters of Performing Arts, Sports, and Similar Events,''
and includes 7,998 firms.\603\ As a high-end estimate of the number of
live-event ticket sellers, the Commission's analysis uses the sum of
the firms within these two NAICS code and assumes there are 9,440 firms
potentially impacted by the final rule.\604\
---------------------------------------------------------------------------
\601\ NAICS code 561599 ``comprises establishments (except
travel agencies, tour operators, and convention and visitors
bureaus) primarily engaged in providing travel arrangement and
reservation services.'' U.S. Census Bureau, North American Industry
Classification System, 561599 All Other Travel Arrangement and
Reservation Services (2022), https://www.census.gov/naics/?input=561599&year=2022&details=561599.
\602\ U.S. Census Bureau, 2021 SUSB Annual Datasets by
Establishment Industry (Dec. 2023), https://www.census.gov/data/datasets/2021/econ/susb/2021-susb.html.
\603\ Id.
\604\ Note that some live-event ticket sellers may be organized
as non-profit entities and thus could fall outside of the
Commission's jurisdiction. The Commission did not find data on the
proportion of ticket sellers that are non-profits and thus uses the
full number of firms. If a non-trivial number of ticket sellers are
outside the jurisdiction of the Commission and not subject to the
provisions of the rule, then the total costs to ticket sellers is
overestimated.
---------------------------------------------------------------------------
The 9,440 figure is potentially over-inclusive, as many firms
within NAICS code 561599 and 7113 do not directly sell tickets or
charge mandatory fees, and thus would not be impacted by the final
rule. The private research firm IBISWorld estimated that the number of
firms in the online live-event ticket selling industry was 3,326.\605\
The Commission's analysis uses the 3,326 figure as a low-end estimate
of the number of firms.
---------------------------------------------------------------------------
\605\ Ticket Sales Industry Report, supra note 581.
---------------------------------------------------------------------------
Next, the Commission's analysis estimates the number of hours a
firm would spend complying with the rule. As with assumptions regarding
the number of firms, the following estimation utilizes low-end and
high-end values for the number of hours necessary for compliance.
Because many ticket sellers operate in other countries that currently
have requirements similar to the final rule (Canada, Australia, the
United Kingdom, and the European Union member states), ticket sellers
already may have incorporated any changes required by the final rule to
their operating practices. The websites already may be programmed; the
lawyers already may be prepared to advise on compliance with the rule;
and the data scientists already may have determined the optimal pricing
strategy. Thus, sellers would have relatively low costs to transition
to all-in pricing in the U.S.\606\
---------------------------------------------------------------------------
\606\ FTC-2023-0064-3212 (TickPick, LLC commented: ``For the
most part, ticketing marketplaces would incur an immaterial cost to
implement all-in pricing. Internationally, major ticket marketplaces
are already required to comply with true all-in pricing in Canada
and the United Kingdom. The technology to display tickets inclusive
of fees in the form of a toggle is a widely available functionality.
Put differently, the technology already exists within ticketing
platforms to eliminate drip pricing and would simply need to be
applied to events in the U.S.'').
---------------------------------------------------------------------------
In this low-end cost scenario, because live-event ticket sellers
already are prepared to advertise total prices to consumers, the one-
time, upfront cost of determining optimal prices and updating the
purchase systems in terms of the number of required hours is
negligible. The Commission's analysis assumes five hours of lawyer time
to determine if the rule applies, forty hours of data scientist time to
re-optimize pricing strategy, and forty hours of web developer time to
edit and reprogram the website to display upfront prices. For the low-
end cost scenario, the analysis also assumes there are no annual costs
after the firm has incurred the one-time transition costs.
In the high-end cost scenario, the Commission's analysis assumes
that ticket sellers have not laid the groundwork to comply with the
rule. The high-end cost scenario assumes sellers require twice the
number of hours to determine optimal prices, re-program the website to
include total price, and review and confirm compliance. Thus, the one-
time costs include 10 hours of lawyer time, 80 hours of data scientist
time, and eighty hours of web developer time. For the high-end cost
estimate, the analysis assumes there are recurring annual costs of ten
hours of lawyer time per year to review and confirm compliance.\607\
---------------------------------------------------------------------------
\607\ FTC-2023-0064-3122 (Vivid Seats commented: ``We believe
that the FTC is underestimating the amount of employee time required
by at least a factor of five.''). The Commission notes that other
commenters stated the transition to upfront pricing for ticket
sellers would be as simple as a toggle switch and that most ticket
sellers already have the capability to provide Total Price due to
existing regulations in other countries. See, e.g., FTC-2023-0064-
3212 (TickPick, LLC); FTC-2023-0064-0132 (Individual Commenter who
purchased tickets from GameStop and StubHub noted that ``on all of
these sites the fees are not explained until the final page unless
you go find the toggle to include fees as you are looking for
tickets''); FTC-2023-0064-3207 (Consumer Reports noted a consumer
who commented: ``While I appreciate that TM [Ticketmaster] now has
the option to view all your fees up front as part of the price if
you toggle that option, its totally insane that fees can be 25% of
the cost at LEAST.''); FTC-2022-0069-6162 (ANPR) (Recording Academy
noted that ``StubHub allows the consumer to toggle `Show prices with
estimated fees' filter during the ticket search''). The Commission
did not receive any definitive data on the number of hours this
change would take and thus retains the low-end and high-end hours
estimates presented in the NPRM.
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BILLING CODE 6750-01-P
[[Page 2143]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.056
iii. Live-Event Ticketing: Net Benefits
---------------------------------------------------------------------------
\608\ U.S. Census Bureau, 2021 SUSB Annual Datasets by
Establishment Industry, supra note 602. Hourly wages are from the
Bureau of Labor Statistics. See sources cited supra note 571,
including OEWS Data Scientists (providing the hourly wages for data
scientists); OEWS Web Developers (providing the hourly wages for web
developers); and OEWS Lawyers (providing the hourly wages for
lawyers).
---------------------------------------------------------------------------
In Table 9, the Commission's analysis presents net benefits using
the quantified benefits and costs discussed in section V.E.3.c.i and
V.E.3.c.ii. To calculate the low-end of the range for net benefits, the
analysis subtracts the total quantified costs using the high-end cost
assumptions from the total quantified benefits using the low-end
benefit assumptions. For the high-end of the range for net benefits,
the analysis subtracts the low-end estimate of total quantified costs
from the high-end estimate of total quantified benefits.
[[Page 2144]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.057
Using various assumptions, the quantified benefits and costs imply
that the rule will have a positive net benefit, even without accounting
for the additional benefit of reducing deadweight loss.
iv. Live-Event Ticketing: Uncertainties
The Commission's ability to precisely estimate benefits and costs
is limited due to uncertainties in key parameters. The quantified
benefits and costs for the live-event ticketing industry rely on a set
of assumptions, based on the best available public information. When
the data are unclear, the analysis relies on assumptions that generate
a range of low-end and high-end estimates. In Table 10, the analysis
summarizes those key assumptions and their effect on the resulting
estimate of quantified benefits and costs.
BILLING CODE 6750-01-P
[[Page 2145]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.058
BILLING CODE 6750-01-C
[[Page 2146]]
(d) Quantified Benefits and Costs: Short-Term Lodging Industry
Businesses in the short-term lodging industry, which include both
traditional hotels \609\ as well as home share options like Airbnb and
VRBO, often charge a variety of mandatory add-on fees. These fees are
typically either disclosed upfront but separately from the base price
(a practice known as partitioned pricing), or revealed just before
payment, after the consumer has clicked through multiple pages of a
listing (a practice known as drip pricing). Sometimes, these fees are
not disclosed at all or are disclosed only when a consumer checks out
at the conclusion of their stay. These fees may include mandatory
surcharges referred to by hotels as ``resort fees,'' ``amenity fees,''
or ``destination fees.'' Hotels often justify charging these fees as
necessary to cover the costs of amenities that are not reflected in the
base rate, such as Wi-Fi, pool and gym access, towels, parking, or
shuttle services. Home share websites like Airbnb and VRBO may include
mandatory fees such as ``cleaning fees,'' ``service fees,'' or ``host
fees.'' These fees are mandatory and do not depend on the consumer's
use of the amenities or services.
---------------------------------------------------------------------------
\609\ Throughout this section, we use ``hotel'' as an umbrella
term for hotels, motels, inns, short-term rentals, vacation rentals,
traditional bed and breakfasts, hostels, and other places of
lodging.
---------------------------------------------------------------------------
Consumer behavior studies have shown that both partitioned pricing
and drip pricing cause consumers to underestimate the full price of the
product, even when all components of the price are disclosed
upfront.\610\ As a result, disclosing mandatory surcharges separately
from the room rate without more prominently disclosing total price is
likely to harm consumers by increasing search costs and reducing
consumer surplus.\611\ These fees may reduce consumer surplus if
consumers respond by booking a room that is more expensive than the
room they would have chosen under upfront total pricing. Partitioned
pricing and drip pricing may also increase search costs if consumers
spend more time looking at additional listings in search of a cheaper
hotel.
---------------------------------------------------------------------------
\610\ Shelanski, supra note 550.
\611\ Mary Sullivan, Fed. Trade Comm'n, Economic Analysis of
Hotel Resort Fees 4 (2017), https://www.ftc.gov/system/files/documents/reports/economic-analysis-hotel-resort-fees/p115503_hotel_resort_fees_economic_issues_paper.pdf.
---------------------------------------------------------------------------
One industry group states that 6% of U.S. hotels charge mandatory
fees, which amounts to over $2.5 billion paid in resort fees annually
by U.S. consumers.\612\ This number underestimates how much U.S.
consumers pay in mandatory fees because it does not include fees from
finding accommodations on the home share market through websites like
Airbnb and VRBO, or fees incurred from booking at foreign hotels with
U.S.-facing websites. Resort fees in the U.S. average 3.9% of the per-
night cost of a room, and can exceed 20% of the per-night cost,
especially at lower cost hotels.\613\
---------------------------------------------------------------------------
\612\ FTC-2023-0064-3094 (American Hotel & Lodging Association);
Bjorn Hanson, U.S. Lodging Industry Fees and Surcharges Forecast to
Increase to a New Record Level in 2018--$2.93 Billion, and Another
Record Anticipated for 2019--the Newest Emerging Category is
``Resort Fees'' for Urban Luxury and Full Service Hotels (Aug. 27,
2018), https://bjornhansonhospitality.com/fees-%26-surcharges.
\613\ Sally French & Sam Kemmis, How to Avoid Hotel Resort Fees
(and Which Brands Are the Worst), NerdWallet (updated Aug. 1, 2024,
11:53 a.m. PDT), https://www.nerdwallet.com/article/travel/hotel-resort-fees.
---------------------------------------------------------------------------
This section analyzes the final rule's quantified benefits and
costs in the short-term lodging industry. Quantified benefits are
limited to the expected reductions in search costs to consumers. Since
there is an additional, unquantified benefit of reduced deadweight
loss, which is discussed conceptually in section V.E.2.a.ii, the net
benefit estimated in the following analysis is conservative. The
Commission finds that the quantified benefits and costs indicate that
the rule will have a positive net benefit, even without accounting for
the unquantified benefit of reducing deadweight loss.\614\
---------------------------------------------------------------------------
\614\ In this final short-term lodging net benefit analysis, the
Commission updates firm counts, wage rates, any inflation-adjusted
values, value of time, and 10-K hotel revenue information to reflect
the most recent available data. The Commission was unable to update
any numbers from IBISWorld Reports.
---------------------------------------------------------------------------
i. Short-Term Lodging: Estimated Benefits of the Final Rule
As a result of the final rule, the Commission expects that the time
consumers spend searching for short-term lodging will decrease because
prices will be easier to compare within and across websites. Some
consumers will reduce the number of short-term lodging listings they
view prior to booking or spend less time understanding and assessing
the full price.\615\ In its analysis, the Commission makes the
conservative and simpler assumption that the time spent viewing a
listing remains the same, and that consumers reduce the number of
listings they view. Table 11 quantifies the benefits of such time
savings and provides low- and high-end estimates to account for
uncertainty in the available statistics.
---------------------------------------------------------------------------
\615\ The drip pricing literature suggests that, because time to
view one listing is lower under upfront pricing, a subset of
consumers may view more listings rather than fewer because the cost
of viewing an additional listing has decreased. Sullivan, supra note
611. It is unclear how this affects total search time. If the higher
number of listings viewed is offset by the lower time it takes to
view each listing, the total search time will be lower under upfront
pricing for this subset of consumers. If total time increases, it
can be classified as ``good'' search time for this subset of
consumers because it results in consumers purchasing their preferred
hotel room. Alternatively, another group of consumers could view
fewer listings because upfront prices allow consumers to compare
rooms more easily and select their preferred hotel room more
quickly. Blake, supra note 521. The total search time for these
consumers will decrease. The Commission's analysis focuses on the
latter group of consumers because the change in their search time
represents a decrease in ``bad'' or unnecessary searches caused by
drip pricing.
---------------------------------------------------------------------------
The Commission's analysis focuses on the benefits that accrue to
consumers who book rooms from within the United States on any U.S.-
facing website, which can include bookings at both domestic and foreign
short-term lodgings. Short-term lodgings include both traditional
hotels as well as rooms booked through home share websites like Airbnb
and VRBO. In this section, the Commission outlines how it calculates
the benefits listed in Table 11 as well as the assumptions made. The
table reports a set of basic search statistics used in the calculation,
the savings per year for consumers who book at U.S. short-term
lodgings, the savings per year for consumers who book at foreign short-
term lodgings with U.S.-facing websites, and the combined total savings
for all U.S. consumers per year.
Although not all short-term lodgings charge resort fees, the lack
of a unified standard of upfront pricing across listings makes
comparing prices difficult and time consuming for consumers. Even a
single short-term lodging website can vary in whether listings have
hidden fees. Different hotel brands belonging to the same larger hotel
company may impose hidden fees for listings in some cities but not in
others. Some listings may note whether resort fees are included in the
base price, but in very fine print under the listed price. Some
listings may not say anything, requiring consumers to click through the
listing to learn whether there are hidden fees at the end of the
booking process. Given that a minimum of 6% of hotels \616\ impose drip
or partitioned pricing, and the average hotel shopper visits seventeen
travel websites before booking,\617\ consumers
[[Page 2147]]
are likely to encounter at least one website that imposes dripped or
partitioned pricing in their search for a hotel. Even if consumers
complete their whole search and booking process without visiting any
websites that impose hidden resort fees, the fact that there could be
hidden fees creates uncertainty and may cause consumers to click
through more listings than they otherwise would have to learn if the
initial price is truly the final price. Therefore, the Commission
quantifies the benefits for all U.S. consumers who book a room in a
given year, regardless of whether they interacted with a website that
imposed dripped or partitioned pricing.
---------------------------------------------------------------------------
\616\ FTC-2023-0064-3094 (American Hotel & Lodging Association).
\617\ Chris Anderson & Saram Han, The Billboard Effect: Still
Alive and Well, 17 Cornell Hosp. Rpt. 1 (2017), https://hdl.handle.net/1813/70982. The Commission calculates the average
number of websites visited by summing the average number of OTAs,
Hotel Sites, TripAdvisor, and Other Meta websites visited sixty days
prior to reserving a room.
---------------------------------------------------------------------------
(a) Search Statistics
The Commission uses two different studies to calculate low- and
high-end estimates for the average number of minutes it takes to view
one listing. On the low end, the analysis uses statistics on Airbnb
user search behavior collected by Fradkin (2017) to calculate that
consumers spend 9.48 minutes to view one listing.\618\ On the high end,
the analysis uses a hotel search cost model developed by Chen and Yao
(2016) to calculate the average search cost per listing.\619\ Using
this average search cost, the Commission estimates that consumers spend
14.18 minutes viewing one listing. Appendix B in section V.E.7 contains
calculation details for both estimates. Using the estimates from each
study as low- and high-end estimates ensures that the analysis captures
user search behavior when shopping on home share websites like Airbnb
and when shopping for a traditional hotel.
---------------------------------------------------------------------------
\618\ Andrey Fradkin, Search, Matching, and the Role of Digital
Marketplace Design in Enabling Trade: Evidence from Airbnb (MIT
Initiative on the Digit. Econ., Working Paper, 2017), https://ide.mit.edu/wp-content/uploads/2017/07/SearchMatchingEfficiency.pdf.
\619\ Yuxin Chen & Song Yao, Sequential Search with Refinement:
Model and Application with Click-Stream Data, 63 Mgmt. Sci. 4345
(2016), https://doi.org/10.1287/mnsc.2016.2557.
---------------------------------------------------------------------------
To estimate the reduction in average listings viewed due to dripped
or partitioned pricing, the Commission's analysis uses results on the
average reduction in listings viewed under upfront pricing from an
experiment in the live-event ticket industry.\620\ That study found
that the average reduction in listings viewed under upfront pricing was
10.6% of the mean listings viewed under drip pricing. For the low-end
estimate, the analysis applies the same proportion to the mean listings
viewed by Airbnb users in Fradkin (2017) (2.367 listings, proxied by
number of contacts) and finds a reduction of 0.25 listings. On the high
end, the Commission applies this to the mean listings viewed by hotel
searchers in Chen and Yao (2016), 2.3 listings, and finds a reduction
of 0.24 listings.\621\
---------------------------------------------------------------------------
\620\ Blake, supra note 521.
\621\ Although the Commission is basing its estimate about
reduction in listings on data that comes from the ticketing
industry, this method results in the most conservative reduction of
viewed listings compared to other methods. The most relevant study
from the hotel search cost literature estimates that improvements in
hotel rankings (which may be loosely comparable to removing drip
pricing) reduces search costs by $11.50. See Raluca M. Ursu, The
Power of Rankings: Quantifying the Effect of Rankings on Online
Consumer Search and Purchase Decisions, 37 Mktg. Sci. 530 (2018),
https://doi.org/10.1287/mksc.2017.1072. Given the Commission's
estimates of the time to view one listing (between 9.48 and 14.18
minutes), this suggests an average reduction of between 2.95 and
1.95 listings viewed, which is implausible given that various papers
find the average number of listings viewed at baseline to be between
2 and 3. Thus, while some papers find substantially higher search
costs than the Commission's method, these findings reinforce that,
if anything, the benefits estimates presented here are likely
conservative.
---------------------------------------------------------------------------
Multiplying these numbers by the minutes to view one listing
results in 2.39 to 3.47 minutes saved per transaction. These are likely
conservative estimates, given that they assume consumers only view one
website before booking a room. As previously stated, one study
suggested that consumers visit an average of seventeen websites before
booking.\622\ The average reduction in listings viewed may also
underestimate benefits from eliminating dripped and partitioned pricing
because it is more difficult to adapt to the wide variability of fees
in the short-term lodging industry than it is in the live-event
ticketing industry, where listings have the same percentage fee. Short-
term lodgings have different fees, and the number of lodgings with such
fees will vary across markets.
---------------------------------------------------------------------------
\622\ See Anderson & Han, supra note 800. It is unclear whether
the relationship between websites viewed and time saved is linear,
as consumers may save less time on the fifteenth website they view
than they do on the first. As such, it is difficult to extrapolate
from the Commission's estimates to the total time saved for
consumers who view multiple websites. Therefore, to remain
conservative in its estimate of benefits, the Commission's analysis
assumes that consumers visit only one website.
---------------------------------------------------------------------------
Finally, as is described in detail in section V.E.3.b, the
Commission's analysis uses $25.81 as the value of one hour work time.
(b) U.S. Hotels and Home Shares
Next, the Commission calculates the total savings per year for U.S.
consumers who book at U.S. short-term lodgings, which includes both
U.S. hotels and home shares. The Commission's analysis finds the total
number of nights booked in the U.S. in 2022 by dividing the total
revenue the U.S. short-term lodgings industry earned from rooms by the
average daily rate (``ADR'').\623\ The ADR is the average revenue per
room-night booked in the U.S. The total number of nights booked in the
U.S. in 2022 that would potentially be affected by this rule is about
1.29 billion.
---------------------------------------------------------------------------
\623\ Revenue equals about $192.23 billion. Alexia Moreno
Zambrano, Hotels & Motels in the US, IBISWorld (Jan. 2023) (``Hotels
& Motels Industry Report''); Thi Le, Bed & Breakfast & Hostel
Accommodations in the US, IBISWorld (Jan. 2023) (``Bed & Breakfast
Industry Report''). The ADR is about $149. STR: U.S. hotel ADR and
RevPAR reached record highs in 2022, STR (Jan. 20, 2023), https://str.com/press-release/str-us-hotel-adr-and-revpar-reached-record-highs-2022.
---------------------------------------------------------------------------
Dividing the total number of nights booked by the average number of
nights per booking gives 715 million total bookings.\624\ About 91.8%,
or 657 million, of these bookings are made by U.S. consumers.\625\
Finally, the Commission calculates the total savings for U.S. consumers
per year by multiplying the number of bookings made by U.S. consumers
by the minutes saved per transaction and the value of time for
consumers. This results in total savings ranging from about $674
million to $980.3 million.
---------------------------------------------------------------------------
\624\ Consumers book on average 1.8 nights per booking. Jordan
Hollander, 75+ Hospitality Statistics You Should Know (2024), Hotel
Tech Report (updated July 9, 2024), https://hoteltechreport.com/news/hospitality-statistics.
\625\ How much do U.S. hotels depend on international guest
stays?, CBRE Econometric Advisors' Blog (Oct. 10, 2017), https://www.cbre-ea.com/public-home/deconstructing-cre/2017/10/10/how-much-do-u.s.-hotels-depend-on-international-guest-stays.
---------------------------------------------------------------------------
(c) Foreign Hotels and Home Shares with U.S.-Facing websites
To estimate the number of foreign short-term lodging bookings made
by U.S. consumers, the Commission uses the fact that 96% of all trips
taken by U.S. consumers are domestic.\626\ Multiplying the number of
bookings made by U.S. consumers by ((1-0.96)/0.96)) gives 27.4 million
foreign bookings. The total savings for this category ranges from about
$28.1 to $40.8 million.
---------------------------------------------------------------------------
\626\ Adrian, U.S. Travel & Tourism Statistics 2020-2021,
Tourism Academy Blog (Sep. 15, 2021 12:39:18 p.m.), https://blog.tourismacademy.org/us-tourism-travel-statistics-2020-2021.
---------------------------------------------------------------------------
(d) All Hotels and Home Shares
Together, U.S. and foreign bookings amount to about 683.9 million
bookings per year. This corresponds to between 27.2 and 39.6 million
hours saved by U.S. consumers per year, and between
[[Page 2148]]
$702.1 million and $1.02 billion total savings per year. Table 11
presents the expected benefits of time savings over the next ten years
in present value.
---------------------------------------------------------------------------
\627\ OEWS National, supra note 571; Hamermesh, supra note 533.
\628\ Hollander, supra note 624.
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(e) Additional Unquantified Benefits: Reductions in Deadweight Loss and
Abandoned Transactions
As is discussed in section V.E.2.a.ii, the final rule requiring
short-term lodgings to display total price of rooms will likely result
in a reduction of deadweight loss. When consumers are not provided
total price at the beginning of the booking process, sellers likely are
able to charge higher prices than under the final rule. The rule's
total price requirement may provide consumers with more complete
pricing information so that they can make informed decisions about
short-term lodging reservations, thus reducing deadweight loss. The
Commission does not quantify the reduction in deadweight loss but
acknowledges that it is a positive benefit to the final rule.
In some cases, once total price is provided, consumers may fully
abandon the transaction (i.e., not book any room). Since lodging cost
is only a part of overall trip cost, abandoning a transaction may be
less likely for short-term lodging than other industries. In that case,
the unquantified benefit is likely to be small. The Commission
solicited comment in the NPRM on the frequency of, and reasons for,
abandoned transactions in the short-term lodging industry to help
quantify this benefit, but did not receive adequate information in
response, so this benefit remains unquantified.
ii. Short-Term Lodging: Estimated Costs of the Final Rule
The Commission herein describes the final rule's potential costs to
the short-term lodging industry and, where possible, provides
quantitative estimates of those costs. The costs to hotels from the
final rule include a review of whether the rule applies and, in cases
of noncompliance with the final rule, one-time costs to come into
compliance and recurring annual costs to ensure ongoing compliance. The
cost of employee time is monetized using wages obtained from the Bureau
of Labor Statistics' National Industry-Specific Occupational Employment
and Wage Estimates.\629\ The Commission uses wages specific to the
Traveler Accommodation industry (associated with NAICS code 721100).
This industry includes traditional hotels and motels, casino hotels,
bed and breakfast inns, hostels, and home share platforms.\630\ The
Commission also quantifies the cost to individual home share hosts in
the form of a one-time cost to adjust prices on home share listings.
---------------------------------------------------------------------------
\629\ U.S. Bureau Lab. Stat., Occupational Employment and Wage
Statistics, May 2023 National Industry-Specific Occupational
Employment and Wage Estimates: NAICS 721100--Traveler Accommodation
(May 2023), https://www.bls.gov/oes/current/naics4_721100.htm
(``OEWS Traveler Accommodation'').
\630\ NAICS code 721100 does not capture intermediary travel
websites, which display pricing information and offer booking
options for various short-term lodging firms. Because these
intermediaries constantly update pricing information obtained
directly from short-term lodging firms (see, e.g., FTC-2023-0064-
3293, Travel Technology Association), and do not need to reoptimize
prices or drastically change displays themselves, the Commission
believes that intermediary firms will not face additional compliance
costs from the rule.
---------------------------------------------------------------------------
Table 12 outlines the estimated costs of the final rule. Panel A
shows the costs for U.S. hotels and home share hosts; Panel B shows the
costs for foreign hotels and home share hosts who post listings on
U.S.-facing websites; \631\ and Panel C shows the total combined costs
for both groups.
---------------------------------------------------------------------------
\631\ The Commission's analysis includes costs to foreign hotels
with U.S.-facing websites because complying with the rule may cause
them to pass through some costs to U.S. hotel shoppers. The
Commission is unable to quantify what percentage of costs will be
passed through; to be conservative, the analysis includes all costs
to foreign hotels and home share hosts.
---------------------------------------------------------------------------
(a) Panel A: U.S. Hotels and Home Share Hosts
There are 49,216 U.S. hotels associated with the ``Traveler
Accommodation'' NAICS code. Of these firms, 6% impose resort fees,
bringing the high-end number of U.S. firms affected to 2,953. The low-
end number of firms affected is 2,948 after removing Marriott
International, Inc., Omni Hotels Management Corporation, Choice Hotels
International, Inc., Hilton Worldwide Inc., and Hyatt Hotels
Corporation to account for the possibility that these hotels will
eliminate dripped and partitioned pricing from their websites
regardless of this rule to comply with any existing or forthcoming
settlements with various State Attorneys General.\632\
---------------------------------------------------------------------------
\632\ In 2021, Marriott agreed to a settlement with the
Commonwealth of Pennsylvania, Office of the Attorney General, in
which Marriott agreed to include mandatory resort fees in the base
rate of its hotel rooms on the first page of the booking process.
Assurance of Voluntary Compliance, Commonwealth v. Marriott Int'l,
Inc., No. GD-21-014016 (Pa. Ct. C.P. Nov. 16, 2021). In 2023 and
2024, Marriott entered into similar settlements with the Offices of
the Attorney General in both the State of Nebraska and the State of
Texas. Assurance of Voluntary Compliance, Texas v. Marriott Int'l,
Inc., No. 2023-CI09717 (Tex. Dist. Ct. May 16, 2023); Order
Approving Assurance of Voluntary Compliance, Nebraska v. Marriott
Int'l, Inc., No. CI 23-3860 (Neb. Dist. Ct. Jan. 18, 2024). In 2023,
Omni and Choice Hotels both agreed to similar multi-state
settlements with the Offices of the Attorney General in the State of
Colorado, the Commonwealth of Pennsylvania, and the State of
Nebraska. See, e.g., Assurance of Discontinuance, In re Choice
Hotels Int'l Inc. Resort Fees (Colo. Sept. 21, 2023); Assurance of
Discontinuance, In re Omni Hotels Mgmt. Corp. Resort Fees (Colo. Nov
9, 2023); Assurance of Voluntary Compliance, Commonwealth v. Omni
Hotels Mgmt., GD-23-013056 (Pa. Commw. Ct. Nov. 9, 2023); Assurance
of Voluntary Compliance, Commonwealth v. Choice Hotels Intl., Inc.,
GD-23-011023 (Pa. Commw. Ct. Sept. 21, 2023); Order Approving
Assurance of Voluntary Compliance, Nebraska v. Choice Hotels Int'l,
Inc., No. CI 23-3269 (Neb. Dist. Ct. Sept. 27, 2023); Order
Approving Assurance of Voluntary Compliance, Nebraska v. Omni Hotels
Mgmt. Corp., No. CI 23-3641 (Neb. Dist. Ct. Oct. 27, 2023). Choice
Hotels agreed to an additional settlement with the Oregon Department
of Justice. Assurance of Voluntary Compliance, In re Choice Hotels,
Int'l, Inc., No. 23-CV-39128 (Or. Cir. Ct. Sept. 21, 2023). In 2024,
Hilton Hotels agreed to a settlement with the State of Nebraska,
Office of the Attorney General. Final Consent Judgment, Nebraska v.
Hilton Dopco, Inc., No. CI 19-2366 (Neb. Dist. Ct. Jan. 29, 2024).
Finally, Hyatt Hotels faces an ongoing lawsuit filed in 2023 by the
State of Texas, Office of the Attorney General, which seeks to
require Hyatt to display full prices in the initial advertised price
of any hotel room. Plaintiff's Original Pet., Texas v. Hyatt Hotels
Corp., No. C2023-0884D (Tex. Dist. Ct. May 15, 2023).
---------------------------------------------------------------------------
Next, the Commission's analysis estimates the number of hours a
U.S. hotel would spend complying with the final rule. The analysis
assumes all hotels that do not impose dripped or partitioned pricing
will spend one hour of lawyer time determining if the final rule
requires any changes to their advertising. Hotels that are not
presently compliant with the rule will incur additional costs to come
into compliance. In the low-end estimate, the analysis assumes that,
because many hotels have websites facing other countries that already
have similar requirements to the final rule (e.g., Canada, Australia,
and the European Union member states), hotels already may have the
experience and infrastructure required to incorporate the necessary
changes to their operating practices. In this scenario, hotels have
relatively low costs to transition to all-in pricing for their U.S.-
facing websites. The analysis assumes five hours of lawyer time to
determine how the final rule applies to the firm, forty hours of data
scientist time to re-optimize the pricing strategy, and forty hours of
web developer time to edit the website to display total prices and make
other requisite disclosures.
In addition to hotels, the final rule also would affect individuals
who participate in the home share market by listing their properties
for short-term rentals on websites like Airbnb and VRBO. The
Commission's analysis estimates the total number of home share hosts in
the U.S. by starting with the number of Airbnb hosts in the U.S. who
post home share listings (not including larger bed and breakfast or
hostel establishments) and extrapolating to the full U.S. market using
Airbnb's
[[Page 2150]]
U.S. market share.\633\ On the low-end, the analysis assumes that each
host will take one hour to reprice each listing. Hosts have, on
average, 1.18 listings, resulting in 1.18 hours of time per host.\634\
The value of time comes from the same source as in Table 11.
---------------------------------------------------------------------------
\633\ See Clark Shultz, Airbnb increases market share in latest
read from M Science, Seeking Alpha (June 6, 2022 1:32 p.m. ET),
https://seekingalpha.com/news/3846023-airbnb-increases-market-share-in-latest-read-from-m-science (providing Airbnb's market share);
Thibault Masson, Airbnb Host Data: Who are Airbnb hosts? Why are
individual hosts more important than professional ones?, Rental
Scale-Up (updated Dec. 19, 2020), https://www.rentalscaleup.com/airbnb-host-data-who-are-airbnb-hosts-why-are-individual-hosts-more-important-than-professional-ones/ (providing the statistics used to
estimate the number of Airbnb home share hosts in the U.S.). The
estimated total number of home share hosts in the U.S. is 675,603,
which is calculated as 504,000/.746, where 504,000 is the number of
Airbnb home share hosts in the U.S. and .746 is Airbnb's U.S. market
share. The number of Airbnb home share hosts is calculated as
560,000 * .9 = 504,000, where 560,000 is the number of Airbnb hosts
in the U.S., and 90% of these hosts are individual hosts (people who
rent individual rooms or entire primary homes rather than
traditional bed and breakfasts or hostels; traditional bed and
breakfasts or hostels are already captured in the hotel firms
defined by Traveler Accommodation NAICS code 721100).
\634\ The average number of listings per host is calculated from
the total number of U.S. listings and the total number of U.S.
hosts. Steve Deane, 2022 Airbnb Statistics: Usage, Demographics, and
Revenue Growth, Stratos Jet Charters, Inc. Blog (Jan. 4, 2022),
https://www.stratosjets.com/blog/airbnb-statistics/ [https://web.archive.org/web/20220219093345/https://www.stratosjets.com/blog/airbnb-statistics/] (providing the total number of U.S. listings);
Masson, supra note 633 (providing the total number of U.S. hosts).
---------------------------------------------------------------------------
In the high-end cost scenario, the Commission's analysis assumes
that hotels have not laid the groundwork for upfront pricing. The
analysis assumes under this scenario that hotels require twice the
number of hours to determine optimal prices, re-program the website to
include total price, and review and confirm compliance. Thus, the one-
time costs for hotels include ten hours of lawyer time, eighty hours of
data scientist time, and eighty hours of web developer time. The
analysis further assumes home share hosts spend three hours repricing
each listing, resulting in 3.5 hours per host.
In addition to the one-time costs, the Commission's analysis also
assumes hotels incur annual costs of between zero to ten hours of
lawyer time per year to review and confirm compliance with the final
rule.\635\ The total costs, which include both the one-time fixed cost
and the annual costs for the next ten years in present value, range
from $35.9 million to $107.8 million using a 7% discount rate, and from
$35.9 million to $112 million using a 3% discount rate. The Commission
also finds that the per firm annualized cost to U.S. hotels that are
not presently compliant with the rule ranges from $527 to $2,011 using
a 7% discount rate, and from $434 to $1,825 using a 3% discount rate.
Home share hosts in the U.S. incur an average one-time cost between
$30.42 to $91.27.
---------------------------------------------------------------------------
\635\ Since home share hosts are not operating large,
sophisticated firms and will likely not spend additional time
ensuring compliance beyond year one, the analysis assumes home share
hosts do not incur annual costs due to the rule.
---------------------------------------------------------------------------
All ranges of lawyer, data scientist, web developer, and home share
host time used in the analysis serve as proxies for any costs
associated with reviewing and ensuring compliance, adjusting pricing
strategies, ensuring consumers are presented with total price, and re-
evaluating home share listings, respectively, in response to the final
rule.
(b) Panel B: Foreign Hotels and Home Share Hosts
The Commission acknowledges that non-U.S. firms and home share
hosts with U.S.-facing websites may bear compliance costs from the
final rule that may be passed on to consumers. Therefore, the
Commission estimates these costs using the best available data.
Estimating costs for foreign hotels and home share hosts using the same
method in Panel A would be difficult because there are no reliable
estimates for the number of foreign hotels and home share hosts or for
the relevant international wage rate for lawyers, data scientists, and
web developers. The Commission's analysis instead estimates foreign
costs by extrapolating from the estimated U.S. costs in Panel A. Since
the U.S. hotel industry's global market share is about 14.5%,\636\ the
one-time and annual costs for foreign hotels each can be calculated by
multiplying the one-time and annual costs for U.S. hotels by (1-0.145)/
0.145. This method captures the cost of all foreign hotels, including
ones that will not be subject to the final rule because they do not
have U.S.-facing advertising. Therefore, the costs to foreign hotels
may be overestimated.
---------------------------------------------------------------------------
\636\ The U.S. hotel industry's global market share in 2022 is
calculated by adding the revenues reported in the IBISWorld Reports
for ``Hotels and Motels in the US,'' ``Casino Hotels in the US,''
and ``Bed and Breakfast and Hostel Accommodations in the US,'' and
dividing it by the global revenue found in IBISWorld Global Hotels &
Resorts Industry Report. Hotels & Motels Industry Report, supra note
623; Bed & Breakfast Industry Report, supra note 623; Demetrios
Berdousis, Casino Hotels in the US, IBISWorld (Jan. 2023).
---------------------------------------------------------------------------
The Commission's analysis uses the percentage of Airbnb's U.S.
revenue (43%) \637\ as a proxy for the U.S. home share market's global
market share. Using this proxy, the analysis estimates the one-time
cost for foreign home share hosts to be equal to the total one-time
cost for U.S. home share hosts multiplied by (1-0.43)/0.43. The total
one-time and annual foreign hotel and home-share costs for the next ten
years in present value range from $117.4 million to $352.8 million
using a 7% discount rate, and from $117.4 million to $377.9 million
using a 3% discount rate. The Commission is unable to provide the per
firm annualized cost for foreign hotels and non-U.S. home share hosts
because the number of foreign hotels and home share hosts is not known.
---------------------------------------------------------------------------
\637\ Airbnb, Inc., Annual Report (Form 10-K) (Feb. 16, 2024)
(``Airbnb 10-K''), https://investors.airbnb.com/financials/sec-filings/sec-filings-details/default.aspx?FilingId=17283799.
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(c) Panel C: All Hotels and Home Share Hosts (US + Foreign)
The total cost for all affected hotels and home share hosts over
ten years in present value is estimated to be from $153.3 million to
$460.6 million using a 7% discount rate and from $153.3 million to
$489.9 million using a 3% discount rate.
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iii. Short-Term Lodging: Net Benefits
---------------------------------------------------------------------------
\638\ U.S. Census Bureau, 2021 SUSB Annual Datasets by
Establishment Industry, supra note 602.
\639\ FTC-2023-0064-3094 (American Hotel & Lodging Association).
\640\ OEWS Traveler Accommodation, supra note 629.
\641\ See OEWS National, supra note 571 (providing the mean
hourly wage); Hamermesh, supra note 533 (providing the value of
time).
\642\ See infra section V.E.3.d.ii.b (describing the
calculations).
\643\ Airbnb 10-K, supra note 637.
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Table 13 presents the net benefits of the final rule in the short-
term lodging industry using the quantified benefits and costs discussed
in section V.E.3.d.i and V.E.3.d.ii. To calculate the low-end of the
range for net benefits, the Commission's analysis subtracts the total
costs using the high-end cost assumptions from the total benefits using
the low-end benefit assumptions. For the high-end of the range for net
benefits, the analysis subtracts the total costs using the low-end cost
assumptions from the total benefits using the high-end benefit
assumptions.
[[Page 2153]]
The quantified benefits and costs imply that the final rule will
have a positive net benefit, even without accounting for the
unquantified benefit of reducing deadweight loss.
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iv. Short-Term Lodging: Uncertainties
The Commission's ability to precisely estimate benefits and costs
is limited due to uncertainties in key parameters. The quantified
benefits and costs for the short-term lodging industry rely on a set of
assumptions based on the best available public information. When the
data are unclear, the analysis uses sets of assumptions that would
generate a range of low- and high-end estimates. Table 14 summarizes
the key assumptions and how they may affect the resulting estimate of
quantified benefits and costs. When possible, the analysis
underestimates benefits and overestimates costs in order to
conservatively estimate net benefits.
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4. Economic Evaluation of Alternatives
As an alternative to the rule, the Commission considered not
pursuing rulemaking and instead relying on its existing tools of
enforcement actions and consumer education. This approach is equivalent
to a no-action baseline and would result in no incremental benefits or
costs. The prevalence of drip pricing and hidden mandatory fees would
persist.
The Commission also alternatively considered, as discussed in the
Preliminary Regulatory Analysis, promulgating an industry-neutral
version of the rule. The Commission was unable to quantify economy-wide
benefits and provided a break-even analysis using quantified compliance
costs for the entire economy.\644\ The economy-wide break-even analysis
implied there would be positive net benefits to the rule if the benefit
per consumer was at least $6.65 per consumer per year over a ten-year
period assuming a 7% discount rate or at least $5.95 assuming a 3%
discount rate. The Commission estimated that per firm annualized costs
for an economy-wide rule would be between $691 and $2,010 assuming a 7%
discount rate and between $569 and $1,803 assuming a 3% discount rate.
---------------------------------------------------------------------------
\644\ The break-even analysis provided in the Preliminary
Regulatory Analysis utilized the same set of assumptions regarding
the high-end and low-end numbers of hours required for firms to
comply with the proposed economy-wide rule. The preliminary break-
even analysis also made a set of assumptions about what proportion
of the economy currently complied with the provisions of the
proposed rule.
---------------------------------------------------------------------------
The Commission sets forth additional alternatives to the final rule
that it considered in section V.B but does not have sufficient data to
prepare a quantitative analysis of those alternatives.
5. Summary of Results
The Commission's final regulatory analysis catalogs and, where
possible, quantifies the incremental benefits and costs of the final
rule for the live-event ticketing and short-term lodging industries.
The Commission estimates that the quantified benefits of the rule will
exceed its quantified costs, and the Commission believes that the total
benefits of the rule (quantified and unquantified) will outweigh the
total costs (quantified and unquantified). The Commission estimates
that the benefits of the final rule over the next ten years accruing
solely from reduced consumer
[[Page 2156]]
search costs in the live-event ticketing industry range from $184
million to $2.46 billion under an assumed 7% discount rate, and $224
million to $2.99 billion using an assumed 3% discount rate. The
Commission estimates compliance costs for live-event ticketing firms
over the ten-year period to be between $15 million and $142 million
using a 7% discount rate, and between $15 million and $154 million
using a 3% discount rate.
For the short-term lodging industry, the Commission estimates ten-
year benefits to consumers from reduced search costs to range from
$4.93 billion to $7.17 billion using a 7% discount rate, and between
$5.99 billion and $8.71 billion using a 3% discount rate. The
Commission estimates compliance costs for short-term lodging firms for
the ten-year period to be between $153 million and $461 million using a
7% discount rate and between $153 million and $490 million using a 3%
discount rate.
The Commission also provides a break-even analysis using quantified
compliance costs that are aggregated for the live-event ticketing and
short-term lodging industries. The break-even analysis demonstrates
that there are positive net benefits to the rule if the benefit per
consumer is at least $0.33 per consumer per year over a ten-year period
using a 7% discount rate. The break-even analysis does not account for
costs from unintended consequences of the rule or the potential
benefits from reducing deadweight loss by providing consumers with full
information.
6. Appendix A: Model of Market Distortion Caused by Drip Pricing
Measuring the deadweight loss, the surplus transfer from consumers
to firms, and the shift in quantity demanded requires a quantification
of consumers' aggregate level of awareness. Academic research provides
a model that relates consumers' partial awareness to the resulting
shift in aggregate demand.\645\ Specifically, the model assumes, based
on empirical evidence, the elasticity of demand with respect to the fee
equals the elasticity of demand with respect to the base price scaled
by a factor of [thetas], where 0 < [thetas] < 1. This factor, [thetas],
serves as a measure of consumers' awareness of the fee. When consumers
are fully aware of the fee, [thetas] = 1; when consumers are completely
unaware, [thetas] = 0. As a working example, if demand is given by the
equation Q(Pbase,t) = a + bPbase + ct, where a,
b, and c are constants, the previous assumption implies that c =
[thetas]b. At [thetas] = 1, shrouding the fee has no effect, and the
demand function simplifies to Q(Ptotal, t) = a +
bPtotal. At [thetas] = 0, shrouding the fee leaves consumers
completely unaware of it, and demand is solely a function of the base
price: Q(Pbase, t) = a + bPbase. Assuming 0 <
[thetas] < 1, instead, one may note that, for any given change in the
base price and the corresponding change to the quantity demanded, a
larger change in the fee would be needed to effect the same change in
quantity, reflecting consumers' partial awareness of, and decreased
sensitivity to, the fee.
---------------------------------------------------------------------------
\645\ Chetty, supra note 555.
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Figure 4 illustrates how consumers' partial awareness of fees
impacts the effect of shrouded pricing on consumer and producer
surplus. The intersection of Dpartial with S, illustrated by
point R, at quantity Qpartial and price
Ptotal,partial, represents the outcome when consumers are
partially aware of the fee. In this figure,
Dfee,Pbase,partial (not shown) would go through point U
(equivalent to point A in Figure 3) and point R (equivalent to point B
in Figure 3). For comparison, in the case of complete unawareness
([thetas] = 0), Dfee,Pbase,unaware (not shown) would go
vertically through point K (equivalent to point A in Figure 3) and
point J (equivalent to point B in Figure 3). As illustrated in Figure
4, the more consumers are aware of the fee, i.e., the larger the
[thetas], the smaller the market clearing full price and, hence, the
base price, must be. As an additional example, when consumers are fully
aware of the fee ([thetas] = 1), the market clearing full price under
shrouded pricing equals the market clearing price under upfront
pricing, Pupfront, and the base price,
Pbase,aware (not shown), is lower than
Pbase,partial.
Consumer surplus is now equal to the area of triangle CMN minus the
area of triangle NRT. Producer surplus is now equal to the area of
triangle EMR. The deceptive shrouding of the price leads to a transfer
of surplus from consumers to firms equal to the area of trapezoid ABMR
as well as an additional decrease in consumer surplus not captured by
firms, the deadweight loss, equal to the area of triangle ART. The
surplus transfer from consumers to firms and the deadweight loss are
both smaller in this case of partial awareness relative to the case
where consumers are completely unaware of the fee. That is, the harm
caused by the firms' deception is mitigated by the extent to which
consumers are aware of and account for the fee.
[[Page 2159]]
[GRAPHIC] [TIFF OMITTED] TR10JA25.005
7. Appendix B: Short-Term Lodging Industry Minutes per Listing
Calculations
(a) Low-End Estimate of Minutes per Listing Calculation
The Commission's analysis uses the Airbnb user search statistics
reported in Fradkin (2017) \646\ to obtain a low-end time estimate to
view one listing after clicking on it. The paper provides data on a
random sample of users who searched for short-term rentals on Airbnb in
a large U.S. city. It reports search behavior separately for all
searchers and for searchers who contacted the host, either to inquire
about a listing or to book it. The analysis uses those numbers to
calculate search behavior for the group of searchers who did not send a
contact. The relevant statistics for these three groups are summarized
in Table B.1.
---------------------------------------------------------------------------
\646\ Andrey Fradkin, Search, Matching, and the Role of Digital
Marketplace Design in Enabling Trade: Evidence from Airbnb, (MIT
Initiative on the Digit. Econ., Working Paper, 2017), https://ide.mit.edu/wp-content/uploads/2017/07/SearchMatchingEfficiency.pdf.
---------------------------------------------------------------------------
``Average unique listings seen'' includes all listings users see on
a search result page, including listings users do not click on.
``Average time spent browsing'' includes entering search parameters,
scrolling through results, and viewing listings after clicking on them.
``Average number of contacts'' is the average number of times searchers
contacted a host for a listing. Since contacting the host requires
users to click on the listing, the analysis uses this as a proxy for
number of clicked-on listings.
[GRAPHIC] [TIFF OMITTED] TR10JA25.065
From the third column, we calculate:
Time to view each listing without clicks = Average time spent browsing/
Average unique listings seen = 23.253/57.61 = .40 minutes per listing.
Because the average time spent browsing for the group in column (2)
is inclusive of the amount of time spent sending contacts, not just
viewing listings that were not contacted, we use the preceding value
calculated from the group in column (3) to estimate the
[[Page 2160]]
following that applies to searchers in column 2:
Time spent viewing listings without clicks = Time to view each listing
without clicks * Average unique listings seen = .40 * 87.812 = 35.44
minutes
and
Average total time viewing listings after clicking = Average time spent
browsing-Time spent viewing listings without clicks = 57.874-35.44 =
22.43 minutes.
Finally, we calculate time to view one listing:
Time per listing = Average total time viewing listings after clicking/
Average number of contacts = 22.43/2.367 = 9.48 minutes per
listing.\647\
---------------------------------------------------------------------------
\647\ The numerator of ``Time per listing'' is an underestimate
because ``Time spent browsing without clicks'' may capture some time
spent viewing clicked-on listings that did not result in a contact.
The denominator of ``Time per listing'' is also an underestimate
because the number of listings clicked on is proxied using the
number of listings users inquire about or book. Users may click on
more listings than just the ones they want to inquire about or book.
The two values are related. If the true denominator is higher than
estimated, then the true numerator also will be higher. Higher
listing clicks beyond those that resulted in a contact means more
time spent viewing clicked-on listings that did not result in a
contact. The ratio should remain about the same.
---------------------------------------------------------------------------
(b) High-End Estimate of Minutes per Listing Calculation
The Commission's analysis uses the hotel search cost model
developed by Chen and Yao (2016) \648\ to calculate a high-end estimate
of minutes to view one listing. The paper uses data from consumer
search behavior when booking hotels in four major international cities
on an anonymous major U.S. online travel website.
---------------------------------------------------------------------------
\648\ Yuxin Chen & Song Yao, Sequential Search with Refinement:
Model and Application with Click-Stream Data, 63 Mgmt. Sci. 4345
(2016), https://doi.org/10.1287/mnsc.2016.2557.
---------------------------------------------------------------------------
A search is defined as a listing click-through, and the search cost
for a listing is specified as:
Cij = Ci (TimeConstrainti, Slotj) = exp([gamma]i0 +
[gamma]i1TimeConstrainti + [gamma]i2Slotj) =
exp(3.07 - .05 * TimeConstrainti + .01 * Slotj)
where TimeConstrainti is the number of days between consumer i's search
and her check-in. Slotj is the slot position of the j-th search. The
exponential operator ensures that the costs are positive. The gammas
are mean levels of cost coefficients.
Using this formula, the analysis can find that the mean search cost
per listing when 30 days in advance (the sample average) is exp(3.07 -
(.05*30)) = $4.81 per listing. The inflation adjusted value is $6.10.
The resulting total search cost is then $6.10 per listing * 2.3
searches on average = $14.04. This total cost can be conceptualized as
the number of minutes of viewing listings multiplied by the consumer's
value of time. Using $25.81 per hour as the value of time, the time
spent viewing listings is ($14.04/$25.81 per hour) * 60 minutes per
hour = 32.62 minutes.
The minutes to view one listing is then calculated as 32.62
minutes/2.3 searches = 14.18 minutes per listing.
VI. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA''), 44 U.S.C. 3501-3520,
requires Federal agencies to seek and obtain OMB approval before
collecting information directed to ten or more persons. The term
``collection of information,'' as used in the PRA, includes any
requirement or request for persons to obtain, maintain, retain, report,
or publicly disclose information.\649\ The PRA analysis requires an
estimate of the burden associated with a collection of
information.\650\
---------------------------------------------------------------------------
\649\ 44 U.S.C. 3502(3); 5 CFR 1320.3(c).
\650\ 5 CFR 1320.8(a)(4).
---------------------------------------------------------------------------
Upon publication of the NPRM, the Commission submitted an
associated clearance request with a Supporting Statement to OMB for
review under the PRA. In response, OMB filed a comment on December 11,
2023 (OMB Control No. 3084-0176), requesting that the Commission
resubmit the clearance request upon the finalization of the proposed
rule.\651\ Accordingly, simultaneously with the publication of this
final rule, the Commission is resubmitting its clearance request and a
Supplemental Supporting Statement to OMB for review under the PRA. For
the reasons discussed below, the Commission has made adjustments to its
initial burden analysis. The Commission's updated burden analysis
follows.
---------------------------------------------------------------------------
\651\ See Office of Info. and Regul. Aff., Office of Mgmt. and
Budget, OMB Control Number History for OMB Control Number 3084-0176,
https://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=3084-0176#.
---------------------------------------------------------------------------
A. Disclosures Related to Final Sec. 464.2(a) Through (c)
Final Sec. 464.2(a) through (c) provide clarity as to how
businesses should disclose total price, optional exclusions from total
price, and the final amount of payment. This information is readily
available to businesses, and many businesses already disclose this
information in the course of their regular business activities.
However, the Commission is aware that in some instances the
requirements in final Sec. 464.2(a) through (c) may require some
businesses to display readily available information more clearly. OMB
guidance is unclear regarding whether, and to what extent, requiring
displays of information to be clearer amounts to a collection of
information. The Commission is of the view that the rule's requirements
regarding disclosure of total price, exclusions from total price and
the final amount of payment are unlikely to qualify as collections of
information. Nevertheless, the Commission includes this analysis out of
an abundance of caution and not because it concedes that such standard
pricing disclosures constitute collections of information.
Final Sec. 464.2(a) provides it is an unfair and deceptive
practice for a business to offer, display, or advertise any price of a
covered good or service without clearly and conspicuously disclosing
total price, which is defined in final Sec. 464.1 to permit the
exclusion of government charges, shipping charges, and fees or charges
for any optional ancillary good or service. While businesses may
exclude these charges from total price in offers, displays, and
advertisements, final Sec. 464.2(c) provides that, before a consumer
consents to pay for any covered good or service, a business must
disclose clearly and conspicuously: The nature, purpose, and amount of
any fee or charge imposed on the transaction that has been excluded
from total price and the identity of the good or service for which the
fee or charge is imposed; and the final amount of payment for the
transaction. Final Sec. 464.2(b) relatedly provides that in any offer,
display, or advertisement that represents any price of a covered good
or service, total price must be disclosed more prominently than any
other pricing information; however, where the final amount of payment
for the transaction is displayed, it must be more prominent than, or as
prominent as, total price. As discussed in section III, the Commission
is not finalizing the proposed affirmative refundability disclosure
requirement.
As part of the NPRM, the Commission assumed that, except for the
proposed affirmative refundability disclosure requirement, the
Commission's proposal was limited to disclosure activities that
businesses already perform in the course of their regular business
activities. However, following its review
[[Page 2161]]
of the comments,\652\ the Commission determines that, although many
businesses already make the disclosures required by final Sec.
464.2(a) through (c) in the usual course of their regular business
activities, it is possible that some businesses in the live-event
ticketing and short-term lodging industries may nonetheless incur
incremental labor costs in ensuring that their disclosure activities
are fully aligned with the requirements that are set forth in final
Sec. 464.2(a) through (c). As a result, out of an abundance of
caution, the Commission updates its burden analysis in recognition of
these comments. As described in section VI.A.5, however, the estimated
costs may be overestimated.
---------------------------------------------------------------------------
\652\ See, e.g., FTC-2023-0064-3238 (Gibson, Dunn & Crutcher LLP
argued that businesses would need to hire, among other
professionals, web designers or software engineers ``to rebuild
entire websites.'' In addition, it argued that the Preliminary
Regulatory Analysis did not account for costs needed to replace
physical ads, subway ads, and billboards and speculated that would
take ``thousands of hours.''); FTC-2023-0064-2856 (National Football
League called on the Commission to reexamine the estimated
compliance costs because it did not adequately take into account
``the additional legal, developer, and data personnel time that
would be required from live-event industry participants--and
especially industry participants dealing in large volumes of live-
event ticket sales in complying with a final rule.''); FTC-2023-
0064-3122 (Vivid Seats commented: ``We believe that the FTC is
underestimating the amount of employee time required by at least a
factor of five.'').
---------------------------------------------------------------------------
1. Number of Respondents
The Commission estimates that there are 12,393 entities that may
incur additional incremental labor costs to refine their disclosure
activities so that they are fully compliant with final Sec. 464.2.
This estimate of 12,393 entities takes the high-end estimate of the
number of firms in the United States in the live-event ticketing
industry (9,440 firms) and the number of firms in the United States in
the short-term lodging industry (2,953) that will incur additional
compliance costs related to disclosure activities.
2. Estimated One-Time Hour Burden
In section V.E.3, the Commission estimates the cost of adjusting
the presentation of advertised prices and the purchase process for
online sales. The final regulatory analysis in section V assumes live-
event ticketing and short-term lodging firms not presently compliant
with the final rule will employ a low end of forty hours and a high end
of eighty hours of web developer time to become compliant with the
final rule. For purposes of this PRA analysis, the Commission uses the
midpoint of the range of web developer hours presented in section
V.E.3; that is, the Commission assumes sixty hours of web developer
time will be necessary to adjust advertised prices and purchase
processes to comply with final Sec. 464.2's disclosure
requirements.\653\ Once firms adjust advertised prices and purchase
process displays to be compliant with the final rule, any future
changes to pricing displays or purchasing systems are part of the
regular course of business and are not a direct consequence of the
rule. The Commission finds that any ongoing additional costs associated
with these activities are de minimis. Thus, the Commission estimates
the total web developer hours to adjust price displays and purchase
processes is 743,580 hours (12,393 firms x 60 web developer hours per
firm).
---------------------------------------------------------------------------
\653\ Brick-and-mortar firms that do not currently comply with
the rule would update the price presentation and purchase process by
printing new price displays, revising advertising campaigns, adding
required disclosures, and potentially updating websites. The
Commission uses web developer hours as a proxy for any costs
associated with updating the price presentation and purchase process
to become compliant with the final rule.
---------------------------------------------------------------------------
3. Estimated One-Time Labor Costs
The estimated one-time labor cost that live-event ticketing and
short-term lodging firms may incur to comply with final Sec. 464.2's
disclosure requirements is $32,990,931. This total is calculated by
summing the labor costs for the live-event ticketing and short-term
lodging industries. The labor cost for the live-event ticketing
industry is calculated by applying the hourly wage for web developer
time in the live-event ticketing industry of $45.95 to the estimate of
60 hours of web developer time multiplied by the number of U.S. firms
in the live-event ticketing industry that incur additional compliance
costs ($45.95/hour x 60 hours per firm x 9,440 firms) resulting in
$26,026,080.\654\ The labor cost for the short-term lodging industry is
calculated by applying the hourly wage for web developer time in the
short-term lodging industry of $39.31 to the estimate of sixty hours of
web developer time multiplied by the number of U.S. firms in the short-
term lodging industry that incur additional compliance costs ($39.31/
hour x 60 hours per firm x 2,953 firms) resulting in $6,964,851.\655\
The total for the two industries is $32,990,931 ($26,026,080 +
$6,964,851).
---------------------------------------------------------------------------
\654\ The estimated mean hourly wages for a web developer are
$45.95. OEWS Web Developers, supra note 571.
\655\ The estimated mean hourly wages for a web developer are
$39.31 in the short-term lodging industry. OEWS Web Developers,
supra note 571.
---------------------------------------------------------------------------
4. Estimated One-Time Non-Labor Costs
The capital and start-up costs associated with the final rule's
disclosure are de minimis. Any disclosure capital costs involved with
the final rule, such as equipment and office supplies, would be costs
borne by businesses in the normal course of business.
5. Projected Labor Costs Likely Overestimated
In preparing its burden estimate for compliance with final Sec.
464.2(a) through (c), the Commission considered comments noting that
some businesses may incur incremental labor costs to come into
compliance with the rule, though commenters did not submit specific
data for the Commission to evaluate this contention. As a result, the
Commission's updated burden calculation relies in part on cost
assumptions from its final regulatory analysis in section V. Applying
these cost assumptions as one-time fixed costs in this burden analysis
likely generates an overestimate of incremental labor costs for a
number of reasons. First, the number of respondents that will have to
make changes to their price displays and offers is likely to be
significantly inflated. Since the Commission announced its NPRM,
California's Honest Pricing Law, SB 478, which was amended by SB 1524,
went into effect, making it illegal for businesses to advertise or list
prices that do not include all mandatory fees or charges other than
certain government taxes and shipping costs. As such, many national
firms doing business in California, including live-event ticketing and
short-term lodging firms, will already have incurred costs to develop
the capabilities to comply with the Commission's rule even if they are
currently only fully deploying such capabilities in California. Similar
legislative and regulatory efforts have been enacted in New York,
Massachusetts, North Carolina, Minnesota, Tennessee, Connecticut,
Maryland, and Colorado.\656\ Second, to the extent that live-event
ticketing and short-term lodging firms opt to present all-inclusive
total prices that obviate the need for the disclosures set forth in
final Sec. 464.2(b) through (c), such firms will require less web
developer time to
[[Page 2162]]
comply, and the Commission is likely overestimating total labor hours.
---------------------------------------------------------------------------
\656\ See, e.g., N.Y. Arts & Cult. Aff. Law sec. 25.01-25.33
(McKinney 2023) (Effective Jun. 30, 2022); An Act Ensuring
Transparent Ticket Pricing, H. 259, 193rd Gen. Court (Mass. 2023);
S. 607 (2023-2024 Session) (N.C. 2023) (Enacted July 9, 2024); 2023
Minn. H.B. 3438 (Enacted May 20, 2024) (Minn.); H.B. 1231 (113th
G.A.) (Tenn.) (Enacted May 24, 2023); Conn. Gen. Stat. Sec. 53-289a
(2023); S.B. 329 (2024 Reg. Sess.) (Md.); S.B. 329 (2024 Reg. Sess.)
(Md.) (Enacted May, 9, 2024); H.B. 23-1378 (2024 Reg. Sess.) (Colo.)
(Enacted June 5, 2024).
---------------------------------------------------------------------------
B. Prohibited Misrepresentations Under Final Sec. 464.3
Final Sec. 464.3, which the Commission proposed in similar form as
Sec. 464.3(a), sets forth that in any offer, display, or advertisement
for a covered good or service, it is an unfair and deceptive practice
for a business to misrepresent any fee or charge, including its nature,
purpose, amount, or refundability, and the identity of the good or
service for which the fee or charge is imposed. Consistent with the
NPRM's discussion of proposed Sec. 464.3(a), the Commission notes that
final Sec. 464.3 does not impose any information collection
requirement for the purpose of the PRA. Rather than imposing any
affirmative disclosure, reporting, or recordkeeping obligations,\657\
final Sec. 464.3 merely prohibits businesses from making certain
misrepresentations that are already prohibited under section 5 of the
FTC Act. As noted in the NPRM, any additional costs that might be
associated with these prohibitions are de minimis.\658\
---------------------------------------------------------------------------
\657\ See 5 CFR 1320.3(c) (definition of the term ``collection
of information'').
\658\ See NPRM, 88 FR 77478.
---------------------------------------------------------------------------
VII. Regulatory Flexibility Act--Final Regulatory Flexibility Analysis
The Regulatory Flexibility Act (``RFA''), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires an
agency to provide an Initial Regulatory Flexibility Analysis (``IRFA'')
and Final Regulatory Flexibility Analysis (``FRFA'') of any final rule
subject to notice-and-comment requirements, unless the agency head
certifies that the regulatory action will not have a significant
economic impact on a substantial number of small entities.\659\ In
developing the final rule, the Commission carefully considered whether
the rule would have a significant impact on a substantial number of
small entities. The Commission continues to believe that the final
rule's impact will not be substantial for most small entities and, in
many cases, will likely positively impact small businesses by enabling
them to compete fairly in the marketplace with larger players. However,
the Commission cannot fully quantify the impact the final rule will
have on such entities. Therefore, in the interest of thoroughness and
an abundance of caution, the Commission has prepared the following FRFA
for this final rule.
---------------------------------------------------------------------------
\659\ 5 U.S.C. 603-605.
---------------------------------------------------------------------------
In the NPRM, the Commission provided an IRFA and solicited comments
on the burden on any small entities that would be covered.\660\ The
Commission received comments in response to the IRFA.\661\ The
Commission received comments from two industry groups requesting that
the Commission conduct a Small Business Regulatory Impact Analysis to
analyze the impact of small businesses in particular industries.\662\
The Commission also received comments from small business owners and
industry groups in support of the rule and its impact on small
businesses, as well as from commenters concerned about potential costs
to small businesses. Consistent with the requirements of the FRFA, the
Commission has considered the comments received, and the final rule's
impact on small entities, including alternatives to the final rule.
---------------------------------------------------------------------------
\660\ NPRM, 88 FR 77479-80.
\661\ See, e.g., FTC-2023-0064-3251 (National RV Dealers
Association); FTC-2023-0064-2367 (Small Business Majority). The
Small Business Administration, Office of Advocacy raised similar
criticisms of the proposed rule. See U.S. Small Bus. Admin., Office
of Advocacy, Re: Trade Regulation Rule on Unfair or Deceptive Fees
FTC-2023-0064-0001, https://advocacy.sba.gov/wp-content/uploads/2024/03/Comment-Letter-Trade-Regulation-Rule-on-Unfair-or-Deceptive-Fees.pdf. The Commission addresses that comment infra section VII.C.
\662\ FTC-2023-0064-3269 (IHRSA--The Health & Fitness
Association); FTC-2023-0064-3294 (International Franchise
Association). The Commission notes that the final rule is limited to
Covered Good or Services, which does not include the health and
fitness industry.
---------------------------------------------------------------------------
The Commission thoroughly considered the feedback it received from
the SBA Office of Advocacy, the Small Business Majority, and other
commenters in developing the final rule. The Commission modifies the
proposed rule in response, in part, to such feedback. The Commission
will continue to engage with small business stakeholders to facilitate
implementation of, and compliance with, the final rule and other
guidance as necessary to assist small entities in complying with the
rule.
Based on the Commission's expertise, and after careful review and
consideration of the entire rulemaking record--including the more than
60,800 comments the Commission received in response to the NPRM,
empirical research on how bait-and-switch pricing tactics, including
drip pricing and partitioned pricing, harm consumers and honest
competitors, and the Commission's Final Regulatory Analysis in section
V--the Commission adopts this final rule focused on covered goods or
services with certain additional revisions to reduce compliance burdens
on small businesses and other entities. To begin with, because this
final rule is limited to covered goods or services, many industries
that have significant small business participants are no longer
covered. Second, the Commission adopts an extended compliance date--120
days--to ensure that small businesses have adequate time to come into
compliance with the rule's requirements.\663\ Third, as discussed in
section III, in response to feedback from commenters representing the
interests of small businesses, the Commission clarifies in this SBP
that businesses may exclude from total price pass-through credit card
or other payment processing fees if they give consumers a viable
payment alternative without a fee (e.g., cash is accepted). In
addition, as discussed in section III, the final rule adopts
definitions of government charges to increase flexibility for
businesses, including small businesses.
---------------------------------------------------------------------------
\663\ A 120-day compliance date after publication in the Federal
Register complies with the requirements of the Congressional Review
Act that a ``major rule'' may not take effect fewer than sixty days
after the rule is published in the Federal Register. 5 U.S.C.
801(a)(1)(3).
---------------------------------------------------------------------------
A. Statement of the Need for, and Objectives of, the Rule
The Commission describes the need for, and objectives of, the rule
in section V.A. The legal basis for the rule is section 18 of the FTC
Act, 15 U.S.C. 57a, which authorizes the Commission to promulgate,
modify, and repeal trade regulation rules that define with specificity
acts or practices in or affecting commerce that are unfair or deceptive
within the meaning of section 5(a)(1) of the FTC Act, 15 U.S.C.
45(a)(1).
B. Significant Issues Raised by Comments, the Commission's Assessment
and Response, and Any Changes Made as a Result
Commenters, including the Small Business Majority, argued that the
IRFA failed to appropriately assess the impact of the proposed rule on
small businesses.\664\ The NPRM assumed that of the total estimated
firms in the United States (6,140,612),\665\ only a
[[Page 2163]]
small fraction (818,178 or about 13%) would incur additional costs
beyond the initial one-hour compliance review to comply fully with the
proposed rule. Commenters, including the Small Business Majority,
argued that the IRFA failed to appropriately assess the impact of the
proposed rule on small businesses.\666\ For the purpose of the IRFA,
the Commission concluded that the proposed rule would not have a
significant economic impact on a substantial number of small entities
and solicited comment on its analysis, including the submission of
supporting or contradictory empirical data. The Commission did not
receive any data or other evidence to suggest that the number of firms
incurring additional costs should be higher. The Commission anticipates
that modifications made in the final rule will reduce the number of
businesses that are likely to incur additional costs.
---------------------------------------------------------------------------
\664\ FTC-2023-0064-3251 (National RV Dealers Association); FTC-
2023-0064-2367 (Small Business Majority).
\665\ The number of firms used in the NPRM was provided by the
United States Census Bureau's Statistics of United States
Businesses. U.S. Census Bureau, 2020 SUSB Annual Datasets by
Establishment Industry (Mar. 2023), https://www.census.gov/data/datasets/2020/econ/susb/2020-susb.html.
\666\ FTC-2023-0064-3251 (National RV Dealers Association); FTC-
2023-0064-2367 (Small Business Majority).
---------------------------------------------------------------------------
These commenters further asserted the rule's proposed economic
analysis underestimated the cost of attorneys' fees and ongoing costs
to comply with the rule.\667\ The Commission addresses comments and
concerns related to its economic analysis in section V, including
estimates for attorneys' fees and ongoing compliance costs.
---------------------------------------------------------------------------
\667\ FTC-2023-0064-3251 (National RV Dealers Association); FTC-
2023-0064-2367 (Small Business Majority).
---------------------------------------------------------------------------
The same commenters also noted that the Commission's IRFA failed to
appropriately consider alternatives to the proposed rule for small
businesses.\668\ The Commission disagrees. The NPRM stated that the
Commission had considered alternatives, including: (1) a rule that
would exempt small businesses from the proposed rule; (2) a rule that
would apply to online-only businesses; (3) alternatives that would
otherwise narrow the scope of the proposed rule, including limiting
application of the rule to Covered Businesses as defined in the NPRM;
or (4) terminating the rulemaking entirely. Consistent with the NPRM,
the Commission declines to exempt small businesses, including those
that offer live-event ticketing and short-term lodging, from the rule
to avoid creating uncertainty across businesses as to whether the rule
applies to them, to avoid creating unfair competitive advantages for
those businesses that engage in bait-and-switch pricing and
misrepresent fees, and to ensure maximum consumer benefits from
increased price transparency. The NPRM also invited comment on
questions and concerns related to small businesses, including the
estimated number of small businesses and the impact on those
businesses, as well as alternatives to the rule for small businesses.
The Commission's FRFA includes further discussion of the alternatives
considered in section V.B.
---------------------------------------------------------------------------
\668\ FTC-2023-0064-3251 (National RV Dealers Association); FTC-
2023-0064-2367 (Small Business Majority).
---------------------------------------------------------------------------
The Small Business Majority noted that many small businesses lack
access to legal staff and ``run the risk of occupying a substantial
amount of time to understand how exactly they need to adjust their
pricing models to comply with the new rule.'' \669\ As a result, the
Small Business Majority encouraged the Commission to provide guidance
to small businesses, including through outreach, education, and
compliance guidance, as well as working directly with small businesses,
to help small businesses comply with the final rule.\670\ The
Commission highlights and discusses herein that, in response to the
comments, the final rule both narrows the NPRM proposal as well as
clarifies it in certain respects, thereby decreasing the burden on
small businesses. The SBP also discusses various pricing scenarios
raised by commenters, and the Commission believes that such discussion
will aid businesses, including small businesses, in complying with the
final rule. Finally, the Commission routinely provides guidance and
conducts outreach to businesses on complying with the FTC Act and
regulations that it enforces and, as required by law, the Commission
will publish a small entity compliance guide to assist small businesses
in complying with the rule.
---------------------------------------------------------------------------
\669\ FTC-2023-0064-2367 (Small Business Majority).
\670\ Id.; see also U.S. Small Bus. Admin., Office of Advocacy,
Re: Trade Regulation Rule on Unfair or Deceptive Fees FTC-2023-0064-
0001, https://advocacy.sba.gov/wp-content/uploads/2024/03/Comment-Letter-Trade-Regulation-Rule-on-Unfair-or-Deceptive-Fees.pdf.
---------------------------------------------------------------------------
The Commission received numerous comments from industry groups and
individual small business owners, including comments highlighting the
benefits of the proposed rule on small businesses, as well as comments
identifying certain concerns about application of the proposed rule to
small businesses. The Commission addresses many of these comments in
other parts of the SBP, including section III, and accordingly
incorporates that analysis into its FRFA, and addresses the remainder
of these comments herein.
Some commenters argued that fees help small businesses offset
rising costs and staff salaries and benefits, especially for small
businesses operating on thin margins.\671\ One industry group argued
that the rule might place small businesses at a competitive
disadvantage compared to larger businesses.\672\ As discussed in Parts
III and V, the Commission narrows the scope of the rule to address
concerns affecting small businesses by, for example, modifying the
definition of government charges and addressing factual scenarios and
questions concerning application of the rule to small businesses,
including related to credit card surcharges and contingent fees. In
making these clarifications and modifications, the Commission narrows
the total price requirement for, and thereby reduces the compliance
burden on businesses, including small businesses, offering covered
goods or services. As discussed in section VII.C, the Commission is
also adopting an extended 120-day compliance date to allow more time
for businesses, including small businesses, to assess and come into
compliance with the final rule.
---------------------------------------------------------------------------
\671\ See, e.g., FTC-2023-0064-3033 (The Rebel Lounge et al.);
FTC-2023-0064-3078 (Washington Hospitality Association); FTC-2023-
0064-2367 (Small Business Majority).
\672\ FTC-2023-0064-3292 (National Association of Theater
Owners).
---------------------------------------------------------------------------
Conversely, other commenters noted that bait-and-switch practices
and misleading fees harm small businesses, and that the rule will help
small businesses.\673\ One State representative asserted that the final
rule would help small businesses because small businesses that
advertise the entire price of their goods and services are at a
competitive disadvantage compared to larger businesses that advertise
lower prices and only disclose fees at the end of a transaction.\674\
Consumer advocacy groups urged the Commission not to exempt small
businesses, arguing that consumers and small businesses alike will
benefit from greater pricing transparency and a prohibition on
deceptive pricing.\675\ The Commission also received numerous
individual comments, including from small business owners, expressing
support for
[[Page 2164]]
the rule, because it would benefit small businesses.\676\
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\673\ FTC-2023-0064-2840 (Indie Sellers Guild); FTC-2023-0064-
2341 (New Hampshire State Representative Lindsay Sabadosa); FTC-
2023-0064-3302 (Public Citizen); FTC-2023-0064-3160 (Consumer
Federation of America); FTC-2023-0064-3141 (Coalition of Franchisee
Associations).
\674\ FTC-2023-0064-2341 (New Hampshire State Representative
Lindsay Sabadosa).
\675\ FTC-2023-0064-3302 (Public Citizen); FTC-2023-0064-3160
(Consumer Federation of America).
\676\ See, e.g., FTC-2023-0064-0105 (Individual Commenter); FTC-
2023-0064-2422 (Individual Commenter); FTC-2023-0064-2697
(Individual Commenter).
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The Commission notes that the final rule does not prohibit any
business offering live-event ticketing or short-term lodging from
charging consumers fees or raising prices to support necessary
operating costs, such as labor costs or rising expenses. The final rule
instead requires that such charges and fees be incorporated in total
price and that they not be misleading.
C. Comment by the Small Business Administration, Office of Advocacy,
the Commission's Assessment and Response, and Any Changes Made as a
Result
The SBA Office of Advocacy filed a comment requesting that the
Commission ``prepare a supplemental initial regulatory flexibility
analysis that fully considers the economic impact of the proposed
rulemaking on small entities and alternatives that may reduce that
burden,'' as well as ``clarify that this rulemaking will not apply to
small non-profit organizations.'' \677\ The SBA Office of Advocacy
argues that the Commission's IRFA did not comply with the requirements
of the Regulatory Flexibility Act because it ``fail[ed] to provide an
accurate description of the small entities to which the proposed rule
will apply,'' and failed to provide ``an accurate description of the
costs associated with the compliance requirements.'' \678\ According to
the SBA Office of Advocacy, the Commission also ``failed to consider
significant alternatives that would minimize any significant economic
impact of the proposed rule on small businesses.'' \679\ The Commission
has considered this comment, which it further summarizes herein, and
responds as follows.
---------------------------------------------------------------------------
\677\ U.S. Small Bus. Admin., Office of Advocacy, Re: Trade
Regulation Rule on Unfair or Deceptive Fees FTC-2023-0064-0001,
https://advocacy.sba.gov/wp-content/uploads/2024/03/Comment-Letter-Trade-Regulation-Rule-on-Unfair-or-Deceptive-Fees.pdf.
\678\ Id.
\679\ Id.
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The SBA Office of Advocacy recommended that the Commission count
small businesses using NAICS-code specific thresholds defined by the
SBA, rather than using a threshold of 500 employees.\680\ In response
to this comment, the Commission now uses the NAICS-code specific
thresholds set by the SBA to determine the number of small businesses
in the Final Regulatory Flexibility Analysis contained in section
VII.D.
---------------------------------------------------------------------------
\680\ Id.
---------------------------------------------------------------------------
The comment further contended that ``there are other alternatives
that the FTC should have considered in its IRFA,'' such as ``exempting
certain sectors of small businesses or imposing a limit on certain
fees'' and ``allowing businesses more time to comply with the
rule.\681\ The Commission did consider such alternatives and narrows
the scope of the final rule to covered goods or services, thereby
limiting the rule's application to only those businesses, including
small businesses, that offer, display, or advertise such goods or
services. The Commission declines, however, to impose a limit on the
amount of fees, so long as they are disclosed and not misleading in
accordance with the rule's requirements, including as discussed in
section III.
---------------------------------------------------------------------------
\681\ Id.
---------------------------------------------------------------------------
As to the suggestion to give businesses more time to comply with
the rule, the Commission adopts a compliance date of 120 days after
publication of the final rule in the Federal Register. The final rule
will go into effect, and compliance with the final rule will be
required, on that date. This extended timeline considers comments
received from the SBA Office of Advocacy and small businesses,
underscoring the time it might take to come into compliance with the
final rule. For example, some small businesses may decide to seek
outside guidance about whether they need to make adjustments to come
into compliance, while others will conduct their own compliance
review.\682\ The Commission finds 120 days should be enough time even
for small businesses conducting their own compliance review, and that a
120-day period between publication in the Federal Register and the
rule's compliance date appropriately balances the interests of small
businesses with the interests of protecting consumers. Further, in
addition to guidance in this SBP, the Commission also will publish a
small entity compliance guide to assist small businesses in complying
with the rule.
---------------------------------------------------------------------------
\682\ See, e.g., id. (SBA urged the Commission to consider
``allowing small businesses more time to comply with the rule'' and
to provide clear compliance guidance); FTC-2023-0064-2367 (Small
Business Majority urged the Commission to issue comprehensive
guidance and commented: ``[M]any small businesses do not have access
to legal staff or consultants, and without clear and specific
disclosure requirements provided by industry, small businesses run
the risk of occupying a substantial amount of time to understand how
exactly they need to adjust their pricing models to comply with the
new rule.'').
---------------------------------------------------------------------------
Finally, the SBA Office of Advocacy ``encourages the FTC to clarify
that this rulemaking will not apply to non-profits.'' \683\ The final
rule can be enforced to the full scope of the Commission's
jurisdiction. Congress empowered the Commission to ``prevent persons,
partnerships, or corporations'' from engaging in ``unfair or deceptive
acts or practices in or affecting commerce.'' \684\ To fall within the
definition of ``corporation'' under the FTC Act, an entity must be
``organized to carry on business for its own profit or that of its
members.'' \685\ These FTC Act provisions, taken together, have been
interpreted in Commission precedent \686\ and judicial decisions \687\
to mean that the Commission lacks jurisdiction to prevent section 5
violations by a corporation not organized to carry on business for its
own profit or that of its members. The Commission stresses, however,
that both judicial decisions and Commission precedent recognize that
not all entities claiming tax-exempt status as non-profits fall outside
the Commission's jurisdiction.\688\ ``Congress took pains in drafting
Sec. 4 [15 U.S.C. 44] to authorize the Commission to regulate so-
called nonprofit corporations, associations and all other entities if
they are in fact profit-making enterprises.'' \689\
---------------------------------------------------------------------------
\683\ U.S. Small Bus. Admin., Office of Advocacy, Re: Trade
Regulation Rule on Unfair or Deceptive Fees FTC-2023-0064-0001,
https://advocacy.sba.gov/wp-content/uploads/2024/03/Comment-Letter-Trade-Regulation-Rule-on-Unfair-or-Deceptive-Fees.pdf.
\684\ 15 U.S.C. 45(a)(2). The Commission herein focuses on
coverage of ``corporations.''
\685\ 15 U.S.C. 44.
\686\ In re Coll. Football Ass'n, 117 F.T.C. 971, 994 (1994).
\687\ Cal. Dental Ass'n v. FTC, 526 U.S. 756, 766-67 (1999);
Cmty. Blood Bank of Kansas City Area, Inc. v. FTC, 405 F.2d 1011,
1019 (8th Cir. 1969); FTC v. Univ. Health, Inc., 938 F.2d 1206, 1214
(11th Cir. 1991).
\688\ The Commission has determined that ``[r]ulings of the
Internal Revenue Service are not binding upon the Commission, . . .
but a determination by another Federal agency that a respondent is
or is not organized and operated exclusively for eleemosynary
purposes should not be disregarded.'' In re Am. Med. Ass'n, 94
F.T.C. 701, 990 (1979) (citing In re Ohio Christian Coll., 80 F.T.C.
815, 848 (1972)).
\689\ Cmty. Blood Bank, 405 F.2d at 1018; see also, e.g., FTC v.
Nat'l Comm'n on Egg Nutrition, 517 F.2d 485, 488 (7th Cir. 1975); In
re Coll. Football Ass'n, 117 F.T.C. at 998.
---------------------------------------------------------------------------
D. Description and Estimate of the Number of Small Entities To Which
the Rule Will Apply
The final rule covers businesses that offer short-term lodging and
live-event tickets. Small businesses that currently comply with the
final rule will have a relatively trivial cost of assessing whether
they are currently in
[[Page 2165]]
compliance, and the Commission assumes these firms will require at most
one hour of lawyer time to confirm compliance. Small businesses that
offer covered goods or services and currently do not disclose total
price will incur additional costs to adjust advertised prices, their
marketing campaigns, and the consumer purchase process to comply with
the rule.
Using the size standards set by the SBA,\690\ the Commission
calculates that there are potentially as many as 9,034 small firms in
the U.S that may sell tickets for live events.\691\ For the economic
regulatory analysis in section V, the Commission assumes all live-event
ticketing firms will incur additional costs to adjust advertised
prices, their marketing campaigns, and the consumer purchase process to
comply with the rule. The Commission notes that there may be some live-
event ticket sellers that are currently in compliance and will
therefore have a trivial cost of compliance with the final rule.
---------------------------------------------------------------------------
\690\ See U.S. Small Bus. Admin., Table of Small Bus. Size
Standards, https://www.sba.gov/document/support-table-size-standards.
\691\ The Commission uses the latest data available from the
Census Bureau's Statistics of U.S. Businesses database, available
based on firm revenue and firm size. U.S. Census Bureau, Stat. of
U.S. Bus. (last revised July 9, 2024), https://www.census.gov/programs-surveys/susb.html. The calculation of 9,034 live-event
ticketing firms is likely an overestimate of the number of small
businesses due to data incompatibility and the use of the high-end
assumption regarding how live-event ticketing firms are categorized
using NAICS codes. The U.S. SBA sets different revenue thresholds
for different NAICS codes. However, the Statistics of U.S.
Businesses does not necessarily report the number of firms with
earnings under those particular thresholds. Therefore, the
Commission calculates there may be as many as 3,094 firms in NAICS
code 711310 with receipts under the SBA threshold of $40 million,
4,358 firms in NAICS code 711320 with receipts under $25 million (an
overestimate given the SBA threshold of $22 million for NAICS code
711320), and 1,582 firms in NAICS code 561599 with receipts under
$35 million (an overestimate given the SBA threshold of $32.5
million for NAICS code 561599).
---------------------------------------------------------------------------
For the short-term lodging industry, the Commission separately
estimates there are as many as 675,603 home share hosts in the U.S. The
Commission assumes that these home share hosts are all considered small
entities. Using the NAICS-code specific thresholds set by the SBA, the
Commission calculates that there are potentially as many as 2,798 small
firms within NAICS code 7211 (``Accommodation'').\692\
---------------------------------------------------------------------------
\692\ Id. The calculation of 2,798 small hotels firms is likely
an overestimate of the number of small businesses due to data
incompatibility. The U.S. SBA sets a revenue threshold of $9 million
for NAICS code 721191 and NAICS code 721199. However, the Statistics
of U.S. Businesses does not report number of firms for those
particular thresholds. Therefore, the Commission calculates there
are as many as 42,186 firms in NAICS code 721110 with receipts under
the SBA threshold of $40 million, 101 firms in NAICS code 721120
with receipts under the SBA threshold of $40 million, 2,960 firms in
NAICS code 7211191 with receipts under $10 million (an overestimate
given the SBA threshold), and 1,384 firms with receipts under $10
million (an overestimate given the SBA threshold).
---------------------------------------------------------------------------
E. Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements
The final rule contains no reporting or recordkeeping requirements;
however, the final rule imposes disclosure obligations. Only small
entities that offer, display, or advertise covered goods or services
must comply with the rule and, therefore, will incur compliance costs.
To comply with the final rule, small entities that offer, display, or
advertise any price of a covered good or service are required to
disclose the total price clearly and conspicuously and, generally, more
prominently than any other pricing information. Small entities must
also disclose other imposed fees and charges before a consumer consents
to pay and must not misrepresent any fee or charge. For firms that
already comply with the final rule, the one-time indirect cost per firm
is assumed to be, at most, one hour of lawyer time for regulatory
familiarization. This cost is excluded from the Regulatory Flexibility
Analysis since such familiarization is not a compliance requirement.
For small businesses subject to the rule that are not currently in
compliance with the rule's requirements, the Commission has determined
that firms will need to adjust advertised prices, marketing campaigns,
and the purchase process to comply with the rule. These firms may also
incur recurring annual costs of additional lawyer time to assess and
confirm annual compliance. As discussed in more detail in section V,
the Commission estimates that direct compliance costs in the live-event
ticketing industry, over a ten-year period, would result in annualized
costs of $648-$2,144 per firm assuming a 7% discount rate or $534-
$1,916 per firm assuming a 3% discount rate. U.S. home share hosts
would incur one-time costs re-optimizing prices of $30.42-$91.27. The
Commission also estimates direct compliance costs for U.S. hotels, over
a ten-year period, would result in annualized costs of $527-$2,011 per
firm assuming a 7% discount rate or $434-$1,825 per firm assuming a 3%
discount rate. These estimates, however, are for firms of all sizes;
the Commission has not separately estimated the costs for small
businesses specifically.
F. Discussion of Significant Alternatives the Commission Considered
That Would Accomplish the Stated Objectives of the Final Rule and That
Would Minimize Any Significant Economic Impact of the Final Rule on
Small Entities
The Regulatory Flexibility Act requires that agencies include a
description of the steps the agency has taken to minimize the
significant economic impact on small entities consistent with the
stated objectives of applicable statutes, including a statement of the
factual, policy, and legal reasons for selecting the alternative
adopted in the final rule and the other significant alternatives to the
rule considered by the agency which affect the impact on small entities
was rejected.\693\ Statutory examples of ``significant alternatives''
include different requirements or timetables that take into account the
resources available to small entities; the clarification,
consolidation, or simplification of compliance and reporting
requirements under the rule for small entities; the use of performance
rather than design standards; and an exemption from coverage of the
rule, or any part thereof, for small entities.\694\
---------------------------------------------------------------------------
\693\ 5 U.S.C. 604(a)(6).
\694\ See 5 U.S.C. 603(c).
---------------------------------------------------------------------------
In the NPRM, the Commission sought comment on various potential
alternatives to the proposed rule, including alternatives that were
tailored to the needs of small businesses and that addressed the impact
(including costs) that would be incurred by businesses to comply with
the proposed rule.\695\ Specifically, the Commission sought comment on
the estimated number and the nature of small business entities for
which the proposed rule would have a significant economic impact,
whether the proposed rule would have a significant economic impact on a
substantial number of small entities, and if so, how it could be
modified to avoid such an impact, as well as whether the proposed
definition for ``business'' should exclude certain businesses,
including small businesses meeting the SBA's definition of a ``small
business concern'' and the SBA's Table of Size Standards, or simply
certain limited-service and full-service restaurants meeting such
requirements.\696\ The Commission also inquired as to whether the
``total price'' definition should exclude mandatory charges by
restaurants for service performed for the customer in lieu of tips, as
defined by the Department of
[[Page 2166]]
Labor.\697\ The Commission also considered alternatives that would
otherwise narrow the scope of the proposed rule, including limiting
application of the rule to ``Covered Businesses'' as defined in the
NPRM, ultimately adopting a variation of this approach in the final
rule.
---------------------------------------------------------------------------
\695\ NPRM, 88 FR 77479-83.
\696\ Id.
\697\ Id., 88 FR 77481.
---------------------------------------------------------------------------
The Commission requested this information to minimize the final
rule's burden on all businesses, including small entities. As explained
through this SBP, the Commission has considered the comments and
alternatives proposed by the commenters, including the SBA Office of
Advocacy, and finds that the final rule will not create a significant
impact on small entities. Indeed, the type of deception that will be
unlawful under the final rule is already unlawful under the FTC Act,
but the final rule would allow the Commission to obtain monetary relief
more efficiently than it could solely under section 19(a)(2) of the FTC
Act (i.e., without a rule violation), thereby deterring current and
would be violators of the FTC Act.
In its Preliminary Regulatory Analysis, the Commission described an
alternative to the proposed rule, namely, to terminate the rulemaking
and rely instead on the Commission's previously existing tools, such as
consumer education and enforcement actions brought under sections 5 and
19 of the FTC Act, to combat the specified unfair or deceptive pricing
practices. The Commission believes that promulgation of the rule will
result in greater net benefits to the marketplace while imposing no
additional burdens beyond what is required by the FTC Act. As the
Commission describes further in section V, the rule will not only
result in significant benefits to consumers but also improve the
competitive environment, particularly for small, independent, or new
firms. Therefore, the rule appears to be superior to this alternative
for small entities.
As discussed herein, the Commission narrows the rule by adding a
definition for ``covered good or service'' that is limited to Live-
event tickets or Short-term lodging. The Commission also modifies the
definition of government charges to replace the language that included
only those government charges levied ``on consumers,'' with language
clarifying that any government charge ``imposed on the transaction''
may be excluded from total price. Finally, the Commission addresses in
section III how the rule would apply to credit card processing fees and
contingent fees charged by small businesses.
The Commission notes that it has designed the final rule to
minimize compliance costs for all businesses. As stated in section V,
the Commission estimates that direct compliance costs in the live-event
ticketing industry, over a ten-year period, would result in annualized
costs of $648-$2,144 per firm assuming a 7% discount rate or $534-
$1,916 per firm assuming a 3% discount rate. U.S. home share hosts
would incur one-time costs re-optimizing prices of $30.42-$91.27. The
Commission also estimates direct compliance costs for U.S. hotels, over
a ten-year period, would result in annualized costs of $527-$2,011 per
firm assuming a 7% discount rate or $434-$1,825 per firm assuming a 3%
discount rate. Based on the available evidence, the Commission does not
believe that the analysis in section V is fundamentally different for
small entities. For this reason, the Commission is not creating an
exception for small entities or creating different regulatory
requirements for small entities.
The Commission also is not delaying the effective date of the final
rule solely for small entities. The final rule's effective date is 120
days after publication in the Federal Register on May 9, 2025. In the
Commission's view, the rule's effective date of May 9, 2025 will afford
small entities sufficient time to comply with the final rule, and
commenters have not provided evidence that more time is necessary. The
Commission declines to set different effective dates for small
businesses and larger businesses because the final rule's core
objectives include promoting comparison shopping for consumers and
leveling the playing field for honest competitors. For all of the
reasons stated, these objectives would be thwarted in a marketplace
where certain businesses must comply with the rule's requirements for a
period of time while others have more time to continue engaging in
unfair or deceptive pricing practices.
VIII. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs has designated this
rule as a ``major rule,'' as defined by 5 U.S.C. 804(2).
List of Subjects in 16 CFR Part 464
Advertising, Consumer protection, Trade practices.
0
For the reasons set forth above, the Federal Trade Commission adds part
464 to chapter I of title 16 of the Code of Federal Regulations to read
as follows:
PART 464--RULE ON UNFAIR OR DECEPTIVE FEES
Sec.
464.1 Definitions.
464.2 Hidden fees prohibited.
464.3 Misleading fees prohibited.
464.4 Relation to State laws.
464.5 Severability.
Authority: 15 U.S.C. 41 through 58.
Sec. [thinsp]464.1 Definitions.
Ancillary good or service means any additional good(s) or
service(s) offered to a consumer as part of the same transaction.
Business means an individual, corporation, partnership,
association, or any other entity that offers goods or services,
including, but not limited to, online, in mobile applications, and in
physical locations.
Clear(ly) and conspicuous(ly) means a required disclosure that is
easily noticeable (i.e., difficult to miss) and easily understandable
by ordinary consumers, including in all of the following ways:
(1) In any communication that is solely visual or solely audible,
the disclosure must be made through the same means through which the
communication is presented. In any communication made through both
visual and audible means, such as a television advertisement, the
disclosure must be presented simultaneously in both the visual and
audible portions of the communication even if the representation
requiring the disclosure is made in only one means.
(2) A visual disclosure, by its size, contrast, location, the
length of time it appears, and other characteristics, must stand out
from any accompanying text or other visual elements so that it is
easily noticed, read, and understood.
(3) An audible disclosure, including by telephone or streaming
video, must be delivered in a volume, speed, and cadence sufficient for
ordinary consumers to easily hear and understand it.
(4) In any communication using an interactive electronic medium,
such as the internet, a mobile application, or software, the disclosure
must be unavoidable.
(5) The disclosure must use diction and syntax understandable to
ordinary consumers and must appear in each language in which the
representation that requires the disclosure appears.
(6) The disclosure must comply with these requirements in each
medium through which it is received, including all electronic devices
and face-to-face communications.
(7) The disclosure must not be contradicted or mitigated by, or
[[Page 2167]]
inconsistent with, anything else in the communication.
(8) When the representation or sales practice targets a specific
audience, such as children, older adults, or the terminally ill,
``ordinary consumers'' includes members of that group.
Covered good or service means:
(1) Live-event tickets; or
(2) Short-term lodging, including temporary sleeping accommodations
at a hotel, motel, inn, short-term rental, vacation rental, or other
place of lodging.
Government charges means the fees or charges imposed on the
transaction by a Federal, State, Tribal, or local government agency,
unit, or department.
Pricing information means any information relating to an amount a
consumer may pay.
Shipping charges means the fees or charges that reasonably reflect
the amount a business incurs to send physical goods to a consumer,
including through the mail, private mail and shipping services, or by
freight.
Total price means the maximum total of all fees or charges a
consumer must pay for any good(s) or service(s) and any mandatory
ancillary good or service, except that government charges, shipping
charges, and fees or charges for any optional ancillary good or service
may be excluded.
Sec. [thinsp]464.2 Hidden fees prohibited.
(a) It is an unfair and deceptive practice and a violation of this
part for any business to offer, display, or advertise any price of a
covered good or service without clearly and conspicuously disclosing
the total price.
(b) In any offer, display, or advertisement that represents any
price of a covered good or service, a business must disclose the total
price more prominently than any other pricing information. However,
where the final amount of payment for the transaction is displayed, the
final amount of payment must be disclosed more prominently than, or as
prominently as, the total price.
(c) A business must disclose clearly and conspicuously, before the
consumer consents to pay for any covered good or service:
(1) The nature, purpose, and amount of any fee or charge imposed on
the transaction that has been excluded from total price and the
identity of the good or service for which the fee or charge is imposed;
and
(2) The final amount of payment for the transaction.
Sec. [thinsp]464.3 Misleading fees prohibited.
In any offer, display, or advertisement for a covered good or
service it is an unfair and deceptive practice and a violation of this
part for any business to misrepresent any fee or charge, including: the
nature, purpose, amount, or refundability of any fee or charge; and the
identity of the good or service for which the fee or charge is imposed.
Sec. [thinsp]464.4 Relation to State laws.
(a) In general. This part will not be construed as superseding,
altering, or affecting any State statute, regulation, order, or
interpretation relating to unfair or deceptive fees or charges, except
to the extent that such statute, regulation, order, or interpretation
is inconsistent with the provisions of this part, and then only to the
extent of the inconsistency.
(b) Greater protection under State law. For purposes of this
section, a State statute, regulation, order, or interpretation is not
inconsistent with the provisions of this part if the protection such
statute, regulation, order, or interpretation affords any consumer is
greater than the protection provided under this part.
Sec. 464.5 Severability.
If any provision of this part is held to be invalid or
unenforceable by its terms, or as applied to any person, industry, or
circumstance, or stayed pending further agency action, the provision
shall be construed so as to continue to give the maximum effect to the
provision permitted by law and such invalidity shall not affect the
application of the provision to other persons, industries, or
circumstances or the validity or application of other provisions. If
any provision or application of this part is held to be invalid or
unenforceable, the provision or application shall be severable from
this part and shall not affect the remainder thereof.
By direction of the Commission, Commissioner Ferguson
dissenting.
Joel Christie,
Acting Secretary.
[FR Doc. 2024-30293 Filed 1-8-25; 8:45 am]
BILLING CODE 6750-01-P