Our Statement on the FTC proposed rule on unfair and deceptive fees

To everyone who joined our discussion on the FTC’s proposed “Junk Fee” rule, thank you! We drafted a statement summarizing the experiences of our members, and submitted it to the FTC this morning. Continue scrolling to read it.

We also encourage each and every one of our members to submit your own comment. The FTC would appreciate comments with specific examples on how unfair or deceptive fees affect specific types of creative businesses. Deadline for public comments is next Monday – January 8th, 2024.

Read our full statement

The Indie Sellers Guild supports the proposed “Rule on Unfair or Deceptive Fees” as a means to protect creative small businesses from the deceptive and unfair fees charged by e-commerce marketplaces, online platforms, and payment processors. Given the prevalence and expense of unfair fees we have observed in our industry and heard reported by our membership, we believe the benefits of the proposed rule will vastly outweigh any small expenses for creative small businesses to come into compliance with the rule. However, we believe that language should be added to delineate between the responsibilities of independent sellers on e-commerce platforms, and the responsibilities of the e-commerce platforms themselves.

The Indie Sellers Guild is a grassroots nonprofit that fights for a better, fairer internet–where makers, artists, designers and other creative indie sellers can run sustainable online businesses. We advocate for creative small businesses of handmade, vintage, unique, or craft goods.

Definitions:

E-commerce marketplace: a website where a variety of third-party vendors may list for sale goods or services within the same platform. E-commerce marketplaces typically attract customers and facilitate transactions in exchange for fees charged to the vendors.

Listing: web page with information for a particular good or service sold on a marketplace.

Payment Processor: company that allows for credit and debit card transactions for online sales, either as part of a marketplace or for independent websites.

Processing fee: percentage charge to process payments online, usually 3-5%.

Transaction fee: commission the marketplace charges for each sale made through the marketplace, usually a percentage but can be a flat fee or a combination of the two.

Unfair and Deceptive Fees in e-commerce:

Many of the types of fees prohibited by the proposed rule are common practice in e-commerce. Creative small businesses are frequently unsure of the amount e-commerce marketplaces will charge them on each sale until after the sale has been processed. When creative small businesses sign up for a new e-commerce service, marketplaces are frequently deceptive about the exact percentage and number of fees that will be charged to the small business in order to process sales through the marketplace. Here are a few examples:

• Ebay charges their commission on the transaction total, including taxes. Creative small businesses do not set the taxes on the marketplace; Ebay calculates taxes for them and then still takes a percentage of the taxes, leaving the small business short on the money they owe in taxes.
  • Note: Etsy charges their payment processing and transaction fee off the total including shipping but does exclude taxes.
• Reporting of fees can be so convoluted that creative small businesses have a difficult time determining if they have been paid correctly. Reports are frequently aggregated by time period instead of broken down by order.
• Marketplaces charge a transaction fee just to run sales through the marketplace, with that fee considered the cost of doing business on that marketplace. However, once payment processing fees, on-site advertising fees, and off-site advertising fees are included, the true cost of doing businesses on a marketplace can be double or triple what a small business was initially led to believe. 

Advertising Fees

Etsy’s Offsite Ads Program adds a 12-15% fee onto any sale attributed to Etsy’s off-site ads, bringing the total fees paid to Etsy to around 22-35% of the transaction amount. Sellers who have never earned more than $10,000 in any one-year period pay 15%, and are opted into the program by default, but are allowed to opt out. Sellers who have earned more than $10,000 in a year (even if their current income is below $10,000) pay 12%, and cannot opt out.  This is a predatory practice, as any seller who wishes to advertise either an independent shop, or independently purchase ads for their Etsy shop (e.g. from Facebook or Google, which allow you to set your own keywords and better optimize ad spend) must bid against the ads Etsy purchases on their behalf (which offer no optimization or control), making independent advertising more expensive. Sellers also do not know in advance which sales will be subject to this additional advertising expense or which of their items will be advertised through Etsy’s Offsite Ads Program, making it next to impossible for sellers to accurately predict their margins and set their prices accordingly.

Shipping Fees

Shipping costs vary greatly depending on customer location within the US, and how quickly a customer needs an item. For instance, an item weighing 4 ounces costs from $3.59 to $48.90 to ship with USPS. A 4 pound item’s shipping cost varies from $8.55 to $82.50. Payment processors charge fees on shipping–around 3-4% of the cost of shipping. On top of this, e-commerce platforms charge their own fees on shipping. Etsy applies transaction fees, payment processing fees and Offsite Ad fees to postage bought within the Etsy website. Total fees charged on a buyer’s shipping payment on Etsy are as follows:

9.5%, regular sale
21.5%, >10K seller, Offsite Ad sale
24.5%, <10K seller, Offsite Ad Sale

In order to offset these highly variable fees, sellers commonly overcharge buyers for shipping. If marketplaces were not permitted to charge fees on buyer shipping payments (or could only charge payment processing fees on shipping payments), we would be able to price our shipping more accurately.

These unfair and deceptive fees have caused widespread frustration among creative indie sellers. In April 2022, approximately 29,000 Etsy sellers and another 60,000 Etsy buyers signed a petition against several of Etsy’s policies, including a new fee increase and the forced off-site ads.

Number of Americans affected

E-commerce is a huge and growing sector of the US economy, with more and more small businesses and independent contractors earning a living through online platforms that connect them to customers. In 2023 there were over 4 million US active sellers on Etsy¹ alone, and generating $6.67 billion in gross dollar value from sales in 2022². Ebay had an estimated 5.67 million sellers in 2022³, and Amazon had 2 million independent sellers in 2022⁴.

According to the Etsy’s Global Seller Census⁵ in 2021, 81% of Etsy sellers are sole proprietors and 96% operate their business from their home, indicating that these are small entities trying to earn a living through some of the largest corporations in the world. That same census showed Etsy sellers are disproportionately women, live in rural areas and identify as LGBTQIA+. Our own research indicates that Etsy sellers disproportionately identify as having a physical disability, mental disability or being neurodivergent, and having primary caregiving responsibilities. “This indicates that indie sellers overrepresent those who have been pushed out of the traditional workforce. Such people are even more dependent on platforms because they cannot easily re-enter the traditional workplace. They also suffer more from platform policy and algorithm changes that micromanage how they work.”⁶ Unfair and deceptive fees from online platforms take money from some of the most vulnerable earners in our economy.

Preliminary data from our own Marketplace Research Study indicates that the deceptive nature of fees can be particularly difficult for creative small businesses. When asked “It’s MOST important to me that platform fees be…:” more people responded “Transparent in what they’re used for” at 43.5% than “Low” at 37.9%, with another 18.6% responding “Consistent”.

Our Concerns

Shipping:

We are concerned with how the proposed rule would apply to shipping charges on items purchased from online sellers. As the rule is currently written, businesses would be prohibited from charging shipping fees in excess of the amount it actually costs to have an item shipped. For example, if USPS quotes $3.50 to ship an item to a buyer, online sellers could only collect $3.50 in shipping fees from the buyer.

However, on Etsy and many other e-commerce marketplaces, transaction and payment processing fees are assessed on the total amount of the transaction, including on shipping when postage is purchased via the e-commerce platform. Under the proposed rule, this would leave independent e-commerce sellers in a difficult position: unable to charge buyers for the full amount sellers are required to pay in order to purchase postage. 

In effect, as the proposed rule is currently written, sellers would be forced to absorb the fees assessed by the platform on postage purchases. We believe that the proposed rule should either be amended to enable sellers to charge buyers the full amount (postage price plus payment processing and transaction fees) in shipping costs, or otherwise amended to prohibit marketplaces from assessing additional fees on postage purchases.

Lack of Control:

In the current e-commerce environment, independent sellers have very little control over how their listings are displayed on a marketplace. For example, a seller may inform prospective buyers of factors that will affect the total price of the item, including shipping options and customizations, as well as information regarding refund policies. But sellers on e-commerce marketplaces do not have the ability to ensure that this information will be prominently displayed by the marketplace. On Etsy, for example, the description field, where sellers enter this information, is hidden by default on the mobile version of the Etsy website. Buyers have to be savvy enough to locate the description field and expand it in order to have access to this information.

Our concern is that independent sellers typically want to provide as much information and transparency as possible, but that e-commerce marketplaces sometimes make this difficult or impossible. We hope the FTC will take into account the responsibility of e-commerce marketplaces to provide independent sellers with the means to comply with all regulations. 

Conclusion

The Indie Sellers Guild views the proposed “Rule on Unfair or Deceptive Fees” as a net positive for online creative indie sellers. We hope the proposed rule will aid in enforcement and compensation for independent small businesses that have experienced unfair and deceptive fees from e-commerce platforms, especially in regard to advertising and shipping fees. Our main concern is that sellers would struggle to comply with the rule given the lack of control they have in how information is presented to the buyer in online marketplaces sales. We suggest that further language be included to either indicate e-commerce platform’s responsibility to provide a way for independent sellers to comply with the rule, or that limits the liability for independent sellers who cannot comply with the rule due to actions of an e-commerce marketplace that are beyond their control.

1. Number of active Etsy sellers in the US calculated from Etsy’s stated number of active sellers at 7.5 million multiplied by the percentage of Etsy sellers in the USA at 62%.
2. “Etsy Marketplace GMV” & “Etsy International Sales Percentage”, Marketplace Pulse, 2023, https://www.marketplacepulse.com/stats
3. Curry, David, “eBay Revenue and Usage Statistics (2023)”, Business of Apps, Nov. 20, 2023, https://www.businessofapps.com/data/ebay-statistics/
4. “Amazon marketplace statistics 2022”, eDesk, June 26, 2023, https://www.edesk.com/blog/amazon-statistics/
5. “Etsy Sellers in the United States”, Global Etsy Seller Census, 2021, Etsy, https://storage.googleapis.com/etsy-extfiles-prod/Press/Etsy-Global-Seller-Census.pdf?ref=news
6. Close, S., Lohr, C. 2023. Asset-Based Community Development in an Online Context: Crafting Collective Experience Into an Asset of Expertise. Gateways: International Journal of Community Research and Engagement, 16:2, 1–15. https://doi.org/10.5130/ijcre.v16i2.8684

Our full analysis of the proposed rule can be found here.

Finally, we made a couple images with excerpts from our statement that speak to the specific effects of unfair fees on Etsy, and are including them here. Feel free to download and share!