The FTC has proposed the “Rule on Unfair or Deceptive Fees” and is currently seeking public comment until January 8, 2023. The rule would prohibit two specific practices:
- Misrepresenting the total costs of goods and services by omitting mandatory fees from advertised prices. So all the times an ad lists one price, but part way through the checkout process a whole bunch of fees are added on that make the price much higher.
- Misrepresenting the nature and purpose of fees. So all the vaguely labeled fees that the consumer doesn’t actually know what they are paying for, like a “convenience fee”, or labels that are misleading like a “delivery fee” in a food delivery app that does not in fact go to the delivery driver.
We are very excited about this proposed rule because it would also protect creative indie sellers from unfair and deceptive fees by marketplaces! This could be a great tool to combat all sorts of exploitative practices by big tech platforms from Etsy’s offsite ad fees to the way Ebay charges commission on taxes. We are writing a statement summarizing the experiences and views of our members, but encourage you to also submit your own comment. The more voices representing creative indie sellers the more we combat the large corporations who usually get to be the most heard. In our meeting with the FTC they said they would appreciate comments with specific examples so go ahead and get into the nitty gritty details of how platforms work and the way they exploit small businesses.
Here is a summary of our understanding of the proposed rule, both from reading the proposal and our meeting with the FTC. Though we cannot offer any guarantees that this is correct, we have done our best to be accurate and hope it answers your questions.
Who would this apply to?
As written, the proposed rule would be economy wide–so everyone. It would apply to anyone selling goods and services. And it would protect any consumers purchasing goods and services, including businesses purchasing goods and services from another business. This means creative indie sellers would need to be transparent and upfront about any fees with their pricing, but would also be protected them against unfair or deceptive fees from platforms and other businesses. It applies to everyone so that there is an even playing field.
How does the total price requirement work?
This means that the most clearly and conspicuously displayed price must be the total price required to purchase the good or service, excepting the shipping and governmental fees (taxes). You have to advertise the total amount of money someone needs to pay to actually receive what they bought up front, not inflate the prices with mandatory fees later. Most of our sellers are already doing this.
Taxes and shipping do not need to be included in the total price. However, shipping does need to be just the amount charged by a third party to ship a physical item. Any additional handling charges can either be a separate handling fee or rolled into the price of the item. This question of shipping came up a lot, especially as most platforms take their commission from the shipping charge as well. The FTC lawyers we spoke to said they would welcome comments on specific examples of how shipping works on different platforms.
You can roll anything you need to into the price of the item, as long as everything the consumer is required to pay is included in that displayed total price.
You do not need to include optional add-ons to the total price as long as the consumer can still purchase the good or service as described without them. So if you sell a monogrammed computer bag, you’re total price should include the cheapest option for the monogram, but then you can have optional add-ons for variations, as long as the consumer can buy a monogrammed computer bag for the initial price listed.
What is the platform’s responsibility in all this? They often control how prices are displayed.
The rule states that it is the responsibility of the person who displays the price. Who specifically is responsible would be determined on a case by case basis and depend on what level of control each party has. However, if it is a system wide problem on a platform that affects all sellers, it sounds like that would definitely be on the platform.
If this rule goes through, what happens if a customer files a complaint about an unfair or deceptive fee against me?
The FTC does not respond to every complaint it receives and instead looks for patterns of violations. They try to act as efficiently as possible, and so typically look at larger corporations affecting lots of consumers rather than looking at a lot of small businesses. However, if the FTC did look into a complaint against your business and found a violation, the first step in most cases is to send a warning letter telling you to stop. And if you comply, it usually ends there.
We cannot guarantee that will be the case all the time and we cannot offer legal advice, but that is our understanding both from our conversation with the FTC and our own research.
Is this a new thing?
No, unfair and deceptive fees are already unlawful under current FTC regulation. This proposed rule would just make it easier to go after violators, specifically to get monetary compensation for consumers who were harmed. But it does not increase the authority of the FTC or add a new regulation.
What happens next?
Right now we are in the public comment period on the proposed rule. We encourage everyone to go share their specific story of how unfair and deceptive fees have affected their creative small business, especially getting into how fees are charged for shipping or taxes. Our voices have been largely absent from these conversations up till now, and we want to make sure regulators know how this really works for us and how the proposed rule may affect us. Comments can be submitted here until January 8, 2024.
After the public comment period closes, the FTC will review all the comments. After that it goes through the FTC rulemaking process.