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FTC is taking action on “junk fees” – Five principles for better fee disclosures

On November 8, 2022, the Federal Trade Commission (FTC) filed their Advanced Notice of Proposed Rulemaking (ANPR) seeking comments on a potential rule prohibiting “junk fees.” In association with the CFPB and the Biden Administration, the FTC is looking to take action to prohibit so-called “junk fees” that “can weaken market competition, raise costs for consumers and businesses, and hit the most vulnerable Americans the hardest.” FTC discusses the context for and thinking behind the ANPR here.

What are junk fees and hidden fees?

According to the ANPR, “junk fees” refers to unfair or deceptive fees that are charged for goods or services that have little or no added value to the consumer. They are fees that a consumer would not reasonably assume to be included in the overall advertised price. “Hidden fees” are fees for goods or services that are deceptive or unfair because “they are only disclosed at a later stage in consumer’s purchasing process or not at all.”

Federal trade attorney Donnelly McDowell has done an excellent job summarizing the legal elements of the ANPR here.

It’s important to note that not every fee is junk. Companies can reasonably charge many types of fees or interest as a part of a transaction with consumers. However, no matter what type of fee, it’s important to assess whether it is reasonable, expected, and adds value to consumers.

What can you do to design better information around fees?

All fees should be disclosed clearly and conspicuously and not hidden in the purchase process. If you charge fees, interest, or other charges, you can follow five principles to better disclose them and avoid the perception that they are “hidden.”

  1. Tell consumers upfront what they’ll pay. If there are fees that are going to be a part of the purchase, include that in advertisements or other communication with consumers before purchase. This will eliminate “surprises” in the transaction process.

  2. Clearly name fees. Often fees are bundled into larger ambiguous fees such as “administration fees” or “transaction fees.” Be clear what the fee is for and use plain language terms that most consumers would understand.

  3. Avoid digital dark patterns that obscure understanding. Make your transaction process as transparent as possible. When fees exist, present them clearly. Don’t use methods that force people quickly through the transaction process or to compel them to purchase without seeing, reading, or understanding the fees.

  4. Use the 4 Ps to guide your design. FTC has frequently cited the 4 Ps of disclosure, which can also guide how you present fees:

  • Make the fees Prominent. Put fees in a place where most consumers would easily see them. Make them “unavoidable” for consumers.

  • Use a clear Presentation. Present fees using large, easy to read fonts and an overall design that allows people to see and use them.

  • Use a Placement that helps consumers see the fees. Put fees at a place where consumers would expect to see them. Don’t hide them in places where consumers wouldn’t normally go.

  • Put the fees in Proximity to other important fees and to the total charged. Don’t present certain fees but not others – put them together in a framework that helps consumers see how they relate to the total purchase. Also, be sure to disclose or present fees as early as possible in the customer journey and as close to the value as communicated and understood by the consumer.

5. Test with consumers. As always, the consumer should be your ultimate source as you design. Present the documents, websites, or transaction flows to target consumers and assess the following questions: Do they see the fees? Are the fees clear? Do they understand what the fees represent? Do they understand the fee in relation to the total transaction costs? Can they easily understand fees and use them to compare with other, similar services? By testing, you can design better – more consumer- focused – information that follows the 4 Ps.

The benefits of plain language and clarity in reducing the impact of fees

By taking steps toward education, brands have the opportunity to establish trust and build loyalty by saving consumers time and reducing cognitive costs. If you are looking for guidance on navigating the FTC’s proposed regulations or simply want to improve your customer experience, we are here to help!

Contact us today to set up a consultation.

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