'Junk Fees' Rules Raising Industry Red Flags

Telecom and media companies support the intentions behind FCC and FTC “junk fees” regulatory actions, but implementation raises questions and potential compliance headaches, industry representatives said. At an FCBA event Monday, Brownstein Hyatt financial services lawyer Leah Dempsey said many industries see the White House and regulatory agency focus on junk fees as "kind of a campaign issue." She said President Joe Biden will likely be "touting the war on junk fees" at his next State of the Union address. Dempsey also said there are concerns that agencies are coming to predetermined outcomes on fees.

Given that it's difficult to get anything done in Congress, agencies are trying to address the issue instead, said Consumer Reports Senior Policy Counsel Jonathan Schwantes.

Pointing to the FCC's "all-in" video service pricing NPRM adopted in June (see 2306200042), Brendan Murray, Media Bureau policy division deputy chief, said the aim is to make it easier to comparison shop. He said lack of a clear bottom-line number for a monthly subscription also hinders household budgeting. Murray said the agency's approach would still allow for cable and direct broadcast satellite operators to break out retransmission consent costs and explain that money is going to broadcasters. The agency is specifically looking at items Verizon raised about implementation deadlines and grandfathering of legacy plans, he said. Murray noted the video service early termination fee (ETF) and canceled service refund proceeding reflects that cable and satellite practices now can make it difficult to change providers and can also impede household budgeting. The ETF NPRM was adopted 3-2 in December (see 2312130019).

The FCC's all-in pricing proposal falls short by not also including the set-top box fee -- "the granddaddy of them all," said Schwantes.

Often junk fees are just a revenue source for businesses, said Stacy Cammarano, FTC Bureau of Consumer Protection lawyer and lead attorney on a junk fees rulemaking there (see 2310110076). She said the proceeding's NPRM elicited comments from across numerous industries, showing the prominence of the issue. The FCBA event also featured a discussion of the Consumer Finance Protection Bureau's guidance issued in October that bars large banks and credit unions from charging customers a fee for accessing their account information.

Following California's general ban on junk fees enacted last year, and going into effect July 1, states including New York, Massachusetts and Virginia, are considering doing similarly, said Aaron Burstein, Kelley Drye consumer protection and data security lawyer. States "are going to move fast in this space," said DirecTV Vice President-Legal Sam Sadighi.

Pricing practices such as price obfuscation, “partition pricing” (where a price is divided between a base price and mandatory surcharges) and “drip pricing” (where consumers hear the base price up front but surcharges later) all affect consumer perception, said Columbia University Greenwald Professor of Business Vicki Morwitz. The end result of a junk fee ban could be higher demand than there would be otherwise and consumers more willing to pay more, she said. She said those effects don’t go away with experience or the provision of totals. Junk fees also can put honest businesses that are upfront about costs at a competitive disadvantage, said the FTC's Cammarano.

Industry participants at the FCBA event raised a litany of concerns about the regulatory efforts. Sadighi said there's a concern about overwhelming consumers with a confusing array of information. Also unclear is how to account for one-time fees like for activation vs. recurring monthly fees, he said. The FCC's all-in pricing requirement makes for national advertising problems since prices can vary by region due to regional sports fees or broadcast TV surcharges, he said. The wireless industry is already governed by an array of rules, such as the FTC's truth-in-billing requirement and the FCC's broadband labeling requirement, as well as CTIA's own consumer code and principles, said CTIA Connected Life Director Avonne Bell. She said it's not clear that there's a need for the FTC to layer further junk fee requirements atop that.