The Federal Trade Commission (FTC) is due to vote on the so-called “junk fee” rule by the end of summer. President Biden has been campaigning for the cause over the last two years, including in two State of the Union addresses, purportedly as a way to lower costs for consumers who have been suffering from inflation during much of his presidency.
Promoting this rule is a cunning move, as many consumers see these fees, according to the FTC, as “annoying.” It may indeed succeed in distracting voters from the Biden policies which led to painful inflation, but it won’t reduce costs for consumers. Instead, this rule would force every sector of the economy to advertise often unrealistically higher prices just to comply. Consumers can kiss those discounts goodbye.
What is the proposed junk fee rule? The rule is actually named the “Trade Regulation Rule on Unfair or Deceptive Fees.” It would ban fees the FTC deems unfair, but the rule doesn’t define which charges are unfair. It would also ban fees that are supposedly deceptive because the final price isn’t calculated until after the consumer makes all of their choices and just before the consumer finalizes the purchase. It would even ban “unnecessary” fees, with the FTC deciding which fees are necessary and justified.
There are plenty of policy reasons to oppose the rule, but there’s a more fundamental reason it shouldn’t be advanced: it’s unconstitutional.
Congress never gave the FTC the authority to regulate pricing policies across the entire complex economy, all in one sweeping edict.
Proponents of the rule in Congress know this, because they introduced the Junk Fee Prevention Act that would, for the first time, give the FTC the authority to enforce requirements on certain industries to “display the total price (including mandatory fees) of the offered good or service in each advertisement and when the price is first shown to the consumer.” The bill would also prohibit “excessive or deceptive mandatory fees.” The bill was never adopted.
The FTC claims it is acting under the authority of Section 18 of the Federal Trade Commission Act (FTC Act), in which Congress granted the Commission authority “to promulgate trade regulation rules, which define with specificity acts or practices that are unfair or deceptive acts or practices in or affecting commerce.”
But if this authority were as broad and all-encompassing as the FTC impliedly claims, it would violate the nondelegation doctrine.
Under the major questions doctrine, there must be clear and specific congressional authorization for agencies to act in major ways or on matters of major national significance. The FTC’s recent interpretation of the authority Congress granted it has become extraordinarily expansive. Together with the noncompete rule, the junk fee rule would have the FTC controlling a vast amount of our economic lives, with hardly a word of specific authority from the legislature.
As constitutional scholar James C. Phillips suggested in the Yale Journal on Regulation, “instead of legislative delegation, the major questions doctrine is about the flip side of the coin: executive usurpation.” He explains that, under this doctrine, “the problem isn’t what Congress gave, the problem is what the Executive took.” And with this rule, the FTC intends to take more than Congress did, or even could, delegate.
The FTC’s junk fee rule, which would be even broader than the never-adopted junk fee legislation, has no clear statutory basis. The vague authority that the FTC claims just won’t cut it on an issue of such major national significance.
But does the junk fee rule qualify as a “major question?” There’s debate about what counts as a matter that has “vast economic and political significance” to trigger the doctrine, but as Justice Stewart famously said about pornography, “I know it when I see it.” Anyone who contemplates the junk fee rule’s impact across every industry will acknowledge that the rule tackles an issue of major national import.
Consider this advice from Skadden, one of the nation’s most prestigious law firms: “Given the expansive approach the FTC has taken . . . businesses may want to prepare for the possibility of a rule that applies very broadly across sectors and types of fees, and mandates many new disclosures. Businesses can begin this process by reviewing their pricing disclosure practices and exploring possible business alternatives to implement if the Proposed Rule . . . is ultimately adopted.”
The rule is also significant because it would ban entire sectors of the economy that didn’t even exist when FTC claims Congress gave it authority to ban them. According to Bloomberg Law, “Online marketplaces said a full disclosure of costs could make it harder for them to use variable pricing tools that can save consumers money.” Imagine the FTC banning AI based on authority it claims Congress gave it in 1914.
How, for instance, could Apple advertise the so-called “up front” pricing for an iPhone, which offers a wide variety of options even within a class, so that consumers can ultimately design their own phone? Apple would have to advertise the highest possible price to comply with the rule.
Justice Gorsuch wrote in his concurring opinion in West Virginia v. EPA, “Whether these plants should be allowed to operate is a question on which people today may disagree, but it is a question everyone can agree is vitally important.” With the junk fee rule, it’s not about whether certain businesses can operate, but about whether certain fundamental price structures can exist across every section of the economy.
Gorsuch continued: “Congress has debated the matter frequently. And so far it has ‘conspicuously and repeatedly declined’ to adopt legislation similar to the Clean Power Plan. It seems that fact has frustrated the Executive Branch and led it to attempt its own regulatory solution in the CPP.” Likewise, in the junk fee rule, the FTC is seeking to do what Congress refused to do, and instead is now attempting to impose its own regulatory solution on industry writ large—one-size-fits-all.
As the Commissioners prepare to vote on the rule in the coming days, they must consider whether the rule addresses a major question in a major way. If they don’t, the Supreme Court surely will.
Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].