On November 30, Massachusetts Attorney General Andrea Campbell (the “AGO”) unveiled a new proposed rule regulating “junk fees” and consumer subscriptions (the “Proposed Rule”). The Proposed Rule in large part mimics, and in some ways expands upon, similar pending Federal Trade Commission (“FTC”) proposals regulating “junk fees” and “negative options.”
The Proposed Rule would regulate hidden or surprise fees above the advertised price of a good or service, making it the first state attorney general rule on “junk fees,” and the first piece of independent rulemaking on negative options (Georgia has adopted the FTC’s negative option rule by reference). The Proposed Rule would also regulate the use of subscriptions or trial offers by requiring consumer-facing businesses to prominently provide pricing information and offering clear cancellation methods.
“Junk Fees”
As in the FTC proposal, the AGO’s Proposed Rule would require pricing advertisements to prominently display the total price of the good or service offered wherever the price is displayed (the “Total Price”).
- The AGO defines the Total Price to include “all fees, interest, charges, or other expenses necessary or required in order to complete the transaction” other than taxes, charges that reasonably reflect the cost of shipping, and government fees.
- If any fees included in the Total Price are optional or refundable, the disclosure must prominently explain how those fees may be declined or refunded. This requirement is more stringent than the parallel requirement in the FTC’s Junk Fee rule.
- The Total Price disclosure may not state that any fees are required by law when they are not actually legally required.
- The Total Price disclosure must be prominently displayed prior to the consumer’s input of any personal information, with certain exceptions made only for the consumer’s location.
Subscriptions and Free Trials
The Proposed Rule requires consumer-facing businesses offering recurring subscriptions or free trials to:
- Provide a (working) telephone number, e-mail address, and postal address (if billing by mail) through which consumers can use to cancel their trial or subscription.
- Allow consumers who subscribe online to cancel online.
- If the subscription renews or trial period ends more than 30 days following signup, consumers must be notified of the renewal within 5 to 10 days before additional charges would accrue. The renewal notification must take place using the same medium as the signup. Notably, this requirement is more stringent than the parallel FTC one, which only requires an annual reminder.
Additionally, the Proposed Rule requires businesses to clearly and conspicuously disclose with any trial offer:
- All financial obligations of accepting the trial;
- The names of all products, memberships, or subscriptions that the consumer will be charged for;
- How the consumer can reject or cancel the trial offer;
- The time period for cancelling the trial offer without charge; and
- The date the consumer will be charged if they don’t cancel the trial.
The AGO’s “free trial” requirements are largely more onerous than the FTC’s parallel requirements in the Commission’s proposed Negative Option Rule.
Implications
The Proposed Rule’s requirements to disclose the Total Price of goods and services and to revamp automatic renewal practices would require substantial overhaul of business practices for a host of businesses. While the FTC’s “junk fees” and negative option proposals contain similar provisions, the Massachusetts’ Proposed Rule may take effect first. The Massachusetts Proposed Rule is also in many ways more onerous than the FTC’s proposed rules. Therefore, every business that markets its goods, services, or programs to Massachusetts residents—for hotel rooms, event tickets, subscription services, or any product, services, or programs —that have mandatory surcharges or additional fees (e.g., resort fees, service charges) should be on notice of the real possibility that they will have to comply with the new rules in the near future, as early as January 2024.
In addition to the speed with which the Proposed Rule may be enacted, its language should also pose concern to businesses advertising in or otherwise soliciting to Massachusetts residents. While the Proposed Rule’s likely intended target is websites requiring consumers to enter their email or phone number before seeing the price of a hospitality service (e.g., hotel room, event tickets) or consumer product, its expansive language sweeps much more broadly. As currently drafted, the “Junk Fees” provision of the Proposed Rule would require virtually all consumer-facing businesses to disclose the total price of the goods, services, or programs offered before obtaining “any personal information” from the purchaser. Many services are routinely sold through direct interactions where the seller must collect some personal information from the buyer before determining (and disclosing) the total price. These services include health care, legal and consulting services, home and auto repair, and insurance sales, just to name a few. It is unclear how the Commonwealth will implement the regulation for these and related services.
Notably, the FTC’s Proposed Rule expressly states that it does not preempt more expansive state laws “to the extent they afford greater protection to consumers.” As such, businesses operating in the Commonwealth should not rely on the adoption of the FTC’s amendments to preempt any of the extensions of the AGO’s Proposed Rule.
Comments
Comments on the Proposed Rule are due on or before December 20, 2023. Comments on the FTC’s parallel Junk Fee proposed rule are due shortly thereafter, on January 8, 2024. If enacted, both the Massachusetts and the FTC proposals would substantially overhaul the way most consumer-facing businesses market their goods or services. As such, comments on the proposals are crucial. If you would like assistance in drafting comments, please contact the authors or your Manatt relationship professional.