Final FTC Rule on Junk Fees
Many of AAGD’s owner and manager members have been following the proposed Federal Trade Commission (“FTC”) rule on “junk fees.” On December 17, 2024, the FTC announced the final rule, which excluded the rental housing industry. The rule only applies to live-event ticketing and short-term lodging such as hotels, resorts and vacation rentals. Both NAA and other real estate associations argued for the exclusion of rental housing from the rule.
Background
This process began in 2022 when the FTC requested public input on a rule eliminating “unfair and deceptive” pricing tactics. A proposed rule was announced in October, 2023. The proposed rule did not ban particular fees, nor put caps on fees. Rather, it had two primary components:
- Disclosure of all fees in advance (hidden fees prohibited); and
- Ensure that fees are accurately described (misleading fees prohibited).
The goal was to protect consumers by making sure that all fees were disclosed in advance and there were no surprises upon final purchase, and that fees were described in such a way that consumers could understand the service, benefit, or goods connected with the fee. The hope was that an obligation to describe a fee in detail would limit fees that essentially had no purpose other than revenue generation.
Final FTC Rule Limited in Scope
NAA and its allies argued that the rental housing industry is fundamentally different from a hotel or live-ticket transaction. The landlord-tenant relationship involves an ongoing contractual relationship, typically lasting at least a year. Residential leases are already subject to extensive regulation at the state and local levels. In addition, rental applicants and residents receive information throughout the application and leasing process regarding the services and benefits that may result in fees being charged. The exclusion of rental housing from the final rule is a significant development, preventing a new layer of federal regulation.
Looking Forward
Despite the limited scope of the new FTC rule, the policy discussion around unfair and deceptive pricing, and policymakers’ responses, continues at the state and local levels. Several states and local governments have adopted extensive disclosure requirements of all fixed and recurring fees, and potential fees for optional services or for non-compliance fees in the event of lease violations, which must be made prior to the payment of a non-refundable application fee. This has required fee disclosure in multiple formats such as advertising, websites and social media, and with rental applications. Texas is not immune from this trend, and bills requiring fee disclosure may be introduced in the upcoming legislative session. In addition, Texas residents may have remedies for breach of contract or violations of the Deceptive Trade Practices Act when fees are not properly disclosed in the lease or charged correctly in practice. TAA’s guidance regarding fees remains unchanged, and includes: 1) the fee have a reasonable relationship to the work or service you provide, not merely an amount to enhance your bottom line; and 2) you clearly disclose the fee in the Lease Details section on the first page of the lease, in the special provisions paragraph of the TAA Lease Contract or in a lease addendum. Further information can be found in the TAA Redbook online.