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Business Journals
16-06-2025
- Business
- Business Journals
Hidden fees, hidden danger: Why you shouldn't add a 'tariff fee' to offset new costs
As companies start to feel the effect of the Trump administration's tariffs, many are looking for ways to offset increased costs. Some are reconsidering their supply chains, looking for new manufacturing partners in lower-tariff countries. Others are increasing prices for American consumers. To avoid the unappetizing prospect of raising prices, other companies are imposing a tariff fee or import charge at checkout. But this type of surcharge — one that is not included in the initially displayed price — creates significant legal risk by and potentially violating California law, as well as recently-enacted laws prohibiting so-called drip pricing in several other states. What is drip pricing and why is it getting banned? Drip pricing is a sales tactic where businesses advertise a low upfront cost for a product, then slowly reveal additional fees through the purchasing process. The result is that the price a customer pays is often significantly higher than the price originally advertised. Drip pricing bans (also called junk fee bans and price transparency laws) are laws that require businesses to advertise the full total cost of their products up front and prohibit the addition of further mandatory charges on top of those advertised prices, with exemptions for shipping fees and taxes. This means no environmental surcharges, resort fees, processing fees or even handling fees. It also almost certainly means tariff fees are also prohibited. State legislatures have recently passed a flurry of drip pricing bans in response to consumers' frustrations with hidden fees added to ticket prices for live events and hotel prices. A New York state law and an FTC Rule — effective May 12, 2025 — are limited to banning hidden fees in the ticket and short-term lodging contexts. Other state laws, including California's, take these bans a step further. Summary of state drip pricing bans California was the first state to outlaw junk fees. Effective July 1, 2024, Senate Bill 478 amended the Consumers Legal Remedies Act (CLRA) to make it illegal for businesses to advertise or display a price for a product or service that doesn't include all mandatory fees and charges. The CLRA gives consumers the right to sue for damages suffered as a result of the fee. Since the day the law took effect, plaintiffs have filed many such lawsuits — even alleging that because of legislative history providing that California law has always outlawed deceptive junk fees, that the amendment to the CLRA is effectively retroactive. Minnesota followed with a similar law, SF 3537, that took effect on Jan. 1, 2025. It amended the state's Uniform Deceptive Trade Practices Act to classify the failure to include mandatory fees in advertised prices as an unfair business practice. However, unlike California's law, Minnesota's statute doesn't allow individuals to sue for damages. Instead, it permits only injunctive relief and legal fees for private parties. The Minnesota attorney general, however, can impose civil penalties of up to $25,000 per violation. Massachusetts became the third state to address hidden mandatory fees, passing its own law on March 3, 2025. The law takes effect on Sept. 2, 2025. To bring a claim under this law, a consumer must first send a 30-day demand letter and show that the hidden fees caused them a financial loss. On May 2, 2025, Virigina's governor signed a similar law adding drip pricing to a list of prohibited practices under Virginia's Consumer Protection Act. The ban will go into effect July 1, 2025. Virginians who suffer a loss from drip pricing will be able to seek actual damages or $500, whichever is greater. Virginia's law is very likely not the last of its kind: Connecticut, Hawaii, Illinois, New York, Rhode Island, and Maine all have similar legislation under consideration. So what's a retailer to do to address tariff costs? Given the rapid proliferation of drip fee laws, and the fact that most businesses with an online presence have customers nationwide, including in states with drip pricing bans either in effect or soon to be effective, the safest approach to tariff fees is to avoid them. Alternative options for addressing the budget impacts of tariffs include: Raise prices (with an explanation): Drip pricing bans prohibit changes in the total price shown to the customer. You can increase the overall price from the outset and still show a breakdown of what's included in the cost (e.g., item price + tariff fee), as long as the final price is the most prominent, so that it's clear what the consumer will be paying. Drip pricing bans prohibit changes in the total price shown to the customer. You can increase the overall price from the outset and still show a breakdown of what's included in the cost (e.g., item price + tariff fee), as long as the final price is the most prominent, so that it's clear what the consumer will be paying. Offer optional fees: California, Minnesota and Massachusetts only ban mandatory fees. Optional charges — like 'pay what you want' or optional 'tariff offset' add-ons — are allowed. In Minnesota, be cautious, as its definition of mandatory includes fees a typical consumer might assume are included in the listed price. Make sure you explain very clearly that the fee is optional and consult your legal counsel if you are uncertain about the wording you're using. California, Minnesota and Massachusetts only ban mandatory fees. Optional charges — like 'pay what you want' or optional 'tariff offset' add-ons — are allowed. In Minnesota, be cautious, as its definition of mandatory includes fees a typical consumer might assume are included in the listed price. Make sure you explain very clearly that the fee is optional and consult your legal counsel if you are uncertain about the wording you're using. Shipping fees: All states with drip pricing bans allow reasonable shipping charges. Businesses currently offering free or subsidized shipping could consider charging for shipping and explain that the change in policy is due to increased tariff-related costs. Retailers should exercise caution before charging tariff fees in states that have not enacted drip pricing laws — as businesses in any state may face legal action under general deceptive practices statutes if they fail to disclose mandatory fees clearly. For instance, California saw many such lawsuits in the past decade based on the premise that advertising one price and ultimately charging a higher one constitutes a deceptive bait-and-switch tactic. Before implementing tariff fees for customers outside of California, Minnesota, Massachusetts and Virgina, they should: Confirm customer location: Determine where their customer is located to ensure that they are not inadvertently running afoul of drip pricing bans in certain states. Determine where their customer is located to ensure that they are not inadvertently running afoul of drip pricing bans in certain states. Disclose tariff fees: Clearly disclose the total cost of the product including the tariff fee or import charge as early in the shopping experience as possible, ideally before the customer reaches checkout. The disclosure must be clear and conspicuous. This can also help avoid customers abandoning their carts from the sticker shock of an increased price. Clearly disclose the total cost of the product including the tariff fee or import charge as early in the shopping experience as possible, ideally before the customer reaches checkout. The disclosure must be clear and conspicuous. This can also help avoid customers abandoning their carts from the sticker shock of an increased price. Monitor pending legislation: State laws are changing rapidly and what's legal in a state today may not be soon. Retailers need to be prepared to adjust tariff fees for each state as new laws are enacted or amended. Conclusion Few areas of law and policy are evolving as quickly as the tariffs, but regulations around fees are not far behind. Retailers should keep a close eye on these developments and consult knowledgeable legal advisors to craft creative strategies that fit their business needs in this challenging environment, while preventing unnecessary legal risk. Learn more. Benesch, an Am Law 200 law firm with more than 450 attorneys and offices in Chicago, Cleveland, Columbus, New York, San Francisco and Wilmington, continues to be recognized by the legal industry. Among the firm's recent accolades, 40 Benesch attorneys and 19 practice areas were ranked in the 2025 edition of Chambers USA, and the firm was named a 2024 Recommended Firm by Benchmark Litigation. Benesch also continues to receive numerous Best Law Firm® awards, including national first-tier rankings in healthcare law, transportation law, construction litigation and commercial litigation, and being named Transportation Law Firm of the Year seven times. Additionally, Benesch's revenue growth in 2023 ranked fifth among the second hundred on the Am Law 200 list. The firm was recognized by Chicago Lawyer as the fastest-growing law firm in the city and has quickly risen to the second-largest law firm in Cleveland.
Epoch Times
06-05-2025
- Business
- Epoch Times
FTC Issues New Info About Rule on Unfair or Deceptive Fees Days Before It Takes Effect
The Federal Trade Commission (FTC) published new information on May 5 detailing how its sweeping new 'Rule on Unfair or Deceptive Fees' will impact consumers and businesses. The It prohibits what the agency describes as 'bait-and-switch pricing and other tactics' that it says are used to hide total prices and mislead people about fees for live events and short-term lodgings, including hotels, vacation homes, and rental cabins. 'These unfair and deceptive pricing practices can harm consumers and undercut businesses trying to compete fairly on price,' the agency The new rule states that businesses must inform consumers about the total price they will have to pay for live-event tickets or short-term lodging in all of their advertisements and other promotional offers. According to the FTC, the rule 'preserves flexibility for businesses by not prohibiting any type or amount of fee or specific pricing strategies,' and requires instead that they tell consumers the 'whole truth up-front' about the total price of tickets and lodging, as well as any other fees. Related Stories 5/5/2025 5/4/2025 Under newly published The agency said live event tickets include concerts, sporting events, music, theater, and other live performances that audiences watch as they occur, but not pre-recorded audio or visual performances. Short-term lodgings include temporary sleeping accommodations at a hotel, motel, inn, short-term rental, vacation rental, or other place of lodging, and home shares and vacation rentals offered through platforms such as Airbnb or VRBO. What's Included in the FTC Rule? Businesses must include all fees or charges that consumers are required to pay, no matter what, the FTC said. This includes credit card processing charges when there is no other viable payment option and charges for ancillary goods or services that customers would reasonably expect to be part of the purchase, such as additional hotel fees or cleaning fees. Additionally, it includes fees that people are effectively unable to agree to because the business employs practices such as default billing, pre-checked boxes, or opt-out provisions. Government charges, shipping charges, and fees or charges for optional ancillary goods or services that people choose to add to their purchase are excluded from the rule. Still, the FTC noted that businesses must disclose that they have excluded charges from the total price before asking for payment and clearly and conspicuously disclose the nature, purpose, and amount of the fee or charge and the good or service for which the fee or charge is imposed. The FTC also clarified that the final payment amount must be displayed 'as prominently as, or more prominently than, the total price' and that fees and charges should not be misrepresented. The FTC said businesses should also disclose any other fee-related information they choose to convey, such as whether the fee is refundable, and avoid using vague terms such as 'convenience fees,' 'service fees,' or 'processing fees. ' The agency noted that businesses can still use dynamic pricing strategies to adjust prices based on demand or inventory, so long as the pricing information is not misleading. The FTC According to the agency, these time savings are equivalent to more than $11 billion over the next decade.
