Copyright: Leolintang
In October 2023, the Federal Trade Commission (FTC) issued a Notice of Proposed Rulemaking (NPRM) titled “Trade Regulation Rule on Unfair or Deceptive Fees.” The FTC said the proposed rule “would prohibit unfair or deceptive practices relating to fees for goods or services, specifically, misrepresenting the total costs of goods and services by omitting mandatory fees from advertised prices and misrepresenting the nature and purpose of fees.”
Read on to learn more about the proposed rule specifics, next steps in the rulemaking process, how this rule could impact the multifamily industry and other related federal and state actions.
- charging hidden and misleading fees,
- require them to show the total price, and
- impose related disclosure requirements.
The FTC’s NPRM, built on its November 2022 Advanced Notice of Proposed Rulemaking (ANPR) on the same topic, would prohibit companies from:
The proposed rule states that businesses that “offer, display, or advertise an amount a consumer may pay without clearly and conspicuously disclosing the total price” are engaging in an unfair and deceptive practice. This proposal is part of the Biden administration’s broadening interpretation of agencies’ unfair or deceptive acts or practices (UDAP) and unfair, deceptive or abusive acts and practices authority (UDAAP).
If finalized, the Commission’s rule would not preempt related state statutes concerning unfair or deceptive fees or charges, “except to the extent that such statute, regulation, order, or interpretation is inconsistent with the provisions of this part, and then only to the extent of the inconsistency.” While the rule would set the federal bar, this carveout preserves states’ abilities to create stricter regulatory regimes.
The FTC’s rulemaking process began with the publication of an Advanced Notice of Proposed Rulemaking (ANPR) in November 2022, which was followed by a Notice of Proposed Rulemaking (NPRM) in October 2023.
The FTC received over 60,000 comments in response to the NPRM that closed in February 2024. NMHC and NAA were among those that commented—emphasizing that rental housing fees are a necessary tool and many fees are conditional or usage-based and would not be known and able to be disclosed when the rule requires. In addition, the economy-wide coverage of the rule does not appropriately address the nature of housing transactions, which are already comprehensively regulated by existing state, local and federal law.
The FTC received received additional comments from a wide range of stakeholders and will review and consider these comments as they develop their final proposal. While there is no clear timeline fro the rule's finalization, as the 2024 presidential election draws closer, the Biden administration is pressuring agencies to complete ongoing rulemakings to prevent a new administration or a new Congress from quickly reversing those rules. A new administration could effectively withdraw a pending final rule by delaying its publication in the Federal Register. Additionally, Congress could use the Congressional Review Act (CRA) to overturn a final rule.
NMHC does not believe there is a data driven justification for the purported claims of consumer harm on a macro level relating to the imposition of fees in the rental housing industry. Promulgating an extremely onerous regulation like this based solely upon anecdotal, conclusory, and non-representative justification is contrary to appropriate administrative process and fails to account for the unique business needs of apartment providers. Unnecessary regulation runs directly counter to the Administration's objectives to drive new housing development and create more affordable rental housing.
State and local comprehensively protect both parties in real estate transactions and address a variety of considerations applicable to the landlord-tenant relationship, such as what may constitute “rent”; security deposit and fee regulations; and required lease disclosures including in the event of lease modifications.
In particular, states’ fee regulations are robust—developed over time to balance the needs of renters, housing providers and local markets. A one-size-fits-all requirement would interfere with the breadth and differences in states’ fee requirements that already cover limitations in amounts of specific types of rental housing fees, refundability, return and disclosure requirements.
In light of states’ existing requirements, key aspects of the proposed rule interfere with state-level compliance responsibilities and generally, create uncertainty in property management and operations. For example, the definition and disclosure requirements related to offering a "total price" would require housing providers to predict and state the maximum total of all fees and any mandatory charges that a renter may pay throughout the lifecycle of the lease, ignoring the need for flexibility and adjustments based on changing resident preferences throughout their elase period.
Many states have taken steps to combat fees in a variety of sectors, including hotels, debt settlement services, food delivery services, event ticketing, rental cars, car purchases and telecommunications. This has led to a growing patchwork of state statutes, case law and guidance on the treatment of fees.
For example, application screening fees have been a key area of focus in recent years. Vermont banned application screening fees, while Maine, Minnesota and Washington cap the fee at the cost of the screening service. Massachusetts also banned the fees unless imposed by brokers or real estate agents; there is a new regulatory effort in Massachusetts targeting rental housing fees broadly. Many jurisdictions also limit fees including $20 in New York and Wisconsin, $30 in California (adjusted annually pursuant to the Consumer Price Index), and $50 in Virginia. In Delaware, the fee is also restricted to $50 – or 10% of the monthly lot rent, whichever is greater.
Additionally, states already require housing providers to explain all mandatory fees in writing. Recently, the Colorado Attorney General announced a $1 million settlement with a national property management company regarding claims that the company illegally charged tenants for routine services.
There are 12 notable pending bills in state legislatures across the country, most of which are substantially similar to the California statute and would broadly require that the advertised, displayed, and/or offered price for a good or service include all mandatory fees or charges, with the exception of taxes.
The bills under consideration in Connecticut, North Carolina, and Pennsylvania would more narrowly target short-term lodging – defined differently across bills, but generally refers to terms of less than 6 months or occupancy – ticketing fees, and food delivery fees. Of the 12, action – or expiration – is nearest in Arizona, Colorado and Virginia, where the state legislatures are scheduled to adjourn for the year in March.
- Broadband Labeling Order (November 2022): The Order requires internet service providers to “display, at the point of sale, labels that disclose certain information about broadband prices, introductory rates, data allowances, and broadband speeds, and to include links to information about their network management practices, privacy policies, and the Commission’s Affordable Connectivity Program . . . .” The Rule takes effect April 10, 2024.
- “All-In” Pricing NPRM (June 2023): The NPRM proposes to “enhance pricing transparency by requiring cable operators and direct broadcast satellite (DBS) providers to specify the ‘all-in’ price for service in their promotional materials and on subscribers’ bills. This proposal would require cable operators and DBS providers to clearly and prominently display the total cost of video programming service.” Comments were due in July 2023 and reply comments were due in August 2023.
- Billing Cycle and Early Termination Fees NPRM (December 2023): The NPRM proposes to “prohibit cable operators and [DBS] service providers from imposing early termination fees (ETFs) and billing cycle fees (BCFs) on subscribers.” Comments were due February 5, 2024 and reply comments are due March 5, 2024.
While not directed at property owners, it's important to also note that there are three rulemakings underway at the Federal Communications Commission (FCC) that attempt to increase price transparency among broadband providers, cable operators and direct broadcast satellite providers. While the proposed rules do not ban rental housing fees outright, they would increase transparency by requiring additional fees to be included in the advertised price.
