FTC Targets Undisclosed Franchising Fees: Industry Implications

On July 15, the Federal Trade Commission (FTC) announced new guidance making it illegal for franchisors to charge and collect undisclosed fees. The FTC also clarified that non-disparagement clauses preventing franchisees from reporting to regulators are against the law, Restaurant Dive reported. This initiative aims to increase transparency and protect franchisees from unfair practices that can impact their profitability.

Franchisees have raised concerns about unexpected technology and payment processing fees not disclosed in franchise agreements. The FTC’s intervention underscores the necessity for franchisors to review their practices to comply with transparency laws.

Matthew Haller, president and CEO of the International Franchise Association (IFA), highlighted the importance of transparency but argued that the new guidance could stifle innovation and adaptability. He stated, “The FTC guidance runs contrary to the practices of the majority of franchisors and would unnecessarily restrict franchisors’ ability to innovate and evolve their system, damaging the equity of franchisees.”

This guidance is part of a broader trend towards increased regulation of undisclosed fees across industries. Earlier this year, California implemented a rule requiring businesses to disclose all mandatory fees, reflecting growing consumer demand for transparency. Washington, D.C., introduced measures to protect businesses from deceptive fee practices.

The FTC’s crackdown on undisclosed fees and restrictive clauses ensures a fairer landscape for franchisees. It highlights the importance of transparent and fair practices in franchising, safeguarding smaller operators from hidden costs and restrictive contracts.