The FTC, Franchise Rules and Fees: What Actually Changed

The FTC franchise rules fees fall under have not changed in substance: the Franchise Rule governs disclosure, not fairness. What changed is attention. Staff guidance now treats a fee imposed outside the disclosure document as a potential violation, and the junk-fee rulemaking landed narrowly, outside franchising altogether.

If you advise franchisors, you read the July 2024 documents when they landed and you have already told your clients what they mean. I am not going to explain the Franchise Rule to franchise counsel.

What I can offer is the other half of the problem: what disclosure discipline looks like inside a headquarters with no in-house lawyer, and where the document and the operating reality drift apart. None of what follows is legal advice, and any specific fee — its basis, its timing, its jurisdiction — belongs with franchise counsel.

A disclosure regime, not a price control

The rule's design is worth restating: clients misremember it in the reassuring direction. Fees appear in the disclosure document across the initial-fee, other-fees, initial-investment and advertising items, and what the FTC's compliance guide requires of each is procedural:

• The amount or the formula, when it is due, to whom it is paid, and whether it is refundable.
• Disclosure delivered at least fourteen days before signing or payment.
• Any financial performance representation supported by a reasonable basis, with substantiation available on request.
• Consistency between the document and what a seller says on the call: an unsupported statement in the sales process is not cured by a compliant document.

Nothing in that list requires a fee to be proportionate to its cost, reasonable, capped, or explained. A franchisor may charge for almost anything provided it said so first, in the right place, at the right time.

That asymmetry is the whole subject. Disclosure regulates one moment — the weeks before signature — while fees are experienced monthly for a decade or two afterwards. Fee lines have multiplied inside that window, too. The technology fee alone sits in the Item 6 disclosure of 61.9% of franchisors, on the FDD analysis the IFA published — a category that barely existed a generation ago. The sector's growth, laid out in the figures everybody quotes, explains why the attention arrived when it did.

Where the FTC franchise rules fees fall under actually bite

Read the FTC franchise rules fees fall under as a disclosure regime, and the practical question changes shape. Two documents issued in July 2024 matter more than their length suggests, and both are collected on the Commission's own franchise guidance page.

The first is staff guidance on undisclosed fees. Its target is not the fee schedule in the disclosure document; it is the fee introduced afterwards by another route — an operating-manual amendment, a required-supplier change, a new charge announced by memo — which staff describe as potentially unlawful under the Franchise Rule and Section 5. The mechanism being questioned is the one most franchisors have always used to keep a decade-old agreement current.

The second is a policy statement on franchisors' use of contract provisions, aimed at terms and communications that discourage franchisees from reporting conduct to regulators. Read together with the enforcement record — the Commission brought an action against Qargo Coffee over Franchise Rule violations in October 2024 — the direction is the relationship, not just the document.

Then the thing that did not happen. The junk-fee rule was finalised in December 2024 covering live-event tickets and short-term lodging, and it took effect in May 2025. It does not reach franchise fees. The current position is narrow: no franchise-specific fee rule has been made, and exposure runs through the existing Franchise Rule and Section 5. Clients who read the trade coverage tend to arrive with either a crisis or a dismissal, and neither is right.

The fee patterns that draw attention

The patterns worth flagging in a fee review are consistent, and none of them require bad intent:

1. A new fee introduced mid-term by manual amendment. The precise route the guidance describes, and the most common one, because it is how a growing brand funds anything.
2. A disclosed formula whose basis has quietly drifted — a percentage recalculated on a different revenue definition than the one the document describes.
3. Required purchases carrying mark-ups or rebates that the disclosure does not surface.
4. A pooled fund with no accounting behind it, where contributions are collected and no statement of spending is produced.
5. A fee whose stated purpose no longer matches what it funds — a documentation problem long before it is a legal one.

The pressure producing all five is real and worth conceding. Costs rise mid-term while fees sit fixed in a document written years ago. That spend arrives, as AI in franchising 2025 describes, mid-term rather than at renewal. The staffing pressures in the hiring market do the same to support costs. A franchisor facing that rarely sets out to impose an undisclosed fee. They set out to keep a promise they can no longer afford, and reach for the fastest instrument.

What fee-transparency discipline looks like in practice

The operational version is unglamorous and mostly clerical:

1. A fee register mapped to the disclosure item that authorises each fee. One row per fee: what it is, where it is disclosed, the formula, the change mechanism. Most brands cannot produce this on request, which is itself the finding.
2. An annual reconciliation of what each fee collected against what it funded — for the franchisor's own file first, and for the network where the fee is pooled.
3. A stated change mechanism with notice period and a ceiling, in the agreement rather than in a memo, so a mid-term increase is an exercise of a disclosed right.
4. Sales-process control. What the seller says about fees, recorded, trained and consistent with the document, because this is where an otherwise compliant brand generates its exposure.
5. A substantiation file kept as the fee changes, not assembled when someone asks.

Who runs that matters, because in most systems nobody does. Fewer than 100 units is the ordinary size of a franchise system: 82% of brands, on FRANdata's 2017 data across roughly 3,800 US franchisors, still the newest distribution published. A brand that size has outside counsel and no compliance function, so fee discipline has to be a recurring process on somebody's calendar rather than a specialist's judgement.

The reason to bother is not the penalty, which remains unlikely for a brand acting in good faith. It is everything cheaper and more certain: a registration-state examiner's comment letter, a franchisee dispute that starts as a fee question and ends somewhere broader, a diligence discount when a buyer finds fees the disclosure does not support.

A fee a franchisee can trace to a sentence they read before signing is an argument that ends. A fee they cannot is one that recurs — and unlike a regulator, franchisees ask every month.

New fee pressure rarely arrives from nowhere, so it is worth knowing what brands are actually spending on.