FDD & Compliance
Undisclosed fees and the Franchise Rule — the position only survives if you can show what changed and when.
Two developments have moved the fee-disclosure question from a theoretical grievance to something with a dollar figure attached. One is an enforcement action. The other is a staff guidance document that most operators have never read but that describes a situation many of them are living in.
Both point at the same operator obligation, and it is a bookkeeping obligation before it is a legal one: if a fee appeared that was not in the FDD you received, you need to be able to demonstrate that — with dates, amounts, and a paper trail — rather than describe it from memory.
What the FTC actually did in the Xponential case.
In March 2026 the FTC secured a settlement against Xponential Fitness for Franchise Rule violations and related deceptive practices, including $17 million returned to franchisees — the largest amount ever to go back to consumers in a franchise case. Xponential operates a portfolio of boutique fitness brands including Club Pilates, Pure Barre, YogaSix, StretchLab and BFT.
It is worth being precise about what the case was and was not about, because it is frequently mischaracterized. The allegations concerned disclosure, not fees imposed after signing:
- Misrepresenting the time required to open a studio — the FTC alleged franchisees were told they could open within six months of signing, when opening typically took more than a year, if it happened at all.
- Failing to disclose background information about key executives, including fraud lawsuits involving a former CEO and a bankruptcy involving a former senior executive.
- Inaccurate reporting of franchise closures, including omitted or outdated contact information for franchisees whose studios had closed in the prior year — which prevented prospective buyers from evaluating turnover rates or speaking with former operators.
- Failing to provide accurate, complete and timely FDDs at least 14 days before signing, ahead of an initial fee averaging $45,000 per studio and a ten-year franchise agreement.
The defendants neither admitted nor denied the allegations except as necessary to establish jurisdiction, and the stipulated order includes injunctive provisions prohibiting misrepresentations regarding management, litigation, bankruptcy history, opening timelines, and franchisee turnover.
The operator read is straightforward: the FTC will pursue pre-sale disclosure failures, and the remedy can be redress to franchisees rather than a penalty paid to the government.
The separate fee guidance — and its actual status.
The fee question sits in a different document, and it is older than most current commentary suggests. On July 12, 2024 the FTC published staff guidance on the imposition of undisclosed fees by franchisors, expressing specific concern about a trend toward imposing new fees not through modification of the franchise agreement but through modification of the franchisor’s operating manual.
The substance: the Franchise Rule requires franchisors to disclose certain fees in the FDD, and failure to do so is a violation of the Rule and of Section 5 of the FTC Act. If a franchisor imposes or collects a new fee — through its operating manual or otherwise — that was not disclosed in the FDD and included in the franchise agreement, the franchisor may be engaging in an unfair act or practice in violation of Section 5.
In practice this reaches new technology fees, required vendor programs with mandatory costs, and marketing fund assessments introduced through an operations manual update after signing.
One important qualification. This is a staff opinion, not a binding interpretation of law. Neither the policy statement nor the staff guidance is a judicial ruling or an amendment to the Act — they reveal the FTC’s interpretation and signal how it intends to enforce. Commentators have also questioned the FTC’s reliance on the Orkin precedent, noting that the court there found Orkin had no contractual right to increase the fees at issue, in contrast to what has become a fairly standard franchisor right to amend the operating manual unilaterally.
Translated: this is a real and useful position, not a settled one. Which is precisely why the documentation matters. A well-evidenced claim gets taken seriously. A vague one does not survive first contact with franchisor counsel.
State regulators have moved in the same direction — Washington’s Securities Division has taken the position that because the operations manual is typically provided only after the franchise agreement is executed, imposing fees through it that were not disclosed in the FDD violates both state and federal law.
What this means for your books.
This is where an advisory firm can actually be useful, because the practical requirement is a records requirement.
Keep every FDD you were issued, dated. Not the current one — the one in effect when you signed each agreement, for each unit. If you own six units signed across four years, you have potentially four different fee schedules governing them. Most operators have one PDF and an assumption.
Track franchisor charges as distinct accounts, not one lump. Royalty, marketing fund, technology fee, required vendor charges, POS and software fees, training charges, and property improvement assessments should each have their own general ledger account. When they are consolidated into "franchise fees," you lose the ability to show that a line changed, which is the entire point.
Date the first occurrence of anything new. When a charge appears that has not appeared before, note it — the month it started, the amount, the stated basis, and where the requirement came from. A manual update, a system bulletin, an email from the franchisor. Save the source document.
Reconcile charged against disclosed, annually. Once a year, run your actual franchisor charges against the Item 5 and Item 6 disclosures in the FDD governing each unit. The exercise takes an afternoon and is the only reliable way to notice drift, because drift arrives one small line at a time.
Preserve the operations manual versions. If the manual is a living document on a portal, take dated exports. Portals get updated. Your copy is the record.
The same discipline serves three other purposes.
Fee traceability is not only a compliance posture. The same account structure that lets you show a fee changed also:
- Makes your unit economics legible. Franchisor charges are a meaningful cost block. Reported as one line, they are unanalyzable. Broken out, you can see what technology is actually costing you per unit per year.
- Survives diligence. A buyer or lender reviewing your financials will ask about franchisor obligations. Clean accounts answer the question; a lump sum invites a longer conversation.
- Supports the renewal conversation. When a franchise agreement comes up for renewal, having a precise multi-year history of what you have actually paid is a materially better position than an impression.
Get the record in order.
The Franchise Finance Diagnostic includes a section on FDD alignment — whether your books and your disclosure documents tell the same story about what you are paying. Free, nothing gated, nothing saved.
Working on this in your own business?
Capital Advisors provides franchise bookkeeping, fractional CFO support, and multi-unit financial reporting — including franchisor charge accounts structured so that changes are visible rather than buried.
Important. This page is an educational summary of publicly reported enforcement activity and published FTC staff guidance. It is not legal advice, does not create an attorney-client relationship, and should not be relied upon in evaluating any specific franchise agreement or dispute. FTC staff guidance is not a binding interpretation of law and has been the subject of substantive commentary and disagreement; state franchise laws vary and may impose additional or different requirements. Descriptions of the Xponential matter reflect allegations resolved by stipulated order in which the defendants neither admitted nor denied the allegations. Capital Advisors is not a law firm and is not affiliated with, endorsed by, or sponsored by any brand, franchisor, or agency named here. Consult qualified franchise counsel regarding your specific circumstances.
Related: FDD & Item 19 · Franchisor Health · Wellness & Fitness Franchise Finance · Franchise Finance Resource Center
Frequently asked.
Does the FTC guidance mean my franchisor cannot raise fees?
No, and it is important not to overread it. The guidance addresses fees that were not disclosed in the Franchise Disclosure Document and franchise agreement at the time of signing. Franchisors routinely retain a disclosed right to adjust fees within stated formulas or maximums, and the Franchise Rule contemplates disclosure of the formula or maximum increase. The guidance is also less clear on whether undisclosed increases to already-disclosed fees would be treated as violations. The distinction that matters is whether the obligation was disclosed before you signed, not whether the amount changed afterward.
What should I do if I think a fee was never disclosed?
Assemble the record before you raise it: the Franchise Disclosure Document in effect at signing, the franchise agreement, the ledger showing when the charge began and how much has been paid, and the document that imposed it. Then take it to franchise counsel. This is a legal question with state-law variations, and the strength of any position depends heavily on your specific agreement. Capital Advisors can help you build and reconcile the financial record; the legal read belongs to a franchise attorney.
Is this relevant to me if I am a franchisee rather than a franchisor?
Yes, arguably more so. The disclosure obligations run to the franchisor, but the protection runs to you, and protections that depend on evidence are only as good as the evidence available. Franchisees are the party positioned to notice a new charge first and the party least likely to have documented it.
Does the Xponential settlement change anything for existing franchisees of other brands?
Not directly. A stipulated order binds the parties to it. What it signals is enforcement appetite and the size of remedy the Federal Trade Commission is prepared to seek, and the injunctive terms give a reasonably clear picture of the conduct the agency considers actionable — opening timelines, executive litigation and bankruptcy history, and turnover reporting. Those are worth reading against the disclosure document of any brand you are considering.
Run your own numbers.
The Franchise Finance Diagnostic covers readiness scoring, Item 19 benchmarking, unit economics, a 13-week cash forecast, and expansion gates. Free, and everything runs in your browser.
Working on this in your own business?
Capital Advisors provides franchise bookkeeping, fractional CFO support, and multi-unit financial reporting for franchisees and franchisors. Talk to us about your units →
By Heather Engler, Esq.
Founder & Principal, Capital Advisors
Heather blends legal training with deep expertise in bookkeeping and tax compliance, giving her a unique perspective on financial strategy, risk management, and operations. Under her leadership, Capital Advisors serves hundreds of clients across bookkeeping, tax, payroll, and financial advisory. More about the team →