Online travel agencies have been vehemently opposed to detailing the components of the taxes and fees they collect on prepaid hotel bookings because it would expose the wholesale rates they obtain from hotels and the markups that the booking sites impose. This lawsuit could potentially impose changes in Expedia's financial relationship with its affiliates.
There have been several consumer lawsuits over the years charging deceptive practices in the ways online travel agencies opaquely bundle “taxes and fees” when selling hotel stays that consumers pay for at the time of booking.
Expedia, for example, settled a consumer class-action lawsuit in its home state, Washington, for $123.4 million in 2009. The lawsuit alleged breach of contract and deceptive business practices in the way Expedia described its fees when selling hotel rooms on a wholesale basis, which is also known as the merchant model.
This week the same Seattle law firm Hagens Berman, which was part of the litigation that was settled in 2009, filed a new consumer lawsuit seeking class action status that accuses Expedia of conducting a tax fraud, or a racketeering enterprise (RICO), in allegedly scheming with an affiliate, Reservations.com, to collect a secret fee to ratchet up profits and rip off consumers.
The plaintiff, Joseph Church, on behalf of the purported class of consumers, seeks to have the lawsuit certified as a class action, and to collect triple the amount of actual damages, and attorneys fees. The defendants are Expedia Inc., the Expedia Affiliate Network, Travelscape, and Hotels.com, all of which are part of Expedia Group.
Expedia didn’t immediately respond to a request for comment.
Reservations.com, which gets the vast majority of its hotel inventory through the Expedia Affiliate Network and claims to have sold four million room nights since its founding in 2014, is not named as a defendant. However, the lawsuit alleges that Reservations.com is a willing partner in the enterprise.
“Contrary to Reservations.com’s representations and/or the expectations of consumers, the ‘taxes and fees’ charged by the defendants are not the actual taxes and fees remitted to governmental authorities but contain additional amounts surreptitiously added by the defendants (the tax overcharge),” the lawsuit alleges.
The lawsuit is a twist on earlier lawsuits about online travel agency taxes and fees because the focus is not on the “taxes” or “taxes and fees” that Expedia charges on Expedia.com for a hotel booking, but on the “tax recovery charges and fees” that Reservations.com levels on behalf of Expedia on the Reservations.com website.
For example, Reservations.com was charging consumers $50.88 in “tax recovery charges and fees” on a $159 room rate at the W Hotel in Seattle for a November 22-24 stay, according to the suit. The lawsuit alleges that Reservations.com leads consumers to believe that those taxes and fees are meant to pay local and state taxes, which “should have been $27,” and that Expedia is enriching itself by secretly pocketing the difference.
In fact, the Reservations.com website states: “Amounts displayed in the taxes and fees line for prepaid hotel transactions include an estimated amount we expect the hotel to bill for applicable taxes, governmental fees and other charges that the hotels must pay to the government.”
On top of those taxes and fees, which the suit alleges are transferred to Expedia to remit taxes to the hotels and to clandestinely take a cut, Reservations.com charges its own service fee of $14.99 per hotel booking, but the lawsuit is not taking issue with that latter fee.
Coincidentally, the lawsuit points out, the $14.99 fee that Reservations.com charges consumers often leads to hotel bookings being more expensive for travelers on Expedia’s affiliate, Reservations.com, than on Expedia.com.
Merchant Model Onslaught
The workings of the online travel agencies’ merchant model has attracted hundreds of lawsuits around the world since the City of Los Angeles kicked off the litigation frenzy in 2004. The plaintiffs in those suits generally allege that the online travel agencies obtain wholesale rates from hotels, mark the rates up for consumers, add service fees, but only remit to the hotel taxes on the wholesale rates rather than the full retail rates. The online travel agencies have prevailed in many of the lawsuits, and lost many others.
The current litigation filed by Hagens Berman, however, doesn’t deal with the bevy of local and state lawsuits against the online travel agencies, but alleges deception and tax fraud in the way Expedia charges taxes and fees to consumers on one of hundreds of its affiliate websites, Reservations.com. The lawsuit alleges a close relationship between the companies, saying Expedia operated a call center for Reservations.com for four years, ending in 2017.
The Expedia Affiliate Network powers hotel bookings on hundreds of airline, travel agency, loyalty club, corporate travel, and consumer websites outside the travel industry. It is a material part of Expedia Group’s business, although the company doesn’t break out revenue or profits for the affiliate business.
Although the lawsuit merely focuses on Expedia’s practices in relation to Reservations.com, the litigation said the plaintiff retains the right to expand its scope. That means the lawsuit could potentially have implications for a broader swath of Expedia’s affiliate business.
The lawsuit alleges that Reservations.com, acting on behalf of Expedia, has overcharged consumers some $95 million, and it is seeking treble damages.
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Photo credit: Expedia is the subject of a lawsuit alleging it defrauds consumers in the way it charges consumers certain fees on an affiliate, Reservations.com. Pictured, guest rooms at Westin hotels feature Peloton bikes. Westin Hotels & Resorts