Consumer advocates have pressured the travel industry over junk fees for years. But new rules and laws make this time feel different.
The travel industry has been targeted with complaints about junk fees for years. There have been countless op-eds and massive lawsuits by states against the biggest hotel companies.
President Biden called out the airlines in his 2023 State of the Union speech: “Americans are tired of being played for suckers,” he said.
And yet, it’s 2024 and the industry still advertises a hotel room for $200 – when it really costs $250. There’s still no consistent way of displaying bag, seat and change fees for flights.
We think that’s going to change – and that this time really is different. Why are we so sure? Because it’s not just words and it’s not a series of one-offs.
There are several key developments we’re watching: A final rule from the Federal Trade Commission regarding “unfair or deceptive fees.” The implementation of two California laws that force the disclosure of fees. And a final rule from the Department of Transportation regarding “transparency” for “ancillary” fees.
“We’re going from talk to action,” said Bryan Mohler, a partner with law firm Pryor Cashman who represents hotel companies.
None of this necessarily means the travel industry will be forced to cut prices. Hotels could still charge resort fees on top of room rates and airlines might separate out baggage and a host of other fees from the actual fare that gets passengers from City A to City B.
Regulations and legislation are zeroing in on two things:
* Mandatory fees: These are part of the total cost, regardless of whether customers ask for the service or use it. Trip insurance might be optional. But a cleaning fee for a night in a short-term rental? Hosts need to clean the room, and guests are going to pay for it.
* Disclosure: The way changes are shaping up, a company could charge whatever it wants. It just needs to make sure the total cost – including all mandatory fees – is clearly displayed early in the booking process.
It’s possible more will be done to combat predatory fees, those that regulators deem excessively high with little value. We won’t know for sure until we read the final rules.
Change comes slowly. The FTC said in October 2022 that it was exploring a rule to crack down on junk fees. A year later, the FTC released more than 12,000 comments it received from consumers and the industry and unveiled a proposed rule.
The FTC said the rule would target hidden and bogus fees and “ensure consumers know exactly how much they are paying and what they are getting.”
“The proposed rule would prohibit businesses from advertising prices that hide or leave out mandatory fees,” the FTC said. It added: “The rule would prohibit sellers from misrepresenting fees and require them to disclose upfront the amount and purpose of the fees and whether they are refundable.”
Status: The FTC entered its “Rule on Unfair or Deceptive Fees” into the Federal Register on November 9, and another comment period runs through early February. At that point, staff needs to review comments and propose a final rule for the commission to vote on.
If it goes through as proposed, hotels and short-term rental companies would be on the hook for penalties. And it specifically notes the role of online travel agencies: “If an online travel agent advertises a price for a hotel room provided by a hotel chain, the online travel agent must display the Total Price, inclusive of mandatory fees charged by the hotel chain.”
The FTC also notes a potential benefit to firms, one that is repeated often by executives: That the industry would benefit from a single standard to comply with.
In a statement, American Hotel & Lodging Association President and CEO Chip Rogers said: “AHLA supports creating a single standard for mandatory fee display across the lodging industry – from short-term rental platforms, where fees are most prevalent, to online travel agencies, metasearch sites, and hotels.”
California Governor Gavin Newsom signed two bills into law in October that take effect this July and will require hotels and short-term rental companies to disclose all fees.
AB537 is to the point and requires up-front disclosure of everything: “This bill would prohibit a place of short-term lodging, as defined, from advertising or offering a room rate that does not include all fees or charges required to stay at the short-term lodging except taxes and fees imposed by a government on the stay, as specified. The bill would also require a place of short-term lodging to include in the total price to be paid, before the consumer reserves a stay, all taxes and fees imposed by a government on the stay.”
SB478 is billed as a “False Advertising Law” and makes misleading ads a crime: “This bill would … make unlawful advertising, displaying, or offering a price for a good or service that does not include all mandatory fees or charges other than taxes or fees imposed by a government on the transaction, as specified.”
And it specifically targets so-called drip pricing. Say a traveler is comparison shopping and looking at several hotels. They pick the one with the lowest displayed price and it’s only after clicking through to purchase that they see the mandatory fees – they aren’t about to start the search all over again. That’s drip pricing and the idea is that it pushes buyers toward higher-cost options and weakens free-market competition.
“This act is intended to specifically prohibit drip pricing, which involves advertising a price that is less than the actual price that a consumer will have to pay for a good or service,” reads SB478.
The push to make airline fees more transparent goes back to at least 2010. A final version of a new rule from the Department of Transportation, “Enhancing Transparency of Airline Ancillary Service Fees,” is expected in March.
The rule covers the disclosure of a range of fees: “The Department proposes to require U.S. air carriers, foreign air carriers, and ticket agents to clearly disclose passenger-specific or itinerary-specific baggage fees, change fees, and cancellation fees to consumers whenever fare and schedule information is provided to consumers for flights to, within, and from the United States.”
The DOT cites several reasons a rule is needed:
* Services that used to be included in the price are now sold separately, including checked baggage, seat selection, change fees, and meals.
* Consumer advocates argue fliers can’t determine the true cost of a flight, despite a 2011 rule that requires disclosure.
* That hurts competition: “It is difficult for consumers to determine the best and most cost-effective flights when fee information for essential services such as ticket changes or cancellations, family seating, or baggage is not readily available,” the rule reads.
The rule breaks out the harm to consumers for bag fees, change and cancellation fees and family seating policies.
The requirement would affect all stages of the purchasing process: “The proposed requirement would apply to U.S. air carriers; foreign air carriers; ticket agents that sell airline tickets, whether traditional brick-and-mortar travel agencies, corporate travel agents, or online travel agencies (OTA); and metasearch sites that display airline flight search options directly to consumers.”
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