The Battle Against Junk Fees: Big Business Defends Deceptive Practices

On Oct. 17 Travel Market Report published The Travel Industry Is One Step Closer to the End of Junk Fees. The article ended with this forecast: “I expect continued resistance from multiple industries, and possible legal challenges in the courts, if the FTC proceeds with these rules, so nothing substantive is likely to happen any time soon.” 

Even that may have been unduly optimistic.

The Washington Post has reported that “An array of powerful moneyed lobbyists have [sic] warred with the Biden administration over its new regulatory crackdown as they scramble to protect their profits.” The resistance to rules requiring full advance disclosure of the total price of services, including the many and various mandatory fees attached to them, is across the board from airlines, auto dealers, banks, casinos, credit card companies, cable giants, property owners, and ticket sellers.

Missing from the list of objectors is the American Hotel & Lodging Association. The AHLA has taken a different approach. For example, it has supported the Hotel Fees Transparency Act that was introduced in July 2023. That statute is straightforward:

No covered person may advertise, display, market, or offer in interstate commerce, including through direct offerings, third-party distribution, or metasearch referrals, a price for a place of short-term lodging that does not include all required fees (excluding any taxes or fees imposed by a government or quasi-government entity and assessment fees of a government-created special district or program).

The “covered person” definition includes “a place of short-term lodging [meaning hotel, motel, inn, short-term rental, or other place of lodging that advertises at a price that is a nightly, hourly, or weekly rate], an online travel agency, a metasearch website, or any other person determined appropriate by the Commission.”

To its credit, the AHLA support for this legislation signals that the hotel industry has thrown in the towel and will begin full-price disclosure on its own. If so, good for them, although securing full industry buy-in probably will require passage of the Hotel Fees Transparency Act or enactment of the FTC rule discussed in the previous article on this subject. Likely the rule will precede the legislation.

The basis for the other industry objections is unclear. For example, the Washington Post report notes that a representative of Airlines for America testified that the:

new policy would only cause customers “confusion and frustration” — and, besides, the extra costs for bags and other services historically have resulted in “very few complaints.”

Another A4A spokesperson was quoted saying that the airline industry offers “transparency and choice to consumers from first search to touchdown.”

Exactly how upfront disclosure of the full cost of a service will cause “confusion and frustration” remains a mystery. And there is plenty of evidence of public objections to fees that are added on at or near the end of a transaction when the fees are mandatory and known to the seller at the outset. And if “transparency and choice” are already being applied throughout airline price disclosures, why the hysterical objections to rules requiring the practice to continue? If the airlines are seeing few complaints about fee disclosures, it may be that consumers believe that complaining to the airline and/or DOT is futile.

Comments on the FTC’s proposed junk fee rule are not due until Jan. 8, 2024, and there are already more than 1,000 comments in the file. I haven’t read them all, but I wager that the vast majority oppose hidden fees.

One objection by one of the largest event ticket sellers in the country was that “the company cannot force venues it doesn’t own to be more transparent about fees.” The notion that the ticket seller cannot require its users to be upfront with their joint customers (the ticket seller’s and the event’s customers) seems farfetched. In any case, the ticket seller should then support a rule requiring all pricing to include mandatory surcharges and other fees the ultimate customer must pay.

The Post article reports that:

Only concerts listed for sale starting in late September show the full price of a ticket, including fees, by default. That full price only applies to venues owned by Live Nation, not the fuller array of performances sold through Ticketmaster. In those cases, the company requires users to check a box to see a full price for shows, with the option hidden behind a menu where customers may not think to look. As a result, fans who wish to see popular artists like Doja Cat and Kesha this year may still see price spikes once they reach the checkout page.

A Live Nation executive also said, “It would also be ‘difficult and disruptive’ to change the way it prices performances that started selling tickets before the company implemented its new pledge to the White House.”

Perhaps, but I am confident that a company with the resources of Ticketmaster could overcome those difficulties if it chose to do so. As for “disruption,” even if true, the disruption would be temporary and minimal compared to the long-term benefit to consumers, and the competitive process, of incorporating all mandatory charges into the upfront price.

Some big sellers say otherwise. According to the Washington Post,

In legal filings with the [FTC] a lobbying group for Facebook, Google, and other advertising platforms said in February the FTC had not presented “sufficient empirical evidence” that junk fees actually pose a problem. The American Gaming Association, whose board of directors includes executives from MGM Resorts, Las Vegas Sands, and other casinos, told the government it should be “excluded” from the new rules. And the National Automobile Dealers Association blasted the FTC for considering “breathtakingly broad” regulations, at one point posing the existential question, “What, exactly, is a ‘fee’?”

Apparently, the social media/technology industries don’t consider the multitude of recorded objections to “junk fees” from their customers to be “empirical evidence.”

As for the Automobile Dealers Association’s lack of understanding of “fee,” I can help with that. A “fee” for purposes of the proposed rules is the commonsense idea of a “financial charge” added to what is represented as the base price or cost of the service in question. Thus, for example, if I want to buy a car and the sticker on the window says it costs $25,000 including all options and taxes, but later in the transaction on the final invoice in the finance office, there is an added “dealer margin” or some other additional cost that is mandatory, that is, was always going to be added to the price negotiated with the sale person, that “fee” is a “junk fee” and the law should require it to be included in the “list price” (the window sticker, in the auto dealer case) that the customer sees at the beginning and throughout the transaction. Anything less is blatantly deceptive.

The obvious goal here is to avoid misleading consumers by creating psychological momentum toward completing a transaction that is going to cost a great deal more than the original price that attracted the buyer’s attention.

To be clear, government regulation of the amount of fees that can be charged is, in my judgment, questionable unless the industry is not revealing the charges clearly and at the outset (or, in appropriate cases, included in the advertised price). Thus, the establishment by government order of the amount of late fees is not desirable if full upfront disclosure of the amount and circumstances triggering the fees is made, with two additional qualifications.

First, the industry must be fully competitive. If it’s not fully competitive, there is a high risk that the fees will be higher than they should be. In that case, greater government intervention is appropriate. Second, if the late fees represent a major economic benefit to the charging company(ies), compared to its other revenue sources, that is a sign that something is amiss and investigation, at least, as to what that is seems appropriate.

The rules also should not allow sellers to place check boxes and other steps in the path of consumers trying to understand the true price of what they are looking to buy. Such requirements will inevitably fool some consumers and defeat the purpose of full, upfront price disclosure. If a business can disclose the full all-in price after a box is checked, then it can disclose that price without requiring the extra step by the consumer.

For airlines and baggage fees, a particular focus of the Biden administration, there has been major resistance to telling consumers the full truth about charges. Reports indicate that the airlines claim their passengers “do not see bag charges as a “meaningful decision” when they first search for a flight.” If true, which seems doubtful, there would not be such passionate resistance to upfront disclosure. The claim that upfront disclosure is “technically infeasible,” attributed to American Airlines, seems implausible coming from businesses with the technological know-how that airlines display every day.

The good news is that the Biden administration is taking an aggressive and broad approach to attacking the junk fee problem across multiple industries and through a multi-agency approach. These plans have already borne fruit, as evidenced by decisions in many major companies to adopt all-in upfront pricing policies.

We are in for a long fight, including court challenges as predicted in the first cited article. Travel advisors who want to have their customers see full prices upfront should make their voices heard at DOT, the FTC, and Congress.