Online hotel reservation sites may be in violation of Section 5 of the Federal Trade Commission Act by misrepresenting the hotel room reservation price that consumers can expect to pay, the agency said in recent warning letters.
The Federal Trade Commission sent 22 letters to unnamed recipients, alleging that the sites engage in “drip pricing,” advertising only a fraction of a product’s total price and then adding in additional costs as the buying process continues.
Such pricing is commonly the subject of complaint from consumers, the agency said, specifically “resort fees.” The fees are mandatory charges by hotels for amenities like Internet access, use of exercise and pool facilities, or newspaper delivery during a consumer’s stay. “These mandatory fees can be as high as $30 per night, a sum that could certainly affect consumer purchasing decisions,” the FTC said in its letters.
Some online hotel reservation Web sites list the resort fee close to – but separate from – the “total” or “estimated” prices for consumers. Other sites include an asterisk with the quoted price that leads a consumer to a different page on the site where the resort fee is disclosed, typically in fine print, the FTC said. And some sites fail to identify resort fees anywhere but inform consumers that other fees may apply.
The letters from Mary K. Engle, the FTC’s Associate Director for Advertising Practices, explained how these practices may violate the law, stating that online hotel reservation sites should include in the quoted total price any unavoidable and mandatory fees, such as resort fees, that consumers will be charged to stay at the hotel. The letters continued, noting “While a hotel reservation site may break down the components of the reservation estimate (e.g., room rate, estimated taxes, and any mandatory, unavoidable fees), the most prominent figure for consumers should be the total inclusive estimate.”
After reviewing numerous hotel Web sites, the agency sent its letters to sites that failed to include mandatory resort fees in reservation quotes to consumers, strongly encouraging them to review their sites to ensure they are not misrepresenting the total price consumers can expect to pay when making a reservation. The FTC also alerted the recipients of the letters that it may take action to enforce and seek redress for any violations of the FTC Act as the public interest may require.
To read a sample warning letter, click here.
Why it matters: Companies should be on notice that regulators are watching – particularly online – for sellers to clearly and conspicuously disclose the total cost of a product or service, including upgrades, add-ons, and additional costs like “resort fees.” In a statement about the letters, FTC Chairman Jon Leibowitz stated, “Consumers are entitled to know in advance the total cost of their hotel stays . . . so-called ‘drip pricing’ charges, sometimes portrayed as ‘convenience’ or ‘service’ fees, are anything but convenient, and businesses that hide them are doing a huge disservice to American consumers.” The agency’s interest in the disclosure of mandatory hotel fees follows attorney general activity condemning this practice. For instance, the Florida AG has entered into settlements with hotel companies requiring them to disclose mandatory fees like those described in the FTC letter, in addition to requiring independent third-party travel agencies selling hotel rooms on the companies’ behalf to disclose the same. It should be interesting to see whether the FTC extends liability to third parties engaged in this practice on a hotel’s behalf.