Hidden "Resort Fees": No Day at the Beach

The Federal Trade Commission (FTC) has issued warning letters to 22 hotel operators, explaining that online reservation sites may violate the law by failing adequately to disclose "resort fees," mandatory fees hotels charge for amenities such as newspapers, exercise or pool facilities, and internet access that are charged even if the customer may not use those services. The FTC letter describes practices it found on the operators' sites, such as quoting only the room rate and taxes prominently and listing the additional resort fee separately, either somewhere else on the page or on another page, or in some cases, not at all, or stating only that additional fees may apply.

While acknowledging that a "hotel reservation site may breakdown the components of the reservation estimate (e.g., room rate, estimated taxes, and any mandatory, unavoidable fees)," the FTC letter explains that the "most prominent figure for consumers should be the total inclusive estimate" that includes all "unavoidable and mandatory fees." The warning letter concludes by "strongly encourag[ing]" the hotel operators to review their websites "to ensure you are not misrepresenting the total price consumers can expect to pay when making a reservation."

The hotel warning letters reflect the FTC's increased focus on complaints regarding "drip pricing," a pricing technique where a company advertises only part of a product's price and reveals other charges as the customer completes the purchase. In May 2012, the FTC held a conference on drip pricing, and encouraged consumers to share their drip pricing stories with the FTC. The FTC noted that "drip pricing is used by many types of firms, including internet sellers, automobile dealers, financial institutions, and rental car companies." And the FTC noted that "drip pricing" includes not only mandatory charges (such as hotel resort fees), but also fees for optional upgrades and add-ons. The lesson for sellers, particularly on-line sellers, is that the FTC is watching how prices and fees are being disclosed to consumers and expects sellers clearly and conspicuously to disclose all elements of the total cost up front so that consumers are not surprised by what they ultimately pay.

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.