Lina Khan's FTC Imposes Fines on Exorbitant Extra Charges
Lina Khan's FTC Imposes Fines on Exorbitant Extra Charges
The Chair of the Federal Trade Commission, Lina Khan, has been relentless in combating hidden fees, and she's celebrated another victory. Recently, the FTC approved the 'Hidden Fee Crackdown Rule,' targeting organizations such as ticketing companies and hotels that aim to sneak undisclosed charges. The rule was endorsed by a 4-1 margin (including one rather disappointing naysayer) and will take effect on April 16, 2025.
The rule is straightforward enough to make one question why action wasn't taken sooner. Essentially, businesses must unveil all consumer costs at the outset, eliminating hidden charges that pop up during the shopping process. Henceforth, charges like hotel "resort" fees and "convenience" or "service" fees added to concert tickets will need to be included in the initial advertised price.
However, businesses can exclude shipping fees and taxes from the prices they advertise, but merely indicating these costs prior to requesting payment information is mandatory. Also, to prevent companies from manipulating pricing by emphasizing particular prices within an itemized list, the FTC clarified that the overall amount to be paid should be the most prominent figure displayed.
It may seem inconceivable that dishonest pricing requires regulatory enforcement; nevertheless, here we are.
Apparently, event ticket fees amounted to about $7.14 billion that American consumers lost in 2023, while hotel resort fees drained consumers out of $3.3 billion. The primary motivation for these hidden charges is evident: profit. Tiny additions pile up in consumers' wallets while boosting the company's profits. Resort fees, essentially a 80-90% goldmine for hotel owners, are intentionally marketed as cover for hotel upkeep costs. Similarly, service fees contribute significantly to Ticketmaster's revenue, which profits from this practice.
Unsurprisingly, consumers detest these fees – 91% of hotel guests share their disdain for tacked-on charges like resort fees, and Ticketmaster service fees have gained notoriety among spectators, prompting them to label the firm as the most despised in the nation. Moreover, a survey by Lake Research Partners indicated that approximately 80% of Americans favor outlawing hidden charges, maintaining consistent sentiments across various demographics.
However, rationality does not always prevail among consumers. We have recently witnessed an election cycle where the belief that prices were astronomical surpassed economic optimism signals. In 2023, a Morning Consult survey suggested that individuals would favor lower prices over increased wages, as they tend to focus more on outgoing money rather than incoming funds.
Returning to hotel and ticketing pricing, the approach of introducing fees through the shopping process is known as partition pricing. Evidence suggests that even though customers claim to dislike this method, they might display a more favorable response to it than true pricing when viewing the total cost upfront can create an impression that they are parting with more money. That said, while this new rule will unquestionably enhance price transparency, it's important to remember that consumers often do not react as expected to such changes.
This new rule, set to take effect in 2025, marks a significant shift in tech-related business practices, as businesses will be required to disclose all consumer costs upfront, eliminating the use of partition pricing and hidden fees. In the future, the FTC's focus on promoting technology that ensures price transparency could lead to a more consumer-friendly market, where consumers have a clear understanding of the total cost before making a purchase.