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Mandatory ‘resort fees’ are under attack, again

A small but growing percentage of hotels advertise room rates at a base price, but then disclose a mandatory “resort fee” for a bundle of amenities later during the reservation process. This practice is spreading to hotels outside of resort destinations, along with increases in the amount of the “resort fees” charged. Usually, the resort-fee charge is cheaper than the bundle of amenities used to cost when they were billed and paid for separately.

Many consumers dislike “resort fees” that are not disclosed concurrently with the advertised base room rate, even when they value the amenities provided. One consumer group, Travelers United, has been particularly vocal in opposing this practice.

Regulators focused on this practice in 2012 when the Federal Trade Commission (FTC) held a conference on “drip pricing,” which describes the practice where the full price of a good or service is not disclosed initially but only in separate parts during the purchasing process. In November 2012, the FTC sent a letter to 22 hotel chains to warn against a variety of practices, ranging from (a) resort fees that were disclosed only in fine print or not at all, to (b) resort fees that were disclosed during the reservation process but not in the initial advertised price. The FTC warned that these practices may violate the law by “misrepresenting the price consumers can expect to pay for their hotel rooms.” In particular, the FTC took the position that the “most prominent figure” for prices on a hotel reservation site should “be the total inclusive estimate” which includes “all mandatory charges.”

In response, many hotels modified their pricing practices, and the FTC did not publicly take any subsequent enforcement action. In January 2017, its Bureau of Economics published an economic analysis which concluded that a hotel’s failure to disclose mandatory fees with the initial advertised rate harms consumers, because (a) the practice increases consumers’ search time and (b) consumers behave in their purchasing choices as if the total price is lower than it actually is. However, with the election of President Trump, FTC enforcement action seems less likely, as does Congressional action.

The cudgel has been taken up by a group of Attorneys General from 46 states and the District of Columbia (State AGs) who began an investigation of resort fees in May 2016. This investigation is spearheaded by the District of Columbia Attorney General’s office, and seeks to establish that mandatory resort fees must be disclosed at the beginning, not at the end, of the reservation process. The D.C. Attorney General has also suggested that it is unlawful for a hotel to describe a resort fee as “mandatory” if the hotel follows a policy that permits consumers to avoid the fees by objecting when checking in.

The State AGs have been battling Marriott International in court since June 2017 in order to overcome Marriott’s objections to the State AGs’ expansive subpoenas for documents. Marriott states that it adequately discloses resort fees consistent with legal requirements. The State AG investigation is not limited to Marriott, and the resort-fee practices of other hotel chains are under investigation.

The State AGs’ investigation is fairly conventional to the extent that it focuses on whether hotels act unfairly or deceptively if they fail to disclose mandatory resort fees at all before a reservation is finalized (or even later), or disclose them only in fine print.  The State AGs are on shakier ground, however, in asserting that hotels commit an illegal unfair or deceptive practice when they do not disclose mandatory resort fees upfront along with the initial advertised price but do so prominently later in the process before a reservation is booked.

Under traditional FTC standards, a practice is not deemed “unfair” if it results in an injury that consumers themselves could “reasonably have avoided.” Consumers who do not like mandatory resort fees which are disclosed prior to finalizing a reservation can “reasonably avoid” those fees by terminating the booking process. While the FTC standards are not binding on State AGs, those standards have traditionally been very influential in how state consumer-protection statutes are interpreted and applied.

There are also significant policy concerns about the State AGs’ aggressive position.  Their approach may be overly paternalistic in some respects and counterproductive in others if it drives hotels to less transparent pricing that may ultimately cost consumers more money.

1. “Drip pricing” occurs in many industries (such as in ticket sales to sporting and entertainment events) where an advertised price is followed in the purchasing process by mandatory service fees and delivery charges. Consumers adapt to these practices, and over time factor them into their purchasing decisions. The State AGs have not yet explained why consumer adaptation does not, or will not, cure or minimize any claimed unfairness with hotel resort fees.

2. The practice of quoting resort fees prominently before a reservation is completed, but not in the advertised base rate, provides greater pre-purchase disclosure to consumers of their total cost than often occurs today when individual charges for commonly-used amenities are not disclosed prominently or at all during the reservation process. It is hard to describe a pricing practice that provides greater disclosure as “unfair” or “deceptive.”

3. The State AGs should thus heed the Hippocratic Oath’s basic principle: “First, do no harm.” If current practices are found unlawful, hotels could respond by de-bundling services now included with the initial advertised room rate (e.g., complimentary breakfast, newspapers, in-room coffee) or in the resort fee (e.g., WiFi, fitness facility, or pool access) to maintain a lower advertised base rate. Hotel pricing would become more rather than less opaque, with lower advertised base rates accompanied by a menu of a-la-carte pricing of services that many or most consumers want or expect.

4. If the resort-free pricing practices of some hotels are unsatisfactory to consumers, one would expect hotel competitors to advertise that their rates have “no hidden fees.” Southwest Airlines pursued such a strategy effectively when advertising that “bags fly free.” Such competition will likely emerge in the hotel industry as well if mandatory resort fees become widespread.

The State AGs will also have to confront a court ruling adverse to its position. In 2013, a federal court ruled that a Las Vegas hotel did not violate California consumer-protection laws when its reservation system (a) initially listed a room rate that did not include a resort fee, (b) but later in the reservation process disclosed a “grand total” price followed in slightly smaller print with a statement that the quoted grand total “does not include applicable daily resort fee of US$20 plus tax.” The court found that this disclosure provided before the reservation was finalized was not “inconspicuous,” and was thus adequate to ensure that the public was unlikely to be deceived. This ruling suggests that the outcome of future enforcement actions or court claims may depend on highly particularized facts about the scope and prominence of the resort-fee disclosures during the reservation process.

Mandatory resort fees have also been challenged in suits filed by consumers against hotel chains, including a pending suit against the Wyndham chain in Pennsylvania federal court, which the plaintiffs seek to bring as a class action. None of the court lawsuits, however, have reached a final outcome that adopts the State AGs’ position that a resort-fee must always be quoted upfront.

In sum, mandatory resort fees are in the cross-hairs of regulators and the private class-action bar. But it is too soon to tell whether the aggressive position taken by State AGs will be sustained.

 

 


 

Contributed by Daniel Prywes and Lawrence Kunin of the law firm of Morris, Manning & Martin, LLP in its Washington, D.C., and Atlanta offices, respectively.

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