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CHLA Spring 2014

 Unfair Business Practices SPRinG 2014 California Hotel & Lodging Association 25 “Consumers are entitled to know in advance the total cost of their hotel stays,” said Federal Trade Commission Chairman Jon Leibowitz. “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 letters strongly encourage the companies to review their websites and ensure that their ads do not misrepresent the total price consumers can expect to pay. But this practice is not new. When California deregulated its energy industry in the early 2000s, hotels saw their energy costs skyrocket almost overnight. To recoup this new expense item, many hotels started adding an “energy surcharge” of a few dollars per night. This surcharge was added onto the advertised, agreed-upon, price of the room, and the guest paid the surcharge when he/she checked out. Needless to say, many guests were outraged about being charged for something they knew nothing about when they checked in, and a number of lawsuits were filed against hotels in California. The plaintiffs won those lawsuits— not because the hotels violated any law by imposing the energy surcharges, but because they didn’t tell the guests about the surcharge in advance, that is, when the guest made his/her reservation. Subsequently, some hotel chains started adding additional surcharges— such as those mentioned in the above-quoted FTC press release— to their advertised room prices without first advising guests that the charges existed. This lead to a number of legal proceedings against the hotel chains by, for example, the Attorney General in Florida. Other businesses, such as car rental companies and airlines, have come under scrutiny for drip pricing. In addition to violating the Federal Trade Commission Act (violations of which can result in substantial liability), it is quite probable that this kind of drip pricing violates the laws of most, if not all, states. In California, for example, California’s Unfair Competition Law (Business & Professions Code Sections 17200–17210 (UCL)) provides remedies for a wide range of unfair business practices, enforceable by a similarly wide range of potential plaintiffs. The UCL applies to “unfair competition,” which is defined to include “unlawful, unfair or fraudulent business practices, and unfair, deceptive, untrue or misleading advertising …” among other things. In other words, a business practice is unlawful under the UCL if it: • Is “unlawful.” Among other things, a practice that is unlawful under another law, such as the Federal Trade Commission Act (see above), constitutes a violation of the UCL. • Is “unfair.” • Involves “unfair, deceptive, untrue, or misleading advertising.” Under California’s UCL, misleading advertising occurs when “members of the public are likely to be deceived”—allegations of actual deception, reasonable reliance, and damage are unnecessary. More specifically, the California Supreme Court has held that all a consumer needs to  HOTEL FEES AND CHARGES The following was reported in a November 30, 2012, article in HotelNewsNow: According to recent research from Bjorn Hanson, divisional dean of the Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management at New York University, the U.S. hotel industry collected approximately $1.55 billion in fees and surcharges during 2009. During 2012, Hanson projected the amount of fees and surcharges collected by U.S. hotels to increase to $1.95 billion. The increase reflects a combination of 3.5% more occupied hotel rooms this year compared with 2011, plus higher fees and surcharge amounts at many hotels, especially resorts. Fewer hotels will have newly introduced fees and surcharges. “The industry is being conservative in adding new fees or substantial increases in the dollar amounts collected for fees and surcharges,” Hanson said in August when his research was published. “I think it’s in part because of research being done by the major chains indicates how unfavorable consumers view the airlines fees and surcharges.” See more at: www.hotelnewsnow.com/Article/9475/Jury-still-outon FTC-resort-fee-compliance#sthash.QjmRAVWc.dpuf.   Hotel Chains Adding Additional Surcharges The test of whether a business practice is “unfair” under the UCL, “involves an examination of that practice’s impact on its alleged victim, balanced against the reasons, justifications, and motives of the alleged wrongdoer. In brief, the court must weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim. ...An unfair business practice occurs when the practice offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.”


CHLA Spring 2014
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