THE ISSuE OF HOTELS ENGAGING in “drip pricing,” which the Federal Trade Commission (FTC) defines as “a pricing technique in which firms advertise only part of a product’s price and reveal other charges as the customer goes through the buying process.” For example, The FTC noted that one “common complaint consumers raised involved mandatory fees hotels charge for amenities such as newspapers, use of onsite exercise or pool facilities, or internet access, sometimes referred to as ‘resort fees’ … and that consumers often did not know they would be required to pay resort fees in addition to the quoted hotel rate.” The FTC noted that these added fees “could certainly affect consumer purchasing decisions.”1 Similarly, when California experienced a significant energy crisis in the early 2000s and hotels saw their electric bills take big jumps, many hotels started adding an “energy surcharge” to guest folios. This resulted in many guests filing successful class action lawsuits against individual and chain hotels, and they recovered substantial damage awards. The hotels were liable not because they imposed these surcharges, which is entirely legal, but because they never informed their guests in advance that they would be required to pay the surcharge. In other words, if a hotel wants to add such things as mandatory resort fees, parking fees, and fitness fees to their basic room rates, that is perfectly OK, but only if the hotel advises its guests of all mandatory “add-ons” in advance of booking a reservation. Failure to do so can violate a number of California laws and subject hotels to substantial legal liability. For example, a guest who is mislead by a failure to disclose in advance all mandatory charges could sue a hotel for violating 8 California Hotel & Lodging Association FALL 2015 claims under the California laws discussed above. Remember that the goal is to make sure that guests are advised in advance (i.e., before they make a decision whether or not to reserve a room) of the total price they will be expected to pay for staying in the hotel. CH&LA receives questions from members how to show resort fees, energy or water surcharges, and similar items on guest folios. There is no one specific way that this must be done. The key is to inform guests of all items they will be required to pay over and above the basic room rate itself. Aside from things such as F&B charges and the like, typical items included in a guest folio are: basic room rate, ToT, tourism benefit district assessment (if any), other local assessments (e.g., “beautification” fees), California Tourism Marketing Act assessment, and any additional surcharge or fee the hotel imposes on its guests. A boutique can list each of these items separately. While this is the optimum in terms of disclosure, it will add a lot of information to the folio. Another way to do it is by adding a line under the room rate that says something along the following lines: “State and local taxes and assessments, and surcharges or BOuTIQuE HOTELS MuST AVOID “DRIP PRICING” By Jim Abrams, California Hotel & Lodging Association 1. For a number of years, the FTC required hotels to include all additional mandatory fees and surcharges in the price quoted for rooms. Although the FTC recently rescinded that requirement, hotels can still face liability under the laws of California and other states. 2. Business and Professions Code Section 17200–17210. 3. Committee on Children’s Television, Inc. v General Foods Corp. (1983) 35 Cal.3d 197, 210. California’s “unfair competition law” (uCL).2 The statute of limitations for actions under the uCL is four years, and relief for violating the uCL can include injunctive relief, civil penalties of up to $2,500 for each violation, and civil penalties for violating an injunction. California’s uCL is broadly written, and it includes five definitions of unfair competition: (1) an unlawful business act or practice; (2) an unfair business act or practice; (3) a fraudulent business act or practice; (4) unfair, deceptive, untrue or misleading advertising (misleading advertising occurs when “‘members of the public are likely to be deceived’—allegations of actual deception, reasonable reliance, and damage are unnecessary;”3 and (5) any act prohibited by Sections 17500–17577.5 (which involve various specified types of false advertising). It is important for boutique hotels to bear in mind that most insurance policies do not cover claims for unfair competition brought under the uCL. Therefore—and unless a boutique hotel is advised otherwise by legal counsel—the hotel should disclose all mandatory add-on charges to its prospective guests before they make a reservation (whether by letter, phone call, fax, or via the internet in any fashion). This rule also applies to walk-in guests—they should be quoted an “all inclusive” room rate that contains all mandatory charges and fees. These disclosures should be made in a clear and conspicuous manner, so that there is no way that a guest could claim that the disclosure was “buried in the fine print” and therefore wasn’t noticed. Although the FTC no longer requires drip pricing-related disclosures (see endnote 1), the example above should serve as a good starting point for boutique hotels in order to avoid
CH LA Lodging News Fall 2015
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