California’s new “junk fees” laws are another step toward further pricing transparency for the U.S. hotel industry, and it has taken a while to reach this point.
Jim Butler, founding partner of Jeffer Mangels Butler & Mitchell and chairman of the law firm’s Global Hospitality Group, said the dispute over hidden fees or junk fees — however people want to refer to mandatory fees not included in the initial advertised room rate — has been brewing since the late 1990s.
It started with something called an energy surcharge, Butler said in a Hotel News Now podcast interview. This fee was something mostly hotels charged, but some other businesses used them, too, to pass along the cost of higher energy costs. It wasn’t a government tax, just something hotels added to defray the higher cost of electricity, and guests didn’t see the cost until their final bill. Naturally, there were consumer lawsuits over it.
At some point after that, hotels came up with the resort fee or destination fee, he said.
“There are hundreds or dozens of labels for it,” he said. “It is really any mandatory charge that is not optional … that isn’t included in the [advertised] price.”
Early on, guests could talk their way out of paying these fees, Butler said. There were several times he flew into Las Vegas for a business meeting, checking in at the hotel at 10 p.m. and checking out at 7:30 a.m. for which he was charged a resort fee.
“I said, ‘Guys, yeah, thanks, I didn’t have a chance to enjoy it,’” he said. “In the early days, they would often remove the fee if you requested.”
The Federal Trade Commission has found these mandatory fees have become a source of $2.9 billion of income for hotels, Butler said. A 2012 study by the FTC examined these types of fees and found they are anti-competitive, as they prevented consumers the benefits of hotels competing with each other on pricing. The study found they effectively constituted consumer fraud, and while this was just a study, it became the foundation of years of litigation by states’ attorney generals and consumers.
California’s two new laws went into effect July 1. One created a new section under the state’s civil code on deceptive and unfair business practices or misleading and deceptive consumer interactions. It requires any mandatory fee be included in the initial advertised price. It does not tell businesses how to price their goods or services.
The second law is essentially a copy of the American Hotel & Lodging Association-sponsored model at the federal level, Butler said. It is now part of the business and professions code, and it adds a $10,000 per violation civil penalty that applies only to hotels, motels and short-term rentals.
Though they are separate laws, “if you’re complying with one, you’re complying with the other,” he said.
That hoteliers must be more transparent with their pricing has a benefit over hotels individually moving forward.
"Now they all have to do it, I think that is a tremendous leveling of the playing field," Butler said.
To hear more from Jim Butler about the laws, what they do and how they fit into the broader picture of hotel pricing transparency, listen to the podcast above.