The Federal Trade Commission has put the lodging industry on notice that it disapproves of the practice of surprising consumers with mandatory "resort fees" that are not part of the posted price.
The FTC sent letters to the operators of 22 hotels warning them that their booking websites might not be in compliance with the pricing transparency required by law.
The hotel operators could be engaging in so-called "drip pricing," the FTC warned, in which a merchant advertises a low base price at the outset of a transaction, then reveals mandatory and unavoidable charges later in the process.
The letter noted that the FTC held a conference on drip pricing earlier this year and reported 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.' These mandatory fees can be as high as $30 per night, a sum that could certainly affect consumer purchasing decisions."
The letter continued: "Consumers complained that they did not know that they would be required to pay resort fees in addition to the quoted hotel room rate. Several stated that they only learned of the fees after they arrived at the hotel, long after making a reservation at what they believed to be the total room price. Others paid for the reservation in advance and only found out after they arrived at the hotel that they would have to pay additional mandatory fees."
The FTC said in the letter that hotels are free to break out the components of a hotel stay, such as the basic room rate, estimated taxes and any "mandatory, unavoidable fees," but said "the most prominent figure for consumers should be the total inclusive estimate."
The letter concluded, "We strongly encourage you to review your company's website to ensure you are not misrepresenting the total price consumers can expect to pay when making a reservation to stay in your hotel." It added that the FTC could "seek redress for any violations of the FTC Act."
While the FTC has addressed similar practices in other industries, this is the first time the hotel industry has been targeted, said FTC spokeswoman Elizabeth Lordan, who declined to disclose which hotels received the letters.
"We want to give the hotel operators an opportunity to come into compliance voluntarily before naming them publicly," Lordan said.
The issue of fees and surcharges in travel has gained exposure in recent years as hotels and especially airlines have used a la carte pricing for certain ancillary services in order to increase revenue without boosting published base prices.
U.S. hotel surcharges will increase 5.4% this year, to $1.95 billion, which is more than triple decade-earlier figures, the New York University School of Continuing and Professional Studies said in an August report.
Surcharges, which also include cancellation fees, early-departure charges and room-service delivery fees, are profit centers because their margins are in the 80% to 90% range. With U.S. hotels expected to generate about $116 billion in revenue this year, according to PhoCusWright, surcharges will account for about 1.7 cents on the dollar.
American Hotel & Lodging Association CEO Joe McInerney said his trade group doesn't provide fee-disclosure standards for members but did send out an advisory saying that the hotel operators who received the FTC letter should seek legal counsel to ensure they're complying with the laws.
McInerney, who said he didn't know which hotels received the FTC notices, added that hotels are generally vigilant about properly disclosing extra fees on their websites.
He said many of the disclosure issues occur with bookings through intermediaries such as online travel agencies, who generate activity and revenue largely by showing what appear to be the best published rates.
"One of our problems is when the hotels use a third party [to sell a room] because many of those don't disclose all of the fees," said McInerney, adding that parking fees are something that will typically slip through the cracks when it comes to fee disclosures to guests. "In most cases, [the intermediaries] don't have loyalty to the customer and just want to sell them the room."
Robert Cook, director of sales at Longwood, Fla.-based travel agency Go Travel, said the FTC notice is a good thing for customers and might be a good thing for lodging operators, as well.
"Clients don't want to be nickel-and-dimed," said Cook, who added that hotels in Hawaii and Mexico have generated the most customer complaints when it comes to hidden fees. "People are savvy. Anything that makes things transparent is helpful."