Hidden costs

Hard to find real cost

Hotels add so many fees to their bills that it’s hard for consumers to compare prices, the FTC complains.

The Federal Trade Commission taught me a new term those of you planning vacations may want to know — drip pricing. The agency is concerned about the practice and even convened a conference on the economics of drip pricing last year.

The FTC defines drip pricing 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.” The additional charges may be mandatory fees for services the customer doesn’t even use.

The conference brought together economists, academics and regulators to examine the motivation for drip pricing, its impact on consumers and policy issues. They talked about why firms engage in drip pricing, whether it’s harmful to consumers, and if competition can prevent consumers from being harmed.

FTC officials identified types of businesses they believe use drip pricing, including Internet sellers, automobile dealers, financial institutions, and rental car companies. Officials were was particularly concerned about hotel operators and charges referred to as “resort fees.” The fees could be as high as $30 per night, an amount that would certainly influence the customer’s purchasing decision.

The Business Travel Coalition, an advocacy group for individual and business travelers, sent a letter to the FTC in August 2012 identifying its concerns with drip pricing, including that:

Consumers and corporate travel managers find it difficult to determine the true cost of a stay in advance and to make accurate price comparisons among competitive hotel options. Over tim, drip pricing can reduce the intensity of competition, resulting in higher average prices paid.

Hotels that displays rates in an honest manner suffer in supposedly side-by-side price displays when competitors display artificially low rates.

In November 2012, the FTC sent letters to 22 hotel operators warning that their online reservation sites may violate the law by providing a deceptively low estimate of what consumers can expect to pay for hotel rooms. The FTC chairman said, “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 letter cited complaints about mandatory fees for newspapers, use of onsite exercise or pool facilities, and Internet access. A review of hotel operator websites found that some quoted a “total price” that included only the room rate and applicable taxes.

On some sites, the resort fee was listed nearby, but separate from, the quoted price; referenced with an asterisk that sometimes led to fine print on a separate Web page; or simply referred to as other undefined fees that may apply.

The letter strongly encouraged the hotel operator to review its website and ensure ads do not misrepresent the price consumers can expect to pay. It advised that the agency would take any action necessary to enforce and seek redress for violations of the FTC Act.

When you’re making a hotel reservation, ask about any additional fees or read the fine print if booking online.

Don’t assume that a side-by-side comparison of fees at different resorts is completely accurate. Reconfirm charges when you check in and register your objection to fees for services you won’t use. Don’t wait until you’re checking out and in a hurry to get to the airport.