Effective May 10, the hotel and short-term lodging industry will be subject to a landmark rule on price transparency enacted by the U.S. Federal Trade Commission (FTC), known as the “Junk Fees Rule.” The Junk Fees Rule prohibits “drip pricing” and hidden charges; businesses must disclose the total price, including all mandatory fees, in advertisements and listings on mobile applications and in physical locations. However, the FTC is not the only government entity focused on unfair and deceptive pricing practices. Several states have passed laws similar to the Junk Fees Rule—and more are likely to follow suit. Understanding and complying with the specific requirements of each statute and regulation is critical to avoid enforcement actions and steep financial penalties.
The Junk Fees Rule
The Junk Fees Rule applies to short-term lodging, including hotels, motels, inns and online marketplaces such as Airbnb and Vrbo. These businesses must show the maximum total lodging price reflecting all mandatory charges in a way that is easily noticeable and understandable to an ordinary consumer. The nature, purpose and amount of any ancillary mandatory charges—such as resort, cleaning and breakfast fees—must also be disclosed clearly and conspicuously. However, the maximum total price must be more prominent than any other pricing information so that consumers are not confused about the bottom line. Although taxes do not have to be disclosed in the initial listing, they must be shown before the consumer decides to make a purchase. In a similar vein, the price of optional goods and services (upgrades) and contingent charges (late checkout fees) are also exempt. Non-compliance can give rise to civil penalties of up to $51,744 per violation and consumer refunds.
State law trends
Two states have enacted bans on drip pricing and hidden fees. California paved the way with the “Honest Pricing Law,” which took effect on July 1, 2024. Similar to the Junk Fees Rule, the Honest Pricing Law prohibits businesses from advertising, displaying or offering a price that does not include all mandatory fees or charges other than taxes and government fees any time price is displayed. Six months later, Minnesota expanded its Deceptive Trade Practices Act to prohibit unfair pricing practices and incomplete disclosures. Both states impose fines for violations—although neither is as steep as the Junk Fees Rule. As of the date of publication, more than 20 states are considering similar legislation directed at the hospitality industry.
Key takeaways
With increasing and complex legal mandates on price transparency, businesses should take proactive measures to avoid government scrutiny and the threat of monetary sanctions:
First, review all advertising and listings to ensure compliance with federal and state law. Every time the price of a room is displayed, it must conform with the applicable legal standards.
Second, provide training to staff who work with advertising displays or communicate pricing to customers and the general public. Messaging must be consistent, with an emphasis on disclosure of total price accompanied by an appropriate breakdown of mandatory ancillary fees.
Third, business owners, executives and in-house counsel should monitor legislative developments. Congress is weighing legislation that targets hotel and short-term lodging price transparency. In the absence of uniform federal legislation, states have considerable discretion in how to regulate advertised prices. The Junk Fees Rule sets a baseline for state legislatures, but the rule expressly permits states to afford consumers even greater protection. The result could be a patchwork of state laws with different or even inconsistent requirements that will call for bespoke solutions.
Jennifer M. Driscoll is co-chair of the antitrust + trade regulation team at Robinson & Cole LLP. Her practice focuses on internal and government investigations and antitrust. She represents both companies and individuals in FTC antitrust and consumer protection matters.
This is a contributed piece to Hotel Business, authored by an industry professional. The thoughts expressed are the perspective of the bylined individual.
