FIXING THE DRIP: UNDERSTANDING THE NUTS RESORT FEE DISCLOSURES AND BOLTS OF MANDATORY

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1 FIXING THE DRIP: UNDERSTANDING THE NUTS AND BOLTS OF MANDATORY RESORT FEE DISCLOSURES Annette Soberats, Staff Attorney U.S. Federal Trade Commission Division of Advertising Practices The opinions expressed are my own and not necessarily those of the FTC or any individual Commissioner.

2 THE FTC ACT 15 U.S.C. 41 ET SEQ. The Federal Trade Commission Act ( FTC Act ) governs advertising and marketing of most products and services in the U.S. Section 5 prohibits unfair and deceptive acts or practices. 2

3 ADVERTISING POLICY DECEPTION WHEN IS AN AD DECEPTIVE? Representation, omission, or practice likely to mislead consumers acting reasonably under the circumstances and that representation, omission, or practice is material to consumers. NOTE: Intent to deceive is not required! 3

4 MATERIALITY Definition of material from FTC Policy Statement on Deception, 103 F.T.C. 174 (1984): A material misrepresentation or practice is one which is likely to affect a consumer s choice of or conduct regarding a product. In other words, it is information that is important to consumers. If inaccurate or omitted information is material, injury is likely. Where the seller knew, or should have known, that an ordinary consumer would need omitted information to evaluate the product or service... materiality will be presumed... Information has been found material where it concerns the cost of a product or service. 4

5 FTC TOOLS FOR REGULATING ADVERTISING Law Enforcement (informal tools include warning letters) Business Guides Consumer and Business Education Self-Regulation 5

6 DRIP PRICING Drip pricing is a pricing technique in which firms advertise only part of a product s price and reveal other charges later as the customer goes through the buying process. The issue of drip pricing is not new to the FTC. The FTC has entered into consent decrees with rental car companies for failing to disclose in their advertising mandatory surcharges for fuel, airport shuttle fees, and fees for drivers under age 25. The FTC has entered into consent decrees with car companies for failing to clearly and conspicuously disclose in their car lease advertising the total amount due at lease inspection. DOT s full-fare advertising rule: 14 C.F.R In May 2012, the FTC held a Conference on the Economics of Drip Pricing. Thereafter, the FTC conducted its own investigation and confirmed that hotels were excluding resort fees from quoted total prices at online reservation sites. 6

7 THE FTC S DRIP PRICING INVESTIGATION The FTC s investigation revealed that hotels only included the room rate and applicable taxes in total quoted prices. Resort fees were typically disclosed in fine print, through hyperlinks or vaguely alluded to with statements like other fees may apply. Written disclosures or fine print may be insufficient to correct a misleading representation. Deception Policy Statement, 103 F.T.C. 174 (1984) In November 2012, the FTC publicly announced that any mandatory resort fees must be included in the total price quoted to consumers on online reservation sites. Warning letters were mailed to 22 individual hotels, with copies sent to the corporate headquarters for each hotel. 7

8 THE FTC S WARNING LETTERS: AN OVERVIEW The warning letters notified hotels that omitting resort fees from total prices may violate the law by misrepresenting the price consumers can expect to pay for their hotel rooms. The letters stressed that online hotel reservation sites should include in the quoted total price any unavoidable and mandatory fees, such as resort fees. While a hotel reservation site may breakdown the components of the reservation estimate (e.g., room rate, estimated taxes, and any mandatory, unavoidable fees), the most prominent figure for consumers should be the total all-inclusive estimate. 8

9 THE FTC S.com Disclosures Apply to Online Reservation Sites In addition to the FTC s drip pricing warning letters, the travel industry should also be aware of the FTC s new guidance report,.com Disclosures: How to Make Effective Disclosures in Digital Advertising (2013)..com Disclosures applies the same consumer protection principles as the original Dot Com Disclosures (2000) to a new media context that includes smartphones and social media marketing. Like the original Dot Com Disclosures (2000), the updated guidance emphasizes that the FTC Act s prohibition on unfair or deceptive acts or practices encompasses online advertising (e.g., online reservation sites). Further, if a disclosure is needed to prevent an online ad from being deceptive or unfair, it must be clear and conspicuous. 9

10 THE FTC S.com Disclosures Apply to Online Reservation Sites (cont d) To ensure a disclosure is clear and conspicuous, it should be as close as possible to the relevant claim (e.g., having to scroll increases the risk consumers will miss a resort fee disclosure). Disclosures that are an integral part of a claim or inseparable from it... should be placed on the same page and immediately next to the claim, and be sufficiently prominent so that the claim and the disclosure are read at the same time....this is particularly true for cost information. 10

11 THE FTC S.com Disclosures Apply to Online Reservation Sites (cont d) [I]f a product s basic cost (e.g., the cost of the item before taxes, shipping and handling, and any other fees are added on) is advertised on one page, but there are significant additional fees the consumer would not expect to incur in order to purchase the product... the existence and nature of those additional fees should be disclosed on the same page and immediately adjacent to the cost claim, and with appropriate prominence. 11

12 THE FTC S.com Disclosures Apply to Online Reservation Sites (cont d) Thus, if a hotel s basic cost (e.g., the cost before taxes) is advertised on one page, the existence and nature of any mandatory resort fees should be disclosed on the same page and immediately adjacent to the basic cost for a hotel stay. 12

13 THE FTC S.com Disclosures Apply to Online Reservation Sites (cont d) In addition to proximity, advertisers should consider the following in making a disclosure clear and conspicuous: Prominence: Is it big enough for consumers to notice and read? Presentation: Is wording and format easy for consumers to understand? Remember, mandatory resort fees are integral and inseparable from the basic cost for a hotel stay, and should therefore, accompany a hotel stay s basic cost 13 information to prevent deception.

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17 ANNETTE SOBERATS FTC s Bureau of Consumer Protection Division of Advertising Practices asoberats@ftc.gov;

18 Annette Soberats is an attorney in the Division of Advertising Practices at the Federal Trade Commission s Bureau of Consumer Protection. She is the lead attorney for the FTC s Drip Pricing Project and works on national advertising matters with a focus on health and performance claims. Prior to joining the FTC, Annette clerked for the Honorable Brian F. Holeman in the District of Columbia Superior Court. Annette graduated from Georgetown University Law Center, where she served as an editor of the American Criminal Law Review, and holds a B.A. in Economics and International Relations, summa cum laude, from Florida International University.