Resort fees: is full disclosure in your best interest?

What does the FTC say is your potential liability for mandatory hotel charges?

In evaluating what you should do about the new furor over mandatory hotel charges, it would be helpful to have a clearer understanding of what the FTC seems to be saying on the issue. This chart is our translation into “street English” of the FTC pronouncements.

We believe we understand what the FTC is saying. We may not agree with it. We do not know whether the Trump administration will rein in the FTC on its perceived mission regarding resort fees, and we do not know whether the current FTC position will be upheld as a valid interpretation of the law. However, courts normally accord great deference to the interpretation of agencies charged with administering their laws, and it is imprudent to ignore the FTC’s recent actions.

In weighing options, even if they ultimately win on legal issues, hoteliers should also consider the negative effects of litigation—including direct costs in terms of legal fees, senior management time, and good will. And there are a number of worrisome plaintiffs who may pursue the issue, including the FTC, State Attorneys General, other governmental and consumer groups, and class action plaintiffs’ lawyers. Any victories by the hotel industry may be largely offset by the costs to obtain them.

So what are your options on mandatory resort fees?

The basic thrust of the actions by the FTC, the investigation by the State Attorneys General, and most consumer class action suits is that it is a deceptive and misleading business practice for hotels to advertise their room rate online unless the first and most prominent price given includes all mandatory resort fees and other charges. They say that it is not sufficient to give the room rate and then have a less prominent disclosure of additional charges.

The issue here is really about what disclosure must be made and how it should be made if you charge mandatory fees that are not included in the room rate you quote in advertising and online.

For the sake of argument, let’s say that the FTC position expressed in the January 2017 analysis was “the law,” or that for business reasons you want to develop policies and procedures for resort fees that should avoid these resort fees issues. The following matrix provides a general guideline as to what options or approaches you might take and the corresponding disclosures.

Key terms used in the matrix

In the matrix below, “fees” is used as a shorthand expression for all mandatory fees and charges, i.e. resort fees, service fees, amenity fees, surcharges, or other non-optional charges to the guest which are not included in the quoted room rate.

“Total price” means the total of room rate plus any mandatory fees or charges as a single sum. For these purposes, total price does not include applicable taxes because we are not aware of any claim that taxes are a necessary part of price disclosure, although one can imagine such a claim being made. Taxes are distinguishable from other fees or charges for services in that they are a direct pass through of governmental impositions which must be paid over to third parties, they are not at the discretion of the hotel, and they do not benefit the hotel.

Resort fee litigation exposure matrix
(mandatory fee options and necessary disclosures)
Policy on fees What is disclosed and how Legal issue?
• No fees • Total price (i.e. in this case, it is the room rate) • No issue
• No fees
• Charge only for services used
(i.e. optional with guest usage)
• Total price (i.e. in this case, it is the room rate)
• No disclosure on optional services required in online ads
• No issue
• Charge fees • Total price
• Total price must be the first and most prominent price
• No issue
• Charge fees
• List fees separately breaking out total price to show room rate and fees
• Total price
• Total price must be the first and most prominent price
• After total price (or right next to it), disclose portion of cost that is mandatory fee
• No issue as long as total
price is first and most
prominent price
• Charge fees • Room rate is first price mentioned and total price and/or fees are disclosed later or in smaller or less prominent font • Yes
• This is “drip pricing”—the current hot issue with the FTC and 47 State Attorneys General
• We also expect this will likely trigger a new wave of class action claims

Remember: Resort fees are not illegal. This is all about disclosure.

For the last two decades—as long as this issue has been rankling consumers and government agencies—no one has ever suggested that mandatory fees are illegal or improper. The only issue is about the disclosure that must be given on pricing.

So even if a hotel decides to take the most conservative approach on disclosure, the hotel can still charge the resort fee and display this charge separately. The Uniform Standards of Accounting for the Lodging Industry, 11th edition, provides that these mandatory charges are not accounted for as rooms revenues (but rather as “miscellaneous income.”) Therefore, the significant mandatory fees should still be exempt from various charges on “rooms revenues,” such as transient occupancy taxes, franchise fees, frequent traveler program charges, and the like. And hotels can still provide their guests with a big bundle of amenities and value at a discounted price.

The issue here is really about what disclosure must be made.

The biggest problem for a hotelier in moving to a position advocated by the FTC and consumer groups is the competitive disadvantage when consumers compare pricing online. The first hotels listing the total price as the first and most prominent price may lose business to those that list only room rate with mandatory fees in the fine print. But that is part of a different discussion for another day.


ABOUT THE AUTHOR

Jim Butler is a founding partner of Jeffer Mangels Butler & Mitchell LLP (JMBM.) He serves as chairman of the firm’s Global Hospitality Group, a team of seasoned professionals with more than $71 billion of hotel transactional experience, involving more than 3,800 properties located around the globe. Jim devotes 100 percent of his practice to hospitality, representing hotel owners, developers, and lenders.

Jim Butler

For more information about resort fee issues, including the latest updates, visit www.hotellawblog.com or contact Jim Butler at jbutler@jmbm.com.