California lawmakers attempt crackdown on hidden fees

When Leslie Harvey took her kids to the hotel and water park last November, she paid a “resort fee” of $39.99 per day on top of the rate for the room. That fee doesn’t cover water park passes, which are included in the cost of the room, according to the Great Wolf Lodge’s website; it covers “amenities” including life jackets, towels, Wi-Fi, and the coffee makers and mini-fridges in rooms.

The fee “provides for amenities and services that enhance the guest experience, and are very much in line with guests’ expectations when visiting a family resort destination,” wrote Jason Lasecki, vice president of corporate communications for Great Wolf Resorts. “Great Wolf Lodge fully discloses room rates and any fees to our guests throughout the booking process… and in the final estimate before customers complete their reservations,” and it requires third parties to inform customers about mandatory fees.

When CalMatters went through the booking process for the Great Wolf Lodge in Manteca, the resort fee only became apparent after selecting dates, choosing a room, making a decision about late checkout, and clicking through options to add activities and dining credits.

The fee didn’t take Harvey by surprise. She’s savvier than most — she’s been writing about travel on her blog, Trips with Tykes, for more than a decade. But, she said, she hears often from friends and readers who start planning their vacation, searching online, talking with their family about it, and “then they actually go through the booking screen, and they’re like, ‘Oh, gosh, this is going to be 20% more than we were budgeting.’”

Resort fees are increasing, Harvey said, and she’s now seeing fees at hotels that don’t have many amenities, including city hotels that are adding “urban destination fees.” 

It’s not just hotels. Fees and surcharges pop up at the end of all sorts of purchases. When a federal government agency said it was considering a rule to crack down on “junk fees,” Californians wrote in complaining about everything from fees at Pizza Hut to a $5,000 “paint protection” charge tacked on to a car purchase.

Figuring out the full price of a rental car or hotel can feel like a journey with unexpected twists and turns. A group of California state lawmakers has proposed a raft of bills that would require companies in several industries — including live events and apartment rentals — to be more transparent about total prices. Research mostly shows that people spend more when fees are tacked on to the end of a purchase compared with when all-inclusive prices are listed up front.

When Brian Teeter bought tickets for the April 15 NBA playoff game between the Sacramento Kings and Golden State Warriors on Ticketmaster, each $749 ticket came with a $172 service fee. The tickets were expensive in part because it was the first time since 2006 that the Kings made it to the playoffs.

Teeter, a Sacramento resident and Kings fan, said he’s bought sports tickets before on other platforms, but he didn’t remember the fees being “that outrageous,” he said. “They don’t do enough to justify that fee,” he said. “I think it’s a ripoff.” He wishes the total price was clear on the front end, he said. Once you get far enough into the booking process to see the fees, most people, he said, are already committed to going.

Last-minute fees lead to splurging

When economist Stephen Tadelis worked for eBay in the early 2010s, executives were talking about switching ticket sales on Stubhub, a ticketing platform owned by the company, from a strategy known as “drip pricing,” where taxes and fees were revealed later, to displaying an all-inclusive price, Tadelis said in an interview with CalMatters.

Executives hoped that the switch, which was made in 2014, would make customers more loyal and help Stubhub gain market share, Tadelis said. That’s not what happened. “Turns out that customers were not flocking to Stubhub” because it had all-inclusive pricing, said Tadelis, currently a professor at UC Berkeley.

Before executives switched back in 2015, Tadelis and some colleagues got permission to run an experiment, revealing fees at checkout for half of Stubhub customers while maintaining all-in pricing for the rest. They found customers who only saw the fees at final purchase wound up spending 21% more, and were 14% more likely to make a purchase than customers who saw the total price upfront.

Other studies have found similar results. For a 2009 study, economists at UC Berkeley and the Federal Reserve Board added, in one supermarket, price tags to deodorants, hair accessories, and cosmetics that included the price after the 7.4% sales tax was applied. They found that sales of those items fell by about 8% compared to two control groups of products.

In a 2006 study, researchers at Hong Kong University and UC Berkeley auctioned off CDs and Xbox games. They found that when a product was offered at an opening bid of one cent with a shipping cost of $3.99, it attracted more bidders and brought in more revenue compared to when they set the opening bid at $4 and the shipping fee at $0.

But not every study has the same finding. For example, in 2019, researchers at German universities manipulated how a three euro surcharge for 3D movies was presented online to customers of a large German multiplex cinema. For some customers, the fee was incorporated into the ticket price; others saw a note about a fee, but didn’t see the amount until later. They found that customers with the note were more likely to put a ticket in their online cart, but they also dropped out more often once the total price was revealed.

In general, though, the finding that people spend less when they’re presented with an all-inclusive price is “very consistent,” Tadelis wrote in an email.

The fees can pad out businesses’ bottom line. When Marriott was sued over its alleged “deceptive pricing tactics,” unsealed court documents showed that the hotel company had brought in more than $220 million from resort fees between 2012 and 2019.

Lawmakers in DC, CA fight fees

After years of proliferating fees, we may have entered the backlash. President Joe Biden has called on federal agencies and states to focus on the issue and discussed it in his State of the Union address. The Federal Trade Commission is exploring regulations that would crack down on “junk” fees; and Congress is considering bills on the subject.

Efforts by California lawmakers include:

• Two bills aimed at the ticketing industry which, among other provisions, would require ticket sellers to disclose the total cost before the event is selected for purchase;
• Two bills aimed at greater transparency in advertised rates for hotels, short-term rentals, and more;
• A bill that would require rental car companies to only advertise rates that include mandatory taxes and fees;
• A bill that would require landlords that advertise or provide quotes to include any mandatory fees.
• And an overarching bill that would make it unlawful to advertise or display a price for a good or service that doesn’t include mandatory fees, besides taxes.

“Whether it’s ticketing of concerts, sporting events, whether it’s renting a car, whether it’s booking a room or staying at an Airbnb…the people who lose are consumers,“ said Robert Herrell, executive director of Consumer Federation of California, which coordinated a handful of the bills. “And disproportionately the people who pay the brunt of this are low- and moderate-income consumers, and consumers and communities of color,”

It’s still early in the legislative process — some of the bills haven’t yet gotten a first hearing — but groups are already lining up in opposition and support.

Consumer groups and Ticketmaster come down on different sides of the two bills aimed at the ticketing industry. Live Nation Entertainment, which owns Ticketmaster, opposes one bill not because of the price transparency provision, but because it would “regrettably steer more tickets to secondary markets where resellers and brokers get fans’ money instead of the artists and venues putting on the show,” wrote Jonathan Lamy, the company’s senior vice president of public affairs and policy, in a letter opposing the bill. Artist groups, including SAG-AFTRA and Music Artists Coalition, also oppose the bill.

The Consumer Federation of California, CalPIRG, and other consumer groups support that bill. The federation opposes another proposal, which is supported by LiveNation Entertainment and the same music industry groups. The consumer group says it doesn’t give consumers ownership over their tickets, giving them limited options if they need to resell their tickets, and defines “ticket sellers” in a way that “fails to get at the heart of the issue, which is the control exercised over consumers by those marketplace participants such as the monopolistic Ticketmaster/Live Nation that control the industry.” Stubhub and Vivid Seats, two ticket resale companies, also oppose the bill in its current form.

The California Chamber of Commerce, which lobbies on behalf of businesses, opposes a couple of the bills, including the two requiring greater price transparency for hotels and short-term rentals. Robert Moutrie, an advocate for the group, said the Chamber didn’t take issue with requiring companies to be up front about mandatory fees that businesses themselves add. But, he said, including government-imposed taxes in the initial price could put California at a disadvantage when travelers are weighing a trip to California versus Washington or Nevada. He’s working with the bill authors, he said, and has shared proposed amendments with them.

Alyssa Stinson, regional government affairs manager for Expedia Group, which owns VRBO, a vacation rental site, wrote that Expedia will “work collaboratively” with lawmakers on the bills.

Airbnb did not comment on the short-term rental bills, but a spokesperson shared that in December the company began rolling out the option to display a total price in countries without existing requirements. Hosts set room rates and cleaning fees and Airbnb sets the service fee, which is “under 14.2% of the booking subtotal” for “most stays,” according to the company’s website.

One of the reasons that Airbnb might have started offering all-inclusive pricing is because Airbnb doesn’t really have major competitors, said Lauren Wolfe, counsel at Travelers United, a consumer protection nonprofit. Hilton, Hyatt, and other hotel chains that compete against each other won’t decide on their own to add fees into their room prices, making them look comparatively expensive.

“They’re not going to move to all-in pricing,” she said, “until these bills start passing.”