On Tuesday 17th December, the U.S. Federal Trade Commission (FTC) enacted a new rule banning hidden "junk fees" in hotel bookings, vacation rentals, and event tickets. This mandate, which will go into effect in 120 days, requires that all mandatory fees like resort fees and cleaning charges be disclosed upfront, rather than at the final stages of booking. It’s designed to eliminate “drip pricing,” where a customer thinks they’re receiving a certain price until fees are added later on in the booking process.
According to President Biden’s statement upon signing this bill:
We all know the experience of encountering a hidden fee at the very last stage of checkout—these junk fees sneak onto your bill and companies end up making you pay more because they can. Those fees add up, taking real money out of the pockets of Americans.
Junk fees have been raised as a key issue multiple times during President Biden’s presidency, so we’re not surprised that this is one of the initiatives that his administration is pushing over the line before the new administration enters the White House in January.
This announcement, which echoes changes rolled out in California and Minnesota earlier this year, could be a transformative moment for hotels, allowing them to build guest trust, compete more transparently and effectively with OTAs, and ultimately drive more direct bookings. But the operational toll as the industry rolls out these changes could also pose a key challenge.
A junk fee is any mandatory fee that’s not included in the initial room price of a hotel or short-term rental. The most common examples are resort fees, while cleaning fees are also very common (especially for short-term rentals). If you’re a U.S. property currently adding any of these types of additional amenity charges but not incorporating them into your price on metasearch, your website, and your other direct channels, you’ll need to change the way that you display your prices.
It’s important to note that state taxes or other legally mandated fees are not included in this ruling—these need not be included in the upfront rate displayed.
We would argue that increased visibility and transparency between hotels and their guests should be a good thing. The problem comes when other players in the market, like OTAs, short-term rentals, and competitors, play around with these fees to remove them from their totals, making hotels who adopt transparent pricing appear more expensive. This ruling could put an end to that.
Currently, junk fees can be used as a tool for hotels to make prices seem more competitive upfront, with additional costs coming up down the line. But this can be a dangerous game to play—a sudden increase in the total price of a booking can create friction and ultimately lead to lost bookings. It’s also not great for customer brand perception and creating trust with guests—in a recent survey conducted by financial tech company Wise, 42% of Americans said they had stopped using a specific brand or business because that business employed junk fees.
By displaying resort fees and other charges into your total upfront cost, you can create a sense of trust with your guests and avoid people dropping out of the booking process further along their journey.
“Junk fees also make it hard for honest businesses to compete, stifle innovation, and hurt small businesses.”
OTAs are experts at using junk fees in order to make their offerings appear more cost-effective than booking direct with hotels. They often show a price that looks cheaper than the direct price upfront, attracting customers to their site under false pretenses. One of this ruling’s aims is to stop this type of price manipulation, allowing hotels to be confident that all channels displaying their prices are held to the same standards as they are.
Short-term rental sites like Airbnb have gotten a reputation for being cheaper than hotels, but they often add in hefty cleaning and service charges farther along in the booking process, making their final prices more expensive than hotels. This should be curbed by the new regulations.
In the long-term this change could lead to increased customer trust and a more even footing with OTAs, but the ruling may pose some initial complications and confusion around how to display prices. When the change was rolled out in California, we saw quite a few different approaches in how hotels were displaying these rates—it’s important for hotels to choose a transparent pricing strategy that also aligns with their overall strategy and goals.
Thankfully, we’ve been able to watch hotels in California adapt—and we’ve taken away quite a few learnings. Here are some tips for how to make sure you’re prepared for this imminent change:
The FTC's policy change, passed by a 4-1 vote, aligns with growing consumer demand for transparency and fairness in pricing. By leaning into these values, hotels can create more trust with their guests and deliver a more seamless booking experience. Direct booking is all about cutting out the middleman and delivering a stellar experience directly to your guests—which can all start with their initial search.
If you’re unsure of how to get your hotel ready for this change in just a few months, and how to make the most of the new law, our team of direct booking experts is here to help.
Get in touch with our experts today for more tips on how to improve your booking journey and drive more direct bookings.