Sunlight on hidden fees
Residents in Minnesota may have noticed a change on the menus in their favorite restaurants lately. That’s because on Jan. 1, the state enacted a law requiring businesses to include all mandatory fees and surcharges in the prices they display. So if a diner adds 5% to every bill for “wages and benefits,” for example, it must build that increase into the cost shown for every item it offers.
Minnesota’s Uniform Deceptive Trade Practices Act is the latest confirmation of a broadening trend to protect consumers by bringing sunlight to pricing. The new law addresses what is variously called drip pricing or partition pricing, a common practice across industries ranging from ticketing to travel that stacks hidden fees at the end of transactions. In December, the Federal Trade Commission finalized a similar rule. A few months earlier, so did California.
The concerns don’t stop there. In recent years, several states have sought – through legislation as well as executive orders – to crack down on a range of opaque practices, from price gouging to inconsistencies in what retailers charge for the same good online versus in person.
The new laws hold a mirror to what may matter even more to consumers than rising costs. “Pricing is one area where consumers of all types expect complete transparency,” wrote Austin Mac Nab, CEO and co-founder of the Iowa-based technology company VizyPay, in an essay for Business.com last year. He cited a study by Harvard Business School showing that loyal customers spend 67% more on products and services than new customers.
“Businesses that strive to be open and honest,” he noted, “set themselves apart and generate ... long-term stability.”
The Federal Trade Commission’s Junk Fees Rule, formally called the Trade Regulation on Unfair or Deceptive Fees, encourages more states to build on the laws enacted recently by Minnesota and California. Inherent in transparency, commission chair Lina Khan notes, is respect. The rule, scheduled to go into effect in April, followed two years of public hearings and reflected written input from 72,000 citizens. The commission estimates it will save people up to 53 million hours per year in time searching for the actual cost of goods or services online.
“People deserve to know up-front what they’re being asked to pay – without worrying that they’ll later be saddled with mysterious fees that they haven’t budgeted for and can’t avoid,” Ms. Khan said during the rule’s announcement.
Economists have long noted that price transparency drives innovation by pushing companies to create better products to remain competitive. For diners in Minnesota, the equation is simpler. The state’s new law means that honesty is on the menu.
