FTC’s Recipe for Restaurant Ruin
Currently, consumers have witnessed many businesses add additional costs to the subtotal such as: living wage, credit card, and large party fees. The FTC has proposed a rule that would ban these so-called “Junk Fees” fees.
- Who: The proposed rule would apply to several industries including restaurants, auto dealers, and airlines (full list below)
- What: This proposed rule will ban all additional fees (“Junk Fees”), excluding taxes.
- When: Public comment is open until February 7, and the final rule is expected in Fall 2024.
- Why: The FTC is seeking to prohibit hidden or misleading fees.
- How: Businesses will not be allowed to have additional line items (other than tax), meaning each item, good, and service must show the total price in the subtotal.
What Industries Does the Proposed Rule Impact?
The FTC has proposed a rule to ban “Junk Fees” from a range of industries. Businesses add hidden charges, called Junk Fees, to goods and services like loans, bank accounts, and purchases. Businesses tack on Junk Fees as line items during purchases of vehicles, live event tickets, airline tickets, and third-party delivery services. The industries impacted include auto dealers, hotel “resort” fees, prepaid phone cards, loan charges, funeral services, live event tickets, third-party delivery, airlines, rental cars, rental housing, and restaurants.
What Fees Will Be Banned?
This proposed rule is aimed at prohibiting hidden or misleading fees. This means that the total price must include all charges. The restaurant industry will need to remove the following additional fees: delivery fees, living wage fees, credit card fees, service fees, large party fees, kitchen fees, convenience fees, recovery or COVID-related fees, and hospitality fees. The only allowable additional cost beyond the subtotal under this proposed rule would be the applicable tax.
How Does this Proposed Rule Impact Restaurants?
This proposed rule means that the restaurant industry will need to reflect the “Total price” on their menus, leading to increased menu prices. This may result in consumers being hesitant to dine out due to perceived high prices. Soaring food prices have forced restaurants to raise menu prices. With costs already being high, further heightened menu prices are going to have an impact on the bottom line and customer perception.
Increased prices on the menu are not the only item that should concern restaurant owners. Under the proposed rule, restaurants would not be able to add extra charges for large parties, a policy aimed at simplifying pricing. This means that restaurants will be required to print new menus specifically for large parties. Additionally, restaurants will need to create separate delivery menus showing all-inclusive prices not just for dine-in customers.
This proposed rule will greatly impact the restaurant industry. Along with the higher menu prices, there will need to be additional training on when to give out the correct menu. Additionally, there will be issues when a group has “one more person coming” (who may not show up or may show up with additional people). This may be the difference between the large party menu and the “standard” priced menu. If the wrong menu is provided, and switching menus is needed, it will leave a poor impression on the customer. The restaurant industry, already operating on slim profit margins, may face further financial strain as consumers reduce dining out.
When Will this Rule be in Effect?
With the new proposed rule, there is a public comment period that closes on February 7, 2024. This rule is on track to be finalized in the Fall of 2024, with enforcement starting in January 2025. This timeline may change but the enforcement of this proposed rule will come quickly.
Contact the North Star Law Group Business team for more information or help with this proposed rule.
We highly recommend submitting a comment to the FTC to voice your opinion as a small business owner. To file a comment with the FTC before February 7 click here.