Sunlight on hidden fees
U.S. states are driving a robust legal trend toward transparency in pricing, measuring the value of goods and services in honesty and respect for consumers.
U.S. states are driving a robust legal trend toward transparency in pricing, measuring the value of goods and services in honesty and respect for consumers.
Residents in Minnesota may have noticed a change on the menus in their favorite restaurants lately. That鈥檚 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 鈥渨ages and benefits,鈥� for example, it must build that increase into the cost shown for every item it offers.
Minnesota鈥檚 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鈥檛 stop there. In recent years, several states have sought 鈥� through legislation as well as executive orders 鈥� 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. 鈥淧ricing is one area where consumers of all types expect complete transparency,鈥� 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.
鈥淏usinesses that strive to be open and honest,鈥� he noted, 鈥渟et themselves apart and generate ... long-term stability.鈥�
The Federal Trade Commission鈥檚 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.
鈥淧eople deserve to know up-front what they鈥檙e being asked to pay 鈥� without worrying that they鈥檒l later be saddled with mysterious fees that they haven鈥檛 budgeted for and can鈥檛 avoid,鈥� Ms. Khan said during the rule鈥檚 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鈥檚 new law means that honesty is on the menu.