(Bloomberg Opinion) -- Why is it that when you check out of a hotel the bill is always so much larger than expected? It’s the assortment of unexpected fees — resort fees, destination fees, cleaning fees, hotel fees and more — that no one mentions until you’re leaving.
Congress wants to do something about this. The House of Representatives is considering legislation that would increase transparency by requiring a room’s advertised rate to include all mandatory fees except those imposed by government. This bipartisan Hotel Transparency Act of 2019 is a terrific idea.
It draws on powerful behavioral economics research on the effects of “shrouded attributes,” understood as product features or add-ons that are not readily visible to consumers. Examples from banking include minimum-balance fees and bounced-check fees. Because most of us have limited attention and tend to focus mostly on what is readily visible, we tend not to pay as much attention to them as we do to upfront costs.
Even in the most competitive of free markets, companies have a strong incentive to “shroud” those features or add-ons, potentially to the great detriment of consumers. That’s a market failure.
The House bill cites an impressive report from Mary Sullivan, an economist at the Federal Trade Commission, which explores two specific practices: “partitioned pricing,” which is to divide a price into components without disclosing the total, and “drip pricing,” which is to advertise only part of a price upfront and withhold other parts until customers move toward finalizing their choices.
Both of these practices can hurt consumers by pushing them to make uninformed choices. After all, it takes a lot of time and trouble to learn what the extra charges are and add them up. With partitioned pricing and drip pricing, Sullivan says, hotels exploit consumers’ ignorance. And aside from their own self-interest, hotel owners have no good arguments in favor of the shrouded fees.
Whenever Congress intervenes in the marketplace, it is both natural and right to worry about unintended consequences. But in practice, regulation of hidden fees has a particularly strong track record for helping, not hurting, consumers.
For example, the 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act, which targeted late fees and overuse fees, is estimated to have saved consumers $11.9 billion a year. Natasha Sarin of the University of Pennsylvania Law School has built on this finding, and others like it, to argue that hidden fees ought to be a prime target of both federal and state regulators. Sarin has shown that such fees often have especially negative effects on low-income consumers, who are least able to afford them, and who are most likely to be targeted by companies that impose them.
In the current environment, it’s not easy to find legislation that has both Democratic and Republican support, can claim strong empirical justification, and promises to save American consumers a great deal of money. The Hotel Transparency Act of 2019 wins the trifecta.
To contact the editor responsible for this story: Mary Duenwald at mduenwald@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Cass R. Sunstein is a Bloomberg Opinion columnist. He is the author of “The Cost-Benefit Revolution” and a co-author of “Nudge: Improving Decisions About Health, Wealth and Happiness.”
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