NADA Urges Dealers to Be Aware of FTC’s ‘Drip Pricing’ Warning


WASHINGTON, D.C. - 

The National Automobile Dealers Association made the connection Thursday about how warnings issued from the Federal Trade Commission that are primarily targeted at the hotel industry can affect dealer group principals and store managers, too.

The warning is connected with what the FTC calls “drip pricing.” The agency first conducted a special conference on the topic back in May.

“Drip pricing is a pricing technique in which firms advertise only part of a product’s price and reveal other charges later as the customer goes through the buying process,” federal officials said. “The additional charges can be mandatory charges, such as hotel resort fees, or fees for optional upgrades and add-ons.

“Drip pricing is used by many types of firms, including internet sellers, automobile dealers, financial institutions and rental car companies,” the FTC said.

Then on Thursday, the FTC warned 22 hotel operators stating their online reservation sites may violate the law by providing a “deceptively low estimate” of what consumers can expect to pay for their hotel rooms. The warning letters cited consumer complaints that surfaced at the May conference the FTC held on “drip pricing.”

According to the FTC letters, “One common complaint consumers raised involved mandatory fees hotels charge for amenities such as newspapers, use of onsite exercise or pool facilities, or Internet access, sometimes referred to as ‘resort fees.’  These mandatory fees can be as high as $30 per night, a sum that could certainly affect consumer purchasing decisions.” 

Officials added the warning letters also state that consumers often did not know they would be required to pay resort fees in addition to the quoted hotel rate.

“Consumers are entitled to know in advance the total cost of their hotel stays,” said Federal Trade Commission chairman Jon Leibowitz.  “So-called ‘drip pricing’ charges, sometimes portrayed as ‘convenience’ or ‘service’ fees, are anything but convenient, and businesses that hide them are doing a huge disservice to American consumers.”

Leibowitz added the letters strongly encourage the companies to review their websites and ensure that their ads do not misrepresent the total price consumers can expect to pay.

So what do hotel accommodations and amenities have to do with a dealer turning used-vehicle inventory and selling service contracts?

“Dealers are reminded to have all of their advertisements reviewed for compliance with applicable federal and state advertising standards,” NADA officials said.

A dealer near Seattle recently had to settle a dispute with the Washington attorney general in a case about the store’s advertising. Auto Remarketing published the details about that case here.

Editor's Comments: 

Comments

Drip pricing is a pricing technique in which firms advertise only part of a product’s price and reveal other charges later as the customer goes through the buying process. The FTC hasn't decided that it's illegal yet, but that does not mean you shouldn't be looking for this deceptive practice. If you see this kind of pricing model coming, do your best to back away.

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