By: Theodore Brothers
In today’s marketplace, virtually everything is available to consumers via smartphone apps, ranging from rideshare services to laundry service to food delivery. The primary trade-off consumers are willing to make for this convenience is paying a little extra in delivery fees, but exactly how much is too much? The food delivery sector is largely known for hidden markup fees at the checkout screen, with delivery fees, service fees, and tips making up roughly 36% of food delivery costs, or an average cost of $654 per year per customer. Consumers are becoming increasingly fed up with these practices, with the courts seeing an increase in lawsuits against these delivery companies, like Grubhub, claiming that they engaged in deceptive trade practices at the expense of consumers by hiking up prices, charging hidden fees, and exploiting local restaurants attempting to stay afloat. These practices have even caught the attention of the federal government, with the Biden Administration recently calling on all agencies to reduce or eliminate hidden fees and charges. Left unchecked, these hidden fees and charges have the potential to weaken market competition and hit the most vulnerable consumers the hardest.
It is no secret that the primary goal of a business is to generate profit. However, as rates of in-person shopping have declined while online shopping has increased, corporations have been granted an opportunity to increase their access to profitability. The online shopping and delivery industry exploded during the height of the COVID-19 pandemic, with many retailers and consumers alike demanding online, contactless services such as DoorDash, Instacart, and various other last-mile delivery services. In fact, according to a research study conducted by Cara Wang, an associate professor in the Department of Civil and Environmental Engineering at Rensselaer, the number of users of grocery delivery services increased by 113% during the pandemic. While many people have returned to in-person shopping rather than delivery services, consumers are still noticing hidden fees on their checkout screen, with little or no understanding as to what these fees are even for.
Hidden fees – most commonly in the form of service fees or delivery fees – are usually a result of many companies passing down increased operating costs to consumers, with many businesses claiming that passing on these fees to customers is the only way to offset the burden of inflation and shortages in the supply chain. Many businesses are also still feeling the fiscal pain from the first year of the pandemic, adding to the amount of additional fees that consumers encounter at checkout. Most commonly, when a consumer reaches the checkout screen, they are faced with the following components of pricing: (1) the actual menu item they want to purchase, (2) the “service fee,” which is a fee charged by the company for simply providing the service, (3) the sales tax based on applicable tax laws, (4) the delivery fee for the price of having the item delivered, and (5) the gratuity, which allegedly goes directly to the delivery driver. Additionally, service and delivery fees can vary by market, with major cities likely having more expensive delivery fees compared to smaller cities. This pricing structure is not limited to the food delivery service industry alone. Multiple other industries are also guilty of engaging in these hidden fee practices.
Entertainment services, like Ticketmaster, have also been a subject of debate for the ridiculously high priced hidden fees they pass on to customers. Concertgoers are now likely to pay roughly 30% of a ticket’s face value in service fees. In the hospitality industry, Airbnb has recently gained attention for doing away with their hidden “junk fees” after numerous user complaints. They now include the fees in the advertised up-front cost. While simply making consumers aware of the hidden fees before getting to the checkout screen is a step in the right direction, consumers and lawmakers alike agree that this change does not go far enough.
The surprise of hidden fees at the checkout page is an unpleasant experience for all consumers, and certain situations can entitle consumers to take legal action. Some states are looking to pass legislation protecting consumers from hidden fees. For example, California Attorney General, Rob Bonta, has introduced a landmark bill seeking to prohibit the practice of hiding mandatory fees in California. If enacted, the bill would prohibit advertising a price for a good or service which does not include all required charges up-front, something that the California Attorney General has said is crucial for fair competition and consumer protection. Another avenue for legal recourse that consumers have is to join together and bring a class action lawsuit to hold companies accountable under state consumer protection laws. In fact, class action claims have already been filed against companies, such as Chipotle and UberEats, for the addition of hidden service charges.
Notably, hidden fees have also caught the attention of the federal government. President Biden discussed “junk fees” in his State of the Union address in February 2023, stating that “junk fees may not matter to the very wealthy, but they matter to most folks in homes like the one I grew up in,” and stating how “unfair it feels when a company overcharges you and gets away with it.” Additionally, President Biden has also called to pass the Junk Fee Prevention Act, which will work to prohibit excessive fees and require that fees are disclosed in the ticket price.
While state and federal legislatures have the right intentions, it is important to note that these bills and acts have not fully been signed into law yet, so they are mostly lofty ambitions. However, many states have general consumer protection laws that prohibit unfair and deceptive practices and are the backbone of consumer protection in virtually every state. Using these laws, consumers can still file lawsuits alleging unfair or deceptive acts and practices by corporations, which has generally been the tactic of many of the class action suits. However, without any specific laws catered toward prohibiting hidden fees, consumers will continue to face a higher burden of proof to prove that a small fee is actually unfair or deceptive.
Another main concern with the proposed litigation by states is that it does not eliminate the fees, but rather just removes the “hidden” aspect by putting the cost at the forefront instead of at the checkout screen. While this certainly will remove the shock factor from when a consumer reaches the final checkout screen, it does nothing to address the rising costs of products and how consumers will still be subjected to a higher price for a product that they may not have alternative options to shop around for. Ticketmaster is a prime example of a company who both engages in deceptive hidden fees practices and also holds a monopoly over their products. Even if the federal government were to require them to be transparent about their prices, this still does nothing to address how companies like Ticketmaster are able to freely raise the service fee price without any limitations or fear of any alternative competition. To craft truly effective legislation, state and federal governments should not only look to requiring transparency on prices, but also implementing guardrails for exactly how much companies can mark up the price for non-product related fees.
Hidden fees can often be the source of outrage by consumers and are a growing problem prevalent in nearly every industry. By not being fully transparent about the cost of products, corporations are liable to face lawsuits for unfair or deceptive acts. State and federal entities are seeking to pass legislation that specifically deals with this issue, however, as of now, the primary avenue for legal compensation would be for consumers to join together to file a class action lawsuit. While lawmakers are on the right track to require transparency about costs of products, it is also important to consider ways in which companies are limited from imposing egregious fees at all, otherwise, consumers will still be left to pay high prices for products with no end in sight.
Student Bio: Theodore Brothers is a student at Suffolk University Law School pursuing his JD degree. He is also a staff writer on the Journal of High Technology Law. Theodore received a Bachelor of Science Degree in Public Service and Public Policy from Arizona State University and has previously worked for multiple technology-based start-ups prior to law school.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
