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National Restaurant Association takes aim at FTC's proposal to kill add-on fees

The association wants operators to speak out against a ban on service fees, which have become increasingly popular at restaurants.
restaurant service fees
The NRA says it's all for transparency but the FTC is overreaching. | Photo: Shutterstock

The National Restaurant Association is mounting a grass-roots campaign to dissuade the Federal Trade Commission from killing virtually every sort of restaurant surcharge in the Biden administration’s quest to protect consumers from so-called “junk fees.”

The trade group says new rules currently being considered by the FTC would outlaw such common guest-check add-ons as credit-card processing fees, the automatic gratuities for large parties, extra charges for delivery orders, and the increasingly popular surcharges known as service fees.

The result for restaurants would be a virtual mandate that all of those charges be baked into menu prices instead of being levied only when customers incur the underlying costs that the add-ons offset.

The association cites the FTC’s own estimates that recasting menus would cost a typical restaurant $4,818.27. The regulatory agency pegged the total cost to the industry at $3.5 billion.

“We support the FTC on taking steps to be more transparent and have greater disclosure of fees, but to ban all of them especially for restaurants would be a step too far,” Sean Kennedy, EVP of public affairs for the association, said in his most recent 90-second government-affairs update for members.

The association is asking operators to inform the FTC about how a near-complete ban on added fees would affect their operations. It stresses in making the plea that the agency expects to stop taking public feedback on the proposed rule change in early January.

The FTC disclosed its intention to regulate restaurant surcharges in October, catching the industry off-guard. The Biden administration had been saying since January that it intended to crack down on junk fees, but restaurant surcharges were not mentioned as examples. Instead, the White House blasted such hotel add-ons as “resort fees,” which are routinely added by non-resort properties.

Similarly, it cited the extras that some airlines charge for such customer accommodations as allowing families to sit together, or permitting small bags to be carried onboard. Criticism was also leveled at concert-ticket sellers, which often tack on a processing fee, and banks, which have been strident in levying service fees for check-account customers.

The administration maintained that the practice is deceptive in that patrons don't know what they'll be required to pay in total for a good or service.  

The FTC broadened its intended scope to include restaurant surcharges after fielding unsolicited complaints about the add-on fees during an initial commentary period on possible new regulations.

“Businesses would have to include all mandatory fees when telling consumers a price, making it easier for consumers to comparison shop for the lowest price,” the agency said at the time.

The industry was not invited at that stage of the rulemaking process to provide feedback on the expanded scope.  

The agency’s proposal to regulate restaurant surcharges comes as many independent operations resort to add-on fees as a way of covering historically high labor and menu costs.

In Washington, D.C., for instance, full-service restaurants were hit with a 40% increase in tipped workers’ wages when the tip credit was rolled back in May. According to the industry-friendly Employment Policies Institute, 70% of restaurants in the nation’s capital have added or intend to add a service fee, a percentage of what customers pay for food, beverages and taxes. A visit in May revealed that the add-ons ranged in volume from 3% to 18%.

Still, restaurants are closing there at the rate of one per week, according to the Restaurant Association of Metropolitan Washington.

To keep customers from being unpleasantly surprised and angered by the surcharges, the city and other jurisdictions are requiring restaurants to alert customers that a fee will be added to their bills, and to indicate how the money will be used.

Not all consumers are appeased by the increased transparency. D.C.’s well-known Clyde’s Restaurant Group was sued earlier this fall by a consumer advocacy group for levying a 3.5% surcharge on guest checks. The plaintiff, Travelers United, told Restaurant Business that it intends to bring similar suits against other restaurants in the District and elsewhere.

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