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Are restaurant surcharges about to be added to Biden's 'junk fees' list?

Working Lunch: The industry is tacking on service fees cavalierly. Is that attitude about to backfire in the form of regulation?

The Biden administration’s outrage over add-on hotel and airline charges has not extended so far to the service fees many restaurants are tacking onto guest checks to offset heightened costs. Is Toast’s 99-cent surcharge for delivery orders going to end that benign neglect?

That’s one of the questions asked during this week’s installment of the Working Lunch podcast, a deep dive into the spread of service fees and how regulators might react to the trend. Co-hosts Joe Kefauver and Franklin Coley note that President Biden has identified the extra charges now regularly tacked onto prices quoted to customers by airlines and hotels as “junk fees” in need of regulation.

Just last week,  the Federal Communications Commission issued a new rule that would require cable companies to reveal the total amount customers would be charged for their service, with often hidden extras like “regional sports fees” or equipment spelled out and included.

“They’re looking at these types of fees,” said Coley, Kefauver’s partner in Align Public Strategies, an Orlando, Fla.-based government-affairs consultancy. “There’s this growing type of discontent with these add-on fees.”

Yet the restaurant industry has become an avid user of surcharges. In Washington, D.C., for instance, an estimated 250 restaurants have added a service fee to their bills since the jurisdiction’s tip credit was sharply cut, and the number is expected to climb steeply when the credit is reduced again July 1.

“It feels like we’re bringing a lot of wrath on ourselves” with the practice, said Kefauver, noting how strongly some consumers have griped about add-on charges like “resort fees” from hotels.

“Regulators are increasingly looking at this and might roll up their sleeves and say, let’s regulate this, too,” said Coley, referring to restaurant service fees.

“It hurts us with some customers,” he continued.  “It hurts our credibility with policy makers.

“I’m not saying don’t do it,” said Coley, stressing that he’s “agnostic” on the fees themselves. “I don’t think we’ve thought through these fees. You gotta be careful in the way you structure it. People are getting way too comfortable with just throwing these fees on there to make this week’s P&L.”

The episode also looks at new efforts to disallow or curb the tip credit, a movement that could foster the spread of service fees.

Download the episode from wherever you get your podcasts.

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