Drop the drip pricing: Consumer watchdog snarls at sneaky fees added late in online bookings
Online consumers hit by ‘drip pricing’ – when last-second, unavoidable costs are added at the checkout – may be about to save some cash, as websites levying such ‘sneaky fees’ move to the forefront of a crackdown from regulators.
The Competition and Markets Authority announced its latest action against this illegal-but-widespread practice yesterday.
It slapped the AA with a £4.2m fine after enough learner drivers to fill Twickenham stadium had to pay an unavoidable £3 booking fee which appeared late on in the transaction. Some 80,000 people will get refunds worth £760,000 in total.
This L-plater payback could drive drip pricing higher up the agenda.
Amid the rising cost of living, it may even become one of the hottest consumer pricing issues since the outcry over last summer’s blockbuster Oasis concerts. Ticketmaster’s handling of sales for reunion gigs made the term dynamic pricing – when costs surge immediately in line with rapid demand spikes – caused a row almost as famous as the Gallagher brothers’ fraternal feud that preceded the sell-out tour. It became a political issue.
And so, sale price can wait
Drip pricing could be the next trick to become nationally notorious.
It clouds consumers’ ability to properly compare costs and is illegal in the UK and the European Union. In effect, buyers are enticed through the purchase process before full clarity on cost is revealed.
Processing charges, such as booking or service fees, are a common form of dripped prices. Travel and hospitality websites have tended to be most associated with the practice. Ticket agencies and food delivery apps have also been associated with what can feels like a form of online checkout tax.
While fees are often set low, so consumers are not deterred from completing bookings, there are instances of the add-ons reaching a quarter of advertised purchase prices. In the United States, where the practice is not illegal, the sudden cost add-ons are often higher.
UK consumer law requires businesses to be upfront about unavoidable charges. They should appear in headline costings from the outset. Nonetheless, drip pricing has proved persistent.
A £3.5bn problem
According to research from the Department for Business and Trade, almost half of online businesses use drip pricing. It estimated the extra online spend generated by the fees at £3.5bn a year.
The CMA received wider consumer protection powers in April last year under the Digital Markets, Competition and Consumers Act. It can decide for itself if laws are being infringed, rather than having to bring action in the courts.
When it was granted the expanded remit, the CMA included the term “hidden fees” in its priorities for consumer protection alongside “aggressive sales tactics” and “unfair contract terms”.
The CMA’s chief executive, Sarah Cardel said: “If a fee is mandatory, the law is clear: it must be included in the price from the very start – not added at checkout – so consumers always know what they need to pay.”
Speaking alongside the announcement of action against the AA, which also covers the firm’s BSM Driving School Brand, she added:
“At a time when people are watching every pound, dripped fees can tip the balance. And when it comes to something as important – and costly – as learning to drive, people deserve clarity.”
The CMA’s investigation found that consumers using the AA and BSM websites were “initially shown prices that did not include the mandatory booking fee”, and that “for new customers, the full price was only shown at checkout – after lessons had been selected, times chosen and personal details entered.
“For returning customers, the booking fee was shown separately from the initial price and only included in the total price on the following page, at checkout.”
A spokesman for the AA driving school said:
“Although the £3 booking fee was made clear to customers prior to their purchase, we acknowledge it should have also been displayed at the start of the online booking journey.
“Having listened to the regulator, we made immediate changes to our website to make the £3 booking fee more prominent.”
Its fine was reduced from £7m because the AA co-operated with regulators and admitted it broke the law. It is refunding all affected customers, wherever possible via the original means of payment.
The case is now settled. But Cardel warned of further action against drip pricing more generally:
“With our new powers, it will never pay to break the law or treat consumers unfairly. Where the rules are ignored, we’ll step in to put things right.”