FTC and Restaurants Clash Over "Junk Fees" on Bills

Government Regulation of "Junk Fees"

Restaurants are currently in a battle with the government over the regulation of "junk fees". These are surcharges or additional fees attached to bills to cover various costs, including credit card processing, taxes, inflation, and tips. The National Restaurant Association reports that 15% of restaurant owners added surcharges in the previous year due to increasing costs. A recent report from Square reveals that 3.7% of restaurant transactions in the second quarter included a service fee, a figure that is more than double the rate at the beginning of 2022.

Customer Concerns Over Hidden Fees

These fees have been criticized for surprising customers and causing them to pay more when budgets are already stretched thin. Some customers have even taken to Reddit to compile lists of restaurants in Los Angeles, Chicago, and D.C. that charge these hidden fees. The Biden administration is reportedly targeting these "junk fees", which include hidden charges on concert tickets and unexpected hotel resort fees. The Federal Trade Commission is expected to introduce a rule this fall that will ban deceptive fees.

Proposed Rules and Restaurant Reactions

In addition to this, the U.S. Labor Department is proposing a rule that would prevent financial advisors from recommending investments that benefit them more than their clients. Restaurants, however, are pushing back against these regulations, arguing that surcharges are vital for their survival and fair employee compensation. Sean Kennedy, executive vice president of public affairs for the National Restaurant Association, stated, “The challenge for the restaurants is that not all fees are junk fees … People know what they’re paying for when it comes to most fees that are on a restaurant bill.”

Case Study: Galit Restaurant

Despite some customer disagreements, restaurants such as Galit, a Middle Eastern restaurant in Chicago, have implemented a 2% optional fee for workers' health care, which has since increased to 4%. They also add a 20% service charge to each bill to support hourly staff. These fees are clearly listed on the restaurant’s website, Resy page, and menu. Co-owner and general manager Andres Clavero, who has an accounting background, explained, “We can dictate where it all goes, so some of our service charge of 20% goes to the back of house.”

Transparency is Key

While some restaurant operators admit that certain fees are not justified, Clavero opposes the use of Covid surcharges by restaurants more than four years after the pandemic closed dining rooms. Kennedy emphasized the importance of transparency, stating, “What we have really been instilling in or membership is to be as open and transparent and public about it as possible, so customers know exactly what they’re getting into when they sit down to dine at their favorite restaurant.”

Bottom Line

The debate over "junk fees" in the restaurant industry is a complex one, with both sides presenting valid arguments. On one hand, these fees can help restaurants survive and fairly compensate their employees. On the other hand, they can catch customers off guard and add to their financial burden. Transparency seems to be a key factor in this issue. What are your thoughts on this matter? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.