New Checkout-Fee Scam Could Be Coming to the U.S.

Say you find a good airfare deal at $49 each way, so you start to buy four round-trip tickets for your family—$392 total. But when you see the final price, the bill has ballooned to $460. What happened? The airline added a charge of $8.50 per person per flight to process your credit-card payment. And that gouge is legal—in Australia. So far, no U.S. travel suppliers have gone that far, but recent rulings give sellers the opportunity to add "checkout fees" to credit card transactions if they choose.

The Australian situation is clearly out of control. Rules allow Australian sellers to add fees in order to recover the cost of running credit-card transactions. But $8.50 for a $49 flight is clearly a flat-out gouge with no relation to actual costs. Choice, the Australian equivalent of Consumer Reports, found that airlines and taxis are the worst gougers, but other businesses are also doing it. Australian consumers are appealing to the government to enforce a "related-to-cost" requirement, but, for now, the gouge remains and government action is uncertain.

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Why should U.S. consumers worry about a gouge in Australia? Because a similar situation could happen here. A 2012 settlement among retailers, major banks, MasterCard, and Visa says that U.S. retailers have the option to add checkout fees if they wish. Previously, sellers didn't add the charge because their contracts with MasterCard and Visa specifically prohibited surcharging. But the settlement removed that provision from the standard merchant contracts.

The settlement contains what appears to be more consumer protection than Australia provides: The fee is supposed to be no more than the fees merchants pay to banks, which are generally 1.5 percent to 3 percent of a total transaction. And sellers that assess checkout fees are supposed to provide adequate notification. But the notification is not foolproof: Although stores that assess checkout fees are required to post a notice on their doors, they don't have to post the amount of the fees until you pay. Similarly, online sellers need not disclose the fees until the final checkout process.

So far, the problem is more potential than actual. I haven't heard of any airlines, hotels, tour operators, or rental-car companies currently assessing a checkout fee. American Express, apparently not a party to the settlement, retains the no-surcharge provision in its merchant contracts. And, fearing some big gouges, California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas have already banned the surcharges, with other states considering similar legislation.

For now, you have to worry about a gouge only if you're traveling in Australia, and that probably means most of you are safe. But don't think it won't creep into domestic markets fairly soon. Today's consumer marketplace, with its ubiquitous price-comparison tools, puts severe pressure on travel sellers to post the lowest possible up-front prices they can and then puff up the final take with an assortment of fees. For proof, just look at the airline business, which lives on fees, or hotels, with their deceptive "resort fee" pricing. And the situation is getting worse, not better. Price advertising in a highly competitive market follows a sort of Gresham's law: Bad pricing drives out good pricing. I know of several hotels that initially resisted the "resort fee" scam but had to cave on it when almost all of their competitors priced that way. Just try to find a hotel in Vegas that doesn't employ that scam. Pretty soon, some airline, hotel chain, or other seller will start to salivate over how much even a simple 3 percent fee could add to its bottom line. And once one does it, others will follow.

I have no idea about what's happening in other popular tourist destinations. The message for today, however, is simple: You're probably OK now, but, as you go forward, watch out carefully for checkout fees.

Ed Perkins on Travel is copyright (c) 2012 Tribune Media Services, Inc.

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