The National Restaurant Association and Restaurant Law Center are hoping to remove food and drink places from a proposed federal rule that would crack down on hidden junk fees. It could cost the restaurant industry billions of dollars.
The Federal Trade Commission (FTC) wants to stop companies that misrepresent the total cost of goods and services by omitting mandatory fees from advertised prices. This would force restaurants to eliminate all fees and surcharges and only reflect a single total price for each item. The FTC estimated that it could cost the industry more than $3.5 billion to make this change, including almost $5,000 on average for a menu redesign at each location.
“While the National Restaurant Association and the Restaurant Law Center appreciate the Commission’s aim to provide increased price transparency for consumers, this proposed rule ultimately fails to achieve this objective in the restaurant industry,” Brennan Duckett, director of technology and innovation policy for the Association, said in a statement. “A one-size-fits-all prohibition on common restaurant charges is both unworkable and unlawful, and we therefore have urged the Commission to exclude the industry from any final rule of similar nature and scope.”
The restaurant industry doesn’t believe it fits within the spirit of the rule.
The Association and Law Center argue that restaurants already make significant efforts to ensure fees and surcharges are easily identifiable before guests receive their checks. They also note that operators usually give customers the option to remove a surcharge from their final bill. The Association’s 2024 State of the Industry report found that 16 percent of all restaurants add surcharges. That’s only up one percentage point from last year’s edition.
The groups point out that one of the most common surcharges is service fees, which are added to large party checks and in states where the tip credit has been eliminated. In areas where the tip credit is no more (seven states, Washington, D.C., and Chicago), lawmakers or regulators have provided rules on when and how operators can add service fees. “These situations are both well understood by diners and the surcharges in these experiences are expected,” the Association and Law Center wrote.
The consumer would feel the impact immediately when they walk into a restaurant, according to the Association and Law Center. Guests would be asked several questions—including how they will be paying—before sitting down. The answers would dictate which menu the party receives. This is because the new rule would require one price inclusive of all added fees, and restaurants would need to create different menus based on different scenarios and surcharges—takeout, delivery, large party, small party, etc.
“The FTC’s proposed ‘junk fees’ rule will unleash nothing but chaos and confusion for restaurant owners and diners alike,” Sean Kennedy, executive vice president for Public Affairs at the Association, said in a statement. “Restaurant customers understand that they will pay extra if they are having food delivered or are dining with a large party. Fees for these services aren’t ‘junk fees’—they reflect the higher costs that a restaurant is taking on to make a customer’s experience even more convenient.”
As an alternative, the Association and Law Center want to work with the FTC to establish a transparency test for potential fees or surcharges. This supposed test would include notice and disclosure requirements for fees and surcharges necessary to a restaurant’s business viability. If the final rule is passed with restaurants included, the organizations warn that fees that are value-adding and transparent must be preserved, such as ones that go to tipped workers, credit card surcharges, and delivery fees.