Regulators Have Been Sounding the Drip Pricing Alarm for Years

Washington, D.C., Attorney General Brian Schwalb’s new lawsuit against StubHub is just the latest occasion to call attention to practices that regulators have been contesting for years.

The suit, filed Wednesday (July 31), accuses the ticket resale platform of drip pricing, utilizing the “deceptive and unfair” practice of concealing mandatory fees from customers and withholding information about why those fees are levied or how they’re calculated.

Drip pricing refers to a strategy where additional fees are revealed incrementally during the purchase process. It starts with a low base price but adds mandatory charges such as service fees, taxes and handling costs as customers progress through checkout. Critics note that this practice can mislead consumers about the true cost.

“StubHub’s utilization of … drip pricing has caused District consumers substantial harm — approximately $118 million in hidden, unfair fees since September 2015 alone, in addition to the countless hours of (unnecessary) time and effort they invested in a lengthy purchase flow based on false advertised prices,” the lawsuit states.

Proponents of the practice claim it reflects competitive pricing dynamics and offers flexibility in optional services.

“We are disappointed that the D.C. attorney general is targeting StubHub when our user experience is consistent with the law, our competitors’ practices and the broader eCommerce sector,” StubHub said in a statement. “We strongly support federal and state solutions that enhance existing laws to empower consumers, such as requiring all-in pricing uniformly across platforms.”

Beyond event ticketing, drip pricing can be seen in a number of industries. Food delivery firms may engage in the practice, heaping additional charges on at checkout. Airlines often advertise low base fares, with additional charges added later in the booking process. Hotels may use drip pricing by displaying attractive room rates initially, then tacking on resort fees, service charges and local taxes at checkout. Car rental companies might show a low daily rental rate but add costs for insurance, GPS, additional drivers and other fees during the booking process.

Regulators Have Been Cracking Down

Last fall, the Federal Trade Commission (FTC) proposed a rule to prohibit “unfair or deceptive fees,” having closed the public comment period earlier this year and held an informational hearing in April.

“All too often, Americans are plagued with unexpected and unnecessary fees they can’t escape. These junk fees now cost Americans tens of billions of dollars per year — money that corporations are extracting from working families just because they can,” FTC Chair Lina M. Khan said in a statement in October. “By hiding the total price, these junk fees make it harder for consumers to shop for the best product or service and punish businesses who are honest upfront.”

States such as New York and California have introduced or enacted legislation of their own to crack down on these policies. The Consumer Financial Protection Bureau (CFPB) also has a number of regulations cracking down on specific types of junk fees.

Legal Firms Weigh In

Legal firms have been navigating fee structure regulations for some time, looking to distinguish between acceptable practices and those that would violate local and federal regulations.

“California’s new law and the FTC’s Proposed Rule, as well as other federal and state legislative and enforcement actions, highlight a growing focus and scrutiny on fees and related pricing practices,” legal firm Latham & Watkins alerted its clients. “The increase in legislative and rulemaking activity in this area suggests that additional enforcement against how businesses advertise their prices and disclose fees could be on the horizon.”

These regulations also raise questions about other kinds of fees.

“One of the questions that remains uncertain among looming federal and state ‘junk fee’ and ‘drip pricing’ bans in 2024 concerns the impact these rules will have on credit card surcharges,” Venable LLP’s Christopher Boone and Ellen Traupman Berge note. “Is this a mandatory fee that must be incorporated in the total price under the new laws? Or does the consumer’s choice to use a credit card to pay make the convenience of paying by credit card an optional service or feature that need not be included in the advertised price?”