How the FTC’s proposed junk fees rule may affect restaurants

Since the FTC announced this month that it was proposing a ban on hidden so-called “junk fees,” much of the ensuing media coverage focused on how it would impact online purchases of concert tickets, where the practice is notorious. So it will come as no surprise that the proposal was the subject of an article in Pitchfork, a music website.

But the proposal is far broader, and one aspect has nothing to do with Pitchfork and everything to do with dinner forks, especially those plastic ones that come with Grubhub and DoorDash orders. The FTC and even the White House are calling out restaurants and delivery apps for tacking fees onto orders that, rather than being indicated on menu prices, are not revealed until the last step of ordering when the bill’s tallied.

It’s a practice known as “drip pricing,” because the fees, rather than being disclosed up front, are dripped in.

Fee-range chicken: The Council of Economic Advisors, which advises the president on economic policy, even used restaurant apps to illustrate the issue of junk fees in a March report. The economists ordered from several Washington, DC, restaurants and documented how fees were added on three apps: DoorDash, Grubhub, and the holdout that still believes in putting spaces between words, Uber Eats.

For example, from Prescription Chicken, they ordered an item that, befitting a restaurant inside the Beltway, is called “Bi-partisan chicken soup,” (so named not because its poultry comes from both blue and red states but rather because it contains both noodles and a matzoh ball).

All three apps show the menu price for a bowl of the soup and a mini challah bread at $18; after the fees get ladled in at checkout, the actual (pre-tip) cost is $23.64 at DoorDash, $25.51 at Grubhub, and $25.61 at Uber Eats.

“Ultimately, the existence of these additional fees serves to obfuscate the true price for a consumer,” the report concludes. “While consumers can circumvent this by downloading multiple platforms and going through the checkout process on each to identify an actual price, this incurs additional ‘search costs’ for the consumer—it can be timely and frustrating.”

Fees frame: While the FTC proposal is often called, even by the FTC itself, a ban on junk fees, it’s not a ban on fees per se, but a ban on adding fees late in the purchasing process rather than disclosing them up front.

The ban could apply to restaurants even when there’s no delivery app, with, for instance, “kitchen appreciation fees,” the practice of assessing a fee, such as a 3% upcharge, which goes to non-tip-earning kitchen staff and grew in popularity during Covid.

Such fees would not be banned as long as they were printed prominently on the menu, but Edgar Dworsky, a consumer advocate and lawyer who publishes Consumer World, told Retail Brew in January that they often are not.

“It’s a sneaky practice,” Dworsky told us. “The problem is restaurants tend not to make a disclosure very conspicuously on your menu.”

But the National Restaurant Association is no fan of the proposed junk fees ban.

“The FTC’s new rules on ‘junk fees’ go dangerously far into the business operations of restaurants,” Sean Kennedy, EVP of public affairs for the trade group, wrote in a LinkedIn post. “An overly aggressive rule will create nothing but confusion and discourage dining out, which is a lose-lose for the restaurant and the community.”