The government has proposed new laws through the Digital Markets, Competition and Consumer Bill (DMCC) to ban unavoidable hidden fees, known as drip pricing. This follows a government consultation into consumer transparency.
What is drip pricing?
This happens when consumers see an initial price for goods or services and later discover during the checkout process that additional fees have been included. These “dripped” fees can either be mandatory (e.g. booking fees) or optional (e.g. seat reservation on a flight).
Research from the Department for Business and Trade in 2023 looked into how often this happens across the retail, hospitality, entertainment and transport/communication sectors. The research also estimates how much this is costing consumers overall.
The research revealed the following:
525 online and mobile app providers were included in the survey, and of these, 46% had at least one dripped fee (not including delivery fees) included in the process leading to the customer checkout.
72% of transport/communication providers made use of dripped fees.
However, only 15% of providers in the retail sector did so (once delivery fees were removed from the figures).
Dripped fees that fulfilled more than one criterion of harm (mandatory selection, already pre-selected before the purchase process starts, presented after the customer has got halfway through the checkout process, costing more than a quarter of the product price) were used by 41% of providers surveyed in the research.
For all sectors in the research, service fees (where a charge is included to receive or purchase a service, such as booking or processing fees) tended to meet the most criteria of harm.
After factoring in provider market share, consumer expectations and the size/degree of harm of the dripped fees, it’s estimated that this practice causes UK consumers to spend an additional £595 million to £3.5 billion online each year.
As a consequence of these findings, the new laws are being designed to ensure online shoppers have a clear idea of what they are spending, giving them as much information as possible as soon as possible before they reach the point of making their purchase.
To make it easier for consumers to compare products and services, mandatory fees must be included in the headline price or at the start of the shopping process (including booking fees for cinemas and train tickets).
However, optional fees such as airline seat and luggage upgrades for flights will not be included in these measures.
Other areas covered by the Bill
As well as looking at the issue of hidden fees, the Bill will also cover other areas of concern for consumers. These include the problem of fake reviews online, and subscription traps. The Bill is intended to ensure the Competition and Markets Authority (CMA) will have stronger powers to tackle issues arising from anti-competitive practices and act quickly and effectively if it uncovers evidence of collusion to increase prices.