• Economy
  • Editor’s Pick
Money Rise Today – Investing and Stock News
  • Investing
  • Stock
Stock

Restaurants fight back against the FTC crackdown on ‘junk fees’ as diners balk at new charges

by August 26, 2024
written by August 26, 2024

Lawmakers want to crack down on “junk fees,” but restaurants are trying to stay out of the fight.

Surcharges or fees covering everything from credit card processing to gratuities to “inflation” have become more popular on restaurant checks in recent years.

Last year, 15% of restaurant owners added surcharges or fees to checks because of higher costs, according to the National Restaurant Association. In the second quarter, 3.7% of restaurant transactions processed by Square included a service fee, more than double the beginning of 2022, according to a recent report from the company.

Opponents of the practice say those fees and surcharges may surprise customers, hoodwinking them into paying more for their meals at a time when their wallets are already feeling thin. Fed-up diners compiled spreadsheets via Reddit of restaurants in Los Angeles, Chicago and D.C. charging hidden fees. Even the Onion took a swing at the practice, publishing a satirical story in May with the headline “Restaurant Check Includes 3% Surcharge To Provide Owner’s Sugar Baby With Birkin.”

The Biden administration has broadly targeted so-called junk fees, like an undisclosed service charge for concert tickets or unexpected resort fees when checking out of a hotel. This fall, the Federal Trade Commission is expected to publish a rule banning businesses from “charging hidden and misleading fees.”

Restaurants are trying to stay out of the Biden administration’s crosshairs. They say surcharges and fees are necessary to keep their businesses afloat and to compensate their employees fairly in a competitive industry with razor-thin profit margins.

“The challenge for the restaurants is that not all fees are junk fees … People know what they’re paying for when it comes to most fees that are on a restaurant bill,” said Sean Kennedy, executive vice president of public affairs for the National Restaurant Association.

Some customers might disagree with Kennedy.

While federal law makes it illegal for management to keep their workers’ tips, mandatory service charges are the property of the restaurant. Some states, like New York, have their own laws that say service charges belong to staff.

A Denver-based restaurant worker said in a public comment responding to the FTC’s proposed rule that his employer describes the fee to customers as “equitably distributed to the staff.” But he was told when he was hired that the business keeps 30% of the proceeds.

Service fees increase the risk of wage theft, because employers might claim that the money goes to workers but fail to distribute it, the National Women’s Law Center wrote in its public comment. Moreover, customers who pay a service charge are less likely to tip on top of the check, hurting workers’ income, the non-profit organization said.

For their part, restaurant operators argue that service fees and other surcharges help them pay their employees more and provide better benefits.

When Galit, a Middle Eastern restaurant in Chicago, opened its doors in 2019, it tacked on an optional 2% fee to cover health-care costs for its workers. These days, the fee is 4%, plus the restaurant adds a 20% service charge to each bill for hourly workers. The fees are stated clearly on its website, its Resy page and its menu.

 Co-owner and general manager Andres Clavero, who has an accounting background, said the restaurant chose that approach for a few different reasons.

“We can dictate where it all goes, so some of our service charge of 20% goes to the back of house,” Clavero said.

Moreover, higher menu prices could scare away customers, plus diners would have to pay higher sales tax. Galit would also have higher payroll taxes. And the service charge aims to address issues with tipping. The practice has grown more controversial in recent years, thanks to studies that connect it to sexual harassment and racial discrimination.

If the fees were instead baked into the restaurant’s prices, customers might choose cheaper options that don’t provide the same benefits for its employees, Clavero said.

In some cases, fees help restaurants navigate tricky legislation. For example, service charges became much more common in D.C. after voters approved Initiative 82, which will phase out the tipped wage by 2027. In March, the city passed a bill protecting service fees of 20% or less.

Kaliwa, a Southeast Asian restaurant in D.C., said it implemented an 8% surcharge to manage rising labor and operating costs.

“Our priority is to remain transparent with our guests, ensuring they understand the reasons behind these fees,” Kaliwa director Peter Demetri said.

For Ming-Tai Huh, the head of Square’s restaurant business and a partner of Cambridge Street Hospitality Group, service fees have helped some of his Boston restaurants pay cooks and dishwashers more.

Massachusetts law forbids sharing servers’ tips with kitchen workers. Thanks to the higher pay from the surcharges, more of the restaurant company’s workers have opted into its health-care program.

Huh said that the service charge was easier to implement at the company’s fine-dining restaurants. But CSHG ended up taking it away from a fast-casual eatery because of customer pushback. Instead, the company just raised menu prices.

On the state level, restaurants have already had some success in getting excluded from the fight over junk fees.

In California, last-minute legislation excluded bars and restaurants — as well as grocery stores and grocery delivery services — from having to list the mandatory fees that they charge customers. As a result, the industry was exempt from a broad anti-junk-fee law that went into effect on July 1.

“We believe that allowing the many restaurants who for decades have used auto gratuity instead of tips, (which is more fair and equitable), and more recently who have added service charges to help offset things like the SF Health Care Security Ordinance, will make it possible for restaurants to continue to support pay equity and contribute to worker health care,” the Golden Gate Restaurant Association wrote in a statement following the legislation’s passage.

The National Restaurant Association argues that getting rid of fees will lead to customer confusion, higher prices, less transparency and costly compliance. The trade group estimates that the cost for new menus alone would reach more than $4,800 per restaurant.

Even restaurant operators admit that not all fees and surcharges are worth protecting.

Clavero opposes restaurants that use Covid surcharges more than four years after the pandemic temporarily shuttered dining rooms.

“To have that, to me, is a cry for help. That’s not being fully open and honest about where your money is going,” he said.

For its part, the National Restaurant Association said it’s pushing the FTC to protect three fees commonly charged by restaurants: large party, delivery and credit card processing.

Kennedy said the trade group is trying to help operators preserve their razor-thin margins of 3% to 5%, which is difficult as the costs of doing business keep rising. For example, credit card swipe fees have doubled over the last decade, and are now the third-highest cost for restaurants, according to Kennedy.

“What we have really been instilling in or membership is to be as open and transparent and public about it as possible, so customers know exactly what they’re getting into when they sit down to dine at their favorite restaurant,” Kennedy said.

This post appeared first on NBC NEWS
0 comment
0
FacebookTwitterPinterestEmail

previous post
Trump sets intense pace with campaign events as questions swirl about Harris’ policy positions
next post
Melania Trump’s memoir soars to top spot on several Amazon ‘Best Sellers’ lists weeks before its release

related articles

Nvidia results spark global chip rally

May 30, 2025

Boeing to resume airplane deliveries to China next...

May 29, 2025

E.l.f. Beauty to acquire Hailey Bieber skin care...

May 29, 2025

Dick’s Sporting Goods stands by full-year guidance —...

May 28, 2025

Macy’s CEO says retailer will hike some prices...

May 28, 2025

23andMe to delist from Nasdaq, deregister with SEC

May 28, 2025

Walmart fined for shipping realistic toy guns to...

May 28, 2025

Why Trump’s iPhone tariff threat might not be...

May 25, 2025

Trump clears Nippon merger with U.S. Steel

May 24, 2025

United Airlines reaches ‘industry-leading’ labor deal with flight...

May 24, 2025
Enter Your Information Below To Receive Free Trading Ideas, Latest News, And Articles.


Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest News

  • Flagging sales and Elon Musk’s political activities are rocking Tesla’s value

    March 17, 2025
  • Hospitals nationwide challenge Trump’s executive order on transgender treatments for minors

    February 13, 2025
  • Blinken may be held in contempt after House GOP advances measure

    September 24, 2024
  • Trump takes center stage in Canada’s prime minister election debate

    April 17, 2025
  • Federal judge denies Trump admin’s effort to ban transgender people from military

    March 27, 2025

Popular Posts

  • 1

    Secret Service admits leaning on ‘state and local partners’ after claim it ignored Trump team’s past requests

    July 21, 2024
  • 2

    Elon and Vivek should tackle US funding for this boondoogle organization and score a multimillion dollar win

    December 4, 2024
  • 3

    Forex Profit Calculator: Maximize Your Trading Potential

    July 10, 2024
  • 4

    Five more House Democrats call on Biden to drop out, third US senator

    July 19, 2024
  • 5

    Biden calls to ‘lower the temperature’ then bashes Trump in NAACP speech

    July 17, 2024

Categories

  • Economy (829)
  • Editor's Pick (4,721)
  • Investing (624)
  • Stock (773)

Latest Posts

  • China Stock Market: Mixed Signals from China and Japan

    August 2, 2024
  • Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

    August 29, 2024
  • Top Senate Dems pour cold water on latest GOP spending bill plans: ‘Ready to stay’ through Christmas

    December 20, 2024

Recent Posts

  • ‘Legacy of incompetence’: Comer unveils wide-ranging hearing on Biden-Harris ‘failed record’

    September 12, 2024
  • ‘Beautiful name’: Trump announces Gulf of Mexico will get new, pro-America revamp

    January 7, 2025
  • House Republicans eye FEMA fund overhaul ahead of high-stakes hearing on Helene recovery

    November 19, 2024

Editor’s Pick

  • The dollar index is in a good position to remain bullish

    October 14, 2024
  • House Republicans nearing vote on Trump’s ‘Big, Beautiful Bill’

    May 22, 2025
  • Hong Kong tests its own ChatGPT-style AI tool amid OpenAI access restrictions

    July 18, 2024
  • About us
  • Contacts
  • Privacy Policy
  • Terms & Conditions

Disclaimer: moneyrisetoday.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2025 moneyrisetoday.com | All Rights Reserved

Money Rise Today – Investing and Stock News
  • Economy
  • Editor’s Pick
Money Rise Today – Investing and Stock News
  • Investing
  • Stock