Please respond to CMA consultation to put an end to restaurants' additional "service charges"

NFH

From April 2025, Section 230(2) of the Digital Markets, Competition and Consumers Act 2024 will require an "invitation to purchase", such as a restaurant menu, to include:

(b) the total price of the product (so far as paragraph (c) does not apply);
(c) if, owing to the nature of the product, the whole or any part of the total price cannot reasonably be calculated in advance, how the price (or that part of it) will be calculated.

The intention of this new legislation is to outlaw mandatory additional charges on top of headline prices, for example unavoidable booking fees and service fees. Instead the price presented at the beginning of the purchase process will have to be the total price of the product.

An increasing number of UK restaurants, particularly in London, automatically add a percentage of typically 12.5% on top of their menu prices. For example, if a restaurant will ask a consumer to pay a total price of £18 for a dish, then instead of showing £18 in the menu, it shows a misleading price of £16 with small print about an additional 12.5% so-called "service charge", which is often misleadingly described as optional or discretionary.

Diners focus on headline prices in menus without taking the time to calculate an additional percentage on top of each price. This causes a misleading indication of price, which is one of the most deceptive commercial malpractices against consumers. Its effect is to distort competition by making a service look cheaper than reality and thereby disingenuously entice a consumer into a decision to buy a service at a lower price than the consumer will ultimately be asked to pay. Within Europe, this malpractice by restaurants is unique to parts of the United Kingdom and perhaps touristy parts of Italy. It needs to be outlawed in the United Kingdom.

Even if an automatically-added percentage is purportedly optional or discretionary, restaurants automatically add it to the bill without first seeking diners' consent. This coerces many diners into paying it because they feel socially awkward asking for it to be removed from the bill, particularly if they are dining in a group of friends or colleagues, and many restaurants impede its removal, for example by taking away the bill to reprint it or by restricting the most convenient payment method to payments that include the additional percentage. Therefore when a percentage is automatically added to the bill without the consumer's express consent whereby the consumer did not opt in, it is arguably not genuinely optional or discretionary.

The Competition and Markets Authority is conducting a public consultation at https://connect.cma.gov.uk/unfair-commercial-practices-guidance about its forthcoming guidance on the new legislation, for which responses need to be submitted by Wednesday 22nd January 2025.

Please respond to the consultation:

• Urging the CMA to draft its guidance to interpret "the total price of the product" in Section 230(2)(b) as including any automatically-added percentage, irrespective of whether it is optional or mandatory.
• Making the point that "the total price of the product" in an invitation to purchase ought to be interpreted as the price that the consumer will be asked to pay, not the lower price that the consumer is contractually obliged to pay.
• Making the point that it is nonsensical for a restaurant to add an automatic percentage on top of the "the total price of the product" in an invitation to purchase, because that price is then no longer "the total price of the product".

Currently restaurants need to ensure the competitiveness only of their misleading lower prices that exclude any additional "service charge". If restaurants in future have to include any automatically-added percentage within their menu prices, then they will instead need to ensure the competitiveness of their total prices including any "service charge". This reduces any potential upward pressure on total prices as a result of compliance with the legislation. For example, if an existing menu quotes a price for a dish as £17.99 with a 12.5% "service charge", then the restaurant will not want to show a menu price of £20.24, as this starts with 20 instead of 17, which would be psychologically less appealing to potential diners.

Compliance with the new legislation would cause the primary objective of a separate "service charge" to fall away, this being a misleading indication of price, and restaurants would probably revert to simple pricing whereby the amounts charged on the bill directly match the prices in the menu.

RefluentBeans

I don’t really think this is as much of an issue? The tip/service charge doesn’t allow these companies to pay less than minimum wage (like they do in America). It’s also fairly easy to remove the discretionary service charge. People should be checking their receipt before they pay. 

I feel the way they will get round this is only to do what America does with its tips/service charge: have a list of arbitrary % amounts (10,15,20?) and ask the customer to say how much they would like to pay. 

eskbanker

NFH said:

The intention of this new legislation is to outlaw mandatory additional charges on top of headline prices, for example unavoidable booking fees and service fees. Instead the price presented at the beginning of the purchase process will have to be the total price of the product.

Worth doing for unavoidable charges (e.g. ticket agency booking/service fees) but less so for optional ones such as restaurant service charges IMHO....

NFH

NFH said:

Even if an automatically-added percentage is purportedly optional or discretionary, restaurants automatically add it to the bill without first seeking diners' consent. This coerces many diners into paying it because they feel socially awkward asking for it to be removed from the bill, particularly if they are dining in a group of friends or colleagues, and many restaurants impede its removal, for example by taking away the bill to reprint it or by restricting the most convenient payment method to payments that include the additional percentage. Therefore when a percentage is automatically added to the bill without the consumer's express consent whereby the consumer did not opt in, it is arguably not genuinely optional or discretionary.

RefluentBeans said:

It’s also fairly easy to remove the discretionary service charge. People should be checking their receipt before they pay.

I don't understand your response. I explained why it's difficult to remove, and you responded by saying it's fairly easy to remove without explaining how.

Grumpy_chap

eskbanker said:

Worth doing for unavoidable charges (e.g. ticket agency booking/service fees) but less so for optional ones such as restaurant service charges IMHO....

I'd certainly agree.
We recently booked ticket to see Human League.
Ticket price £65 each
Plus "booking fee" £9.10 each
Plus "venue restoration fee" £1 each (whatever that is)
Plus "transaction fee" £1.50 per order for actually paying

Really, the price should be the price and all these components included at the first line.

TBH - I am not really sure how a 1980's has-been group can get away with charging even the top-line price, let alone once all the compulsory add-ons are added.

NFH

Grumpy_chap said:

Plus "transaction fee" £1.50 per order for actually paying

Fees for paying by card have been outlawed since 13th January 2018 by Regulation 6A(1) of the Consumer Rights (Payment Surcharges) Regulations 2012, which derives from Article 62(4) of Directive (EU) 2015/2366. You could dispute this element of the charge with your card issuer, if only out out principle and to cause an administrative burden to the errant merchant. Card issuers often charge fees to merchants for disputed transactions.

molerat

NFH said:

Grumpy_chap said:

Plus "transaction fee" £1.50 per order for actually paying

Fees for paying by card have been outlawed since 13th January 2018 by Regulation 6A(1) of the Consumer Rights (Payment Surcharges) Regulations 2012, which derives from Article 62(4) of Directive (EU) 2015/2366. You could dispute this element of the charge with your card issuer, if only out out principle and to cause an administrative burden to the errant merchant. Card issuers often charge fees to merchants for disputed transactions.

Nothing to do with paying by card, purely a transaction fee for actually paying.  Just a way of ripping off the public where the headline price bears no resemblance to what you actually pay.

I hope this also applies to the tourist tax - not an additional charge added at the bottom of the bill but included in the headline room charge.

Brie

Isn't this basically the same thing that airlines had to do a few years back - make sure the price of a flight was the price of a flight?  Of course some airlines have gone back to charges for practically everything on a flight except the ability to breathe when in transit.  No doubt that may come in along too.....

I do quite agree - it was fine when there was a tab presented and you could look it over and think "oh £17!  I can round that up to £20 as the service was really great!!"  and slap down a £20 note.  Now some places have the extra included on the bill, sometimes it's an add on when they hand you the card reader, sometimes if you want to tip you must do so in cash as nothing extra can be added to your card. 

And the other side of the problem is the number of people who haven't a clue what the percentages mean.  I know lots of people who know that if the bill is £10 and they want to add 10% that's £1.   But give them a bill of £37.40 and say the service charge is going to be 15% you'll get a blank look.  

NFH

molerat said:

NFH said:

Grumpy_chap said:

Plus "transaction fee" £1.50 per order for actually paying

Fees for paying by card have been outlawed since 13th January 2018 by Regulation 6A(1) of the Consumer Rights (Payment Surcharges) Regulations 2012, which derives from Article 62(4) of Directive (EU) 2015/2366. You could dispute this element of the charge with your card issuer, if only out out principle and to cause an administrative burden to the errant merchant. Card issuers often charge fees to merchants for disputed transactions.

Nothing to do with paying by card, purely a transaction fee for actually paying.

If it's a charge for paying, and you are paying by card, then it's outlawed by the legislation that I quoted above. For other means of payment, Regulation 4 states "A trader must not charge consumers, in respect of the use of a given means of payment, fees that exceed the cost borne by the trader for the use of that means".

molerat said:

I hope this also applies to the tourist tax - not an additional charge added at the bottom of the bill but included in the headline room charge.

If you're referring to city taxes on hotel stays etc, as are common in many European cities and which are planned in parts of the UK, there is plenty of legislation that requires retail prices to include all taxes. For example Regulation 6(4)(d) of the Consumer Protection from Unfair Trading Regulations 2008 requires any invitation to purchase to include "the price, including any taxes".

NFH

Brie said:

Isn't this basically the same thing that airlines had to do a few years back - make sure the price of a flight was the price of a flight?

Yes, it's all about misleading indications of price. For flights, Article 23(1) of Regulation (EC) No 1008/2008, which remains enacted under UK law, states:

Air fares and air rates available to the general public shall include the applicable conditions when offered or published in any form, including on the Internet, for air services from an airport located in the [United Kingdom]. The final price to be paid shall at all times be indicated and shall include the applicable air fare or air rate as well as all applicable taxes, and charges, surcharges and fees which are unavoidable and foreseeable at the time of publication.

born_again

Grumpy_chap said:

TBH - I am not really sure how a 1980's has-been group can get away with charging even the top-line price, let alone once all the compulsory add-ons are added.

That is cheap. Many other concerts are the other side of £100.