FTC To Battle Restaurants Over "Junk Fees" Added To Customer Checks

Another day, another way the government is trying to micromanage businesses and the economy.

This time its restaurants that are fighting back against government regulation of "junk fees", defined as surcharges or fees added on to bills to cover anything from credit card processing, to taxes, to inflation to tips. 

According to the National Restaurant Association, 15% of restaurant owners added surcharges last year due to rising costs, according to CNBC. 

And a recent Square report shows that 3.7% of restaurant transactions in the second quarter included a service fee, more than twice the rate at the start of 2022.

Critics argue these fees can catch customers off guard, making them pay more at a time when budgets are tight. Frustrated diners have even created spreadsheets on Reddit listing restaurants in Los Angeles, Chicago, and D.C. that charge hidden fees.

The CNBC report says the Biden administration is targeting "junk fees," such as hidden charges on concert tickets and unexpected hotel resort fees. The Federal Trade Commission is expected to introduce a rule banning deceptive fees this fall.

Additionally, the U.S. Labor Department is proposing a rule to prevent financial advisors from recommending investments that benefit them more than their clients.

Meanwhile, restaurants are pushing back, arguing that surcharges are essential for their survival and fair employee compensation.

Sean Kennedy, executive vice president of public affairs for the National Restaurant Association said: “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.”

While some customers may disagree, restaurants like Galit, a Middle Eastern restaurant in Chicago, opened in 2019 with an optional 2% fee for workers' health care, which has since increased to 4%. Additionally, a 20% service charge is added to each bill to support hourly staff. These fees are clearly listed on the restaurant’s website, Resy page, and menu.

Co-owner and general manager Andres Clavero, who has an accounting background told CNBC: “We can dictate where it all goes, so some of our service charge of 20% goes to the back of house.” 

Even restaurant operators acknowledge that some fees aren't justified, the report concludes. Clavero, for example, opposes the use of Covid surcharges by restaurants more than four years after the pandemic closed dining rooms.

“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 concluded.