Drip pricing is a pricing strategy in which a company initially advertises a product or service at a low price, only to add mandatory fees or charges later in the buying process, often at the checkout stage. These fees are typically labelled as service fees, processing fees, and delivery fees. This results in a final price much higher than the price originally advertised, essentially making the initial price unattainable. In Canada, drip pricing is illegal under the Competition Act which is enforced by The Competition Bureau. The only legal additional mandatory charges are government-imposed, such as sales taxes.
The role of the Competition Bureau
The Competition Bureau is an independent Canadian law enforcement agency that protects and promotes competition for the benefit of Canadian consumers and businesses. It enforces the Competition Act by investigating complaints, reviewing mergers, advocating for pro-competitive policies, and educating businesses and consumers. The Bureau believes that competition leads to lower prices, innovation, and economic growth.
The Competition Act
The Competition Act is a Canadian federal law that outlines the regulations in place to promote fair and adequate competition in the Canadian marketplace. These regulations protect Canadians by ensuring they have access to competitive prices and products. To achieve this, among other things, The Act:
- Prohibits anti-competitive practices like price-fixing, and bid-rigging
- Details guidelines for reviewing potential mergers to ensure they don’t stifle competition
- Tackles deceptive marketing tactics like drip pricing
The impact of drip pricing on consumers
Drip pricing can have several detrimental effects on consumers. Firstly, it makes it challenging to compare prices across different sellers as the true cost is not apparent until the final stages of the purchasing process. This can lead consumers to make decisions based on inaccurate information. Secondly, drip pricing can result in consumers paying a higher price than they initially budgeted for, potentially causing financial strain. Lastly, drip pricing can erode consumer trust in businesses, as it creates a sense of being misled or tricked.
Amendments to the Competition Act regarding drip pricing
Each year between 2022 and 2024, there were significant amendments made to the Competition Act including some that specifically address drip pricing. Below is a summary of these amendments:
Explicit prohibition
Drip pricing is now expressly prohibited under both the criminal and civil deceptive marketing provisions of the Competition Act.
Clarification of exemptions
The amendments clarify that the only mandatory fees that can be excluded from the advertised price are those directly imposed on the purchaser by federal or provincial legislation, such as sales taxes. This closes a potential loophole that allows businesses to pass on other government-imposed fees without disclosing them upfront.
Greater access to the Competition Tribunal
Private parties, such as businesses, organizations and individuals can now bring cases directly to the Competition Tribunal instead of relying solely on The Competition Bureau. This increases the chances of more drip pricing cases being heard and, therefore, may serve to discourage the use of the practice in the first place.
Increased penalties
The amendments significantly increased the potential penalties for drip pricing, including substantial Administrative Monetary Penalties. The maximum AMPs are now the greater of:
- $10 million for a first violation ($15 million for subsequent violations)
- three times the value of the benefit derived, whichever is greater, or 3% of annual worldwide gross revenue if the benefit cannot be determined
Recent cases
The Competition Bureau’s efforts have resulted in significant fines against several companies using drip pricing, including:
Cineplex
The Bureau filed a lawsuit against Cineplex, Canada’s largest theatre operator, for charging a mandatory online booking fee for movie tickets without disclosing it upfront. The Bureau claims that Cineplex has earned $40 million from this practice since 2022.
TicketNetwork
The Bureau imposed an $825,000 penalty on TicketNetwork for engaging in drip pricing. They were found to have inflated prices up to 53% through hidden fees.
Ticketmaster
In 2019, Ticketmaster was fined $4 million for drip pricing.
StubHub
StubHub faced a $1.3 million penalty in 2020.
SiriusXM Canada Inc.
The Bureau levied a $3.3 million fine on SiriusXM for failing to disclose mandatory royalty and administrative fees in their advertised subscription prices, making the actual price considerably higher than initially presented.
These cases illustrate the Bureau’s commitment to combatting drip pricing and protecting consumers from this deceptive practice.
Protecting yourself from drip pricing
While the Competition Bureau plays a crucial role in combating drip pricing, consumers can also take steps to protect themselves. Here are some tips on how you can do that:
- Read the fine print carefully: Scrutinize the details of any offer, looking for additional fees or charges that may not be immediately apparent.
- Compare prices from multiple vendors: Before making a purchase, get quotes from several different companies to ensure you are getting the best possible price.
- Be wary of prices that seem too good to be true: If a price appears significantly lower than those offered by competitors, it may be a red flag for drip pricing.
- Contact the company if you have questions: If you are unsure about any fees or charges, don’t hesitate to contact the company for clarification.
Reporting drip pricing
The Competition Bureau encourages consumers to be vigilant and report any instances of drip pricing they encounter. This information assists the Bureau in identifying companies engaging in deceptive practices and taking appropriate enforcement actions. Consumers can report drip pricing by contacting the Bureau through their website or by phone.
By being aware of drip pricing and taking these precautions, consumers can make more informed purchasing decisions and protect themselves from this unfair practice.
Wrap up
While it may be true that drip pricing isn’t responsible for all the financial pressures we’re experiencing from the higher cost of living, it certainly doesn’t help. it’s a relief to know that parameters have been put in place to mitigate this harmful practice that was becoming all too common. The Competition Bureau is putting a lot of effort into enforcing this new legislation. There are things we can do too. Most importantly, when appropriate, report drip pricing to The Bureau.
If drip pricing has pushed your already cumbersome debt out of control we can help. During a free consultation, our trained credit counsellors will discuss what options are available to get your finances back in control.
