Recently, the Central Consumer Protection Authority (CCPA) announced five guidelines to prevent unfair trade practices and to protect consumer interests regarding the levy of service charges in hotels and restaurants.
- The guidelines are in addition to the Centre’s 2017 guidelines which prohibit the levy of service charges on consumers by hotels and restaurants, and terms the charging for anything other than “the prices displayed on the menu card along with the applicable taxes” without “express consent” of the customer as “unfair trade practices”.
GS II- Polity and Governance
Dimensions of the Article:
- About Central Consumer Protection Authority
- What is a service charge?
- What do the new guidelines specify?
- Why were new guidelines issued?
About Central Consumer Protection Authority
- CCPA is a regulatory body established in 2020 based on the provisions of the Consumer Protection Act, 2019.
- CCPA works under the administrative control of the Ministry of Consumer Affairs.
- To promote, protect and enforce the rights of consumers as a class.
- To conduct investigations into violation of consumer rights and institute complaints/prosecution.
- To order the recall of unsafe goods and services, discontinuation of unfair trade practices and misleading advertisements.
- To impose penalties on manufacturers/endorsers/publishers of misleading advertisements.
What is a service charge?
- A service charge is a tip or a direct transaction between the customer and the restaurant staff, specifically the wait staff.
- It is a fee collected to pay for services associated with the purchase of a primary product or service.
- It is collected by hospitality sectors and food and beverage industries as a fee for serving customers.
What do the new guidelines specify?
- As per the new guidelines, hotels or restaurants are prohibited from levying extra charges automatically or by default in the bill or by any other name.
- Also, they are not allowed to force service charges, and must clearly inform the consumers that service charges are voluntary, optional, and at their discretion.
- Most importantly, hotels and restaurants are no longer allowed to restrict entry or services based on the collection of service charges. Furthermore, hotels cannot add service charges to their bills and charge GST on the total.
- The point here is that any tip, donation, token, gratuity, etc., is no longer permitted to be charged and shall be considered as a separate transaction between the consumer and the staff of the hotel and restaurant.
- It is entirely up to the consumer to decide whether or not to tip. If a consumer enters a restaurant or orders something, the restaurant policy cannot require them to tip.
- Therefore, consumers cannot be forced to pay a service charge without having the choice to decide whether they want to do so.
Why were new guidelines issued?
- The CCPA has taken cognisance of various grievances that were registered on the National Consumer Helpline (NCH) related to the unnecessary levying of service charges in the bill.
- Usually, this charge is levied in addition to the total price of the food items mentioned on the menu and applicable taxes, often in the guise of some other fee.
- The said guidelines now consider charging a customer other than the price of food items displayed on the menu along with applicable taxes, as an ‘unfair trade practice’ under the CPA.
- In general, the price of any product covers both the cost of the product and the cost of the service.
- This implies that the price of food and beverages served in the hotels and restaurants includes the price of the ‘service’.
- There is no restriction on hotels or restaurants to set the prices at which they want to offer food or beverages to consumers.
- Placing an order involves consent to pay only the prices of food items displayed on the menu along with applicable taxes.
- Charging anything other than the said amount would amount to ‘unfair trade practice’ under the Act.
-Source: The Hindu