Dealers have been inquiring about new fees being listed on vendor websites. Many vendors now list additional charges such as freight, pre-delivery inspection (“PDI”), or dealership fees. These changes were likely made in order to comply with new “drip pricing” laws under the Canadian Competition Act.
What is drip pricing?
Drip pricing is a technique where vendors initially advertise only part of a product or service’s price, with the full price only being revealed to the customer as they go through the purchasing process. Drip pricing conceals the ultimate price from the customer by omitting additional (but mandatory) fees from the advertised price. Charging additional fees such for freight, processing, or logistics in and of itself is not “drip” pricing – but failing to disclose these fees up-front may be considered misleading advertising, according to new Canadian laws.
New changes to the Competition Act
In 2022, amendments to the Competition Act (the “Act”) specifically targeted drip pricing. The additions of sections 52 (1.3) and 74.01(1.1) confirm that advertising a price that is in reality unattainable due to fixed obligatory charges, constitutes a false or misleading representation under the Act. Drip pricing is not false or misleading if the additional charges are imposed by the government (e.g. sales tax).
To contravene the Act, a representation must be false or misleading in a material respect, meaning that the representation must affect the purchaser in deciding whether to purchase the product.
Penalties for engaging in false or misleading representations can be severe. Misleading representations may either be civil or criminal in nature:
Civil: if a person engages in conduct contrary to section 74.01(1)(a) of the Act, a court may order the person to stop engaging in such conduct, to publish a corrective notice, and/or pay an administrative monetary penalty. Additionally:
For individuals, the penalty for first-time violations is up to the greater of: $750,000 ($1 million for each subsequent violation), and three times the value of the benefit derived from the deceptive conduct, if that amount can be reasonably determined.
For corporations, the penalty for first-time violations is up to the greater of: $10 million ($15 million for each subsequent violation), and three times the value of the benefit derived from the deceptive conduct, or, if that amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenue.
A court may also make a restitution order requiring consumers be compensated.
A court also has the power to issue an interim injunction to freeze assets
Criminal: if a person knowingly or recklessly makes a false or misleading representation contrary to section 52 of the Act, an individual may be subject to summary conviction and a fine of up to $200,000 and/or imprisonment for up to one year, or conviction on indictment whereby fines are at the discretion of the court and imprisonment can be for up to 14 years.
Generally, when deciding whether a pricing representation is false or misleading, courts will apply the “general impression” test, where the court will take into account the general impression conveyed by a representation. In the case of drip pricing, if a representation creates the general impression of a lower total price, it may be considered false or misleading and therefore in violation of the Act.
We note that these new laws on drip pricing are limited to Canada. While the United States’ Federal Trade Commission released a request for public comment on “junk fees” and drip pricing in late 2022, no formal legislation addressing drip pricing has been codified in the United States.
What this means for dealers
The Competition Bureau has already taken steps to enforce these new drip pricing laws.
In May 2023, the Competition Bureau commenced a proceeding against Cineplex Inc. for allegedly engaging in drip pricing. The Bureau alleges that Cineplex added a mandatory $1.50 booking fee for customers purchasing movie tickets online. The Bureau does not allege that the $1.50 fee is completely concealed from customers — rather, it alleges that the fee is not sufficiently disclosed.
The Competition Bureau alleges that the following elements of Cineplex’s purchasing process are particularly misleading:
The placement of fee disclosures on web pages: the Bureau alleges that Cineplex displays prices for movie tickets at the top of the page, and customers have to scroll to the bottom of the web page to locate the actual booking fee (including the $1.50 charge).
Use of floating banners: the Bureau alleges that Cineplex’s use of a floating banner on their webpage, which prompts the customer to proceed, diverts customers from scrolling down to the bottom of the page where the actual booking fee would be visible. The floating ribbon contains a subtotal in smaller print which incorporates the $1.50 fee but does not separate it out from the original price.
Use of urgency cues: the Bureau alleges that the use of a countdown timer on Cineplex’s website acts as an urgency cue to complete the purchasing process quickly, which may prevent customers from becoming aware of the additional booking cost.
The Bureau’s proceeding against Cineplex is one of the first cases to proceed after the amendments to the Act.
However, other enforcement actions commenced by the Bureau in the past have focused on drip pricing, including actions against Enterprise-Rent-A-Car, Bell Canada, and FlightHub. The new amendments simply codify drip pricing as a form of misleading or false representations, which are subject to sanctions. This supports the Bureau’s marketing enforcement efforts, and may lead to increased risks for companies who fail to sufficiently disclose any additional fees and surcharges upfront.
Given the Bureau’s proceedings against Cineplex, it is good practice for dealers to alert customers to additional charges and further costs that may apply to purchases. In circumstances where prices may be determined by a third party, it may be advisable to include a reference to the prices generally. For example, an Outdoor Power Equipment (“OPE”) manufacturer may wish to include a reference to PDI fees on their marketing materials in order to comply with drip pricing laws, even if they are not setting the PDI fees themselves.
Given the potential penalties for failing to comply with new drip pricing laws, dealers should take these new laws into consideration when publishing advertising and marketing materials.
Article Written by Janelle Gobin
Janelle Gobin maintains a general litigation practice with a focus on commercial disputes, insurance claim defence, professional negligence, and health law. Prior to joining BLG as an associate, Janelle graduated from the University of Manitoba Faculty of Law, and clerked at the Manitoba Court of Appeal. Janelle has appeared in the Alberta Court of Justice and the Court of King’s Bench of Alberta, and has assisted in complex commercial litigation trials in the Court of King’s Bench of Alberta.