Companies are charging hidden ‘covid fees’ to make up for lost profits. They may be illegal.
"Attorneys general and consumers say surcharges from $5 to $1,200 are being charged to cover PPE and cleaning at dentist offices, senior living facilities and restaurants
Nearly a year into the pandemic’s gutting of the economy, businesses across the country are increasingly charging coronavirus-related fees, ranging from a $5 disinfection charge in a hair salon to $1,200 for extra food and cleaning in a senior living center, which are often undisclosed until the customer gets a bill.
According to a survey by The Washington Post of attorney general offices and financial departments in 52 states and territories, U.S. consumers in 29 states have filed 510 complaints of coronavirus-related surcharges at dentist offices, senior living facilities, hair salons and restaurants.
Hidden fees are a legitimate concern for consumers, especially for economically vulnerable Americans or senior citizens without much income, but not every state protects consumers from them. While medical insurance law in some states requires health-care providers to offer refunds to patients who have been unfairly charged for personal protective equipment, other states allow for businesses to tack on extra fees, as long as they’re disclosed upfront.
It’s unclear exactly how widespread coronavirus surcharges are, as anecdotal social media posts of customer receipts and reports filed with attorneys general and state consumer protection departments are the only way to track them. But health-care providers and residential facilities are some of the worst-affected sectors.
For instance, Michigan Attorney General Dana Nessel (D) sent a cease-and-desist letter to 11 senior living facilities in August after 45 residents reported being charged $900 each in “supplemental COVID-19 fees.”
Nessel’s office said that a senior official for one of the companies said the fee covered charges for meal service, PPE and cleaning services, but that residents who pushed back were told they didn’t have to pay it.
“This pandemic has caused financial strain for many people and businesses in Michigan, but that does not provide companies with the right to impose unauthorized costs on their customers and clients — especially those in our senior communities and others who are already living on a fixed income,” Nessel said in a news release.
Extra fees, especially when they’re a surprise, aren’t typically praised by the patron. But small businesses and franchises have had to get creative out of desperation when gift card drives, individual tipping and fundraising by local chambers of commerce aren’t enough to pay the bills. Sean Kennedy, the National Restaurant Association’s vice president for public affairs, said this is especially true for the restaurant industry.
“The biggest challenge is, for most restaurants, it’s not going to be enough,” Kennedy said. “Gift cards and tipping are vital because it really is allowing us to survive week to week, but from a long-term perspective, we really need to see a restaurant-specific solution from the federal government.”
Adding surcharges as a temporary Band-Aid to help cover store closures, employee salaries and health benefits, personal protective equipment for staff, and increased sanitation, utilities and reopening costs is one approach some small businesses and franchises have taken to offset financial losses and stay open during the pandemic.
John G. Cleminshaw, 83, lives at Independence Village in Aurora, Ohio. He said the senior living facility sent a letter to its 80 residents in March 2020 announcing a $1,200 mandatory fee for extra cleaning and food because of the pandemic.
“I didn’t feel it was right,” Cleminshaw said. “There was nothing in our contract that called for it. For most businesses, this would be a cost of doing business. It certainly wasn’t their fault that they had these costs, but neither was it the residents’ fault.”
He begrudgingly paid the fee, but he brought up the issue during a residents meeting and reported it to the Ohio attorney general’s office. Eventually, the company announced it would refund the fee. Independence Village did not return a request for comment.
Most reports of coronavirus surcharges have come from patients at dentist offices. Chad Gehani, immediate past president of the American Dental Association, said the cost of PPE for dentists has jumped, so some offices have charged a fee to cover it.
“The choice to charge an additional fee for PPE is an individual dental practice business decision,” Gehani said in an email. “The American Dental Association (ADA) strongly encourages dental offices to disclose any additional fees upfront to patients and to document these charges in the patient record. The ADA has recommended that dental benefit carriers should either adjust the maximum allowable fees for all procedures to cover the increased costs of PPE or allow an additional standard fee per date of service per patient.”
Some insurance providers subsidize PPE costs, and other contracts don’t allow for customers to be held liable for additional fees tacked on later. But the rules vary from state to state and provider to provider, depending on whether the fee is disclosed upfront and what a client’s insurance policy covers.
Starting in August, a handful of state officials — in New York, Connecticut, Arizona, Michigan and Massachusetts — issued guidance warning residents of hidden fees and businesses and insurers of the consequences of violating consumer protection and insurance laws.
The New York State Department of Financial Services instructed health insurers to coordinate refunds to patients after receiving complaints about providers improperly adding on fees to cover protective equipment, especially in dental care.
New York Gov. Andrew M. Cuomo (D) said in a news release that “excessive fees” shouldn’t be required for doctor’s visits and medical procedures.
“In these uncertain times, as many New Yorkers are struggling to make ends meet, healthcare providers should not be creating additional financial burdens on their patients,” Cuomo said.
The department threatened to punish insurers that don’t inform providers that they cannot charge PPE fees or make sure that patients who were charged are refunded.
Businesses that require physical contact and close interaction, such as hair salons, have also been reported for charging coronavirus fees.
Ironworks, a barbershop in Glen Allen, Va., announced a 5 percent service charge in an email to customers to cover HEPA air purifiers, UV-C lights and lost revenue through the end of the year. Ironworks did not respond to requests for comment. An unnamed hair salon in South Carolina was reported to the attorney general’s office for charging a $5 disinfecting fee.
Sport Clips president and chief executive Edward Logan said the company discourages its franchisees from passing on sanitation costs to clients — but in some cases, it’s necessary.
“Sport Clips locations do not charge for disposable masks as a policy, and very few locations have added a service charge,” Logan said in an email. “Many locations have been forced to increase prices slightly to pay for increased labor and materials costs, but our franchisees also prioritize the needs of the client when they have to make difficult business decisions.”
For the restaurant industry, coronavirus fees are a way to offset the increased expenses of operating under occupancy restrictions. Kennedy said many restaurants have lost more money from reopening expenses than while completely closed — which is one reason some may feel moved to get creative to bring in more revenue, through cocktails-to-go, increased menu prices, selling groceries and, yes, adding extra fees.
“We are not an industry that is designed for an on/off switch,” he said. “For a restaurant to be able to be financially viable, they need to be operating at full capacity, seven days a week.”
Restaurants rely on paying for last week’s expenses with next week’s revenue, Kennedy said. And many communities, like New Orleans, have more restaurant seats than local residents to fill them, relying on visitors coming on cruise ships, vacations, honeymoons and business conferences. But travel restrictions eliminated much of that business, and stay-at-home orders shut down restaurants for several months starting in March.
“A lot of fixed expenses didn’t change,” Kennedy said. “Rent didn’t change. Utilities, insurance. Those were all things that still had to be paid even as no customers were coming in the door.”
When Stephanie Baiocchi’s dad called to ask her to lunch, she told him she was craving Thai or Chinese food. They settled on Big Bowl, a small chain by her Chicago office that serves both, and when she searched the menu online before lunchtime, an advisory banner with “COVID-19” caught her eye on her screen.
The chain had posted a message on its website about a 4 percent automatic surcharge for all food orders.
“To help offset restrictions on our business resulting from the COVID-19 crisis, a 4% surcharge has been added to all guest checks. If you would like this removed, please let us know,” the banner read. Big Bowl declined to comment.
Baiocchi felt duped. She’d ordered from Uber Eats, which offers options to customers to donate directly to the restaurant or delivery workers. She’s seen other restaurants temporarily increase menu prices and collect funds for furloughed staff. But an automatic fee — even if it could be removed upon request — without knowing who benefited from it felt, as she said, “super slimy.”
“You’re just banking on people not realizing and it just felt so scummy and I just did not like it at all. Right now is not the time to be taking advantage of people,” she said. “For all I know, the CEO is just keeping it all.”
Baiocchi and her dad still ate at Big Bowl, and she didn’t have the heart to ask the server to remove the surcharge, in the hopes that it might benefit staff. She said that during the pandemic she has found herself more empathetic to service industry workers. When she got a haircut, she tipped her stylist more than usual because she knew her salon had struggled while it was closed.
“It’s a tough economic climate for everyone,” Baiocchi said. “I think if businesses just lead with transparency and kindness, they’re going to get a lot further.”