HCA imposes record fine on Booking.com for unfair commercial practices

02 July 2020 | newsletters

This article first appeared on International Law Office.

Introduction

The Hungarian Competition Authority (HCA) has imposed a record fine on Booking.com BV for undertaking unfair commercial practices by misleadingly advertising certain hotel rooms with "free cancellation" and engaging in pressure selling. The HCA has also banned the company from applying these practices as of 2021.

Although a surprise for many industry players, this decision aligns with the HCA's tendency to impose significantly higher fines in unfair commercial practice cases compared with previous years, which the HCA has admitted. In 2019 the fines imposed in consumer protection cases were higher than those for cartels and thus far have been even higher in 2020.

Infringements

The HCA declared that Booking.com BV committed the following unfair commercial practices.

Misleadingly advertising certain hotel rooms with "free cancellation"
The HCA objected to the following forms of conduct in this respect:

  • The rooms which were advertised with a free cancellation policy were also available at significantly cheaper prices (with the exception of the actual cancellation by the consumer).
  • Free cancellation was contingent on time and other limitations which were evident to the consumer only after choosing the accommodation.

The HCA stated that flexibility (ie, the ability to cancel a booking) came at an additional cost, which was built into the price of the accommodation. While it is true that consumers would not have to pay for a room if they cancelled their reservation, they would have to pay a higher price if they did not cancel their reservation and used a room. In the HCA's interpretation, the free cancellation policy was not free, but rather included in the cost of the room (ie, only the actual cancellation was free). The HCA held that consumers would be harmed if they did not cancel such a reservation.

This decision aligns with the HCA's recent enforcement practice of being highly critical of companies' use of the term 'free'. For instance, in the telecoms sector, Magyar Telekom was fined €2 million and found guilty of failing to inform consumers that if they chose to obtain a mobile device at a discounted price or for free with the subscription contract, the monthly subscription fee would be higher than without the device. For similar infringements, the HCA charged Telenor approximately €5.45 million in December 2019 and Vodafone approximately €600,000 in 2017.

Further, in December 2019 the HCA fined Facebook HUF1.2 billion (€3.6 million) for claiming that the use of its services was free (eg, "free and anyone can join"), whereas the HCA stated that consumers in fact paid for the use of Facebook with their detailed data (eg, consumer preferences, interests and habits).

Pressure selling
Using aggressive advertising techniques and psychological tactics to pressure consumers into booking quickly (so-called 'pressure selling'), including the use of phrases such as "highly sought after!", "another booking!", "last booking at the accommodation: just now!" and "only one room left!".

The HCA highlighted that these pop-up messages – highlighted in red – appeared during all parts of the booking process, even after the search results had appeared, including on hotel websites and the final stage of the booking process when a consumer submits their details (eg, "someone in that accommodation is booking now").

In the HCA's view, taken together, these pop-up messages aimed to ensure that a consumer would not only initiate the booking process, but also complete it.

Booking.com claimed that the pop-up messages it used contained real-time information and valid content. However, the HCA objected, indicating that when a message with (for example) "new booking" appears, a consumer cannot know the period and room to which it applies. Moreover, the HCA did not investigate the validity of the communication, but rather its aggressiveness.

Breach of professional diligence duty
The HCA established that Booking.com had breached its professional diligence duty by the non-unified appearance of the phrase "You can pay by Szép Card". The HCA objected to the fact that the possibility to pay by Szép card was not indicated uniformly over the entire booking platform (eg, for some hotels it appeared in the search list, while for others only if and when the consumer opened the website of a given hotel and only in the small print). As Booking.com changed this last practice before the decision, this was taken into consideration when setting the fine.

Termination of practices

The HCA banned Booking.com from applying the above practices and obliged it to provide evidence that it no longer:

  • uses the statement "free cancellation" if a consumer must pay a higher price for the same room than without the free cancellation option or when free cancellation has limits (or in such cases the limitations of free cancellation must be clearly indicated); and
  • applies messages which impose psychological pressure on consumers during the entire booking process in all of its commercial practices. It may apply such messages only for the given accommodation and for the specific dates chosen by the consumer, only by indicating the real information (eg, available accommodation and number of available rooms) and only regardless of consumer opinion and without indicating an additional value.

Booking.com offered its commitments in the proceeding, but these were rejected by the HCA.

The fine was also imposed irrespective of Booking.com's commitment in December 2019 to change its commercial behaviour in view of the EU Consumer Protection Cooperation (CPC) Regulation (2006/2004). The HCA pointed out that the commitments offered in the CPC proceedings were different to what would have been required here. For instance, in the CPC commitment, Booking.com offered to show valid statements, whereas in the Hungarian proceeding the HCA did not object to the validity of the statements, but rather the statements as a whole, which amounted to pressure selling. The HCA also argued that it had contacted the other CPC authorities and they agreed that it was not necessary to apply a coordinated investigation under the EU CPC Regulation as the different proceedings concerned different conducts, based on a different legal basis and different time periods.

Comment

This trend of record fines for unfair commercial practices is expected to continue and is not limited to the travel sector. In recent years, the travel industry has been in the focus of the competition authority. For instance, in 2016 a sectoral inquiry into the hotel online booking market was completed and recent market analysis has been conducted on the operation of digital comparison tools and the functioning of online hotel comparison sites. The HCA also revealed in its Booking.com decision that a proceeding is already underway against 'szallas.hu', the largest Hungarian-owned travel booking site.

The use of the expression 'free' is not limited to the travel sector. Further, the HCA is investigating pressure selling in the e-commerce sector (namely, on 'alza.hu'). This also evidences a certain shift in the HCA's enforcement priorities, with significantly more emphasis on unfair commercial practices than ever before. Certainly, it is easier to obtain information regarding alleged unfair commercial practices from websites, as opposed to uncovering secret cartels and the challenges this poses, but this is not the only reason: similar enforcement priorities are also seen in other CPC network countries.

The shift is also visible with regards to the undertakings investigated. The HCA does not shy away from investigating and fining major companies such as Apple, Facebook, Viber and Booking.com. In many cases the HCA is the first authority to fine these companies for unfair commercial practices.

As HCA fines for unfair commercial practices in Hungary seems to grow almost every month, the Booking.com fine is unlikely to remain a record for very long. With commitments of investigated companies rejected in most cases, undertakings should pay even closer attention to prior compliance to avoid being investigated by the authorities.

Anna Turi

Counsel

T: +36 1 8700 707
a.turi@schoenherr.eu

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