Service Charge

With rising consumer complaints, the Central Consumer Protection Authority (CCPA) has barred hotels and restaurants from levying service charges automatically or by default on food bills.

Background –

• Service charge is used by restaurants/hotels to pay the staff and workers and is not charged for the experience or food served to consumer.
• Consumer Organisations observed that levying service charge is patently arbitrary and constitutes an unfair as well as restrictive trade practice under the Consumer Protection Act.
• Recently, Department of Consumer Affairs (DoCA) under the Ministry of Consumer Affairs had called a meeting with the National Restaurant Association of India (NRAI).
  • • It was regarding service charge levied by them on customers.
    • It said that the restaurants are collecting service charges from consumers by default, even though collection of any such charge is voluntary.

What is a ‘service charge’?

• A service charge is a fee charged to customers for something specific. E.g., a bank charging a fee for using an ATM that’s not part of its network or a vendor charging a fee for making a payment with a credit card.
• It also may be called a customer service fee or maintenance fee.
• Restaurants and hotels generally levy a service charge anywhere between 5 to 15 per cent on the food bill.

About the Central Consumer Protection Authority –

• The CCPA is a statutory body constituted under Section 10 of the Consumer Protection Act, 2019.
• Mandate — To protect the rights of the consumer by cracking down on unfair trade practices, and false and misleading advertisements that are detrimental to the interests of the public and consumers.
• Concerned Ministry — Ministry of Consumer Affairs, Food and Public Distribution
• Powers & Functions of CCPA —
  • • • To recall goods or withdrawal of services that are “dangerous, hazardous or unsafe”;
      • Pass an order for refund the prices of goods or services so recalled to purchasers of such goods or services;
      • Discontinuation of practices which are unfair and prejudicial to consumer’s interest;
      • Impose penalties on manufacturers/endorsers/publishers of misleading advertisements.

About the Consumer Protection Act, 2019 –

• The Consumer Protection Act, 2019 replaced the Consumer Protection Act, 1986, and seeks to widen its scope in addressing consumer concerns.
• The new Act recognises offences such as providing false information regarding the quality or quantity of a good or service, and misleading advertisements.
• It also specifies action to be taken if goods and services are found “dangerous, hazardous or unsafe”.
• The Act came into force in July 2020 and it will empower consumers and help them in protecting their rights through its various notified rules and provisions.