ISSUE BRIEF: TECHNOLOGY AND DISTRIBUTION DECEPTIVE HOTEL BOOKING SITES ‘© AHLA Position: AHLA believes consumers have a right to know who they are booking with whether they book online using a third party or with the hotel directly, and the government should crack down on websites that pose as hotels in order to prey on travelers. IMPACT For more than a year, AHLA has been engaged in a multi-faceted campaign to highlight the deceptive practices by rogue third party affiliate websites, and we have seen significant progress as a result of our efforts, particularly with Congress. Most recently, in September, Senators Steve Daines (R-MT) and Bill Nelson (D-FL) introduced a Senate version (S. 3402) of the Stop Online Booking Scams Act, which was, originally introduced in the House (H.R. 4526) by Rep. Ileana Ros-Lehtinen (R-FL), Chairman of the House Transportation Committee, Rep. Bill Shuster (R-PA) and Rep. Lois Frankel (D-FL). Like the House, the Senate bill provides vital safeguards and takes necessary corrective action to stop scammers from mimicking legitimate hotel websites and exploiting unassuming consumers. It also requires third-party booking sites to make crystal clear to consumers that they are not the hotel, eliminating customer confusion during the online booking process. The Senate version also added a new protection against "meeting pirates," which are third-party companies that misrepresent themselves as the official lodging provider for a given convention or trade show. Preying on lists and convention calendars, these deceptive users exploit similar tactics to lure in unsuspecting customers and dupe them out of legitimate reservations — causing extreme frustration, lost or cancelled reservations and nowhere to go in often booked-up cities. This additional provision resulted in the support of the Conventions Industry Council, a group of more than 30 meetings related organizations. ‘This is the first-ever piece of federal legislation to directly address online booking scams and its bipartisan, bicameral support is significant. The Senate bill currently has Sens. Daines, Nelson, and Amy Klobuchar (D-MN) as cosponsors, with an active outreach campaign currently underway to gather additional support. The House bill currently has 25 bipartisan cosponsors. Additionally, the legislation has the support of Consumer Watchdog and the interest of the National Consumers League, which has agreed to feature online booking scams in an upcoming fraud alert. Consumer group support is critical for the long-term success of the legislation, and we are pleased that new groups are taking notice and getting involved, Further, in late May, the House Committee on Energy & Commerce Subcommittee on Commerce, Manufacturing, and Trade held a hearing in which it discussed the impact of hotel booking scams on consumers. We worked with the committee to have Jamie Pena, Vice President of Revenue Strategy & Global Distribution for Omni Hotels & Resorts, testify, which further illustrated the significant concerns surrounding these scam sites and galvanized additional Congressional support. Finally, AHLA was able to secure language in the FY2017 House Financial Services Appropriations Bill asking the FTC to investigate deceptive websites and report back to Congress within 90 days on recommendations for enforcement actions. 1 CeeMore broadly, two industry champions, Senator Klobuchar (D-MN) and Senator Deb Fischer (R-NE) penned a letter urging both the FTC and Department of Transportation (DOT) to investigate scam websites. This came as a result of active outreach on our behalf, as well as our partners in the airline industry, urging the Senators to make sure that FTC and DOT is staying active on the issue of deceptive booking sites pretending to be hotels or airline representatives. BACKGROUND Hotel consumers and businesses have increasingly been impacted by online ads and search engine results that mislead consumers into believing they are booking directly with hotels, lead to falsely branded call centers, or mislead consumers into believing they are participating in branded rewards points programs. In addition to being problematic from a marketing and business standpoint, there are clear consumer harms. AHLA commissioned an independent poll that found that nearly 20% of online shoppers had been exposed to this hotel booking scams, and a whopping 5% of them had fallen for it, for a total of 15 million consumer booking being through fraudulent websites in 2015. SEARCH BIAS & PAY FOR PLAY RANKINGS ‘* AHLA Position: AHLA advocates for fair, transparent, and pro-consumer public policies on behalf of the hospitality industry and to ensure the hotel industry's continued growth in online and mobile bookings. We are concerned about the new trend amongst mojor online travel companies towards undisclosed search bias and pay-for-placement in hotel sorting. IMPACT This year, AHLA began reaching out to Members of Congress and regulators such as the Federal Trade Commission (FTC) to highlight this trend towards pay-for-play. Additionally, we have used the media to share our position publicly in publications such as Skift and the Wall Street Journal. We are working with our members and the Consumer Innovation Forum (CIF) to quantify the negative impact of search bias, which we can then use in our advocacy efforts with the FTC and other entities. In particular, we are focused on developing Congressional and consumer group champions that can further push the FTC to act on the lack of OTA disclosure for pay-to-play search advertising. Educating the public is a key component of our strategy to get legislators and regulators interested in addressing these concerns. We are utilizing the data to advance media opportunities and engage the public regarding these misleading practices. Our efforts are paying off. For example, in August, AHLA worked closely with CBS News, providing the reporter with search bias examples and additional background information, and the news organization subsequently published a piece that pulls back the curtain and exposes the OTAs’ deceptive practices while questioning if they are misleading consumers, particularly calling out Expedia and Booking.com for poor behavior. Further, after several mainstream media pieces in the Washington Post and the Wall Street Journal on the poor practice of dimming of hotels and search bias, Expedia admitted to the practice of “dimming” and ended it in September. Laying the groundwork for next year, AHLA has begun work with a Harvard Business School professor on ‘paper quantifying the true cost of OTAs to consumers and the confusion and costs resulting from 2 SREbiased search. This paper will be used with Congress, the FTC, and media to further illustrate the need to take action. BACKGROUND The hotel industry is extremely fragmented in term of the market power of participants - in comparison to the market power of the online travel agencies. Last year, by opposing the Expedia acquisition of Orbitz, AHLA brought to the attention of the public, regulators and Congress, the negative consequences for consumers and hoteliers of increased consolidation in the OTA market. We believe it is clear that this trend toward search bias and pay-for-play rankings is a consequence of the new Expedia-Priceline duopoly facing hoteliers and consumers. SHORT-TERM RENTALS. + AHLA Position: AHLA believes that there should be a level and legal playing field within the lodging sector, and that regulations and toxes with respect to short-term rentals should be strictly enforced. We support the rights of property owners to occasionally rent out a room or their home, but commercial operators within the short-term rental industry should not be allowed to operate outside of the law. IMPACT AHLA continues to move the needle in key areas for short term rentals, working with a broad coalition of affordable housing advocates, community groups, neighborhood associations, labor, and other progressive entities. Notable accomplishments from this year include: * New York The New York State legislature passed, and the Governor signed, a precedent- setting bill impacting Airbnb’s largest U.S. market. The legislation strengthens existing law (applicable only in New York City) that prohibits short-term rentals in multi-unit dwellings unless the permanent occupant is home during the rental. The new law prohibits the mere advertising of such rentals (as opposed to an actual rental transaction) which will help with enforcement of the un-hosted rental prohibition. AHLA provided resources and support to the Hotel Association of New York City and other parties advocating for this legislation. * Chicago - AHLA, along with the Illinois Hotel & Lodging Association, played a pivotal role in the passage, in July, of an ordinance in Chicago that heavily regulates short-term rentals. Chicago was the first major U.S. city to take action. Among the notable provisions are a 4% surtax on short-term rentals levied in addition to the regular hotel occupancy taxes, as well as a provision that allows apartment and condo buildings to prohibit short-term rentals by registering with the To date, more than 700 buildings in Chicago have opted out of short-term rentals. * San Francisco ~ Working with our state and local partners, AHLA has been actively engaged in ‘the San Francisco debate. In June, the Board of Supervisors passed important enforcement legislation that prohibits short-term rental platforms from listing rentals that are not properly registered with the City. More recently, additional legislation has been introduced that would establish a 60-day annual cap on all short-term rental units. Under current law, “un-hosted” rentals are capped at 90 days per year, while “hosted” rentals are not capped. In addition to lowering the caps, this provision will make the cap more enforceable, because itis difficult to for 3 CEEauthorities to discover and demonstrate that the permanent resident was not home during a rental. We are hopeful that this legislation will be approved by the Board of Supervisors in the coming weeks. * Los Angeles - The City Planning Commission released a draft ordinance in the spring that includes a prohibition against non-owner occupied rental units, a prohibition on short-term rentals operated out of rent-stabilized housing units, registration requirements for hosts, data collection requirements, and a hard cap on the number of days per year a host can rent out their residence. AHLA continues to work with our state and local partners to push for City Council action before the end of the year, which looks likely. State Action - This year, working alongside our partners, we have been successful in key states (.e. Virginia, Tennessee, and Utah) in stopping Airbnb-backed pre-emption bills. We also worked to improve an Arizona bill that unfortunately provided some degree of preemption from local legislation. Several state legislatures have created interim study committees that will produce recommended legislation for the 2017 sessions, and AHLA has been actively engaged in those discussions. * Federal Conversation ~ After working closely with AHLA for several months, Senators Brian Schatz, Elizabeth Warren and Dianne Feinstein sent a letter to the Federal Trade Commission (FTC) in July raising concerns about the short-term rental industry with respect to housing costs, racial discrimination, consumer protection, community safety, and inconsistent tax compliance. Further, the Senators requested the FTC to provide data on the degree to which the short term, rental industry is comprised of commercial operators. The letter highlights our strategy of pushing for transparency while calling out the public policy issues and the need for a level playing field. Senator Warren's status as one of the most prominent lawmakers among progressive activists has helped mobilize additional grassroots and political support * Research and National Narrative ~ AHLA continues to change the narrative of the short-term rental debate toward the predominance of commercial operators on Airbnb and other sites through the dissemination of research performed by Penn State and funded by AHLA and AHLEF. In addition to the national report first released in January, we released city-specific reports in 14 markets throughout this year. Working with our partners, AHLA also stood up AirbnbWATCH.org, an online portal dedicated to gathering stories of short-term rentals harms and highlighting Airbnb’s lack of transparency. AirbnbWATCH has become an active coalition of diverse organizations, all working to ensure responsible short-term rental regulation. BACKGROUND Airbnb has grown exponentially in recent years and has an estimated market cap greater than any hotel company, and although itis the largest player in the short-term rental market, it does face competition from HomeAway (now owned by Expedia), Flipkey, and others. Policy debates are taking place around in the country in cities of al sizes, as well as in state capitals, and increasingly in Congress, about the appropriate regulation and tax collection for short-term rentals. 4 SEOs2017 SHORT-TERM RENTAL STRATEGY Objective: Build on the success of 2016 efforts to ensure comprehensive legislation in key markets around the country and create a receptive environment to launch a wave of strong bills at the state level while advancing a national narrative that furthers the focus on reining in commercial operators and the need for commonsense regulation of short-term rentals. To accomplish our objectives, we are focused on the following key strategic imperatives: ‘* Build on the national narrative that commercial operators are driving a large portion of revenue for short-term rental companies like Airbnb by advancing new research to keep the story in the news and these entities on the defensive; ‘* Continue to actively coordinate with state and local hotel associations, along with affordable housing, neighborhood and tenant groups, consumer groups, labor and others to drive common sense laws forward in key cities and states; ‘© Aggressively counter Airbnb’s “we're just helping the middle-class make ends meet” narrative with 2 wave of personal testimonials of consumer harm through a “My Neighborhood” paid and social campaign; ‘* Advance federal legislative efforts to level the playing field in specific areas and push back on Airbnb’s offensive within the Beltway; ‘* Build a case for allies to dismiss potential litigation threats; and ‘+ Advance work with Attorneys General to encourage action and/or enforcement in their jurisdictions. Research: To drive earned media, AHLA plans to roll out research that builds on the foundational data we compiled this year in conjunction with Penn State University, which revealed the rise of commercial operators. Topics under consideration are as follows: ‘© Rutgers discrimination report: This research, which illustrates discrimination and lack of accessible short-term rentals for those with disabilities, will be released in November 2016, but will have spillover effects into 117 as we work with our partners to use this, data to advocate for enforcement actions and regulatory changes. '* CBRE studies on “Millionaire Airbnb Landlords” and taxes owed by Airbnb: This research will shine a spotlight on the individuals who are the most egregious commercial operators in key markets to then be used to re-engage media who are looking for anew angle. The second part of the research will focus on examining Airbnb’s true tax obligation in select markets to illustrate that, in many cases, it’s not paying its fair share. ‘+ Florida International University study on safety and security: This research will support our fundamental argument about the harms that short-term rental companies pose to consumers and communities, and provide data to buttress testimonial campaign. ‘© University of North Carolina short-term rental legality survey: This research will provide important information to advance our State AG enforcement efforts as it will highlight where short-term rentals are currently illegal and what laws are being violated. '* Select Penn State commercial operator reports: We will update the existing report to provide fresh news hooks for upcoming key markets (i.e. Boston, D.C., Miami) as well as CREE esa onTes ‘major cities that continue to grapple with the right solution (i.e. Honolulu, New Orleans, Portland, OR). jonial Campaign — “My Neighborhood”: To provide a counter-weight to Airbnb’s strategy of presenting a unified, working-class face, a cornerstone of the 2017 communications strategy will be our own testimonial campaign. We will harness the countless stories of real people across the country who have been negatively impacted by short-term rentals in their neighborhoods, whether it’s the working teacher whose apartment complex is overrun by drunken tourists, to the tenants who are evicted so their landlords can create an illegal hotel, these stories will resonate more profoundly jth stakeholders and allow us to tap “ambassadors” for key campaign milestones. To accomplish this, we will: Secure video footage of the individuals telling their personal story, shot in a similar style and consistent format, and produce short, compelling narratives that can be woven together into a geographic-agnostic message highlighting the harm that is being done to their communities. Aggressively pursue leads from aggrieved individuals around the country and identify stories of harm caused by illegal hotels and commercial operators to neighborhoods. Once the stories are developed, the deployment and amplification opportunities are substantial. They can be put out on multiple platforms and through multiple channels, including on social media, through broadcast (TV and radio), in static displays (bus shelters, billboards, print). Additional traction can be gained by making the individuals available to print reporters for quotes, at press conferences and media availabilities and broadcast interviews and other key stakeholder meetings at all levels of government. Federal Legislation & Enforcement: As short-term rentals and the “sharing economy” increasingly permeates the Beltway conversation, AHLA plans to press our position, either ourselves or through our allies, utilizing Congress and the legislative process. To that end, we have developed multiple legislative ideas, detailed below, that will also be an important mechanism to help us defend against messaging and initiatives by Airbnb or Expedia (on behalf of its subsidiary, HomeAway/VRBO): Federal Worker Illegal Hotel Ban ~ Not allow federal workers on official travel to stay in short-term rentals that violate local law. Federal Worker Fire Safety - Ensure that short-term rentals are subject to the Hotel- Motel Fire Safety Act. At least 90% of room nights purchased by federal workers must be in lodging that is on the FEMA fire-safe list, which means they meet basic fire safety requirements. ‘Americans with Disabilities Act (ADA) — Revise the ADA statute or ADA regulations to subject certain commercial operators of short-term rentals to ADA requirements. Discrimination — Urge DOJ to report on the application of civil rights laws to short-term rentals or investigate potential violations. Subsidized Housing - Prohibit or enforce restrictions on short-term rentals in any federally subsidized residences. Tax Collection - Adjust rules for 1099s to ensure better income tax compliance by hosts. BEEPLegal Response: Airbnb has filed or threatened lawsuits against several local and state ordinances claiming protection under the first amendment and a federal statute called the Communications Decency Act, specifically Section 230 of that Act. Airbnb claims it cannot be liable for policing its hosts, even with respect to the simplest of regulations such as outright bans on short-term rentals or licensing requirements. Holding Airbnb and the other short-term rental companies accountable is crucial, given the difficulty in enforcing the rules host by host, and our efforts for 2017 are focused on the following: ‘+ Arming allies with arguments as to why these lawsuits are flawed in order assuage the fears of legislators who are considering legislation but are reticent to have their policies challenged in court; * Identifying academics to publicly express doubts about Airbnb’s legal claims; * Engaging the copyright holder community which has similar concerns with an expansive interpretation of the CDA; and * Evaluating whether an amicus brief is warranted and feasible. State and Local Engagement: At the outset, AHLA’s first priority will be to get the job done in outstanding major metro markets that we have previously identified as critical: Los Angeles, San Francisco, Boston, Washington D.C. and Miami. Further, while we will be encouraging state lodging associations to push legislation at the state level across the country, our targeted efforts, and greatest resource focus, will be on states and localities where we believe the right, political conditions exist for us to push legislation across the finish line and that could be considered precedent setting. Today, these state target include (but are not limited to): Maryland, Michigan, Ohio, Colorado, Louisiana, Indiana, Hawaii, Florida, Massachusetts, New York State, Virginia, and West Virginia. In contrast, in certain states, primarily those with Republican legislative majorities, AHLA will be focused on stopping Airbnb’s efforts to pass statewide preemption language that would prohibit local municipalities from enforcing local zoning laws to restrict short-term rentals. Today, we believe these states are the most vulnerable to such legislation: Texas, Florida, Georgia, North Carolina, Utah, and Virginia. Given the massive resources of Airbnb and other short-term rental companies to invest in every state and local battle, AHLA will also be focused more broadly on monitoring legislative activity. Building on this year’s early warning system with the state lodging associations, we want to. make sure Airbnb doesn’t introduce harmful pre-emption bills or try and push tax collection only without our side mobilizing. With the state AGs, we will build on the foundation from this year where we educated multiple AGs about the impact of short-term rentals on tax revenues, affordable housing, discrimination, and public safety. We will aggressively push state AGs to investigate short-term rentals that are in violation of existing state law. Additionally, we will encourage them to become advocates with their legislatures to encourage enactment of new laws that will allow them to better enforce short-term rental activity in their states, as well as engaging them in the unfolding litigation landscape where possible. OEE esa wo2017 DISTRIBUTION STRATEGIC PLAN Objective: Underscore hotels as innovative and standing up for the consumer while pushing back against deceptive online marketing practices by OTAs and highlight OTAs lack of transparency. In order to accomplish these objectives, AHLA will focus on the following core areas: Engaging with the Federal Trade Commission (FTC), which is the federal agency charged with regulating these OTA and distribution issues; ‘© Advancing a public awareness campaign highlighting OTA search bias with both regulators, the media and the broader public; Building on 2016 efforts and getting Congress to act on the Stop Online Booking Scams Act; Driving action by State Attorneys Generals; and Promoting activities to showcase hotel industry innovation. Federal Trade Commission Engagement: With the extensive regulatory reach of the FTC and its impact on advertising and technology, broadening AHLA’s engagement with the agency on issues related to distribution is essential. Our 2017 agenda will include: ‘Identifying a Champion for Search Bias: AHLA will work to educate each Commissioner on this, topic, with the goal of at least one taking the lead, and culminating in an ask for a public workshop and industry guidance on the issue of biased algorithms in vertical search engines in the travel space. ‘© Educating New Administration Nominees: In addition to engaging in the nominations process for the two open Democratic seats, and the one open Republican seat, AHLA will work to ensure that the new Commissioners are educated on the industry's priorities and begin to build a long-term relationship with each one. ‘© Elevating Issue of OTA Service Fees: AHLA will continue to actively advocate with the FTC and Congress about misleading OTA service fees and the need for enforcement action. “Travel Bookings in the Age of Monopoly”: Beyond raising the issue of OTA search bias with the FTC, AHLA will execute a multi-faceted public affairs campaign to highlight the consumer impact in order to bring attention to the increased consolidation in the online booking space and explain our policy concerns to Congress. Our activities will include ‘* Academic Paper, “The True Cost of OTAs”: AHLA has engaged a Harvard Business School professor to pull back the curtain on the true cost of OTAs to the consumer and businesses, with a particular emphasis on search bias and its harms. This paper will be completed by the end of 2016, with a comprehensive press rollout planned for the beginning of 2017. This will be the cornerstone of our search bias activities, as it will include important data to share with regulators, the public, and the media on why this issue is important. The rollout will play off the Monopoly board game to better underscore that the individual companies are really owned only by two major players. This tactic will resonate more effectively with press and the public and will be bolstered by a consumer poll showing confusion when it comes to search bias and consolidation. AHLA will also conduct consumer focus groups to add another data point highlighting the consumer cost and confusion resulting from search bias. © Capitol Hill Panel: Using the academic paper as the hook, AHLA will convene a panel for Congressional staffers so they can better understand how online travel search is biased in this BRE easeaage of “Monopoly.” The theme of the event would also be driven by the easy-to-understand board game. AHLA will reach out to other industry suppliers as appropriate to join the panel. * Think Tank Engagement: There are influential think-tanks on the progressive side who have major concerns with the concentration of market power by major online companies like OTAS. AHLA will engage with them to share the academic paper, with the goal to get them involved and augment the message with their own analysis. Congressional Action on the Stop Online Booking Scams Act: Building on the significant work accomplished in 2016, where both the House and Senate introduced legislation to protect consumers from rogue, misleading third-party websites, AHLA will focus on bicameral introduction of new legislation in early 2017. Re-introduction will drive a renewed focus by Congress, regulators, and the media on the need to take action to stop these scam websites. AHLA will work to have next year’s legislation heard by a Congressional committee of jurisdiction, and also put renewed efforts into identifying victims, as this is important to getting the public’s attention. AAs part of this work, AHLA will also identify both offensive and defensive opportunities in the appropriations process to highlight our distribution concerns, both broadly, and with scam websites. Given the high bar for passing authorization legislation, the appropriations process is an important, alternative vehicle to consider. Action by State Attorneys General: Given the successful education effort that AHLA began in 2016 to illustrate these consumer concerns to federal regulators, Congress, and the media, we will redouble our efforts to drive the State AGs to open investigations and enforce consumer deception laws on deceptive affiliates. Ideally, a State Attorney General Task Force would send letters and/or subpoenas across the country to bad acting affiliates, and possibly larger OTAs engaging in deceptive marketing, Hotels as Innovators: Hotels have an incredibly powerful story that includes our huge geographic and employee presence. Coupling that message with a strong voice on innovation policy —be it advertising in online mediums, implementing merchandizing using beacons or internet of things, or innovations being used by customers today — like apps or keyless entry, our advocacy efforts will be even more effective. In particular, we want to create an environment where the hotel industry is thought of inside the Beltway as an innovator with an important voice in technology policy discussions by the Administration, Congress, and fellow industry partners. With new technologies coming online impacting our industry, and the continued importance of distribution, augmenting AH&LA’s voice in technology policy is critical. To do that, AHLA will engage in activities that include the following: © Capitol Hill @ “HotelLab”: In collaboration with AHLA member companies, we will plan “field trips” to company innovation labs for Capitol Hill staffers, in order to showcase the technology and innovation minded-thinking of the hotel industry. ‘* Engagement in Technology Forums: AHLA will look for opportunities, such as technology focused events and panels, where we can tell the story of the hotel industry’s commitment to innovation, either with physical displays, hotel industry CEO involvement, or other means. ‘© Paid Social Media Campaign: AHLA will launch a Hill and policy-maker targeted digital messaging campaign highlighting the role of AHLA members in pushing consumer innovation in travel as a high-impact way to change the equation and cachet of the hotel industry. ‘* Allactivities will include a significant PR and press component to attract media and consumer attention to the innovation in our industry. 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