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Jemma CrewBusiness reporter
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The owner of the AA and BSM driving schools must pay refunds to more than 80,000 learners after failing to disclose the total price for lessons upfront when booking online, following an investigation by the competition watchdog.
Affected customers will share £760,000, making the average payout around £9, the Competition and Markets Authority (CMA) said.
Automobile Association Developments has also been fined £4.2m for breaking consumer law.
A spokesperson for AA and BSM driving schools said it was "disappointed with the outcome of the investigation" but "cooperated fully" throughout.
They said: "Although the £3 booking fee was made clear to customers prior to their purchase, we acknowledge it should have also been displayed at the start of the online booking journey.
"Having listened to the regulator, we made immediate changes to our website to make the £3 booking fee more prominent. We are now refunding all relevant customers."
Customers will receive a full refund of the booking fees they paid. They do not need to do anything to get their refund – the AA Driving School or BSM Driving School will write to individuals.
The CMA's investigation found that people booking lessons online between April and December last year were initially shown prices that did not include a mandatory booking fee.
It was only shown at the checkout stage, after new customers had gone through selecting lessons, choosing times and entering their personal details.
The practice is known as "drip pricing" which is illegal and can mislead customers into choosing a service or product for a low price, only for it to be increased later.
CMA chief executive Sarah Cardell, said: "If a fee is mandatory, the law is clear: it must be included in the price from the very start – not added at checkout – so consumers always know what they need to pay."
She added: "At a time when people are watching every pound, dripped fees can tip the balance."
Business Secretary Peter Kyle said consumers "should never be caught out by unclear pricing".
He said: "I welcome the CMA's tough action today to enforce the law and make sure businesses play fair."
Since April last year, the CMA has been carrying out a major review to see if hundreds of businesses are complying with price transparency rules.
In November, it said it was writing to 100 businesses outlining concerns about their use of extra fees and online sales tactics.
It also launched an investigation into eight businesses including AA Driving School and BSM Driving School, under the new Digital Markets, Competition and Consumers Act 2024.
This gave the watchdog new powers to decide if consumer laws had been broken rather than having to go through the courts. The CMA's action against the AA is the the first penalty it has imposed under the new enforcement powers.
Katrina Anderson, principal associate at national law firm, Mills & Reeve, said the CMA's strengthened powers are "materially raising the stakes for businesses that fall short of consumer law".
She added: "At a time when trust and loyalty are central to commercial growth, businesses cannot afford to get this wrong.
"The consequences go well beyond fines and customer refunds; the reputational damage can be just as significant."
Rocio Concha, director of policy and advocacy at Which?, which has campaigned against drip pricing, said: "This must be the start of a wider crackdown, and the regulator should continue to use its new powers to send a clear message to businesses that they will not get away with using illegal pricing tactics."
