“…the Federal Trade Commission defines “junk fees” as “unfair or deceptive fees that are charged for goods or services that have little or no added value to the consumer, including goods or services that consumers would reasonably assume to be included within the overall advertised price; the term also encompasses ‘hidden fees,’ which are fees for goods or services that are deceptive or unfair, including because they are disclosed only at a later stage in the consumer’s purchasing process or not at all…” October 26, 2022 White House Announcement on targeting extraneous fees charged by financial institutions and other companies.

Two days ago, President Biden spoke about his latest initiative to eliminate, or at least make more transparent, the extra fees added to purchases of goods and services that ratchet up the cost for consumers, often known as “junk fees” or “hidden fees”. A few examples are the large hunks of money added to concert tickets, cable TV services, car purchasing or leasing, in addition to the usual suspects like bank overdraft or minimum balance fees.

But this is not a new topic for government regulators, it’s been task forced, studied and pondered for a number of years because it has a substantial impact on both the broader economy and individuals, particularly combined with today’s price increases.

I put together a few articles on this issue for this weekend’s reads so you can better understand what all the fuss is about.

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— Let’s start with the October 26 White House Briefing Room blog post mentioned above. It is extremely detailed and explains how these fees obscure the true price of a product or service and thus inhibit the free market. How can purchasers make an informed choice when prices either can’t be easily compared or take too much time and effort to figure out?

Take a look at the money being made (from you!) as a result of various junk fees and hidden fees among industries.

Credit card late payment fees: $12 billion in 2020 (CFPB estimate)

Bank overdraft/non-sufficient funds (NSF) fees: $15.5 billion in 2019 (CFPB estimate)

(NSF) fees: Hotel resort fees: $2.93 billion in 2018 (NYU estimate)

Airline baggage and change fees: $5.97 billion in 2021 (DOT statistics)

Cable hidden fees: $28 billion in 2019 (Consumer Reports estimate)

https://www.whitehouse.gov/briefing-room/blog/2022/10/26/the-presidents-initiative-on-junk-fees-and-related-pricing-practices/

— In a return to pre-revolutionary times (December 2016), at the end of President Obama’s term, take a look at this report by the National Economic Council which lays out the case against hidden/junk fees and how these added charges stifle marketplace competition.

Fair and competitive markets are the cornerstone of the American economy, and the process of competition benefits consumers, workers, entrepreneurs, and small businesses alike.1 Vigorous competition can keep prices low for consumers and also ignite innovation that yields product improvements and new inventions. Competition can also ensure that workers receive competitive wages and fair treatment.2 In contrast, in stagnant markets with weak competition, firms with market power can raise prices without improving their products; suppress wages, hurting workers; or exclude new competitors, squeezing out entrepreneurs and small businesses.

Even I can understand this: competition is a good thing under capitalism and ultimately benefits us, the consumers. The report generally says that our free and fair markets have become a tad less free and fair, and in addition to rigorously enforcing existing anti-trust laws, our government should also regulate more aggressively, particularly to control the extra fees forced on consumers. I recommend reading this report — it’s written in an easily accessible manner and logically explains why these junk fees should be curtailed.

https://obamawhitehouse.archives.gov/sites/whitehouse.gov/files/documents/hiddenfeesreport_12282016.pdf

— Fast forward a few years to 2019 with this article from Consumer Reports on how we consumers can protect ourselves from hidden fees.

The High Cost of Hidden Fees

For a typical American family, these fees can pose a financial strain, adding up to thousands of dollars a year in extra costs (see “A Year in Fees: One Family’s Story”). On a national level, data from a few industries alone show that add-on charges are siphoning billions of dollars from Americans’ wallets every year.

Don’t miss the “Year in Fees: One Family’s Story towards the end of the article.

https://www.consumerreports.org/fees-billing/protect-yourself-from-hidden-fees-a1096754265/

— And finally for this weekend’s light reading, the Consumer Financial Protection Bureau (CFPB) launched an “initiative” against junk fees tied to financial products early this year, and it asked for your input. Unfortunately, the rule making comment period has ended, but according to President Biden’s explanation just a few days ago, the CFPB has “Taken Action to Help Banks Avoid Illegal Junk Fees on Deposit Accounts” which targets “surprise” overdraft and deposit fees. I think the title of this CFPB press release is unfortunate — should the CFPB be in the business of “helping banks"? I’m worried…but it turns out the action taken is only guidance, not a regulation.

Let me know your thoughts on these type of fees. Have you noticed them? Are they hurting your bottom line? Should the CFPB finalize regulations eliminating these fees? Have at it in the Comment Section below.

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And before you go…

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