President Joe Biden devoted a significant amount of airtime during his State of the Union address on Tuesday toward the inconvenience that “junk fees” cause to the typical consumer, suggesting that federal action should be taken to eliminate the charges.
Junk fees, the hidden charges that are not included in the ticket price for a transaction but appear when a consumer eventually pays for the product or service, are common in sectors such as air travel, personal finance, banking, and hospitality. Biden called upon lawmakers to create a Junk Fee Prevention Act that would crack down on concert and sporting ticket fees, phone and internet early termination fees, resort and destination fees, and certain airline fees.
“Junk fees may not matter to the very wealthy, but they matter to most folks in homes like the one I grew up in. They add up to hundreds of dollars a month,” Biden commented in the address. “They make it harder for you to pay the bills or afford that family trip. I know how unfair it feels when a company overcharges you and gets away with it. Not anymore.”
Several agencies have already examined the phenomenon and considered rules that would seek to reduce junk fees. Federal Trade Commission officials requested public comment at the end of last year on new regulations that would ban “unnecessary charges for worthless, free, or fake products or services.” For instance, Americans paid some $15 billion per year in bank overdraft fees as of 2019, according to a study from the Consumer Financial Protection Bureau.
Despite the headaches they pose to consumers, nationwide regulations seeking to eliminate junk fees could prove ineffective and imprudent.
“The federal government should not be concerned with punishing companies for fees that someone doesn’t like,” Norbert Michel, vice president and director of the Cato Institute’s Center for Monetary and Financial Alternatives, told The Daily Wire. “People can refuse to pay the fee, complain, and go somewhere else. If large numbers of customers take any of those actions, chances are the company will adjust its policy.”
The United Kingdom’s Financial Conduct Authority, for instance, implemented new rules for overdraft fees between November 2019 and April 2020. Even as banks saw overdraft revenues decline between one-quarter and one-third, the agency admitted that “many of the banks’ new rates were similar” after the new restrictions were enacted; many of the financial institutions, however, had created a range of pricing structures from which their users could choose.
Michel added that consumers and businesses are more likely to find a solution without interference from regulators. “It makes little sense for the federal government to try to control fees, just as it makes it little sense for the federal government to try to control prices,” he said.
Previous calls for action against junk fees from senior White House officials have said that “lower income households and people of color” are more severely impacted by the charges. One analysis from National Economic Council Director Brian Deese cited a study from the Consumer Financial Protection Bureau noting that consumers in low-income and majority-black neighborhoods “paid disproportionately more in credit card late fees.” Another study referenced by the official said Hispanic car buyers paid more in add-on costs than their counterparts.
Michel observed that disparity does not necessarily imply discrimination. “The fact that certain consumers pay more in late fees does not, by itself, mean that anything nefarious has occurred,” he continued.