How ‘Junk’ Fees Secretly Invaded The U.S. Economy (And How Pres. Biden Wants To Stop Them)

Nearly $65 billion. That's how much money is lost to this deceptive American practice. Junk fees. We're tired of being played for suckers. It really seems like companies have become addicted to junk fees and it's making companies billions of dollars richer across industries, spanning banking and telecom to entertainment and hospitality. I stayed at a hotel. I asked, Are there any extra fees? They said no. The bill on the last night we were charged a $40 a night amenity fee. But even crazier. A $1 mandatory charity donation. I looked up the charity. It's a charity that goes back to the hotel. These fees are more than just annoying. The White House says they weaken market competition, raise costs and ultimately drain the wallets of Americans. The very entity that's creating these fees are the ones telling you what we have to charge them. Their investors and shareholders really like it. It's another way to pull in more revenue without really competing unless we do something about it is just a race to the bottom. Some changes are happening, but the question remains whether any of the new policies and regulatory oversight will actually be enough to squash junk fees once and for all. Junk fees are basically an additional cost that has little to no added value. It's a junk fee. You know, junk fees are fees that sometimes provide no service whatsoever and are not subject to the normal forces of competition. There are so many different kinds of these hidden fees. So let's categorize some of the biggest offenders into three different buckets. Bucket number one, banking fees like overdraft charges, late fees or fees to pay a bill or even account maintenance fees that you might get hit with after easily signing up for a new bank account. A charge for using that service every year. We could even count student loans in this bucket. Just before the pandemic, we found that banks charged about $15.5 billion in overdraft fees in just one year. And many of those fees were ones that actually could not have been avoided. It isn't just unfair. In many cases, it's illegal. And banks are cashing in. Fees worth nearly $24 billion were charged by card issuers in 2019, and most of that $14 billion came from late fees alone. We estimate that the credit card industry levies about $120 billion in fees and interest each year, and that number might be even going up given the rise in interest rates. Bucket number two fun fees or the fees that you might incur when you're hopefully doing something fun like buying a concert ticket, booking a flight or a hotel, for example, Resort fees might be added for your use of amenities during your stay, even if you're not using the gym or the pool. And even if it's not a resort. Junk hotel fees and these ancillary fees at hotels bring in about $3 billion a year for the hotel industry. Waikiki has them. And Detroit, which is crazy. Lauren Wolfe founded Kill Resort Fees in 2016 after a vacation in Florida. Even though my receipt said paid in full, I couldn't get the key to the room unless I paid an extra $20 in the name of a resort fee. And so I started the website. Hotel and resort fees can be anywhere from $20 to $70 per night. Many sites don't display these extra costs in the advertised price, so people can't comparison shop. The same thing happens when you buy a plane ticket. A lot of times people don't realize they're booking the lowest economy fare that doesn't allow them to bring a suitcase. The same goes for entertainment fees. It's when you try to buy a ticket to go see Taylor Swift. No price gouging. Off the record, my wife calls me a Gen X swifty. Are you sure you want that off the record? I do not mind. I'm a very comfortable place in my life. I love Taylor Swift. For your band to make six bucks out of a $42 ticket price. Yeah, that doesn't feel great. Does it strike me... Government Accountability Office found that on average, ticketing companies charged fees worth about 27% of the tickets face value. And then bucket number three, home fees from buying a house to having a car and getting Internet at home. This includes closing costs and other fees that come up when you're trying to buy a home, like extra fees for document preparation or title insurance. Then there's your cable and Internet junk fees. A multi dollars in revenue for the cable companies to keep breaking out these fees. And they're mandatory, Including Cnbc's own parent company, Comcast. And cable Internet and cell phone companies can charge you $200 or more if you decide to switch to another provider. Give me a break. It can also be a violation of marketing. If you look at the fine print there, like to maintain our high speed fiber network and you're like, okay, so you have to charge me an extra seven bucks for the Internet infrastructure fee. But what about the $75 I've already paid you? What's that paying? Today's actions are going to save consumers more than $1 billion each year, and that's a lot of money. President Biden has been asking agencies to tackle this problem. And regulators have the ability to address junk fees today using existing authorities. It's really an all of government effort. The FTC has a law prohibiting unfair or deceptive practices. And so we already have the ability to bring lawsuits against junk fees. We can make it even clearer for companies and we can also strengthen our ability to impose civil penalties on companies that are imposing junk fees and also get back money for consumers. The CFPB is targeting overdraft and bounced check fees and issued further guidance for banning surprise overdraft charges. The White House estimates these moves alone will reduce fees by more than $1 billion each year. We anticipate that the amount of annual overdraft fees has declined by billions of dollars per year. We have done major enforcement actions when it comes to junk fees against Wells Fargo, Regions Bank and others. The agency also wants to change credit card late fees to $8. It could save Americans as much as $9 Billion a year in late fees. Now, we don't think credit card companies should build their business model based on these fees. And the Department of Transportation wants to require companies to show the full price of a plane ticket at booking baggage fees and all. I know how unfair it feels when a company overcharges you and gets away with it. Not anymore. We've written a bill to stop it all. President Biden still wants Congress to pass the Junk Fee Prevention Act in hopes of tackling four more hidden charges. One to ban airline fees for families to sit with small children. Baggage fees are bad enough. Airlines can't treat your child like a piece of baggage. Too excessive concert event and entertainment fees. Three Crack down on early termination fees for canceling telecom services and for getting rid of the surprise vacation charges like resort and destination fees. You know, we've met with the FTC and we've seen these fees get a bit more transparent, though I hesitate to say that transparency here is going to solve anything. Part of the problem is drawing the line between what is truly junk and what charges are warranted. One dissenting FTC commissioner Christine Wilson, called junk fees flawed assumptions and vague definitions. The Peterson Institute for International Economics argues that the projected savings is speculative arithmetic that at best spotlights $27 billion in junk fees. And those figures may not accurately represent how those junk fees, if they're eliminated, how they can be rolled into that upfront cost. They also estimate that the real savings of junk fees could work out to be $100 average annually for each 131 million American households, which would be much less than President Biden's estimate of hundreds of dollars per month per American. They add up to hundreds of dollars a month. Dissenting FTC Commissioner Wilson poses the question of whether government mandated all in pricing will actually result in less price competition or whether it could make consumers pay for goods and services they may not want or need. What would your response be to someone who thinks that the junk fee is something that is beneficial? I think the first thing is you should give consumers a choice. Oftentimes, these types of junk fees are tacked on in a way where it's all or nothing. And so there's no way for the consumer to actually buy the product or service without being subject to the junk fee in the first place. I think if these fees are being included, you really have to make the case to the consumer or to the member of the public about what they're really buying through paying this fee in the first place. Some House Republicans point to how late fees are used to offset costs for credit and financial products, arguing that the CFPB's proposal to crack down on credit card late fees would result in negative consequences because credit providers like banks would be forced to increase interest rates for all borrowers in order to offset that loss income that could lead banks to restrict credit to lower income customers who are more likely to overdraw their accounts in the first place. However, PIIE believes that the Junk Fee Prevention Act is likely not to pass through the House of Representatives Republican majority. We're now considering whether to introduce a rule that would apply across the economy and put companies on notice that these types of junk fees can be illegal. We also more generally are inviting comment right now on whether the FTC should do a rule that addresses junk fees more broadly. So this would not just be focused on a particular sector, but really zooming out and looking across the board. Some practices are shifting. A lot of banks are already starting to eliminate these fees. 15 of the 20 largest banks agreed to stop charging bounced check fees, and the Department of Transportation dashboard resulted in more guarantees of hotels and meals for passengers that experienced delays or cancellations at the fault of the airlines, none of which was guaranteed before. I think President Biden has recognized that this is an issue that impacts everyday Americans, that this isn't just a travel issue of people going to the fanciest hotels, that this impacts hotels that are charging $40 a night. It impacts hotel workers. It impacts how taxes are collected, just these sorts of junk fees, just hotel junk fees are really impacting our economy at a time when we need more travel and tourism. Telecom is also prepping for new regulations. The Federal Communications Commission will have new rules for grocery store like nutrition labels starting in 2024. Broadband providers must relay details about prices, speeds, data allowances and any and all added fees, but it's likely that more solutions will be needed. There's currently a 50 attorneys general investigation into hotel resort fees. The Nebraska attorney general has sued Hilton. The D.C. attorney general has sued Marriott, Pennsylvania just came to an agreement with Marriott also about hotel resort fees. The fight against these fees is likely far from over as more congressional hearings are down the road. There's broad agreement that this fee creep across the economy has to stop. So if the FTC did end up finalizing a rule that either prohibited junk fees or added new obligations on companies when they're adding fees, it would really mean that if companies violate the rule, the FTC will be able to charge them civil penalties for fees that can really pile up on these companies. It would also mean that the FTC would be able to actually get money back for consumers. So the junk fees that consumers were paying would be able to get that money back in their pockets.

Channel: CNBC

Views: 783,021

Keywords: junk, fees, fee, extra, charges, cost, hidden, sneaky, resort, hotel, overdraft, credit card, airlines, baggage, tickets, service, convenience, maintenance, cfpb, consumer, financial, protection, bureau, ftc, flights, Ticketmaster, Lina, khan, politicians, republicans, democrats, congress, prevention, act, proposal, fines, violation, deception, Comcast, internet, cable, telecom, car, mortgage, Biden, savings, billion, money, finance, banks, banking, interest rates, inflation, interest, spending, policy, companies, employers, prices, live nation

Id: 0onrjSE7Ntw

Length: 12min 48sec (768 seconds)

Published: Tue Apr 25 2023