On Wednesday, the White House declared its intent to aggressively tackle the widespread issue of “junk fees” associated with goods and services, amounting to tens of billions of dollars. This move is facilitated through collaboration with two paramount consumer-protection agencies: the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).
The Root of the Problem
Junk fees, often hidden or misleading, have remained a prevalent concern, with consumers frequently caught off guard by unexpected costs at checkout. These surcharges not only impact the consumer’s pocketbook but also strain their time, resulting in over 50 million hours annually spent searching for total prices in certain industries. The FTC projects a potential saving of over $10 billion for consumers in the next decade if these fees are comprehensively addressed.
New Policy Proposals
- FTC’s Proposed Rule
The FTC, under Chair Lina Khan, is introducing a rule proposal aiming to ban businesses from integrating hidden or misleading fees within a transaction. Key points of this proposal include:
- Mandating businesses to present the full amount and purpose of surcharges upfront.
- Prohibiting fees’ concealment within transactions.
- Securing refunds for consumers if businesses fail to comply with these stipulations. Khan emphasizes this rule’s potential in not only returning money to consumers but also reinstating justice and fairness in the market.
- CFPB’s Action Against Big Banks
The CFPB, guided by Director Rohit Chopra, is focusing on major banks, underscoring consumers’ rights to obtain complete, accurate, and free account information without being subject to massive fees or inefficient customer service loops. This action is grounded in a federal law from 2010. Significant milestones include: – The recent fining of Wells Fargo, Bank of America, and Regions Bank due to unnecessary overdraft fees or overcharges. – Plans to propose a rule requiring financial institutions to facilitate the smooth transfer of customers’ transaction data to competitors, challenging big banks’ monopolies.
The Bigger Picture
These initiatives align with the Biden administration’s broader objective to stimulate competition across industries. President Joe Biden’s 2022 executive order aimed at promoting economic competition marks the beginning of this endeavor. The federal Office of Information and Regulatory Affairs, in collaboration with the NEC and the Council of Economic Advisers, will publish further guidance to aid federal agencies in establishing this new standard.
Previous Actions and Future Steps
Both the FTC and CFPB have previously taken steps to combat the menace of junk fees. Earlier this year, the CFPB proposed a rule on excessive credit card fees, and the FTC initiated efforts against unfair practices concerning ticketing and other fees in 2022.
The next phase involves a 60-day public comment period post the rule’s publication in the Federal Register, followed by the commission’s consideration of a final rule. Though the timeframe for the rule’s finalization remains undetermined, officials emphasize that companies should proactively ensure compliance.
The Wider Economic Implications
Junk fees, though seemingly trivial on individual transactions, accumulate over time and across the economy. This not only places an undue burden on consumers but also hampers healthy economic competition. Transparent pricing allows businesses to compete on the quality of service and product offerings, fostering innovation and encouraging enterprises to prioritize consumer interests.
Launched amid a challenging economic landscape, these initiatives are expected to help restore consumer confidence and boost spending. As National Economic Council Director Lael Brainard eloquently put it, “For President Biden, kitchen table economics is at the heart of growing the economy from the middle out and bottom up.” This statement resonates with many American families who must strategize monthly about which bills to prioritize due to limited finances.
As part of his economic agenda, “Bidenomics,” President Biden continues to prioritize the everyday costs impacting Americans. By spotlighting efforts to curb junk fees in various sectors, from air travel to health care, the administration seeks to resonate with voters and reinforce its commitment to economic relief and transparency. This renewed focus on “kitchen table economics” demonstrates the administration’s commitment to addressing issues that have tangible impacts on families’ day-to-day finances.