Dear Readers,
It is conventional wisdom that economies worldwide have become overrun with so-called “junk fees.” This term classically refers to unexpected charges (often hidden in the fine print) that a lender imposes at the closing of a mortgage. Increasingly, however, it has come to refer to fees in various other products and services, including credit card late fees, bank overdraft fees, excessive event fees, airline family ticketing fees, early termination fees for telecom or TV services, hidden hotel booking fees, and surprise resort fees, to name but a few.
The issue has entered the limelight again of late, due in large part to U.S. President Biden’s recent initiative to eliminate them for consumers, as again highlighted in his latest State of the Union address. The articles in this Chronicle address some of the antitrust (and other policy) implications of the war against junk fees as it plays out in the U.S. and worldwide. Nobody believes that junk fees can be eliminated forever, but lessons can be learned from past and ongoing initiatives by both consumer groups and policymakers to at least mitigate their impact and reduce the possibility (and incentives) for service providers to attempt to impose them. On the other hand, dissenting voices note that some fees commonly categorized as “junk” reflect legitimate forms of pricing that allow for greater consumer choice by enabling them to opt in or out of certain aspects of products or services that they may not wish to purchase.
Employing the colorful metaphor of “Junkyard Dogs,” Howard Beales & Todd Zywicki open this Chronicle by highlighting recent efforts by the U.S. Consumer Financial Protection Bureau (“CFPB”), the Federal Trade Commission (“FTC”), the Department of Transportation (“DoT”), and the Federal Communications Commission (“FCC”), the latter of which notably has proposed “broadband nutrition label” requiring various disclosures about broadband pricing. So, which fees are in fact “junk?” The current definition focuses on the “purpose” of the fee, defining as “junk” fees those that are “designed to either confuse or deceive consumers or to take advantage of lock-in or other forms of situational market power.” The question is where to draw the line between legitimate charges for extra services and those that simply take advantage of a consumer’s naïveté. This and other questions will be key in the debates to come.
Appropriately enough, Donnelly McDowell & Andrew Stivers ask the foundational question of what regulators really mean when they refer to “junk fees” and whether they as bad as they sound? Their article provides an overview of the FTC’s and CFPB’s efforts to regulate junk fees and the substantive and procedural requirements that they need to meet to do so under their respective statutory authorities. It also considers the potential economic consequences of a far-reaching regulation that would significantly curtail the use of fees. The authors argue that prohibiting fees altogether may seem popular in the abstract, the real-life consequences of doing so may be less beneficial for the typical consumer, particularly when the fee is conditioned on some consumer activity that is avoidable.
Taking a similarly contemporary perspective, Harold Feld picks up on the Biden Administration’s efforts, in both an Executive Order and the State of the Union address, to eliminate junk fees. The Biden Administration has singled out cable and internet services as an industry that uses junk fees and has called on both Congress and the FCC to act. Even prior to this, Congress attempted to address the cable and broadband industry through the Television Viewer Protection Act of 2019 (“TVPA”). This legislation requires providers to give consumers the total price, inclusive of all fees, for a subscription to cable and/or broadband services at the point of sale and prohibits charging equipment fees for internet service where the customer provides their own. However, the author argues that experience shows that neither the TVPA nor competition from streaming services has reduced the use of junk fees by cable providers.
Taking a satellite view, Ed Mierzwinski places the issue in a broader context, noting how the fight over junk fees has escalated in the last few years. Corporate efforts to maximize revenue by hiding price increases have drawn opposition from both the oldest consumer agencies – the FTC – and the newest – the CFPB, which was established in 2010 following the 2008 economic crisis. The author provides a review of junk fee flashpoints from a consumer advocacy perspective, with an emphasis on the agencies’ legal defenses against them. As the author notes, laws and rules often grow out of patterns and practices of earlier unfair or deceptive actions.
By contrast, Sean Heather & Curtis Dubay underline that decades of economic study and experience confirm that market pricing is a pillar of a functioning free market. In their view, the Federal Trade Commission’s “Trade Regulation Rule on Unfair or Deceptive Fees” would risk imposing an economy-wide rule that would unduly burden business, confuse consumers, reduce product offerings, and ultimately raise prices for many consumers by forcing them to pay for services that they neither want nor need.
However current trends culminate, it is clear that the debate will be fascinating. In a sense, this is a game of three-dimensional chess, involving shifts in corporate, consumer, and regulatory approaches. How the game will evolve is anyone’s guess, but it is clear that more eyes than ever are observing it keenly.
As always, many thanks to our great panel of authors.
Sincerely,
CPI Team
