Jhey are one of the scourges of modern life: “junk fees”. And they get paid for a huge list of things from terminating mobile phone contracts early to checking baggage on a plane and getting an overdraft in a bank account. Worse still, many of these fees are hard to find or hidden until pay, and they have the greatest impact on the poor.
But Joe Biden — in a low-profile initiative — is seeking to tackle these hidden costs and has made eliminating them, or at least drastically reducing them, a pillar of his economic plans.
At a recent meeting of the White House Competition Council, the third of its kind since its inception in 2021, such additional fees across all sectors were high on the agenda.
“What we are talking about today is something that is straining families’ budgets: unnecessary hidden fees, known in the jargon as ‘junk fees’, are hitting families at a time when they cannot not afford it. They shouldn’t be paying it anyway, in my opinion – but at a time when they can’t afford it,” the US president said.
Attending the meeting was Rohit Chopra, the director of the Consumer Finance Protection Bureau (CFPB), a US government agency responsible for protecting consumers in the financial sector.
In an interview with the Guardian, the Biden appointee said his organization has already taken steps to eliminate these so-called “unwanted fees.”
“Unwanted fees are spreading throughout the economy. And a major place that Americans experience it is in their financial lives when dealing with their bank accounts and other loans. We’ve all started to hear the public talk about all the types of finance charges they’ve faced – and many people don’t even know if they’re even getting any service. They don’t understand how the price was set. And in many cases they don’t even want the so-called service that is provided,” he said.
Although the Biden administration doesn’t have the broad power to force a cell phone company to lower contract termination fees or prevent a Harry Styles fan from being charged a “convenience fee” by a concert tickets, it can direct federal departments and agencies to focus their efforts in the specific areas in which they operate.
Agencies like the CFPB have authority over banks, credit unions, loan servicers and debt collection agencies, where junk fees also predominate. Another federal entity, the Department of Transportation, led by Pete Buttigieg, is also clamping down on airline fees associated with seat selection, baggage and rebooking.
“We’ve already issued policies on a host of them. One is payment fees, where debt collectors charge you a fee to pay them. Then there are others that we have identified, [like] overdraft, but another fee is what’s called an ‘NSF fee’, or insufficient funds fee, and that’s where you’re charged when you don’t have enough money in your bank account.” , did he declare.
A report released by the CFPB estimates that $12 billion in credit card late fees are being charged. Chopra said the goal here is price transparency and healthy competition in the industry.
“What I want to see in the market are services at competitive prices. We want to make sure people are competing from the start, rather than imposing gotcha fees at the end. It creates a market where people can choose more wisely. And too often, across the economy, we see products and services being advertised as “free,” but there really are costs involved. »
High inflation and the inability to meet the cost of regular monthly payments such as utility bills and mortgages are top of mind for many Americans right now when the costs of things like food or driving a car increase. The Biden administration and Chopra believe eliminating many of these fees will alleviate some of the problems caused by inflation, especially as the country prepares for key midterm elections in November.
“I will also say that it’s really particularly important because people are dealing with increased costs. Overall, people are spending more of their income on housing. The cost of cars has increased due to the global shortage of chips. And, of course, we are dealing with inflation. But these are long-standing issues that [make] many people feel sick and tired.
This year, some banks have taken the initiative to remove NSF check and overdraft fees themselves after the CFPB published a report on banks’ reliance on these fees, which mainly penalize customers from low-income backgrounds. socio-economically disadvantaged. Soon after, Capital One, Citibank and others eliminated these fees. Capital One lost about $150 million in annual revenue because of this measure. Wells Fargo and Bank of America eliminated NSF fees, but maintain overdraft fees.
CFPB says Wells Fargo earned $1 billion while Bank of America raised over $800 million in overdraft and NSF revenue from January to September 2021. CFPB also orders Regions Bank to pay $191 million for “illegal overdraft charges”.
“I’m really encouraged that banks are starting to compete with each other, and not just looking to charge all the same high fees. And in many cases more people are wondering, I thought, but all this new technology was supposed to drive down costs. And why isn’t that reflected in these fields? »
But it’s not easy.
“The devil really is in the details. It’s not just the amount of fees. It’s also behind-the-scenes systems that kick in, bring it to people. I still think there’s more we need to look at, but I’m encouraged by the direction the industry is taking,” Chopra said.
But if companies get wind of a government crackdown on these hidden fees, won’t they just raise the price of goods and services overall?
Rafi Mohammed is an economist and pricing strategy consultant. He said that if it were forced to disclose prices in advance instead of offering goods and services a la carte, as in the case of airlines selling airplane seats or luggage separately, the policy of Biden could lead companies to raise prices overall.
Mohammed advocates getting rid of the inevitable hidden “gotcha” fees (convenience fees, for example) added at the end of a sale, but argued that they should be considered separate from separate prices for different products. Not everyone carries luggage when traveling, so why should they pay for those who do, he argues.
“Eliminating the so-called ‘junk’ fees mentioned by President Biden will drive prices up overall. Consumers will end up paying for extra features they don’t want and absorbing costs they aren’t responsible for.”
Chopra said that was not the case.
“We don’t see that. What we are seeing are the results of greater competition. We see people competing to reduce these fees and being more clear about the total cost. And a competitive market often results in more benefits for consumers. That’s what we hope to see.
“If the question is whether companies will pay unnecessary new fees? Of course, some will. But that doesn’t mean we shouldn’t really tackle illegal practices and not want to look for ways to make the market more competitive.