In his State of the Union address this week, President Joe Biden claimed that banks, airlines, and other service providers "are playing for suckers" by the American people.
According to him, so-called "junk fees" are severely harming families' financial situations and their budgets.
In an effort to increase competition in the US economy, his administration wants to take a tough stance against these accusations.
Consumer advocacy groups assert that businesses could simply raise prices to make up for the lost revenue even if such fees were eliminated.
What are junk fees, then, and how does the US government intend to do away with them?
Junk fees are unforeseen and hidden costs that are frequently not stated upfront or in the listing price of a transaction but are added on at the time of payment.
The Biden White House asserts that these four categories best describe this practice.
- "Compulsory fees" that mask the true cost a seller is charging, like the service charges tacked on to concert tickets.
- unexpected "surprise fees," such as the family seating fees levied by airlines.
- Overly high bank overdraft fees are an example of "predatory fees" that prey on consumers who are weak financially or who are committed to a service.
- "Fraudulent fees" are charges that a seller blatantly misrepresents, such as "no fee" bank accounts that actually tack on extra fees.
According to a Consumer Reports survey conducted in 2019, at least 85% of Americans have dealt with such fees, which can result in price increases that are significantly higher than what a customer had anticipated paying.
The White House claims that these fee structures unfairly disadvantage small and medium-sized businesses as well as low-income households and people of color.
The president is urging Congress to enact a law known as the "Junk Free Prevention Act" that would specifically lower or do away with four different types of junk fees:
- Online ticket sales for sporting events, concerts, and other entertainment have service fees, processing fees, and other added costs.
- Family seating booking fees on airlines.
- Early termination fees for wireless, cable, and mobile phone services.
- Charged at the conclusion of online hotel reservations are resort fees or destination fees.
Junk fees might not be important to the very wealthy, but they are important to the majority of people, Mr. Biden said on Tuesday. They total several hundred dollars each month.
"I am aware of how infuriating it is when a business overcharges you and gets away with it. not any longer.
However, with the two major parties each controlling a portion of Congress, passing such legislation seems unlikely.
Over the past two years, at least three federal agencies have also made progress toward lowering junk fees and enhancing transparency.
Included in this is the Consumer Financial Protection Bureau, which has strengthened its oversight of unexpected overdraft and depositor fees levied by banks. The action has been praised by the Center for Responsible Lending as "a big step" in highlighting the negative effects of fees that "wreak havoc on household budgets.".
A number of controversies involving the sale of concert and airline tickets have led to the expanding crackdown.
Most notably, Ticketmaster attracted the wrath of Taylor Swift supporters after the chaotic ticket sales for her upcoming US tour late last year, when high demand for tickets resulted in widespread site disruptions and the early cancellation of sales.
Consumer rights advocates claim that Ticketmaster, which holds a 70% share of the market for live event venues and ticketing, uses this market dominance to drive up ticket prices unnecessarily through fees and service charges.
Federal Trade Commission Chair Lina Khan stated in October that "no-one has ever felt that a "convenience fee" was convenient.". Companies should compete to offer the best quality at the best price, not to see who can charge customers the most additional costs.
Ms. Khan's organization has been examining whether it needs to regulate the spread of junk fees under the Biden administration in order to better protect consumers. More than 12,000 Americans have already responded to the request for public comment that is currently being made.
One person asked, "Do we need any more proof than the Taylor Swift scandal?".
Another person wrote: "My request is that if services like Ticketmaster must charge service fees, they be included in the primary advertised cost.
Though not everyone is enthusiastic.
The Credit Union National Association, a trade organization for the credit union sector, is led by Jim Nussle, president and chief executive officer. "The president's use of the term 'junk fee' is overly broad," Nussle said.
Instead, he argued for strengthening bank overdraft protections, which he claimed are only provided as an opt-in service and serve as "a safety net" for low- and middle-income customers. Bank junk fees are a concern for US regulators.
"If overdraft protection is not available, people are more likely to turn to predatory lenders, which hurts the very people the administration is trying to assist.
Mr. Biden's "non-serious proposals" are comparable to "waving a red flag at the populist public," according to Douglas Holtz-Eakin, president of the conservative American Action Forum think tank, who spoke to the BBC.
The things they are calling "junk fees" have been approved, the speaker continued, by the regulators Biden appointed.
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