Can Biden win his new war on ‘junk fees’?
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Junk fees — the surprise charges that are often tacked on by banks, airlines, hotels and all manner of online retailers — drive consumers crazy. In an appeal meant to burnish a likely reelection campaign, President Biden said he wants to eliminate them.
“I know how unfair it feels when a company overcharges you and gets away with it,” he said during his address earlier this month. “Americans are tired of being played for suckers.”
Biden isn’t looking to end all extra charges that businesses tack on. Instead, he’s targeting fees he argues are designed to of consumers, including ones that hide the full price of a purchase, come as a surprise during payment, exploit consumers who have no alternatives and charge amounts that “far exceed the marginal cost of the service they purport to cover.”
During his address, Biden specifically called out resort fees at hotels, cancellation fees charged by cable and internet companies, extra charges airlines impose on families who want to be seated together, and service fees that increase the cost of concert and sporting event tickets. He also urged Congress to pass a to address these and other issues. Several federal agencies have also explored using their power to curb junk fees in sectors like banking and air travel.
Why there’s debate
Many commentators have praised Biden for trying to combat these fees. Even though few would argue that surprise fees are a top issue for Washington, the president’s backers say these extra charges are that they do create a significant burden, especially for . Some economists also say junk fees warp the free market by allowing businesses to hide the true cost of their services.
But, many conservatives say, as with voters, attacking junk fees will ultimately harm consumers. They make the case that forcing companies to offer a single, up-front cost will mean people will end up paying for services they won’t end up using. Others say businesses will find ways to make up for lost revenue from fees, which could lead banks to increase credit card interest rates or make them less likely to approve low-income customers for credit. A number of the president’s critics also argue that he should be spending his time on more important issues.
Beyond the pros and cons of going after junk fees, there’s also the question of whether Biden can actually do much of anything on this issue. At the moment, the Junk Fee Prevention Act is just a framework for a potential bill, rather than concrete legislation that can be considered by Congress. Once the bill is written, it may face tough odds of passing, with Republicans in command of the House of Representatives. There may also be significant legal hurdles that prevent federal agencies from enacting their proposed fee reduction rules.
The campaign to end junk fees is long overdue
“If nothing is done, the junk-fee problem will continue to get worse. Junk fees are a consequence of the rise of online retailing. Web browsing made pricing more transparent than ever before, and businesses felt threatened by that. … Yes, competition is what makes capitalism work, as Adam Smith pointed out three centuries ago. But don’t kid yourself; businesses hate competition because it makes life difficult for them. They’ll do anything they can to prevent it.” — Timothy Noah,
Unpopular as they are, these fees actually benefit consumers — especially the poor
“Businesses that want to stay in business don’t add fees for worthless services — they let customers pay more for services that are valuable to them. … Issuing blanket bans on fees and unbundled prices will make markets less competitive, not more. It will also result in higher prices or fewer services for lower-income Americans. Too bad citizens can’t sue the government for deceptive advertising.” — Editorial,
It won’t solve all the economy’s problems, but combating junk fees is still a worthwhile goal
“How much of a difference Biden’s actions will make remains unclear. But the administration’s effort is based on an idea supported by a lot of evidence: The free market doesn’t solve all problems. … Sneaky fees turn out to be a small but telling example of why the modern economy isn’t working so well for many Americans.” — David Leonhardt,
Biden’s junk fee crusade is nothing more than a political performance
“At the moment, Democrats can't give the left the big new entitlement programs that they want (thank goodness). So Biden talking up a ton of tiny changes he's making to address small inconveniences and financial burdens is a way to signal that he's fighting for poor and middle-class Americans without actually risking very much.” — Elizabeth Nolan Brown,
The White House is wisely targeting the most egregious abuses
“They are specifically targeting fees that are pure deception (hotels), an area where there is a strong research base that regulation is welfare-enhancing (credit cards), and an area where imposing a cross-subsidy is broadly justified (family air travel). This is smart politics and smart policy.” — Matthew Yglesias,
Calling for an end to junk fees is easy. Actually making it happen is much more difficult.
“This Junk Fee Prevention Act is not an actual thing that exists at the moment. If and when it does (which, you know, we have a Congress that often doesn’t do much), it’s not entirely clear how implementation would work. Which resort fees are unfair and which are for a legitimate thing? Is there a way to opt out of whatever amenities they correspond to? What would travel website designs need to look like? What counts as a fair rate for quitting your phone plan early, and how much exactly does that cost the company dealing with it?” — Emily Stewart,
Ending junk fees may do good in some industries, but be harmful in others
“The economics of whether clampdowns on fees lead to large savings for consumers is somewhat subtle and depends on the context. In highly competitive markets where firms earn razor-thin margins, firms will need to raise their upfront prices to break even, so we’re likely to see lower junk fees offset by higher upfront costs. But in less competitive markets where firms have pricing power, it is more plausible that firms will not raise upfront prices enough to offset any reduction in fee revenue, saving consumers money on net.” — Neale Mahoney,
The president should be spending his time on more important issues
“Free markets work. I don’t think eliminating ‘resort fees’ should be one of the highest-priority items on Biden’s agenda. Apparently, some hotels add extra, hidden fees to the bill to cover the cost of keeping up the amenities. But this issue shouldn’t be occupying the brain cells of the leader of the free world!” — Matthew Kroenig,
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Photo illustration: Jack Forbes/Yahoo News; photos: Al Drago/Bloomberg via Getty Images, Getty Images (2)