Banning Junk Fees Is an Anti-Monopoly Issue
Honest businesses shouldn't be harmed by deceptive competitors.
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Currently, 12 states across the country have active legislation to ban what are known as “junk fees” — those ubiquitous “service,” “processing,” and “convenience” fees that are tacked onto live events tickets, hotel rooms, rental cars, rental housing, gym memberships, storage units, and on and on, and that don’t correspond to any additional product or service.
In Virginia, Pennsylvania, and New York, bills have passed out of one legislative chamber, all on bipartisan votes. You can see the full list of active bills here. These efforts are happening alongside rule-making from federal agencies, including the Federal Trade Commission and Consumer Financial Protection Bureau, to eliminate junk fees where they have jurisdiction.
Not surprisingly, this policy is extremely popular with the public, consistently polling above 80 or even 90 percent. Just about everyone has paid one of these fees (if not many, many more), and they’re patently unfair, sprung on consumers at the last second when they’ve already sunk time and effort into choosing a product and navigating the purchasing process. They put shoppers in the unenviable position of sucking it up and paying the fee or starting all over again somewhere else — where they might wind up faced with the same fee, anyway. And they have even more consumer salience in an era during which inflation has been higher than normal and corporate profits have skyrocketed.
So banning junk fees is a consumer protection issue, undoubtedly. But it’s also something else important: An anti-monopoly issue.
How so? Well, the widespread adoption and abuse of junk fees harms businesses that want to engage in honest, transparent pricing practices, as those businesses appear artificially more expensive than competitors that backload their prices with junk fees. And many of the worst junk fee offenders are in consolidated markets where consumers have few options and tacit collusion across the industry is easier due to limited participation.
Overall, when it comes to junk fees, big, dominant businesses win, while smaller competitors suffer right alongside consumers. It’s the story of what’s happened across the American economy in recent decades, told one bogus processing fee at a time. (To be clear here, I mean monopoly in the “dominant player in a concentrated industry” sense, not the strict “there is only one company serving all comers” sense.)
As a group of 19 state attorney generals said in a comment on the FTC’s rule to ban junk fees, the rule “will help provide a level playing field for all businesses competing in their respective marketplaces. Businesses that have been truthful and straightforward about the total cost of their goods or services will not be put at a competitive disadvantage next to businesses who deceptively market their goods or services as being cheaper than they actually are.”
Indeed, it’s easy to imagine a scenario where one hotel charges $150 for a night, plus a $25 cleaning fee and a $25 resort fee that are not disclosed at the beginning of the transaction, for a total of $200. But that hotel would initially appear cheaper than a similar one that simply charged a rate of $175, with no mandatory fees.
Those junk fees, then, constitute cheating in the marketplace, anti-competitively making a product appear cheaper than it is, when the business selling it knows full-well the price is going to increase later on in the process. Eliminating that as a tactic benefits the business that was more transparent in the first place.
Not only will smaller, more local businesses benefit from their larger, dominant competitors being barred from using junk fees, but they’ll also benefit as purchasers, having more control and predictability when it comes to their own internal costs.
“There is little question that small businesses will benefit from enhanced competition with larger businesses that have historically and deceptively hidden their prices and fees through drip pricing. Small businesses will also benefit from the rule as consumers,” said 52 organizations, my own included, in a comment on the FTC proposed junk fee rule. “Small business owners also commented in the advance notice proceeding supporting the transparency requirements of rule and describing their inability to budget and plan for their own business.”
There is a tie-in to consolidation and mergers that I think is important. There aren’t hard data at which to point, but some of the most egregious junk fee offenders are in live events ticketing (especially Ticketmaster), hotels and resorts, food delivery apps, and car rentals — industries with few players and pricing practices that make tacit collusion on fees very easy.
That makes me think these practices are worse in more concentrated industries, or at the very least easier to start up and coordinate than in industries with more competition. It’s easier for the players in an oligopoly to wink and nod at each other in order to prevent undercutting on fees than it is in a sector with more players, only one of which would need to deviate to break up the cartel.
Essentially, firms with market power charge junk fees because they can: Consumers have nowhere else to go.
Now, before I hear it from some cranky lobbyist, I want to be clear about what efforts to ban junk fees will not do: They will not tell businesses what they can charge for their products. They will not prevent the offering of additional add-ons that consumers affirmatively opt into, such as parking at a hotel or better speakers in a truck.
They simply require that any mandatory fees the consumer can not avoid, no matter what they do, be baked into the initial price. If a hotel room is $150 for a night, plus a $25 cleaning fee and a $25 resort fee, it costs $200, which is the price the consumer must be shown at the beginning.
Seems fair, right? And that’s exactly the point: Banning junk fees will make pricing practices fair for everyone again, including local businesses trying to stay relevant in their communities.
🚨🚨 To find out how you can help with this effort, share a story about being hosed by junk fees, and keep track of legislation in your state, go to our End Junk Fees campaign page. 🚨🚨
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— Pat Garofalo