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Rhode Island State Representative David Morales took to the rapidly decaying social media site Twitter this week to note that Rhode Island lawmakers recently banned rental application fees for potential tenants. However, renters in his state are still getting pounded by other fees, new and old, that are cooked up by their landlords.
“While we recently passed a new law to prohibit ‘Rental Application’ fees, renters in our communities still face a series of punitive fees alongside high rent,” he said. “Recently, Local Property Management Companies have started charging tenants a monthly ‘Resident Benefits Package’ fee.”
Morales is describing a problem that is getting increasing attention at all levels of government, and that I’ve written about before: Junk fees.
These are the fees tacked onto the end of a purchase or levied on an account that don’t correspond to any actual service or product, or that supposedly pay for something a reasonable person would expect to be included in the baseline cost of a service. They’re usually plopped on at the very end of a transaction, making products or services seem artificially cheaper than they really are, and generally frustrating people who don’t want to start their search all over again somewhere else, even with a surprise price hike.
While junk fees are most closely associated with live events tickets these days (those many, seemingly random fees that show up on your Ticketmaster receipt), they are everywhere, on everything from rental cars to airline tickets to hotels. By some estimates, they cost consumers billions or even tens of billions of dollars every year.
One of the most pernicious areas for junk fees is in housing, since there, junk fees are being levied on a necessity, and in a world in which housing costs are taking up an increasing percentage of most folks’ budgets. Whether you own or rent your home, it’s possible you’re experiencing some of these fees right now.
For example, the Consumer Financial Protection Bureau noted earlier this year that mortgage servicers are dumping a bunch of fees onto homebuyers, including for home inspections at addresses the servicers know are wrong. Homebuyers also face loads of ambiguous processing fees at closing, which can add hundreds or even thousands of dollars to the cost.
Some of these fees are obviously just fraudulent and should be treated as such, but others fall into that grey zone where they seem to be for something, but the consumer can’t really tell what or why they have to pay or what they’re receiving for their money.
Hence, junk.
Renters, if anything, have it worse. According to a recent report from the National Consumer Law Center, junk fees in rental housing are everywhere, from fees on applications the landlords know will never be accepted, to a host of unexplained processing and administrative fees that seemingly correspond to nothing, to “convenience” fees for using certain forms of payment (such as online payments), even when that form of payment is mandatory.
The report notes that “Corporate and larger landlords in particular impose many fees, and such landlords have become a growing share of housing providers in the U.S.” Indeed, it makes sense that in markets that are concentrating, junk fees get worse: Fewer market participants means fewer choices for consumers, so shopping around to avoid junk fees gets harder, and corporate landlords can coordinate fees across their properties.
Already, research has shown that corporate concentration, i.e. rentals in an area being consolidated into the hands of fewer landlords, drives up rents. Tack a bunch of junk fees on top of it, and renters are really going to feel the pain. And since many folks are tied to their hometowns due to a job, family obligations, or something else, simply leaving for a less concentrated or simply cheaper rental market often isn’t an option — so they pay the fees alongside the high rents, or have nowhere to live.
The Biden White House, through Secretary of Housing and Urban Development Marcia Fudge, has called on housing providers, as well as state and local governments, to deal with junk fees in the housing market, as part of the administration’s broader push against junk fees across the economy. While the call for the industry to proactively do away with these fees will probably fall on deaf ears, there have been some efforts, including Rhode Island’s elimination of rental application fees, to address the problem legislatively. California also has a bill in the legislature this year that would eliminate a host of fees associated with rental housing.
(There have also been state-level bills that have actively made things worse: Looking at you, Florida, where the legislature legalized a form of recurring security deposit.)
The issue with this approach, though, is that it turns into a game of junk fee whack-a-mole. One specific fee gets eliminated, sure, but another just pops up in its place. A convenience fee becomes a processing fee, an application fee becomes a paperwork filing fee, and no one winds up any better off except the corporate entities collecting cash and the lawyers who are billing to ensure tomorrow’s fee complies with whatever law is on the books today.
Far better is to implement an across-the-board ban on junk fees, regardless of industry, so that the concept itself becomes illegal, not any one specific fee. This is good for consumers, who will be able to better understand what they are paying and why, in the housing market and elsewhere. But it’s also good for businesses too, as those firms that don’t rely on junk fees will no longer be at a competitive disadvantage by appearing artificially more expensive (or feel compelled to pile into the junk fee game because their competitors have).
Of course, other measures to ensure fair rents and mortgage prices become the norm are necessary. I’m not saying America’s housing issues are going to be solved by ditching deceptive fees. But junking them certainly helps.
SHAMELESS SELF-PROMOTION: I wrote a piece for The New Republic about how Democrats in Western Pennsylvania are challenging corporate power, and why their model of policy and politicking should be adopted elsewhere. You can read it here.
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— Pat Garofalo