Where regulation goes — sometimes, at least — unintended consequences might follow.
The regulatory and legislative scrutiny of, and battle over, what are being commonly referred to as “junk fees” looks set to have a broad swath of industries and companies in sight, ranging from travel firms to credit cards to auto loans to concert promoters.
As has been widely reported and spotlighted here, the Biden administration has been enlisting lawmakers at the state level to identify, target and ultimately get rid of “surprise” fees that are baked into the ultimate prices consumers pay for goods and services. The effort, then, is a double-barreled one, as companies’ pricing practices are under federal and state-level microscopes.
And yet, we note, regulators’ approach may not be cut and dried — and perhaps, may not need legislation cut from wholly new cloth. The current administration’s proposed the Junk Fee Prevention Act faces a Republican-controlled Congress, which might be a major hurdle.
Just last week, Brian Shearer, senior advisor to the director of the Consumer Financial Protection Bureau (CFPB), said many states can attack junk fees under their existing statutes that prohibit unfair or deceptive acts or practices. This would mean, by extension, that the tools are in place to address those fees.
Might an unintended consequence be a piecemeal approach to addressing the fees — one where some fees are allowable in some states and not in others?
Credit cards may be the most visible lightning rod here, where the Biden administration has suggested a cap on late fees. The CFPB has estimated that the cap — which as reported would lower the typical late fee to $8 from $30 — would save consumers somewhere around $9 billion.
There’s a bit of Catch-22 here. As PYMNTS has reported, Federal Reserve data has estimated that fees account for 16% of banks’ profitability. Profits can be reinvested into the firm and foster technological innovation and even keep the costs of various financial products and services lower for consumers overall. The fact remains, too, that with grace periods and reminders in place, the late fees become easier to anticipate, and avoid, on the part of borrowers. It’s not inconceivable to surmise that there would be attempts made to compensate for the loss of profits that would affect all consumers — i.e., through higher interest rates.
The White House has released a “Fact Sheet” detailing the impact of fees that are tied to airline fees and concert pricing. But drilling down, too, we see that there’s intent to “eliminate exorbitant early termination fees for TV, phone, and internet service.” The fees connected to terminating these subscriptions can top $200, per the document. As cited by PYMNTS, roughly half of subscribers have run up against unwanted charges at some point, with younger generations the most impacted. Fifty-eight percent of millennials and 57% of Generation Z have encountered this issue. We’re already seeing some groundswell toward making these subscriptions easier to manage and to cancel, and to have some more transparency in the mix.
As reported late last month, the Federal Trade Commission (FTC) is recommending an easier way for consumers to cancel subscriptions. The FTC has announced a “click to cancel” provision that would require businesses to make canceling memberships as easy as signing up for them.
“Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place,” FTC Chair Lina M. Khan said upon announcing the new cancellation method. “The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.”
The push to address junk fees may lead to significant changes in how corporate mainstays of our daily life — as we bank, travel, stream media — do business. What remains to be seen is how, and what the ultimate consequences may be.