How ‘Junk’ Fees Secretly Invaded The U.S. Economy (And How Pres. Biden Wants To Stop Them)

Summary

The video script discusses the pervasive issue of 'junk fees' in the U.S., costing consumers nearly $65 billion annually. These deceptive charges are prevalent across industries like banking, telecom, entertainment, and hospitality, often hidden and providing little to no added value. Examples include overdraft fees, resort fees, and ticketing charges. The White House and regulatory bodies are taking action to curb these practices, with some success in reducing fees and increasing transparency. However, the debate continues over whether these measures will sufficiently eliminate junk fees or if they might inadvertently lead to increased costs elsewhere.

Takeaways

• 💵 Nearly $65 billion is lost annually to deceptive 'junk fees' in the United States.
• 🏦 These fees are prevalent across various industries including banking, telecom, entertainment, and hospitality.
• 🏨 Examples of junk fees include unexpected hotel amenity fees and mandatory charity donations that benefit the hotel itself.
• ⚖️ The White House has spoken out against junk fees, stating they weaken market competition, raise costs, and drain consumers' wallets.
• 💳 In banking, overdraft and late fees are significant contributors to the junk fee problem, with billions of dollars in revenue for banks.
• 🎟️ The entertainment industry also imposes substantial fees, such as those added to concert and event tickets, often not reflected in the advertised price.
• 🏠 Home-related fees, like closing costs and cable/internet charges, are another area where junk fees are common.
• 🔍 The government is taking action to tackle junk fees, with agencies like the FTC and CFPB using their existing authorities to address the issue.
• 🛂 Proposed legislation like the Junk Fee Prevention Act aims to ban certain types of fees and increase transparency, potentially saving consumers billions.
• 🤔 There is debate over whether eliminating junk fees could lead to increased interest rates or reduced credit availability for some consumers.
• 🔄 Despite some progress, the fight against junk fees is ongoing, with more regulatory changes and legal actions expected in the future.

Q & A

How much money is lost to junk fees annually according to the script?

Nearly $65 billion is lost to junk fees annually.

What types of industries are mentioned as being involved in the practice of charging junk fees?

The industries mentioned include banking, telecom, entertainment, and hospitality.

What was the unexpected fee the speaker encountered at a hotel?

The speaker was charged a $40 a night amenity fee and a $1 mandatory charity donation that went back to the hotel.

How do junk fees affect the market according to the White House?

Junk fees weaken market competition, raise costs, and ultimately drain the wallets of Americans.

What are some examples of banking fees mentioned in the script?

Examples of banking fees include overdraft charges, late fees, fees to pay a bill, and account maintenance fees.

What is the estimated annual revenue from credit card industry fees and interest?

The credit card industry levies about $120 billion in fees and interest each year.

What is the issue with resort fees as described in the script?

Resort fees are added for amenities usage during a hotel stay, even if the guest does not use them, and they are often not displayed in the advertised price.

What is the average additional cost charged by ticketing companies as a percentage of the ticket's face value?

Ticketing companies on average charge fees worth about 27% of the ticket's face value.

What actions has the government taken to address junk fees as per the script?

The government has taken actions such as the FTC using laws against unfair or deceptive practices, the CFPB targeting overdraft and bounced check fees, and the Department of Transportation requiring companies to show the full price of a plane ticket at booking.

What is the proposed change to credit card late fees by the CFPB and how much could it save Americans?

The CFPB proposes to change credit card late fees to $8, which could save Americans as much as $9 billion a year in late fees.

What is the concern raised by dissenting FTC Commissioner Christine Wilson regarding junk fees?

Christine Wilson raises concerns about the flawed assumptions and vague definitions surrounding junk fees and questions whether government mandated all-in pricing will result in less price competition.

What is the estimated average annual savings per American household if junk fees were eliminated according to the Peterson Institute for International Economics?

The Peterson Institute for International Economics estimates that the real savings of junk fees could work out to be $100 average annually for each of the 131 million American households.

Outlines

00:00

💸 The Problem with Junk Fees

The video script addresses the issue of 'junk fees' in the American economy, which are deceptive charges that companies impose on consumers, leading to a loss of nearly $65 billion. These fees are prevalent across various industries, including banking, telecom, entertainment, and hospitality. Examples given include unexpected hotel fees and mandatory charity donations that benefit the hotel itself. The White House criticizes these fees for undermining market competition and increasing costs for consumers. The video discusses how these fees are often hidden and not subject to normal competitive forces, and categorizes them into three main types: banking fees (like overdraft and late fees), fun fees (such as resort fees and entertainment ticket charges), and home fees (associated with buying a house, having a car, and home internet). The script also touches on the billions of dollars these fees generate for industries, questioning the ethics and legality of such practices.

05:01

🏛️ Government Efforts to Combat Junk Fees

The script details the efforts by the U.S. government to tackle the issue of junk fees. President Biden has directed agencies to address this problem, with regulators like the FTC and CFPB taking action. The FTC is using existing laws to sue companies over unfair practices, while the CFPB is focusing on overdraft and bounced check fees. The government aims to save consumers over $1 billion annually through these measures. The script also mentions the Junk Fee Prevention Act proposed by President Biden, which targets additional hidden charges like airline fees for families, concert and event fees, early termination fees for telecom services, and surprise vacation charges. Critics, however, argue that the government's approach might not be effective and could lead to other issues, such as increased interest rates or reduced credit availability. The debate over junk fees includes discussions on consumer choice, the potential for fees to be rolled into upfront costs, and the possibility of government overreach.

10:04

🛡️ Ongoing Fight Against Junk Fees

The final paragraph discusses the ongoing fight against junk fees, with the FTC considering a rule that could make such fees illegal across the economy. The script highlights the shift in practices by some banks that are eliminating certain fees and the Department of Transportation's efforts to ensure better guarantees for passengers. It also mentions the upcoming requirement for broadband providers to disclose all fees and the 50 attorneys general investigation into hotel resort fees. The script concludes with the recognition that junk fees are a widespread issue impacting everyday Americans and the economy, and that more solutions are needed. It suggests that if the FTC finalizes a rule against junk fees, it could lead to significant penalties for companies and potential refunds for consumers.

Keywords

💡Junk Fees

Junk fees refer to additional charges that consumers are often unaware of until they receive a bill or statement. These fees are considered deceptive because they can be hidden or not clearly communicated. In the video, junk fees are a central theme, with examples ranging from hotel amenity fees to mandatory charity donations, illustrating how these fees can be unexpected and add significant costs to consumers.

💡Market Competition

Market competition refers to the rivalry among firms in an industry to gain market share and profitability. The video suggests that junk fees weaken market competition by allowing companies to generate revenue without improving their products or services, thus creating an unfair advantage and potentially leading to a 'race to the bottom' in terms of pricing and service quality.

💡Overdraft Fees

Overdraft fees are charges imposed by banks when a customer's account balance goes negative due to a transaction. The video discusses how these fees can be a significant source of revenue for banks and are often considered a junk fee because they are sometimes unavoidable and can be unexpectedly high.

💡Resort Fees

Resort fees are additional charges that hotels tack on to room rates, supposedly to cover the use of amenities like gyms and pools. The video highlights how these fees can be misleading, as they are often not included in the advertised price and can be as high as $70 per night, making them a significant part of the overall cost that consumers might not anticipate.

💡Surprise Fees

Surprise fees are charges that are not disclosed upfront and only become apparent at the time of purchase or after the service has been rendered. The video emphasizes the frustration and financial burden these fees can impose on consumers, such as the unexpected $40 amenity fee mentioned in the script.

💡Regulatory Oversight

Regulatory oversight refers to the monitoring and enforcement of rules and regulations by government agencies to ensure fair business practices. The video discusses the need for increased regulatory oversight to combat junk fees and protect consumers from unfair practices.

💡Investors and Shareholders

Investors and shareholders are individuals or entities that own shares in a company and thus have a financial interest in its performance. The video suggests that junk fees are appealing to investors and shareholders because they can increase a company's revenue without the need for increased competition or innovation.

💡Price Gouging

Price gouging is the practice of raising prices unreasonably high, often during a time of crisis or when consumers have little choice. The video uses the example of concert ticket fees to illustrate how price gouging can be a form of junk fee, where consumers are charged significantly more than the face value of the ticket.

💡Consumer Protection

Consumer protection involves laws and regulations designed to ensure the rights of consumers and to make sure they are treated fairly. The video discusses various government agencies and their efforts to protect consumers from junk fees, such as the FTC and the CFPB, highlighting the importance of these protections in the face of deceptive practices.

💡Transparency

Transparency in business refers to the clear and open communication of information to consumers. The video suggests that increased transparency could be a solution to the problem of junk fees, as it would allow consumers to make informed decisions and potentially avoid unexpected charges.

💡Civil Penalties

Civil penalties are fines or other punishments imposed on individuals or companies that violate laws or regulations. The video mentions the potential for civil penalties as a way to deter companies from imposing junk fees and to compensate consumers who have been unfairly charged.

Highlights

Nearly $65 billion is lost to deceptive American practice known as junk fees.

Companies across industries like banking, telecom, entertainment, and hospitality are profiting from junk fees.

A hotel stay example where a $40 nightly amenity fee and a $1 mandatory charity donation were charged unexpectedly.

The White House states that junk fees weaken market competition, raise costs, and drain Americans' wallets.

Banking fees such as overdraft charges, late fees, and account maintenance fees are categorized as junk fees.

Before the pandemic, banks charged about $15.5 billion in overdraft fees in a single year.

Credit card industry levies about $120 billion in fees and interest each year.

Hotel industry earns about $3 billion a year from junk fees like resort fees and ancillary charges.

Ticketing companies on average charge fees worth about 27% of the ticket's face value.

Home fees include closing costs, document preparation fees, and title insurance when buying a home.

Cable and Internet junk fees generate multi-dollar revenues for cable companies.

President Biden's administration is taking actions to save consumers more than $1 billion each year by tackling junk fees.

The FTC has the ability to bring lawsuits against junk fees and impose civil penalties on companies.

CFPB is targeting overdraft and bounced check fees and aims to ban surprise overdraft charges.

Department of Transportation wants to require companies to show the full price of a plane ticket at booking.

The Junk Fee Prevention Act aims to tackle hidden charges like airline fees for families to sit with small children.

Some House Republicans argue that cracking down on late fees could lead to increased interest rates for all borrowers.

The Peterson Institute for International Economics questions the projected savings from junk fee elimination.

FTC is considering a rule that could make junk fees illegal across the economy.

Some banks are starting to eliminate junk fees, and the Department of Transportation is implementing more guarantees for passengers.

The Federal Communications Commission will introduce new rules for broadband providers to disclose fees and prices clearly.

The fight against junk fees continues with investigations and potential new regulations.

Transcripts

Nearly $65 billion.

That's how much money is lost to this deceptive

American practice.

Junk fees.

We're tired of being played for suckers.

It really seems like companies have become

addicted to junk fees and it's making companies

billions of dollars richer across industries,

spanning banking and telecom to entertainment

and hospitality.

I stayed at a hotel.

I asked, Are there any extra fees?

They said no. The bill on the last night we were

charged a $40 a night amenity fee.

But even crazier.

A $1 mandatory charity donation.

I looked up the charity.

It's a charity that goes back to the hotel.

These fees are more than just annoying.

The White House says they weaken market

competition, raise costs and ultimately drain the

wallets of Americans.

The very entity that's creating these fees are

the ones telling you what we have to charge

them.

Their investors and shareholders really like

it. It's another way to pull in more revenue

without really competing unless we do something

about it is just a race to the bottom.

Some changes are happening, but the

question remains whether any of the new policies

and regulatory oversight will actually be enough

to squash junk fees once and for all.

Junk fees are basically an additional cost that

has little to no added value.

It's a junk fee.

You know, junk fees are fees that sometimes

provide no service whatsoever and are not

subject to the normal forces of competition.

There are so many different kinds of these

hidden fees.

So let's categorize some of the biggest offenders

into three different buckets.

Bucket number one, banking fees like

overdraft charges, late fees or fees to pay a

bill or even account maintenance fees that you

might get hit with after easily signing up for a

new bank account. A charge for using that

service every year.

We could even count student loans in this

bucket.

Just before the pandemic, we found that banks

charged about $15.5 billion in

overdraft fees in just one year.

And many of those fees were ones that actually

could not have been avoided. It isn't just

unfair. In many cases, it's illegal.

And banks are cashing in.

Fees worth nearly $24 billion were charged by

card issuers in 2019, and most of that $14

billion came from late fees alone.

We estimate that the credit card industry

levies about $120 billion in

fees and interest each year, and that number

might be even going up given the rise in

interest rates.

Bucket number two fun fees or the fees that you

might incur when you're hopefully doing something

fun like buying a concert ticket, booking a

flight or a hotel, for example, Resort fees

might be added for your use of amenities during

your stay, even if you're not using the gym

or the pool. And even if it's not a resort.

Junk hotel fees and these ancillary fees at hotels

bring in about $3 billion a year for the

hotel industry.

Waikiki has them.

And Detroit, which is crazy.

Lauren Wolfe founded Kill Resort Fees in 2016 after

a vacation in Florida.

Even though my receipt said paid in full, I

couldn't get the key to the room unless I paid an

extra $20 in the name of a resort fee.

And so I started the website.

Hotel and resort fees can be anywhere from $20 to

$70 per night.

Many sites don't display these extra costs in the

advertised price, so people can't comparison

shop. The same thing happens when you buy a

plane ticket.

A lot of times people don't realize they're

booking the lowest economy fare that doesn't

allow them to bring a suitcase.

The same goes for entertainment fees.

It's when you try to buy a ticket to go see Taylor

Swift.

No price gouging.

Off the record, my wife calls me a Gen X swifty.

Are you sure you want that off the record?

I do not mind.

I'm a very comfortable place in my life.

I love Taylor Swift.

For your band to make six bucks out of a $42 ticket

price.

Yeah, that doesn't feel great.

Does it strike me...

Government Accountability Office found that on

average, ticketing companies charged fees

worth about 27% of the tickets face value.

And then bucket number three, home fees from

buying a house to having a car and getting

Internet at home.

This includes closing costs and other fees that

come up when you're trying to buy a home,

like extra fees for document preparation or

title insurance.

Then there's your cable and Internet junk fees.

A multi dollars in revenue for the cable

companies to keep breaking out these fees.

And they're mandatory,

Including Cnbc's own parent company, Comcast.

And cable Internet and cell phone companies can

charge you $200 or more if you decide to switch

to another provider.

Give me a break.

It can also be a violation of marketing.

If you look at the fine print there, like to

maintain our high speed fiber network and you're

like, okay, so you have to charge me an extra

seven bucks for the Internet infrastructure

fee. But what about the $75 I've already paid

you? What's that paying?

Today's actions are going to save consumers more

than $1 billion each year, and that's a lot of

money.

President Biden has been asking agencies to tackle

this problem. And regulators have the

ability to address junk fees today using existing

authorities.

It's really an all of government effort.

The FTC has a law prohibiting unfair or

deceptive practices.

And so we already have the ability to bring

lawsuits against junk fees.

We can make it even clearer for companies and

we can also strengthen our ability to impose

civil penalties on companies that are

imposing junk fees and also get back money for

consumers.

The CFPB is targeting overdraft and bounced

check fees and issued further guidance for

banning surprise overdraft charges.

The White House estimates these moves

alone will reduce fees by more than $1 billion

each year.

We anticipate that the amount of annual

overdraft fees has declined by billions of

dollars per year.

We have done major enforcement actions when

it comes to junk fees against Wells Fargo,

Regions Bank and others.

The agency also wants to change credit card late

fees to $8.

It could save Americans as much as $9 Billion a

year in late fees.

Now, we don't think credit card companies

should build their business model based on

these fees.

And the Department of Transportation wants to

require companies to show the full price of a

plane ticket at booking baggage fees and all.

I know how unfair it feels when a company

overcharges you and gets away with it.

Not anymore.

We've written a bill to stop it all.

President Biden still wants Congress to pass

the Junk Fee Prevention Act in hopes of tackling

four more hidden charges.

One to ban airline fees for families to sit with

small children.

Baggage fees are bad enough.

Airlines can't treat your child like a piece

of baggage.

Too excessive concert event and entertainment

fees. Three Crack down on early termination fees

for canceling telecom services and for getting

rid of the surprise vacation charges like

resort and destination fees.

You know, we've met with the FTC and we've seen

these fees get a bit more transparent, though

I hesitate to say that transparency here is

going to solve anything.

Part of the problem is drawing the line between

what is truly junk and what charges are

warranted. One dissenting FTC

commissioner Christine Wilson, called junk fees

flawed assumptions and vague definitions.

The Peterson Institute for International

Economics argues that the projected savings is

speculative arithmetic that at best spotlights

$27 billion in junk fees.

And those figures may not accurately represent

how those junk fees, if they're eliminated, how

they can be rolled into that upfront cost.

They also estimate that the real savings of junk

fees could work out to be $100 average annually

for each 131 million American households,

which would be much less than President Biden's

estimate of hundreds of dollars per month per

American.

They add up to hundreds of dollars a month.

Dissenting FTC Commissioner Wilson poses

the question of whether government mandated all

in pricing will actually result in less price

competition or whether it could make consumers

pay for goods and services they may not

want or need.

What would your response be to someone who thinks

that the junk fee is something that is

beneficial?

I think the first thing is you should give

consumers a choice.

Oftentimes, these types of junk fees are tacked

on in a way where it's all or nothing.

And so there's no way for the consumer to

actually buy the product or service without being

subject to the junk fee in the first place.

I think if these fees are being included, you

really have to make the case to the consumer or

to the member of the public about what they're

really buying through paying this fee in the

first place. Some House Republicans point to how

late fees are used to offset costs for credit

and financial products, arguing that the CFPB's

proposal to crack down on credit card late fees

would result in negative consequences because

credit providers like banks would be forced to

increase interest rates for all borrowers in

order to offset that loss income that could

lead banks to restrict credit to lower income

customers who are more likely to overdraw their

accounts in the first place. However, PIIE

believes that the Junk Fee Prevention Act is

likely not to pass through the House of

Representatives Republican majority.

We're now considering whether to introduce a

rule that would apply across the economy and

put companies on notice that these types of junk

fees can be illegal.

We also more generally are inviting comment

right now on whether the FTC should do a rule that

addresses junk fees more broadly.

So this would not just be focused on a

particular sector, but really zooming out and

looking across the board. Some practices are

shifting.

A lot of banks are already starting to

eliminate these fees.

15 of the 20 largest banks agreed to stop

charging bounced check fees, and the Department

of Transportation dashboard resulted in

more guarantees of hotels and meals for

passengers that experienced delays or

cancellations at the fault of the airlines,

none of which was guaranteed before.

I think President Biden has recognized that this

is an issue that impacts everyday Americans, that

this isn't just a travel issue of people going to

the fanciest hotels, that this impacts hotels

that are charging $40 a night.

It impacts hotel workers.

It impacts how taxes are collected, just these

sorts of junk fees, just hotel junk fees are

really impacting our economy at a time when we

need more travel and tourism.

Telecom is also prepping for new regulations.

The Federal Communications Commission

will have new rules for grocery store like

nutrition labels starting in 2024.

Broadband providers must relay details about

prices, speeds, data allowances and any and

all added fees, but it's likely that more

solutions will be needed.

There's currently a 50 attorneys general

investigation into hotel resort fees.

The Nebraska attorney general has sued Hilton.

The D.C. attorney general has sued

Marriott, Pennsylvania just came to an agreement

with Marriott also about hotel resort fees.

The fight against these fees is likely far from

over as more congressional hearings

are down the road.

There's broad agreement that this fee creep

across the economy has to stop.

So if the FTC did end up finalizing a rule that

either prohibited junk fees or added new

obligations on companies when they're adding fees,

it would really mean that if companies violate

the rule, the FTC will be able to charge them

civil penalties for fees that can really pile up

on these companies. It would also mean that the

FTC would be able to actually get money back

for consumers. So the junk fees that consumers

were paying would be able to get that money

back in their pockets.