Policy- The FTC proposed a rule on Wednesday that would ban all hidden and misleading fees.
- Businesses who use hidden fees might have to give consumers refunds, per the rule.
The Biden administration has been trying to crack down on the hidden fees that pop up when you try to book a plane or a concert ticket or even just order food — and now wants to outright ban them.
The Federal Trade Commission is proposing a rule that would require businesses to show the true, full price of products up front. Under that rule, businesses would be banned from enacting hidden and misleading fees — and they'd have to tell consumers if those fees are refundable. If a business tries to trick you with a hidden fee, they might have to give you a refund and even face financial penalties.
"Today, being a consumer in America increasingly means being saddled with unexpected and unnecessary fees you cannot escape," FTC Chair Lina Khan said in a call with reporters. Those junk fees "plague" Americans across all sorts of transactions.
"Whether you're paying a hotel bill, renting an apartment, buying a concert ticket, or ordering dinner online, the FTC estimates that Americans collectively pay tens of billions of dollars a year in junk fees," Khan said. "That's billions of dollars that working families are paying in worthless fees, money that corporations are extracting from Americans just because they can."
If enacted, that rule would mark a seismic shift in a practice that's become increasingly common across the economy.
Experts previously told Insider that the advent of online shopping briefly allowed consumers to accurately price shop across goods and services. But firms caught on, and then unbundled the various aspects of whatever it is you're trying to purchase — think things like paying more for priority boarding, or checked luggage. That's a practice called obfuscation, and it's pretty good at tricking your brain into spending more than you think you are.
Vicki Morwitz, a professor at Columbia Business School who studies the psychology of how consumers interpret prices, identified one strategy called "partition pricing." In partition pricing, the true cost of something is partitioned into two or more parts.
"When we, as consumers, see partition prices, our brain tends to focus on the base price," ignoring the extra costs and fees that get added on, Morwitz said.
The FTC estimates its new proposed rule, which will now be open for comments for 60 days, will save Americans over 50 million hours every year on "wasted time" spent trying to discern the true costs of tickets and hotels.
Along with the FTC's announcement, the Consumer Financial Protection Bureau also outlined a number of actions it's taking to protect consumers from deceptive fees. One of those actions included guidance on a 2010 provision enacted by Congress that prohibited large banks from imposing excessive fees on customers. The CFPB's Wednesday guidance clarified that provision to ensure every American knows they do not need to pay junk fees to get basic information from their bank.
"While small relationship banks pride themselves on customer service, many large banks erect obstacle courses and impose junk fees to answer basic questions," CFPB Director Rohit Chopra said in a statement. "While the biggest banks have abandoned the relationship banking model, federal law still requires them to answer certain customer inquiries completely, accurately, and in a timely manner."
The agency also announced it would be returning $140 million to consumers, $120 million of which is for surprise overdraft fees. During examinations between February and August 2023, the CFPB found institutions were charging customers monthly fees for paper bank statements, "worthless add on products" for auto loans, and hidden fees for international money transfers.
The CFPB has previously taken steps to reduce hidden fees for consumers — in February, it proposed a rule that would slash credit card late fees and save Americans $9 billion a year.
"Some people have asked me why the president of the United States is concerned about a $50 fee here and a $35 fee there," National Economic Council Director Lael Brainard said. "Those sneaky fees might not matter a lot to the wealthiest Americans, but they sure do matter for hard working Americans sitting around a kitchen table trying to stay on top of their bills and have a little left over."