Why is it so hard to junk junk fees?

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I loathe watching a bargain crumble click by click, crushed under the weight of unexpected charges. These irritants are known as “dripped fees” or “junk fees”, but other names came to mind including “situational-monopolist fees”, “too-exhausted-to-resist fees” or, more simply, “chump charges”. The worst ones confuse customers and quell competition. What’s so complicated about getting rid of them?

There are companies keen to stop thwacking their customers with extra charges at the checkout. But a solo move towards all-in pricing will make them seem expensive. The ticketing platform StubHub attempted as much in 2014, but reversed in 2015 after its market share shrank. One study of its experience found that including the 15 per cent booking fee up front slashed revenue by 21 per cent.

With elections looming in both America and Britain, politicians are desperate to show that they have made something cheaper. This week the UK government announced legislation that would ban hidden and unavoidable charges. In America the White House, regulators and state-level legislators are waging a wider war on junk fees they deem “unfair” or “deceptive”. The US Consumer Financial Protection Bureau has proposed a new cap on charges for people going overdrawn.

One challenge is that the term “junk fee” is hard to pin down. The narrowest definition covers unavoidable fixed fees that are presented at the end of a purchase. A $2 booking fee shown at the checkout, for example. The broadest definition sprawls to include any charge that people don’t like, such as late payment, baggage handling or delivery fees. (I would argue that the American practice of adding taxes at the end of a transaction should qualify, but some legislators disagree.)

Suppose policymakers took a narrow definition of junk fees. Although regulations could work, companies have a habit of wriggling around new rules. Suppose, too, that the government banned hidden mandatory charges, but allowed companies to shroud add-ons. In a submission to the government, Britain’s Competition and Markets Authority noted retailers’ tendency to apply “charges that are theoretically optional, but which in practice are paid by the majority of their customers”.

Removing all booking fees might look good, until you land on the final payment page to discover a doubled delivery fee. Not to worry though. You can always avoid the delivery charge altogether if you pick up your merchandise from the warehouse in Guangzhou, China.

A more expansive definition of junk fees could be a nightmare to enforce. And closing off every loophole might prove overwhelming. What counts as a legitimate unbundling of a service? And what if companies showed the all-in price at the start, but in a tiny font? Or what if you had to scroll down to see it? What if they included the booking fee on the first page, but not on the second?

Winning a game of whack-a-mole requires a lot of energy — and a big mallet. The Biden administration is keen to play. Its definition of junk fees seems broader than the British one, and includes late payment fees or overdraft charges, even if they are disclosed when people open bank accounts.

It is possible that squashing fees like this will reduce overall payments by consumers, as seems to have happened in Britain when the Financial Conduct Authority limited unarranged overdraft charges. But Kristen Larson, a lawyer who advises credit unions, banks and fintechs on the regulatory environment, suggests that fees will simply rise somewhere else, redistributing between different types of customer. “Financial institutions aren’t non-profits,” she says.

Another possible unintended consequence of curbing bank account fees is that banks withdraw credit from the people policymakers are trying to protect. An American law passed in 2009 limited credit card issuers from charging certain fees. Although some early evidence suggested no effect, a study published in 2022 found that banks responded by withdrawing credit from subprime borrowers.

The most immediate risk when it comes to regulating junk fees in the US seems to be that over-enthusiasm to clamp down makes a mess. As more state legislatures join in, the chances rise of companies facing a patchwork of rules, only some of which cover, say, taxes or delivery fees.

It is worth levelling the playing field for those businesses that decide they want to be upfront with their customers. If companies roll the fees into other charges, there might not be much of an effect on overall costs. But if shopping becomes much less annoying, I’m sold.

Bid for lunch with Soumaya Keynes and all proceeds go to the FT’s Financial Literacy and Inclusion Campaign charity

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