By James Erwin
In the latest sign of the Democratic Party’s evolution from the party of the working class to the party of affluent professionals fighting for niche consumer interests, the Biden-Harris Administration is waging a war on “junk fees.” It is now the FTC’s turn to get in on the fun with its proposed total price rule, but the justification for banning these fees, jurisdictional overlap with the FCC, and blatant rent-seeking are the real junk here.
“Junk fees” is the derisive moniker the Biden administration has applied to myriad small transaction fees charged by different industries. Most of the time, they pay directly for the costs of doing paperwork and allow companies to charge lower rates for base services. Far from being “junk,” these perfectly legal fees pay for the cost of doing business. The Cato Institute’s research indicates that these types of fees do not significantly affect most households, so the justification for these actions is dubious at best.
A good example would be cancellation fees for reservations on hotels, airlines, restaurants, and related service industries. These are meant to impose a cost on people who take a sellable good – a concert ticket or table at a restaurant – off the market but then fail to use it. Businesses prefer to sell to people who will use their services, so a basic deterrent against the loss of revenue is reasonable. Otherwise, the expected loss of revenue for cancellations would have to be factored into prices for others who show up, meaning the “junk fee” actually lowers the market price for the service.
Flimsy pretexts aside, the FTC’s proposed total price rule is both at odds with an existing FCC rule and a money-grab. The FTC rule would prohibit businesses from displaying or advertising prices that do not include any and all additional fees that might be charged. This is very similar, but not identical, to the FCC’s recently-adopted all-in pricing rule. The FCC rule requires cable and satellite providers to specify the total price for video programming service.
The FTC effort would clearly capture video programming services, but that is about all that is clear here. The FCC has specifically excluded certain line items from consideration, such as variations in local market prices, that the FTC has not. Do providers need to include this or not? Will they be penalized for deferring to the FCC over the FTC on this point? Who has prevailing jurisdiction?
The FTC has done little more than create a duplicative rule that confusingly overlaps with another agency’s regulation. The legislative or judicial branch may need to step in to resolve which rule prevails if they do not work it out between themselves. All this to crack down on a marginal household expense?
Well, no, there is another agenda here: money. As the FTC plainly states:
The proposed rule would also have enforcement teeth, allowing the FTC to secure refunds for harmed consumers and seek monetary penalties against companies that do not comply with its provisions.
Ah, there it is. The FTC is empowering itself to fine companies, including video providers, for non-compliance with its “junk fee” rule. As with most fines from independent agencies, the FTC usually determines what the monetary penalty is, unless a judge intervenes. Are they likely to resolve the confusion over what must be disclosed when they stand to profit from it?
The FTC junk fee proceeding is a solution in search of a problem, confusingly overlaps with the FCC’s jurisdiction, and sets a trap for companies to have to pay the agency fines. It is unfounded, duplicative rent-seeking – in a word, it’s junk.
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