What junk fees does Biden want to ban? What there is to know
Odds you were asked to pay a small convenience fee when making an online transaction or paying by credit card. But these economic inconveniences could be coming to an end.
During Tuesday night’s State of the Union address, President Joe Biden reiterated that he wants to ban these so-called “unwanted fees” charged by banks, ticket vendors and airlines that significantly affect disproportionately low-income households and people of color.
“Trash fees may not matter to the very wealthy, but they matter to most people in homes like the one I grew up in. They add up to hundreds of dollars a month,” Biden said in his speech. “I know how unfair it is when a company overcharges you and gets away with it.” He added: “Not anymore.”
Learn more: The Biggest Moments From Biden’s 2023 State of the Union Address
These fees, which about 85% of Americans have faced, are often added to credit card bills and the cost of concert tickets and air travel as a convenience or service charge at the time of purchase. They’re a big money-maker for the companies that charge them, with consumers shelling out at least $29 billion each year in additional fees, according to the Consumer Financial Protection Bureau (CFPB). But Biden and his allies have argued that these fees are not clearly announced to consumers and can drive up costs far beyond what people expected.
The cable industry is notorious for using hidden fees to raise prices and conceal the true cost of service, earning an estimated $28 billion a year from company-imposed fees. Some cable companies charge fees for regional sports, TV broadcasting, network access and maintenance, and switching providers, which can add up to over $40 per month in hidden fees.
U.S. hotels earned more than $2.7 billion in 2018 for “resort” or “destination” fees that are often imposed for specific amenities, like free internet service, gym entry or access to the swimming pool. The amount travelers pay for these fees varies by location and property, but typically costs around $40 or more per night. Many travelers find these fees frustrating because hotels often hide them or charge for basic perks that should be included in the hotel rate.
Banks have also relied on additional fees to support free checking accounts, which are increasingly being offered. In recent years, late fees on credit card payments have soared to $41, with consumers hitting $12 billion a year for late fees alone. This can be particularly damaging for low-income Americans already facing record high interest rates on their credit cards.
Biden’s call to action on junk fees is part of his plan to win back working-class voters who are more sensitive to high prices. Although he didn’t make any flashy proposals during his State of the Union address, the call to ban junk fees was one of Biden’s most workable economic calls aimed broadly at people. anxious about their personal finances. He also pledged to cut insulin costs and raise taxes on the wealthy.
“Americans are tired of being — we’re tired of being played for suckers,” Biden said.
He urged Congress to pass a new “Unwanted Fee Prevention Act” that would eliminate “excessive” fees on tickets to online concerts, sporting events and entertainment; prohibit airfare for family members wishing to sit with young children; ending early termination fees for television, telephone and internet services; and lock in resort and surprise destination fees.
The proposal has already caught the attention of members of Congress and other federal agencies. The Federal Trade Commission (FTC), for example, began considering last fall whether to create rules against unwanted fees.
“It’s beyond frustrating to end up spending more than you planned because of random and arbitrary charges,” FTC Chair Lina M. Khan said in an October statement announcing the effort. “No one ever thought a ‘convenience fee’ was practical.”
Learn more: What Biden said and didn’t say about the economy during his State of the Union address
The FTC is currently asking members of the public for input on their views on junk fees and the need for regulation. So far, nearly 12,000 comments have been posted before the February 8 deadline.
The CFPB, which protects consumers against financial abuse, also cracks down on junk fees. In September, the agency ordered Regions Bank to reimburse at least $141 million to customers who had to pay a surprise overdraft fee – a now illegal practice that charged a checking account overdraft at the time of the purchase itself. if the bank showed that the account owner had enough money. Last week, he proposed a rule to cut credit card late fees to $8, which would save consumers up to $9 billion a year in late fees.
CFPB Director Rohit Chopra said in a call with reporters on Feb. 1 that thousands of people had submitted comments with stories about fees being charged for things that were not in their control, in especially for those surprise overdrafts and late fees. “That loophole turned into a multi-billion dollar bargain,” Chopra said. “We’re concerned that credit card companies are actually hoping consumers are a day or two late. While it may be fair to charge customers the additional fees incurred by credit card companies, that’s not what we see here.
But from the perspective of the banking industry, a ban on these fees would remove an easy source of profit. Lindsey Johnson, president of the Consumer Bankers Association, said after Biden’s announcement that the president had “misinterpreted” bank charges as junk. A potential ban on extra charges, she said in a video posted to Twitterwould do “nothing to address the underlying reality that Americans today pay higher prices for goods and services.”
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