Why the Biden administration is trying to crack down on those sneaky fees charged by hotels, rental cars, internet providers and more.
Call them junk fees, nuisance fees, or sludge, they amount to add-ons to the stated price of something.
Unregulated businesses which have national or local monopolies or who deal in uncompetitive services can mostly charge you whatever they want. Sometimes exorbitant prices are camouflaged by fees billed as add-ons but are usually necessary for the transaction.
In his State of the Union address, President Biden said he would try to crack down on these junk fees.
Hertz charges almost $6 a day simply for using a toll transponder in a rental car. Marriott and Hilton add nightly “resort fees” to the bill even at hotels that nobody would consider to be resorts. American, Delta and United list one airfare when you first search for a seat — and then add charges for basic features like the ability to sit next to your spouse.
Ticketmaster is especially aggressive about imposing fees, as I experienced recently while buying two tickets to a football game. When I initially selected my seats on Ticketmaster’s online stadium map, they cost $48. The bill at checkout was more than one-third higher — $64.40.
President Biden has announced a crackdown on these fees (which his administration calls “junk fees”), and he devoted a section of his State of the Union address to them. “Look, junk fees may not matter to the very wealthy, but they matter to most other folks in homes like the one I grew up in,” he said Tuesday night. “I know how unfair it feels when a company overcharges you and gets away with it.”
Very often consumers don’t pay much attention to the small print written in extended and impenetrable gobbledygook which has become a routine part of many transactions. Did you read the entire text of the terms the last time you purchased or updated software and clicked AGREE?
We lead busy lives that keep us from analyzing every purchase, and we get distracted by salient but misleading information (like a low list price). Big companies, with the resources at their disposal, have learned to take advantage of these limitations. The economist Richard Thaler refers to practices like these as “sludge,” the evil counterpart to nudges that use behavioral economics to improve life.
True, one company could call out another for using sludge. But doing so often requires a complex marketing message that tries to persuade people to overcome their psychological instincts (like the appeal of a low list price). For that reason, Hilton can probably make more money by charging its own sneaky resort fees than by criticizing Marriott’s.
Yep. When competitors don’t call each other out, it may be to hide their own dodgy practices. In such circumstances they are acting more like a cartel than like competing businesses.
One step beyond a cartel is a classic monopoly.
In some markets, consumers don’t have much choice. Ticketmaster’s fees outrage many people. But I didn’t have any choice when I bought those football tickets. There was no rival service selling them.
In recent decades, many American industries have become more concentrated, partly because Washington became more lax about enforcing antitrust laws. Thomas Philippon, an N.Y.U. economist, has estimated that increased corporate concentration costs the typical American household more than $5,000 a year.
There was an orgy of deregulation during the Reagan years with an encore during the first George W. Bush administration. The stated aim of these rounds of deregulation was to get government off the backs of American businesses. What really happened is that they put certain businesses on the backs of American consumers.
Making it difficult to cancel a service is another aspect of this culture of sludge.
The small number of dominant internet providers, for instance, reduces the chances that a new entrant can design a business strategy around undercutting Comcast’s and Verizon’s sneaky fees. Those new entrants don’t exist. Comcast and Verizon have also figured out how to make the cancellation of internet service unpleasant and time-consuming. Airlines — another concentrated industry — use frequent-flier programs in a similar way, effectively punishing customers for switching to a different carrier.
So the Biden administration is trying to alleviate or even put a stop to many of these fees.
The Biden administration is trying to address both causes of sneaky fees. On antitrust, it has adopted a policy more confrontational than that of any other administration in decades. That effort is in its early stages, without many big victories. Still, the administration does seem to be taking corporate concentration seriously.
As for the sludge itself, the administration has already taken steps to restrict a few examples, such as charges for late payments on credit cards. Biden has asked Congress to pass a law with stricter rules for other industries.
The administration’s bigger focus for now is on disclosure — requiring companies to tell consumers up front what the full cost will be. The Transportation Department has proposed such a rule for airlines.
If you’ve been impacted recently by such business practices, this might be a good time to contact the folks who represent you on Capitol Hill and let them know that you demand change. To get rid of some of these dubious fees it may be necessary for Congress to pass legislation.
BONUS TRACK: Over a year ago an SNL sketch featuring Kieran Culkin brilliantly depicted how difficult it is to deal with corporations who wish to retain a stranglehold on your money.
Kieran should return and do a follow-up on dealing with banks.