Cleaning-Up Business Practices: The Push for the Junk Fees Prevention Act (JFPA)

For decades, companies have been making money by luring consumers in with low prices, and then adding on “surprise” extra costs when it comes to payment. By the point the consumers are made aware of the extra costs, they have already mentally committed to the purchase, and for the most part – go ahead with it regardless. 

These surprise extra costs are known as junk fees, which the Federal Trade Commission (FTC) describes as “hidden and bogus fees that can harm consumers and undercut honest businesses.” According to President Biden, they can add up to hundreds of dollars a month for consumers. President Biden is famously doing everything in his power to make junk fees illegal, and stop companies from using this essentially dishonest practice. He describes junk fees as “charges that are taking real money out of the pockets of American families.” 

Why are junk fees harmful to consumers?

The thing with junk fees is that on surface value they look small: $30 here, $15 there. But in reality they represent something much more. On a very simple level, these fees add up. Reuters quotes President Biden saying “Research shows that without realizing it, folks can end up paying as much as 20% more because of hidden junk fees than they would have paid if they could see the full price up front and compare it with other options. It’s wrong.” 

What’s more, junk fees disproportionately affect low-income individuals who are already financially strained: those who live paycheck-to-paycheck and don’t necessarily have the ability to absorb these hidden and unexpected charges. They force these consumers to divert their hard-earned money away from paying bills and savings, perpetuating the cycle of debt and financial insecurity for many families. This not only harms individual financial well-being but also contributes to the broader issue of income inequality, where those with limited financial resources are hit the hardest. These additional costs can exacerbate their economic challenges. The negative impact on consumers’ financial health is a critical issue.

And there is also an impact on the wider economy. The lack of price transparency has a detrimental impact on business competition. When consumers and businesses are not provided with complete and clear information about the true costs of products and services, it creates an uneven playing field for businesses and stifles fair competition. Such lack of transparency allows some companies to gain an unfair advantage, as they can offer deceptively lower prices, drawing customers away from more transparent competitors. This not only hinders consumer choice but also reduces the incentive for businesses to innovate and offer better value for money. In the long run, this can lead to market distortions, reduced efficiency, and a less competitive economy, ultimately limiting growth and innovation. In order to promote a healthy and competitive economic environment, it is essential to ensure that pricing is transparent and that consumers have access to all relevant information when making purchasing decisions.

But junk fees are not illegal…yet

President Biden is urging congress to pass a law, the Junk Fees Prevention Act (JFPA), which would eliminate junk fees and provide more price transparency for Americans, as well as fairer competition. The Biden administration categorizes junk fees into four categories:

1. Mandatory fees: service fees that are added on when purchasing concert or theater tickets online, and are unavoidable if you want to purchase the ticket. 
2. Surprise fees: things like family seating fees charged by airlines, to allow families to ensure they can sit together on a flight. It is not a mandatory fee in order to purchase the tickets but it is a deal breaker for most families flying together. 
3. Exploitative or predatory fees: excessive bank overdraft fees and early termination fees that target parts of the population that are economically vulnerable or locked into a service. 
4. Fraudulent fees: – for example,  a no fee bank account that actually has hidden charges

Passing this legislation would have a profoundly positive impact on both individual consumers, as well as the overall economy. It would ensure transparency and fairness in financial transactions, protecting consumers from hidden or excessive charges.

A Guide for States on junk fees published by the White House states that junk fees “obscure true prices and dilute the forces of market competition that are the bedrock of the US economy.” And  Lael Brainard, Director of the National Economic Council of the United States, adds that “junk fees weaken the forces of market competition, penalize honest businesses, and hit the most vulnerable Americans the hardest.”

If this legislation is passed, hundreds of companies (if not more) will have to change the way they structure pricing in order to ensure compliance. Plaintiff’s attorneys will play a huge role  in helping to ensure no company is cutting corners, and sending a signal to businesses that they can no longer exploit Americans with fees of this kind. 

Status of the Junk Fees Prevention Act

On February 7 2023, during the State of the Union address, Biden encouraged congress to pass a law to eliminate junk fees. About 6 weeks later, on March 22 2023, two Democrat Senators, Richard Blumenthal (D-CT) and Sheldon Whitehouse (D-RI) introduced the proposed legislation to congress. Although it’s still a long way off, this got the ball rolling and is the first step in the right direction to getting the legislation passed.

“Airline travel, concert going, common purchases—seemingly almost everywhere— consumers are compelled to pay hidden excessive charges. Our bill will help end this price gouging—forcing full disclosure upfront and restricting abusive fees. It will mandate basic common sense fairness and transparency, which consumers rightly demand and deserve,” said Blumenthal. While Whitehouse added “Our Junk Fee Prevention Act would provide consumers with the transparency they deserve when making a purchase.”

The legislation still has a way to go before it gets passed, but if it does it will bring huge benefits to consumers and the economy alike. On the consumer side the passing of this law will mean better transparency. Consumers will finally get a real sense of what something will cost them at the decision making stage – be it a holiday, concert or a financial service. This will allow consumers to make better lifestyle decisions, improve their budgeting and generally live better within their means. With regards to the economy, the passing of this law will allow fairer competition between businesses. It will ensure that more transparent and honest businesses are not penalized for their transparency by appearing to have higher prices and will level the playing field. 

How has America reacted to the potential JFPA?

The JFPA has received support from many organizations. Erin Witte, Director of Consumer Protection at Consumer Federation of America praised the Senators for introducing the legislation: “The Junk Fee Prevention Act will crack down on some of the most egregious junk fees in ticket sales, hotel reservations, air travel, and telecommunications, and will level the playing field for consumers and honest businesses.”

The proposed legislation was also welcomed by John Breyault, National Consumers League Vice President of Public Policy, Telecommunications, and Fraud. “Hidden junk fees also harm honest businesses by making their competitors’ products and services look deceptively cheaper. The Junk Fee Prevention Act is a long-overdue solution that will help consumers keep more money in their pockets and promote competition in the marketplace.”

The support for the passing of this law by these organizations goes to show how needed the legislation is, and just how negative the impact of junk fees is in the United States. 

Regulators are already cracking down on junk fees

Although the legislation has not yet been passed, we can already start to see a crackdown on junk fees in the United States. As recently as July 2023 Bank of America agreed to pay $250 Million in compensation and penalties over junk fees among other things. Of the $250 Million, $100 Million will go towards compensation to harmed customers and the remaining $150 Million will be paid as a penalty. 

According to the Consumer Financial Protection Bureau (CFPB), the bank has been charging customers excessive overdraft fees and non sufficient fund fees which fall under Biden’s definition of fraudulent fees – the fourth category of junk fees. In addition to junk fees the bank has been double charging customer fees, withholding promised credit card perks, and opening new accounts without customer authorization due to pressure of reaching sales targets. This kind of business practice is shocking, dishonourable, and outright wrong. It is essentially stealing from innocent, honest Americans, who have worked hard for what they have. 

$250 Million is a large penalty. It demonstrates how seriously authorities consider junk fees, and sets the precedent for the scale of punishment non-compliant businesses can expect to pay.  

Junk fees or junk businesses?

Junk fees are dishonest, limit price transparency, and distort competition. The more businesses are upfront about prices, the more consumers can make better decisions based on their budgets, and the competitive market can become a fairer place. 

By eliminating the burden of junk fees, individuals and households would have more disposable income, allowing them to make better financial choices and stimulating consumer spending. The passing of this law would promote a more competitive and efficient marketplace, as businesses would be incentivized to offer clear and straightforward pricing, improving their reputations and attracting loyal customers. Ultimately, this regulation would foster trust and integrity in the business environment, contributing to a healthier and more robust economy while empowering consumers to make informed decisions about their financial matters.

We have a while to go until the legislation gets passed, however the general consensus in the US is that this law will provide benefits both to the public and the economy – and regulators are already cracking down on it.