Biden Administration’s Efforts to Eliminate Hidden Junk Fees

In a move to address the widespread frustration over hidden and unexpected “junk fees,” the Biden administration is taking a stance by proposing a rule that aims to prohibit businesses from implementing these practices. Junk fees, often concealed until payment is due, have the potential to significantly inflate the final cost of various services, including food delivery, hotel stays, and banking transactions. This proposal comes in the wake of California Governor Gavin Newsom’s recent signing of a law to ban junk fees, effective from July 1, 2024, and echoes the earlier call by the Biden administration for stricter measures against these fees.

The Federal Trade Commission (FTC) is spearheading the proposed rule, and it follows a substantial response from both consumers and businesses, with over 12,000 comments submitted to the FTC on the topic. FTC Chair Lina Khan noted in a conference call with reporters that these fees not only cost Americans billions annually but also have a detrimental impact on the overall economy by stifling healthy competition among businesses.

The core tenets of the proposed rule include compelling businesses that rely on junk fees to provide refunds to affected consumers. Furthermore, these companies could face monetary penalties for violating the new regulations. Rohit Chopra, the director of the Consumer Financial Protection Bureau (CFPB), expressed strong disapproval of the spread of junk fees, stating that “Junk fees have been creeping across the economy, and Americans are tired and fed up.” Under the proposed FTC rule, businesses could face penalties of up to $50,000 per violation.

The CFPB is not stopping at that but is also addressing another concerning practice observed among some major banks. Some banks charge customers fees for obtaining basic account information, such as checking their balance. Chopra affirmed the CFPB’s commitment to protecting consumers by issuing new policies to ensure that major banks are transparent with their customers. “Today’s guidance outlines a pretty basic concept: When people request basic information about their account, banks can’t charge them big fees,” Chopra emphasized.

The expected outcome of banning junk fees extends beyond monetary savings for consumers. The FTC estimates that this action will free up approximately 50 million hours of consumers’ time, as they will no longer need to scour for hidden fees when making purchases, whether for hotels or tickets. Lina Khan, the FTC Chair, pointed out that these hidden fees often complicate the process of selecting the best products or services, creating an unfair disadvantage for consumers.

The FTC will publish the proposed rule in the Federal Register, after which consumers will have a 60-day window to submit their comments online. This initiative reflects a broader commitment to safeguarding consumer interests, promoting transparency in pricing, and fostering fair competition within various sectors of the economy.