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The Street
The Street
Business
Rob Lenihan

FTC proposes innovative new rule that could save American consumers tens of billions of dollars a year

Back in February, President Joe Biden shared his feelings about junk fees with the nation during the Station of the Union Address. 

The White House has defined junk fees as those that are “designed either to confuse or deceive consumers or to take advantage of lock-in or other forms of situational market power.”

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“The idea that cable internet and cellphone companies can charge you $200 or more if you decide to switch to another provider — give me a break,” Biden said. “We can stop service fees on tickets to concerts and sporting events and make companies disclose all fees upfront.”

The President recently introduced the Junk Fee Protection Act in a bid to address hidden and unexpected fees from resorts, airlines, credit card companies, cable providers and more, which he said, “drain hundreds of dollars a year from the pockets of hardworking American families, especially folks who are already struggling to make ends meet.” 

Fighting 'hidden and bogus fees'

The Federal Trade Commission estimates that junk fees can cost consumers tens of billions of dollars per year in unexpected costs and on Oct. 11 the agency announced a new proposed rule to prohibit "hidden and bogus fees that can harm consumers and undercut honest businesses."

The proposed rule would apply to event tickets, hotels and apartment rentals. If the rule goes into effect, companies that continue to charge these fees could be fined and forced to pay back consumers.

The FTC asked for public input last year on whether a rule would help to eliminate these unfair and deceptive charges.

After receiving more than 12,000 comments on how fees affect their personal spending or business, the agency said it is seeking a new round of comments on a proposed junk fee rule.

The agency said the proposed rule will save consumers more than 50 million hours per year of wasted time spent searching for the total price in live-ticketing and short-term lodging alone. This time savings is equivalent to more than $10 billion over the next decade.

"All too often, Americans are plagued with unexpected and unnecessary fees they can’t escape. These junk fees now cost Americans tens of billions of dollars per year—money that corporations are extracting from working families just because they can,” FTC Chair Lina Khan said in a statement. 

Agencies fighting junk fees

“By hiding the total price, these junk fees make it harder for consumers to shop for the best product or service and punish businesses who are honest upfront," Khan said. "The FTC’s proposed rule to ban junk fees will save people money and time, and make our markets more fair and competitive.”

Meanwhile, the Consumer Financial Protection Bureau released guidance intended to stop large banks and credit unions from charging illegal junk fees for basic customer service.

“While small relationship banks pride themselves on customer service, many large banks erect obstacle courses and impose junk fees to answer basic questions,” CFPB Director Rohit Chopra said in a statement. “While the biggest banks have abandoned the relationship banking model, federal law still requires them to answer certain customer inquiries completely, accurately, and in a timely manner.”

The bureau said some large banks charge customers for basic information that is critical to fix problems with their bank account or to manage their finances.

Other agencies, included the Federal Communications Commission, the Department of Housing and Urban Development, and the Department of Transportation are working to develop and implement rules prohibiting junk fees.

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