Hidden junk fees from businesses can drive up costs. Biden, FTC plan would end it.

We've all seen ridiculous fees at some point from hotels, ticket sellers, car rental companies, and banks. In some cases, we discover a so-called mandatory fee when we're about to pay.

Hidden fees allow a business to essentially hide the price for as long as possible and discourage true comparison shopping.

Those tricky tactics are once again under a microscope.

What are hidden junk fees?

The Federal Trade Commission is proposing a rule that, if finalized, would ban businesses from using hidden fees, require honest pricing and ensure consumers know how much they are paying up front.

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"Businesses would have to include all mandatory fees when telling consumers a price," the FTC stated.

The White House, along with the FTC and the Consumer Financial Protection Bureau, announced Wednesday new strategies designed to address consumer complaints about annoying, and sometimes even outrageous, extra fees that add little or no value to a product or service but drive up corporate profits.

Wednesday's developments follow earlier moves by the Biden administration to shine a light on hidden costs in a variety of areas, including concert tickets, airline travel and apartment rentals.

In July, for example, some big apartment rental platforms agreed to take more steps to offer more disclosure. Zillow has started disclosing extra fees that can shock renters each month, such as an additional fee for trash removal.

"Those sneaky fees might not matter a lot to the wealthiest Americans, but they sure do matter for hardworking Americans sitting around a kitchen table trying to stay on top of their bills and have a little left over," said Lael Brainard, director of the National Economic Council, in a call with journalists.

"Those hidden junk fees really add up."

Brainard said research indicates consumers can pay up to 20% more for an item or service when there are hidden fees than they might have paid if they saw those fees up-front and had been able to comparison shop.

Consumers are 'fed up'

Consumer advocates have been speaking out against many junk or hidden fees for years, demanding more consumer protection.

"It's not OK to bury a fee in thousands of words of terms and conditions and pretend it was disclosed," said Teresa Murray, the consumer watchdog for the U.S. PIRG Education Fund, in a statement.

The most common unfair practice, she said, is when consumers discover a fee only after they start buying a concert ticket or show up at the hotel. Sometimes, she added, a company might slip in a "junk fee" by using an official-sounding label and portraying the fee as mandatory when it's really optional.

Under the latest proposed FTC rule, companies that continue to hide fees or fail to comply could face monetary penalties and have to provide refunds to consumers. Businesses would be prohibited from advertising prices that hide or leave out mandatory fees.

In the worst-case scenarios, the extra add-ons that destroyed a so-called bargain end up being spotted only when the final cost appears on a credit card bill.

The proposed FTC rule would prohibit sellers from misrepresenting fees – what some say are bogus fees – and would require the business to disclose the amount of the fee and its purpose up-front. The company would also have to state whether the fee is refundable.

Working families, Federal Trade Commission Chair Lina Khan said, are paying tens of billions of dollars in worthless fees. "Money that corporations are extracting from Americans just because they can."

Junk fees, she said, function as an invisible tax that inflates prices across the economy.

Will a ban work?Biden is targeting the ‘junk fees’ you’re always paying. But it may not save you money.

Are junk fees legal?

Last year, the FTC asked for public comments on whether a rule would help eliminate unfair and deceptive charges. The FTC said it received more than 12,000 comments. The FTC will seek more comments now on a proposed rule on unfair and deceptive fees.

One consumer, Khan said, shared an experience where junk fees inflated the cost of a rental car by $600. One consumer said the total price of a hotel bill nearly doubled once fees were included.

Firms that are clear with customers upfront about the total price, she said, tend to lose out to competitors who go as far as possible to mask the complete cost.

It is already illegal to hide fees on the back end of a transaction, according to the FTC, and the FTC has attempted to crack down on abuses. But the new rule would give the agency more enforcement teeth.

While the FTC has tackled many junk fees, the agency notes that it generally "lacks the authority to seek penalties against first-time violators or the ability to obtain redress readily for consumers in instances in which fees violate the FTC’s prohibition on unfair or deceptive practices."

The agency would have more power to crack down on these fees and seek remedies with a junk fee rule.

The FTC also proposed a "click to cancel" rule in March that, if finalized, would require sellers to make it as easy for consumers to cancel a subscription payment plan as it is to sign up for one for everything from cosmetics to gym memberships.

And it's not just the dollars lost to a $35 fee here or a $50 fee there. Consumers waste hours on end trying to resolve some of these issues.

One example included a complaint from a consumer who faced a $3 fee for requesting an image of a check – and then repeatedly faced the same fee even though the consumer was told that the fee wouldn't be charged again.

Banks warned to 'play it straight'

On Wednesday, the CFPB issued an advisory opinion regarding a provision enacted earlier by Congress that generally prohibits large banks and credit unions from imposing unreasonable obstacles on customers, such as charging excessive fees, for basic information about their own accounts.

Under a 2010 federal law, the consumer watchdog agency noted, large banks and credit unions must provide complete and accurate account information when requested by account holders.

The CFPB stated that the advisory opinion reiterates that people are entitled to get the basic information they need without having to pay junk fees.

"When people request basic information about their accounts, big banks cannot charge them massive fees or trap them in endless customer service loops," said bureau director Rohit Chopra.

The CFPB does not plan to seek monetary relief for potential violations now but instead plans to do so beginning in February.

Chopra said that the CFPB would enforce the FTC proposed rule, if finalized, against those who violate it in the financial services industry too.

After being targeted by regulators, financial firms have nearly eliminated transaction denial fees – or non-sufficient fund or NSF fees – entirely, Chopra said. Since 2021, he said, that fee revenue has dropped by 86%, saving consumers nearly $2 billion.

Recent oversight inspections of major financial institutions, he said, uncovered a number of egregious junk fee practices, including one financial company that charged a monthly fee for paper statements without even printing any statements.

How do I fight funk fees?

Also on Wednesday, the CFPB announced that its exams will return another $140 million to consumers hit by illegal junk fees in banking, auto loans and other areas. These fees included "worthless add-on products for auto loans," the CFPB said.

When people buy cars and trucks, the CFPB said, they sometimes buy add-on loan products, like guaranteed asset protection insurance. But in situations when borrowers paid off their loan early or their car or truck was repossessed, CFPB stated, examiners found that loan servicers continued to charge fees for the add-on products, which no longer offered any value.

Earlier this year, the CFPB proposed a rule, that if finalized, would lower credit card late fees to $8 from $30 in many cases now.

More oversight could be ahead, too.

The CFPB is expected to propose a rule in a few weeks that would make it easier for consumers to "break up with their bank" or switch to banks offering better deals, according to a White House news release. Financial companies would be required to let customers safely and securely send their banking transaction data to other companies and banks.

Contact personal finance columnist Susan Tompor: [email protected]. Follow her on Twitter @tompor.