Junk fees start to disappear, but will consumers really save money?

Over the past year, President Joe Biden and his administration have made fighting “junk fees” a priority. This term refers to surprise charges ranging from concert ticket surcharges to airline seat selection fees, credit card late fees, bank overdraft fees, hotel resort fees and more. The junk fee terminology tends to be associated with line items that add cost that is not proportional to the actual value that customers receive.

Overdraft fees were one of the first dominoes to fall. Last year, many financial institutions lowered their overdraft and non-sufficient funds fees, in some cases eliminating them entirely. Last summer, Bankrate’s annual checking survey found that the average overdraft fee fell 11 percent from the previous year’s record high. However, the death of overdraft fees may have been exaggerated. Nearly all (96 percent) of the accounts that we surveyed still assessed overdraft fees. And at $29.80, the average fee was still substantial, even if it was down on a year-over-year basis.

Fees can be like a game of whack-a-mole. When one goes down, another goes up. Case in point: The average ATM surcharge imposed upon non-customers jumped to the highest level on record at the same time the average overdraft fee dipped.

We’ve seen this movie before. When the Durbin Amendment capped debit card interchange fees in 2010, merchants saved money, but just 1 percent lowered their prices, according to data from the Federal Reserve Bank of Richmond. And banks responded by increasing overdraft fees and out-of-network ATM fees and made it harder to obtain a free checking account.

Still, more transparency is a good thing

Earlier this month, President Biden held an event at the White House to celebrate increased transparency in event ticketing fees. Major players such as Live Nation, Ticketmaster and SeatGeek have committed to making it easier for customers to compare all-in ticket prices, instead of adding surprise charges at the end of the transaction.

While greater transparency is welcome, I question how much money consumers will actually save. These ticketing fees could easily remain the same or even go up. More disclosure won’t necessarily translate into more savings.

Peter C. Earle, an economist at the American Institute for Economic Research, agrees. “Despite what the Biden Administration might want Americans to believe, most so-called junk fees will not be removed,” he writes. “They can’t be, not without completely eliminating the availability of the associated good or service. More likely, a government action against ‘junk fees’ will result in the additional fees being bundled into a single, overall price, whether it’s a concert ticket, a new car, or some other item. Ironically or not, the opaqueness of blending all of those fees together makes it much easier to raise any or all of those fees over time.”

Additional examples

Consider resort fees: While it’s not a great experience to think you’re paying $150 for a hotel stay only to be hit with a $200 bill that incorporates a $50 resort fee, more transparency might just mean the price is $200 from the get-go. Resort fees are pretty sneaky. They tend to refer to things like gym and pool access and other amenities. Sometimes you can get them removed if you ask nicely, especially if you don’t plan to take advantage of those extras.

Or what about airline seat selection fees? Some people would rather save money and book basic economy tickets, even if they’ll most likely be stuck in a middle seat. That wouldn’t be feasible for my family — can you imagine if my two-year-old daughter was randomly assigned to sit between two strangers? — but the alternative is probably that airline fares would rise for everyone.

Capping credit card late fees at $8, as the Consumer Financial Protection Bureau has proposed, could create massive ripple effects. I feel a bit flippant about this one. The best way to avoid a credit card late fee is to simply not pay late. I understand that mistakes happen and money can be tight, but we need to have some rules, don’t we? A minimal late fee would reduce the incentive to pay on time. The current maximum is $30 for a first offense and $41 for subsequent late payments within six billing cycles.

I think some consequences are fair

It’s reasonable to expect that a late payment will incur a penalty. By the way, it’s remarkably easy to get out of these fees (at least occasionally), even if you do happen to pay late. In 2020, Bankrate found that 82 percent of cardholders who asked for a late fee to be waived or reduced got at least some relief.

Reducing the maximum late fee to $8 could have significant unintended consequences, such as higher fees in other areas and reduced access to credit. This could be particularly pronounced among lower-income households, since they’re more likely to pay late and also more likely to need credit for daily necessities (as opposed to higher-income households, which are more likely to use credit cards for rewards and convenience).

And don’t even get me started on the Credit Card Competition Act. That proposed legislation would save merchants money, but as we saw with the Durbin Amendment, the savings is unlikely to trickle down to consumers. Instead, we would likely lose credit card rewards, data security and choice.

The bottom line

I don’t mean to seem like I’m pro-junk fee. I guess I’m just more cynical. In many respects, I actually empathize with the government on these issues. I’m not sure what the government is supposed to do, really. If its effort to eliminate a $50 resort fee on top of a $150 hotel stay merely leads to a sticker price of $200, that certainly doesn’t match the intent behind the effort.

Ultimately, the best tool that we, as consumers, have at our disposal is to vote with our wallets. If we don’t like a fee or a policy, we’re free to shop elsewhere. That’s hard, though, if we’re a captive audience. And that’s often the case with airlines, hotels and concert tickets. There are limited alternatives.

At the end of the day, the free market is going to do what it’s going to do. I suppose it’s a noble effort to fight junk fees, but I believe the most likely outcome is simply going to be more awareness of these higher costs, not a rollback in prices.

Have a question about credit cards? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.