By Mario Lopez, Hispanic Leadership Fund
Once again, the Federal Trade Commission (FTC) is using its power to exert control over a range of commercial marketplaces, without discretion or distinction of differences between industries. Other agencies, like the Consumer Financial Protection Bureau (CFPB) are also engaged in this cause.
FTC Chair Lina Kahn’s latest crusade involves attacking so-called “junk fees,” that are being used across multiple business sectors and platforms. The FTC is lumping all these fees together, describing them as “hidden and bogus fees that can harm consumers and undercut honest businesses.” In reality, there are different types of fees across many segments of the economy, and certain businesses use some surcharges to help keep costs down and give consumers more options.
Our economy is built on the success of over 32.6 million businesses that are operating in our country, employing a vast majority of Americans. These businesses, whether big or small, all have operational blueprints and frameworks that can be significantly impacted if we allow our government to impose its power in an unnecessary way.
In its all-out effort to drill in on the “bad” parts of back-end fees, the FTC fails to consider how some of the fees have more benign roles within certain pay structures. On a small scale, many business owners have stressed that so-called “hidden fees” are used to account for the rise in prices, support staff salaries, employee benefits, and associated labor costs that arise when running a small business.
As the U.S. Chamber of Commerce highlighted, “variable and dynamic fees allow costs to scale with the price of goods or services purchased or to reflect current supply and demand considerations. Consumers benefit when such a fee structure can adjust downwards.” Eliminating back-end fees would also force businesses to remove this adaptive pricing structure, resulting in higher base prices. In some cases, those prices will be much higher than they otherwise would be, given that they would have to include significant margins to cover future unknown costs.
On a larger scale, customers of financial institutions like banks and credit card companies will also be greatly impacted. For instance, the CFPB’s new rule seeking to impose a cap on credit card late fees, will force banks and credit card companies to tighten their lending standards, reduce credit limits, and increase interest rates.
If banks are forced to limit access to credit, it will profoundly hurt low-income Americans, amplifying existing challenges that come for individuals who are already struggling to increase their economic status. This type of government interference, as well intentioned as it may be portrayed, only makes it more difficult to establish credit history and work toward life goals ranging from homeownership to starting a business.
The Federal Reserve Bank of New York has acknowledged this reality, specifying that “access to credit reduces income inequality among accepted applicants by fostering upward mobility of low-income individuals.”
A regulatory environment based on a mentality that all fees are bad will also greatly impact airfare prices and the flexible travel options that airlines provide to travelers. Years ago, an airline ticket had to be high enough to include the potential to check two bags, handling those bags, the selection of a specific seat, and the ability to eat and drink for free onboard. This led to higher airfare prices, as people paid for services they weren’t going to use.
Over time, airlines decided to stop bundling and allow for travelers to decide how many bags they wanted to bring, seat assignments and if they wanted to drink and dine onboard. While many factors affect airfare prices, there was a general downward trend in average base fares in the years following major carriers’ change of the price structure to account for fees around 2008. Banning that added flexibility risks reinstatement of the old price structure, which would leave everyone to pay for all services, whether they use them or not.
The Biden Administration’s is trying to force all individuals and businesses into a “one-size-fits-all” set of rules. Banning “junk fees” does not make the costs they represent magically disappear. Instead, they will be absorbed into cost of the larger service, yielding higher average prices with less price transparency.
The goal of our government should be to maintain a fair, open and competitive marketplace that allows for free enterprise. Power-hungry regulations have a real-world impact—they inevitably generate unintended consequences that often result in outcomes that hurt the very people that proponents of such a heavy-handed approach say they want to help.
Mario H. Lopez is president of the Hispanic Leadership Fund, a public policy advocacy organization that promotes liberty, opportunity and prosperity for all.