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Junk Fees are Ill-Defined and the New Rule Will Hurt the Gig Economy


By Trey Price, American Consumer Institute

Late last year, the Federal Trade Commission (FTC) released a new rule on so-called “junk fees,”  which the FTC considers unnecessarily excessive. This rule applies to wide swaths of the economy, including the gig economy. Applying this top-down rule to the gig economy with little concern about how it will impact these companies’ business models could lead to higher prices for consumers.

The FTC’s new rule would force app-based companies to show the entire price of their service upfront. In practice, this would mean additional fees would either not be charged or would need to be included in the initial price of the transaction. The stated purpose of the rule is to prevent businesses from luring customers in with artificially low prices only to increase them once they are committed to the transaction. The hope is that this will improve pricing transparency. It is part of a larger effort by the Biden administration to crack down on junk fees which it argues banks, hotels, and other businesses, unfairly levy.

While on the surface, the new rule seems like a good idea, it has been rightly criticized for being overly complicated and harmful to companies that use a dynamic pricing model. Many organizations currently employ a system that adjusts prices based on supply and demand rather than a fixed price that can be easily advertised, as would be required in the rule change.

The U.S. Chamber of Commerce released an article explaining the shortcomings of the rule and how it could affect businesses and consumers. The article argues that the changes  requiring upfront pricing may make it difficult to have dynamic prices that caters to the customers’ needs since the price would depend on the information provided by the customer regarding purchasing selection. It further says that the changes might make companies adopt a standard rate that would harm consumers since the price cannot be adjusted according to demand. This will leave overall prices higher.

The Chamber also argues that the rule is overly focused on how the final price could prevent discounts. As a result, the rule could unintentionally encourage businesses that rely on dynamic pricing to increase their prices to make up for lost revenue and to not offer discounts they aren’t able to advertise.

Impacts on dynamic pricing would affect Uber and other similar apps. For Uber specifically, the price of a ride depends on several factors including distance, demand, and the route taken (especially if that route includes toll roads). A new rule that micromanages how companies price their services unintentionally creates economic uncertainty that may force these companies to adjust their end price.

While well-intentioned, the FTC’s new rule on junk fees is poorly thought out and fails to account for differences in how companies conduct their operations. Future transparency rules need to account for these differences, so they do not unintentionally harm businesses and the consumers they serve.


Trey Price is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us at www.TheAmericanConsumer.Org