The Junk Economics Of ‘JunkFee Politics

The Junk Economics Of ‘JunkFee Politics

President Biden comes from the federal government and his bureaucracy is there to help you. That's the political undertone of all of the President's promises in his State of the Union address, particularly his pledge to eliminate what he calls "garbage taxes" from the economy. But the results can harm the very people it's supposed to help

It is undisputed that the customer should not be billed for products that he does not need without his consent. Also, businesses don't have to disclose additional costs before consumers sign a contract or make a purchase. But Mr. Biden's regulators are targeting common business practices that are not deceptive or unfair.

In recent years, more and more banks have started offering free checking accounts and other services. To cover their costs, they charge customers more than they bill. That's the focus now of the Consumer Financial Protection Bureau (CFPB), which has issued guidelines banning "unexpected" overdraft fees on debit transactions.

For example, someone with $100 in their checking account could pay an overdraft fee when their $80 monthly cable bill is automatically charged, and then use their debit card to buy a $90 pair of sneakers. CFPB director Rohit Chopra called it a "surprise." But anyone who keeps track of their bank account knows they don't have enough money to buy sneakers.

Banning these fees could prompt banks to limit lending to low-income customers who may be overpaying. The same goes for last week's CFPB proposal, which effectively limits credit card late fees to $8. This could result in card issuers shunning low-income customers and putting more pressure on lenders who charge high interest rates.

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There are no free financial products. When regulators restrict one revenue stream, companies will find another to cover their costs. That's a lesson learned from the Dodd-Frank Act, which caps the debit card fees banks charge retailers for using their networks. As a result, banks have increased overdraft fees.

Federal Trade Commission Chair Lina Hahn is collaborating with Mr. Chopra on Biden's "garbage" plan. It passed rules last summer that would ban auto salespeople from charging for extended warranties, service and maintenance plans, and anti-theft devices that aren't included in advertised prices.

“Consumers who decide on a dealership based on an advertised offer and drive there only to delay the process (if at all) to discover that the advertised offer is not accurate often spend hours buying a vehicle” , says the ftc extension. However, since consumers often choose not to purchase additional products, advertising at full price would be misleading.

The FTC also maintains a broad set of rules governing "worthless, free or gratuitous payments for counterfeit goods or services." But companies that want to stay in business don't charge for unnecessary services, they allow customers to pay more for services they value. It allows consumers to compare prices offered by different companies for different features.

In a supportive comment, FTC Commissioner Christine Wilson asked whether the government's "all about price" would reduce price competition or force consumers "to pay for goods and services they don't want or need." Great question.

The CFPB and FTC can already target companies that use false advertising or mislead consumers. But a total ban on commissions and price fixing will make the market less competitive, not more. It could also result in higher prices or less service for low-income Americans. Too bad citizens can't sue the government for false advertising.

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Released for print on February 14, 2023.

Biden announces measures to tackle "garbage pickers".

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