AYESHA RASCOE, HOST:
In February 2023, President Biden promised in his State of the Union address to take on what he called junk fees, credit card late fees, bank overdraft fees.
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PRESIDENT JOE BIDEN: Junk fees may not matter to the very wealthy, but they matter to most other folks, in homes like the one I grew up in, like many of you did. They add up to hundreds of dollar a month. They make it harder for you to pay your bills or afford that family trip. I know how unfair it feels when a company overcharges you to - gets away with it.
RASCOE: Over the past two years, federal agencies have tackled junk fees on airlines, banks and credit card companies. Last week, the Federal Trade Commission finalized its rule for concert tickets and hotels and lodging. For more on that rule, let's turn to Professor Vicki Morwitz of Columbia University's business school. She researched these fees for about 20 years and testified before Congress about them. Welcome to the program.
VICKI MORWITZ: Thank you very much.
RASCOE: One point, you know, we should make clear up front is that this rule doesn't prohibit junk fees. They just make companies put the total price out there right up front. Is that correct?
MORWITZ: That's correct. What the rule requires businesses to do is to display the total price more prominently than other price information so that all in total has to really stand out and be salient to consumers. But if firms want to explain that part of that total price includes a junk fee or any other fee or surcharge, they're still free to do that. It just can't be more prominent than the total price.
RASCOE: Based on your research, is there a reason why companies would want to keep these fees hidden and just present them at the end?
MORWITZ: I can't speak to the intent of the companies, but what academic research has shown is that when mandatory fees are separated out from the base price, consumers feel like the total price is cheaper than it really is. When those mandatory fees are dripped - they're presented later than the base price - it leads consumers to be more likely to purchase and to purchase more expensive products - for example, a ticket closer to the stage. It also makes it more difficult for consumers to comparison shop because those fees may not be the same across all competing firms in an industry. They may not even exist for some firms.
RASCOE: What do you think will be the impact, then, once companies have to start making the total prices more transparent?
MORWITZ: It means that companies will be competing on their actual offerings and their actual prices, and that means it'll make it easier for consumers to figure out what's the product that's best for them given their budget.
RASCOE: It does seem like some platforms like Orbitz or Vrbo - they now give you the total price of your stay with mandatory fees upfront, and some kind of search engines will you - show you the total costs, including, like, bags or - you know, if you pick your seat. Has landscape been changing while this debate over hidden fees has been going on?
MORWITZ: I think companies and industries prefer not to be regulated, so when they can, they'd like to move ahead of the regulation. So in many cases, we see that firms have seen this coming, and so they try to take steps ahead of time. It's also the case in the United States that the regulations vary by state. It is already illegal in California to do these kinds of actions. And so a firm may just want a policy that works across the board and not worry about what's legal in California versus some other state.
RASCOE: We played some tape of President Biden at the top of this interview. He seemed to say that the problem wasn't just that these junk fees were hidden but that they were there in the first place. What has he accomplished in terms of what he promised about these fees?
MORWITZ: Well, we're seeing regulation coming up in a number of different industries and by a number of different parts of government. So the airlines and the ticketing that we've been talking about with the FTC - that was a big pain point for many consumers. There's other regulation that was passed earlier about airlines having to prominently display the prices for the options to buy a seat and to check bags. So while it's not across the board yet, there has been progress that's been made.
RASCOE: This rule doesn't go into effect until April. Is there any reason to think that the Trump administration will try to get rid of these rules before then?
MORWITZ: It's really not clear to me what's going to happen. The one person who voted against it was Commissioner Andrew Ferguson, who many believe will be the next head of the FTC. But his rationale wasn't about the merits of the regulation. It was about the timing of the regulation. But I don't know in general what the Trump administration will do as they also have made statements about wanting to reduce regulation.
RASCOE: That's Vicki Morwitz, the Bruce Greenwald professor of business at Columbia University. Thank you so much for joining us.
MORWITZ: Thank you. It's been my pleasure. Transcript provided by NPR, Copyright NPR.
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