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Regulation - What is it Good For?

Tackling Junk and Hidden Fees

The Federal Trade Commission recently proposed rules that would stop businesses from charging hidden fees. The agency estimates that junk fees cost consumers tens of billions of dollars per year.

The new rules would prohibit companies from jacking up bills with hidden and bogus fees and instead require that businesses clearly disclose their fees to customers. The new rules would also allow the FTC to order full refunds to consumers for any business that continues to bill the prohibited fees.

Specifically, the new rules ban the following practices by businesses:

  • Many companies advertise a low price and then spring hidden fees on customers at the time of purchase. Companies would be required to advertise the true cost of their products or services.
  • Companies would also be forbidden from using bogus fees, which are fees that seemingly have no purpose other than jacking up the price.

Hidden fees are a problem in numerous industries. Recently, several of the large ticket companies agreed to eliminate hidden fees after a loud public outcry after the sale of Taylor Swift tickets. Some hotel chains and airlines layer on extra fees that drive up the costs far above the advertised price.

Other federal agencies are joining the fight against these fees, including the FCC, The Consumer Financial Protection Bureau (CFPB), the Department of Housing and Urban Development (HUD), and the Department of Transportation (DOT).

The FCC proposed rules in June that would stop cable and satellite companies from charging hidden fees for cable TV service. The hidden fees for cable TV have grown so large that they sometimes exceed the advertised price of the cable product. Customers don’t generally find out about the hidden fees until they have signed a contract for the low advertised price and get the first bill. The FCC is tackling hidden fees for cable since it’s an industry that the agency still regulates. Hidden fees on cable have been outrageous for years, and it’s a fair question to ask why the FCC never addressed the issue in the past.

There are some hidden fees on broadband, but for now, the FCC can’t address these since broadband isn’t regulated – so I guess these fall under the FTC’s purview. The biggest such fees are mandatory modems, which some ISPs now charge as much as $15 per month. Another big hidden fee for some families is data caps that hit when customers use more than some arbitrary amount of broadband in a month. There are also smaller hidden fees like Frontier’s $1.99 fee for an Internet Infrastructure Charge – a bogus fee for which there is no specific underlying cost.

The initiative to eliminate hidden and bogus fees comes from prodding from the White House. President Biden made it clear to federal agencies a year ago that he expects them to tackle the issue.

This is something that has been badly needed for a long time. It’s too bad that the FTC is the agency doing this. The FTC typically only brings proceedings against specific companies, so compliance with this rule is going to be hit or miss. Smaller companies might continue to use the practice in the hope that they are small enough to stay under the FTC’s radar. But perhaps the FTC will levy large fines while also ordering full refunds against a few companies that don’t comply and scare most companies into compliance.

4 replies on “Tackling Junk and Hidden Fees”

With junk fees, you keep talking about modems and other equipment as though those are junk fees. The cost of those devices today is much higher than way back when. I’m not sure whether $15 or $25 per month for a modem/router is a fair price or not. . . but many companies add some other services (ex: security and parental controls) along with the devices in the monthly recurring charges that you’re talking about.

Steve,

The point is those devices are required to deliver the service, not an optional cost, so it should be rolled into the advertised price of the service. Same goes for “regional broadcast fees” that providers claim is to offset the cost increase of retransmission fees, that’s not an optional service so it shouldn’t be a separate fee.

The core problem is the prices being advertised are much lower than the true price of the service, because the advertising doesn’t tell you about all the mandatory “fees” providers use to obscure the actual price or it’s hidden in fine print.

I agree. There’s a difference between fees of add-ons vs fees for necessary components. If your service requires a modem, that needs to be part of the advertised price, and if you’re passing through USF or something, that needs to be part of the advertised price.

However, I think it’s important to not be overly broad, internet service doesn’t require a wifi router so that should certainly be an optional add-on for example.

As much as customers detest junk fees and other “up-charges” on telecom services, you know these types of annoying forms of customer harrassment have been around in all sorts of industries for many, many years.
I think the airlines have taken junk fees to an art form, charging for speaking to a live rep, charging for carry-on luggage (charging for stowed baggage, too, for that matter!), and more forms of “fee-borne harrassment”…

Good luck trying to get rid of the fees, though. As unpopular as they are with customers, the accounting departments of vendors love the fees as they are a side-game source of revenue. And this sort of behavior is addictive — when one company does it, their competition seems to largely follow suit.

Kind of reminds me of the lyric is the show, “Les Miserables” in the tune “Master of the House”>”… charge you for looking in the mirror twice!’ — sung by that crooked innkeeper Tenardier.

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