Junk fees are likely to feature in the election this year, so for that reason alone, it would be useful to know what they are. Sometimes they seem to be defined by examples; you can find such a list of examples (as well as a definition that strikes me as underinclusive) here. Because the very name junk fees is negative, people using the phrase usually mean that the particular fee they are talking about should be regulated. No one thinks businesses should feel free to charge as much in junk fees as they want: either they think the fee is a junk fee and needs to be regulated or they dispute whether it’s a junk fee at all and so believe it shouldn’t be regulated. So there’s a sense in which the name junk fees really means a fee that the speaker thinks should be regulated.
But that definition, though realistic, is not very useful. You can certainly find other definitions. The White House defines them as “fees designed either to confuse or deceive consumers or to take advantage of lock-in or other forms of situational market power.” Here’s the FTC’s definition (warning: it’s a long one): unfair or deceptive fees that are charged for goods or services that have little or no added value to the consumer, including goods or services that consumers would reasonably assume to be included within the overall advertised price; the term also encompasses “hidden fees,” which are fees for goods or services that are deceptive or unfair, including because they are disclosed only at a later stage in the consumer’s purchasing process or not at all, whether or not the fees are described as corresponding to goods or services that have independent value to the consumer. These terms may overlap—a junk fee can be a hidden fee, but not all junk fees are hidden fees.” And others have different definitions.
My own definition, hearkening back to the reason to call a fee junk, focuses on when I think fees should be regulated. It seems to me that regulation is appropriate when the market won’t operate as to fees–meaning consumers can’t protect themselves–or when the fee actually prevents the market from operating. And so I define junk fees as fees as to which the market doesn’t operate properly or that prevent the market from operating properly. Which is pretty close to the White House definition.
Some examples of how this works: when a hotel charges a mandatory resort fee that isn’t disclosed in its original pricing, consumers comparing that hotel’s price with another hotel’s price don’t take into account the resort fee and so might be deceived into staying at the hotel that actually charges more. That means the hidden resort fee prevents the market from operating properly and so is a junk fee. Hotels should be blocked from using such pricing methods.
What about credit card late fees? I think these are junk fees because the market doesn’t operate properly as to them, meaning that if they are not regulated, credit card issuers could charge more than the market price. That is so for two reasons, even though credit card late fees are disclosed. First, many consumers simply don’t understand the late fee disclosure so the disclosure doesn’t do them any good. Second, I suspect that many consumers, when deciding which credit card to get, don’t expect to make late payments and so disregard the late fee disclosure–which means the late fee disclosure doesn’t do them any good either. Then they get nailed with a late fee. That means that the market can’t operate properly as to late fees. So credit card late fees should be regulated.
If the market does operate to protect consumers, then I think regulation of the fee is unlikely to be needed, and so the fee should not be considered a junk fee. Annoying, perhaps, but not junk.
