The intent of the FTC’s new proposed rule is to bolster price transparency for consumers and restrain business, but its effect will be clear: higher prices, more regulation and fewer options for consumers.
Everything feels more expensive right now, and that’s because it is. Despite a notable decline from its peak of 9.1 percent in June 2022, inflation remains higher than the Federal Reserve's 2 percent target.
Since January 2021, prices have surged by an astonishing 17.6 percent. Grocery prices today are 21 percent higher than in January 2021, and while gas prices will tick down this summer, they’re still 10 percent higher than they were three years ago. Ask frequent flyers, and they’ll tell you airline travel is more expensive than ever, too. But on this, they’d be wrong.
Airline tickets are beating the trendline on inflation, thanks to consumer-friendly trends in flexible pricing and budget flights — one of which the Federal Trade Commission (FTC) and Biden administration would like to end.
The FTC’s new proposed rule, Trade Regulation Rule on Unfair or Deceptive Fees, takes aim at hidden fees in numerous industries, what Biden calls “junk fees.” The intent is to bolster price transparency for consumers and restrain business, but its effect will be clear: higher prices, more regulation and fewer options for consumers.
If you’ve taken a flight recently, you may have experienced the kind of pricing structure the FTC seeks to stamp out. You find a good flight at an affordable price, then you’re inundated with fees for baggage, seat selection and priority boarding. Some seat sections are around $15, others are maybe $30, and in the back of the plane, you can pick between a few seats at no added cost. Instead of being guaranteed two checked bags at no cost, you pay a la carte for your single checked bag. Credit card deals are often a life saver.
In the end, you’ve paid for what you need or value as a consumer, and nothing more. This is how your airline tickets stay relatively affordable in an inflationary economy. The principle isn’t dissimilar from how discount grocers like Aldi and Lidl offer lower prices to shoppers by removing bells and whistles like free bags or unlocking carts for a quarter. By not assuming the consumer's needs and allowing customization, prices are more affordable.
This is actually a good thing. But the FTC disagrees.
The FTC's primary role is to protect consumers from unfair or deceptive practices. Its bid to regulate so-called junk fees appears to be motivated by some high-profile instances of sticker shock, including last year’s Taylor Swift Eras Tour, which saw ticket prices resell via electronic vendors with steep markups. The Biden administration made hay of it and arranged companies including Live Nation, SeatGeek, Airbnb, TickPick and the Newport Festivals Foundation into an event where they’d pledge to provide “all-in” pricing that shows the total price of admission, including all fees, up front.
Allies of the administration have also kept pressure on banks to eliminate processing and late fees that make generous rewards programs more available to credit card holders. Lessons should have been learned from the 2010 Durbin Amendment, which capped debit card interchange fees, intended to reduce costs for merchants and, ultimately, consumers. A study by the Federal Reserve Bank of Richmond found that only 1 percent of merchants lowered their prices as a result. Some banks responded by increasing overdraft and out-of-network ATM fees, as well as scrapping free checking account programs that benefited mostly lower-income people.
Many of us have tried to warn overzealous regulators about the economic consequences of caps and crackdowns on backend fees, but they continue forward in hopes of bullying companies into defying market logic.
The narrative about junk fees is standard fare for President Biden: he blames it on corporate greed.
It’s not inflation you’re feeling at the grocery store, it’s “greedflation.” After that it was “shrinkflation,” where brands shrink their boxes and raise prices for no apparent reason.
Consumers tend to know better. They recognize that when companies face downward pressure on their business models, prices necessarily go up.
The greed narrative doesn’t hold up. Studies have shown that revenues from extra fees in the banking, telecom and airline sectors are quite small compared to total revenues.
The FTC's intention to protect consumers from unfair fees is commendable, but its approach too often drifts into the failed policy of price controls. While eliminating back-end fees might push businesses to incorporate these costs upfront, the move can also reduce consumers' ability to opt out of services they do not want or need. Instead of imposing broad regulations, a more nuanced approach would consider the specific dynamics of different industries and consumers' desire for flexibility in their budgets.
The FTC can better serve its mission by policing clear violations of consumer welfare and not meddling in pricing models that help give consumers options for lower prices on the goods and services they value.
Yaël Ossowski is deputy director at the Consumer Choice Center.
