In a misguided effort to protect consumers, the Biden administration has embarked on a well-intentioned but ill-advised crusade against what it deems to be “hidden” and “junk” fees. This initiative, while ostensibly aimed at promoting transparency and fairness, overlooks the nuanced economic landscape in which small and medium-sized businesses operate, particularly in states like Colorado.
President Joe Biden kicked off this campaign during his 2023 State of the Union address, where he called out industries for allegedly deceiving consumers. Touting his desire to crack down on “junk fees,” he attacked airlines, hotels, cable companies, and concert venues for billing consumers extraneous back-end costs, employing the catchy tagline that airlines would no longer be able to “treat your children like a piece of luggage.”
Today these regulatory efforts have culminated in a proposed rule from the Federal Trade Commission seeking to “prohibit unfair or deceptive practices relating to fees for goods or services,” across the entire economy. The proposal invites debate regarding the scope of their oversight and how an economywide rule might impact businesses with narrow profit margins.
While no one likes being blindsided by hidden fees, the administration’s heavy-handed government approach to erase them will not necessarily benefit consumers, nor will it leave small and medium sized businesses unscathed. Industries impose fees for different reasons, but the administration’s one-size-fits-all approach to fee regulation fails to recognize the unique challenges and operational models of these enterprises.
Such proposals also fail to account for the unique economic fabric of Colorado. The state’s economy is bolstered by a diverse array of small and medium sized businesses, from mom-and-pop restaurants to tech startups, and even to family-owned ski resorts in the Rockies. These businesses are not faceless corporations but pillars of local communities, providing jobs and supporting regional economies. Before action is taken, more must be done to examine how particular industries and their consumers will be impacted by abolishing add-on fees.
The first and possibly most glaring of these issues is what constitutes an “unfair fee.” Small and medium-sized businesses have used back-end charges to offset burgeoning costs of goods and services caused by supply chain disruptions, labor shortages and inflationary pressures. Adding regulatory burdens at this juncture could be the tipping point for many businesses that are on the brink across the Centennial State.
Without these additional revenues, many might find it more difficult to pay for employee benefits like health care. And the ability to charge something like a “fuel surcharge” in the event of high energy costs caused by misguided government policy allows consumers to see the true regulatory costs of such decisions. The economy as well as the political system benefit from the transparency that add-on fees provide.
Proposed regulations on “junk fees” could also inadvertently stifle the very innovation and entrepreneurial spirit that Colorado prides itself on. Many small and medium sized businesses rely on nuanced pricing strategies to remain competitive and solvent.
For instance, a small online retailer in Boulder might use a minor shipping surcharge to offset the costs of eco-friendly packaging — a value important to many of Colorado’s environmentally conscious consumers. Under the new regulations, such cost structures could be deemed “hidden” or “unjust,” forcing businesses to absorb these costs or increase prices, both of which could hurt their competitiveness.
Regulators also must realize that consumers value price transparency as much as they do price simplicity, and that many companies chastised by the Biden administration have shifted from “junk” fees. In a competitive market, businesses that overcharge or disguise fees risk losing customers to more transparent competitors.
That is why companies like StubHub have introduced the option for users to view the all-in price upfront. It had received complaints that they were tacking on additional fees incrementally throughout the transaction process. Consumer reputation is what drives competition, and the FTC should weave this fundamental concept into their calculus.
George McGovern, a former U.S. senator and presidential candidate, later tried to own and operate a small business. It went bankrupt due to the regulatory burden. McGovern is on record as saying that if he had understood how government regulations crush such ventures, he would never have supported them. We deserve honest and fair prices, but it is clear that such decisions are best left to the marketplace, not to busybody politicians and government bureaucracies — the vast majority of whom have never owner or operated a business.
A thriving Colorado economy depends on the health and vibrancy of its small businesses. It is essential that any new regulation is carefully analyzed and calibrated to balance consumer protection with the economic realities faced by local businesses. We can hold bad players accountable without penalizing those playing by the rules, but that will require leaders at the FTC and in the Biden administration to act responsibly by taking more time to review and delineate how it plans to carry out its objectives.
Paul Prentice teaches market-based economics at the Hasan School of Business, Colorado State University, Pueblo. The views expressed are those of the author.
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