Cheating is pervasive in American business, epitomized by the junk fee. Finally, FTC Chair Lina Khan and CFPB Director Rohit Chopra are pushing back with rules barring hidden fees.
I read the anonymous comment regarding rental payment app junk fees and thought "Did I write that?"
I started paying this fee earlier this year when an app, which had been free, started charging me $5 a month. I informed my property management company and was not surprised when they had no idea that the app had started charging for a service which had been "free" for over 5 years. The app charges the management company too, so they are now getting paid on both sides.
There are many reasons to vote to keep Biden in office next year. But no one should overlook the importance of reelecting Biden so that we can keep Lina Kahn, the FTC, and the CFPB strong and vigorous for another four years!
Shortly after entering private practice as a consumer attorney, I figured out that most “service” contracts were grossly predatory because the providers (cell phone carriers, phone carriers, cable TV companies, membership companies such as gyms, etc.) are able to sell with huge promotion of teaser rates that lure in the suckers but then the suckers never read the 6-point “mice type” “disclosures” (Ha!) that commit them to paying penalties for breaking the contract that turns out to be loaded with undisclosed fees and charges.
I started promoting an idea I called SCORE, for “Service Contracts Ought Reveal Everything” -- the basic idea was that, if you want to lock a consumer into a contract with a penalty provision for quitting the service, you have to disclose, pre-purchase, the total the consumer has to pay for the service, with all ancillary charges (taxes, access fees, 911 fees, etc. -- anything that ups the amount the consumer has to pay) during the period in which the consumer is locked in or forced to pay a penalty to quit.
So instead of giant teaser promotions for $19/mo! In giant type, you would have to have to disclose to the sucker that, over the course of the three years that they are committing to the service, they will pay a total of $1100 in service charges, taxes, and mandatory add-on (junk fees). In other words, SCORE would give consumers a way to actually compare the “take home” price of service contracts that they are being lured into. The penalty for failure to give the required total price disclosures at time of commitment is that the consumer has the right to terminate the service without penalty at any time.
I still think this is absolutely doable. If SCORE were passed federally, the upshot would be a huge pressure on businesses to actually have to compete on service and quality rather than in their ability to conceal what the consumer must pay over the course of a service agreement.
As usual, I’ll stay in my lane and talk franchising. Franchise companies get away with charging new fees all the time even though they were not disclosed when the franchisee bought the franchise. The ultimate hidden fee. These should also be treated as junk fees because now with the increased costs the franchisee must try to pass it on to the consumer. Examples are technology fees, additional credit card processing fees, 3rd party delivery fees, green fees (to analyze energy usage), and more. And because of mandatory arbitrations with no class actions, the only way to fight it is to, as an individual, take on the much larger corporation. The FTC needs to take a stand, if it wasn’t disclosed, it can’t be charged, unless the franchisee agrees to it. If something is truly new and needed, the franchise company should be able to make the business case to the franchisee, and they should jointly agree to the fee and the service.
Thanks Matt. AT&T quoted me $186 for a plan and months later they up the bill to over $200. Find out there is over $16 in 'company fees and charges'. I called and she said it's a fee we charge for handling your account. What? I can't imagine The Wrath of Khan can win. She is overpowered by the lobbyists and corrupt congress.
Bear with me; long comment to follow. I could probably make it more succinct, but I got shit to do, so instead of spending a lot of time editing and making it "perfect," I'm going to throw this out here and see if anyone finds it interesting.
The company I work for was bought about 4 years ago by an investment group whose strategy is to buy small, successful software companies and then give those "portfolio companies" merchant services (the group all came from the payment processing world, so that's their expertise) and HR, theoretically leveraging an economy of scale, from the number of employees being large-ish due to owning so many small companies, to get better negotiating power for the employees and therefore better benefits. Matt, you and I have spoken about this a bit. I've since gotten the impression this investment group would be considered a private equity group.
I don't know squat, but I definitely got slick finance bro vibes from the whole thing. I got the vibes that these were the type of people I don't like, financially speaking. I mean, like, the vibe for me was "this is one of the kinds of person who caused 2008, though not the straight up criminal type." Maybe not monopolists per se, but probably gross and deceptive and wreaking of the kind of stuff some bankers do that make me not like them. At the same time, as people, they were nice, and they mostly leave us alone, at least until recently, so no worries.
But I suspected eventually the chickens would come home to roost, and lately that's been happening. I'll expand on that in a bit, but first I want to clarify the business model a little bit, just to make sure y'all can fully understand what I'm saying here.
So the company I work for administers a business software; our customers are themselves business owners. Our software hosts their websites with online booking, and it also helps them with their day-to-day tasks. So our customers' websites have to use what's known as a payment gateway to accept credit card payments on their websites, just like anyone does. Some of the most commonly known payment gateways are PayPal, Square, etc. So the parent company's business model is to build their own payment gateway, which they then require all the portfolio companies to use, so that our customers can accept credit card payments. So, whereas before we used to integrate with PayPal, authorize.net, etc., for our customers to be able to accept credit card payments, now we have our own payment gateway given to us by our parent company, which means that we get to keep a portion of the credit card processing fees. So that's the business model: in theory, our day-to-day operations don't change, but now we have significantly increased revenue, because in addition to our customers' monthly subscription fees they pay to use our software, we now also make money every time their website takes an order.
The thing that worried me right from the start is that this kind of thing is always presented with an implied sense of something for nothing. Like, it's always going to be a win-win for everyone, no drawbacks, according to the people trying to make it happen. I think in a sense that's what's happening with hidden fees; it's, as one of the other commenters noted, a bait and switch.
Dang it, I suck at writing and am having a hard time putting my thoughts into words. Oh well, anyway, in the last year or so, the parent company has been breathing down our neck, telling us we're falling short of our "goals." This despite the fact that we're one of the biggest, most profitable, fastest-growing companies of all the portfolio companies at the parent company. Like, top 2 or 3 out of over 70 at this point. We've grown to over three times the size we were by some metrics when we were purchased. We consistently make money for the parent company, and not just like, squeaking by money either. We're in essence the top or one of the top performing companies there.
So what's the problem? Why aren't we meeting their arbitrary "goals?" It's because our customers don't like the payment gateway and many of them won't use it. We're by far the market leader in our tiny, niche market, so people want to use our software. It's really telling that they're willing to pay a monthly subscription fee to use our service, but they dislike the payment gateway so much that they're willing to use the software but not even be able to accept credit card payments on their website. To be clear, they HAVE TO use our payment gateway in order to accept credit card payments. They can track 3rd-party credit card payments through their account with us, but they can't integrate at all.
Why don't they like the merchant services? Well, the rates are too high. When you apply, it takes several days to get approved, sometimes longer, and there's no pre-approval, so you just can't take payments until we're good and ready. The mobile swipers for use with phones and tablets, last I checked, still were true swipers, without a chip reader, much less tapping, Apple Pay, etc. On top of that, all our hardware (most of our customers don't use hardware, to be fair. Most of the credit card transactions taking place are web-based for our customers; that's the nature of our business) is overpriced.
So why the hell is any of this relevant to junk fees? It might or might not be junk fees per se, but I think at least in the spirit of junk fees, what our parent company is doing. They've allowed us to "not raise prices" by leveraging another revenue stream, only the quiet part is that the other revenue stream is in essence a hidden junk fee, because it's craptacular, overpriced, and required. It gets worse though too; an actual, unequivocal junk fee will soon rear its head, I promise.
Our customers are all business people. Some of them are somewhat understanding; they recognize that a business has to make money, so they take it in stride. Many of them are pissed. We've started doing things like making certain features of our software dependent on a customer doing x percentage of their payment processing through the payment gateway, etc. And here's the kicker: we decided to offer what I think we're calling a "program fee" that our customers can charge their customers, to cover the cost of credit card processing (to be fair, many businesses charge a fee to cover credit card processing. To me, this is different, because the cost of the credit card processing itself is inflated, and because we're actually SUGGESTING this to our customers, even sort of asking them to do it, after years of advising against charging a credit card processing fee, since we feel like it makes more sense for people in our industry to just raise prices by 2 or 3% and call credit card processing fees part of the cost of doing business), basically only because people were complaining about the rates, and the fact that they had no choice but to submit to said rates. So the solution is we're planning to collude with our customers to jointly charge their customers a junk fee, all so the finance bros from the parent company can go public in a few years and make a shitton of money. To be clear, our customers will get to keep a portion of that "program fee," or at least I think that's the way it was supposed to work. To be even more clear, I don't know for sure that we're going to do the program fee; I haven't heard anything about it for a while. But I only say that as a precaution; it's very likely I would know by now if we had changed our mind on doing that.
My boss has had a hard time with this, and confided in me recently something that blew my mind. I wish I could remember his exact words, but basically what he said was something along the lines of the fact that credit card processing is a straight up commodity. In other words, it's a well-known product that is ubiquitous. It's not a niche product. With niche products, it might be perfectly fine and normal for only a few competitors to exist in that market, as there might only be enough money floating around for that. With something as common and necessary as credit card processing, it's supposed to be very much the classic example of supply and demand; there should be a shitton of competition for robust price control. What my boss basically pointed out to me is that with respect to the one aspect of our business that is a straight up commodity, payment processing, we've allowed no choice at all. Like, we could raise our sticker prices and it would sort of make sense to me. We're bigger now and our software is more powerful. But no, we had to try to go the deceptive route, by "not raising prices" but charging an arm and a leg for shitty credit card processing.
I love my job, and I even like the finance bros I've met from the parent company. They're nice guys. And I'm sure they'll be up in arms if things continue along these lines, because the kind of hijinx they like to use to make "business models" won't be an option for them any more. They'll have to... gasp... create something of value in order to make their money! I'm sort of joking; it's not black and white. These guys do actual work, of course. But yeah, I'm looking forward to a day when people in the financial industry no longer have the option of deceptively sucking value out of our economy.
Hopefully ending junk fees will happen. Another similar consumer travesty are the layers of taxes imposed by greedy states and local governments. City, county and state sales taxes lead the way followed by resort taxes, hotel taxes and the like. And this only compounds the problem.
"Talking about monopolies is a bit tricky, because a corporation is an abstraction."
I appreciate that you'll name names. People run corporations. Corporate executives rob American citizens. It isn't faceless, someone sets the tone and direction. Someone individually profits from this theft.
It's amusing none of these people can defend these with a straight face.
Even the always useless Christine Wilson's dissent is essentially procedural throat clearing nonsense, no substance. Because how could there be a substantial argument for hidden fees?
Gratuity partly feels like a junk fee sometimes. They've thrown it in everywhere and marked it up. It's one way to keep labor costs stagnant and throw it to the consumer.
I read the anonymous comment regarding rental payment app junk fees and thought "Did I write that?"
I started paying this fee earlier this year when an app, which had been free, started charging me $5 a month. I informed my property management company and was not surprised when they had no idea that the app had started charging for a service which had been "free" for over 5 years. The app charges the management company too, so they are now getting paid on both sides.
Merica!
There are many reasons to vote to keep Biden in office next year. But no one should overlook the importance of reelecting Biden so that we can keep Lina Kahn, the FTC, and the CFPB strong and vigorous for another four years!
Shortly after entering private practice as a consumer attorney, I figured out that most “service” contracts were grossly predatory because the providers (cell phone carriers, phone carriers, cable TV companies, membership companies such as gyms, etc.) are able to sell with huge promotion of teaser rates that lure in the suckers but then the suckers never read the 6-point “mice type” “disclosures” (Ha!) that commit them to paying penalties for breaking the contract that turns out to be loaded with undisclosed fees and charges.
I started promoting an idea I called SCORE, for “Service Contracts Ought Reveal Everything” -- the basic idea was that, if you want to lock a consumer into a contract with a penalty provision for quitting the service, you have to disclose, pre-purchase, the total the consumer has to pay for the service, with all ancillary charges (taxes, access fees, 911 fees, etc. -- anything that ups the amount the consumer has to pay) during the period in which the consumer is locked in or forced to pay a penalty to quit.
So instead of giant teaser promotions for $19/mo! In giant type, you would have to have to disclose to the sucker that, over the course of the three years that they are committing to the service, they will pay a total of $1100 in service charges, taxes, and mandatory add-on (junk fees). In other words, SCORE would give consumers a way to actually compare the “take home” price of service contracts that they are being lured into. The penalty for failure to give the required total price disclosures at time of commitment is that the consumer has the right to terminate the service without penalty at any time.
I still think this is absolutely doable. If SCORE were passed federally, the upshot would be a huge pressure on businesses to actually have to compete on service and quality rather than in their ability to conceal what the consumer must pay over the course of a service agreement.
As usual, I’ll stay in my lane and talk franchising. Franchise companies get away with charging new fees all the time even though they were not disclosed when the franchisee bought the franchise. The ultimate hidden fee. These should also be treated as junk fees because now with the increased costs the franchisee must try to pass it on to the consumer. Examples are technology fees, additional credit card processing fees, 3rd party delivery fees, green fees (to analyze energy usage), and more. And because of mandatory arbitrations with no class actions, the only way to fight it is to, as an individual, take on the much larger corporation. The FTC needs to take a stand, if it wasn’t disclosed, it can’t be charged, unless the franchisee agrees to it. If something is truly new and needed, the franchise company should be able to make the business case to the franchisee, and they should jointly agree to the fee and the service.
Thanks Matt. AT&T quoted me $186 for a plan and months later they up the bill to over $200. Find out there is over $16 in 'company fees and charges'. I called and she said it's a fee we charge for handling your account. What? I can't imagine The Wrath of Khan can win. She is overpowered by the lobbyists and corrupt congress.
Back in the old days when this was illegal, still is i guess really if enforced, it was called bait and switch"
If they eliminated junk fee’s I would say there’s still hope that not all our politicians are corrupt. But they won’t. But thanks for bringing it up.
Bear with me; long comment to follow. I could probably make it more succinct, but I got shit to do, so instead of spending a lot of time editing and making it "perfect," I'm going to throw this out here and see if anyone finds it interesting.
The company I work for was bought about 4 years ago by an investment group whose strategy is to buy small, successful software companies and then give those "portfolio companies" merchant services (the group all came from the payment processing world, so that's their expertise) and HR, theoretically leveraging an economy of scale, from the number of employees being large-ish due to owning so many small companies, to get better negotiating power for the employees and therefore better benefits. Matt, you and I have spoken about this a bit. I've since gotten the impression this investment group would be considered a private equity group.
I don't know squat, but I definitely got slick finance bro vibes from the whole thing. I got the vibes that these were the type of people I don't like, financially speaking. I mean, like, the vibe for me was "this is one of the kinds of person who caused 2008, though not the straight up criminal type." Maybe not monopolists per se, but probably gross and deceptive and wreaking of the kind of stuff some bankers do that make me not like them. At the same time, as people, they were nice, and they mostly leave us alone, at least until recently, so no worries.
But I suspected eventually the chickens would come home to roost, and lately that's been happening. I'll expand on that in a bit, but first I want to clarify the business model a little bit, just to make sure y'all can fully understand what I'm saying here.
So the company I work for administers a business software; our customers are themselves business owners. Our software hosts their websites with online booking, and it also helps them with their day-to-day tasks. So our customers' websites have to use what's known as a payment gateway to accept credit card payments on their websites, just like anyone does. Some of the most commonly known payment gateways are PayPal, Square, etc. So the parent company's business model is to build their own payment gateway, which they then require all the portfolio companies to use, so that our customers can accept credit card payments. So, whereas before we used to integrate with PayPal, authorize.net, etc., for our customers to be able to accept credit card payments, now we have our own payment gateway given to us by our parent company, which means that we get to keep a portion of the credit card processing fees. So that's the business model: in theory, our day-to-day operations don't change, but now we have significantly increased revenue, because in addition to our customers' monthly subscription fees they pay to use our software, we now also make money every time their website takes an order.
The thing that worried me right from the start is that this kind of thing is always presented with an implied sense of something for nothing. Like, it's always going to be a win-win for everyone, no drawbacks, according to the people trying to make it happen. I think in a sense that's what's happening with hidden fees; it's, as one of the other commenters noted, a bait and switch.
Dang it, I suck at writing and am having a hard time putting my thoughts into words. Oh well, anyway, in the last year or so, the parent company has been breathing down our neck, telling us we're falling short of our "goals." This despite the fact that we're one of the biggest, most profitable, fastest-growing companies of all the portfolio companies at the parent company. Like, top 2 or 3 out of over 70 at this point. We've grown to over three times the size we were by some metrics when we were purchased. We consistently make money for the parent company, and not just like, squeaking by money either. We're in essence the top or one of the top performing companies there.
So what's the problem? Why aren't we meeting their arbitrary "goals?" It's because our customers don't like the payment gateway and many of them won't use it. We're by far the market leader in our tiny, niche market, so people want to use our software. It's really telling that they're willing to pay a monthly subscription fee to use our service, but they dislike the payment gateway so much that they're willing to use the software but not even be able to accept credit card payments on their website. To be clear, they HAVE TO use our payment gateway in order to accept credit card payments. They can track 3rd-party credit card payments through their account with us, but they can't integrate at all.
Why don't they like the merchant services? Well, the rates are too high. When you apply, it takes several days to get approved, sometimes longer, and there's no pre-approval, so you just can't take payments until we're good and ready. The mobile swipers for use with phones and tablets, last I checked, still were true swipers, without a chip reader, much less tapping, Apple Pay, etc. On top of that, all our hardware (most of our customers don't use hardware, to be fair. Most of the credit card transactions taking place are web-based for our customers; that's the nature of our business) is overpriced.
So why the hell is any of this relevant to junk fees? It might or might not be junk fees per se, but I think at least in the spirit of junk fees, what our parent company is doing. They've allowed us to "not raise prices" by leveraging another revenue stream, only the quiet part is that the other revenue stream is in essence a hidden junk fee, because it's craptacular, overpriced, and required. It gets worse though too; an actual, unequivocal junk fee will soon rear its head, I promise.
Our customers are all business people. Some of them are somewhat understanding; they recognize that a business has to make money, so they take it in stride. Many of them are pissed. We've started doing things like making certain features of our software dependent on a customer doing x percentage of their payment processing through the payment gateway, etc. And here's the kicker: we decided to offer what I think we're calling a "program fee" that our customers can charge their customers, to cover the cost of credit card processing (to be fair, many businesses charge a fee to cover credit card processing. To me, this is different, because the cost of the credit card processing itself is inflated, and because we're actually SUGGESTING this to our customers, even sort of asking them to do it, after years of advising against charging a credit card processing fee, since we feel like it makes more sense for people in our industry to just raise prices by 2 or 3% and call credit card processing fees part of the cost of doing business), basically only because people were complaining about the rates, and the fact that they had no choice but to submit to said rates. So the solution is we're planning to collude with our customers to jointly charge their customers a junk fee, all so the finance bros from the parent company can go public in a few years and make a shitton of money. To be clear, our customers will get to keep a portion of that "program fee," or at least I think that's the way it was supposed to work. To be even more clear, I don't know for sure that we're going to do the program fee; I haven't heard anything about it for a while. But I only say that as a precaution; it's very likely I would know by now if we had changed our mind on doing that.
My boss has had a hard time with this, and confided in me recently something that blew my mind. I wish I could remember his exact words, but basically what he said was something along the lines of the fact that credit card processing is a straight up commodity. In other words, it's a well-known product that is ubiquitous. It's not a niche product. With niche products, it might be perfectly fine and normal for only a few competitors to exist in that market, as there might only be enough money floating around for that. With something as common and necessary as credit card processing, it's supposed to be very much the classic example of supply and demand; there should be a shitton of competition for robust price control. What my boss basically pointed out to me is that with respect to the one aspect of our business that is a straight up commodity, payment processing, we've allowed no choice at all. Like, we could raise our sticker prices and it would sort of make sense to me. We're bigger now and our software is more powerful. But no, we had to try to go the deceptive route, by "not raising prices" but charging an arm and a leg for shitty credit card processing.
I love my job, and I even like the finance bros I've met from the parent company. They're nice guys. And I'm sure they'll be up in arms if things continue along these lines, because the kind of hijinx they like to use to make "business models" won't be an option for them any more. They'll have to... gasp... create something of value in order to make their money! I'm sort of joking; it's not black and white. These guys do actual work, of course. But yeah, I'm looking forward to a day when people in the financial industry no longer have the option of deceptively sucking value out of our economy.
Hopefully ending junk fees will happen. Another similar consumer travesty are the layers of taxes imposed by greedy states and local governments. City, county and state sales taxes lead the way followed by resort taxes, hotel taxes and the like. And this only compounds the problem.
"Talking about monopolies is a bit tricky, because a corporation is an abstraction."
I appreciate that you'll name names. People run corporations. Corporate executives rob American citizens. It isn't faceless, someone sets the tone and direction. Someone individually profits from this theft.
Thank you Matt!
Kaplinsky's expression :)
It's amusing none of these people can defend these with a straight face.
Even the always useless Christine Wilson's dissent is essentially procedural throat clearing nonsense, no substance. Because how could there be a substantial argument for hidden fees?
I'm an IT guy but can't figure out how to make this page dark mode. My browser is set to dark.
The substack settings page is, interestingly enough, dark mode. Sorry for posting here but I'm blinded :-).
Gratuity partly feels like a junk fee sometimes. They've thrown it in everywhere and marked it up. It's one way to keep labor costs stagnant and throw it to the consumer.
Look at the junk fees PayPal is now charging for transactions