Finance
“Junk Fees” usually serve an important purpose
Charging extra for specific preferences, such as seat selection on a flight, enables lower base prices, increases access to no-frills options for lower-income customers, while allowing companies to tailor their services to the preferences of individual customers. For example, airlines are decoupling in-flight food and checked baggage, leading to more profit opportunities and lower base fares. Yes, “price discrimination” – charging different customers different amounts for the same product – can sometimes be harmful to customers on the Internet. But banning such unbundling when consumers place very different values on certain services could price out poorer consumers and force others to pay for services they don’t want or need.
Likewise, banks’ overdraft fees help discourage costly behavior. Banks incur costs and run more risk if customers overdraw their accounts. Overdrafts help combat this behavior in a targeted way, by imposing fees on customers whose accounts are overdrawn. Limiting or limiting overdraft fees does not eliminate these costs and risks; it just means someone else has to pay for it in some other way. Banning overdrafts therefore means higher prices for another part of a bank’s customers.
This is from Ryan Bourne, “Abolishing ‘junk’ fees would be junk policy,” in Ryan A. Bourne, The War on Prices: How Popular Misconceptions About Inflation, Value, and Prices Create Bad Policy, which was released this week. There is actually some other content between these two paragraphs.
As I said in the blurb of the book, this is one of my favorite chapters. In particular, I wrote: “Particularly good are the chapters on rent controls, price controls on oil and natural gas, and so-called junk fees, which are really fees to solve problems that would exist without them.”
Bourne cites President Biden’s attack on “junk fees.” I get the impression, given Joe Biden’s low or near-zero understanding of the economy, that Biden thinks eliminating junk fees won’t cause prices to rise.
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