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Column: The war on ‘junk fees’ is gaining ground, but the fight is not yet won

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Column: The war on ‘junk fees’ is gaining ground, but the fight is not yet won

“I talk to a lot of of banks,” Rep. Dan Meuser (R-Pa.), told Rohit Chopra, director of the Consumer Financial Protection Bureau, “and they’re really not happy with your agency.

He urged Chopra to “be responsive to the clientele you’re supposed to be helping.”

With admirable restraint, Chopra replied: “Just to be clear, the clientele of the CFPB is not the banks. The clientele is the public.”

Consumers are fed up with hidden fees for everything from booking hotels and resort fees to buying concert tickets online, renting an apartment, and paying utility bills.

— Federal Trade Commission

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The exchange occurred at a hearing of the House Committee on Financial Services on June 14. Leaving aside that Wall Street banks and brokerages have been among Meuser’s leading campaign donors, the congressman was not lying about the bankers’ opinion about Chopra and his agency — in fact, he may have minimized their hostility.

The U.S. Chamber of Commerce, speaking on behalf of the financial services industry, has called Chopra a “radical” pursuing an “ideologically driven agenda.” Last year, the American Bankers Assn. and two other bankers’ lobby groups published a 21-page broadside against him, calling on Congress and the federal courts to rein him in.

Their ire has intensified in recent months, as the CFPB has stepped up its campaign against “junk fees.” The agency defines these as excessive or unnecessary fees on overdrafts, account information requests, late payments on loans or credit cards, among other charges.

The CFPB’s campaign is part of the Biden administration’s broader attack on junk fees across the U.S. economy — fees that appear on a consumer’s bill at the end of a transaction, rather than being disclosed in advance.

If you’ve rented a car, bought an airline ticket, booked a hotel room or paid a cable bill, you probably know what the White House is talking about: hidden, surprise charges for services you may not even have used, transaction charges for buying online or downloading a concert ticket instead of picking it up at the box office, etc., etc.

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These charges have proliferated as retailers and service providers try to raise revenues by “unbundling” services that used to be provided at no extra charge. The quintessential example comes from the airline industry, where baggage fees have soared, reaching nearly $6.8 billion last year among the top domestic carriers, up from $464 million in 2007. Some ostensibly low-cost airlines charge for checked bags and carry-ons.

Biden took aim at the nickel-and-diming of American consumers within six months of taking office in 2021, when he instructed agencies including the Department of Transportation, Federal Trade Commission and Federal Communications Commission to devote close scrutiny to regulated industries’ treatment of consumers.

The administration intensified its campaign on Oct. 11, when Biden, FTC Chair Lina Khan and Chopra jointly announced new initiatives on junk fees.

The FTC’s proposed rule would require businesses to disclose “all mandatory fees when telling consumers a price, making it easier for consumers to comparison shop for the lowest price,” according to a commission statement. The FTC would be empowered to obtain refunds for consumers and impose financial penalties on businesses that don’t comply.

“Consumers are fed up with hidden fees for everything from booking hotels and resort fees to buying concert tickets online, renting an apartment, and paying utility bills … leaving consumers wondering what they are paying for or if they are getting anything at all for the fee charged,” the statement said.

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A couple of weeks later, the White House targeted another source of hidden fees — unrepairable products that force owners to pay for servicing by authorized shops — by convening a roundtable on the “right to repair.”

The administration was building on state initiatives in New York, Colorado, Minnesota and California, where a new law going into effect next July 1 requires manufacturers to provide documentation, parts and tools to consumers and repair shops on reasonable terms for any appliances or electronic devices made after July 1, 2021.

As I’ve reported, Apple has long been the worst of bad actors in selling devices that can’t be repaired by users; it began to come around in 2021, when it allowed iPhone users to perform the simplest fixes of broken screens and exhausted batteries. But it’s been backsliding: Owners of its newest desktop and laptop computers can’t even replace or upgrade their internal memory cards.

Government pressure on banks to reduce their junk fees has borne fruit, to an extent. At a hearing of the Senate Banking Committee Wednesday, several bank CEOs testified about their institutions’ determination to reduce or even eliminate overdraft charges. That’s a fee category that long has been an irritant to customers, especially lower-income depositors, and has been a particular target of the CFPB.

JPMorgan Chase Chief Executive Jamie Dimon, for example, told the committee that his bank had introduced “low-cost, no-minimum balance, no-overdraft accounts specifically designed for the unique needs of lower-income and historically underbanked consumers.” He said overdraft fees at JPM Chase had declined by about 50% since before the pandemic.

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That’s true as far as it goes — extrapolating from the bank’s nine-month totals, overdraft fees at JPMorgan Chase are on pace to total about $1.11 billion this year, down from $2.06 billion in 2019. More generally, however, JPM’s consumer banking fees have been sticky — they’re on pace to reach about $4.6 billion this year, compared to $5.12 billion in 2019.

Wells Fargo CEO Charles W. Scharf testified that his bank had “announced a number of changes … to help millions of customers avoid overdraft fees.” Indeed, Wells Fargo is on pace to collect $908 million in overdraft fees this year, down from its $1.7 billion in 2019. But the total of all its consumer fees still is on pace to reach $4.1 billion this year, compared to $5.2 billion in 2019.

Nor are all reforms of overdraft fees equal. Some banks that boast of having eliminated overdraft fees, for instance, do so by enrolling their customers in services through which they’ll cover your bills, but charge usurious interest rates for the excess.

The banks’ quarterly and annual reports to the consortium of federal bank regulatory agencies, however, document their difficulty in weaning themselves from those fees and others levied on consumers.

No one suggests that the banks shouldn’t charge fees for specific services, such as for maintaining customers’ checking or banking accounts or overdrawing their accounts or stopping payment on checks. The question is whether the fees reflect the costs of those services or incorporate an overly robust profit. It’s that hidden profiteering that often puts the “junk” in “junk fees.”

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Does it really cost a bank $10 to process a checking overdraft? That’s Bank of America’s fee, according to CEO Brian Moynihan, who bragged that it has been reduced from $35. Does it really cost Bank of America $30 to process a stop-payment request, its fee for that service?

One reason these charges are pegged so high is to discourage customers from using those services, but an institution that really values its customers, as all the banks say they do, might think twice about using unnecessary charges to manipulate its clientele into avoiding services they can only get at a bank.

The CFPB is also tangling with the banking sector over an initiative it has launched to clamp down on credit card late fees (perhaps another reason that banks are “not happy” with the agency, to cite Meuser’s gripe).

The bureau has proposed to cap late fees at $8 per missed payment and in no case higher than 25% of the account’s required minimum payment. Under current law, credit card issuers can charge up to $30 for the first late payment and $41 for subsequent late payments — even if they’re a few hours or a day late. As many consumers learn from bitter experience, it’s not unusual for the late charge to exceed what was owed in the first place.

The CFPB calculates that credit card companies extract $12 billion a year from Americans through those charges, not counting the finance charges on unpaid balances; it says its proposal could reduce the toll by as much as $9 billion annually.

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The bankers have ginned up an argument that the proposed cap will “ultimately harm all cardholders — whether they pay late, on time or carry a balance,” as Dimon put it to the Senate committee. He said he was quoting from the CFPB’s own findings, but that’s not exactly the point the bureau made.

What it said was that cardholders who carry a balance may be hit with higher interest rates or other fees, but of course that would be the card companies just trying to pump up charges that already are arguably excessive to make up for their losses in late fees.

(The average interest rate on credit card balances was 24.56% in November; the average charge-off of credit card balances among the 100 biggest banks was about 3.57% in the third quarter, which suggests that the banks would still be making gobs of money from credit cards at a much lower rate.)

For the bankers to warn that reducing one fee would force them to raise others is tantamount to their announcing that they’re determined to play an eternal game of whack-a-mole.

The fact is that junk fees permeate the economic landscape. Consumers are on the front line, but they face a tough battle, because junk fees are likeliest to crop up where they can’t easily be avoided. If you have a critical need to change your flight, refusing to pay an airline’s $100 change fee won’t get you where you need to go; it will just leave you earthbound.

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That’s why the efforts of the Biden White House and its agencies are so important. Legislation and regulation are the best and fairest ways to eradicate junk fees. But don’t expect that to get very far without an intense backlash from the airlines, banks, hotels and other enterprises for which exorbitant fees for modest services have become mother’s milk.

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New IRS Direct File program now available in California

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New IRS Direct File program now available in California

If you’re a California resident and haven’t done your federal tax return for 2023, you now have another, more user-friendly option online: the free Direct File service from the IRS.

It’s not for everyone, however. Instead, it’s aimed mainly at people with very simple annual tax returns, which the Treasury Department said amounts to about 1 of every 3 taxpayers.

The tax agency launched the Direct File service in January on an extremely limited basis to make sure its online systems were up to the task. That changed Monday, when the IRS announced that Direct File was available to all taxpayers in California, Arizona, Nevada and nine other states.

Think of Direct File as the IRS’ alternative to the free online tax-filing programs from TurboTax and H&R Block. It provides step-by-step guidance for filling out your tax forms, filing them and either paying any amount you might owe or collecting your refund.

The program’s question-and-answer approach means you won’t have to know which forms to fill out or where on the forms to enter your information. Instead, the program will handle those details for you.

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The IRS already works with several tax-prep companies to offer lower-income taxpayers a free online tax return service called Free File. What makes Direct File different is that there’s no middleman and no income limit for participants — anyone can use it, provided that their tax returns use only the most basic forms.

Specifically, the program will work only for taxpayers whose income is limited to wages reported on a W-2, retirement benefits from Social Security or the Railroad Retirement Board, unemployment benefits or interest income of $1,500 or less. That means if you’re a self-employed person, a business owner, a contractor or a gig worker, or if you have income from a partnership or trust, Direct File isn’t for you.

The Treasury Department estimates that 19 million people in the 12 participating states are eligible to use Direct File this year and that several hundred thousand people will do so.

Direct File also allows you to claim only a truncated list of credits and deductions: the Earned Income Tax Credit for low-income workers, the credits for children and other dependents, the standard deduction and deductions for student loan interest payments and educators’ classroom and professional development expenses. If you’re able to claim other credits and deductions, such as those for foreign taxes paid, child care or retirement savings, or if you cut your tax bill by itemizing deductions (for example, if you have sizable medical expenses), Direct File would not be a good choice for you.

One other caution: The IRS says Direct File will be available only until April 15, when most Californians’ 2023 returns are due. The agency pushed the deadline for taxpayers in San Diego County back to June 17 in response to the federal disaster declaration in that county.

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Direct File runs online only; you’ll need a smartphone, tablet or computer to access it. And to get started, you’ll need to prove to the IRS that you are who you say you are.

The only way to do that this year will be to use the identity verification service ID.me, which takes a scan of your government-issued picture ID, such as your driver’s license or passport, then uses facial-recognition software to match your image from a live chat session or a new selfie against the stored photo. ID.me has raised concerns among some critics, who say it poses too great a threat to privacy and security.

Once you’ve established your identity, the program will check your eligibility, then guide you as you enter information about your income, credits and deductions. You don’t need to download any software, the IRS said; instead, your entries will be saved online, and you’ll be able to pause and resume later without having to start over.

Direct File has a live chat feature to help taxpayers with questions, but it’s not a source of free tax advice.

“IRS customer service representatives can provide technical support and provide basic clarification of tax law related to the tax scope of Direct File,” the agency said in a release. “Questions related to issues other than Direct File will be routed to other IRS customer support, as appropriate.”

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The Direct File service hasn’t been integrated into California’s tax filing system yet, so you won’t be able to transfer your federal information seamlessly to your state return. The state Franchise Tax Board offers a free online return filing system called CalFile whose restrictions are similar to those in Direct File, so if you’re eligible for the latter, you’re probably able to use the former.

If you’re entitled to a refund, tax experts say, you should file your return as soon as possible. Otherwise, you’re just making an interest-free loan to the federal government.

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JetBlue and Spirit end their $3.8-billion merger plan after a federal judge blocked the deal

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JetBlue and Spirit end their $3.8-billion merger plan after a federal judge blocked the deal

JetBlue Airways and Spirit Airlines are ending their proposed $3.8-billion merger weeks after a federal judge blocked the the deal, saying it would hurt consumers who depend on Spirit’s lower fares.

JetBlue said Monday that even though both companies still believe in the deal, they were unlikely to meet the closing conditions required in the agreement before a July 24 deadline.

JetBlue’s new chief executive, Joanna Geraghty, called the merger “a bold and courageous plan intended to shake up the industry status quo” and speed JetBlue’s growth.

“However, with the ruling from the federal court and the Department of Justice’s continued opposition, the probability of getting the green light to move forward with the merger anytime soon is extremely low,” Geraghty said in a memo to employees of New York airline. She said uncertainty over the merger’s fate was distracting the airline from its effort to return to profitability.

Spirit Chief Executive Ted Christie said he was disappointed that the airlines could not combine and create a new challenger to the nation’s four biggest airlines but said he was confident that Spirit — which has been losing money since the pandemic started — can succeed on its own.

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JetBlue will pay Spirit a $69-million termination fee.

The Justice Department sued to block the merger last year, saying it would reduce competition and drive up fares, especially for travelers who depend on low-fare Spirit.

In January, a federal district judge in Boston sided with the government and blocked the deal, saying it violated antitrust law.

The airlines appealed the ruling, and a hearing had been set for June.

Spirit and Frontier Airlines announced a $2.2-billion merger in early 2022 — a deal that would have combined two similar carriers that charge lower fares than the big airlines but add on fees that generate a large chunk of their revenue.

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JetBlue jumped into the fray against the wishes of Spirit’s management, which warned that it would be difficult to win regulatory approval for a Spirit-JetBlue combination. JetBlue went over the heads of Spirit’s board, directly to Spirit’s shareholders, and won a bidding war against rival Frontier a few month later.

While the deal was taking shape and wound up in court, there were continuing losses and other problems at Spirit, which is based in Miramar, Fla. In late January, JetBlue warned that it might terminate the agreement.

JetBlue has also been losing money and faces its own uncertain future. Activist investor Carl Icahn bought nearly 10% of JetBlue stock last month and won two seats on JetBlue’s board.

The end of the JetBlue-Spirit deal raises questions about whether Alaska Airlines can pull off its proposed purchase of Hawaiian Airlines for $1 billion plus the assumption of about $900 million in debt. The Justice Department has not indicated whether it will sue to block that agreement.

Shares of JetBlue Airways Corp. rose 2% in morning trading, while Spirit sank 12%.

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Koenig and Chapman write for the Associated Press.

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Two men charged in dozens of massage parlor robberies in Southern California

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Two men charged in dozens of massage parlor robberies in Southern California

Two men who are believed to have targeted employees and customers in dozens of massage parlor robberies have been charged in federal court.

One of the men admitted to carrying out 50 to 60 robberies of massage parlors in Southern California, according to federal prosecutors.

The suspects, 28-year-old Andy Cuellar of Hawthorne and 27-year-old Arturo Morales of Downey, were arrested Friday after they held up several employees at a Torrance massage parlor, according to a 15-page indictment filed Tuesday in the Central District of California.

Cuellar and Morales were unaware at the time that a law enforcement task force was tailing them as they drove from Compton and then got off the 110 Freeway in Torrance. Cuellar was driving a black 2015 Jeep Grand Cherokee allegedly linked to at least 12 other massage parlor robberies committed over the last month, prosecutors said. The Jeep was registered in Cuellar’s mother’s name.

On Friday, Cuellar and Morales stopped in front of various massage parlors, but Cuellar spent only a few seconds inside the businesses before he walked back out to the Jeep, according to the indictment. Around 8:30 p.m., Cuellar walked into Lucky Health Therapy in Torrance and acted like a customer, according to surveillance footage reviewed by investigators. He was led to a back room by an employee, and Morales soon followed through the door that Cuellar held open in the back of the business.

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Cuellar was armed with a knife and Morales was armed with a .38-caliber pistol, according to investigators.

An employee tried to run out of the business, but Cuellar caught her in the parking lot and pulled her by the hair back into the business, the indictment said.

A few minutes later, both suspects allegedly left the business carrying multiple bags. Employees told investigators who approached the business that they were robbed but couldn’t call 911 because two men stole their belongings, including their phones.

Police found Cuellar and Morales at a nearby gas station, where they were allegedly sorting through the items stolen from the employees, according to prosecutors. The suspects ran when police approached the Jeep with their lights and sirens on. Morales was caught in a nearby intersection with roughly $4,000 in cash in his possession, and Cuellar had about $400.

Cuellar was wearing a Dodgers baseball hat, eyeglasses and distinct white boots, according to investigators. A suspect in two separate massage parlor robberies was wearing the same outfit, court records show.

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Investigators found the handgun that they believe was used during the robbery; it was loaded with a chambered round and was reported stolen in 2018.

One of the employees at Lucky Health Therapy identified Morales as the person who used a gun during the robbery. Another victim said Morales waved the gun around to get more from the employees and Cuellar told him that they had enough, according to investigators.

Later that night, only one victim was able to identify Cuellar as one of the alleged robbers, while another victim couldn’t identify either of them.

Cuellar told investigators he borrowed his gun from a friend, because “when you have a gun nobody fights with you,” according to court records. He also admitted that he and Morales robbed several massage parlors in November and December with another accomplice whom he did not identify, but he said he has personally been involved in 50 to 60 massage parlor robberies. He was out on federal probation for a narcotics conviction when he robbed the Torrance massage parlor, investigators said.

Prosecutors charged the two men with interference with commerce and use of a firearm during a crime of violence. The men were arrested as part of a sting operation that involved the Bureau of Alcohol, Tobacco, Firearms and Explosives’ Orange County Violent Crime Task Force.

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It’s unclear whether the men have any legal representation. They are expected to be arraigned in the coming weeks.

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