
The FTC is rumored to be preparing legal action against Greystar, the largest landlord in the US, for “hidden fees”, also called “junk fees” (“FTC Prepares to Sue Largest U.S. Apartment Landlord Over Hidden Fees,” Wall Street Journal, January 13, 2025):
The FTC finalized its hidden-fees rule last month and said it would seek civil penalties from firms that violated the rule. It mentioned the hotel and live-event ticketing sectors, requiring “up-front disclosure of total price including fees.” …
If the potential FTC lawsuit proceeds, Greystar would become the first apartment landlord to face formal government allegations of hiding fees.
One can imagine hidden fees that would be fraudulent: for example, you rent a hotel room and once there, you realize that there is no bed, except for a special fee (and they refuse to reimburse you). In reality, many so-called hidden fees are prices for supplementary services: you go to the theatre and, besides the entry ticket, you have to pay for the popcorn. Most hidden fees lie somewhere in between these two examples and people just get used to them. Everybody knows he has to pay a separate fee to check his baggage on a flight and a late payment fee if he does not pay a minimum amount when his credit card is due. In all cases except obvious fraud, instead of waging coercive power—and, ultimately, putting their boots on the ground: the cops—governments should heed the first principle of liberal logic advanced by Anthony de Jasay: “In case of doubt, abstain.”
Ironically, the state (all levels of government) is the mother of all junk fees. Those are more difficult to avoid than private hidden fees. Here are a few examples taken at random:
- State governments typically control insurance prices, which leads to shortages (no insurance available at the controlled prices), which are in most states alleviated by some form of public insurance of last resort, which private insurance companies are forced to finance in case of cost overrun. The government will push on private insurance premiums a hidden fee that subsidizes the insurance of those who cannot buy private insurance because of government intervention. (See the case of California: “California’s Wildfire Insurance Catastrophe,” Wall Street Journal, January 10, 2025).
- Deadweight losses from taxes bring a misallocation of resources, meaning that the supply of some goods and services that consumers want will be restricted, forcing prices up as if by junk fees.
- An inflation tax results from a government bidding up resource prices when it finances part of its debt by increasing the money supply. This includes the increase in interest cost (for mortgages, for instance) due to the fear of future inflation—something that may currently be going on.
- Hidden fees follow from the price caps that, in most states and at the federal level, kick in after a declaration of emergency. Price caps generate shortages and search costs (a government junk fee) for those who want the goods that disappear from legal markets; the higher prices on black or grey markets are another government junk fee.
- Junk fees are hidden in any good or service whose price is bid up by government subsidies to certain categories of demanders, notably in health care. Among the non-retired and non-studying able-bodied persons in the lower quintile of the income distribution, only one-third work (compared to two-thirds in the 1960s); the obvious cause is that the average household in that quintile gets about $45,000 a year in different government subsidies, in cash or in kind, an important part of which is free Medicaid. What’s the point of working and losing these benefits? The government-financed Medicaid demand introduces a hidden fee in everybody’s medical services. The same of course is true for a large part of Medicare.
- A similar government junk fee is paid by anybody who purchases education from his own pocket.
- Any business regulation—for example, the coercive privileges granted to trade unions—causes hidden fees because it increases the cost of the goods and services produced.
- Customs tariffs are typically paid by national consumers in higher prices. Like other forms of protectionism, they generate junk fees. (The fact that the owners and workers of protected companies get a hidden subsidy does not compensate for the junk fee imposed on others.)
- In any promise honored by politicians, there is a junk fee for those who have to finance the beneficiaries’ advantages, whether this cost is a tax increase or an invisible reduction in subjective utility. The promise to help one group of voters is generally (Anthony de Jasay would say “always”) paid by other voters.
- Last time I checked the Harmonized Tariff Schedule of the United States, Revision 8 of the 2019 edition, it contained 3,882 pages, and I am sure it does not translate into fewer junk fees now.
- A dozen years ago, the Internal Revenue Code contained 2,652 pages, to which the regulations, rulings, and other clarifications added about 9,000 pages, according to the Tax Foundation. Here again, the number of hidden fees has likely increased.
The specific attack of the FTC on landlords’ “junk fees” may not be going anywhere (for now) because of the imminent change of government. Still, it illustrates another hidden fee in government intervention: the uncertainty created by the arbitrariness and constant changes in threatening laws and regulations.
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Government junk fees, by DALL-E (with some external influence)
READER COMMENTS
Craig
Jan 18 2025 at 11:45am
Yankees at Pirates, April 6th, 2025.
Tickets are $28! Nope….
3 @ $28 (base ticket price) – $84
3 @ $1 $1 Service Charge as per the Sports & Exhibition Authority – $3 (some type of sales tax it looks like)
1 @ per order free – $3 (sketchy, but its $3 if you order 1 or 10 I guess)
But the last one is the sketchiest —–>
3 @ $5 – Pirates per ticket fee — $15
Total $105
At least just say the ticket is $33, but they don’t want to do that because its about confusing you about price points. Its called ‘drip pricing’ and its sketchy. Stubhub I believe actually stopped doing that so when you go to Stubhub they actually now tell you ‘the bottom line’ price you’re going to pay.
“In reality, many so-called hidden fees are prices for supplementary services”
Fair enough, but what’s supplementary here? This isn’t ‘$20 to park’ or ‘$5 hot dog plan’ or anything like that.
Craig
Jan 18 2025 at 12:02pm
Of course your point about the government is well taken. The very worst one is hiding the employer’s share of Social Security. Of course this creates a wedge between what your cost to an employer versus what an employee perceives as what he or she is getting paid. This becomes clear when you run your owm business and see both sides. ‘Gee, taxes are WAY higher than I ever thougjt they were’ and I did a count to 56 cents off a dollar.
Pierre Lemieux
Jan 18 2025 at 3:48pm
Craig: Indeed, the employer share of labor taxes is an important example.
MarkW
Jan 20 2025 at 5:55am
These add-on charges are annoying, but unless the vendor is adding these charges to your credit card after you’ve already completed your purchase, it’s hardly cause for legal or government action. Only the most naïve of rubes still believe that the list price is going to be the final price for tickets to concerts or sporting event. So who is being harmed by the common practice? And why IS it common practice? I suspect a few different reasons:
Deflecting blame. Venues and stars prefer a lower nominal price combined with outrageous fees (a portion of which are kicked back to the venues and artists). Why? Because customers will think that their beloved artist or team isn’t the one ‘ripping them off’. One of the important services that Ticketmaster provides is the willingness to be the bad guy and take the hits to their own reputation in order to protect that of their business partners. Ticketmaster knows everybody hates them. Their willingness to accept the hate is a valuable service.
Giving customers the ability to lie to themselves and others. “Just how much were those tickets!?” “Oh, don’t worry honey, they were only $50 plus some taxes and fees.”
Price discrimination. The ‘out the door’ prices are always available before you hit the ‘order’ button. So price sensitive customers can and do abort transactions when they see the final bottom line. But for price-insensitive customers, that will seem like too much trouble, so they’ll just click ‘order’.
File this one under ‘Humans are weird. The government can’t fix that and will only make things worse by trying’.
Matthias
Jan 19 2025 at 3:56am
I want to agree with you, but many points are really sloppy.
Eg anticipated inflation doesn’t make mortgages more expensive in real terms. And it doesn’t matter whether government debt is involved: we have non-zero inflation in Singapore, but our central bank doesn’t buy our government debt.
Pierre Lemieux
Jan 19 2025 at 1:21pm
Matthias: This sloppiness you blame me for is perhaps not my worst. Or at least, I can deflect the blame to the WSJ piece I linked to:
Expected inflation leads investors to sell bonds and buy stocks, which pushes interest rates up.
I agree that government debt and its monetization by the central bank is a sufficient but not necessary condition for inflation. The money supply can be increased in other ways.
Or did I not understand you correctly?
Jose Pablo
Jan 19 2025 at 11:48am
Prices are a “signal”. For a “signal” to be useful it needs to be properly understood by the decoder.
There are benefits in this understanding of the signal requiring little effort from the decoder side. Otherwise the information costs mounts, generating friction in the market and making it less efficient (which is the whole purpose of the encoder starts messing up with the signal).
There are services for which the price signal is increasingly difficult to be properly (and easily) decoded. Just ask the decoders.
The encoder have the incentives to mess with the price signal. Mostly to make price comparisons increasingly difficult. But there is no benefit to the decoder and to the market in this messing up with the signal.
There is a clear case for regulation (I am feeling sinful writing this, I am now condemn to the libertarian’s hell) to make sure than the all relevant price signal is properly understood by the decoders.
This can be done by establishing the obligation to include a “standardized price” along the whatever other form the encoder wants to present the price signal to the decoder. This wouldn’t be in anyway limiting the “pricing creativity” of the encoder.
This has been done before and it is useful: like the obligation to showing the APR for lenders no matter that they want to emphasize this “0% interest rate loan” or how mutual funds should report their cost in an standardized form to avoid the infinite forms of reporting them or how your meat packager has to report the price per pound, no matter how creatively it decides to package your meat.
The fact that the government is very good at messing up with the codification of signals is a terrible argument to justify the ill purposed messing up with signals or airlines, hotels or ticket-sellers.
Pierre Lemieux
Jan 19 2025 at 1:05pm
Jose: There is indeed a smell of roasted flesh. Yes, there is an argument for the state promoting correct information. The problem is the typical public choice observation: what tells us that this is what political processes will lead to? That after establishing standards for price signals, it will not want to distort the signals? After all, the standardized signal may be non-optimal to “maximize welfare”? The higher housing prices call more for government intervention than lower housing prices. As Anthony de Jasay says…
Jose Pablo
Jan 19 2025 at 2:36pm
Yes, of course Pierre.
Like everybody knows the only problem with regulation is that it is not made by me.
Mark Barbieri
Jan 19 2025 at 1:40pm
Taxing us, not just on capital gains, but on the inflation portion of those gains.
Comments are closed.