American consumers have become the unwitting victims of the widespread and fast growing practice of hiding the true cost of goods and services by adding on fees after the purchase decision has been made.
Not only does this severely hamper free market price competition, but it saddles households with extra charges that significantly increase the cost of needed products and services.
Documenting this insidious pricing practice, the National Economic Council has released a critical report on how hidden fees on a wide range of goods and services cost consumers billions of dollars each year, and the just released FTC Bureau of Economics research paper citing consumer harm due to hotels disclosing mandatory resort fees separately from the posted room rates.
These studies follow a Consumer Federation of America report presented recently to the Senate Judiciary Committee documenting the abuse of market power by four companies (ATT, Verizon, Comcast, Charter) that dominate communications services (mobile phones, broadband, cable and landline service). CFA estimated that this “tight oligopoly on steroids” facilitates the overcharging of consumers by about 25% (almost $60 billion) per year for needed services.
The NEC report on The Competition Initiative and Hidden Fees shows that one way companies overcharge consumers is to “add fees to the accounts of their customers, increasing the amount due in excess of the advertised price (p. 13).” Using this practice to deny consumers accurate cost information enables these companies dampen price competition in the marketplace.
“Some of the hidden fees described in the NEC report, such as car dealer add-on charges for advertising, inventory, documentation and delivery, have been problems for years and little has been done to stop them,” said Susan Grant, Director of Consumer Protection and Privacy at CFA. “Consumers are being deliberately fooled by advertised prices that fail to include the full amount they’ll have to pay, not just for cars but for an increasing number of goods and services.”
“When it comes to travel, consumers are faced with an exponential expansion of fees that make comparison shopping difficult and, in some cases, impossible,” says Charlie Leocha, President of Travelers United. “The new FTC study shows that consumers are harmed by misleading advertising that does not include mandatory fees and airlines still refuse to reveal ancillary fees everywhere airline tickets are sold.”
The Consumer Federation of America is a national organization of more than 250 nonprofit consumer groups that was founded in 1968 to advance the consumer interest through research, advocacy, and education.