More than a decade ago, I started writing a column on everyday consumer frustrations called The Red Tape Chronicles — my mailbag overflowed with rage. Piled high in my inbox every day were missives about mysterious late fees, overcharges, surprise interest rate hikes, and really all manner of sleazy, sneaky business practices. Everyone reading this knows what I’m talking about. And with each fee, you could almost hear some accountant somewhere yelling, “Gotcha!” with glee.
These were no one-offs designed by particularly money-grubbing institutions. Day by day, I witnessed a drastic change in the way American companies did business. I called this the Death of the Price tag (There’s even an animation!). With all these aftercharges, it became almost impossible to understnad the cost of basic items — cell phone service, cable TV, peanuts on an airplane, a towel at the hotel pool. Instead of companies competing to create the best products for the best price, they competed on who could be sleazier. The best cheaters won.
This world of Gotchas and hidden fees is frustrating on a day-to-day basis, but in a much larger way, they signal a deep sickness in our economy, and in the American way of life. I captured this larger idea in two books, both New York Times bestsellers, which told me I had tapped into this wave of consumer rage. I used to joke that the only stories which could compete for clicks on MSNBC.com with the latest celebrity sex tape scandal were stories about rising ATM fees.
People hate Gotchas.
And now, the good news. Gotchas are, finally, on the run. It didn’t happen all at once, but it is happening. Before I explain the details, let me just share a truism about news that I wish wasn’t true: Stories about a $35 resort fee at a hotel get a zillion clicks. Stories about legislation banning that fee get close to zero. Unfortunately, people like to rage more than they like to solve. It’s human nature. But if you’ve ever been angry at cascading bounced check fees or felt ripped off after a vacation or a hospital stay, NOW is the time to pay attention.
The tide actually started turning more than 10 years ago, with passage of the CARD Act — the Credit Card Accountability Responsibility and Disclosure Act. That law eventually banned a whole host of egregious bank fees. It targeted low-hanging fruit. Horrendous practices like raising people’s borrowing costs because they failed to pay an unrelated bill (universal default) were banned. The banking industry, naturally, objected to this government overreach, predicted consumers would lose credit cards, bank failures would follow, and the sun might not come up some day soon. They were wrong. Even skeptical economists conducted research showing that cleaning up Gotchas from credit cards meant good things for both consumers and the industry, as I had long argued. Fair competition is good for everyone. Consumers saved billions; banks didn’t skip a beat.
The success of the CARD Act is important because it serves as a blueprint for other common-sense marketplace fair-play rules. Finally, the Consumer Financial Protection Bureau and other federal regulators have been unshackled, and there’s momentum to ban a whole set of Gotchas. The CFPB just announced new rules to update the CARD Act that would prevent banks from charging $41 late fees — they’ve found a CARD Act loophole worth more than $10 billion every year. Obviously, regulators must be able to make changes on the fly as corporations try to game laws Congress passes.
Meanwhile, the Biden administration has thrown its support behind a Congressional proposal called the Junk Fee Prevention Act. It would limit or ban fees for sports and concert tickets, airline fees, early termination fees for TV, phone and internet services; and surprise resort fees.
I’m here to tell you it takes a very long time to take on Gothas. The Federal Trade Commission conducted a remarkably thorough economic analysis of hotel resort fees in 2007 (That’s MORE THAN 15 YEARS AGO!) The study put some scholarship behind what we ‘ve all experienced — it found gotchas are bad for both consumers and for the health of an industry.
And that’s the key here. This isn’t just about supporting consumers, though that’s important. While writing Gotcha Capitalism, I heard from several corporations (quietly) that they welcomed fairness rules; without them, only the cheaters in their industry won. Free markets require free information. Clear pricing is absolutely essential. The word “surprise fee” has no place in this free marketplace. Anyone who cares about free markets, who cares about the soul of American capitalism, who wants to reward the best companies with the best products and the best prices, should get behind efforts to de-Gotcha our economy.
In a similar vein, the Federal Trade Commission has recently proposed a ban on non-compete clauses that can essentially forbid employees from changing jobs without any kind of compensation — essentially, a one-way contract. No fair-minded person supports this incredibly overbearing restriction on commerce or labor portability. But that is exactly the kind of Gotcha which reproduces like a virus in our economy unless checked by an independent regulator.
I know this kind of rulemaking is far less sexy than outrage over the price of eggs, or the fee parents are charged to sit next to their 11-month-old on airplanes. (Turns out, new rules stop that too!). But this is how things get fixed. This is how things get better. Read the research on how well the CARD Act worked. And get involved. Support all these various efforts to rein in Gotcha Capitalism.