The U.S. economy is showing no signs of giving consumers relief anytime soon. Last week began with the Dow Jones Industrial Average plummeting more than 1000 points, prompting new fears of recession. Unemployment has ticked up and even though consumer confidence increased in July, inflation continues to squeeze the wallets of consumers coast to coast. Gas prices, grocery bills, insurance coverage, and borrowing rates are still up significantly from 2021. Interestingly, there is one unlikely sector where price tags aren’t scaring away consumers -- airline travel.  

Airline tickets have largely defied the national inflation trend and kept consumers seeking out travel opportunities. Flights are actually somewhat affordable. The reason for this is the industry trend toward flexible pricing and a “take it or leave it” approach to both amenities and baggage. 

It’s a strategy that airlines have used to let consumers signal what services and perks they value most, and despite it resulting in lower overall prices, the Federal Trade Commission (FTC) wants to get rid of it under the agency's “junk fees” rule.

The FTC’s proposed Trade Regulation Rule on Unfair or Deceptive Fees aims to eliminate pesky hidden fees across various industries. President Biden calls them “junk fees,” and while the intent of this proposed rule is to bolster price transparency for consumers, the reality will likely be higher prices and fewer choices for consumers.

Airlines provide the best example of the pricing model the FTC wants to dismantle. If you’re preparing for a flight and you research fares on Google, you’ll most likely come across some flights with encouraging price tags.

After you select flights and transfer to the airline's website, then come prompts for baggage, seat selection, and priority boarding. Depending on your needs or tastes, your final cost could be quite a bit more than you anticipated based on the Google Flights search. 

Consumers value flexibility, whereas the FTC wants predictability. 

The agency’s crusade against junk fees began after the Taylor Swift Eras Tour, which saw ticket prices soar exponentially due to resales online. The Biden administration responded by pushing companies like Live Nation and SeatGeek to pledge “all-in” pricing that shows the total cost upfront.

The problem is that the FTC’s approach clashes with the Federal Communications Commission’s (FCC) all-in pricing rule. The FCC requires the disclosure of the “all-in” price including broadcast TV retransmission fees and regional sports programming fees but excludes equipment fees and taxes. The FCC allows for a “starting at” price or a range to account for local variations, which must be prominently displayed in ads and bills.

On the other hand, the FTC’s rule calls for the “clear and conspicuous” disclosure of the total maximum price a consumer must pay for a service, including government-imposed fees but excluding non-mandatory fees. This price must be displayed more prominently than any other price information and cannot be contradicted by any other communication. 

All that is to say that the FTC’s stringent rules do not account for local conditions or flexible offers that some industries, like airlines, currently thrive on.  The FCC seems to be more in line with the consumer on the aforementioned value of flexibility.

The administration has also pressured banks to eliminate processing and late fees, aiming to make credit card rewards more accessible. However, history shows this can backfire. The 2010 Durbin Amendment, which capped debit card interchange fees to lower costs, resulted in only 1 percent of merchants lowering prices. Instead, banks hiked overdraft and ATM fees and scrapped free checking accounts, hurting lower-income folks the most.

Regulators tend not to care for market logic. President Biden’s narrative blames high prices and fees on corporate greed, you might remember “greedflation” and “shrinkflation” talking points when Biden was in the race for reelection. Consumers often know better, and that when businesses face external pressures -- prices rise.

Studies show that revenues from extra fees in banking, telecommunications, and airlines are minor compared to total revenues. The FTC’s goal to protect consumers from unfair fees is noble, but its approach often drifts into the failed policy of price controls. Eliminating back-end fees might push businesses to include these costs upfront, and all those aspiring travelers looking at surprisingly economical flights to San Diego may just stay home.

A more nuanced approach would be to consider industry dynamics on an individualized basis. The FTC should focus on blatant violations of consumer welfare rather than interfering with pricing models that offer lower prices for valued services. If they took a page from the FCC’s playbook, the FTC would recognize that a one-size-fits-all approach can harm the very consumers it wants to help.

Elizabeth Hicks is the US Affairs Analyst at the Consumer Choice Center.

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