🚮 hiding from junk fees

zooming on a tiny but consequential policy problem

Earlier this month, Parliamentarians had Michael Rousseau, the CEO of Air Canada, Zoom into a Parliamentary Committee meeting. They were livid. At the core of their well-justified annoyance was Air Canada’s recent announcement that they will no longer allow basic-fare passengers to carry on luggage; instead, they will have to pay $35 to check one bag as of January.

If this new charge feels like an artificial cash-grab, that’s because it is. There’s no extra staff time associated with carry on bags. The change allows Air Canada to (potentially) advertise a lower base fare in its efforts to compete with the handful of other airlines in Canada, and is part of the great ‘unbundling’ of pricing. While ‘drip pricing’ - the act of adding on a string fees as you go through a purchasing process, making it impossible for the purchaser to obtain the initial price that was advertised - became illegal in Canada two years ago, airlines skirt this by claiming that each additional fee is a distinct, value-added service. One of my favourite memes calls this bluff, joking that Spirit Airlines charges a “cloud tax” and for “in-flight oxygen.” Where’s the lie?

The FTC defines these “junk” fees as unfair or deceptive fees added onto the price of a good or service that anyone would reasonably expect to be included in the price. Put more plainly: they are fees that add no value. And they often have fancy-ish names that lend them unwarranted credibility, think: ‘service’ fee, ‘convenience fee’ or ‘administrative fee,’ just some of the hallmarks of this deceptive cash grab. At their core, an unjustified junk fee is a form of “exploitative innovation,” whereby a firm is encouraged to develop new junk fees instead of actually improving their product. It’s lazy. Companies have been getting away with sprinkling these onto our bills for too long.

This never-ending-getting-dinged has been deemed ‘The Age of Recoupment’ by American anti-monopolists David Dayen and Lindsay Owens - a time where companies use a range of tactics to squeeze every last dollar they can. Consider that someone looked at how Air Canada was making money and with no remorse decided that carry-on luggage shouldn’t be a freebie. The most aggravating element is that we’re just not doing enough to call that bluff. On the other hand, modest fees to check a bag or choose your seat on a flight are reasonable and can be avoided by travellers.

But it’s not like we aren’t trying (or claiming to). The current federal government has made eliminating junk fees a policy priority - sort of. The most recent Fall Economic Statement rebranded them slightly as ‘hidden’ fees. First flagged in March 2023’s Budget, the commitment was reaffirmed in the 2023 Fall Economic Statement - even firing shots at the banks by tasking then-Deputy Prime Minister Chrystia Freeland with reviewing bank fees to see if they are excessive in 2021. At that same time last year, a pledge was made to work with regulatory agencies in the provinces and territories to reduce junk fees. And there’s a role for the provinces, here: back in 2016, Ontario made it illegal for desperate parents to be exploited by a fee to be added to a childcare waitlist in Ontario. Simple, elegant, and decisive: don’t do that.

But is the commitment itself junk? Progress on this pocketbook issue has been slow, though recent credit card and interchange fee reductions are estimated to save eligible small businesses about $1 billion over the next five years.

Junk fees don’t only plague consumers. Businesses often pay junk-ish fees; just look at Amazon’s toll road, or what it takes to get your item on the shelf at a grocery store. They are the result of market power, and firms are often disincentivized to speak out about them. They also exist in the public sector through governments and universities that may charge opportunistic fees that aren’t commensurate with what they purport to support.

Cansumer, a product recommendation service, collected some Canadian junk fee examples, crowd-sourcing examples like banks charging inactivity fees and various dings with mortgage closing costs. In British Columbia, Uber recently introduced a ‘regulatory compliance cost’ fee after the government mandated a minimum wage for workers - passing the cost onto us. Brazen junk.

The US has taken a much more aggressive, federalist approach to naming and shaming junk fees, and the FTC just finalized their Junk Fees Rule, which requires that businesses clearly and conspicuously disclose the true total price inclusive of all mandatory fees whenever they offer, display, or advertise any price of live-event tickets or short-term lodging.

In Canada, we have been more reliant on vigilante consumers. One problem may be basic (and boring) division of power issues - junk fees are broader than ‘deceptive marketing’ provisions under the Competition Act. Plus, on their own, these fees seem miniscule and trite, which makes it difficult for their elimination to be justified against other pressing policy problems. But minimizing them is a mistake - what were once thought of as quirky annoyances actually impact our standard of living. Junk fees are an anti-monopoly issue, but they’re also a credibility one.

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The Goose made this epic video about Canada’s Monopoly Problem. Totally worth listening to the very end - he’s subject to an algorithmic overlord, too! I was blown away by the care and skill that he (Aaron Hagey-MacKay) put into this arefact. I also love his energy and analogies - he is inspiring me to be more energetic in interviews!

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