NerdWallet's Smart Money Podcast - Money News: Cracking Down on Junk Fees: Bidenomics in Action

Episode Date: October 18, 2023

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhosky. And this is our weekly personal finance news roundup, where we take a look at recent developments in the world of money, and then go in-depth on the issue that's important to your life and your bottom line. Today, we're going to take an in-depth look at junk fees, how much we hate them, and what the government is doing to, well, junk them. Junk the junk fees. I like that. First, a few money headlines from the last few days.

Sean, before we go any further, I have a question I have to ask you that I'm pretty sure I know the answer to since you live in Washington State. Did you win the lotto? Did you go to California to buy your ticket and win? Anna, as much as I enjoy working with you, I would not be recording this podcast with you right now if I did. Although actually I do love my job, so maybe I would be, but to answer your question, no, I did not win. And I'm guessing you didn't either. Nope. Back to the salt mines. So Sean, I'm going to give you two guesses at the top story in our headlines this week. Student loans? Try again. Inflation? Ding, ding, ding. I would say those two are always safe guesses.

They are. So the most recent inflation numbers are out and something called the Consumer Price Index, the CPI, showed the prices rose 3.7% in September. That's a lot less than it was rising a year ago, but still not quite at the Fed's target rate of around 2%. But there's always a caveat with this statistic, which is that when you take out food and energy prices, which are really volatile, you get something called core inflation. And that figure was up 4.1% over 12 months, but down from the month before. So basically, everyone is watching to see how the Fed reacts to these numbers, whether there'll be another rate hike or a pause, or maybe they'll just go trick or treating. I don't know. But inflation is still with us. And the CPI shows a lot of the hike is because of the housing and rental market.

Yeah, shelter costs for more than 70% of that hike in core inflation. And speaking of housing, Anna, guess what's back in vogue? Gothic architecture, sunken living rooms. I wish. I would love to have a sunken living room. But no, adjustable rate mortgages, or ARMs, are back. Just over 9% of mortgage applications had ARMs in the first week of this month, according to the Mortgage Bankers Association. That's the highest share of overall applications since November of last year. Let me guess, you can get a better interest rate on an ARM than on, say, a 30-year fixed? Correct. The average 30-year fixed was at 7.67%. The average for a 5-1 arm, where the interest rate is fixed for five years, then readjusts

every year after that, was 6.33%. So presumably folks are thinking they can refinance before the adjustment starts. Yeah, they're gambling that interest rates will go down before this time five years from now, in 2028. I guess we'll see. You know what else we're waiting for that will hopefully happen within the next five years? A new House Speaker. We certainly hope it happens before that.

But yes, it's not only important for the country as a whole, but it's important for all kinds of personal finance reasons, not least of which is there's yet again the potential for a government shutdown looming over the economy. And you cannot pass a budget without the House of Representatives, and they can't do so without a speaker. And the next budgetary deadline is November 17th. So for the fiscal well-being of the country, let's hope the House sorts its stuff out soon. And finally, Sean, a headline that reflects the state of our healthcare system today. You may have read that one of the greatest gymnasts of all time, Mary Lou Retton, was in the hospital with a rare pneumonia. I did see that. A whole generation remembers her from the 1984 Olympic Games in Los Angeles. She scored perfect tens on vault and floor routine and became the first U.S. woman to win gold in the individual all-around. She also scored her face

on the Wheaties box. That's right. And unfortunately, for some reason that hasn't been disclosed, she did not have health insurance when this illness befell her. So her family, the family of this famous athlete, ended up crowdfunding her medical bills. Something not unfamiliar to many Americans across the country. Definitely. According to a 2019 report from KFF, more than 250,000 GoFundMe campaigns, that's a quarter of a million, go toward paying health care costs each year. Suffice it to say, our health care system has issues. Yes, it does.

Well, that's what we saw and heard about over the past week in Money News. Let us know we missed and send us the headlines you've seen and want to hear more about. And now on to our in-depth look at pesky, nasty, annoying, maddening, exasperating, galling junk fees. Hey, Sean. Yes, Anna? Have you ever bought a ticket for a show? Any kind of show. Musical, play, rock show, Zydeco? Of course I have.

Well, I mean, maybe not Zydeco. Not really a fan either. Okay, so have you ever booked a hotel room, rented a car? Have I ever traveled or had fun? That would be a yes and a yes. Then I bet, Sean, that you've experienced the joy of junk fees. Ah, yes. I am all too familiar. You think you're going to pay one thing and then at the checkout, the total is way higher than expected. Exactly. It's a huge, expensive nuisance that the government is finally trying to do something about. About time. You may remember back in February during his State of the Union speech,

President Biden named junk fees as something he was going to have his administration tackle. And well, it's happening. And Sean, it's happening on two fronts, first at the Federal Trade Commission and then also at the Consumer Financial Protection Bureau, or CFPB. President Biden held a ceremony in the White House Rose Garden last week where he said all of these fees were just too familiar to American families. This gets down to a basic problem, a basic circumstance, just about fairness, just about simple fairness. You know, folks are being tired of being taken advantage of and being played for suckers. How about a definition for us of junk fees? What are they?

Well, it's basically all those pesky line items on a bill that make you say, what the? Surprise! Yeah, and not the good kind. So this can be all sorts of things. Late fees, if you don't pay something on time. Convenience fees, like if you want to pay something by credit card and it costs extra to do that instead of using your bank routing number. And loan servicing. This can be anything from a car loan processing fee to a fee you pay for what ends up being an unnecessary property inspection to get a mortgage. To wait for it, you knew we'd get student loans again this week. Fees and interest tacked on for student loan servicing. And of course, the always loathed fees for airline checked baggage and carry on and resort fees to stay at a hotel that is not a resort. Yep, those all count. It goes on and on. Okay, so let's first talk about the actions by the Federal Trade Commission. Last week, it proposed a rule to completely ban companies from charging hidden fees, like those fees that don't show up until you go to check out of a hotel.

Right. And this is something that Becky Chung of Medford, Oregon talked about when she appeared with President Biden in the Rose Garden. Chung worked in video production and advertising before leaving the workforce to raise her kids. She called herself the CHO, Chief Home Officer. Very cute. And she talked about a trip she took with her family this past July to visit the kids' grandparents in Sacramento, California. It was a trip they had a specific budget for. When we booked our hotel online, we thought we knew what we'd be paying. But then when we checked out, we saw all these unexpected fees tacked onto our bill with little information about what they were for. She said the fees added up to about $100, and it wasn't possible to figure out what was a tourism fee or taxes or anything else. Whether it's unexplained fees on a bill or unexpected processing and service fees on movie

and concert tickets, for a middle-class family like ours, those charges add up and make a big difference. I know exactly how Becky feels. I'm going to a concert of the Swedish electronic artist Fever Ray in a few weeks, and the tickets were around $40 each, plus a roughly $10 ticket fee. So the fee is like 25% of the ticket price. I feel ripped off every time I pay these fees. Totally. I take an annual trip with a couple of girlfriends, and we usually stay at an Airbnb. So we try to set a budget range knowing that there will be fees attached, right? But it's impossibly tedious because you have to click on each listing and go to the final checkout screen on multiple tabs just to compare prices. So if you, listener, want to share your own story about hidden fees with the FTC, you can do that at

regulations.gov. There's a 60-day period for comments about the proposed rule. Okay, well, let's move on to the second part of this crackdown, and it comes from the CFPB, which refunded $140 million to consumers who were charged some of these junk fees. About 85% of that was for overdraft and other fees associated with having insufficient funds in a bank account. Right, and the average cost of these fees is around $30 to $35 per overdraft, according to the CFPB. So that can easily add up. And junk fees of all kinds, not just from banks, usually come as a surprise to consumers. Biden said they can tack hundreds of dollars onto everything from concert tickets to airlines to cable and Internet and even health care.

The way I think about it is the way my dad talked about it and the way so many of you at home talk about it around the kitchen table. How much are your monthly bills? And after they're all paid, how much do you have left for necessities? Is there enough left over just to give you a little bit of breathing room? Well, these junk fees suck up all that breathing room. And Biden says his administration isn't done yet yet and that there are other junk fees he's directed federal agencies to crack down on as well. He said later this month, the CFPB will propose a new rule, making it easier for consumers to switch banks, perhaps if they're tired of paying some of these fees at their current bank, Ana. I'm going to go ahead and say all consumers are tired of fees wherever they pop up. I also want to add that the actions we talked about today are all priorities for

Biden's economic agenda. Sean, I'm sure you've heard of Bidenomics. Yeah, it's a play on Reaganomics, right? But instead of the trickle-down economics of the Reagan era... It's a middle-out and bottom-up approach, or at least that's how Biden describes it. When I ran for president, I promised we would not continue the trickle down economics of the past. Because here's a simple truth. Trickle down economics represented the moment we walked away from how this country's middle class was built, in my view. Not a lot trickled down on my dad's kitchen table, I don't recall. Bidenomics is another way of saying restoring the American dream. Trickle down, limit the dream to those at the top. But I believe that every American

willing to do hard work should be able to achieve it no matter where they live in every part of the country. That's the American dream. That's Bidenomics. There are three pillars of Bidenomics, making public investments in things like infrastructure, semiconductors, clean energy and climate security, middle class growth through worker empowerment and education, and promoting competition to lower costs and help small businesses thrive. I'm guessing that last pillar is where junk fees probably fall under. You guessed right. Part of lowering costs for consumers is fighting junk fees probably fall under. You guessed right. Part of lowering costs for consumers is fighting junk fees. Well, here's hoping a crackdown on fees will make it cheaper for me

to go to concerts. Or at least make it easier to see up front what exorbitant fees you'll pay to do it. And that's it for this week's money news. Before we go, I wanted to let you know about the next event in NerdWallet's fall webinar series, which is about banking. If you've ever wondered how to choose the right bank for your needs, including how to get a good high yield savings account, then this event is for you. This webinar is coming up on November 1st. So if you are interested, mark it on your calendar and check out nerdwallet.com slash basics for more info. We always welcome your money questions and comments. Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. Or send us a voice memo at podcast at nerdwallet.com.

And remember to follow, rate, and review us wherever you're getting this podcast. Today's episode was produced by Tess Vigeland and edited by Rick Vanderkneith. Kevin Tidmarsh mixed our audio. And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.