Rohit Chopra, Director of the Consumer Financial Protection Bureau, listens as U.S. President Biden announces plans to eliminate junk fees for consumers. October 26, 2022.

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Why eliminating "junk fees" and imposing "Buy American" on spending are not the solutions they seem to be


Photo Credit: REUTERS/Jonathan Ernst


President Joseph R. Biden Jr., in his State of the Union address in February, sounded an old theme—promoting “Buy American” provisions in domestic spending—with something fairly new, an attack on so-called junk fees imposed on unsuspecting consumers by financial and other companies. Both measures may sound reasonable to the public and prove politically popular. But they entail costs to American households: highly visible in the case of junk fees, almost invisible in the case of Buy American.

To understand why these otherwise attractive measures entail costs, and the possible downsides for the US economy, it helps to understand the details, some hidden and some in plain sight, of President Biden’s proposals.

The “junk fee” burden

“Junk fees” are defined as surprise charges that customers do not discover until they nearly complete a common transaction such as booking an airline flight, renting a car, checking out from a resort, or paying with a credit card. “Look, junk fees may not matter to the very wealthy,” the president declared, “but they matter to most other folks in homes like the one I grew up in, like many of you did. They add up to hundreds of dollars a month.”

Biden called on Congress to pass the Junk Fee Prevention Act, first introduced last fall and based on findings by the Consumer Financial Protection Bureau (CFPB), which was created to regulate the financial industry in 2010. In January 2022 the CFPB launched its initiative to Save Americans Billions in Junk Fees. The initiative was influenced by a May 2019 article in Consumer Reports that reported that at least 85 percent of survey respondents experienced “hidden fees” over the previous two years. The growth of these fees was attributed in part to widespread consumer use of internet services for comparison shopping. In this new environment, the article said, merchants find it advantageous to quote low upfront prices as a means of snaring customers and then make up the difference with back-end charges.

Rather than banning certain fees, the Junk Fee Prevention Act essentially calls for upfront disclosure of all charges. In cases involving credit card late payments, bank overdrafts, and airline seating, the federal government has already used, or soon will use, its regulatory sway to compel firms to reduce or drop fees, whether or not the Junk Fee Prevention Act is passed.

President Biden’s Fact Sheet on the Junk Fee Prevention Act, issued in February to accompany his speech to Congress, cited several new regulatory measures the administration had adopted or was contemplating.

For example, a new rule proposed by the CFPB in February 2023 was described as reducing credit card late payment fees from an average of $30 to $8, saving consumers $9 billion a year. New CFPB guidance from October 2022 curtails overdraft charges when consumers deposit someone else’s bounced check, saving consumers $1 billion annually.[1]

In addition, the Department of Transportation published a rule in October 2022 requiring airlines to show the full price of a plane ticket and baggage charges up front. As a result, several airlines were persuaded to guarantee coverage of hotel and meal charges for delayed or cancelled flights. Finally, the Federal Communications Commission (FCC) published new rules in November 2022 requiring broadband providers to disclose internet options and charges, although these broadband “nutritional labels” will not go into effect until 2023.

If enacted, the Junk Fee Prevention Act would crack down on hidden online entertainment ticket fees, which average 20 percent of the ticket face value. It would ban airline fees for family members to sit with young children. It would eliminate exorbitant early termination fees for TV, phone, and internet services. It would ban so-called surprise resort fees. However, the Fact Sheet does not estimate consumer savings from these legislative measures.

In any event, the Junk Fee Prevention Act is not likely to pass the House of Representatives, controlled by Republicans, whatever its fate in the Senate, controlled by Democrats. Moreover, funding for the Consumer Financial Protection Bureau—which receives funding directly from the Federal Reserve rather than an appropriation from Congress—is now being challenged in the Supreme Court.

Deriving an estimate of consumer savings from regulatory measures is often a matter of debate. But if three figures are added together, one can see at least what advocates claim: the Fact Sheet figure for savings on reduced credit card late payment fees ($9 billion) and curtailed overdraft charges ($1 billion), plus a Consumer Reports figure on airline reservation change and baggage fees ($7.6 billion).[2] Accepting these figures at face value, arithmetic indicates nearly $18 billion of financial sector and airline junk fees annually that are now subject to regulatory oversight. The impact of FCC regulatory measures is unknown but may amount to a few billion dollars annually. Perhaps the total regulatory oversight amounts to as much as $20 billion annually.

Since the White House has not published estimates for the Junk Fee Prevention Act, a ballpark figure for consumer savings is speculative. Consumer Reports suggests a potential saving of $2.9 billion for resort fees and surcharges. Airline seating fees for families are more annoyance than cost. Total revenue for Live Nation Entertainment—the parent company of Ticketmaster, the dominant US provider—was $16.7 billion in 2022. If fees averaged 20 percent of ticket face value, or 16.7 percent of total revenues, arithmetic suggests that fees of almost $3 billion were collected by the firm. According to the United States Census Bureau, 27 million Americans moved in 2021, or about 10 million households.[3] If each moving household paid $100 in early termination fees on telecom services that would amount to another $1 billion. All told, the Junk Fee Prevention Act might curtail another $7 billion of junk fees.

Speculative arithmetic suggests that combined regulatory oversight and the Junk Fee Prevention Act (if enacted) might at best simply put the spotlight on $27 billion of junk fees annually.

But these figures omit a crucial question: the extent to which these back-end fees would actually fall, and how much they would be shifted to upfront prices. Since “junk fees” are back-end charges to entice buyers or consumers with seemingly inexpensive upfront costs, many firms might well simply roll most of the hidden charges into upfront prices to pass regulatory scrutiny. As a rough but generous guess, firms might absorb half the fees under scrutiny, and fold the other half into upfront prices. If so, the annual savings to consumers would amount to $13.5 billion, or perhaps $135 billion over a decade. That would work out to around $100 average annually for each of the 131 million American households—a substantially lower saving on junk fees than President Biden’s claim of “hundreds of dollars a month.”

The Buy American Burden

President Biden and Congress have enacted three massive industrial policy measures: the $550 billion bipartisan Infrastructure Investment and Jobs Act of 2021, the $76 billion CHIPS and Science Act of 2022, and the $369 billion Inflation Reduction Act (IRA) of 2022 outlays on energy security and climate. “I make no excuses for it,” Biden said. “We’re going to buy American.” He added that new standards were being drawn up “to require all construction materials used in federal infrastructure projects to be made in America. Made in America. I mean it. Lumber, glass, drywall, fiber-optic cable. And on my watch, American roads, bridges, and American highways are going to be made with American products as well.” Importantly, this declaration was one of the few in his address to elicit bipartisan cheers and applause.

But the downside of Buy American is higher costs to taxpayers, project delays due to shortages, friction with American allies abroad, and lost US export markets as other nations pursue their own buy national laws.

Because the infrastructure projects, “green energy” investments in the IRA, and the CHIPS Act subsidies and tax breaks are just getting under way, it is difficult to estimate their costs. But in 2020 PIIE authors estimated that the additional cost imposed by Buy American preferences then in effect on US federal, state, and local procurement, which totaled $1.7 trillion annually, amounted to $94 billion each year. That cost added at least 5.6 percent to the cost of public procurement.[4] These estimates reflect waivers that were then permitted to alleviate high costs and project delays otherwise imposed by Buy American. The estimates also reflect the fact that state and local government procurement was usually not burdened by federal Buy American rules.

Biden has promised that all industrial components covered by the three federal policy measures enacted in 2021 and 2022 will be made in America. None of the waivers permitted by previous presidents to alleviate costs and delays will be permitted.

The three legislative measures add up to a little over $1 trillion of new industrial policy outlays. If the burden of strict Buy American rules was no greater than past experience for combined federal, state, and local procurement, the additional cost to American taxpayers would be $56 billion (5.6 percent of $1 trillion). But the burden is likely to be substantially greater under the new industrial policy measures because President Biden insists on American sources for “lumber, glass, drywall, fiber-optic cable” and everything else procured with federal money. The implication is that even components in short supply will be purchased at higher cost from American sources, and sometimes with long delays.

At this time, when implementation has just begun, it is impossible to assess the added costs and delays of Buy American. But based on past experience, it seems reasonable to project that strict Buy American rules applied to federal procurement will raise the cost of new industrial policy measures by at least 7 percent, or $70 billion over the next decade.

Conceivably, as the industrial policy measures are implemented, President Biden will allow imports of critical short-supply materials from allies like Canada, the European Union, Japan, and Korea. (Worth noting is that allowing foreign supplies of components would not open US infrastructure procurement to Chinese imports—waivers of Buy American requirements can be restricted to foreign allies.)

At a moment when persistent inflation is uppermost on the political agenda, it makes little sense to drive up the cost of new infrastructure by excluding Canadian, European, Japanese, or Korean construction materials.


The bottom line is that curtailing annoying junk fees might save American families very little while encouraging companies to cover their own costs and protect their profit margins by using other marketing devices. Our estimate is that the savings would be $13.5 billion a year, possibly $135 billion over a decade. By comparison, saddling industrial policy with strict Buy American rules could cost American families half as much, perhaps $70 billion over the next decade.

Ironically, Buy American costs are truly the hidden charge—buried deep in government outlays, never visible to the average household. In contrast, junk fees are noticed and sometimes successfully challenged. Unfortunately, there is no bureaucracy, akin to the Consumer Financial Protection Bureau, to investigate and challenge the hidden costs of Buy American.


1. The CFPB January 2022 announcement cited annual 2019 credit card punitive late fees of $14 billion and bank overdraft charges of $15 billion. However, the White House Fact Sheet cited a lower figure ($9 billion) for savings on credit card fees, and a much lower figure ($1 billion) for savings on bank overdraft charges. Reporting on the State of the Union address, CBS News apparently added together the two charges cited in the January 2022 CFPB announcement to claim that consumers were “shelling out at least $29 billion each year in excessive charges.” That statement does not accord with the White House Fact Sheet.

2. Consumer Reportscited aggregate costs in 2018 from “hidden fees” in three instances: airline reservation change and baggage fees of $7.6 billion, bank overdraft charges of $11.5 billion, and resort fees and surcharges of $2.9 billion.

3. The average American household has 2.6 persons.

4. The implied tariff equivalent burden of Buy American preferences was conservatively estimated at 26 percent ad valorem, far above the average ad valorem tariff of 3 percent on US merchandise imports, and even above President Trump’s punitive tariffs on imports from China (currently averaging 19.3 percent).

Data Disclosure

This publication does not include a replication package.

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