The traditional Boy Scout oath was that each scout should “do his duty.” Unfortunately, in the bankruptcy case dealing with the fallout from the horrendous sexual abuse scandal, the bankruptcy court failed to do its duty. Instead of looking out for those who were victimized, the case has turned into another feeding frenzy by class action lawyers. To rectify this miscarriage of justice, appeals courts should take a second look.

Read the full piece here.

Chairman Hickenlooper, Ranking Member Blackburn, and Members of the Committee:

I am Todd Zywicki and it is a pleasure to appear before you today to testify on the topic of “Protecting Consumers from Junk Fees.” I am George Mason University Foundation Professor at Antonin Scalia Law School and Research Fellow of the Law & Economics Center. From 2020-2021 I served as the Chair of the CFPB’s Taskforce on Consumer Financial Law and from 2003-2004 I served as the Director of the Office of Policy Planning at the Federal Trade Commission. I am also co-author of Consumer Credit and the American Economy (Oxford 2014) and have written and spoken extensively on issues of consumer protection generally and consumer financial protection specifically. I appear voluntarily today in my personal capacity and do not speak on behalf or represent any other party.

I share the frustration that many consumers hold today regarding the proliferation of seemingly ubiquitous add-on fees that we experience constantly, from surcharges for using our credit cards at a merchant, to hotel “resort fees,” and others. And earlier this year I experienced exactly this frustration when I checked into a hotel on vacation and was assessed a mandatory $30 a day “resort fee” that was only disclosed in fine print on the last screen of a multi-page checkout process at an Internet hotel booking website.

Buying a ticket to concert has in fact become a tedious process of searching for a concert or sports ticket and then having to spend 10 minutes clicking through multiple pages before you can discover the real price and decide whether to go to the show.

So I also say, “Enough.”

But it is also important to stress that not all of these fees are “junk” fees. Many of these multi-part pricing schemes are economically efficient, in that they better match consumers with the product terms and attributes they value. Others are appropriate as means to protect some consumers from being forced to subsidize others’ choices or the higher costs that some consumers impose relative to others. For example, requiring upper-income jet-setters to pay foreign currency transaction fees hardly seems unfair to those who don’t travel abroad and presumably nobody has an issue with requiring payment of “add on” fees for additional toppings on a pizza. Requiring every vacation resort to be all-inclusive would force those who don’t drink alcohol to subsidize those who do. While some use of multi-part pricing today is likely welfare-reducing, multi-part pricing has become more frequent is because paying for the services you actually use over the long run can be more fair and efficient for other consumers, even if foreign travelers, partiers, and those who pay late on their credit cards might disagree.

As Howard Beales and I wrote recently:

The term “junk fees” defies easy definition. But it is imperative to distinguish ‘junk fees’ that are designed to extract rents and consumer surplus from consumers from efficient behavior-based fees. Welfare-reducing “junk” fees are most likely to emerge only under a relatively narrow set of market conditions — particularly those markets with few repeat customers where consumers are less likely to learn of the hidden fees, where consumers are effectively locked-in and unable to avoid paying the fee when it is imposed, or where such fees may be atypical and thus consumers are not alert to them.

The unraveling of the rule of law in finance is inherent in the system’s discretionary process of regulation. Each financial crisis begets new regulations and new regulatory agencies with more expansive and discretionary powers. The general entanglement of finance, leftist interest groups, and the federal regulatory apparatus has created a threat to freedom that is almost unique in history. Leftist activists, “woke” corporations, and regulators and politicians have recognized and acted on the opportunity to use the financial regulatory system both to enact preferred policies through anti-democratic means and to silence their ideological opponents. As governmental power grows, the threat of its misuse grows concomitantly.

It’s been 35 years since Californians voted by a narrow majority to pass Proposition 103, completely overhauling how the nation’s largest state regulates the business of insurance.

That’s an awfully long time. So long, it seems, that even the man who wrote Prop 103 appears to have forgotten what it actually says.

Read the full piece here.

ICLE Academic Affiliate Todd Zywicki joined Southwest Public Policy Institute President Patrick M. Brenner on SPPI’s SPPI-TV podcast to discuss interest rate caps and the role of the Consumer Financial Protection Bureau (CFPB). Video of the full episode is embedded below.

Before writing this commentary, I checked trending searches on Google over the last quarter. Among Singapore’s favourite three-letter acronyms, the top was HDB, followed by CPF and COE. That is until May 4, when the Certificate of Entitlement (COE) trumped Housing and Development Board (HDB) and Central Provident Fund (CPF).

It’s worth stressing that COEs are not the top concern of all Singaporeans. They are the top concern of a relatively vocal segment – especially recently, with COE prices crossing S$100,000 (US$75,000) and continuing to trend upwards.

Read the full piece here.

Abstract

The notion of “junk” fees is a fine piece of rhetoric, but useless as an analytical tool. Many fees identified as junk impose costs on consumers who generate those costs – rather than forcing others to subsidize their behavior. For example, credit card late fees deter late payments and their associated costs while only world travelers pay foreign currency transaction fees. There is no reason for ordinary consumers to subsidize either group. Because information is costly, consumers rationally focus on the elements of price that are most important in their own circumstances. Requirements to disclose everything everywhere will only interfere with this process. Both the structure of pricing, and the level of prices, should be determined by competition in the marketplace. As we observe, the result is detailed fee structures for some products and services, and bundled pricing for others. Attempts to regulate pricing structures by requiring itemized prices increased the costs of real estate settlements. Regulating components of credit card pricing structures led to increases in other fees and reductions in credit availability. Competition over pricing structures is far more likely to satisfy consumer preferences than an inevitably overbroad set of regulatory requirements

A relatively minor bureaucratic change proposed by the Federal Housing Finance Agency stirred up a viral storm in right-leaning news media recently, with outlets like the Washington Times, New York Post, National Review and Fox News all reporting some variant of the sentiment expressed in the Times headline: “Biden to hike payments for good-credit homebuyers to subsidize high-risk mortgages.”

Read the full piece here.