Senators debate added fees' role in higher cost of living

WASHINGTON (TND) — Lawmakers are weighing how to get a grip on high costs that have battered American consumers over the last several years as inflation ate into budgets through more expensive prices on essentially all purchases.

Adjusting government spending and changing regulations on sectors across the economy have been frequent angles Congress have explored since inflation started picking up in the post-pandemic economic resurgence and taking away consumers’ purchasing power.

The Senate Banking, Housing and Urban Affairs Committee held a hearing on fees facing consumers on Wednesday, which comes as inflation remains above the Federal Reserve’s 2% target and has proven to be sticky despite elevated interest rates meant to cool the economy to get the last mile of inflation back in check.

Inflation has come down significantly from the highs of 2022, but prices are still significantly higher than they were before the pandemic and the top concern for Americans preparing to vote for president in November.

Congress has limited ability to minimize inflation happening today outside of changing levels of federal spending, but lawmakers are trying to show voters that they are working to address the rise in the cost of living.

Cracking down on so-called “junk fees” has been a priority of the Biden administration and congressional Democrats, who argue that businesses are squeezing every dollar they can out of consumers for the sake of profit margins and exacerbating issues with the cost of living.

“Think about that hotel room you book that has a bunch of mysterious charges at the end. Or that time you paid your credit card bill over the phone so you wouldn't be late, but we're charged a convenience fee. The only thing that fee is convenient for is the bank's bottom line,” said Sen. Sherrod Brown, D-Ohio, the committee’s chair.

The White House has moved to eliminate multiple types of fees consumers face when making purchases like limiting bank overdraft charges and late fees, requiring airlines to give refunds on canceled flights and other examples across the economy.

A major recent announcement was a Consumer Financial Protection Bureau rule that is limiting the penalty for late payments on credit cards to $8 per incident, which is down from the industry average of $32.

Republicans and financial service companies that offer credit cards have been opposed to the change. GOP lawmakers blamed the Biden administration’s policies for ramping up prices on consumers and said they are blaming businesses instead of taking accountability.

“Let's be clear about what this rule will mean for American families. It will result in lower credit limits and higher interest rates for borrowers. It will result in new fees for services that are currently provided free of charge. Finally, perhaps worst of all, this rule will cut off access to credit and stymie financial inclusion for the families who need it,” said Sen. Tim Scott, R-S.C., and the committee’s ranking member.

The financial services and banking industries have argued that minimizing or eliminating late fees will end up limiting access to credit and is most likely to effect low-income and vulnerable borrowers with lower credit scores, ultimately hurting the group of consumers they are most aiming to protect.

“We would probably have to rethink our interest rate structure, increase our interest rates when possible. Eliminate things like free checking accounts,” Karen Madry, president and CEO of Afena Federal Credit Union, told lawmakers.

Higher interest rates from the Fed have already made it harder and more expensive for people and businesses to obtain lines of credit and have weighed heavily on lower-income consumers that have had to rely on credit cards to make end’s meet. Some lawmakers said the debate over late fees and overage charges would further limit their options.

“I just wish this whole debate was a little bit more honest about what we're really doing. What we're proposing to do is to make consumer debt much less available to low-income people,” said Sen. J.D. Vance, R-Ohio. “Let's just be honest about that and then have the debate about whether that's good or bad or can be accomplished through other means.”

Housing prices have also skyrocketed over the last several years, with the average price of a home around $400,000 and rents climbing to nearly $2,000 a month on a national average. Since 2019, rent prices have grown 1.5 times faster than wages, a trend that has only reversed in the last year with an influx of new construction hitting the market.

Congress has struggled to find a legislative solution to help deal with America’s affordable housing crisis, which experts agree is mostly caused by a shortage of units and a lack of construction to fill the gap. Most of the governmental hurdles that are curtailing new development are at the state and local level through zoning laws, but the federal government can spur construction through grants and other programs to incentivize development.

But feeling overburdened at the cost of rent, some consumers have also taken issue with additional fees that aren’t included in asking rents like maintenance fees, garbage services and other monthly add-ons that push apartments that they thought they could afford out of their budget.

“If you're going to comparison shop, if you're going to look on a platform and you see 10 different potential places to live, and some of those listings are all-in price and some are partitioned, or there might be fees that you don't even know about. Well, that makes it very difficult to comparison shop,” said Adam Rust, director of financial services at the Consumer Federation of America.