It has become the practice of consumers, in concluding their transactions, to ignore the fine print of supporting documents. Particularly in the online purchase of products and services, consumers overlook charges additional to the proper costs of those products and services. The reality is that these charges are not disclosed upfront, are only revealed after a consumer has decided to buy something, obscure the true prices and dilute market competition. Recently in the US, the White House issued guides, and the Consumer Financial Protection Bureau and the Federal Trade Commission published discussion papers, proposing rules to address this situation. The concern has moved from private players shifting their burden of costs to the consumers to where they are looking to gouge their captive audiences, their loyal customers, by having them pay those additional amounts without giving them a way out.
Since this is now a common occurrence across industries, such as loans, auto-financing, telecommunications and live entertainment, the inflated final bill not just contains hidden charges, but is also presented without seeking the informed consent of the end users. The product or service providers take advantage of consumers’ lack of awareness. This goes beyond any contractual commitments and consciously manipulates the information from, and behavioral patterns of, individuals to induce them to buy things carrying excessive and unwarranted costs.
Practices that mislead consumers include confusing prices; a user cannot determine the exact cost of a product or a service. Providers also confuse consumers. Where a captive audience has already decided to buy something, it is easier for the provider to entice them to pay more than they expected to. Studies have shown that consumers faced with these hidden or dripped fees can pay upward of 20 per cent more than they would have had the actual price been disclosed upfront. Companies that actually follow fair and transparent practices by making upfront disclosures about their charges, will seem to be more expensive than these opportunistic providers; this links to the earlier point that consumers pay these excessive fees and charges when they are not sure about the true costs. Common examples of this gouging include banks charging account maintenance charges, companies demanding late-fee charges, convenience fees and the costs of foreclosure and closing.
To curb abuses in the consumer-oriented business of commercial airlines, the US Department of Transportation, recently issued an advisory on airline family seating. This was designed to ensure that “a parent who purchases airline tickets for a family should receive a guarantee from the airline that it will seat the parent and child together without fees or a last-minute scramble at the gate or having to ask other passengers to give up their seat to allow the parent and child to sit together”. Since then, several airlines have amended their conditions of sale and service to bring them into line with this official guidance, thus giving the necessary assurance to end users at no additional cost.
The department has also submitted a proposal to the US congress that it pass legislation that would make the practices in the advisory mandatory. While there has been a lot of discussion and deliberation in the US, this subject has not received such publicity and concern elsewhere. These unfair practices adopted against consumer interest unfortunately have developed quickly in fast-developing economies. They are especially prevalent in India, with its large consumer base and a marked digital knowledge divide between users who understand what is involved in online buying and those users seeking goods and services who may have only vague knowledge of what is associated with this way of dealing.
It has become imperative for legislators across the globe to act against such unfair consumer-oriented activities in two ways. They must legislate for the general population, keeping in mind that any laws passed have to be sector agnostic. Legislators must also ensure that the product and service providers with which members of the public deal toe the line. Everyone knows that there is no such thing as a free lunch. However, consumers should only pay for what they receive and should not have to pay for nothing and, nothing is what these junk fees buy.
Bagmisikha Puhan is an associate partner and Alaqshendra Singh is an associate at TMT Law Practice.