Junk fees add insult to injury for Canadian consumers #CanadaFinance

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The rising cost of living has been taking a greater bite out of Canadians’ wallets since the pandemic, with the average price of all goods and services up by about 18 per cent cumulatively over the past four years. But as general inflation has pinched pocketbooks, it has also focussed attention on a more insidious problem: hidden, sometimes excessive “junk fees,” that have become bane of consumers everywhere.

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“There are just so many ways that prices are being played with, and it’s a kind of competition to see who can most sneakily get more money out of you,” says Ken Whitehurst, executive director of the non-profit Consumers Council of Canada.

“I think people are very justifiably angry. We are evolving into a transaction economy where nobody is making money off of the great product or service they’re delivering, they’re just making money off of how many times they can manipulate the transaction.”

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It isn’t hard to find examples. Charges labelled as processing fees, administrative fees, service fees or booking fees abound across a variety of major industries. And because many sectors — including airlines, banks, telecom companies and grocery store chains — are controlled by a few big players, experts say Canadians often have limited options for exercising choice and taking their business elsewhere.

That combination has attracted the attention of the federal government and various regulatory agencies, which are starting to target pricing agreements that either disguise the real price of an item or potentially trap consumers into paying additional fees for a product or service they already use.

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Tackling junk fees and drip pricing

In the 2023 federal budget, the government vowed to strengthen the Competition Act and target “higher telecom roaming charges, event and concert fees, excessive baggage fees, and unjustified shipping and freight fees.”

Earlier this year, Ottawa said it will introduce regulations that require banks to cap non-sufficient funds (NSF) fees at $10 — a fraction of the $45 to $48 currently charged by the Big Five banks.

And in October, the CRTC ordered cellphone companies to take “concrete steps” toward making roaming fees more affordable.

One specific practice that is under the microscope target has been the use of “drip pricing,” where consumers are lured in by a low advertised price that doesn’t include additional hidden fixed charges for a product or service, a tact that is illegal under the Competition Act.

Over the past few years, several headline-making fines have been doled out to companies for misleading pricing. In 2019, Ticketmaster paid a $4.5 million penalty for “allegedly misleading pricing claims in online ticket sales,” where fees piled on an extra 20 per cent to 65 per cent onto advertised prices. Ticket resale website TicketNetwork paid a $825,000 fine for similar misleading advertising in 2023. In September, the Competition Tribunal issued Cineplex a record $38.9-million fine, ruling that the theatre chain committed drip pricing through an $1.50 online booking fee. Cineplex has filed an appeal.

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In the book The Big Fix: How Companies Capture Markets and Harm Canadians, co-authors Vass Bednar and Denise Hearn call unjustified junk fees “a kind of lazy man’s innovation.”

In an interview with the Financial Post, Bednar noted that some fees charged by private businesses and public institutions are legitimately related to the cost of doing business.

For example, because credit card processing fees are costly to merchants in Canada, they’re allowed to add an optional surcharge on credit card purchases of up to 2.4 per cent per transaction — it just has to be clearly disclosed to the cardholder before the transaction, and cardholders must also have the option to pay using debit or cash instead.

“Sometimes these fees are real, genuine, supplementary and necessary fees,” Bednar says. “Other times, when (fees) are junk, they are just tacked on and inflate the price because a firm can, and that’s where we see firms trying to take advantage of us.”

Searching for a solution

Within Canada, Whitehurst says Ontario and Quebec have stronger consumer protection laws compared with other provinces.

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“Quebec consumer protection law is more assertive,” he says. “The Quebec government, directly and indirectly provides some funding to their consumer organizations, and they’re organized a bit differently. There’s kind of a blending, more like what you would see in the U.K., where the consumer organizations are involved in service delivery as well as policy development representation.”

Bednar says the United States is “more voracious and a bit more ambitious” on competition-related issues compared with Canada, but she sees an opportunity for Canada to take inspiration and shift its approach.

“There’s a U.S.-led campaign around ending junk fees at the state level. But here, probably partially a function of our historically weak consumer protection, it’s not catching on. I think it’s just not as resonant as it should be. Tackling junk fees and banking is actually huge and very provocative, especially since we have a pretty cozy banking sector,” she says.

One study, from Alberta based consultancy North Economics Ltd., found that Canada’s Big Five banks are costing Canadians $7.7 billion in extra fees each year, with Canadians paying higher fees for “inferior service and slow innovation” compared with consumers in Australia and the United Kingdom. The study explores fees ranging from chequing account service fees, insufficient funds fees, overdraft fees, bank machine fees.

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While more competition and choice are often touted as a solution to Canada’s woes, Whitehurst says it’s a multifaceted issue that requires transparency, meaningful consumer representation, collaboration between federal, provincial and territorial governments, and “sufficient courageousness” among the people tasked with enforcing laws to take action.

To help reduce or avoid paying extra fees, non-profit advocacy organization Consumer Reports recommends tactics like negotiating, questioning or complaining about fees.

But Whitehurst says it’s not fair to treat the issue as a consumer responsibility — there might not be anyone to ask upfront about additional charges, they might not give an honest answer, or consumers might not be offered an agreement to consider in advance, such as an unexpected charge added to a restaurant or hotel bill

“Our best suggestion for consumers is to call their members of legislatures and tell them they want more legal protections and more proactive oversight and enforcement of consumer protection law, regulation and standards,” he says. “Don’t vote for those who won’t commit to reform and then demonstrate they will take action.”

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Bednar also says that it shouldn’t be up to individuals to solve structural issues, but does see value in the power of calling out junk fees on social media, directly asking companies to provide justification for fees, and reporting deceptive marketing tactics to consumer protection authorities like the Competition Bureau.

“Citizens need to be a part of reporting or inquiring and starting to build that awareness around what’s a junk fee and what’s not,” she says. “And I don’t see people being engaged in that way yet, so that’s definitely an area of opportunity.”

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