CFPB: Complex pricing structures disadvantage consumers

Consumers often pay more for products with more complex pricing structures, according to an April 30 Consumer Financial Protection Bureau report. 

In markets with 16 sub-prices rather than one, sellers’ total asking prices were allegedly 60 percent higher while buyers were 15 times more likely to choose the higher-priced option. Transaction prices were 70 percent higher on average.  

The report was based on experiments with buyers and sellers interacting in a series of transactions. Some cases included the objects for sale having an all-in price, while in others the prices were split into eight or 16 sub-prices.

According to the CFPB, the research has impacts for understanding how “junk fees” complicate fair and competitive pricing in auto lending and mortgage markets where customers must evaluate extended warranties, closing costs, add-ons and other fees instead of one set price. 

“These findings contribute to a growing consensus of research and real-world observations showing junk fees increase overall prices beyond what a fair and competitive market would allow,” according to the CFPB. 

The bureau also detailed the pricing structures customers face on credit cards, checking and savings accounts and mortgages.

• Credit card pricing often includes fees for late payments, balance transfers, cash advances and foreign transactions. Though credit cards sometimes offer 0 percent introductory annual percentage rates on purchases or balance transfers, those are sometimes followed by much higher APRs based on a cardholder’s credit score.  
• Prices on checking and savings accounts can include monthly maintenance fees, overdraft fees, minimum balance fees and wire transfer fees. Some banks offer interest rates based on account balances, according to the CFPB, which makes it harder for consumers to compare yields across banks. 
• Mortgage pricing can include interest rates, fees and terms based on loan types, credit scores or downpayment. Adjustable-rate mortgages include pricing with initial fixed-rate periods, caps on interest rate changes along with adjustment intervals and margin rates. Consumers can pay a large number of separate closing costs to secure a mortgage.
• Auto loans, which vary based on terms, credit score, downpayment and vehicle type. “Some lenders also offer promotional rates or cash-back incentives that can make it difficult for consumers to compare the true cost of financing across different offers,” according to the CFPB. “Add-on products, such as extended warranties, gap insurance and credit life insurance, can significantly increase the overall cost of the loan.”