April 30, 2024

CFPB: New Published Research Finds Higher Price Complexity Leads Consumers to Pay More

As part of junk fee initiative, study suggests that consumers pay more when prices are separated into multiple fees

Today, the Consumer Financial Protection Bureau (CFPB) issued a new report that suggests consumers tend to pay more for products that have more complex pricing structures. The report is based on experiments with multiple rounds of buyers and sellers interacting in simple markets, and found that participants tended to pay more when prices were broken into sub-parts and were harder to understand. The research has implications for understanding how junk fees impede fair and competitive pricing in markets like auto loans or mortgages, where consumers have to evaluate extended warranties, add-ons, closing costs, and a wide variety of other fees instead of an all-inclusive price.

CFPB researchers had study participants act as buyers and sellers in a series of transactions. In some cases the objects for sale had a single all-in price, while in other cases the prices were split into 8 or 16 sub-prices. In the scenarios with more complex pricing, buyers tended to fare worse. The average selling prices rose, buyers had more difficulty comparing prices across sellers, and the overall amount paid rose. These findings contribute to a growing consensus of research and real-world observations showing that junk fees increase overall prices beyond what a fair and competitive market would allow.

While not expected to exactly mirror real-world transactions, the CFPB found in these experiments that more complex pricing generally led to more detrimental outcomes for consumers:

The CFPB has previously highlighted how the use of complex terms and pricing can pose challenges for consumers. In many instances, consumers face complex pricing when shopping for financial products and services including:

Read the report, Price Complexity in Laboratory Markets.

Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).

Employees of companies who believe their company has violated federal consumer financial laws are encouraged to send information about what they know to whistleblower@cfpb.gov.

This post was originally published here.