As part of its junk fees initiative, the CFPB released a new report, “Price Complexity in Laboratory Markets.” In its press release about the report, the CFPB states that because it “suggests consumers tend to pay more for products that have more complex pricing structures,” the report “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.” According to the CFPB, its 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.”

The report is based on experiments with multiple rounds of buyers and sellers interacting in simple markets. In the study, participants acted as buyers and sellers in a series of transactions. In some cases, the products for sale had a single all-in price, while in other cases the prices were split into 8 or 16 sub-prices. The CFPB found that buyers tended to fare worse in the scenarios with more complex pricing. It also found that as average selling prices rose, buyers had more difficulty comparing prices across sellers, and the overall amount paid by buyers rose.

The CFPB’s specific key findings were:

• More complex pricing led sellers to ask, on average, for higher total prices, with sellers’ total asking prices 60 percent higher in markets with 16 sub-prices than in markets with one price.
• More complex pricing led buyers to make more “mistakes,” on average. A “mistake” occurred when a buyer bought the product with the higher total price. Buyers were 15 times more likely to select a higher-priced option in markets with 16 sub-prices than in those with one price.
• More complex pricing led to higher transaction prices, on average. The “transaction price” is the total price of a product bought by a buyer. Transaction prices were 70 percent higher in markets with 16 sub-prices than in those with one price, on average.
• In markets with multiple sub-prices, sellers can compete for sales by increasing their price complexity to cause buyers to make mistakes.
• Increasing market competition generally improved, but did not eliminate, the negative effects of complexity.

In its press release about the report, the CFPB notes that “consumers face complex pricing when shopping for financial products and services” and identifies credit cards, checking and savings accounts, mortgages, and auto loans as products with “complex terms and pricing.” Conspicuously absent from the report, however, is any assessment of the impact of the disclosures required under federal laws and regulations on shopping.

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