The hidden cost of junk fees
February 2, 2022 / Source: CFPB
When shopping for a product or service, it’s common and prudent to compare your options by looking at the price. Unfortunately, many companies are increasingly using fees to make additional money on fees you don’t shop for on the front-end. Junk fees can show up in the form of “service charges” that inflate ticket prices, “resort fees” that increase the cost of hotel stats, and mystery fees on phone and cable bills. When companies charge excessive fees on top of the upfront price, it’s difficult or impossible to comparison shop based on actual cost.
Many Americans have also encountered junk fees in the consumer finance sector the CFPB regulates, and it’s easy to grow accustomed to fees as part of our everyday experience with financial products and services. They take many different forms, including fees for late penalties, overdrafts, returns, using an out-of-network ATM, money transfers, inactivity, and more. In many cases the fees are mysterious and can leave an individual unsure of the purpose. With overdraft fees, a cup of coffee can go from $3 to $35. When an individual needs help, they may even be charged a fee for speaking to a real person. And some companies charge you to pay your bill by phone or other methods .
Junk fees drain tens of billions of dollars per year from Americans’ budgets, and when markets become dependent on these back-end fees, it makes it harder for families to realize the benefits of competition.
Common junk fees:
Here are some examples of fees described in our request for information.
Fees for Not Having Enough Money
The cost of signing up for a bank account is generally advertised as account maintenance fees, which can vary substantially from bank to bank. However, the vast majority of fee revenue banks make from deposit accounts comes from back-end penalty fees for overdrafts or from not having enough funds to cover a transaction. In 2019, bank revenue from overdraft and non-sufficient funds fees surpassed $15 billion with the average cost of each charge between $30 to $35.
Late fees are penalties for not paying a bill by the due date, and can be major sources of revenue for companies. Of the $23.6 billion fees charged by card issuers in 2019, $14 billion came from late fees alone.
Fees to Pay Your Bill
Banks commonly charge fees to accept payments on your bill, such as the ability to transfer payments, conduct a foreign transaction, or even pay bills online. These are sometimes called “convenience fees.”
Prepaid card fees
For people who are unbanked, prepaid cards provide critical access to basic financial services. While someone may choose a card based on their monthly fee structure, they often find additional and unadvertised fees for basic use of the card.
Closing costs and homebuying fees
Owning a home has historically been one of the best ways to build wealth. However, fees associated with closing on a home, such as document preparation or title insurance, can act as a significant barrier to families trying to buy a home or refinance and can significantly cut into household equity.
Sharing your experiences
To help us understand how junk fees impact people’s financial lives, the CFPB is seeking information from stakeholders across the marketplace, including individuals, small business owners, academics, and government officials.
We want to hear about your experience with junk fees, including:
- Fees for things you believed were covered by the baseline price of a product or service
- Unexpected fees for a product or service
- Fees that seemed too high for the purported service
- Fees where it was unclear why you were charged
We welcome your stories and insights, which will help us achieve our mission to ensure banking and lending markets are fair, transparent, and competitive for everyone.
Share your experiences by visiting the public comment page on the Federal Register .