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What is a Junk Fee?

What is a Junk Fee?

Junk fees are annoying at best, expensive at worst, and usually a surprise to consumers. They can include extras you pay on credit cards, bills, loans, air travel, hotel rooms, and event tickets.

Here are some of the most common types of unwanted charges, as defined by the Consumer Financial Protection Bureau, or CFPB:

  • Overdraft or NSF fees. The average cost of these fees is between $30 and $35, says the CFPB.

  • Late fees for not paying an invoice on time. Nearly 60% of all fees charged by credit card issuers in 2019 came from late fees alone, according to the CFPB.

  • Convenience fee. Businesses charge these fees for accepting bill payments online or over the phone, transferring payments, or conducting transactions overseas.

  • Prepaid card fees. Additional or unadvertised costs for using prepaid cards. These cards provide an essential service to the unbanked, according to the CFPB.

  • Closing costs and costs of buying a house. Additional costs associated with closing a home, including preparing paperwork or title insurance, can reduce household equity. This can even be a barrier to home ownership, according to the CFPB.

These fees increase overall costs for consumers and complicate comparison shopping, according to a fact sheet released by the White House in March. Additionally, fees at the end of a transaction or those hidden in the fine print distort the total price for consumers. You see this tactic with “service fees” for event ticketing or “resort fees” on hotel bills.

Unwanted fees are found in most financial services. For example, a March 8 CFPB report detailed illegal junk fees in several lending markets, including auto loans, mortgages, student loans, and payday loans. Some of these illegal charges include:

  • Car loan service. False and excessive late fees, inflated estimated repossession fees, excessive processing fees and bribe payments.

  • Mortgage service. Excessive late fees, charges for unnecessary home inspections, bogus private mortgage insurance premiums, and failure to follow Department of Housing and Urban Development, or HUD, rules that protected landlords from late fees , fees and penalties.

  • Payday loan and securities loan. Vehicle repossession costs, property recovery costs, and vehicles repossessed with costs despite prior payment agreements with borrowers.

  • Student Loans Service. Late fees and interest even after payments are made on time, usually when service agents wrongly and temporarily authorize credit card payments.

What are we doing to reduce junk fees?

Here are some of the measures taken recently to reduce unwanted charges:

  • In February, the CFPB announced a proposed rule to limit excessive late fees on credit cards, which could save consumers up to $9 billion a year. The CFPB found that credit card companies charge customers up to $41 per missed payment; the proposed rule would reduce this amount to a maximum of $8.

  • In November 2022, the Federal Communications Commission, or FCC, passed a rule that requires cable companies and Internet service providers to list charges and services up front in a consumer-friendly way. The FCC says this would make it easier for consumers to compare prices between providers.

  • On Feb. 1, Department of Transportation Secretary Pete Buttigieg said the DOT would launch a dashboard showing which airlines guarantee family seats. And in March, the department submitted a rule to Congress requiring airlines to provide free family seats that allow a parent and child to sit together.

Unwanted Charges Prevention Act

The Junk Fee Prevention Act, introduced on March 22 by the Sens. Richard Blumenthal, D-Conn., and Sheldon Whitehouse, DR.I., aims to eliminate hidden and unnecessary fees and to require the full price of services to be provided up-front rather than at the point of sale. Additionally, the bill would allow the Federal Trade Commission, or FTC, and the FCC to issue and enforce new rules.

The law was introduced after President Joe Biden’s State of the Union address on Feb. 7, in which he said his administration would cover the unwanted fees. Biden called on Congress to pass the law, which had not been officially introduced.

“Unwanted fees may not matter to the very wealthy, but they do matter to most people in homes like the one I grew up in,” Biden said in his speech. “They total hundreds of dollars a month. They make it harder for you to pay the bills or pay for that family trip. I know how unfair it is when a company overcharges you and gets away with it. No more.”

Learn more below about the proposed policy for fees charged by hotels, event ticket vendors, communication services and airlines.

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