By Nathalie Voit
The Bureau of Consumer Financial Protection (CFPB) issued a request for public comment on the use of so-called “junk fees,” or fees that bypass the regular competitive process, the bureau said in a press release.
The bureau specifically pointed out hidden and tacked-on fees such as late payment fees charged by banks, hotel resort fees, and service fees surreptitiously added to concert ticket prices.
“Junk fees make it harder for us to choose the best product or service because the true cost is hidden,” CFPB Director Rohit Chopra said at a news conference on Wednesday, according to The New York Times.
The agency, tasked with enforcing federal consumer law and ensuring consumer financial markets are fair, transparent, and competitive, has become increasingly concerned about what it dubs the ever-broadening “fee economy.”
Specifically, the CFPB took aim at a host of financial institutions like credit unions and banks.
“Exploitative junk fees charged by banks and non-bank financial institutions have become widespread, with the potential effect of shielding substantial portions of the true price of consumer financial products and services from competition,” the CFPB said.
“The CFPB is concerned about fees that far exceed the marginal cost of the service they purport to cover, implying that companies are not just shifting costs to consumers, but rather, taking advantage of a captive relationship with the consumer to drive excess profits. Excessive and exploitative fees, whether predictable and transparent to the customer or not, can add up and pose significant costs to people, especially those with low wealth and income.”
The agency said a significant amount of the revenue financial institutions earn comes from such “junk fees.”
Overdue payments, for example, reap credit card companies an estimated $14 billion a year, according to a 2021 Consumer Credit Card Market Report released by the agency. Many companies typically charge $25 to $35 for late payments.
Similarly, banks make an estimated $15 billion annually on overdraft and non-sufficient funds (NSF) fees, the agency said in a report issued in December. The CFPB said banks collected $15.4 billion in overdraft and NSF fees in 2019.
Balance transfer fees are yet another high cost to consumers as banks charge about a 3% fee on average for every transaction. Consumers transferred a total of $35 billion in 2020, adding to millions in easy junk fee money for banks.
Credit card companies are also notorious for adding on hidden or unexpected fees. The CFPB said fees represent about one-fifth of the total cost of credit cards in the report.
“Card issuers charged $23.6 billion in fees in 2019 alone, and nearly $14 billion of those fees were late fees not subject to competitive pricing pressure,” the agency said.
The efforts are all in line with the Biden administration’s efforts to step up competition in a broad range of areas, including the meatpacking sector, Big Tech, and the aviation industry.
The CFPB said consumers have until March 31 to submit comments.