In comments filed with the Consumer Financial Protection Bureau (CFPB), Americans for Financial Reform (AFR), the Center for Responsible Lending (CRL), the Consumer Federation of America (CFA), and the National Consumer Law Center (NCLC) say Americans are charged billions of dollars in unnecessary fees each year.
In February, the CFPB announced a plan to investigate the issue. In its announcement, the agency took aim at “service charges,” “resort fees,” and “order processing fees” that it says make it hard for consumers to judge what something actually costs.
‘Evade the influence of competition’
The consumer groups are encouraging the agency to take action because they claim the fees are misleading. Consumers, they say, will look at an advertised price and not realize the fees will make the product or service more expensive.
“Banks, credit card companies, and other vendors impose fees on consumers in a manner that is calculated to evade the influence of competition and price comparison shopping,” said Rachel Gittleman, Financial Services Outreach Manager at the Consumer Federation of America. “The provider knows that the consumer will overlook and accept the charge because it is well hidden, or because the consumer has no alternative.”
These fees can extend to other industries’ services. For example, hotels sometimes add a “resort fee” but advertise a lower room rate to appear more competitive. According to the consumer groups, the cost of junk fees almost always exceeds the cost of the service or activity that triggers them.
While companies may use these add-ons to increase profit margins, these fees tend to turn off consumers. And when companies don’t charge an extra fee, consumers often appreciate it.
“I applied for a cash-out loan with at least 5 top lenders, Network Capital won my business by giving me the best rate on a 15-year loan 2.625% with just over 1/2 point origination fee and subsequent assistance in closing the loan timely and as promised, no add ons, or junk fees,” Pat, of Port Orchard, Wash., wrote in a ConsumerAffairs review. “No surprises.”
The consumer groups say low-income consumers are usually hurt the most by junk fees. Lauren Saunders, associate director at the National Consumer Law Center, says junk fees can be as harmful as overdraft fees and push consumers into becoming unbanked and losing access to mainstream financial products.