What Are Junk Fees?

Junk Fees Explained in Less Than 4 Minutes

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Junk fees are excessive fees charged by banks and financial companies. These fees often aren’t included in the original estimate and are extra charges imposed after the consumer has already signed up for a product or service.

According to the Consumer Financial Protection Bureau (CFPB), junk fees often hide the actual cost of a product or service since they aren’t disclosed upfront. This lack of clarity makes it harder for consumers to price shop and find the best deal for their money.

Definition and Example of Junk Fees

Junk fees are fees charged by financial institutions that are often excessive or unexpected. Many times, it’s unclear to consumers why these fees are being charged in the first place.

Companies often fail to disclose these fees upfront, making it harder for consumers to understand the actual cost of a product or service. An excellent example of this is fees charged by some hotels and resorts.

When you book a hotel room, you’re probably quoted a nightly charge for the hotel room. But some hotels will add on daily “resort fees” and, ins some cases, parking fees, that weren’t included in their original estimates.

These types of hidden charges often exceed the true cost of the product or service. That’s why the CFPB launched an initiative to crack down on costly junk fees.

If you’ve had a problem with a financial product or service or have been hit with excessive junk fees, you can file a complaint with the CFPB.

How Junk Fees Works

When you pay for a product or service, it’s normal to shop around and compare your options with different companies. But there’s one problem: Many companies tack on additional junk fees that disguise the actual cost of that product or service.

For example, junk fees are often added when you close on a mortgage. Mortgage closing costs are a percentage of the total loan amount and include taxes, discount points to lower the interest rate, and origination fees. These extra fees make it more expensive to buy a home and can cut into your equity.

However, there are certain limits put on mortgage lenders. Assuming there is no change in your financial circumstances, certain fees can’t increase more than 10% at closing.

When you take out a mortgage, your lender is required to provide you with a good faith estimate (GFE), which includes a list of expected fees. Some of these fees are mandatory, but some are negotiable. Make sure to read through the line-by-line estimate and ask your lender about any fees you don’t understand.

Types of Junk Fees

There are several junk fees you may encounter when using a financial product or service.

Mortgage Fees

Mortgage junk fees are additional charges that aren’t disclosed upfront when you’re shopping around for different lenders. Instead, these fees are added on at closing and are often considered unexpected and excessive.

Here are some standard mortgage junk fees you can expect to see in your closing costs:

  • Application fee
  • Underwriting fee
  • Courier fee
  • Processing fee
  • Administrative fee

Account Fees

In 2019, banks made over $19 billion annually on overdraft fees. Fewer than 9% of consumers pay 10 or more overdraft fees per year, yet they account for 80% of all the revenue earned from overdraft fees.

Overdraft fees are just one of many you can expect to encounter when opening a deposit account. Other common junk fees charged by banks include late fees, minimum balance fees, and account maintenance fees.

Prepaid Card Fees

Consumers without bank accounts often rely on prepaid cards to pay their bills and meet everyday financial obligations. Many financial institutions charge additional fees for using the card, and these fees aren’t always advertised upfront. 

Common prepaid card fees include:

  • Monthly fee
  • Transaction fee
  • Inactivity fee
  • Out-of-network ATM fee

Credit Card Fees

In addition to paying high interest rates, credit card users often get hit with additional junk fees such as annual fees, transaction fees, and late fees. In 2020, credit card users paid $20.8 billion in credit card fees, which was down slightly thanks to pandemic-related fee waivers.

Key Takeaways

  • Junk fees are additional fees charged by banks and financial institutions.
  • These charges aren’t usually advertised upfront, making it hard for consumers to determine the true cost of a product or service.
  • Junk fees are often added onto mortgage closing costs, deposit accounts, prepaid cards, and credit cards.
  • The CFPB is launching an initiative to crack down on junk fees and save consumers money.

Article Sources

  1. Consumer Financial Protection Bureau. "Consumer Financial Protection Bureau Launches Initiative To Save Americans Billions in Junk Fees."

  2. Consumer Financial Protection Bureau. "The Hidden Cost of Junk Fees."

  3. Consumer Financial Protection Bureau. "Submit a Complaint."

  4. Consumer Financial Protection Bureau. "Can My Final Mortgage Costs Increase From What Was on My Loan Estimate?

  5. Consumer Financial Protection Bureau. "12 CFR Part 1024.7 Good Faith Estimate."

  6. North Carolina Consumer Council. "You Can Save Money by Understanding the Fees and Costs When Buying and Selling Real Estate."

  7. Consumer Financial Protection Bureau. "CFPB Research Shows Banks’ Deep Dependence on Overdraft Fees."

  8. Consumer Financial Protection Bureau. "What Types of Fees Do Prepaid Cards Typically Charge?"

  9. Consumer Financial Protection Bureau. "The Consumer Credit Card Market."