What the CFPB Calls a Junk Fee and What to Do About Them

March report reveals illegal fees in mortgage, student loan, payday lending, and other markets

Consumer Financial Protection Bureau Director Rohit Chopra testifies before the Senate Banking, Housing and Urban Affairs Committee in the Dirksen Senate Office Building on Capitol Hill on December 15, 2022 in Washington, DC.

Chip Somodevilla / Getty Images

Key Takeaways

  • The Consumer Financial Protection Bureau (CFPB) detailed junk fees uncovered between July 2022 and February 2023.
  • The agency discovered illegal fees in deposit accounts, mortgage and student loans, payday lenders, and other financial institutions.
  • Junk fees are generally unlawful, unexpected, excessive fees issued by surprise.
  • The most recent fees the agency found include surprise late fees, charges for unnecessary property inspections, inflated estimates for repossession fees, and more.
  • President Biden has urged government agencies and states to crack down on these fees.

Illegal junk fees are spreading across the financial services industry, according to the Consumer Financial Protection Bureau (CFPB).

The agency found unlawful fees in deposit accounts, mortgages, student loans, and payday lending in a report released Wednesday. The fees included overdraft, repossession, and other surprise charges.

Junk fees in the past have been typically associated with mortgages, when a lender may tack on various fees without clearly explaining why they exist. Most junk fees are unexpected by the borrower and excessive in comparison with normal costs. The CFPB report suggests that junk fees appeared in a variety of other markets from July 2022 and February 2023.

The fees the CFPB found included surprise overdraft charges, in which a financial institution assessed an unfair overdraft fee. Banks would levy a fee after authorizing a debit made with a positive balance, then processing subsequent transactions before the original debit was settled. Banks have also reportedly charged multiple non-sufficient funds fees for a single item.

In the auto loan servicing market, junk fees include fake late charges, out-of-bounds costs, illegally inflated estimated repossession fees and kickback payments.

Mortgage loan junk fees may include excessive late fees, added costs for unnecessary property inspections, and an illegal failure to waive certain fees during loss mitigation proceedings.

Payday and title lending companies may levy junk fees related to property retrieval, vehicle repossession, and similar processes.

In October 2022, the CFPB issued guidance regarding surprise overdraft fees. As of March 2023, the bureau said that 20 or more of the largest U.S. banks, accounting for close to two-thirds of all consumer deposit accounts volume, do not charge these fees. An additional $30 million in refunds will be issued to 170,000 account holders who were illegally charged similar fees.

President Biden has urged states to increase efforts to crack down on surprise fees. The CFPB is considering cutting many credit card late fees, while the Department of Transportation may require airlines to disclose all added fees upfront.

Article Sources
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  1. Consumer Financial Protection Bureau. "CFPB Uncovers Illegal Junk Fees on Bank Accounts, Mortgages, and Student and Auto Loans."

  2. Morningstar. "How the CFPB's plan to slash credit card late fees could affect you."

  3. Reuters. "White House urges states to join crackdown on surprise consumer fees."