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

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.