What are junk fees?
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If you’ve ever purchased a product or service and the final price was significantly higher than what was advertised up front, you were likely hit with what’s often referred to as a “junk fee.” In banking, charges such as account maintenance fees, ATM fees or overdraft fees are also commonly referred to as junk fees.
In his State of the Union Address on Feb. 7, 2023, President Joe Biden said his administration was taking on junk fees including those charged by banks, credit cards, airlines and hotels.
“Junk fees may not matter to the very wealthy, but they matter to most folks in homes like the one I grew up in,” Biden said. “They add up to hundreds of dollars a month.”
Here we’ll go over the definition of junk fees, the best ways to avoid paying such extra charges, and what lawmakers are talking about doing to curb such fees.
Junk fees defined
The term “junk fees” can be applied to a broad range of charges that may be unexpected by consumers and not clearly explained by the financial institution or other service provider that imposes them.
The Consumer Financial Protection Bureau (CFPB) has listed examples of junk fees that include service charges imposed by ticket sellers, resort fees charged by hotels and “mystery fees” on phone and cable bills. Fees charged in addition to the upfront price make it hard for people to shop around for the best prices, the consumer watchdog government agency stated, adding that such charges “drain tens of billions of dollars per year from Americans’ budgets.”
In addition to the banking, entertainment and travel industries, charges referred to as junk fees are often seen in lending in the form of mortgage closing costs, student loan servicing fees, credit card late fees, and convenience fees for those who wish to make payments online or over the phone.
Best ways to avoid junk fees
Various charges that are often considered to be junk fees are assessed by banks, credit card companies and other lenders, as well as companies in the travel and entertainment industries.
Below are some common junk fees and ways you can avoid being hit with them.
Checking account monthly service fees
What they are: Also known as maintenance fees, monthly service fees are debited from your account once every statement cycle. Among checking accounts that don’t bear interest, the average monthly service fee is $5.44, according to Bankrate’s 2022 checking and ATM fee study.
How to avoid monthly service fees: You can find a bank that doesn’t charge such fees, which is often the case with online banks. Alternatively, find a bank that makes this fee easy to get waived. For instance, some banks allow you to avoid the fee by receiving direct deposit every statement cycle or by using your debit card a set number of times per statement cycle.
What they are: An overdraft fee is what banks often charge when they temporarily cover transactions that overdraw your account. The customer is responsible for paying the fee promptly and bringing the account back to a positive balance. In recent years, a trend among banks is to cut or eliminate overdraft fees.
How to avoid overdraft fees: You can find a checking account that doesn’t charge overdraft fees. If your account does charge these fees, you can choose to opt out of the service, which results in transactions simply being denied that would have overdrawn the account. Alternatively, you can use overdraft protection, which triggers automatic transfers from a linked account if needed (although some banks charge for overdraft protection transfers).
What they are: Using an ATM outside your bank’s network could result in a fee from your bank as well as a surcharge from the bank that owns the ATM. The total combined fee for these charges averages $4.66, according to Bankrate’s 2022 checking and ATM fee study.
How to avoid ATM fees: You can keep from being hit with ATM fees by sticking with ATMs that are in your bank’s network. Otherwise, you can find a bank that doesn’t charge fees for using ATMs outside its network. What’s more, many banks also reimburse some or all surcharges imposed by banks that own non-network ATMs you’ve used.
Credit card late fees
What they are: Your credit card issuer may charge a late fee if you don’t make your payment by the due date. This late fee will likely be factored into your next billing statement. The amount charged for late fees can be found on your credit card agreement. Credit card late fees can run as high as $41, although a recent proposal by the CFPB would lower such fees to $8 each.
How to avoid credit card late fees: You can set an alert on your phone to remind you to pay the bill before it’s due. Alternatively, you could create a monthly budget to help you factor in such bills and remember to pay them on time. Various credit card issuers offer some credit cards with no late fees, including Discover and Citi.
Mortgage closing costs
What they are: When you buy a house, closing costs will be assessed when you finalize the transaction. Such costs often include fees for home inspections, property appraisals and credit checks, as well as real estate agent fees and attorney fees. The average closing costs nationwide for buying a single-family home in 2021 were $6,905 including taxes and $3,860 without, according to data from ClosingCorp.
How to lower mortgage closing costs: While you likely won’t be able to avoid closing costs altogether when you buy a home, you can try to negotiate that some of them be lowered or paid by the home’s seller. You could also opt for a no-closing-cost mortgage, although this usually just means the lender will roll the fees into your principal balance (instead of your paying them up front) or charge you a higher interest rate on your loan.
What they are: When you book rooms at a hotel, the final price may be significantly higher than the amount that was advertised initially. In addition to taxes, you might find “resort fees” listed on your bill, which can include anything from bottled water and premium WiFi to discounted tour tickets and shuttle service.
How to avoid resort fees: It can be worth your while to shop around for a hotel that doesn’t charge resort fees. You should be able to find them included in the fine print or by calling the hotel to ask.
Concert and sporting event ticket fees
What they are: When you purchase tickets to attend a ball game or a concert, the total price may be increased due to factors like order processing charges, service fees or facility fees. In fact, Ticketmaster has recently been in the headlines for allegedly inflating prices for concerts given by artists such as Drake and The Cure.
How to avoid ticket fees: At this time, you’ll likely be charged service fees from any ticket sales company. However, Biden has called for limits on the service fees included in the price of tickets for live entertainment.
The fight against junk fees
Extra fees for goods and services are commonly charged across many industries and products, and politicians and consumer advocates have been calling for actions to curb such fees. In October 2022, the CFPB issued guidance to help banks avoid charging “illegal” fees such as “surprise overdraft fees” as well as fees imposed on those who deposit a check that goes on to bounce.
Over the years, the CFPB has fined banks heavily for imposing overdraft fees the agency deemed to be illegal, including Wells Fargo, Regions Bank and TD Bank.
In a February 2022 statement, Biden lauded the CFPB’s efforts to curb overdraft and bounced check fees. The president credited the consumer watchdog’s oversight with driving banks to “reduce fees by more than $1 billion annually.”
In his statement, Biden also addressed service fees for tickets to sporting events and concerts, requesting that Congress “prohibit excessive fees, require the fees to be disclosed in the ticket price and mandate disclosure of any ticket holdbacks that diminish available supply.”
Ticketmaster issued a response the same day, stating, “We stand ready to work with the President and Congress on many common sense ticketing reforms, while also speaking out against proposed legislation that would benefit scalpers over artists and fans.”
When it comes to the travel industry charging service fees, the U.S. Department of Transportation published a dashboard that lists the policies of airlines when flights are delayed or canceled. In his February 2023 statement, Biden credited the government agency with helping to enact changes in airline policies that guarantee hotel and meal coverage.
Various service fees commonly referred to as “junk fees” have come under scrutiny in recent months, which may spur changes in how these fees are assessed. As a consumer, your best methods of understanding such fees — and possibly avoiding them — include reading the fine print and shopping around for companies that don’t charge the fees. Certain fees might be avoided by negotiating with service providers.
When it comes to fees often charged by banks, such as monthly service fees and ATM fees, it pays to shop around for an account that doesn’t charge these fees or makes them easy to avoid.