The Consumer Financial Protection Bureau (CFPB) launched a broad review on Jan. 26 over “junk fees” charged by banks, credit unions, mortgage lenders and fintechs.

                By                    Josephine Nesbit

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“Many financial institutions obscure the true price of their services by luring customers with enticing offers and then charging excessive junk fees,” said CFPB Director Rohit Chopra. “By promoting competition and ridding the market of illegal practices, we hope to save Americans billions.”

This has led many to question what exactly makes a junk fee. According to American Banker, banks and lenders say that the fees they charge are related to specific types of work or services performed. Meanwhile, existing laws already prohibit excessive fees.

“I’m surprised by the breadth of the CFPB’s request for information given that the Truth in Lending Act really does regulate these fees,” said Amy Hanna Keeney, a partner at Adams and Reese in Atlanta, as reported by American Banker. “If you’re a credit card issuer, a bank or a traditional creditor, Truth in Lending really limits what you can and can’t charge, and there needs to be a reasonable relationship between what you’re charging and what it actually costs to provide that service.”

Most fees on home loans are third-party fees, American Banker noted, including state and local government property taxes, recording fees, inspection fees and homeowner’s insurance. 

The CFPB listed closing costs and homebuying fees as a common type of junk fee. “Fees associated with closing on a home, such as document preparation or title insurance, can act as a significant barrier to families trying to buy a home or refinance and can significantly cut into household equity,” the CFPB said in a Feb. 2 blog post.

The CFPB is asking consumers, small business owners, academics and government officials about their experience with junk fees.

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“What consumer is going to write that they love being charged a fee?” asked Joann Needleman, a member at Clark Hill who represents debt collectors, American Banker reported. “No one is positive about paying fees.”