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Pay to Pay: The Ultimate Junk Fee
Consumer Bureau exposes junk free traps in all kinds of financial products
On the heels of President Joe Biden’s State of the Union where he promised his Administration would be taking on junk fees faced by consumers in a range of financial transactions, the Consumer Financial Protection Bureau (CFPB) has released a report detailing a number of illegal junk fees consumers are often asked to pay - from auto loans to mortgages to overdraft fees.
Perhaps the most insidious of these: the “pay to pay” fee - that is, the fee far exceeds that cost of the service provided. This type of fee is illegal. It is often found in auto loan servicing.
Here is how the CFPB describes it:
Pay-to-pay payment fees and kickback payments: After borrowers were locked into servicer relationships, some auto loan servicers charged payment processing fees for the most common payment methods that far exceeded servicers’ costs for processing payments. Payment processors collected the inflated fees, and the servicers then profited through kickbacks from the processors.
Customers would have no way of knowing this fee is illegal or that it exceeds the actual processing cost.
If you think a fee seems odd or unusually expensive, ask about it. You should always be able to get an itemized list of all fees associated with your car loan.
If a dealer won’t provide that to you up front when you’re doing the deal, walk away.
If a loan servicer won’t provide that to you, complain to the CFPB.
Consumers can submit complaints about junk fees and about financial products and services, by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).
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More examples from the CFPB report of illegal junk fees include:
Excessive late fee amounts: Mortgage servicers charged the top late fee amount allowed by relevant state laws, even when homeowners’ mortgage contracts capped late fee amounts below state maximums.
Surprise overdraft fees: Institutions assessed unfair overdraft fees by authorizing a debit that was made with a positive balance, but later charging an overdraft fee because of intervening transactions that were processed before the debit settled. Account holders could not reasonably avoid these surprise fees, irrespective of account disclosures.
Vehicle repossession and property retrieval fees: Some borrowers were charged repossession fees as well as fees to retrieve personal property found in repossessed vehicles, which sometimes included lifesaving medical equipment. The borrowers’ loan agreements did not allow the lenders to charge these fees.
Consumers do not have to tolerate these fees.
On overdrafts, a number of banks are moving away from or changing their overdraft fee policies. Don’t bank with a bank that charges surprise overdraft fees - and always ask for a clear explanation of fees charged to your account.
Many of these fees hit consumers least able to pay - and often, least likely to file a complaint or question the fee.
If a fee seems unreasonable, ask about it. If you still think it’s wrong, you can consult a consumer protection attorney or file a complaint with the CFPB.