As Biden Administration Attempts to Unmask Mystery Fees, Experts Offer Advice for Dodging Hidden Charges

No one likes to pay more than needed for something. Yet millions of Americans feel the sting of mystery fees in their wallet every year. 

Companies seem adept at finding new ways to nickel and dime consumers, whether tacking on fees to phone bills or restaurants getting creative surcharges. Worse yet, when customers check their accounts, many find their balance auto-deducted by their own bank – the very institution designed to help them save for such expenses. 

As announced recently, the Biden Administration has proposed new rules banning companies from charging hidden or unclear fees. 

“It’s wrong. It’s wrong,” President Joe Biden said of the fees. “It’s just taking advantage of people.”

By taking a closer look at junk fees and considering expert advice from financial planners, consumers may be better prepared to take action to ensure they aren’t further fleeced and avoid the worst junk fees.

Why so High? 

Unjustifiable fees are found in every nook and cranny of the consumer buying experience. From excess registration fees for school admissions to needless add-ons for budget airline tickets, hapless consumers are seemingly within a hair’s breadth of triggering yet more egregious fees.

Can’t most charges be considered superfluous? Not quite. According to the CFPB, a fee is dodgy if it “far exceed(s) the marginal cost of the service they purport to cover.”

In the fight against junk, federal regulators are fixing their crosshairs on financial institutions in particular. It’s little wonder why. Banks already have custody of people’s money – and are particularly adept at raking in extra revenue from accounts. 

Clients are often snagged by sneaky overdraft fees, which can reach over $36 per infraction. Some banks even deduct a small fee to merely keep an account open for clients who do not make at least one deposit per month. 

“Junk fees are unnecessary or excessively high charges that consumers often incur for basic services or transactions,” says Gerry Barrasso, CPA, CFP, and founder of United Financial Planning Group. “These fees increase the cost of services without providing any additional benefits, often disproportionately affecting those with lower incomes or less financial literacy.”

Recent findings from the Cash Poor report by SoLo, a Black-owned fintech firm, paint a grim picture. 

Taken together, cash-poor families pay a total of more than $25 billion per year in unwarranted junk fees. 

This contributes to the financial burden of struggling families. The study found unplanned expenses cost the average family living paycheck to paycheck nearly $2,000 a year. 

“As advisors, we can protect our clients from junk fees by educating them about these charges and helping them scrutinize their financial statements,” says Barrasso. “We can also recommend financial institutions or investments known for fairer fee structures.”

Financial Institution Foul Play 

Despite the government declaring a crusade on junk fees, it doesn’t mean they will quickly disappear. Hidden costs remain embedded throughout the consumer financial system. 

This year, Bank of America was caught red-handed double dipping on fees. The CFPB ordered the institution to pay a quarter of a billion in fines to settle claims surrounding junk fees, withheld credit card rewards, and fake accounts. 

The scandal echoes the ongoing Wells Fargo settlement saga, which prompted the CFPB to levy its largest fine against a bank. The institution agreed to pay $3.7 billion in settlement to customers to whom it had illegally charged junk fees and over-levied interest on auto loans and mortgages. It has since become a textbook case of customer abuse and corporate malpractice. 

The scandal shows just how insidious and widespread junk fees can be in mainstream consumer finance. 

“That scandal highlighted the extent to which financial institutions can exploit consumers through unjustified fees,” says Barrasso. “Continuous oversight and stronger consumer protection laws are needed to ensure that financial institutions prioritize consumer interests.”

Junk-Free Advice 

Big banks are not the only ones to watch for. When it comes to money management, junk fees are ubiquitous. It is not just large institutions either. Unscrupulous self-employed financial advisors have been known to charge their unwitting clients exorbitant fees.

“The financial advisory space is chock-full of junk fees if you are not careful,” says Carman Kubanda, CFP and Financial Planner at Innovative Wealth Building. “Clients should look for fiduciary firms that are transparent with their fee structure and can explain the total cost of investing. A lot of clients don’t realize that beyond the fees advisors charge, there are also expenses embedded that are not as easy to spot.”

Many advisors nudge their clients into investment products so they can collect a sales commission. Yet, over time, those products can cause enormous losses for retirement savers.

According to the Labor Department, conflicting advice from self-serving advisors costs investors up to $5 billion annually. These fees can also poke a hole in 401(k)s and individual retirement accounts. 

Thankfully, there is an alternative: fee-only advisors held to a fiduciary standard. 

“Fee-only advisors represent a shift towards greater transparency and alignment with client interests,” says Barrasso. “Unlike commission-based models, which can incentivize the sale of specific products (sometimes leading to hidden or junk fees), fee-only advisors earn their income directly from the fees paid by their clients.”

“This model inherently reduces the likelihood of hidden fees and aligns the advisor’s compensation with the client’s financial success. Clients working with fee-only advisors are often more insulated from the pitfalls of junk fees because these advisors do not receive commissions from financial products or third-party institutions,” Barrasso continued.

Junk fees have been a pernicious reality of American consumers’ lives. Hopefully, these unnecessary costs can soon be put in the past. 

Yet, savvy consumers shouldn’t wait for the government to come and save them. By taking a good look at what they are paying for, and doing a thorough audit on the subscription fees they’re paying month-in and month-out, consumers can take back control of their accounts and defend themselves against dodgy fees.  

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Disclaimer: This article is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.