CFPB Says Junk Fees ‘Impede Fair and Competitive Pricing’

The more complex a pricing structure, the more likely consumers are to pay more for products like credit cards, bank accounts, mortgages and auto loans.

So said the Consumer Financial Protection Bureau (CFPB) in a Tuesday (April 30) press release announcing results from its new report, “Price Complexity in Laboratory Markets.”

“The research has implications for understanding how junk fees impede fair and competitive pricing in markets like auto loans or mortgages, where consumers have to evaluate extended warranties, add-ons, closing costs and a wide variety of other fees instead of an all-inclusive price,” the CFPB said in the release.

The agency’s research found that buyers tend to pay more when they are presented with prices that are broken down into sub-parts and are harder to understand than when they are offered a single all-in price, according to the release.

As pricing becomes more complex, buyers have more difficulty comparing the prices of different sellers and end up paying a higher overall amount, the release said. For example, when presented with 16 sub-prices, buyers are 15 times more likely to select a higher-priced option than when they are presented with one price.

Consumers often face those kinds of complex terms and pricing when shopping for financial products and services like credit cards, checking and saving accounts, mortgages and auto loans, per the release.

“These findings contribute to a growing consensus of research and real-world observations showing that junk fees increase overall prices beyond what a fair and competitive market would allow,” the CFPB said in the release.

This report comes about a week after the CFPB published its findings about junk fees in the mortgage industry. The agency said Wednesday (April 24) that mortgage servicers had charged illegal fees, sent deceptive notices to homeowners and violated loss mitigation rules that help struggling borrowers keep their homes.

In April 2023, a CFPB advisor told a Pennsylvania house committee that many states’ laws already prohibit junk fees. Brian Shearer, who is now assistant director, policy planning and strategy at the CFPB, said many states can attack junk fees under their existing statutes that prohibit unfair or deceptive acts or practices.