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Hidden Fees Are Out of Control. The White House Plans to Change That

Everything you need to know about the Biden administration's plan to crack down on "junk fees."

an illustration of the word FEES within the missing pieces of a jigsaw puzzle composed of $50 and $100 bills
The term "junk fees" refers to charges that are significantly greater than their actual value. 
Getty Images

Junk fees, also called hidden fees, are plaguing the US economy, and the White House is calling for a change. In President Biden's 2023 State of the Union address, he explained how his administration will be "taking on 'junk' fees, those hidden surcharges too many businesses use to make you pay more." 

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The biggest change for Americans could come for credit cards and their dangerous late-fees trap. According to the Consumer Finance Protection Bureau, credit card late fees cost Americans $12 billion in 2020.

Learn all about "junk fees" and how the White House proposes to regulate them to put money back in the pockets of Americans.

For more money tips, check out the biggest credit card mistakes and learn if debt consolidation will hurt your credit score.

What are 'junk fees'?

"Junk fees" is a colloquial term referring to payments for services that are notably expensive and often unexpected, such as hidden charges for a hotel room or concert.

The term formerly was confined to the real estate industry, referring to extra costs that arise during home sales. A May 1996 article in the Chicago Sun-Times describes several closing-cost "junk fees," such as a "document processing fee," "underwriting fee," and "escrow service fee."

With junk fees, the universal theme is that you're paying much more than what it actually costs to provide the service.

In his State of the Union speech, Biden specifically called out certain junk fees:

  • Hidden airfare costs
  • Bank overdraft fees
  • Credit card late fees
  • Resort fees
  • Internet and mobile phone switching fees
  • Service fees for concerts and sporting events

What is the White House planning to do about 'junk fees?'

In the major address, Biden said that "Americans are tired of being played for suckers." He also urged Congress to "pass the Junk Fee Prevention Act so companies stop ripping us off."

Here are the key elements of the proposed plan from the White House:

  • Airlines must show the full price of tickets upfront
  • Flight cancellations and delays get refunds
  • Prohibit fees for families sitting together on airplanes
  • Cut credit card late fees by 75%
  • Reduce or eliminate switching fees for mobile phones and internet
  • Cap service fees for concerts and sporting events

The Junk Fee Protection Act hasn't been introduced in Congress yet, however. Biden has provided a public outline for the bill, but the legislation itself has not been formally entered into the record.

How does the Consumer Finance Protection Bureau want to change the rules for credit card late fees?

One plan for ending junk fees with plenty of details comes from the Consumer Financial Protection Bureau, and it's in regard to credit cards. On Feb. 1, six days before the State of the Union, the CFPB released its plan to "rein in excessive credit card fees."

The CFPB notes that credit card fees for late payments can start as high as $30 for an initial late payment and go up to $41 for subsequent late payments. The agency now recommends lowering the "immunity provision" for late charges to $8, the limit that credit card companies could charge without further explanation and documentation.

That's why Biden said, "We're cutting credit card late fees by 75%, from $30 to $8."

Most importantly, the CFPB's proposed rules would eliminate the yearly inflation adjustment for fees. That $8 limit would not be adjusted based on inflation next year.

The new CFPB rules would also prohibit any credit card late fees totaling more than 25% of the required minimum payment. Currently, they can be as high as 100%.

Why is the Consumer Finance Protection Bureau considering rule changes for credit card late fees?

The Consumer Financial Protection Bureau sets and enforces the rules of federal consumer financial laws. CFPB Director Rohit Chopra said credit card companies are exploiting a "regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee."

The agency contends that the cost-of-living increases that have pushed late fees up above $30 violate the spirit of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), which requires such fees to be "reasonable and proportional." The new rules are aimed to bring credit card late fees back in accordance with those guidelines. 

The proposed rule changes from the CFPB are open to public comment until April 3, 2023. 

For more money tips, learn about the benefits of converting to a Roth IRA or how to rent your car online.