Money Monday: What is the Real Cost?

Fees Wooden Blocks On Increasing Coins Stacks

 

Has this ever happened to you? In an attempt to become more financially responsible, you decided to automate your monthly bill payments, only to discover that there is a fee for automating such transactions? Why is it, when I decide to purchase a concert ticket or rent an Airbnb there are all these surprises or additional fees in addition to the cost of the event or location? If you currently or previously have experienced this, welcome to the world of junk fees! Let’s talk about what they are and some of the latest developments.

Definition by Description 

I don’t have a textbook definition of what are junk fees, except to describe them. It might be one of those things that you just know when you see it, or in this case, feel it! Junk fees are the surcharges on top of the cost of an item or service, but we’re not discussing delivery and taxes, of course. Rather, we’re referring to fees for overdraft or insufficient funds; late fees for failure to pay bills; convenience fees; closing costs and home buying fees; student loan servicing fees; auto loan servicing fees and mortgage loan servicing fees to name a few. Now that you have a flavor of these additional expenses, here is where things are.

Latest Updates

In March of this year (2023), the Junk Fee Protection Act was introduced in Congress. The Act seeks to have vendors provide a full pricing model for services or products and will eliminate unnecessary or hidden fees. In other words, what you see, is what you get! No more fee surprises at the point of sale when purchasing an item or service.

Another recent development is that on June 15, 2023, the President announced that a group of companies have agreed to move to an all-in pricing model for services or products. While the fees themselves in some cases may not be eliminated, we the consumer will actually know the entire cost of the service or product prior to making a commitment. Some of the most recent companies agreeing to provide full pricing going forward are, Airbnb, Ticketmaster and SeatGeek to name a few. Even though the prices may not change, at least NBA fans will know in advance the true price of Lakers tickets, for example.

Violation

 The latest company to be fined for junk fee abuse is Bank of America (BOA). On July 11, 2023 the government  fined and penalized BOA for junk fees and other abuses. The total amount in fines and penalties the bank will pay is $250 million dollars. The bank was cited for three types of violations in particular but I will only mention two.

Bank of America charged multiple insufficient or bounced fees on the same transaction. To be clear, the bank’s policy was to charge $35 when there was insufficient funds in a customer’s account. However, they kept charging insufficient fees. This practice was executed for several years by the bank when investigated by the government and has been particularly egregious when executed upon those with low amounts in their bank accounts. For example, you would assume that if a person’s bank balance showed they had a $100 balance in their account and they purchased an item for $40 using their debit card, they would be safe. Because of hidden transactions, not posted to the account, the account would later become overdrawn, thereby causing the bank to charge insufficient funds, multiple time on the same account.

The bank was also fined for opening unauthorized accounts in the name of their customers. From as far back as 2012, the bank instituted an “incentive policy” for employees to open credit cards and other accounts in the name of their customers illegally. What has been the result? Customers were left with poor credit scores due to unauthorized accounts opened in their names and now have to pay fees in order to have their credit repaired, improve their credit profile and score.

While all banks have committed their fair share of transgression, this report by the Consumer Financial Protection Bureau (CFPB) issued on July 11, 2023 regarding Bank of America is troubling. In 2014, the bank was ordered to pay $727 million in redress to victims for illegal credit card practices. In early 2022, the bank was ordered to pay $10 million in civil penalties for unlawful garnishments and later in 2022, the bank was further ordered to pay $225 million in unemployment benefits disbursements during the Covid-19 pandemic.

Take Away

You don’t need to feel sorry for the bank and all the fines and penalties being levied against them. For context and perspective, banks collected more than $60 billion in junk fees from consumers last year. Bank of America earned an estimated $115 billion in revenue for the twelve month period ending March 31, 2023. But I suppose this article would be incomplete without some tips on how to avoid or reduce junk fees. What I would say is very basic, but necessary. Always pay by credit card since it is easier to dispute junk fees as opposed to using your debit card or cash.

The lawyer in me says you should retain copies of every receipt, email, text message, agreement, AI correspondence and Chat GPT communication. Finally, read everything before signing.

 

WHAT’S UP!

Today’s What’s Up is about IRS interest rates. Each quarter the IRS determines the interest rate it will charge each quarter for individuals. True to form, on July 1st, 2023 they did not disappoint and decided to charge 7% on amounts owed but not paid in full. If you have a business, the corporation interest rate could be 9% on amounts owed. While it’s summer and you might not be thinking about them, they are thinking about you! And that’s what’s up!

 

Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC. Give2Get Rich, LLC 2023. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.

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