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Nobody enjoys paying fees, but we mostly accept them as an unavoidable part of life. Some bills, however, are beyond the pale and have become targets for new government restrictions.
"Junk fee" is a catch-all term for "unnecessary, unavoidable, or surprise charges that inflate costs while adding little to no value," according to the Federal Trade Commission (FTC). Recently, the Consumer Financial Protection Bureau (CFPB) and the Biden Administration have attempted to address junk fees with a litany of new and proposed rules and guidelines.
But you don't have to wait for the government to take action to reduce your exposure to junk fees. Below, CNBC Select details the new and proposed fee restrictions, as well as how to limit the fees you pay.
Understanding the fee structure behind any product or service you purchase can help you avoid unnecessary charges (for example, you always make sure to pay your rent by the first of the month because you know you'll have to pay a fee if you're late). But junk fees, by their very definition, are difficult to spot. The best way to protect yourself from these fees is through comparison shopping (which helps you avoid products with these fees in the first place), and to challenge any junk fees that you incur.
Comparison shop (as well as you can)
Ferreting out junk fees can be tricky and different products and services have their own red flags. But in general, if something sounds too good to be true, you should take a closer look.
Some financial services or products may be characterized as free, "but are really funded through back-end fees," says Adam Rust, Senior Policy Advisor with the National Community Reinvestment Coalition. "It makes comparison shopping virtually impossible because you don't really know what fees you're likely to incur."
Rust highlights bank accounts as one product that's particularly hard for comparison shopping. But when looking at a new account for your money, you should always check out the following:
- Overdraft fees: How much is it? How many times can the fee be charged per day? How much does the account need to be overdrafted before the fee is charged? How long do you have to restore the account to a positive balance?
- Maintenance fees and the requirements you need to meet to avoid them every month
- Bounced check fees, but also the fees for when someone else gives you a bounced check.
- For high-yield savings accounts, know what requirements you need to meet to earn the highest interest rate.
Avoiding fees can be more important than finding the account with the highest annual percentage yield (APY). The best high-yield savings accounts right now have APYs of over 4%. If you have $2,500 in a 4% account you'd earn just over $8 a month in interest. If that account charges a monthly maintenance fee of only $10 you'd be losing money every month and a $25 overdraft fee could wipe out three months of interest.
That's why when you shop for a high-yield savings account you should start with one that has no fees or minimal fees, like the Marcus savings account which has no monthly maintenance fees and doesn't allow overdrafts.
Annual Percentage Yield (APY)
At this time, there is no limit to the number of withdrawals or transfers you can make from your online savings account
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As difficult as it can be, finding the right bank account is important because it's a headache to switch from one bank to another. "Bank accounts are products that are characterized as sticky because people find it hard to reorder all of their payment instructions from one bank to another," Rust says.
Ask for the fees to be waived
Anytime you're hit with an unexpected fee, it's always a good idea to reach out to the company to see if it can be waived or reduced.
While the process for getting fees waived can be opaque, companies tend to be more forgiving with loyal customers. Hotels and airlines often limit or waive a variety of different fees for anyone with elite status through their loyalty programs.
With banks, getting fees waived may be more hit or miss. "As someone who's been working in financial services policy for 20 years, I still cannot tell you how they make that decision," Rust says.
There is no timetable for if or when the rules will be enacted to limit these fees, but since the announcements, some companies have already begun to change their policies. And if any of these fees apply to you, it's worth a shot to ask the company to reduce the fee or waive it entirely.
Credit card late fees
The CFPB has proposed a new rule to limit credit card late fees to $8. Currently, these fees can reach as high as $41. The bureau estimates this new fee limit could save Americans $9 billion a year.
If you absolutely hate the idea of potentially paying a late fee but still want a credit card, CNBC Select picked the Petal 2 "Cash Back, No Fees" Visa Credit Card as one of the best cards on the market. While it doesn't come with a welcome bonus or a 0% intro APR period, it also doesn't charge any fees — including late fees.
Excessive event ticket fees
It's no secret that tickets for popular sporting events and concerts can be expensive, especially when fee after fee is added to the price at checkout. The proposal would ban excessive fees, require the fees to be included in the price and add transparency when holdbacks limit the supply of tickets.
Airline family seating fees
Families flying together aren't always guaranteed to sit next to each other without paying extra seat selection fees. Since the White House issued the call to ban extra charges for parents to sit with their children, several airlines have eliminated these fees or announced plans to eliminate these fees.
Early termination fees for telecom services
If you're locked into a contract for TV, internet or cell phone service and want to cancel early to take advantage of a competitor's better deal, you currently may have to pay a fee. Early termination fees, which the proposed legislation would eliminate, can cost hundreds of dollars and hit particularly hard if you've lost your job and are looking to trim your budget.
Surprise resort fees
Hotel taxes and fees typically aren't added to the price until checkout, making it difficult to shop for the best deal. The Junk Fee Prevention Act aims to make the destination and resort fees that some hotels tack on to the final price more transparent.
This practice is particularly prevalent in popular tourist destinations like Hawaii and Las Vegas. President Biden is backing legislation that would require hotels and resorts to include these fees in the price of the room.
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Some of these fees have been limited by the CFPB and others are in the crosshairs of the White House. Regardless of what fees are or aren't regulated, it's important to read the fine print of any bank account or credit card. And if you are hit with any surprise fees, it never hurts to reach out to the company and ask if it can be waived or reduced.