When I first started writing this blog, I challenged readers to respond to a series of 13 described fees or charges—as to whether such were finance charge. See Dentons - Back to Basics, Continued—What Do You Mean That Fee Is a Finance Charge?!? The fees that are not finance charges are voluntary and generally involve the addition of a valuable product or service to the credit transaction.

The CFPB has just recently announced a “public inquiry” into what the Bureau characterizes as “junk fees.” The Bureau says that many of these types of fees are added to the actual cost of a product or service often without the consumer having the chance to give thought as to the cost of the same. I want to drill down for a minute into this assertion by the CFPB.

One category of fees being examined is entirely related to the consumer’s performance or non-performance of his or her obligation on the credit transaction. The fees that fall into this category are late fees, overdrafts, and insufficient funds fees. These fees are absolutely appropriate and are designed to compensate the creditor for costs associated with the consumer’s default. These fees are often set by law or regulation, but in all events are disclosed to the consumer prior to the relationship.

Another category of fees is for ancillary products that the customer voluntarily chooses. Such fees include credit insurance products and auto club membership. These fees are related to products that the consumer affirmatively chooses after appropriate disclosure to the consumer about the cost and utility of the product or service. Surely, the CFPB cannot characterize these fees as “junk.”

Then, there is a category of fees such as ATM out-of-network fees or add-on service charges that can be a surprise to consumers and not fully disclosed in advance of the transaction. These are the only types of fees that the CFPB should be focused upon.

The CFPB should be very careful about lumping all ancillary fees into one bucket and calling them “junk fees.” The true test should be whether the consumer is getting something in return for the fee charged. If so, clearly, the fee is not a junk fee. If not so clear, then an examination of the fee by the CFPB may indeed be appropriate.

Please Note: This is the one hundred ninety-sixth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking  Dentons - Consumer Finance Report.