Tossing and Tortured 'Till Dawn

I come back to you now, at the turn of the tide.

Thursday, June 08, 2006

Pet Peeve of the Day : Junk Fees (laughing all the way to the bank.)

The postmodern era has seen a dramatic change in the ways companies, especially financial institutions, make their money. The "late fee" used to be fairly straight forward, a charge for annoying the creditor. After all, they made their money from charging interest, and not paying on time prevents them from lending out your money again, which lowers their income.

Now, however, they'll charge you the legal maximum in a battery of fees. There's big late payment fees designed to knock your credit card over it's limit -- they go straight to the card, rather than asking you to pay them -- and then a sky-high "default interest rate," not to mention retroactively removing promotional offers. They'll tell your other creditors, probably one of 5 big companies, about this, and they will all do the same to you. Often, if they don't "receieve your payment" by noon on the duedate, now, they'll start this process.

According to one study, late payment fees for credit cards were $1.7 bn in 1996, in 2002, they were $7.3 bn. I'm sure today that number has doubled again. The amount of fees in total collected by credit card companies from went from $8.3 bn in 1995 to $24 bn in 2004. See here for a little more information.

It seems that landlords have hooked onto this gravy train, too.

After all, you're on the hook. I'm sure the fees are somewhere in the fine print of your rental agreement. What are you going to do, anyway, move out over a couple of hundred dollars? At least, that's what they hope you'll think.

My college housing department is, thankfully, pretty forgiving. I've only had to use it twice in the two years I've lived there, a result of confused and delayed financial aid payment, but for a $10 petition fee, as long as you pay the rent by the end of the month, you're good. Just don't let it happen too often.

With housing prices skyrocketing, fewer people are renting from private landlords. More apartment complexes are being run by an increasingly smaller numbers of Management firms. A friend recently bounced a rent check. It was an honest mistake: she'd forgotten another check was in the mail close to payday, someone had held onto a check for 6 weeks before cashing it, so the big hitter rent check couldn't clear. A fee for this problem does seem like a reasonable thing. But not this:
  • $30 - Returned check fee
  • $55 - Late Payment fee
  • $25 - Service Fee
  • $10 - Notice Fee

Well, if your check is returned, isn't it clear the rent is late? And what in the world is a "service fee," and why do you tack it on? I'm sure the returned check and late payment fees would be much higher, too, but that there's a legal maximum for each. Which, of course, they are charging. And the bank, who gets their $35 NSF fee.

All told, these companies made $155, just because.

I'm not advocating it to be "yeah, sure, whatever, just pay us one of these days." But there is the concept of reasonable and fair here, isn't there? No, there isn't.

Another friend works for a large, national mortgage company, in the "subprime" department. That's the loans for folks with "less than perfect credit," doncha know, those commercials you see about “Charge-offs? Bankruptcy? Whatev!”

Home lawn? Escrow? No probalo!

Recently, he informed me, due to lawsuit fears (not the results of an actual suit), they’ve reduced the maximum amount they could charge for various things. Among them, “junk” is now capped at $900. “Junk?” I asked him?

”Yeah, you know. $100, ‘doc prep fee,’ $200, ‘process fee,’ $50, ‘courier fee,’ now they can’t add up to more than nine hundred bucks.” What did they used to be? “Oh, a thousand to fifteen hundred.”

The fact that they call them junk fees amongst themselves speaks volumes.


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