Hidden Mortgage Fees

photo by Tania Liu

TheStreet.com quoted me in Hidden Fees Cost Consumers Billions: Which Ones Are the Worst? It opens,

Consumers are notoriously combative over high product and sales fees, and who can blame them?

Fees for common items like mortgages, credit cards, bank accounts and online deliverables, among many others, can really add up, and do hit consumers hard in the pocketbook.

That goes double for so-called “hidden fees” – shadowy charges on goods and services that buyers usually don’t know about.

A new study by the Washington, D.C.-based National Economic Council shows that Americans lose “billions of dollars” from such hidden fees. Another study of communications firms like AT&T, Verizon and Comcast by the Consumer Federation of America pegs hidden fee costs at $60 billion annually.

Few hidden fees are favored by consumer advocates, but some are worse than others.

“My household bills look very much like those of a typical consumer – two cell phones, cable, broadband and landline telephone,” says Dr. Mark Cooper, the CFA’s Director of Research and author of the communications industry report. “Hidden fees – excluding the price of the service, taxes, and governmental fees – added about 25% to my total bill.”

The CFA’s “Hidden Fees” report documents a pervasive pattern of abuse across many industries, adds Cooper, “but hidden fees on communications services are particularly troubling because these digital services have become absolute necessities in the American household.”
Besides cable and internet service costs, which routinely stand atop the list of industry offenders, what other hidden fees continue to haunt American consumers?

Here’s a quick list:

*     *     *

Mortgage fees – Outside of the cable/telecom arena, the mortgage sector may well boast the most hidden fees. “When applying for a mortgage, a borrower can be hit with all kinds of obscure fees like processing fees, notary fees, courier fees, even fees for sending emails,” says David Reiss, a professor of law at Brooklyn Law School. ” Before paying the mortgage application fee, the borrower should ask whether any of the fees are waivable. If they are charged by the lender, as opposed to a third party like a government agency, they may very well be waivable.”

Consumers should be on the lookout for hidden fees, across the board. Some solid due diligence can keep a few more bucks in your pocket and strike a blow against companies with fee programs that operate in the shadows, time and time again.

But as of right now, those hidden fees are paying off for companies, and at U.S. consumers’ expense.

Consumers’ Credit Score Score

photo by www.gotcredit.com

The Consumer Federation of America and VantageScore Solutions, LLC, released the findings from their sixth annual credit score survey. Their findings are mixed, showing that many consumers have a basic understanding of how a credit score operates, but that many consumers are missing out on a lot of how they work. They find that

a large majority of consumers (over 80%) know the basic facts about credit scores:

  • Credit scores are used by mortgage lenders (88%) and credit card issuers (87%).
  • Key factors used to calculate credit scores are missed payments (91%), personal bankruptcy (86%), and high credit card balances (85%).
  • Ethnic origin is not used to calculate these scores (believed by only 12%).
  • 700 is a good credit score (81%).

Yet, the national survey also revealed that many consumers do not understand credit score details with important cost implications:

  • Most seriously, consumers greatly underestimate the cost of low credit scores. Only 22 percent know that a low score, compared to a high score, typically increases the cost of a $20,000, 60-month auto loan by more than $5,000.
  • A significant minority do not know that credit scores are used by non-creditors. Only about half (53%) know that electric utilities may use credit scores (for example, in determining the initial required deposit), while only about two-thirds know that these scores may be used by home insurers (66%), cell phone companies (68%), and landlords (70%).
  • Over two-fifths think that marital status (42%) and age (42%) are used in the calculation of credit scores. While these factors may influence the use of credit, how credit is used determines credit scores.
  • Only about half of consumers (51%) know when lenders are required to inform borrowers of their use of credit scores – after a mortgage application, when a consumer does not receive the best terms on a consumer loan, and whenever a consumer is turned down for a loan.

Overall, I guess this is good news although it also seems consistent with what we know about financial literacy — people are still lacking when it comes to understanding how consumer finance works. That being said, it would be great if we could come up with strategies to improve financial literacy so that people can improve their financial decision-making. I am not yet hopeful, though, that we can.