New Jersey is signaling a more aggressive approach to the regulation of so-called “junk fees.” In a recent enforcement statement issued by the New Jersey Attorney General and the New Jersey Division of Consumer Affairs, state regulators outlined how they intend to use the New Jersey Consumer Fraud Act to address business practices involving fees that they consider deceptive, unconscionable, or abusive.

The enforcement statement was issued in conjunction with Governor Mikie Sherrill’s Executive Order No. 19, which directed state agencies to review and recommend measures to eliminate or reduce junk fees across a broad range of industries. Although the enforcement statement does not create new legal obligations, it provides important insight into how New Jersey regulators intend to interpret and enforce existing law. Businesses operating in New Jersey should pay close attention.

To explore the enforcement statement and its potential implications, Alan Kaplinsky (founder, former chair for 25 years and now Senior Counsel of the Consumer Financial Services Group) was joined on the Consumer Finance Monitor podcast by Beverly Brown Ruggia, Financial Justice Program Director at New Jersey Citizen Action (NJCA). NJCA is a statewide grassroots nonprofit organization focused on social, economic, and racial justice. Beverly has long been involved in consumer financial protection advocacy, including efforts to strengthen the Consumer Financial Protection Bureau, and participated in providing input into the development of New Jersey’s enforcement statement.

Alan and Beverly’s discussion examined the meaning of junk fees, the distinction between permissible fees and potentially unlawful charges, and how the New Jersey initiative could affect businesses in the consumer financial services industry.

What constitutes a junk fee?

One of the central issues in their discussion was how to define a junk fee. Businesses have frequently objected to the term, arguing that it is more of a political slogan than a meaningful legal concept.

Beverly offered a definition that goes beyond whether a fee has been adequately disclosed. In her view, junk fees generally include mandatory charges that consumers cannot avoid, that may not be adequately disclosed, and that are not necessarily reflective of the actual cost of providing a product or service. She emphasized that the amount of a fee and whether it is reasonable in relation to the underlying service are also important considerations.

Alan expressed a different view. Alan views the term as having a more specific meaning, such as where a business advertises one price but subsequently adds charges that were not adequately disclosed to the consumer.

That distinction is more than semantic. It raises an important question about whether regulators are using the term junk fees to address a particular type of pricing deception or as a broader label for fees they consider excessive or otherwise objectionable.

Earned wage access and overdraft fees

Alan and Beverly explored several examples of fees that consumer advocates believe warrant regulatory scrutiny.

Beverly expressed particular concern about certain earned wage access (EWA) arrangements in which a third-party provider advances money to a consumer based on wages already earned and then charges the consumer a fee. She distinguished those arrangements from programs in which an employer provides an advance on wages it already owes the employee.

In her view, when a third party provides money that must be repaid with a fee, the transaction should be treated as a loan and subject to applicable state lending laws. She is particularly concerned about efforts by EWA providers to characterize their products as something other than credit in order to avoid state lending restrictions.

Alan and Beverly also discussed overdraft fees. Beverly argued that a fee charged when a bank covers a relatively small overdraft can be unreasonable if it bears little relationship to the bank’s cost of providing the service. She also maintained that overdraft coverage is effectively a form of credit and should be evaluated accordingly.

Alan questioned whether such fees are necessarily junk fees, as opposed to fees that might be challenged on other grounds, including unconscionability or unfairness. That exchange illustrates an important distinction that businesses should keep in mind: a fee may be subject to legal challenge without necessarily fitting within the conventional understanding of a junk fee.

Credit card late fees and the limits of disclosure

Our discussion of credit card late fees produced another interesting difference of opinion.

Alan noted that credit card late fees charged to consumers must be disclosed to them in accordance with the Truth in Lending Act and applicable regulations. In my view, a clearly disclosed late fee does not fit the traditional understanding of a junk fee, even if the amount of the fee might be challenged on other legal grounds.

Beverly disagreed with limiting the analysis to disclosure. She offered an example of a consumer who purchased a $60 pair of shoes but ultimately incurred $80 in late fees because of the timing of payments. In her view, regulators should consider whether the cumulative amount of fees is reasonable and whether consumers understand the consequences of falling behind on payments.

She also suggested that repeated late fees can become unlawful when consumers are caught in a cycle of debt from which they have difficulty escaping.

The exchange highlights a broader question for the industry: To what extent should the legality of a fee turn on whether it was adequately disclosed, and to what extent should regulators be permitted to examine the dollar amount of the fee and its cumulative impact on consumers?

All-in pricing and mandatory versus optional charges

Alan and Beverly also discussed all-in pricing, an approach designed to ensure that consumers see the total price of a product or service before beginning the purchasing process.

Beverly explained that all-in pricing is intended not only to protect consumers but also to promote fair competition among businesses. When one business advertises a lower price but adds charges later in the transaction, consumers may be misled into choosing that business over a competitor that has disclosed its full price upfront.

Alan and Beverly agreed that all-in pricing can benefit both consumers and businesses by allowing meaningful price comparisons.

The conversation also addressed the distinction between mandatory and optional charges. Beverly emphasized that optional services should genuinely be optional. She expressed concern about practices in which optional charges are automatically included in the overall price. and consumers must affirmatively opt out to avoid paying them. In her view, such practices can be deceptive or abusive because consumers may overlook the additional charges.

She also distinguished fees that are simply part of the cost of doing business, such as shipping costs, taxes, and government-imposed charges (which she considers to be lawful) from additional fees that businesses impose on consumers. Businesses are free to set their prices, she explained, but consumers should understand the total amount they will be required to pay before committing to a purchase.

Payday lending and buy now, pay later

The discussion also touched on payday lending and buy now, pay later (BNPL) products.

Beverly explained that New Jersey’s interest rate cap effectively prevents traditional payday lenders from operating in the state. She expressed concern about lending models that depend on borrowers repeatedly refinancing or obtaining additional loans when they cannot repay their original obligations. She also discussed the importance of underwriting and ensuring that consumers can reasonably repay the credit they obtain.

Turning to BNPL, Beverly focused on the potential consequences of late fees. Although a consumer may initially be attracted to the ability to divide a $100 purchase into several interest-free installments, the economics can change substantially if missed payments trigger substantial fees. She questioned whether a $40 late fee on a $100 purchase is reasonable and expressed concern about consumers being drawn into escalating fee obligations.

Her broader point was that businesses should ensure consumers understand the full extent of their potential financial obligations when they enter into a transaction.

What does the New Jersey initiative mean for businesses?

An important feature of New Jersey’s initiative is that it relies on the existing New Jersey Consumer Fraud Act rather than creating an entirely new regulatory framework. The enforcement statement identifies deceptive, unconscionable, and abusive practices as the basis for enforcement.

Beverly explained that the statement is intended to provide businesses with greater clarity concerning the types of practices that New Jersey regulators will scrutinize. She believes that identifying the existing statutory provisions on which enforcement will be based provides meaningful guidance to businesses.

Alan made the point that the appointment of Chris Peterson as Acting Director of the New Jersey Division of Consumer Affairs adds another important dimension. Peterson is a nationally recognized consumer protection scholar, former CFPB official, and former senior advisor to the CFPB during its formative years. He also served at the Department of Defense, where he worked on strengthening protections for military families under the Military Lending Act.

His consumer protection background suggests that businesses should take the Division’s enforcement priorities seriously. Although the enforcement statement itself does not create new legal obligations, the agency’s interpretation and application of the Consumer Fraud Act could have significant consequences for businesses operating in New Jersey.

Businesses should therefore review their pricing practices, fee disclosures, purchasing processes, and treatment of optional charges. Particular attention should be given to whether consumers receive clear information about all charges before committing to a transaction and whether fees are structured in a manner that could invite scrutiny under the Consumer Fraud Act.

Listen to the podcast

Alan’s  conversation with Beverly was particularly useful because it explored both the consumer advocates’ perspective and some of the difficult legal and practical questions raised by New Jersey’s initiative. Alan and Beverly did not agree on every aspect of what should qualify as a junk fee, and Alan pressed Beverly on several issues where he believes the distinction between an unlawful fee and a junk fee matters.

Those differences make the discussion especially worthwhile for financial institutions, nonbank financial services companies, and their counsel.

Listen to the podcast below or click here to listen on the firm’s website.