How US banks confuse you to boost profits by tens of billions of dollars

Big American banks overwhelm customers with a confusing range of fees to maximize their profits, a federal watchdog has found.

It means the cost of credit cards, checking and savings accounts, mortgages, and auto loans can be driven to unprecedented heights, according to a new report.

Wells Fargo alone made $10.4 billion last year from its raft of deposit, lending and card fees - or almost 13 percent of its total revenue.

One notorious fee is incurred when account holders go into overdraft. Such fees can be as high as $35 per transaction for many banks, including Wells Fargo, so if four payments go through that would cost them $140.

Confusing 'complex pricing' also makes it harder for consumers to compare the cost of different services because there is no one number to reference, according to the report - published by the Consumer Financial Protection Bureau (CFPB).

They accuse banks of charging multiple smaller fees for their services instead of one clear and easy-to-understand figure.

Banks that offer checking accounts and credit cards can use a variety of confusing fees to ramp up their earnings, according to a new CFPB report

The CFPB report validates an existing theory that consumers pay more for products that have more complex pricing structures. Pictured is the agency's director Rohit Chopra

For banks, they might be late fees, balance transfer fees, annual fees, cash advance fees, foreign transaction fees, monthly maintenance fees, minimum balance fees, overdraft fees, or wire transfer fees.

When getting a mortgage, miscellaneous fees might include closing costs, and for auto loans extended warranties, gap insurance, and credit life insurance.

'These findings contribute to a growing consensus of research and real-world observations showing that junk fees increase overall prices beyond what a fair and competitive market would allow,' the CFPB said in a statement.

The report comes after in March the watchdog imposed rules meaning banks can only charge customers a maximum of $8 each time they miss a monthly credit card payment.

DailyMail.com last year found that food delivery apps like Uber Eats, Grubhub and DoorDash charged separately for delivery fees, service fees and 'other' fees - adding almost 25 percent onto a bill.

The CFPB report validates an existing theory that consumers pay more for products that have more complex pricing structures.

It was based on experiments with multiple rounds of buyers and sellers interacting in simple markets.

It found they would pay more when prices were broken into 'sub-parts' and were harder to understand.

The price of an auto loan can be increased through the addition of extended warranties, gap insurance and credit life insurance

The research has implications for understanding how junk fees impede fair and competitive pricing in markets where consumers have to evaluate all fees separately instead of an all-inclusive price, the CFPB said.

Its researchers had study participants act as buyers and sellers in a series of transactions.

In some cases, the objects for sale had a single all-in price, while in other cases the prices were split into 8 or 16 sub-prices.

In the scenarios with more complex pricing, buyers tended to fare worse. The average selling prices rose, buyers had more difficulty comparing prices across sellers and the overall amount paid rose, the agency found.