WASHINGTON—The Consumer Financial Protection Bureau (CFPB) released a special edition of its Supervisory Highlights that it said reports on “unlawful” junk fees uncovered in deposit accounts and in multiple loan servicing markets, including in mortgage, student, and payday lending.
“These unlawful fees corrode family finances, force up families’ banking and borrowing costs, and are not easily avoided – even by financially savvy consumers. As described in the Supervisory Highlights, the CFPB continues rooting unlawful fees out of consumer financial markets,” the CFPB said.
The CFPB said its prior supervision work led it to issue guidance in October 2022 on what it called the “longstanding problem of surprise overdraft fees.”
“As of today, after the CFPB’s focus on surprise overdrafts, at least 20 of the largest banks in the United States, which hold 62% of the volume of consumer deposit accounts subject to the CFPB’s supervisory authority, do not charge surprise overdraft fees,” the Bureau said. “Additionally, banks that the CFPB has examined thus far will refund roughly $30 million to about 170,000 account-holders who were assessed surprise overdraft fees.”
The CFPB said its newest Supervisory Highlights special edition covers unlawful junk fees in the areas of bank account deposits, auto loan servicing, mortgage loan servicing, payday lending, and student loan servicing found during examinations between July 1, 2022, and Feb. 1, 2023.
Among the highlights:
Deposit Accounts
Specifically, the CFPB said its examiners found some financial institutions charged:
- Surprise overdraft fees. “Institutions assessed unfair overdraft fees by authorizing a debit that was made with a positive balance, but later charging an overdraft fee because of intervening transactions that were processed before the debit settled. Account holders could not reasonably avoid these surprise fees, irrespective of account disclosures.”
- Multiple non-sufficient funds (NSF) fees. “Institutions charged customers multiple NSF fees for a single item that was presented for payment multiple times, potentially as soon as the next day,” the CFPB said. “The institutions are making appropriate restitution to consumers. CFPB examiners have reviewed NSF fee assessment at numerous institutions, and majority of those institutions have decided to forego NSF fees altogether.”
Auto Loan Servicing
In the last six months, the CFPB said its examiners found illegal servicing practices, particularly around the charging of unlawful fees, including hitting car owners with:
- Out-of-bounds and fake late fees. Servicers charged late fees that exceeded the permissible amounts stated in borrowers’ contracts. Servicers also charged late fees to consumers whose cars had been repossessed and their loans accelerated, which means that no payment was due that could have been subject to a late fee, according to the CFPB.
- Inflated estimated repossession fees. Servicers, before returning vehicles to some consumers, charged inflated estimated repossession fees of $1,000. The average cost to repossess a vehicle is $350, the CFPB said.
- Pay-to-pay payment fees and kickback payments. “After borrowers were locked into servicer relationships, some auto loan servicers charged payment processing fees for the most common payment methods that far exceeded servicers’ costs for processing payments. Payment processors collected the inflated fees, and the servicers then profited through kickbacks from the processors.”
Mortgage Loan Servicing
Specifically, the CFPB said its examiners found mortgage servicers charged:
- Excessive late fee amounts. Mortgage servicers charged the top late fee amount allowed by relevant state laws, even when homeowners’ mortgage contracts capped late fee amounts below state maximums.
- Fees for unnecessary property inspections. “Mortgage servicers charged consumers $10 to $50 fees for every property inspection visit to addresses that were known to be incorrect,” the CFPB said. “Servicers continued to pay inspectors to go to the known incorrect addresses and continued to charge consumers for those visits.”
- Fake Private Mortgage Insurance (PMI) premium charges. Servicers included monthly PMI premiums that homeowners did not owe in their monthly statements, according to the Bureau.
- Failure to waive fees for homeowners entering some loss mitigation options. “CARES Act mortgage forbearance covered not only a mortgage’s principal and interest but also stopped servicers from charging late fees during the period of forbearance,” the CFPB said. “The Department of Housing and Urban Development (HUD) put further protections in place for homeowners that exited forbearance and went into permanent COVID-19 loss mitigation options, including waiving certain fees or other charges that accrued outside of forbearance periods. However, CFPB examiners found that some servicers failed to adhere to HUD’s additional protections, and charged homeowners late charges, fees, and penalties that should have been waived.”
Payday and Title Lending
Among the issues the CFPB said its examiners have encountered:
- Vehicle repossession and property retrieval fees. “Some borrowers were charged repossession fees as well as fees to retrieve personal property found in repossessed vehicles, which sometimes included lifesaving medical equipment. The borrowers’ loan agreements did not allow the lenders to charge these fees,” the CFPB said.
- Vehicles being repossessed with fees tacked on despite prior payment arrangements. “Lenders that repossessed vehicles despite having entered into payment agreements with borrowers to allow them to avoid repossession,” the CFPB said. “When borrowers went to reclaim their vehicles, they were forced to pay repossession fees as well as forced to refinance their debts - a practice which generally adds new costs to the initial title loan principal.”
Student Loan Servicing
In the student loan servicing market, the CFPB said its examiners found that servicers sometimes charged late fees and interest after payments were made on time.
“Specifically, the servicers’ policies did not allow borrowers to pay by credit card; however, sometimes their customer representatives erroneously accepted credit card payments,” the CFPB said. “The servicers then cancelled the payments, and did not offer borrowers the chance to pay again. Instead, the servicers acted as if no payment had been made, and charged the borrowers late fees and additional interest.”
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