CFPB Junk Fees Special Edition – Charges, Mortgages, Indemnities

The CFPB marketed its latest set of supervisory highlights as
the “Junk Fees Special Edition.” The splashy
headline is consistent with the agency’s recent focus on fees
that it asserts are hidden from the competitive process. In
speeches, press releases, and blog posts (and now a single proposed rule), the CFPB has stressed its
growing concern with “junk” fees. The CFPB even created a
section of its web site solely devoted to press releases on “junk” fees.

Gleaning compliance guidance from Supervisory Highlights is not
always straightforward, as they do not provide full details.
However, in this Special Edition, the CFPB notes that it has
characterized the following types of fees and practices as
junk:

Deposit Accounts

• Overdraft Fees – specifically, those charged when the consumer
  had a sufficient balance when the financial institution authorized
  the transaction, but not at the time of settlement.




• Multiple Non-Sufficient Funds Fees for the Same
  Transaction.

Auto/Title Financing

• Late Fees that Exceed the Credit Contract or After
  Acceleration/Repossession.




• Estimated Repossession Fees that Greatly Exceed Average Costs -
  even if the excess was refunded.




• Payment Processing Fees – specifically, those that exceed
  processing costs, when free payment options are only available for
  checks or ACH transfers.




• Fees to Retrieve Personal Property from Repossessed Vehicles -
  the CFPB said such fees were “unexpected” and
  unfair.




• Premature Repossession and Related Fees – charging late fees
  and repossessing vehicles before title loan payments became
  due.

Mortgage Loan Servicing

• Late Fees that Exceed the Maximum Fee Allowed by the Loan
  Agreement – which the CFPB asserts is also a violation of
  Regulation Z when those excessive fees appear on a periodic
  statement.




• Property Inspection Fees for Visits to Known Incorrect
  Addresses.




• Wrongly Charged Mortgage Insurance Premiums – when policy was
  lender-paid, or should have been terminated.




• Unwaived Fees After CARES Act Forbearance on FHA Loans – when
  HUD requires such waiver.




• Charging Late Fees After $0 Fee Disclosed on Periodic Statement
  – related to mortgages emerging from forbearance.

Payday / Small Dollar Loans

• Splitting and Re-Presenting Payments Without Authorization -
  which may cause borrowers to incur fees or other
  repercussions.

Student Loan Servicing

• Retroactively Rejecting Credit Card Payments – after initially
  accepting the payments in violation of the servicers’ internal
  policies, causing borrowers to incur overdraft fees or other
  repercussions.

Loan servicing has never been a simple task. The Herculean
efforts of mortgage servicers to manage the COVID crisis may soon
be matched by new challenges created by the emergence from the
pandemic (President Biden has promised to end the national
emergency in May, which may lead to a slew of new loan servicing
compliance and procedural obligations). The lessons from this
Supervisory Highlights Special Edition, for servicers of all types
of consumer financial accounts, include ensuring that their
servicing systems do not allow for fees that exceed the provisions
of their consumer agreements and to avoid unlawfully charging fees
to borrowers who take advantage of federal loan relief initiatives.
Servicers may also want to examine the types and amounts of
servicing and default fees to understand the circumstances in which
they are incurred, as the CFPB has alleged that a variety of other
common fee practices are unfair.

For its part, the CFPB encourages servicers to self-assess their
compliance with federal consumer financial law, self-report
“likely” violations to the CFPB, remediate the harm
resulting from these likely violations, and cooperate “above
and beyond what is required by law.”

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