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:
- 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.
- 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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