Feds Go Looking for Junk Fees, Find Plenty Lurking in Loans

The Consumer Financial Protection Bureau (CFPB) has been on the prowl for "junk fees," illegal charges in deposit accounts and in multiple loan servicing markets, including in mortgage, student, and payday lending.

“For years, junk fees have been creeping across the economy,” said CFPB Director Rohit Chopra. “Our report describes a host of illegal junk fee practices that the CFPB has uncovered across the financial services sector.”

These unlawful fees corrode family finances, force up families’ banking and borrowing costs, and are not easily avoided – even by financially savvy consumers.

The CFPB’s prior work led the agency to issue guidance in October 2022, on 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, do not charge surprise overdraft fees. 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 latest report from the agency 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 February 1, 2023.

Deposit Accounts

CFPB examiners identified instances of depository institutions charging unlawful junk fees on consumer deposit accounts. Specifically, CFPB 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 against an insufficient balance in the consumer’s account, potentially as soon as the next day. The institutions are making appropriate restitution to consumers. CFPB examiners have reviewed NSF fee assessment at numerous institutions, and a majority of those institutions have decided to forego NSF fees altogether.

Auto Loan Servicing

Last year, the CFPB issued compliance guidance to the auto loan servicing industry in response to identified practices that included the illegal seizure of cars, sloppy record keeping, unreliable balance statements, and ransom for personal property contained within repossessed vehicles.

In the last six months, CFPB 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.
• 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.
• 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

In a previous edition of Supervisory Highlights, the CFPB identified illegal fees being charged in the mortgage servicing market, and, in November 2022, the CFPB took action against a mortgage servicer for cheating homeowners out of CARES Act rights.

CFPB examiners have identified old and new ways that mortgage servicers attempt to run-up unlawful fees that are charged to homeowners. Specifically, CFPB 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. 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.
• 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 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

The CFPB has highlighted multiple risks within the payday and title lending markets. Last year, the CFPB released a research report on free repayment plans offered in many states for payday loans that often go unused by borrowers. In July 2022, the CFPB filed a lawsuit against ACE Cash Express for concealing free repayment plans from its borrowers who ended up paying hundreds or thousands of dollars in unnecessary re-borrowing fees.

In this special edition of Supervisory Highlights, the CFPB reveals the ways that other short-term, high-cost payday and title loan lenders have been profiting off unlawful fees. Specifically, CFPB examiners found that payday and title lenders charged:

• 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.
• 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. 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, CFPB 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 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.

Supervisory examinations review whether companies are complying with federal consumer financial protection law. When CFPB examiners uncover problems, they share their findings with companies to help them remediate violations. Typically, as with many of the instances identified within today’s report, companies take actions to fix the identified problems. For more serious violations or when companies fail to take corrective actions, the CFPB opens investigations for potential enforcement actions.

Read the Supervisory Highlights special edition.

Consumers can submit complaints about junk fees and about financial products and services, by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).