The report from the bureau examines law violations related to bank account, mortgage, student and auto loan fees.
03/10/2023 11:20 A.M.
5 minute read
The Consumer Financial Protection Bureau has released a special edition of its Supervisory Highlights report, an overview of the agency’s findings on fees in the areas of deposits, auto servicing, mortgage servicing, payday and small-dollar lending, and student loan servicing, completed between July 1, 2022, and Feb. 1, 2023.
“Our report describes a host of illegal junk fee practices that the CFPB has uncovered across the financial services sector,” said CFPB Director Rohit Chopra.
Here are some highlights from the report:
Auto Loan Servicing
- “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
- “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.
- 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
- “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
- Late fees: “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.”
In April 2022, ACA International submitted comments to the CFPB on its Request for Information (RFI) regarding fees related to consumer financial products and services, clarifying the use of fees in the debt collection industry.
The CFPB sought comments from the public and businesses related to fees that are not subject to competitive processes that ensure fair pricing, ACA previously reported.
According to the CFPB, it sought the public comments through the RFI to assist its policymakers in exercising its enforcement, supervision, regulation and other authorities to create fairer, more transparent and competitive consumer financial markets.
In its RFI, the CFPB notes that in 2017, “after observing many abuses,” it issued a Compliance Bulletin on unfair, deceptive, and abusive acts or practices related to fees for making payments over the phone, and potential violations of the Fair Debt Collection Practices Act. The RFI states, “These kinds of convenience fees are still common.”
“However, the CFPB does not provide any evidence or date of abuse by ARM industry participants occurring in this area,” ACA stated in its comments. “ACA takes issue with including this vague and unsupported accusation in an RFI and is unaware of any pattern of abusive behavior in this area among our members.”
Congress also recently noted in a letter that “the CFPB broadly groups all fees associated with consumer products and services as ‘junk fees’ and does not provide any legal definition of the term or any statutory authority to define such a term.”
ACA strongly agrees with this concern, and moreover, is disappointed that it has been a trend in recent months for the CFPB to use pejorative terms when describing not only the debt collection industry, but also most participants in the financial services industry.
The CFPB is collecting comments on the proposal, which must be received on or before April 3, 2023, or within 30 days after publication of the Notice of Proposed Rulemaking in the Federal Register, whichever is later.
Looking for more insights on the bureau’s overview of fees? Members can listen to a recent ACA Huddle recording on proposed changes to credit card “junk fees” from the CFPB. Visit the ACA Huddle webpage to complete a one-time registration for the ACA Huddle and access recordings of the ACA Huddle presentations.
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