Overlooked in exams, banned fees ended up costing consumers more than $7 million, report finds

After another federal agency found that an examination of a bank by the federal insurer of bank deposits completely missed that the bank charged impermissible fees to loan applicants, an inspector general’s report was issued chastising the bank agency, according to a summary of that report made public Thursday.

The cost to consumers of the forbidden fees: an estimated more than $7 million, the report states.

According to the Federal Deposit Insurance Corp.’s (FDIC) Office of Inspector General (OIG), the fees were charged by an FDIC-regulated bank and a third party. Neither the bank nor the third party – nor the other federal agency that found the banned fees – was identified. The time frame for the findings was also not revealed by report.

“We found that the FDIC, during its examinations, had not identified that the Bank and a third party had charged impermissible fees to loan applicants. Instead, another Federal Government Agency identified the impermissible fees and advised the FDIC about the issue,” the OIG report states. “The impact to the consumers from the impermissible fees is compounded because the fees were paid for out of the loan proceeds, thus reducing available funds and requiring interest payments from the borrowers over the life of the loan.

“We conservatively estimated that the prohibited fees charged to the borrowers amounted to at least $7.2 million,” the reported states.

The OIG said the FDIC held “several conversations” with the other federal agency before and after that agency took an enforcement action against the bank. “However, the FDIC officials acknowledged that they never raised concerns with the Federal Government Agency regarding these impermissible fees. Further, the FDIC did not request for its own Legal Division to review or provide an opinion on the fee issue,” the OIG report stated.

The OIG said it found that the FDIC did not effectively coordinate with the other federal agency to assess the impact of the prohibited fees on consumer protection compliance and on the bank’s own safety and soundness. Nor did the FDIC, the OIG stated, assess the “potential consumer harm caused by the impermissible fees, nor whether enforcement action would be appropriate.”

Instead, the OIG charged, the FDIC recommended that that the bank, considered to be in “unsatisfactory condition,” should coordinate further with the other federal agency.

“We believe that the FDIC should act urgently to address these impermissible fees imposed on the consumers,” the inspector general’s summary stated.

Impermissible Fees Charged by an FDIC-Regulated Bank Summary