Illegal junk fees the focus of CFPB’s Supervisory Highlights ‘special edition’

The consumer financial protection agency on Wednesday suggested its work focusing on surprise overdraft fees has led to “at least 20” of the largest banks in the country to no longer charge such fees and that those examined by the agency so far will refund about $30 million to about 170,000 account holders who were assessed the fees.

The agency released a “special edition” of its Supervisory Highlights Wednesday that it said reports on 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.

Among the junk fees uncovered that affected deposit accounts were the above-noted surprise overdraft fees as well as multiple non-sufficient funds (NSF) fees – multiple NSF fees on the same item, often as soon as the next day.

Related to auto-loan servicing, the bureau said its examiners uncovered out-of-bounds and fake late fees (out-of-bound fees being those exceeding the permissible amounts stated in borrowers’ contracts); inflated estimated repossession fees ($1,000, when the average cost to repossess a vehicle is $350); and 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,” the bureau said. “Payment processors collected the inflated fees, and the servicers then profited through kickbacks from the processors.”

Also noted:

Mortgage loan servicing: The CFPB said its examiners found that mortgage servicers charged excessive late fee amounts (exceeding contract caps); fees for unnecessary property inspections ($10 to $50 for every inspection visit to addresses known to be incorrect); fake private mortgage insurance (PMI) premium charges (monthly premiums homeowners did not owe); and failure to waive fees for homeowners entering some loss mitigation options (including those provides under the CARES Act and further protections put in place by the Department of Housing and Urban Development).

Payday and title lending: It said examiners found that payday and title lenders charged vehicle repossession and property retrieval fees that borrowers’ loan agreements did not permit; and fees on vehicle repossession despite prior payment arrangements allowing 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,” the CFPB said.

Student loan servicing: The bureau said also that examiners found 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,” the agency said.

The report also refers to previous supervisory guidance, research, and actions taken.

CFPB Uncovers Illegal Junk Fees on Bank Accounts, Mortgages, and Student and Auto Loans