The Consumer Financial Protection Bureau (CFPB) recently released its Winter 2023 special edition of Supervisory Highlights to focus on its supervisory work related to violations of the law in connection with “junk fees.”  Junk fees are “unnecessary charges that inflate costs while adding little to no value to the consumer.  These unavoidable or surprise charges are often hidden or disclosed only at a later stage in the consumer’s purchasing process or sometimes not at all.” The report covers CFPB examinations involving 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 February 1, 2023. 

Key findings by CFPB examiners include: 

  • Deposits. 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. 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. 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.  
    • 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 around $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. 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.  
    • 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. 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. 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 that generally adds new costs to the initial title loan principal. 
  • Student Loan Servicing. CFPB examiners found that servicers sometimes charged late fees and interest after payments were made on time. 

To read the CFPB’s Supervisory Highlights special edition on junk fees, please visit this link.