Financial institutions, mortgage servicers and some loan providers are illegally charging expenses to customers, according to a March 8 Consumer Financial Protection Bureau supervisory highlights report. The report touched on “unlawful junk fees” CFPB examiners found during examinations between July 1, 2022, and Feb. 1 of this year.
According to the regulatory agency, financial institutions issued “unfair overdraft fees” by approving a debt transaction that was made with a positive balance, but later charging a fee because intervening transactions were processed before the debit settled; and by charging customers multiple non-sufficient funds fees for a single item. In October, the CFPB said that indiscriminately charging overdraft fees likely violates the Consumer Financial Protection Act.
“After the CFPB’s focus on surprise overdrafts, at least 20 of the largest banks in the United States, which hold 62 percent of the volume of consumer deposits subject to the CFPB’s supervisory authority, do not charge surprise overdraft fees,” the regulatory agency said. “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.”
According to the CFPB, mortgage servicers have charged excessive late fees by issuing the maximum allowed under state laws even when mortgage contracts capped the number below state maximums. Mortgage servicers charged customers $10 to $50 fees for each property inspection visit to addresses known to be erroneous, according to the regulatory agency. Servicers allegedly charged monthly private mortgage insurance premiums that homeowners did not owe; and failed to waive fees for homeowners entering loss mitigation options.
Payday and title lenders violated loan agreements by charging repossession fees as well as fees to retrieve personal property in the repossessed vehicles, according to the CFPB. They also violated agreements by adding fees despite their exclusion from previous payment arrangements, the agency said. “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 servicers sometimes charged late fees and interest even after payments were made on time, the bureau said. “The servicers’ policies did not allow borrowers to pay by credit card; however, sometimes their customer representatives erroneously accepted credit card payments,” the agency said. “The servicers then canceled 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 2022, the CFPB issued compliance guidance to the auto loan industry after finding that servicers had illegally seized cars and kept unreliable records and balance statements.
According to the regulatory agency, CFPB examiners have found numerous illegal fee practices, including:
- Charging late fees exceeding the maximum amounts allowed in borrowers’ contracts
- Issuing late fees to customers with no payments due because their cars had been repossessed and their loans accelerated
- Charging inflated estimated repossession fees of up to $1,000 before returning vehicles.
- Adopting ‘pay-to-pay’ fees and authorizing kickback payments in which auto loan servicers charged payment processing fees for the most prominent payment methods “that far exceeded servicers’ costs for processing payments.