Compliance Blog

The Consumer Financial Protection Bureau (CFPB or bureau) released a special edition supervisory highlights (highlights) edition about junk fees. With the CFPB acknowledging junk fees as a supervisory priority, junk fees are already in the front of everyone’s mind. NAFCU’s Regulatory Compliance team has fielded questions in the past about CFPB’s push to crack down on junk fees. Hopefully, this special edition supervisory highlights will elucidate what is considered a junk fee in the eyes of the CFPB. The highlights address the following issues: deposits, auto servicing, mortgage servicing, payday and small-dollar lending, and student loan servicing. NAFCU’s Regulatory Compliance team wrote an earlier compliance blog on additional CFPB guidance on junk fees this past fall.

Deposits: Overdraft Fees and Nonsufficient Fees (NSFs)

One issue discussed in the highlights were overdraft fees. In one example, the CFPB’s supervision found issue with financial institutions for charging overdraft fees that were authorized when a positive balance existed, but due to a delay in the transaction processing the account balance turned negative. This resulted in insufficient balances at the time of settlement. The CFPB indicated this may occur due to things such as other settled transactions or intervening authorizations occurring ahead of the transaction that caused the charged fee. During its oversight, the CFPB also wrote how institutions were using a consumer’s available balance or ledger balance to make charging decisions. Examiners also found that institutions that attempted to eliminate overdraft fees failed to eliminate these fees and charged consumers overdraft fees. Examiners believe a lack of compliance controls failed to stop institutions from assessing a fee.

The bureau’s examiners also looked at nonsufficient funds (NSFs). Under the bureau’s supervision, examiners looked for NSFs that occur “…when a consumer pays for a transaction with a check or an automated clearing house (ACH) transfer and the transaction is presented for payment, but there is not a sufficient balance in the consumer’s account to cover the transaction.” Once the transaction is declined, “the consumer’s account-holding institution [would] return the transaction to the payee’s depository institution due to non-sufficient funds.” The bureau indicated this may result in additional NSFs when the consumer “…present[s] the same transaction to the consumer’s account-holding institution for payment.” This cycle may repeat itself, as the CFPB notes. NAFCU has heard that NCUA examiners are monitoring credit unions to determine whether the practice of charging NSFs more than once if the transaction is presented more than once is fully disclosed to the member. 

Auto Servicing: Fees in Excess of Contract

Following its focus on deposits, the highlights also discussed auto servicing and junk fees. The bureau found servicers charged late fees in excess of the amounts allowed by a consumer’s contract and charged late fees following repossession and acceleration of the loan balance. Servicers were also charging consumers repossession fees that were “significantly higher” than the cost of repossession.

Examiners also uncovered practices where consumers were charged fees to use payment methods that exceeded the servicers’ costs. The CFPB alleged that these servicers “leveraged their captive consumer base” and profited from “kickback incentive payments.” The bureau argued consumers were unable to protect their own interest because the consumer did not have the power to select the servicer given the consumers were in a contract. In other words, the contractual obligation of the consumer and a lack of choice gave servicers the ability to charge the fees the servicers did. The highlights outlined the harm to the consumer. The CFPB found “[c]onsumers…could not evaluate a servicer’s payment processing fees, bargain over these fees, or switch to a service with a lower-cost or more no-fee payment options.”

Mortgage Servicing: Late Fees, Unnecessary Property Inspection Visits, and PMI Charges

The CFPB found mortgage servicers did not migrate maximum late fee amount caps outlined in loan agreements into their own systems. As a result, consumers were charged the maximum allowable late fees permitted under the applicable state law rather than the maximum late fee amount outlined in the loan agreement. The bureau also found some mortgage servicers issued periodic statements that reflected inaccurate late payment fee amounts. Moreover, the highlights discussed how third-party inspectors hired by mortgage servicers visited incorrect addresses and were unable to locate the actual properties tied to the mortgages. The cost of these third-party inspectors was then passed onto the consumers even though servicers knew the addresses were incorrect and the inspectors were not locating the correct properties.

In addition, examiners found mortgage servicers incorrectly charged private mortgage insurance (PMI) premiums to consumers after including these premiums in monthly periodic statements and escrow disclosures. For some mortgages, mortgage servicers also did not terminate PMI on the date that the Homeowner Protection Act requires a servicer to do so, resulting in consumers making overpayments for PMI.

In connection to the covid-19 pandemic emergency measures, examiners also found servicers failed to waive certain fees, penalties, and charges that regulations from the Department of Housing and Urban Development required waiver of. Lastly, mortgage servicers sent consumers in their last month of forbearance periodic statements listing “…a [zero dollar] late fee amount for the subsequent payment, when a late fee was in fact charged if a payment was late.”

Payday and Small-Dollar Lending

The CFPB found lenders would take unsuccessful debit payments and “split missed payments into as many as four sub payments and simultaneously or near-simultaneously represented them to consumers’ banks for payment via debit card.” Similar to the contract issues found in the auto servicing section, the bureau reported lenders charged borrowers fees “…to retrieve personal property from repossessed vehicles and to cover servicer charges.” The highlights described lenders withholding personal property and the repossessed vehicles until borrowers paid the retrieval fee and refinanced the debt. Lenders also failed to stop repossession before payments were due.

Student Loan Servicing

When lenders serviced a borrower’s student loans, examiners found these lenders would process payments and then reverse this processing. Borrowers, as a result, were charged interest and late fees. Lenders’ customer service agents also accepted credit card payment for loans, contrary to internal policies. The lenders then reversed these payments to correct the oversight and align practices with the internal policy. Borrowers suffered delinquency due to late fees, negative credit reporting, and interest because of this oversight and correction.

The highlights also addressed regulatory developments such as circulars, bulletins, advisory opinions, and proposed rules the CFPB has released between February 2023 and June 2022. The bureau also provided a review of public enforcement actions it has initiated. The highlights discussed the CFPB’s Wells Fargo and Regions Bank enforcement actions. These are both helpful to review to see what the CFPB is focused on.

If there are any remaining questions, please do not hesitate to contact NAFCU’s Regulatory Compliance team at compliance@nafcu.org