A special edition of Supervisory Highlights, published by the Consumer Financial Protection Bureau (CFPB) today, details illegal trash fees discovered in deposit accounts and across a variety of loan servicing sectors, including mortgage, student loan, and payday lending. Even for consumers who are financially knowledgeable, it can be difficult to avoid these unauthorised fees, which erode family resources and drive up families’ banking and borrowing costs. The CFPB continues to eradicate illegal fees from consumer financial markets, as stated in the Supervisory Highlights. This Supervisory Highlights special edition covers illegal trash fees discovered during investigations between July 1, 2022, and February 1, 2023 in the areas of bank account deposits, car loan servicing, home loan servicing, payday lending, and student loan servicing.
The CFPB’s examination and supervision programme aids the organisation in identifying unlawful actions that hurt consumers, the free market, and legitimate firms. To encourage transparency, deter potentially illegal acts, and assist in educating families, advocacy organisations, and other law enforcement agencies about these practises, the CFPB distributes Supervisory Highlights reports. Due to its earlier oversight work, the CFPB was able to provide recommendations on the long-standing issue of unexpected overdraft fees in October 2022. At least 20 of the biggest American banks, which hold 62% of the total number of consumer deposit accounts under the CFPB’s supervision, do not currently impose surprise overdraft fees as a result of the CFPB’s focus on these transactions. Also, the banks that the CFPB has so far investigated will reimburse nearly $30 million to 170,000 account holders who received unexpected overdraft penalties.
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Savings Accounts
Depository banks have been caught using unauthorised trash fees on customer deposit accounts, according to CFPB examiners. Examiners from the CFPB discovered certain financial institutions charged:
Unfair overdraft fees were applied by institutions when they authorised a debit with a positive balance but then charged an overdraft fee later on because other transactions were processed before the debit settled. Notwithstanding account disclosures, account customers could not reasonably avoid these unexpected fees.
Institutions charged clients several non-sufficient funds (NSF) fees for a single item that was presented for payment more than once, possibly as soon as the following day.
The institutions are giving customers the proper reparation. Several institutions’ NSF fee assessments have been examined by CFPB examiners, and the majority of those institutions have chosen to do away with NSF fees entirely.
Servicing of Car Loans
In response to reported abuses, such as illegal automobile seizures, shoddy record keeping, incorrect balance statements, and ransom for personal belongings found in repossessed vehicles, the CFPB issued compliance recommendations to the auto loan servicing industry last year.
Examiners from the CFPB discovered improper servicing activities over the past six months, particularly those involving the collection of unauthorised fees, which included charging car owners:
Servicers levied late fees that were outside the parameters of what was allowed by the agreements with the borrowers, as well as false late costs. Customers whose automobiles had been repossessed and whose loans had been accelerated, meaning that no payments were due and may have been subject to late fines, were also charged late fees by servicers.
Overcharged anticipated repossession fees: Before handing back cars to some customers, servicers charged overcharged estimated repossession fees of $1,000. A vehicle repossession typically costs $350.
Pay-to-pay payment fees and kickback payments: After borrowers entered into servicer contracts, several auto loan servicers imposed payment processing fees that were significantly higher than their actual costs for handling payments for the most popular payment options. The inflated fees were paid by payment processors, and the servicers afterwards made money by receiving kickbacks from the processors.
Servicing of Mortgage Loans
A mortgage servicer was penalised by the CFPB in November 2022 for defrauding homeowners of their CARES Act rights. The CFPB had previously discovered illegal fees being charged in the mortgage servicing sector in an earlier issue of Supervisory Highlights.
Examiners for the CFPB have discovered both traditional and contemporary methods used by mortgage servicers to charge homeowners with unauthorised fees. Examiners from the CFPB discovered that mortgage servicers billed:
High late fee levels: Even when homeowners’ mortgage contracts limited late fee amounts to below state maximums, mortgage servicers charged the highest late fee amount permitted under applicable state regulations.
Mortgage servicers charged customers between $10 and $50 for each visit a property inspector made to addresses that were known to be false. Service providers kept paying inspectors to visit addresses that were known to be inaccurate while continuing to bill customers for such visits.
False premium payments for Private Mortgage Insurance (PMI):
Monthly statements from servicers included PMI premiums that homeowners did not owing.
Fees not being waived for homeowners using certain loss mitigation options:
Mortgage forbearance under the CARES Act prevented servicers from imposing late fees while it was in effect, in addition to covering the principle and interest on a mortgage. For homeowners that exited forbearance and entered permanent COVID-19 loss mitigation alternatives, the Department of Housing and Urban Development (HUD) placed additional safeguards in place. These include waiving specific fees or other costs that accumulated outside of forbearance periods. However, CFPB investigators discovered that some servicers did not follow HUD’s additional safeguards and assessed late fines, fees, and penalties on homes that ought to have been waived.
Loaning for Title and Payday
The payday and title loan industries both provide numerous hazards, according to the CFPB. A study on the free repayment options for payday loans that are available in many states but are frequently ignored by borrowers was published by the CFPB last year. The CFPB sued ACE Cash Express in July 2022 for hiding free repayment plans from its customers, who wound up paying hundreds or thousands of dollars in needless re-borrowing fees as a result.
The CFPB exposes the ways in which other short-term, expensive payday and title loan lenders have been making money off of illegal fees in this special edition of Supervisory Highlights. Examiners from the CFPB discovered that payday and title lenders assessed:
Fees for vehicle repossession and the recovery of personal property from confiscated vehicles, which occasionally included life-saving medical equipment, were imposed on some debtors. The loan arrangements with the borrowers did not permit the lenders to impose these fees.
Notwithstanding prior payment agreements, automobiles were repossessed and fees were added: Lenders who repossessed vehicles even though they had made payment arrangements with borrowers to let them escape repossession. When borrowers tried to get their cars back, they were made to refinance their loans and pay repossession fees, which typically adds new expenses to the initial principle of the title loan.
Servicing student loan debt
Examiners from the CFPB discovered that servicers occasionally added late penalties and interest to student loan servicing contracts even when payments were completed on time. In particular, the servicers’ regulations prohibited credit card payments from borrowers; nonetheless, occasionally, their customer service agents mistakenly accepted credit card payments. The payments were subsequently stopped by the servicers, who did not give the borrowers a second chance to make payments. Instead, the servicers treated the borrowers as there had been no payment and assessed late penalties and additional interest.
Supervisory audits check if businesses are abiding by the federal law protecting consumers’ financial information. Examiners from the CFPB inform businesses of issues they detect in order to assist them in correcting infractions. In most cases, as was the case with many of the incidents detailed in today’s study, businesses move to address the issues found. The CFPB launches investigations for potential enforcement actions for more significant infractions or when businesses fail to take corrective measures.
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