CFPB Uncovers Illegal Junk Fees on Bank Accounts, Mortgages, and Student and Auto Loans
CFPB Uncovers Illegal Junk Fees on Bank Accounts, Mortgages, and Student and Auto Loans
Many companies are updating practices and making consumers whole based on supervisory findings
WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) released a special edition of its Supervisory Highlights that reports on unlawful junk fees uncovered in deposit accounts and in multiple loan servicing markets, including in mortgage, student, and payday lending. These unlawful fees corrode family finances, force up families’ banking and borrowing costs, and are not easily avoided – even by financially savvy consumers. As described in the Supervisory Highlights, the CFPB continues rooting unlawful fees out of consumer financial markets.
“For years, junk fees have been creeping across the economy,” said CFPB Director Rohit Chopra. “Our report describes a host of illegal junk fee practices that the CFPB has uncovered across the financial services sector.”
The CFPB’s examination and supervision program helps the agency identify illegal practices that are harming families, market competition, and law-abiding businesses. The CFPB publishes Supervisory Highlights reports to promote transparency and to stop potentially unlawful practices, as well as to help educate families, advocacy groups, and other law enforcement agencies about these practices.
The CFPB’s prior supervision work led the agency to issue guidance in October 2022, on the longstanding problem of surprise overdraft fees. As of today, after the CFPB’s focus on surprise overdrafts, at least 20 of the largest banks in the United States, which hold 62% of the volume of consumer deposit accounts subject to the CFPB’s supervisory authority, do not charge surprise overdraft fees. 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.
This Supervisory Highlights special edition covers 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.
Auto Loan Servicing
Last year, the CFPB issued compliance guidance to the auto loan servicing industry in response to identified practices that included the illegal seizure of cars, sloppy record keeping, unreliable balance statements, and ransom for personal property contained within repossessed vehicles.
In the last six months, 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. Servicers also charged late fees to consumers whose cars had been repossessed and their loans accelerated, which means that no payment was due that could have been subject to a late fee.
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 $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.
Payday and Title Lending
The CFPB has highlighted multiple risks within the payday and title lending markets. Last year, the CFPB released a research report on free repayment plans offered in many states for payday loans that often go unused by borrowers. In July 2022, the CFPB filed a lawsuit against ACE Cash Express for concealing free repayment plans from its borrowers who ended up paying hundreds or thousands of dollars in unnecessary re-borrowing fees.
In this special edition of Supervisory Highlights, the CFPB reveals the ways that other short-term, high-cost payday and title loan lenders have been profiting off unlawful fees. Specifically, 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, which sometimes included lifesaving medical equipment. 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 which generally adds new costs to the initial title loan principal.