Supervisory Highlights Junk Fees Special Edition, Issue 29, Winter 2023, 16945-16951 [2023-05667]
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Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices
recreational shark fisheries to identify
main areas of success and concerns with
conservation and management measures
and find potential ways to improve
management of the shark fishery.
Atlantic shark fisheries have been
federally managed since 1993. Unlike
stock assessments, which focus on
abundance of stocks and their status,
SHARE focuses on the overall state of
these fisheries to assist in determining
potential next steps for management. In
the document, NMFS refers to ‘‘the
Atlantic shark fishery’’ to collectively
encompass all of the commercial and
recreational fisheries and gear types
managed by NMFS HMS Management
Division. NMFS began this review after
noticing concerning trends in the
fishery. In the commercial fishery,
trends include reduced landings, a
decrease in active vessels, and an
increase in shark discards. In the
recreational fishery, trends include an
increase in catch and release rates, an
increase in effort by state-water or
shore-based fishermen, increased
numbers of shark depredation events,
and a decrease in targeted pelagic shark
trips. Through the SHARE process,
NMFS explored various aspects of the
Atlantic shark fisheries to improve
stability and resiliency within the
fisheries and address the following
objectives:
• Review the current state of the
Atlantic shark fishery;
• Identify areas of success in the
fishery;
• Identify areas of concern in the
fishery; and
• Identify potential ways to improve
the fishery and potential future shark
management actions or measures.
NMFS published a Notice of
Availability of the draft SHARE
document on October 25, 2021 (86 FR
58891). A public webinar was
conducted on December 8, 2021, and
the public comment period closed on
January 3, 2022. NMFS received 47
written comments and a variety of
verbal comments regarding the draft
SHARE document. A summary of public
comments received is included in the
Appendix of the final SHARE document
which may be accessed at https://
www.fisheries.noaa.gov/action/atlanticshark-fishery-review-share.
After consideration of public
comments, NMFS has finalized the
SHARE document. Based on findings
outlined in the document, NMFS
believes changes to shark fishery
management are warranted to improve
its overall performance and the health of
shark stocks.
As part of SHARE, NMFS reviewed
information regarding commercial shark
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fishery vessel permits, trips targeting or
retaining sharks, shark landings, dealer
permits, and markets. These data
indicate that catch of available quota
and participation in the commercial
shark fishery have dramatically
declined from historical levels. In
addition, NMFS anticipates further
declines in the future, due to the
adoption, in November 2022, of a
proposal under CITES to list many shark
species in CITES Appendix II. In the
recreational shark fishery, NOAA
Fisheries reviewed the number of recent
permits with shark endorsements,
fishing effort, survey data, and
tournament landings. These data
indicate increased shark fishing effort
by state-water and shore-based
fishermen, along with increased
numbers of sharks being caught and
released. Directed trips targeting pelagic
sharks and tournament landings have
declined since shortfin mako shark size
limits were implemented, and are likely
to decline further due to the current
zero retention limit for shortfin mako
sharks. Additionally, shark depredation,
which occurs when a shark eats or preys
upon fish that are caught on fishing
gear, has been a growing concern in a
wide variety of commercial and
recreational fisheries. While the number
of reports of depredation have
increased, the underlying cause of the
increase is uncertain—it could be due to
an increase in the number of sharks as
stocks rebuild; a learned behavior by
sharks as they recognize motors, fishing
techniques, or shark feeding locations as
a source of food; an increase in the
number of people using social media to
report the depredation; or any
combination of the above. Lastly, in the
SHARE document, NMFS analyzed
factors beyond the Federal shark fishery,
including other fisheries, Federal and
state shark fin sale prohibitions, and
binding international recommendations.
Overall, this review has found that
NMFS is sustainably managing shark
stocks; however, catch and participation
in the commercial shark fishery is in
decline in terms of the extent of
available quota use and the number of
participants. This decline is happening
despite fishermen having available
quotas for many species, and, in most
regions, an open season year-round. The
review has also identified a need in the
recreational fishery to improve species
identification, which could improve
shark fishery data, thus improving
management overall. Additionally, it is
likely that other fisheries, state shark fin
sale prohibitions, and binding
international recommendations directly
and indirectly affected fishing effort and
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16945
landings from 2014 through 2019.
Recently enacted Federal shark fin sale
prohibitions also are likely to have
further impacts on the shark fishery,
though the impacts of those prohibitions
are unknown at this time. Possible
changes that could increase the
productivity of the commercial shark
fishery while remaining consistent with
the Magnuson-Stevens Act and the 2006
Consolidated HMS FMP and its
amendments could include
modifications to:
• Vessel permit structure, including
shifting incidental permits to openaccess permits;
• Commercial vessel retention limits
for large coastal sharks, blacknose, and
other shark management groups;
• Authorized gear types, by including
additional gear types to retain sharks in
the commercial fishery;
• Regional and sub-regional quotas, to
better match regional expectations and
opportunities;
• Recreational size and bag limits;
and,
• Reporting mechanisms, to improve
data collection of recreational shark
species and shark depredation events.
NMFS anticipates that management
revisions such as those above would
occur via future rulemaking to modify
HMS regulations, as applicable, with
appropriate opportunity for public
comment. Making any such changes
would take time, but regardless of
timing, NMFS believes changes to the
shark fishery are warranted to improve
the overall health of the fishery and
shark stocks.
Authority: 16 U.S.C. 1801 et seq.
Dated: March 15, 2023.
Jennifer M. Wallace,
Acting Director, Office of Sustainable
Fisheries, National Marine Fisheries Service.
[FR Doc. 2023–05692 Filed 3–20–23; 8:45 am]
BILLING CODE 3510–22–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
Supervisory Highlights Junk Fees
Special Edition, Issue 29, Winter 2023
Bureau of Consumer Financial
Protection.
ACTION: Supervisory Highlights.
AGENCY:
The Consumer Financial
Protection Bureau (CFPB or Bureau) is
issuing its twenty-nineth edition of
Supervisory Highlights.
DATES: The Bureau released this edition
of the Supervisory Highlights on its
website on March 8, 2023. The findings
in this report cover examinations
SUMMARY:
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Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices
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.
FOR FURTHER INFORMATION CONTACT:
Jaclyn Sellers, Senior Counsel, at (202)
435–7449. If you require this document
in an alternative electronic format,
please contact CFPB_Accessibility@
cfpb.gov.
SUPPLEMENTARY INFORMATION:
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1. Introduction
This special edition of Supervisory
Highlights focuses on the Bureau’s
recent supervisory work related to
violations of law in connection with
fees.1 As part of its emphasis on fair
competition the CFPB has launched an
initiative, consistent with its legal
authority, to scrutinize exploitative fees
charged by banks and financial
companies, commonly referred to as
‘‘junk fees.’’
Junk fees are unnecessary charges that
inflate costs while adding little to no
value to the consumer. Theses
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 CFPB administers several laws
and regulations that may touch on fees
including, but not limited to, the Credit
Card, Accountability, Responsibility
and Disclosure Act of 2009 (CARD
Act),2 the Fair Debt Collection Practices
Act (FDCPA),3 Regulation Z,4 and the
prohibition against unfair, deceptive, or
abusive acts or practices (UDAAP)
under the Consumer Financial
Protection Act of 2010 (CFPA).5
The findings in this report cover
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. To maintain the
anonymity of the supervised institutions
discussed in Supervisory Highlights,
references to institutions generally are
in the plural and the related findings
may pertain to one or more institutions.
We invite readers with questions or
comments about Supervisory Highlights
to contact us at CFPB_Supervision@
cfpb.gov.
1 If a supervisory matter is referred to the Office
of Enforcement, Enforcement may cite additional
violations based on these facts or uncover
additional information that could impact the
conclusion as to what violations may exist.
2 12 CFR 1026.
3 15 U.S.C. 1692.
4 12 CFR 1026.
5 12 U.S.C. 5531, 5536.
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2. Supervisory Observations
2.1 Deposits
During examinations of insured
depository institutions and credit
unions, Bureau examiners assessed
activities related to the imposition of
certain fees by the institutions. This
included assessing whether entities had
engaged in any UDAAPs prohibited by
the CFPA.6
2.1.1 Unfair Authorize Positive, Settle
Negative Overdraft Fees
As described below, Supervision has
cited institutions for unfair
unanticipated overdraft fees for
transactions that authorized against a
positive balance, but settled against a
negative balance (i.e., APSN overdraft
fees). They can occur when financial
institutions assess overdraft fees for
debit card or ATM transactions where
the consumer had a sufficient available
balance at the time the financial
institution authorized the transaction,
but given the delay between
authorization and settlement of the
transaction the consumer’s account
balance is insufficient at the time of
settlement. This can occur due to
intervening authorizations resulting in
holds, settlement of other transactions,
timing of presentment of the transaction
for settlement, and other complex
processes relating to transaction order
processing practices and other financial
institution policies. The Bureau
previously discussed this practice in
Consumer Financial Protection Circular
2022–06, Unanticipated Overdraft Fee
Assessment Practices (Overdraft
Circular).7
Supervision has cited unfair acts or
practices at institutions that charged
consumers APSN overdraft fees. An act
or practice is unfair when: (1) it causes
or is likely to cause substantial injury to
consumers; (2) the injury is not
reasonably avoidable by consumers; and
(3) the injury is not outweighed by
countervailing benefits to consumers or
to competition.8
While work is ongoing, at this early
stage, Supervision has already identified
at least tens of millions of dollars of
consumer injury and in response to
these examination findings, institutions
are providing redress to over 170,000
consumers. Supervision found instances
in which institutions assessed unfair
6 12
U.S.C. 5531, 5536.
Financial Protection Circular 2022–
06, Unanticipated Overdraft Fee Assessment
Practices (Oct. 26, 2022) (Overdraft Circular) at 8–
12, available at: https://files.consumerfinance.gov/f/
documents/cfpb_unanticipated-overdraft-feeassessment-practices_circular_2022-10.pdf.
8 12 U.S.C. 5531(c).
7 Consumer
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APSN overdraft fees using the
consumer’s available balance for fee
decisioning, as well as unfair APSN
overdraft fees using the consumer’s
ledger balance for fee decisioning.
Consumers could not reasonably avoid
the substantial injury, irrespective of
account-opening disclosures. As a result
of examiner findings, the institutions
were directed to cease charging APSN
overdraft fees and to conduct lookbacks
and issue remediation to consumers
who were assessed these fees.
Supervision also issued matters
requiring attention to correct problems
that occurred when institutions had
enacted policies intended to eliminate
APSN overdraft fees, but APSN fees
were still charged. Specifically,
institutions attempted to prevent APSN
overdraft fees by not assessing overdraft
fees on transactions which authorized
positive, as long as the initial
authorization hold was still in effect at
or shortly before the time of settlement.
There were some transactions, however,
that settled outside this time period.
Examiners found evidence of
inadequate compliance management
systems where institutions failed to
maintain records of transactions
sufficient to ensure overdraft fees would
not be assessed, or failed to use some
other solution to not charge APSN
overdraft fees. In response to these
findings, the institutions agreed to
implement more effective solutions to
avoid charging APSN overdraft fees and
to issue remediation to the affected
consumers.
The Bureau has stated the legal
violations surrounding APSN overdraft
fees both generally and in the context of
specific public enforcement actions will
result in hundreds of millions of dollars
of redress to consumers.9 As discussed
in a June 16, 2022 blog post,
Supervision has also engaged in a pilot
program to collect detailed information
about institutions’ overdraft practices,
including whether institutions charged
APSN overdraft fees.10 A number of
9 See Consumer Financial Protection Circular
2022–06, Unanticipated Overdraft Fee Assessment
Practices (Oct. 26, 2022), available at: https://
files.consumerfinance.gov/f/documents/cfpb_
unanticipated-overdraft-fee-assessment-practices_
circular_2022-10.pdf; CFPB Consent Order 2022–
CFPB–008, In the Matter of Regions Bank (Sept. 28,
2022), available at: https://
files.consumerfinance.gov/f/documents/cfpb_
Regions_Bank-_Consent-Order_2022-09.pdf; CFPB
Consent Order 2022–CFPB–0011, In the Matter of
Wells Fargo Bank (Dec. 20, 2022), available at:
https://files.consumerfinance.gov/f/documents/
cfpb_wells-fargo-na-2022_consent-order_202212.pdf.
10 Measuring the impact of financial institution
overdraft programs on consumers (June 16, 2022),
available at: https://www.consumerfinance.gov/
about-us/blog/measuring-the-impact-of-financialinstitution-overdraft-programs-on-consumers/.
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banks that had previously reported to
Supervision engaging in APSN overdraft
fee practices now report that they will
stop doing so. Institutions that have
reported finalized remediation plans to
Supervision state their plans cover time
periods starting in 2018 or 2019 up to
the point they ceased charging APSN
overdraft fees.
2.1.2 Assessing Multiple NSF Fees for
the Same Transaction
Supervision conducted examinations
of institutions to review certain
practices related to charging consumers
non-sufficient funds (NSF) fees. As
described in more detail below,
examiners conducted a fact-intensive
analysis at various institutions to assess
specific types of NSF fees. In some of
these examinations, examiners found
unfair practices related to the
assessment of multiple NSF fees for a
single transaction.
Some institutions assess NSF fees
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. After declining to pay a
transaction, the consumer’s accountholding institution will return the
transaction to the payee’s depository
institution due to non-sufficient funds
and may assess an NSF fee. The payee
may then present the same transaction
to the consumer’s account-holding
institution again for payment. If the
consumer’s account balance is again
insufficient to pay for the transaction,
then the consumer’s account-holding
institution may assess another NSF fee
for the transaction and again return the
transaction to the payee. Absent
restrictions on assessment of NSF fees
by the consumer’s account-holding
institution, this cycle can occur
multiple times.
Supervision found that institutions
engaged in unfair acts or practices by
charging consumers multiple NSF fees
when the same transaction was
presented multiple times for payment
against an insufficient balance in the
consumer’s accounts, potentially as
soon as the next day. The assessment of
multiple NSF fees for the same
transaction caused substantial monetary
harm to consumers, totaling millions of
dollars. These injuries were not
reasonably avoidable by consumers,
regardless of account opening
disclosures. And the injuries were not
outweighed by countervailing benefits
to consumers or competition.
Examiners found that institutions
charged several million dollars to tens
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of thousands of consumers over the
course of several years due to their
assessment of multiple NSF fees for the
same transaction. The institutions
agreed to cease charging NSF fees for
unpaid transactions entirely and
Supervision directed the institutions to
refund consumers appropriately. Other
regulators have spoken about this
practice as well.11
In the course of obtaining information
about institutions’ overdraft and NSF
fee practices, examiners obtained
information regarding limitations
related to the assessment of NSF fees.
Supervision subsequently heard from a
number of institutions regarding
changes to their NSF fee assessment
practices. Virtually all institutions that
Supervision has engaged with on this
issue reported plans to stop charging
NSF fees altogether.
Supervision anticipates engaging in
further follow-up work on both multiple
NSF fee and APSN overdraft fee issues.
In line with the Bureau’s statement
regarding responsible business conduct,
institutions are encouraged to ‘‘selfassess [their] compliance with Federal
consumer financial law, self-report to
the Bureau when [they identify] likely
violations, remediate the harm resulting
from these likely violations, and
cooperate above and beyond what is
required by law’’ with these efforts.12 As
the statement notes, ‘‘. . . the Bureau’s
Division of Supervision, Enforcement,
and Fair Lending makes determinations
of whether violations should be
resolved through non-public
supervisory action or a possible public
enforcement action through its Action
Review Committee (ARC) process.’’ For
those institutions that meaningfully
engage in responsible conduct, this
‘‘could result in resolving violations
non-publicly through the supervisory
process.’’
2.2 Auto Servicing
During auto servicing examinations,
examiners identified UDAAPs related to
junk fees, such as unauthorized late fees
and estimated repossession fees.13
11 NYDFS, Industry Letter: Avoiding Improper
Practices Related to Overdraft and Non-Sufficient
Funds Fees (July 12, 2022), available at: https://
www.dfs.ny.gov/industry_guidance/industry_
letters/il20220712_overdraft_nsf_fees; FDIC,
Supervisory Guidance on Multiple Re-Presentment
NSF Fees (Aug. 2022), available at: https://
www.fdic.gov/news/financial-institution-letters/
2022/fil22040a.pdf.
12 CFPB Bulletin 2020–01, Responsible Business
Conduct: Self-Assessing, Self-Reporting,
Remediating, and Cooperating (Mar. 6, 2020),
available at: https://files.consumerfinance.gov/f/
documents/cfpb_bulletin-2020-01_responsiblebusiness-conduct.pdf.
13 Note that while involuntary fees are often
unfair when they are not authorized by a consumer
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Additionally, examiners found that
servicers charged unfair and abusive
payment fees.
2.2.1 Overcharging Late Fees
Examiners found that servicers
engaged in unfair acts or practices by
assessing late fees in excess of the
amounts allowed by consumers’
contracts. Auto contracts often contain
language that caps the maximum late fee
amounts servicers are permitted to
assess. The servicers coded their
systems to assess a $25 late fee even
though some consumers’ loan notes
capped late fees at no more than 5% of
the monthly payment amount. The $25
late fee exceeded 5% of many
consumers’ monthly payment amounts.
Excessive late fees cost consumers
money and thus constitute substantial
injury. Consumers could not reasonably
avoid the injury because they do not
control how servicers calculate late fees,
had no reason to anticipate that the
servicers would impose excessive late
fees, and could not practically avoid
being charged a fee. And the injury to
consumers was not outweighed by
benefits to consumers or competition.
In response to these findings, the
servicers ceased the practice and
refunded late fee overcharges to
consumers.
2.2.2 Charging Unauthorized Late Fees
After Repossession and Acceleration
Examiners found that servicers
engaged in unfair acts or practices by
assessing late fees not allowed by
consumers’ contracts. Specifically, the
contracts authorized the servicers to
charge late fees if consumers’ periodic
payments were more than 10 days
delinquent. But, under the terms of the
relevant loan agreements, after the
servicers accelerated the loan balance,
the entire remaining loan balance
became immediately due and payable,
thus terminating consumers’ contractual
obligation to make further periodic
payments and eliminating the servicers’
contractual right to charge late fees on
such periodic payments. Despite this,
the servicers continued to collect late
fees even after they repossessed the
vehicles on periodic payments
scheduled to occur subsequent to the
date on which the loan balances were
accelerated. When consumers redeemed
their vehicles by paying the full balance,
they also paid these unauthorized late
fees; these unauthorized fees caused
substantial injury to consumers.
Consumers could not reasonably avoid
the late fees because they had no control
contract, fees that are disclosed in the contract can
also be unfair, depending on the circumstances.
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over the servicers’ late fee practices.
And the injury to consumers was not
outweighed by benefits to consumers or
competition.
In response to these findings,
servicers ceased the practice and
refunded late fees to consumers.
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2.2.3 Charging Estimated Repossession
Fees Significantly Higher Than Average
Repossession Costs
Examiners found that, where servicers
allowed consumers to recover their
vehicles after repossession by paying off
the loan balance or past due amounts,
servicers charged a $1,000 estimated
repossession fee as part of the amount
owed. This estimated repossession fee
was significantly higher than the
average repossession cost, which is
generally around $350. By policy, the
servicers returned the excess amounts to
the consumer after they received the
invoice for the actual cost from the
repossession agent.
Examiners found that the servicers
engaged in unfair acts or practices when
they charged estimated repossession
fees that were significantly higher than
the costs they purported to cover. The
relevant contracts permitted the
servicers to charge consumers defaultrelated fees based on actual cost, but
here the fees significantly exceeded the
actual cost. Charging the fees caused or
was likely to cause substantial injury in
the form of concrete monetary harm. For
consumers who paid the amount
demanded, deprivation of these funds
for even a short period constituted
substantial injury. Furthermore, some
consumers may have been dissuaded
from recovering their vehicles because
the servicers represented that
consumers must pay a $1,000 estimated
repossession fee in addition to other
amounts due. Some consumers may
have been able to afford a $350 fee but
not a $1,000 fee, and therefore did not
pay and permanently lost access to their
vehicles. Consumers could not
reasonably avoid the injury because
they did not control the servicers’
practice of charging unauthorized
estimated repossession fees. And the
injury was not outweighed by
countervailing benefits to consumers or
competition because the fee exceeded
costs necessary to cover repossession.
In response to these findings, the
servicers ceased the practice of charging
estimated repossession fees that were
significantly higher than the actual
average amount and provided refunds to
affected consumers.
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2.2.4
Fees
Unfair and Abusive Payment
An act or practice is abusive if it
‘‘takes unreasonable advantage of . . .
the inability of the consumer to protect
the interests of the consumer in
selecting or using a consumer financial
product or service.’’ 14
Examiners found that servicers
engaged in unfair and abusive acts or
practices by charging and profiting from
payment processing fees that far
exceeded the servicers’ costs for
processing payments, after the
consumer was locked into a relationship
with a servicer chosen by the dealer.
Examiners observed that the servicers
only offered two free payment options—
pre-authorized recurring ACH and
mailed checks—which are only
available to consumers with bank
accounts. Approximately 90 percent of
payments made by consumers incurred
a pay-to-pay fee. The servicers received
over half the amount of these fees from
the servicers’ third-party payment
processor as incentive payments,
totaling millions of dollars.
Examiners concluded that these
practices took unreasonable advantage
of consumers’ inability to protect their
interests by charging consumers fees to
use the most common payment methods
to pay their auto loans, after the
consumer was locked into a relationship
with a servicer, that far exceeded the
servicers’ costs. Servicers leveraged
their captive customer base and profited
off payment fees through kickback
incentive payments. These consumers
were unable to protect their interests in
selecting or using a consumer financial
product or service because the dealer,
not the consumer, selected the servicer.
Consumers thus could not evaluate a
servicer’s payment processing fees,
bargain over these fees, or switch to a
servicer with lower-cost or more no-fee
payment options.
In addition, examiners found that
these practices were unfair. The
payment processing fees constituted
substantial injury. Because consumers
did not choose their auto loan servicers,
they could not reasonably avoid these
costs by bargaining with the servicer
over the fees or switching to another
servicer; moreover, consumers without
bank accounts, who were unaware of
the payment structure, or who have
other obstacles to ACH or check
payments, could not use the free
payment methods and thus could not
reasonably avoid paying the fees. And
the injury to consumers was not
14 12
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outweighed by benefits to consumers or
competition.
In response to these findings,
Supervision directed the servicers to
cease the practice.
2.3 Mortgage Servicing
In conducting mortgage servicing
examinations, examiners identified a
number of UDAAPs and a Regulation Z
violation related to junk fees. Examiners
found that servicers charged consumers
junk fees that were unlawful related to
late fee amounts, unnecessary property
inspection visits, and private mortgage
insurance (PMI) charges that should
have been billed to the lender. Servicers
also failed to waive certain charges
when consumers entered permanent
loss mitigation options and failed to
refund PMI premiums. And servicers
charged consumers late fees after
sending periodic statements
representing that they would not charge
late fees.
2.3.1 Overcharging Late Fees
Examiners found that servicers
engaged in unfair acts or practices by
assessing late fees in excess of the
amounts allowed by their loan
agreements. Specifically, where loan
agreements included a maximum
permitted late fee amount, the servicers
failed to input these late fee caps into
their systems. Because the systems did
not reflect the maximum late fee
amounts permitted by their loan
agreements, the servicers charged the
maximum allowable late fees under the
relevant State laws, which frequently
exceeded the specific caps in the loan
agreements. The servicers caused
substantial injury to consumers when
they imposed these excessive late fees.
Consumers could not reasonably avoid
the injury because they do not control
how servicers calculate late fees and
had no reason to anticipate that
servicers would impose excessive late
fees. Charging excessive late fees had no
benefits to consumers or competition.
Examiners concluded that servicers also
violated Regulation Z 15 by issuing
periodic statements that included
inaccurate late payment fee amounts,
since they exceeded the amounts
allowed by the loan agreements. In
response to these findings, servicers
waived or refunded late fee overcharges
to consumers and corrected the periodic
statements.
2.3.2 Repeatedly Charging Consumers
for Unnecessary Property Inspections
Mortgage investors generally require
servicers to perform property inspection
15 12
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visits for accounts that reach a specified
level of delinquency. Generally,
servicers must complete these property
inspections monthly. To satisfy this
requirement, servicers hire a third party
that sends an agent to physically locate
and view the property. The servicers
then pass along the cost of the property
inspection to the consumer, with fees
ranging from $10 to $50.
Examiners found that in some
instances a property inspector would
report to servicers that an address was
incorrect, and that the inspectors could
not locate the property because of this
error. Despite knowing that the address
was incorrect, the servicers repeatedly
hired property inspectors to visit these
properties. Examiners found that
servicers engaged in an unfair act or
practice when they charged consumers
for repeat property preservation visits to
known bad addresses. Charging
consumers for property inspection fees
to known bad addresses caused
consumers substantial injury.
Consumers were unable to anticipate
the fees or mitigate them because they
have no influence over the servicers’
practices, and the servicers did not
inform consumers that they had bad
addresses. And the injury caused by the
practice was not outweighed by
countervailing benefits to consumers or
competition.
In response to the findings, the
servicers revised their policies and
procedures and waived or refunded the
fees.
2.3.3 Misrepresenting That Consumers
Owed PMI Premiums
Examiners found that servicers
engaged in deceptive acts or practices
by sending monthly periodic statements
and escrow disclosures that included
monthly private mortgage insurance
(PMI) premiums that consumers did not
owe. These consumers did not have
borrower-paid PMI on their accounts;
instead, the loans were originated with
lender-paid PMI, which should not be
billed directly to consumers. After
receiving these statements and
disclosures some consumers made
overpayments that included these
amounts.
A representation, omission, act, or
practice is deceptive when: (1) The
representation, omission, act, or practice
misleads or is likely to mislead the
consumer; (2) The consumer’s
interpretation of the representation,
omission, act, or practice is reasonable
under the circumstances; and (3) the
misleading representation, omission,
act, or practice is material.16 The
16 12
U.S.C. 5531 and 5536(a)(1)(B).
VerDate Sep<11>2014
19:23 Mar 20, 2023
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servicers’ statements were likely to
mislead consumers by creating the false
impression that PMI payments were
due. It was reasonable for consumers to
rely on the servicers’ calculations to
determine the appropriate monthly
payment amount. Finally, the
misrepresentations were material
because they led to overpayments. In
response to these findings, the servicers
refunded any overpayments.
2.3.4 Charging Consumers Fees That
Should Have Been Waived
The Coronavirus Aid, Relief, and
Economic Security Act (CARES Act)
directs servicers of federally backed
mortgages to grant consumers a
forbearance from monthly mortgage
payments if the consumer is
experiencing a financial hardship as a
result of the COVID–19 emergency.
During the time a consumer is in
forbearance, no fees, penalties, or
additional interest beyond scheduled
amounts are to be assessed. While the
CARES Act prohibits fees, penalties, or
additional interest beyond scheduled
amounts during a forbearance period,
consumers sometimes accrue these
amounts during periods when they are
not in forbearance. For example, a
servicer could appropriately charge a
late fee if a consumer was delinquent in
May 2020 and then entered a
forbearance in June 2020.
When consumers with Federal
Housing Administration-insured loans
exited CARES Act forbearances and
entered certain permanent loss
mitigation options, the Department of
Housing and Urban Development (HUD)
required servicers in certain
circumstances to waive late charges,
fees, and penalties accrued outside of
forbearance periods.
Examiners found that servicers
engaged in unfair acts or practices when
they failed to waive certain late charges,
fees, and penalties accrued outside
forbearance periods, where required by
HUD, upon a consumer entering a
permanent COVID–19 loss mitigation
option.17 Failure to waive the late
charges, fees, and penalties constituted
substantial injury to consumers. This
injury was not reasonably avoidable by
consumers because they had no reason
to anticipate that their servicer would
fail to follow HUD requirements, and
consumers lacked reasonable means to
avoid the charges. This harm
outweighed any benefit to consumers or
17 The Bureau previously reported a different
unfair act or practice of charging fees to consumers
during a CARES Act forbearance in Supervisory
Highlights, Issue 25, Fall 2021, available at: https://
files.consumerfinance.gov/f/documents/cfpb_
supervisory-highlights_issue-25_2021-12.pdf.
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16949
competition. In response to the finding,
the servicers improved their controls,
waived all improper charges, and
provided refunds to consumers.
2.3.5 Charging Consumers for PMI
After It Should Have Been Removed
The Homeowners Protection Act
(HPA) requires that servicers
automatically terminate PMI when the
principal balance of the mortgage loan
is first scheduled to reach 78 percent of
the original value of the property based
on the applicable amortization
schedule, as long as the borrower is
current.18 Examiners found that
servicers violated the HPA when they
failed to terminate PMI on the date the
principal balance of the mortgage was
first scheduled to reach 78 percent loanto-value on a mortgage loan that was
current. As a result, consumers made
overpayments for PMI that the servicers
should have cancelled. In response to
these findings, the servicers refunded
excess PMI payments and implemented
additional procedures and controls to
enhance their PMI handling.19
2.3.6 Charging Late Fees After Sending
Periodic Statements Listing a $0 Late
Fee
Examiners found that servicers sent
periodic statements to consumers in
their last month of forbearance that
incorrectly listed a $0 late fee amount
for the subsequent payment, when a late
fee was in fact charged if a payment was
late. For example, consumers whose
loans were in a forbearance period that
ended on October 31st received a
periodic statement during October
billing for the November 1st payment;
the periodic statement listed a $0 late
fee amount. But because the November
1st payment was due after the
forbearance period ended, the servicers
then charged these consumers their
contractual late fee amount if they
missed the November 1st payment,
despite sending statements listing a $0
late fee.
Examiners found that this practice
was deceptive. Consumers’
interpretation that they would incur no
late fee was reasonable under the
circumstances; consumers reasonably
assume that the payment amounts and
fees servicers tell them to pay are
accurate and truthful. And the
misrepresentations were likely to be
material because consumers may have
elected to make a timely periodic
18 12
U.S.C. 4902(b)(1).
Bureau previously reported similar
violations in Supervisory Highlights, Issue 25, Fall
2021, available at: https://
files.consumerfinance.gov/f/documents/cfpb_
supervisory-highlights_issue-25_2021-12.pdf.
19 The
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payment if the servicers had accurately
advised a late fee would be assessed.
In response to this finding, the
servicers updated their periodic
statements and waived or refunded late
fee charges for the specific payments.
2.4
Payday and Small-Dollar Lending
2.4.1 Splitting and Re-Presenting
Consumer Payments Without
Authorization
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Examiners found that lenders, in
connection with payday, installment,
title, and line-of-credit loans, after
unsuccessful debit attempts, 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.
Examiners found that lenders engaged
in unfair acts or practices when they represented split payments from
consumers’ accounts without their
authorization to do so simultaneously or
near-simultaneously. As a consequence,
consumers incurred or were likely to
incur injury in the form of multiple
overdraft fees, indirect follow-on fees,
unauthorized loss of funds, and
inability to prioritize payment
decisions. Injury was not reasonably
avoidable because lenders did not
disclose, and consumers had not
authorized, same-day, simultaneous or
near-simultaneous split debit
processing. Substantial injuries were not
outweighed by countervailing benefits
to consumers or to competition.
In response to these findings, lenders
were directed to: (1) provide
remediation; (2) stop engaging in splitdebit or other payment re-presentment
attempts following an initial failed debit
attempt, without first obtaining the
consumer’s authorization as to the
manner and timing of the representments; and (3) stop the practice
of splitting the single amount owed into
several debit attempts, unless the
consumer has sufficient time between
each debit attempt to learn of any
successful debits and to take action to
avoid incurring unwanted
consequences, such as bank overdraft
fees, indirect follow-on fees,
unauthorized loss of funds, or inability
to prioritize payment decisions.
Jkt 259001
Examiners found that lenders engaged
in unfair acts or practices by failing to
stop vehicle repossessions before title
loan payments were due as-agreed, and
then withholding the vehicles until
consumers paid repossession-related
fees and refinanced their debts. The
practice caused or was likely to cause
substantial injury by depriving
consumers of their means of
transportation and of the contents of
their vehicles including medication, by
causing them to spend time reclaiming
the vehicles, and by imposing
repossession fees and refinancing costs.
Consumers had no way to stop lenders
from disregarding payment agreements
specifically designed to prevent
repossession. Therefore, they could not
reasonably anticipate or avoid the
injuries caused. Countervailing benefits
of the practice, such as the cost of
implementing controls to prevent
wrongful repossessions, did not
outweigh the substantial injury caused.
Lenders were directed to enhance
their compliance management systems
to prevent these practices and to
provide remediation to affected
consumers.
Student Loan Servicing
2.5.1 Charging Late Fees and Interest
After Reversing Payments
Examiners found that lenders engaged
in unfair acts or practices when they
charged borrowers fees to retrieve
personal property from repossessed
vehicles and to cover servicer charges,
19:23 Mar 20, 2023
2.4.3 Failure to Timely Stop
Repossessions, Charging Fees and
Refinancing Despite Prior Payment
Arrangements
2.5
2.4.2 Charging Borrowers
Repossession-Related Fees Not
Authorized in Automobile Title Loan
Contracts
VerDate Sep<11>2014
and withheld the personal property and
vehicles until borrowers paid the fees.
The practices caused or were likely to
cause substantial injury when lenders,
through their repossession agents,
withheld personal property and vehicles
until consumers paid unexpected
personal property retrieval fees and
agent fees for vehicle redemption. In
addition to being subject to unexpected
fees, borrowers faced being denied
access to or destruction of property such
as medical equipment and vehicles
necessary for basic life functions.
Potential countervailing benefits to
consumers or to competition did not
outweigh the substantial injuries
caused.
Lenders were directed to enhance
their compliance management systems
to prevent these practices and to
provide remediation to affected
consumers.
Examiners found that servicers
engaged in unfair acts or practices by
initially processing payments but then
later reversing those payments, leading
to additional late fees and interest for
consumers. Although the servicers’
PO 00000
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Fmt 4703
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policies did not allow student loan
payments to be made with a credit card,
customer service representatives
erroneously accepted credit card
payment information from some
consumers over the phone and then
processed those credit card payments.
Subsequently, the servicers manually
reversed the payments because they
violated their policies. As a result,
consumers became delinquent on their
accounts and suffered substantial injury
in the form of late fees, negative credit
reporting, and additional accrued
interest. Consumers could not
reasonably avoid the injury because
they could not anticipate that servicers
would reverse payments after initially
accepting them, and the servicers did
not send notices explaining the
reversals in all cases. Moreover, the
servicers did not provide consumers
with an opportunity to make a payment
with another method before reversing
the payments. Finally, retroactively
reversing credit card payments, as
opposed to implementing measures to
prevent such payments in the first
instance, has no benefits to consumers
or to competition. In response to these
findings, the servicers enhanced
controls to ensure that payment
processing systems will not accept
credit card payments and to train
customer service representatives to
inform consumers at the time of
payment that credit cards are not
accepted. Additionally, Supervision
directed the servicers to reimburse any
late fees and correct any negative credit
reporting as a result of reversed credit
card payments.
3. Supervisory Program Developments
3.1 Recent Bureau Supervisory
Program Developments
Set forth below are CFPB-issued
circulars, bulletins, advisory opinions,
and proposed rules regarding fees.20
3.1.1 CFPB Proposed a Rule To Curb
Excessive Credit Card Late Fees
On February 1, 2023, the CFPB
proposed a rule to curb excessive credit
card late fees that cost American
families about $12 billion each year.21
The CFPB’s proposed rule would amend
regulations implementing the CARD Act
to ensure that late fees meet the Act’s
requirement to be ‘‘reasonable and
proportional’’ to the costs incurred by
issuers to handle late payments.
20 Some of these items were also referenced in the
last edition of Supervisory Highlights.
21 The proposed rule is available at: https://
www.consumerfinance.gov/rules-policy/noticeopportunities-comment/credit-card-penalty-feesregulation-z/.
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Specifically, the proposed rule would
lower the immunity provision for late
fees to $8 for a missed payment and end
the automatic annual inflation
adjustment. The proposed rule would
also ban late fee amounts above 25% of
the consumer’s required payment.
3.1.2 CFPB Issued Circular on
Unanticipated Overdraft Fee
Assessment Practices
On October 26, 2022, the CFPB issued
guidance indicating that overdraft fees
may constitute an unfair act or practice
under the CFPA, even if the entity
complies with the Truth in Lending Act
(TILA) and Regulation Z, and the
Electronic Fund Transfer Act (EFTA)
and Regulation E.22 As detailed in the
circular, when financial institutions
charge surprise overdraft fees,
sometimes as much as $36, they may be
breaking the law. The circular provides
some examples of potentially unlawful
surprise overdraft fees, including
charging fees on purchases made with a
positive balance. These overdraft fees
occur when a bank displays that a
customer has sufficient available funds
to complete a debit card purchase at the
time of the transaction, but the
consumer is later charged an overdraft
fee. Often, the financial institution relies
on complex back-office practices to
justify charging the fee. For instance,
after the bank allows one debit card
transaction when there is sufficient
money in the account, it nonetheless
charges a fee on that transaction later
because of intervening transactions.
3.1.3 CFPB Issued Bulletin on Unfair
Returned Deposited Item Fee
Assessment Practices
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On October 26, 2022, the CFPB issued
a bulletin 23 stating that blanket policies
of charging returned deposited item fees
to consumers for all returned
transactions irrespective of the
circumstances or patterns of behavior on
the account are likely unfair under the
CFPA.
22 Consumer Financial Protection Circular 2022–
06, Unanticipated Overdraft Fee Assessment
Practices (Oct. 26, 2022), available at: https://
files.consumerfinance.gov/f/documents/cfpb_
unanticipated-overdraft-fee-assessment-practices_
circular_2022-10.pdf.
23 Bulletin 2022–06: Unfair Returned Deposited
Item Fee Assessment Practices, available at: https://
files.consumerfinance.gov/f/documents/cfpb_
returned-deposited-item-fee-assessment-practice_
compliance-bulletin_2022-10.pdf.
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3.1.4 CFPB Issued Advisory Opinion
on Debt Collectors’ Collection of Pay-toPay Fees
On June 29, 2022, the CFPB issued an
advisory opinion 24 affirming that
Federal law often prohibits debt
collectors from charging ‘‘pay-to-pay’’
fees. These charges, commonly
described by debt collectors as
‘‘convenience fees,’’ are imposed on
consumers who want to make a
payment in a particular way, such as
online or by phone.
4. Remedial Actions
4.1 Public Enforcement Actions
The Bureau’s supervisory activities
resulted in and supported the following
enforcement action.
4.1.1 Wells Fargo
On December 20, 2022, the CFPB and
Wells Fargo entered into a consent order
in which Wells Fargo will pay more
than $2 billion in redress to consumers
and a $1.7 billion civil penalty for legal
violations across several of its largest
product lines.25 The bank’s illegal
conduct led to billions of dollars in
financial harm to its customers and, for
thousands of customers, the loss of their
vehicles and homes. Consumers were
illegally assessed fees and interest
charges on auto and mortgage loans, had
their cars wrongly repossessed, and had
payments to auto and mortgage loans
misapplied by the bank. Wells Fargo
also improperly froze or closed
customer deposit accounts, charged
consumers unlawful surprise overdraft
fees, and did not always waive monthly
account service fees consistent with its
disclosures. Under the terms of the
order, Wells Fargo will pay redress to
the over 16 million affected consumer
accounts, and pay a $1.7 billion fine,
which will go to the CFPB’s Civil
Penalty Fund, where it will be used to
provide relief to victims of consumer
financial law violations.
4.1.2 Regions Bank
On September 28, 2022, the CFPB
ordered Regions Bank to pay $50
million into the CFPB’s victims relief
fund and to refund at least $141 million
to customers harmed by its illegal
surprise overdraft fees.26 Until July
24 Advisory Opinion on Debt Collectors’
Collection of Pay-to-Pay Fees, available at: https://
files.consumerfinance.gov/f/documents/cfpb_
convenience-fees_advisory-opinion_2022-06.pdf.
25 CFPB Consent Order 2022–CFPB–0011, In the
Matter of Wells Fargo Bank (Dec. 20, 2022),
available at: https://files.consumerfinance.gov/f/
documents/cfpb_wells-fargo-na-2022_consentorder_2022-12.pdf.
26 CFPB Consent Order 2022–CFPB–0008, In the
Matter of Regions Bank (Sept. 28, 2022), available
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16951
2021, Regions charged customers
surprise overdraft fees on certain ATM
withdrawals and debit card purchases.
The bank charged overdraft fees even
after telling consumers they had
sufficient funds at the time of the
transactions. The CFPB also found that
Regions Bank leadership knew about
and could have discontinued its
surprise overdraft fee practices years
earlier, but they chose to wait while
Regions pursued changes that would
generate new fee revenue to make up for
ending the illegal fees.
This is not the first time Regions Bank
has been caught engaging in illegal
overdraft abuses. In 2015, the CFPB
found that Regions had charged $49
million in unlawful overdraft fees and
ordered Regions to make sure that the
fees had been fully refunded and pay a
$7.5 million penalty for charging
overdraft fees to consumers who had not
opted into overdraft protection and to
consumers who had been told they
would not be charged overdraft fees.27
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2023–05667 Filed 3–20–23; 8:45 am]
BILLING CODE 4810–AM–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
[Docket No. CFPB–2023–0020]
Request for Information Regarding
Data Brokers and Other Business
Practices Involving the Collection and
Sale of Consumer Information
Bureau of Consumer Financial
Protection.
ACTION: Request for public comment.
AGENCY:
The Consumer Financial
Protection Bureau (CFPB) is seeking
comments from the public related to
data brokers. The submissions in
response to this request for information
will serve to assist the CFPB and
policymakers in understanding the
current state of business practices in
exercising enforcement, supervision,
regulatory, and other authorities.
DATES: Comments must be received on
or before June 13, 2023.
ADDRESSES: You may submit comments,
identified by Docket No. CFPB–2023–
0020, by any of the following methods:
SUMMARY:
at: https://files.consumerfinance.gov/f/documents/
cfpb_Regions_Bank-_Consent-Order_2022-09.pdf.
27 CFPB Consent Order 2015–CFPB–0009, In the
Matter of Regions Bank (Apr. 28, 2015), available
at: https://files.consumerfinance.gov/f/201504_
cfpb_consent-order_regions-bank.pdf.
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[Federal Register Volume 88, Number 54 (Tuesday, March 21, 2023)]
[Notices]
[Pages 16945-16951]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05667]
=======================================================================
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BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights Junk Fees Special Edition, Issue 29,
Winter 2023
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory Highlights.
-----------------------------------------------------------------------
SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is
issuing its twenty-nineth edition of Supervisory Highlights.
DATES: The Bureau released this edition of the Supervisory Highlights
on its website on March 8, 2023. The findings in this report cover
examinations
[[Page 16946]]
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.
FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Senior Counsel, at
(202) 435-7449. If you require this document in an alternative
electronic format, please contact [email protected].
SUPPLEMENTARY INFORMATION:
1. Introduction
This special edition of Supervisory Highlights focuses on the
Bureau's recent supervisory work related to violations of law in
connection with fees.\1\ As part of its emphasis on fair competition
the CFPB has launched an initiative, consistent with its legal
authority, to scrutinize exploitative fees charged by banks and
financial companies, commonly referred to as ``junk fees.''
---------------------------------------------------------------------------
\1\ If a supervisory matter is referred to the Office of
Enforcement, Enforcement may cite additional violations based on
these facts or uncover additional information that could impact the
conclusion as to what violations may exist.
---------------------------------------------------------------------------
Junk fees are unnecessary charges that inflate costs while adding
little to no value to the consumer. Theses 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 CFPB administers several laws and regulations that may touch on
fees including, but not limited to, the Credit Card, Accountability,
Responsibility and Disclosure Act of 2009 (CARD Act),\2\ the Fair Debt
Collection Practices Act (FDCPA),\3\ Regulation Z,\4\ and the
prohibition against unfair, deceptive, or abusive acts or practices
(UDAAP) under the Consumer Financial Protection Act of 2010 (CFPA).\5\
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\2\ 12 CFR 1026.
\3\ 15 U.S.C. 1692.
\4\ 12 CFR 1026.
\5\ 12 U.S.C. 5531, 5536.
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The findings in this report cover 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. To maintain the anonymity of the
supervised institutions discussed in Supervisory Highlights, references
to institutions generally are in the plural and the related findings
may pertain to one or more institutions.
We invite readers with questions or comments about Supervisory
Highlights to contact us at [email protected].
2. Supervisory Observations
2.1 Deposits
During examinations of insured depository institutions and credit
unions, Bureau examiners assessed activities related to the imposition
of certain fees by the institutions. This included assessing whether
entities had engaged in any UDAAPs prohibited by the CFPA.\6\
---------------------------------------------------------------------------
\6\ 12 U.S.C. 5531, 5536.
---------------------------------------------------------------------------
2.1.1 Unfair Authorize Positive, Settle Negative Overdraft Fees
As described below, Supervision has cited institutions for unfair
unanticipated overdraft fees for transactions that authorized against a
positive balance, but settled against a negative balance (i.e., APSN
overdraft fees). They can occur when financial institutions assess
overdraft fees for debit card or ATM transactions where the consumer
had a sufficient available balance at the time the financial
institution authorized the transaction, but given the delay between
authorization and settlement of the transaction the consumer's account
balance is insufficient at the time of settlement. This can occur due
to intervening authorizations resulting in holds, settlement of other
transactions, timing of presentment of the transaction for settlement,
and other complex processes relating to transaction order processing
practices and other financial institution policies. The Bureau
previously discussed this practice in Consumer Financial Protection
Circular 2022-06, Unanticipated Overdraft Fee Assessment Practices
(Overdraft Circular).\7\
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\7\ Consumer Financial Protection Circular 2022-06,
Unanticipated Overdraft Fee Assessment Practices (Oct. 26, 2022)
(Overdraft Circular) at 8-12, available at: https://files.consumerfinance.gov/f/documents/cfpb_unanticipated-overdraft-fee-assessment-practices_circular_2022-10.pdf.
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Supervision has cited unfair acts or practices at institutions that
charged consumers APSN overdraft fees. An act or practice is unfair
when: (1) it causes or is likely to cause substantial injury to
consumers; (2) the injury is not reasonably avoidable by consumers; and
(3) the injury is not outweighed by countervailing benefits to
consumers or to competition.\8\
---------------------------------------------------------------------------
\8\ 12 U.S.C. 5531(c).
---------------------------------------------------------------------------
While work is ongoing, at this early stage, Supervision has already
identified at least tens of millions of dollars of consumer injury and
in response to these examination findings, institutions are providing
redress to over 170,000 consumers. Supervision found instances in which
institutions assessed unfair APSN overdraft fees using the consumer's
available balance for fee decisioning, as well as unfair APSN overdraft
fees using the consumer's ledger balance for fee decisioning. Consumers
could not reasonably avoid the substantial injury, irrespective of
account-opening disclosures. As a result of examiner findings, the
institutions were directed to cease charging APSN overdraft fees and to
conduct lookbacks and issue remediation to consumers who were assessed
these fees.
Supervision also issued matters requiring attention to correct
problems that occurred when institutions had enacted policies intended
to eliminate APSN overdraft fees, but APSN fees were still charged.
Specifically, institutions attempted to prevent APSN overdraft fees by
not assessing overdraft fees on transactions which authorized positive,
as long as the initial authorization hold was still in effect at or
shortly before the time of settlement. There were some transactions,
however, that settled outside this time period. Examiners found
evidence of inadequate compliance management systems where institutions
failed to maintain records of transactions sufficient to ensure
overdraft fees would not be assessed, or failed to use some other
solution to not charge APSN overdraft fees. In response to these
findings, the institutions agreed to implement more effective solutions
to avoid charging APSN overdraft fees and to issue remediation to the
affected consumers.
The Bureau has stated the legal violations surrounding APSN
overdraft fees both generally and in the context of specific public
enforcement actions will result in hundreds of millions of dollars of
redress to consumers.\9\ As discussed in a June 16, 2022 blog post,
Supervision has also engaged in a pilot program to collect detailed
information about institutions' overdraft practices, including whether
institutions charged APSN overdraft fees.\10\ A number of
[[Page 16947]]
banks that had previously reported to Supervision engaging in APSN
overdraft fee practices now report that they will stop doing so.
Institutions that have reported finalized remediation plans to
Supervision state their plans cover time periods starting in 2018 or
2019 up to the point they ceased charging APSN overdraft fees.
---------------------------------------------------------------------------
\9\ See Consumer Financial Protection Circular 2022-06,
Unanticipated Overdraft Fee Assessment Practices (Oct. 26, 2022),
available at: https://files.consumerfinance.gov/f/documents/cfpb_unanticipated-overdraft-fee-assessment-practices_circular_2022-10.pdf; CFPB Consent Order 2022-CFPB-008, In the Matter of Regions
Bank (Sept. 28, 2022), available at: https://files.consumerfinance.gov/f/documents/cfpb_Regions_Bank-_Consent-Order_2022-09.pdf; CFPB Consent Order 2022-CFPB-0011, In the Matter
of Wells Fargo Bank (Dec. 20, 2022), available at: https://files.consumerfinance.gov/f/documents/cfpb_wells-fargo-na-2022_consent-order_2022-12.pdf.
\10\ Measuring the impact of financial institution overdraft
programs on consumers (June 16, 2022), available at: https://www.consumerfinance.gov/about-us/blog/measuring-the-impact-of-financial-institution-overdraft-programs-on-consumers/.
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2.1.2 Assessing Multiple NSF Fees for the Same Transaction
Supervision conducted examinations of institutions to review
certain practices related to charging consumers non-sufficient funds
(NSF) fees. As described in more detail below, examiners conducted a
fact-intensive analysis at various institutions to assess specific
types of NSF fees. In some of these examinations, examiners found
unfair practices related to the assessment of multiple NSF fees for a
single transaction.
Some institutions assess NSF fees 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.
After declining to pay a transaction, the consumer's account-holding
institution will return the transaction to the payee's depository
institution due to non-sufficient funds and may assess an NSF fee. The
payee may then present the same transaction to the consumer's account-
holding institution again for payment. If the consumer's account
balance is again insufficient to pay for the transaction, then the
consumer's account-holding institution may assess another NSF fee for
the transaction and again return the transaction to the payee. Absent
restrictions on assessment of NSF fees by the consumer's account-
holding institution, this cycle can occur multiple times.
Supervision found that institutions engaged in unfair acts or
practices by charging consumers multiple NSF fees when the same
transaction was presented multiple times for payment against an
insufficient balance in the consumer's accounts, potentially as soon as
the next day. The assessment of multiple NSF fees for the same
transaction caused substantial monetary harm to consumers, totaling
millions of dollars. These injuries were not reasonably avoidable by
consumers, regardless of account opening disclosures. And the injuries
were not outweighed by countervailing benefits to consumers or
competition.
Examiners found that institutions charged several million dollars
to tens of thousands of consumers over the course of several years due
to their assessment of multiple NSF fees for the same transaction. The
institutions agreed to cease charging NSF fees for unpaid transactions
entirely and Supervision directed the institutions to refund consumers
appropriately. Other regulators have spoken about this practice as
well.\11\
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\11\ NYDFS, Industry Letter: Avoiding Improper Practices Related
to Overdraft and Non-Sufficient Funds Fees (July 12, 2022),
available at: https://www.dfs.ny.gov/industry_guidance/industry_letters/il20220712_overdraft_nsf_fees; FDIC, Supervisory
Guidance on Multiple Re-Presentment NSF Fees (Aug. 2022), available
at: https://www.fdic.gov/news/financial-institution-letters/2022/fil22040a.pdf.
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In the course of obtaining information about institutions'
overdraft and NSF fee practices, examiners obtained information
regarding limitations related to the assessment of NSF fees.
Supervision subsequently heard from a number of institutions regarding
changes to their NSF fee assessment practices. Virtually all
institutions that Supervision has engaged with on this issue reported
plans to stop charging NSF fees altogether.
Supervision anticipates engaging in further follow-up work on both
multiple NSF fee and APSN overdraft fee issues. In line with the
Bureau's statement regarding responsible business conduct, institutions
are encouraged to ``self-assess [their] compliance with Federal
consumer financial law, self-report to the Bureau when [they identify]
likely violations, remediate the harm resulting from these likely
violations, and cooperate above and beyond what is required by law''
with these efforts.\12\ As the statement notes, ``. . . the Bureau's
Division of Supervision, Enforcement, and Fair Lending makes
determinations of whether violations should be resolved through non-
public supervisory action or a possible public enforcement action
through its Action Review Committee (ARC) process.'' For those
institutions that meaningfully engage in responsible conduct, this
``could result in resolving violations non-publicly through the
supervisory process.''
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\12\ CFPB Bulletin 2020-01, Responsible Business Conduct: Self-
Assessing, Self-Reporting, Remediating, and Cooperating (Mar. 6,
2020), available at: https://files.consumerfinance.gov/f/documents/cfpb_bulletin-2020-01_responsible-business-conduct.pdf.
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2.2 Auto Servicing
During auto servicing examinations, examiners identified UDAAPs
related to junk fees, such as unauthorized late fees and estimated
repossession fees.\13\ Additionally, examiners found that servicers
charged unfair and abusive payment fees.
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\13\ Note that while involuntary fees are often unfair when they
are not authorized by a consumer contract, fees that are disclosed
in the contract can also be unfair, depending on the circumstances.
---------------------------------------------------------------------------
2.2.1 Overcharging Late Fees
Examiners found that servicers engaged in unfair acts or practices
by assessing late fees in excess of the amounts allowed by consumers'
contracts. Auto contracts often contain language that caps the maximum
late fee amounts servicers are permitted to assess. The servicers coded
their systems to assess a $25 late fee even though some consumers' loan
notes capped late fees at no more than 5% of the monthly payment
amount. The $25 late fee exceeded 5% of many consumers' monthly payment
amounts. Excessive late fees cost consumers money and thus constitute
substantial injury. Consumers could not reasonably avoid the injury
because they do not control how servicers calculate late fees, had no
reason to anticipate that the servicers would impose excessive late
fees, and could not practically avoid being charged a fee. And the
injury to consumers was not outweighed by benefits to consumers or
competition.
In response to these findings, the servicers ceased the practice
and refunded late fee overcharges to consumers.
2.2.2 Charging Unauthorized Late Fees After Repossession and
Acceleration
Examiners found that servicers engaged in unfair acts or practices
by assessing late fees not allowed by consumers' contracts.
Specifically, the contracts authorized the servicers to charge late
fees if consumers' periodic payments were more than 10 days delinquent.
But, under the terms of the relevant loan agreements, after the
servicers accelerated the loan balance, the entire remaining loan
balance became immediately due and payable, thus terminating consumers'
contractual obligation to make further periodic payments and
eliminating the servicers' contractual right to charge late fees on
such periodic payments. Despite this, the servicers continued to
collect late fees even after they repossessed the vehicles on periodic
payments scheduled to occur subsequent to the date on which the loan
balances were accelerated. When consumers redeemed their vehicles by
paying the full balance, they also paid these unauthorized late fees;
these unauthorized fees caused substantial injury to consumers.
Consumers could not reasonably avoid the late fees because they had no
control
[[Page 16948]]
over the servicers' late fee practices. And the injury to consumers was
not outweighed by benefits to consumers or competition.
In response to these findings, servicers ceased the practice and
refunded late fees to consumers.
2.2.3 Charging Estimated Repossession Fees Significantly Higher Than
Average Repossession Costs
Examiners found that, where servicers allowed consumers to recover
their vehicles after repossession by paying off the loan balance or
past due amounts, servicers charged a $1,000 estimated repossession fee
as part of the amount owed. This estimated repossession fee was
significantly higher than the average repossession cost, which is
generally around $350. By policy, the servicers returned the excess
amounts to the consumer after they received the invoice for the actual
cost from the repossession agent.
Examiners found that the servicers engaged in unfair acts or
practices when they charged estimated repossession fees that were
significantly higher than the costs they purported to cover. The
relevant contracts permitted the servicers to charge consumers default-
related fees based on actual cost, but here the fees significantly
exceeded the actual cost. Charging the fees caused or was likely to
cause substantial injury in the form of concrete monetary harm. For
consumers who paid the amount demanded, deprivation of these funds for
even a short period constituted substantial injury. Furthermore, some
consumers may have been dissuaded from recovering their vehicles
because the servicers represented that consumers must pay a $1,000
estimated repossession fee in addition to other amounts due. Some
consumers may have been able to afford a $350 fee but not a $1,000 fee,
and therefore did not pay and permanently lost access to their
vehicles. Consumers could not reasonably avoid the injury because they
did not control the servicers' practice of charging unauthorized
estimated repossession fees. And the injury was not outweighed by
countervailing benefits to consumers or competition because the fee
exceeded costs necessary to cover repossession.
In response to these findings, the servicers ceased the practice of
charging estimated repossession fees that were significantly higher
than the actual average amount and provided refunds to affected
consumers.
2.2.4 Unfair and Abusive Payment Fees
An act or practice is abusive if it ``takes unreasonable advantage
of . . . the inability of the consumer to protect the interests of the
consumer in selecting or using a consumer financial product or
service.'' \14\
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\14\ 12 U.S.C. 5531(d)(2)(B).
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Examiners found that servicers engaged in unfair and abusive acts
or practices by charging and profiting from payment processing fees
that far exceeded the servicers' costs for processing payments, after
the consumer was locked into a relationship with a servicer chosen by
the dealer. Examiners observed that the servicers only offered two free
payment options--pre-authorized recurring ACH and mailed checks--which
are only available to consumers with bank accounts. Approximately 90
percent of payments made by consumers incurred a pay-to-pay fee. The
servicers received over half the amount of these fees from the
servicers' third-party payment processor as incentive payments,
totaling millions of dollars.
Examiners concluded that these practices took unreasonable
advantage of consumers' inability to protect their interests by
charging consumers fees to use the most common payment methods to pay
their auto loans, after the consumer was locked into a relationship
with a servicer, that far exceeded the servicers' costs. Servicers
leveraged their captive customer base and profited off payment fees
through kickback incentive payments. These consumers were unable to
protect their interests in selecting or using a consumer financial
product or service because the dealer, not the consumer, selected the
servicer. Consumers thus could not evaluate a servicer's payment
processing fees, bargain over these fees, or switch to a servicer with
lower-cost or more no-fee payment options.
In addition, examiners found that these practices were unfair. The
payment processing fees constituted substantial injury. Because
consumers did not choose their auto loan servicers, they could not
reasonably avoid these costs by bargaining with the servicer over the
fees or switching to another servicer; moreover, consumers without bank
accounts, who were unaware of the payment structure, or who have other
obstacles to ACH or check payments, could not use the free payment
methods and thus could not reasonably avoid paying the fees. And the
injury to consumers was not outweighed by benefits to consumers or
competition.
In response to these findings, Supervision directed the servicers
to cease the practice.
2.3 Mortgage Servicing
In conducting mortgage servicing examinations, examiners identified
a number of UDAAPs and a Regulation Z violation related to junk fees.
Examiners found that servicers charged consumers junk fees that were
unlawful related to late fee amounts, unnecessary property inspection
visits, and private mortgage insurance (PMI) charges that should have
been billed to the lender. Servicers also failed to waive certain
charges when consumers entered permanent loss mitigation options and
failed to refund PMI premiums. And servicers charged consumers late
fees after sending periodic statements representing that they would not
charge late fees.
2.3.1 Overcharging Late Fees
Examiners found that servicers engaged in unfair acts or practices
by assessing late fees in excess of the amounts allowed by their loan
agreements. Specifically, where loan agreements included a maximum
permitted late fee amount, the servicers failed to input these late fee
caps into their systems. Because the systems did not reflect the
maximum late fee amounts permitted by their loan agreements, the
servicers charged the maximum allowable late fees under the relevant
State laws, which frequently exceeded the specific caps in the loan
agreements. The servicers caused substantial injury to consumers when
they imposed these excessive late fees. Consumers could not reasonably
avoid the injury because they do not control how servicers calculate
late fees and had no reason to anticipate that servicers would impose
excessive late fees. Charging excessive late fees had no benefits to
consumers or competition. Examiners concluded that servicers also
violated Regulation Z \15\ by issuing periodic statements that included
inaccurate late payment fee amounts, since they exceeded the amounts
allowed by the loan agreements. In response to these findings,
servicers waived or refunded late fee overcharges to consumers and
corrected the periodic statements.
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\15\ 12 CFR 1026.41(d)(1)(ii).
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2.3.2 Repeatedly Charging Consumers for Unnecessary Property
Inspections
Mortgage investors generally require servicers to perform property
inspection
[[Page 16949]]
visits for accounts that reach a specified level of delinquency.
Generally, servicers must complete these property inspections monthly.
To satisfy this requirement, servicers hire a third party that sends an
agent to physically locate and view the property. The servicers then
pass along the cost of the property inspection to the consumer, with
fees ranging from $10 to $50.
Examiners found that in some instances a property inspector would
report to servicers that an address was incorrect, and that the
inspectors could not locate the property because of this error. Despite
knowing that the address was incorrect, the servicers repeatedly hired
property inspectors to visit these properties. Examiners found that
servicers engaged in an unfair act or practice when they charged
consumers for repeat property preservation visits to known bad
addresses. Charging consumers for property inspection fees to known bad
addresses caused consumers substantial injury. Consumers were unable to
anticipate the fees or mitigate them because they have no influence
over the servicers' practices, and the servicers did not inform
consumers that they had bad addresses. And the injury caused by the
practice was not outweighed by countervailing benefits to consumers or
competition.
In response to the findings, the servicers revised their policies
and procedures and waived or refunded the fees.
2.3.3 Misrepresenting That Consumers Owed PMI Premiums
Examiners found that servicers engaged in deceptive acts or
practices by sending monthly periodic statements and escrow disclosures
that included monthly private mortgage insurance (PMI) premiums that
consumers did not owe. These consumers did not have borrower-paid PMI
on their accounts; instead, the loans were originated with lender-paid
PMI, which should not be billed directly to consumers. After receiving
these statements and disclosures some consumers made overpayments that
included these amounts.
A representation, omission, act, or practice is deceptive when: (1)
The representation, omission, act, or practice misleads or is likely to
mislead the consumer; (2) The consumer's interpretation of the
representation, omission, act, or practice is reasonable under the
circumstances; and (3) the misleading representation, omission, act, or
practice is material.\16\ The servicers' statements were likely to
mislead consumers by creating the false impression that PMI payments
were due. It was reasonable for consumers to rely on the servicers'
calculations to determine the appropriate monthly payment amount.
Finally, the misrepresentations were material because they led to
overpayments. In response to these findings, the servicers refunded any
overpayments.
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\16\ 12 U.S.C. 5531 and 5536(a)(1)(B).
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2.3.4 Charging Consumers Fees That Should Have Been Waived
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
directs servicers of federally backed mortgages to grant consumers a
forbearance from monthly mortgage payments if the consumer is
experiencing a financial hardship as a result of the COVID-19
emergency. During the time a consumer is in forbearance, no fees,
penalties, or additional interest beyond scheduled amounts are to be
assessed. While the CARES Act prohibits fees, penalties, or additional
interest beyond scheduled amounts during a forbearance period,
consumers sometimes accrue these amounts during periods when they are
not in forbearance. For example, a servicer could appropriately charge
a late fee if a consumer was delinquent in May 2020 and then entered a
forbearance in June 2020.
When consumers with Federal Housing Administration-insured loans
exited CARES Act forbearances and entered certain permanent loss
mitigation options, the Department of Housing and Urban Development
(HUD) required servicers in certain circumstances to waive late
charges, fees, and penalties accrued outside of forbearance periods.
Examiners found that servicers engaged in unfair acts or practices
when they failed to waive certain late charges, fees, and penalties
accrued outside forbearance periods, where required by HUD, upon a
consumer entering a permanent COVID-19 loss mitigation option.\17\
Failure to waive the late charges, fees, and penalties constituted
substantial injury to consumers. This injury was not reasonably
avoidable by consumers because they had no reason to anticipate that
their servicer would fail to follow HUD requirements, and consumers
lacked reasonable means to avoid the charges. This harm outweighed any
benefit to consumers or competition. In response to the finding, the
servicers improved their controls, waived all improper charges, and
provided refunds to consumers.
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\17\ The Bureau previously reported a different unfair act or
practice of charging fees to consumers during a CARES Act
forbearance in Supervisory Highlights, Issue 25, Fall 2021,
available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-25_2021-12.pdf.
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2.3.5 Charging Consumers for PMI After It Should Have Been Removed
The Homeowners Protection Act (HPA) requires that servicers
automatically terminate PMI when the principal balance of the mortgage
loan is first scheduled to reach 78 percent of the original value of
the property based on the applicable amortization schedule, as long as
the borrower is current.\18\ Examiners found that servicers violated
the HPA when they failed to terminate PMI on the date the principal
balance of the mortgage was first scheduled to reach 78 percent loan-
to-value on a mortgage loan that was current. As a result, consumers
made overpayments for PMI that the servicers should have cancelled. In
response to these findings, the servicers refunded excess PMI payments
and implemented additional procedures and controls to enhance their PMI
handling.\19\
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\18\ 12 U.S.C. 4902(b)(1).
\19\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 25, Fall 2021, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-25_2021-12.pdf.
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2.3.6 Charging Late Fees After Sending Periodic Statements Listing a $0
Late Fee
Examiners found that servicers sent periodic statements to
consumers in their last month of forbearance that incorrectly listed a
$0 late fee amount for the subsequent payment, when a late fee was in
fact charged if a payment was late. For example, consumers whose loans
were in a forbearance period that ended on October 31st received a
periodic statement during October billing for the November 1st payment;
the periodic statement listed a $0 late fee amount. But because the
November 1st payment was due after the forbearance period ended, the
servicers then charged these consumers their contractual late fee
amount if they missed the November 1st payment, despite sending
statements listing a $0 late fee.
Examiners found that this practice was deceptive. Consumers'
interpretation that they would incur no late fee was reasonable under
the circumstances; consumers reasonably assume that the payment amounts
and fees servicers tell them to pay are accurate and truthful. And the
misrepresentations were likely to be material because consumers may
have elected to make a timely periodic
[[Page 16950]]
payment if the servicers had accurately advised a late fee would be
assessed.
In response to this finding, the servicers updated their periodic
statements and waived or refunded late fee charges for the specific
payments.
2.4 Payday and Small-Dollar Lending
2.4.1 Splitting and Re-Presenting Consumer Payments Without
Authorization
Examiners found that lenders, in connection with payday,
installment, title, and line-of-credit loans, after unsuccessful debit
attempts, 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.
Examiners found that lenders engaged in unfair acts or practices
when they re-presented split payments from consumers' accounts without
their authorization to do so simultaneously or near-simultaneously. As
a consequence, consumers incurred or were likely to incur injury in the
form of multiple overdraft fees, indirect follow-on fees, unauthorized
loss of funds, and inability to prioritize payment decisions. Injury
was not reasonably avoidable because lenders did not disclose, and
consumers had not authorized, same-day, simultaneous or near-
simultaneous split debit processing. Substantial injuries were not
outweighed by countervailing benefits to consumers or to competition.
In response to these findings, lenders were directed to: (1)
provide remediation; (2) stop engaging in split-debit or other payment
re-presentment attempts following an initial failed debit attempt,
without first obtaining the consumer's authorization as to the manner
and timing of the re-presentments; and (3) stop the practice of
splitting the single amount owed into several debit attempts, unless
the consumer has sufficient time between each debit attempt to learn of
any successful debits and to take action to avoid incurring unwanted
consequences, such as bank overdraft fees, indirect follow-on fees,
unauthorized loss of funds, or inability to prioritize payment
decisions.
2.4.2 Charging Borrowers Repossession-Related Fees Not Authorized in
Automobile Title Loan Contracts
Examiners found that lenders engaged in unfair acts or practices
when they charged borrowers fees to retrieve personal property from
repossessed vehicles and to cover servicer charges, and withheld the
personal property and vehicles until borrowers paid the fees. The
practices caused or were likely to cause substantial injury when
lenders, through their repossession agents, withheld personal property
and vehicles until consumers paid unexpected personal property
retrieval fees and agent fees for vehicle redemption. In addition to
being subject to unexpected fees, borrowers faced being denied access
to or destruction of property such as medical equipment and vehicles
necessary for basic life functions. Potential countervailing benefits
to consumers or to competition did not outweigh the substantial
injuries caused.
Lenders were directed to enhance their compliance management
systems to prevent these practices and to provide remediation to
affected consumers.
2.4.3 Failure to Timely Stop Repossessions, Charging Fees and
Refinancing Despite Prior Payment Arrangements
Examiners found that lenders engaged in unfair acts or practices by
failing to stop vehicle repossessions before title loan payments were
due as-agreed, and then withholding the vehicles until consumers paid
repossession-related fees and refinanced their debts. The practice
caused or was likely to cause substantial injury by depriving consumers
of their means of transportation and of the contents of their vehicles
including medication, by causing them to spend time reclaiming the
vehicles, and by imposing repossession fees and refinancing costs.
Consumers had no way to stop lenders from disregarding payment
agreements specifically designed to prevent repossession. Therefore,
they could not reasonably anticipate or avoid the injuries caused.
Countervailing benefits of the practice, such as the cost of
implementing controls to prevent wrongful repossessions, did not
outweigh the substantial injury caused.
Lenders were directed to enhance their compliance management
systems to prevent these practices and to provide remediation to
affected consumers.
2.5 Student Loan Servicing
2.5.1 Charging Late Fees and Interest After Reversing Payments
Examiners found that servicers engaged in unfair acts or practices
by initially processing payments but then later reversing those
payments, leading to additional late fees and interest for consumers.
Although the servicers' policies did not allow student loan payments to
be made with a credit card, customer service representatives
erroneously accepted credit card payment information from some
consumers over the phone and then processed those credit card payments.
Subsequently, the servicers manually reversed the payments because they
violated their policies. As a result, consumers became delinquent on
their accounts and suffered substantial injury in the form of late
fees, negative credit reporting, and additional accrued interest.
Consumers could not reasonably avoid the injury because they could not
anticipate that servicers would reverse payments after initially
accepting them, and the servicers did not send notices explaining the
reversals in all cases. Moreover, the servicers did not provide
consumers with an opportunity to make a payment with another method
before reversing the payments. Finally, retroactively reversing credit
card payments, as opposed to implementing measures to prevent such
payments in the first instance, has no benefits to consumers or to
competition. In response to these findings, the servicers enhanced
controls to ensure that payment processing systems will not accept
credit card payments and to train customer service representatives to
inform consumers at the time of payment that credit cards are not
accepted. Additionally, Supervision directed the servicers to reimburse
any late fees and correct any negative credit reporting as a result of
reversed credit card payments.
3. Supervisory Program Developments
3.1 Recent Bureau Supervisory Program Developments
Set forth below are CFPB-issued circulars, bulletins, advisory
opinions, and proposed rules regarding fees.\20\
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\20\ Some of these items were also referenced in the last
edition of Supervisory Highlights.
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3.1.1 CFPB Proposed a Rule To Curb Excessive Credit Card Late Fees
On February 1, 2023, the CFPB proposed a rule to curb excessive
credit card late fees that cost American families about $12 billion
each year.\21\ The CFPB's proposed rule would amend regulations
implementing the CARD Act to ensure that late fees meet the Act's
requirement to be ``reasonable and proportional'' to the costs incurred
by issuers to handle late payments.
[[Page 16951]]
Specifically, the proposed rule would lower the immunity provision for
late fees to $8 for a missed payment and end the automatic annual
inflation adjustment. The proposed rule would also ban late fee amounts
above 25% of the consumer's required payment.
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\21\ The proposed rule is available at: https://www.consumerfinance.gov/rules-policy/notice-opportunities-comment/credit-card-penalty-fees-regulation-z/.
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3.1.2 CFPB Issued Circular on Unanticipated Overdraft Fee Assessment
Practices
On October 26, 2022, the CFPB issued guidance indicating that
overdraft fees may constitute an unfair act or practice under the CFPA,
even if the entity complies with the Truth in Lending Act (TILA) and
Regulation Z, and the Electronic Fund Transfer Act (EFTA) and
Regulation E.\22\ As detailed in the circular, when financial
institutions charge surprise overdraft fees, sometimes as much as $36,
they may be breaking the law. The circular provides some examples of
potentially unlawful surprise overdraft fees, including charging fees
on purchases made with a positive balance. These overdraft fees occur
when a bank displays that a customer has sufficient available funds to
complete a debit card purchase at the time of the transaction, but the
consumer is later charged an overdraft fee. Often, the financial
institution relies on complex back-office practices to justify charging
the fee. For instance, after the bank allows one debit card transaction
when there is sufficient money in the account, it nonetheless charges a
fee on that transaction later because of intervening transactions.
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\22\ Consumer Financial Protection Circular 2022-06,
Unanticipated Overdraft Fee Assessment Practices (Oct. 26, 2022),
available at: https://files.consumerfinance.gov/f/documents/cfpb_unanticipated-overdraft-fee-assessment-practices_circular_2022-10.pdf.
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3.1.3 CFPB Issued Bulletin on Unfair Returned Deposited Item Fee
Assessment Practices
On October 26, 2022, the CFPB issued a bulletin \23\ stating that
blanket policies of charging returned deposited item fees to consumers
for all returned transactions irrespective of the circumstances or
patterns of behavior on the account are likely unfair under the CFPA.
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\23\ Bulletin 2022-06: Unfair Returned Deposited Item Fee
Assessment Practices, available at: https://files.consumerfinance.gov/f/documents/cfpb_returned-deposited-item-fee-assessment-practice_compliance-bulletin_2022-10.pdf.
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3.1.4 CFPB Issued Advisory Opinion on Debt Collectors' Collection of
Pay-to-Pay Fees
On June 29, 2022, the CFPB issued an advisory opinion \24\
affirming that Federal law often prohibits debt collectors from
charging ``pay-to-pay'' fees. These charges, commonly described by debt
collectors as ``convenience fees,'' are imposed on consumers who want
to make a payment in a particular way, such as online or by phone.
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\24\ Advisory Opinion on Debt Collectors' Collection of Pay-to-
Pay Fees, available at: https://files.consumerfinance.gov/f/documents/cfpb_convenience-fees_advisory-opinion_2022-06.pdf.
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4. Remedial Actions
4.1 Public Enforcement Actions
The Bureau's supervisory activities resulted in and supported the
following enforcement action.
4.1.1 Wells Fargo
On December 20, 2022, the CFPB and Wells Fargo entered into a
consent order in which Wells Fargo will pay more than $2 billion in
redress to consumers and a $1.7 billion civil penalty for legal
violations across several of its largest product lines.\25\ The bank's
illegal conduct led to billions of dollars in financial harm to its
customers and, for thousands of customers, the loss of their vehicles
and homes. Consumers were illegally assessed fees and interest charges
on auto and mortgage loans, had their cars wrongly repossessed, and had
payments to auto and mortgage loans misapplied by the bank. Wells Fargo
also improperly froze or closed customer deposit accounts, charged
consumers unlawful surprise overdraft fees, and did not always waive
monthly account service fees consistent with its disclosures. Under the
terms of the order, Wells Fargo will pay redress to the over 16 million
affected consumer accounts, and pay a $1.7 billion fine, which will go
to the CFPB's Civil Penalty Fund, where it will be used to provide
relief to victims of consumer financial law violations.
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\25\ CFPB Consent Order 2022-CFPB-0011, In the Matter of Wells
Fargo Bank (Dec. 20, 2022), available at: https://files.consumerfinance.gov/f/documents/cfpb_wells-fargo-na-2022_consent-order_2022-12.pdf.
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4.1.2 Regions Bank
On September 28, 2022, the CFPB ordered Regions Bank to pay $50
million into the CFPB's victims relief fund and to refund at least $141
million to customers harmed by its illegal surprise overdraft fees.\26\
Until July 2021, Regions charged customers surprise overdraft fees on
certain ATM withdrawals and debit card purchases. The bank charged
overdraft fees even after telling consumers they had sufficient funds
at the time of the transactions. The CFPB also found that Regions Bank
leadership knew about and could have discontinued its surprise
overdraft fee practices years earlier, but they chose to wait while
Regions pursued changes that would generate new fee revenue to make up
for ending the illegal fees.
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\26\ CFPB Consent Order 2022-CFPB-0008, In the Matter of Regions
Bank (Sept. 28, 2022), available at: https://files.consumerfinance.gov/f/documents/cfpb_Regions_Bank-_Consent-Order_2022-09.pdf.
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This is not the first time Regions Bank has been caught engaging in
illegal overdraft abuses. In 2015, the CFPB found that Regions had
charged $49 million in unlawful overdraft fees and ordered Regions to
make sure that the fees had been fully refunded and pay a $7.5 million
penalty for charging overdraft fees to consumers who had not opted into
overdraft protection and to consumers who had been told they would not
be charged overdraft fees.\27\
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\27\ CFPB Consent Order 2015-CFPB-0009, In the Matter of Regions
Bank (Apr. 28, 2015), available at: https://files.consumerfinance.gov/f/201504_cfpb_consent-order_regions-bank.pdf.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-05667 Filed 3-20-23; 8:45 am]
BILLING CODE 4810-AM-P