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After cracking down on surprise overdraft fees charged by banks, a government watchdog is turning its attention to illegal junk fees charged by companies collecting payments on mortgages, student loans and payday loans.
The Consumer Financial Protection Bureau (CFPB) said Wednesday that its examiners have caught mortgage servicers charging excessive late fees, assessing “fake” private mortgage insurance premiums and making homeowners pay for unnecessary property inspections.
The CFPB said some homeowners who were granted forbearance during the pandemic have also been charged illegal late fees and penalties after they were granted permanent loss mitigation.
Rohit Chopra
“For years, junk fees have been creeping across the economy,” CFPB Director Rohit Chopra said in a statement. “Our report describes a host of illegal junk fee practices that the CFPB has uncovered across the financial services sector.”
In December, the CFPB reached a $3.7 billion settlement with Wells Fargo over allegations that the bank harmed millions of consumers over a period of several years through widespread mismanagement of mortgages, auto loans and deposit accounts.
Minimum late fees ignored
In a report detailing its latest supervisory actions, the CFPB said that during examinations conducted between July 1, 2022, and February 1, 2023, it found that some mortgage servicers — companies that collect monthly payments on home loans on behalf of investors — failed to respect maximum late fees that are sometimes spelled out in loan agreements.
“Where loan agreements included a maximum permitted late fee amount, the servicers failed to input these late fee caps into their systems,” the CFPB said in a report. “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.”
Many states limit late fees to a percentage of the amount past due, with 5 percent to 10 percent being common maximums, according to a list of late fee limits by state compiled by Docutech.
The CFPB said servicers who engaged in such practices “revised their policies and procedures and waived or refunded the fees.”
‘Fake’ private mortgage insurance
The bureau said it also caught some loan servicers charging homeowners private mortgage insurance (PMI) premiums they didn’t owe.
“These consumers did not have borrower-paid PMI on their accounts,” the CFPB reported. “Instead, the loans were originated with lender-paid PMI, which should not be billed directly to consumers.”
After receiving these statements, some consumers made overpayments that were refunded in response to the CFPB’s findings.
Inspectors sent to wrong address
Another problem uncovered by CFPB examiners involved loan servicers charging consumers for unnecessary property inspections.
When homeowners get behind on their payments, loan servicers are often required to conduct monthly inspections to make sure the property hasn’t been neglected or abandoned. The CFPB found that in some cases, loan servicers were repeatedly sending property inspectors to the wrong address, even after being informed by previous inspectors that they couldn’t locate the property because the address was wrong.
Loan servicers were assessing homeowners’ fees ranging from $10 to $50 for “repeat property preservation visits to known bad addresses,” the CFPB reported. The loan servicers involved have revised their policies and waived or refunded the fees.
Homeowners exiting forbearance hit with fees
The CFPB also discovered that some homeowners who were granted forbearance during the pandemic have been charged illegal late fees and penalties after they exited forbearance.
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) allowed homeowners facing hardship to request forbearance and put their monthly payments on hold without being hit with fees, penalties or additional interest beyond the scheduled amounts.
In addition, in some circumstances loan servicers are supposed to waive late fees and penalties for homeowners with FHA-backed loans after they are granted a loss mitigation plan and exit forbearance.
The CFPB in November announced a $5.25 million settlement with Carrington Mortgage Services over allegations that some homeowners who sought forbearance during the pandemic were charged improper late fees or weren’t fully informed of their forbearance and repayment options, and that Carrington inaccurately reported the forbearance status of borrowers to credit bureaus.
Carrington Mortgage Services issued a statement defending the relief it provided to borrowers during the pandemic and said the company was a victim of “extortion tactics.”
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