[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.

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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.''
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    \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.
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    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\
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    \6\ 12 U.S.C. 5531, 5536.
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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\
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    \8\ 12 U.S.C. 5531(c).
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    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.
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    \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.
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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