Go-To Guide:

  • On April 24, 2024, the Consumer Financial Protection Bureau (CFPB) published supervisory highlights describing ongoing concerns regarding “junk fees” in mortgage servicing.
  • Mortgage servicers face scrutiny over various violations, from improper late fees to deceptive practices, signaling the need for enhanced compliance measures to protect consumers and uphold regulatory standards.

On April 24, 2024, the CFPB unveiled its latest edition of Supervisory Highlights, shedding light on its ongoing battle against what it deems as “junk fees” imposed by mortgage servicers.

The report highlights the CFPB’s ongoing concerns regarding the assessment of what it deems as “exploitative illegal fees” by mortgage servicers. Examiners from the agency identify various instances where mortgage servicers continue to levy such fees, ranging from unnecessary property inspection charges to improper late fees.

“Homeowners cannot just simply switch providers if their mortgage servicer charges them illegal junk fees,” said CFPB Director Rohit Chopra in a separate press release. “Since mortgage borrowers are captive to a company they never chose to do business with, we are working hard to detect and deter violations of law.”

Supervisory Highlights

The Supervisory Highlights publication offers insights from a series of mortgage servicing examinations conducted between April 1, 2023, and Dec. 31, 2023. In these assessments, examiners identified several violations committed by mortgage servicers, including the following:

  • Unfair charges for property inspections prohibited by investor guidelines. Examiners found servicers charging property inspection fees on Fannie Mae loans against Fannie Mae guidelines. Despite guidelines prohibiting inspections under certain conditions, such as recent borrower contact or full payment made within 30 days, servicers levied fees on numerous borrowers.
  • Unfair late fee overcharges. Examiners found servicers imposing unauthorized late fees, constituting unfair practices. These fees either exceeded agreed amounts or were charged despite consumers being under loss mitigation agreements.
  • Failing to waive existing fees. Examiners found servicers engaging in unfair practices by imposing unauthorized fees on homeowners, surpassing the loan agreement terms, and charging late fees despite borrowers having loss mitigation agreements to prevent them. Additionally, these servicers violated Regulation X by offering streamlined COVID-19 loan modifications but failing to waive existing fees after borrowers accepted the modifications.
  • Failing to provide adequate description of fees. Examiners found that servicers did not provide a “brief description of certain fees and charges” on periodic statements as required by Regulation Z; instead, they used the generic term “service fee.”
  • Failing to make timely disbursements from escrow accounts. Examiners found servicers violated Regulation X by failing to make timely escrow disbursements, resulting in penalties for some borrowers, as payments did not reach the payees initially and were resent months later.
  • Deceptive loss mitigation eligibility notices. Examiners discovered that servicers engaged in deceptive practices by sending notices to consumers falsely indicating approval for streamlined loss mitigation options before determining their eligibility, leading some consumers to believe they had been approved and thus affecting their financial decisions.
  • Deceptive delinquency notices. Examiners found servicers sent deceptive notices to certain consumers, falsely indicating missed payments and prompting unnecessary loss mitigation applications, leading consumers to believe the notices were accurate.
  • Loss mitigation violations. Examiners found servicers violated Regulation X by sending acknowledgment notices lacking specification on completeness of borrowers’ loss mitigation applications and failing to provide timely notices regarding loss mitigation options, prompting the need for enhanced policies and procedures to ensure compliance.
  • Live contact and early intervention violations. Examiners discovered servicers failed to establish timely “live contact” with delinquent borrowers as required by Regulation X and neglected to send required written early intervention notices.
  • Failing to retain records on mortgage loan accounts. Examiners found servicers in violation of Regulation X for failing to maintain records of actions taken on mortgage accounts for at least one year after discharge or transfer to another servicer, as well as for inadequate documentation.

Takeaways

This supervisory report reaffirms the CFPB’s commitment to addressing what it perceives as illegal junk fees, emphasizing its ongoing dedication to prioritizing this issue across diverse consumer financial markets. Recent regulatory actions, as reported in a March 2024 GT Alert, include the announcement of a final rule aimed at significantly reducing credit card late fees and proposed measures to save consumers billions of dollars in overdraft fees annually, highlighting the CFPB’s proactive approach in addressing these challenges.

Mortgage servicers should remain vigilant in comprehending the issues highlighted by the CFPB as violations and consider refining their policies to ensure compliance with regulations such as Regulation X and Z.

We have provided ongoing analysis and commentary on this issue as it has developed. See below more context on legislative and regulatory efforts to curb “junk fees”:

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Photo of Timothy A. Butler Timothy A. Butler

Tim Butler helps companies thrive by developing tailored strategies to address their regulatory compliance challenges and vigorously defending them in government enforcement actions and bet-the-company lawsuits.

A former prosecuting attorney for the Federal Trade Commission (FTC) and former senior official in the Georgia

Tim Butler helps companies thrive by developing tailored strategies to address their regulatory compliance challenges and vigorously defending them in government enforcement actions and bet-the-company lawsuits.

A former prosecuting attorney for the Federal Trade Commission (FTC) and former senior official in the Georgia Attorney General’s Office, Tim has led the defense of dozens of government investigations and enforcement actions brought by the FTC, the Consumer Financial Protection Bureau (CFPB), and the various state attorneys general. Tim also regularly defends clients in bet-the-company lawsuits, including complex business disputes and consumer class actions alleging privacy, false advertising, and unfair or deceptive business practice claims.

Tim is an experienced guide for companies struggling with regulatory complexity. He offers clear advice that helps his clients meet the demands of the ever-growing set of laws and regulations governing data privacy and cybersecurity, advertising and marketing practices, and consumer financial products and services. Clients rely on Tim’s business-minded and practical strategies to address their most difficult regulatory compliance challenges.

A graduate of the University of Chicago and Stanford Law School, Tim is a prolific author and regularly speaks to industry and trade groups about the evolving privacy landscape, about cutting-edge issues affecting payments and fintech companies, and about developments at the FTC, the CFPB, and within the state attorneys general community.

Photo of Matthew White Matthew White

Matt White guides clients through regulatory compliance challenges and represents clients in regulatory and civil investigations and litigation.

Matt has counseled fintech and payment companies on regulatory compliance matters, including those involving the Electronic Fund Transfer Act, the Fair Credit Reporting Act, the…

Matt White guides clients through regulatory compliance challenges and represents clients in regulatory and civil investigations and litigation.

Matt has counseled fintech and payment companies on regulatory compliance matters, including those involving the Electronic Fund Transfer Act, the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, the Truth in Lending Act, and their respective implementing regulations (Regulations E, V, P, and Z). Adept with the Consumer Financial Protection Bureau’s (CFPB) Prepaid Rule, Matt has provided guidance regarding prepaid cards and related compliance.

Matt has also aided clients in developing regulatory compliant products and functionalities, including an earned wage access program, reimbursement prepaid card programs, new merchant cash advance products, and tokenized payment capabilities. In connection with products on which Matt advises, he has also negotiated high-stakes technology sales agreements involving complex regulatory issues, including compliance with data privacy laws, financial regulations, and card network rules.

Beyond helping clients strategize for regulatory complexity, Matt also helps clients navigate government investigations and enforcement actions brought by the Federal Trade Commission (FTC), CFPB, and state attorneys general.

Photo of Tessa Cierny Tessa Cierny

Tessa Cierny advises companies on financial technology and data privacy issues. She has experience counseling companies on state and federal regulatory compliance, including existing and emerging privacy laws, such as the E.U.’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act

Tessa Cierny advises companies on financial technology and data privacy issues. She has experience counseling companies on state and federal regulatory compliance, including existing and emerging privacy laws, such as the E.U.’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), as well as financial and banking regulations, such as the CFPB’s Section 1071 Small Business Lending Rule (Regulation B). In addition, she assists clients in defending business disputes and data breach litigation.

Prior to joining Greenberg Traurig, she served as global records manager for WestRock, where she developed and implemented email and data retention policies for global data privacy regulation compliance. In this role, she also advised on data privacy concerns related to data retention, data loss prevention, and data governance.

Photo of Zeba Pirani Zeba Pirani

Zeba Pirani is a Resident Attorney based in Greenberg Traurig’s Atlanta office.