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CFPB Issues Special Edition of Supervisory Highlights Focusing on Junk Fees

A&B ABstract:

In the 29nd edition of its Supervisory Highlights, the Consumer Financial Protection Bureau (“CFPB”) focused on the impact of so-called “junk” fees in the mortgage servicing, auto servicing, and student loan servicing industries, among others.

CFPB Issues New Edition of Supervisory Highlights:

On March 8, the CFPB published a special edition of its Supervisory Highlights, addressing supervisory observations with respect to the imposition of junk fees in the mortgage servicing and auto servicing markets – as well as for deposits, payday and small-dollar lending, and student loan servicing.  The observations cover examinations of participants in these industries that the CFPB conducted between July 1, 2022 and February 1, 2023.

Auto Servicing

With respect to auto servicing, the CFPB noted three principal categories of findings the Bureau claims constitute acts or practices prohibited by the Consumer Financial Protection Act (“CFPA”).

First, examiners asserted that auto servicers engaged in unfair acts or practices by assessing late fees: (a) that exceeded the maximum amount stated in consumers’ contracts; or (b) after consumers’ vehicles had been repossessed and the full balances were due.  With respect to the latter, the acceleration of the contract balance upon repossession extinguished not only the customers’ contractual obligation to make further periodic payments, but also the servicers’ contractual right to charge late fees on such periodic payments. The report notes that in response to the findings, the servicers ceased their assessment practices, and provided refunds to affected consumers.

Second, examiners alleged that auto servicers engaged in unfair acts or practices by charging estimated repossession fees that were significantly higher than the average repossession cost.  Although servicers returned excess amounts to consumers after being invoiced for the actual costs, the CFPB found that the assessment of the materially higher estimated fees caused or was likely to cause concrete monetary harm – and, thus, “substantial injury” as identified in unfair, deceptive, and abusive acts and practices (“UDAAP”) supervisory guidance – to consumers.  Further, consumers could have suffered injury in the form of loss of their vehicles to the extent that they did not want – or could not afford – to pay the higher estimated repossession fees if they sought to reinstate or redeem the vehicle.  Examiners found that such injuries: (a) were not reasonably avoidable by consumers, who could not control the servicers’ fee practices; and (b) were not outweighed by a countervailing benefit to consumers or competition.  The report notes that in response to the findings, the servicers ceased the practice of charging estimated repossession fees that were significantly higher than average actual costs, and also provided refunds to consumers affected by the practice.

Third, examiners claimed that auto servicers engaged in unfair and abusive acts or practices by assessing payment processing fees that exceeded the servicers’ actual costs for processing payments.  CFPB examiners noted that servicers offered consumers two free methods of payment: (a) pre-authorized recurring ACH debits; and (b) mailed checks.  Only consumers with bank accounts can utilize those methods; all those without a bank account, or who chose to use a different payment method, incurred a processing fee.  The CFPB reported that as a result of “pay-to-pay” fees, servicers received millions of dollars in incentive payments totaling approximately half of the total amount of payment processing fees collected by the third party payment processors.

Mortgage Servicing

In examining mortgage servicers, CFPB examiners noted five principal categories of findings that related to the assessment of junk fees, which were alleged to constitute UDAAPs and/or violate Regulation Z.

First, CFPB examiners found that servicers assessed borrowers late fees in excess of the amounts permitted by loan agreements, often by neglecting to input the maximum fee permitted by agreement into their operating systems.   The examiners found that by instead charging the maximum late fees permitted under state laws, servicers engaged in unfair acts or practices.  Further, servicers violated Regulation Z by issuing periodic statements that reflected the charging of fees in excess of those permitted by borrowers’ loan agreements. In response to these findings, servicers took corrective action including: (a) waiving or refunding late fees that were in excess of those permitted under borrowers’ loan agreements; and (b) corrected borrower’s periodic statements to reflect correct late fee amounts.

Second, CFPB examiners found that servicers engaged in unfair acts and practices by repeatedly charged consumers for unnecessary property inspections (such as repeat property preservation visits to known bad addresses). In response to the finding, servicers revised their policies to preclude multiple charges to a known bad address, and waived or refunded the fees that had been assessed to borrowers.

Third, CFPB examiners noted two sets of findings related to private mortgage insurance (“PMI”).  When a loan is originated with lender-paid PMI, PMI premiums should not be billed directly to consumers.  In certain cases, the CFPB found that servicers engaged in deceptive acts or practices by mispresenting to consumers – including on periodic statements and escrow disclosures – that they owed PMI premiums, when in fact the borrowers’ loans had lender-paid PMI.  These misrepresentations led to borrowers’ overpayments reflecting the PMI premiums; in response to the findings, servicers refunded any such overpayments. Similarly, CFPB examiners found that servicers violated the Homeowners Protection Act by failing to terminate PMI on the date that the principal balance of a current loan was scheduled to read a 78 percent LTV ratio, and continuing to accept borrowers’ payments for PMI after that date.  In response to these findings, servicers both issued refunds of excess PMI payments and implemented compliance controls to enhance their PMI handling.

Fourth, CFPB examiners found that servicers engaged in unfair acts or practices by failing to waive charges (including late fees and penalties) accrued outside of forbearance periods for federally backed mortgages subject to the protections of the CARES Act.  The CARES Act generally prohibits the accrual of fees, penalties, or additional interest beyond scheduled monthly payment amounts during a forbearance period; however, the law does not address fees and charges accrued during periods when loans are not in forbearance.  Under certain circumstances, HUD required servicers of FHA-insured mortgages to waive fees and penalties accrued outside of forbearance periods for borrowers exiting forbearances and  entering permanent loss mitigation options.  CFPB examiners found that servicers sometimes failed to complete the required fee waivers, constituting an unfair act or practice under the CFA.

Finally, CFPB examiners found that servicers engaged in deceptive acts and practices by sending consumers in their last month of forbearance periodic statements that incorrectly listed a $0 late fee for the next month’s payment, when a full late fee would be charged if such payment were late.  In response to the finding, servicers updated their periodic statements and either waived or refunded late fees incurred in the referenced payments.


The CFPB determined that two overdraft-related practices constitute unfair acts or practices: (i) authorizing transactions when a deposit’s balance was positive but settled negative (APSN fees); and (ii) assessing multiple non-sufficient funds (NSF) fees when merchants present a payment against a customer’s account multiple times despite the lack of sufficient funds in the account.  The CFPB has criticized both fees before in Consumer Financial Protection Circular 2022-06, Unanticipated Overdraft Fee Assessment Practices.

According to the report, tens of millions of dollars in related customer injury are attributable to APSN fee practices, and redress is already underway to more than 170,000 customers.  Many financial institutions have abandoned the practice, but the CFPB noted that even some such institutions had not ceased the practice and were accordingly issued matters requiring attention to correct the problems.  As for NSF fees, the CFPB found millions of dollars of consumer harm to tens of thousands of customers.  It also determined that “virtually all” institutions interacting with the CFPB on the issue have abandoned the practice.

Student Loan Servicing

Turning to student loan servicing, the CFPB found that servicers engaged in unfair acts or practices prohibited by the CFPA where: (a) customer service representative errors delayed consumers from making valid payments on their accounts, and (b) those delays led to consumers owing additional late fees and interest associated with the delinquency.  Contrary to servicers’ state policies against the acceptance of credit cards, customer service representatives accepted and processed credit card payments from consumers over the phone.  The servicers initially processed the credit card payments, but then reversed those payments when the error in payment method was identified.

Payday and Small Dollar Lending

The CFPB determined that lenders, in connection with payday, installment, title, and line-of-credit loans, engaged in a number of unfair acts or practices.  The first conclusion they made was that lenders simultaneously or near-simultaneously re-presented split payments from customers’ accounts without obtaining proper authorization, resulting in multiple overdraft fees, indirect follow-on fees, unauthorized loss of funds, and inability to prioritize payment decisions. The second such conclusion concerned charges to borrowers to retrieve personal property from repossessed vehicles, servicer charges, and withholding subject personal property and vehicles until fees were paid.  The third such determination related to stopping vehicle repossessions before title loan payments were due as previously agreed, and then withholding the vehicles until consumers paid repossession-related fees and refinanced their debts.


The CFPB’s focus on “junk” fees is not new – it follows on an announcement last January that the agency would be focused on the fairness of fees that various industries impose on consumers.  (We have previously discussed how the CFPB’s actions could impact mortgage servicing fee structures.)  Similarly, the Federal Trade Commission has previously considered the issue of “junk fees” in connection with auto finance transactions.

By focusing specifically on the issue in a special edition of the Supervisory Highlights, the CFPB is drawing special attention to the issue of these fees in the servicing context.  Mortgage, auto, and student loan servicers might use this as an opportunity to review their current practices and see how they stack up against the CFPB’s findings.

FTC Seeks Comment on Proposed Changes to FCRA Rules for Motor Vehicle Dealers

A&B ABstract: The FTC is seeking public comment on proposed changes to five FCRA rules aimed at clarifying that these rules, as promulgated by the FTC, apply only to motor vehicle dealers, as equivalent rules promulgated by the CFPB will apply to other entities.

The Federal Trade Commission (“FTC”) has announced it is seeking public comment on proposed changes to existing rules implementing parts of the Fair Credit Reporting Act (“FCRA”). According to the FTC, the proposed changes would clarify that five FCRA rules promulgated by the FTC apply only to motor vehicle dealers.

This clarification is needed because after the Dodd-Frank Act transferred to the Consumer Financial Protection Bureau (“CFPB”) the FTC’s rulemaking authority under certain portions of the FCRA, the FTC rescinded several of its FCRA rules, which had been replaced by rules issued by the CFPB. However, the FTC retained rulemaking authority for other rules to the extent the rules apply to motor vehicle dealers (as defined in the Dodd-Frank Act) that are predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.

In particular, the rule changes (each of which are addressed in separate Notices of Proposed Rule Making) would apply to the following five rules:

  1. The Address Discrepancy Rule (16 CFR Part 641), which outlines the obligations of users of consumer reports when they receive a notice of address discrepancy from a nationwide consumer reporting agency (“CRA”);
  2. The Affiliate Marketing Rule (16 CFR Part 680), which gives consumers the right to restrict a person from using certain information obtained from an affiliate to make solicitations to the consumer;
  3. The Furnisher Rule (16 CFR Part 660), which requires entities that furnish information to CRAs to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information relating to consumers provided to a CRA;
  4. The Pre-screen Opt-Out Notice Rule (16 CFR Parts 642 and 698), which outlines requirements for those who use consumer report information to make unsolicited credit or insurance offers to consumers; and
  5. The Risk-Based Pricing Rule (16 CFR Part 640), which requires those who use information from a consumer report to offer less favorable terms to consumers to provide them with a notice about the use of such data.

Each of these FTC rules, as revised, will be limited in scope to apply only in relation to motor vehicle dealers, subject to certain exceptions, and those persons and entities originally covered by these rules who are not motor vehicle dealers remain subject to similar rulemakings promulgated by the CFPB. For example, with regard to the Pre-screen Opt-Out Notice Rule, the proposed amendment would replace the general term “person” with the term “motor vehicle dealers,” as defined, thus narrowing the scope of the rule to entities that are “predominantly engaged in the sale and servicing of motor vehicles, excluding those dealers that directly extend credit to consumers and do not routinely assign the extensions of credit to an unaffiliated third party.” The proposed rule amendments also reinstate certain model notices that are otherwise identical to the CFPB’s model notices applicable to certain entities that are not motor vehicle dealers.

Additionally, the FTC is seeking comment on the effectiveness of these five rules including the following considerations:

  • whether there is a continuing need for specific provisions of each rule;
  • the benefits each rule has provided to consumers;
  • what modifications, if any, should be made to each rule to benefit consumers and businesses; and
  • what modifications, if any, should be made to each rule to account for changes in relevant technology or economic conditions.

Takeaways: These proposed amendments to the relevant FCRA rules will serve to clarify the distinction between the rules applicable to motor vehicle dealers – promulgated by the FTC ­– and rules applicable to other entities, which have been issued by the CFPB.  Comments on these issues must be submitted to the FTC within 75 days from the date the notices of proposed rulemaking are published in the Federal Register. Instructions on how to file comments will be included in the notices published in the Federal Register.

FTC Brings its First Case Alleging ECOA Violations in More than a Decade

A&B ABstract:

On May 27, 2020, the Federal Trade Commission (FTC) announced a complaint and settlement against a New York auto dealer alleging that it charged higher rates to African American and Hispanic customers, advertised prices it refused to honor, and fabricated fees in violation of the Equal Credit Opportunity Act (ECOA), Truth in Lending Act (TILA) and Section 5 of the FTC Act.   This is the first time the FTC has alleged ECOA violations against an auto dealer.

The FTC’s Case

The Complaint, filed in the U.S. District Court for Southern District of New York, alleges that Bronx Honda instructed salespeople to charge higher financing markups and fees to African American and Hispanic customers. The Complaint also alleges Bronx Honda advertised deceptive offers for vehicles, which were not honored when customers visited the dealership, and charged unauthorized fees. As part of the settlement, Bronx Honda will pay $1.5 million in equitable monetary relief, agreed to a ceiling on the dealer markup, and will implement a Fair Lending Program.

The vote in favor of the complaint and settlement was 5-0, with the two Democratic commissioners, Rohit Chopra and Rebecca Kelley Slaughter each issuing a concurring statement. Both commissioners called on the agency to use the authority granted under the Dodd Frank Act to promulgate rules to address abuses in the auto lending industry.  Commissioner Chopra also advocates use of disparate impact analysis for detecting unlawful discrimination, given what he describes as the difficulties of uncovering direct evidence of discriminatory intent.

The Complaint:

A summary of the FTC’s complaint counts follows:

Violation of the Equal Credit Opportunity Act (Reg. B)

The Complaint alleges Bronx Honda charged the average African American borrower approximately $163 more in interest, and the average Hispanic borrower approximately $211 more in interest, than similarly situated non-Hispanic white borrowers.

According to the Complaint, African American and Hispanic borrowers received the maximum dealer interest rate markup permitted by the financing entity 50% more often than similarly situated non-Hispanic white borrowers. Further, according to the Complaint, employees of Bronx Honda instructed sales personnel to charge higher markups and additional fees to African American and Hispanic customers only.

Violation of Section 5 of the FTC Act

The Complaint alleges Bronx Honda’s website advertised vehicles at specific prices but sales representatives refused to sell those vehicles at those prices when customers came to the dealership. The Complaint also alleges Bronx Honda represented as required certain charges and fees that were either not authorized by customers or were not required.

For example, according to the Complaint, Bronx Honda’s website listed vehicles with a specific price and monthly payment amounts, but in numerous cases sales representatives told customers the price advertised was in error and the vehicle could only be purchased for a higher price.

Further, Bronx Honda charged customers hundreds or thousands of dollars for warranties and repairs to “Certified Pre-Owned” vehicles, which were already covered by the manufacturer. In addition, Bronx Honda changed customers up to $695 in documentation fees that are statutorily capped at $75 by the state of New York and would unilaterally increase the price of finance contracts at closing without disclosing the change to the customer.

Violation of the Truth in Lending Act (Reg. Z)

The Complaint alleges Bronx Honda advertised monthly payment amounts without disclosing required terms and advertised a rate of finance for closed-end credit without using the term “annual percentage rate.” According to the Complaint, Bronx Honda’s online vehicle listings included the monthly payment amounts without disclosing any of the other required terms.


In addition to paying the $1.5 million financial judgement, Bronx Honda must adopt a Fair Lending Program which includes written guidance establishing objective, non-discriminatory criteria for assessing (or not assessing) fees and charges. Bronx Honda must designate a qualified senior manager to be responsible for the program, mandate employee training once a year and report its compliance with those requirements to the FTC for the next fifteen years. Finally, Bronx Honda is barred from entering into retail installment contracts that carry an interest rate higher than 185 basis points above the “buy rate,” except for specific, documented reasons.


This case breaks new ground for the FTC, charging an auto dealer with illegal racial discrimination under ECOA for the first time. Companies should ensure employees are trained to treat all customers equally and review sales data to ensure no class of customer is getting a worse deal. The fact that both Democratic commissioners have called on the FTC to issue rules to address unfair and deceptive abuse and discrimination in auto lending may signal that the agency will become more active in this area.

In addition, this case represents the FTC’s latest effort to enforce advertising disclosure requirements mandated by TILA. The FTC has brought many cases over the last several years against auto dealers for failing to properly disclose credit related terms. If a company advertises vehicle financing along with a “triggering term” (like a sample monthly payment amount or nominal interest rate), it must also clearly and conspicuously disclose addition information like annual percentage rate, term of the loan and any balloon payments.


CFPB Issues New Edition of Supervisory Highlights

A&B Abstract:

The Summer 2019 edition of the CFPB’s Supervisory Highlights indicates recent examination focuses for several categories of consumer credit products.

CFPB Issues New Edition of Supervisory Highlights

On September 19, the Consumer Financial Protection Bureau (“CFPB”) issued the Summer 2019 edition of Supervisory Highlights, detailing examination findings relating to automobile loan origination, credit card account management, debt collection, credit reporting, and mortgage origination.

Automobile Loan Origination

In the auto loan origination context, the CFPB discusses when the selling of add-on guaranteed asset protection (“GAP”) products may constitute an abusive act or practice as prohibited under the Consumer Financial Protection Act.  (In the event of theft of or damage to a vehicle, GAP products cover the difference between the amount the consumer owes on an auto loan and the amount received from the insurer.)  Specifically, the CFPB indicates that the selling of GAP products to consumers with a low LTV may be an abusive practice, as such consumers are unlikely to benefit from the product.

Credit Card Account Management

The Supervisory Highlights focuses on four sets of practices in connection with credit cards:

  • Failure to provide clear and conspicuous disclosures for certain pricing terms in online advertisements;
  • Disclosures required under Regulation Z in order for a credit card issuer to obtain or enforce a consensual security interest in funds that a consumer has on deposit with the issuer in order to offset credit card debt;
  • The use of deceptive threats of repossession or foreclosure in credit card collections; and
  • Deceptive acts and practices in the marketing of secured credit card accounts.

Debt Collection

In the debt collection context, the CFPB reports examination findings that debt collectors have claimed and collected from consumers “interest not authorized by the underlying contracts between the debt collectors and the creditors.”  By misrepresenting the amount due on a debt, such conduct violate Section 807 of the Fair Debt Collection Practices Act.


The Supervisory Highlights includes five sets of findings relating to the furnishing of consumer information to consumer reporting companies (“CRCs”).  Specifically, CFPB examiners identified failures of furnishers to:

  • timely conduct an investigation of, or respond to, notice of a dispute from CRC, in violation of Section 623(b)(1) of the Fair Credit Reporting Act;
  • report the results of dispute investigations to all CRCs to which they provided information about consumers;
  • promptly correct and update information previously furnished to a CRC that is incomplete or inaccurate;
  • provide notice to CRCs in connection with the reporting of information whose accuracy or completeness is disputed by a consumer; and
  • implement reasonable policies and procedures regarding the accuracy and integrity of information relating to consumers that is furnished to CRCs.

Mortgage Origination

Finally, the Supervisory Highlights discusses examination findings relating to the inaccurate disclosure of APR and total annual loan cost information for closed-end reverse mortgage transactions, in violation of Regulation Z.


Each edition of the Supervisory Highlights provides related industries a glimpse into the Bureau’s current examination priorities.  Entities should take the opportunity to review the issues discussed above, as applicable to their business practices, to help ensure their own compliance with federal laws and regulations.