Alston & Bird Consumer Finance Blog

Consumer Financial Protection Bureau (CFPB)

CFPB and Federal Agencies Seek Comment on Proposed Automated Valuation Models Rule

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A&B Abstract:

On June 21, the Consumer Financial Protection Bureau (CFPB), along with five federal regulatory agencies (Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and Federal Housing Finance Agency (FHFA) (the “Agencies”), published for public comment a proposed rule to implement the quality control standards mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) for the use of automated valuation models (AVMs) by mortgage originators and secondary market issuers in valuing the collateral worth of a mortgage secured by a consumer’s principal dwelling.

Background

Section 1473(q) of the Dodd-Frank Act amended the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), adding 12 U.S.C. § 3354, to address the use of AVMs to estimate the collateral value of a mortgage for mortgage lending purposes.  The statute sets forth the framework for developing quality control standards to which AVMs must adhere and directs the Agencies to promulgate regulations implementing the standards.

Automated Valuation Models (AVMs) and Covered AVMs

The term “AVMs” refers to computerized models used by mortgage originators and secondary market issuers to determine the value of a consumer’s principal dwelling collateralizing a mortgage.  Under the proposed rule, the quality control standards are applicable only to AVMs used in connection with making credit decisions or covered securitization determinations regarding a mortgage, for example, when determining a new value before originating, modifying, terminating a mortgage, or making other changes to a mortgage including a decision whether to extend new or additional credit or change the credit limit on a line of credit, or placing a loan in a securitization pool.  Other uses, such as monitoring collateral value in mortgage-backed securitizations after they have already been issued over time or validating an already completed valuation of real estate, would not be subject to the proposed rule.

Applicability 0f the Proposed Rule
Mortgage Originators and Brokers

The proposed rule would not apply to mortgage brokers if they do not engage in making covered credit decisions or securitization determinations.  As proposed, the term “mortgage originator” would follow the same definition contained in the Truth in Lending Act (TILA), at 15 U.S.C. § 1602(dd)(2).  The term would generally include creditors, as defined in TILA, such as, any person who originates two or more high-cost mortgages in any 12-month period.  Further, the term is also defined broadly to include mortgage brokers.

Mortgage Servicers

Following the exception in TILA, the proposed rule would also generally not cover mortgage servicers unless they perform any of the stated origination activities for any new extensions of credit, including a refinancing or an assumption.  For example, the proposed rule would apply to a mortgage servicer that both uses covered AVMs to engage in credit decisions and performs any of the stated origination activities.  According to the preamble, once the definition of “mortgage originator” is met, a mortgage servicer would be required to comply with the requirements of the proposed rule any time it uses an AVM to determine the collateral worth of a mortgage, including when such usage does not involve a new extension of credit such as a loan modification or reduction of a home equity line of credit.

Secondary Market Issuers

The proposed rule would apply to certain secondary market participants.  It defines the term “secondary market issuer” to mean “any party that creates, structures, or organizes a mortgage-backed securities transaction,” which includes coverage of entities that are responsible for determining the collateral worth of a mortgage when issuing mortgage-backed securities.  This would encompass secondary market participants in the securitization process that make these types of determinations, as opposed to verifying or monitoring such determinations.

Business Purpose and Commercial Loans

With respect to non-residential loans, the proposed rule would reach further than TILA.  The proposed rule includes a definition of “dwelling” that follows that contained in Regulation Z (which implements TILA), at 12 C.F.R. § 1026.2(a)(19).  However, unlike TILA, the proposed rule would apply when a mortgage is secured by a consumer’s principal dwelling, even if the mortgage is primarily for business, commercial, agricultural, or organizational purposes.

Quality Control Standards Address Valuation Bias and Discrimination

The proposed rule would require institutions that engage in covered credit decisions or securitization determinations themselves or through or in cooperation with a third party affiliate, to adopt policies, practices, procedures, and control systems to ensure that the use of AVMs adhere to quality control standards.

The proposed rule defines “control systems” to mean the functions (such as internal and external audits, risk review, quality control, and quality assurance) and information systems that are used to measure performance, make decisions about risk, and assess and effectiveness of processes and personnel, including with respect to compliance with statutes and regulations.

In keeping with FIRREA, these standards would be designed to:

  • Ensure a high level of confidence in the estimates produced by AVMs;
  • Protect against the manipulation of data;
  • Seek to avoid conflicts of interest; and
  • Require random sample testing and reviews.
Extension to Nondiscrimination Laws

However, in the proposed rule, the Agencies take the standards one step further than the Dodd-Frank Act mandate, by including that AVM quality control standards must comply with applicable nondiscrimination laws.  Exercising their statutory authority to account for other appropriate quality control factors, the Agencies included this fifth factor to address concerns about the potential for AVMs to produce property estimates that reflect discriminatory bias.

As a result, this proposed factor would create an independent requirement for institutions to establish policies and procedures to specifically address nondiscrimination and fair lending laws, such as the Equal Credit Opportunity Act (ECOA) and its implementing Regulation B, and the Fair Housing Act.  To that end, the preamble specifically notes that ECOA and Regulation B prohibit discrimination in any aspect of a credit decision, which “extends to using different standards to evaluate collateral” including “the design or use of an AVM in any aspect of a credit transaction in a way that would treat an applicant differently on a prohibited basis or result in unlawful discrimination against an applicant on a prohibited basis.”  The Agencies’ inclusion of the addition of this fifth factor is consistent with the focus of the Interagency Task Force on Property Appraisal and Valuation Equity (“PAVE”), as we have previously discussed, on addressing issues of bias and discrimination in residential property appraisal.

The proposed rule does not include specific requirements on how institutions are to structure their policies and procedures – an approach intended to provide institutions the flexibility to set quality controls for AVMs as appropriate, based on the size of the institution and the risk and complexity of transactions for which AVMs will be used.

Use of AVMs by Appraisers Not Subject to Proposed Rule

A certified or licensed appraiser using AVMs in the development of an appraisal would not be subject to the proposed rule due to the Agencies’ recognition that appraisers must make valuation conclusions that are supportable independently and do not rely on the results produced by AVMs in accordance with the Uniform Standards of Professional Appraisal Practice and its interpreting opinions.  The Agencies also acknowledge that it may be impractical for mortgage originators and secondary market issuers to adopt policies and procedures relating to AVMs used by multiple independent appraisers with which they work.

However, the proposed rule would cover the use of AVMs in preparing valuations required for certain real estate transactions that are exempt from the existing appraisal requirements under the appraisal regulations issued by the OCC, Board, FDIC, and NCUA (such as transactions that have a value below the exemption thresholds in the appraisal regulations).  Additionally, the Agencies’ existing guidance regarding AVMs would remain applicable separately from the proposed rule; for example, the OCC, Board, FDIC, and NCUA have issued guidance about prudent appraisal and evaluation programs in Appendix B to the Interagency Appraisal and Evaluation Guidelines.

Takeaway

If adopted, the proposed rule would require regulated mortgage originators and secondary market issuers to take appropriate steps and adopt policies, practices, procedures, and control systems to ensure that the use of AVMs in valuing real estate collateral securing mortgage loans adhere to the specified quality control standards, including compliance with nondiscrimination laws to avoid potential valuation bias.  While the proposed rule does not contain specific requirements, it would require institutions to create their own policies and procedures to ensure the credibility and integrity of the valuation determinations produced by AVMs.

Comments must be received by August 21, 2023.

Being a Government Agency is not an Exception to the Federal Discovery Rules

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A&B Abstract:

When litigating in federal court, government agencies are not exempt from the rules of discovery.  The Eleventh Circuit reminded the Consumer Financial Protection Bureau (“CFPB”) of this in its recent decision CFPB v. Brown, et al., No. 21-14468 (11th Cir. 2023).  There, the Court affirmed a district court’s sanctions order dismissing the CFPB’s claims against five defendants because the CFPB had “engag[ed] in dramatic abuse of the discovery process.”

The Case

“The CFPB’s problematic conduct began during discovery.”  In response to Rule 30(b)(6) deposition notices from five defendants to depose a CFPB representative, the CFPB objected that: (i) it had already provided the information in its interrogatory responses, (ii) the notice inquired into topics covered by the law enforcement and deliberative process privilege, and (iii) the depositions were an improper attempt to question CFPB counsel about their mental impressions and analyses.  The district court, however, overruled these objections “reasoning that Rule 30(b)(6) applies with equal force to government agencies” and that “factual matters are subject to inquiry even if those matters have been disclosed in interrogatory responses.”

The CFPB then moved for a protective order to reduce the scope of the 30(b)(6) depositions.  The district court granted this in part, striking the balance that “facts—including ‘exculpatory facts’—were fair game while questioning that ‘would delve into [the CFPB’s] trial strategy’ was off limits.”  With this guidance in hand, the parties proceeded with their depositions.

In the first 30(b)(6) deposition, “the CFPB avoided answering questions through a number of impermissible tactics.”  It lodged work product objections even to fact-based questions that the district court had instructed it to answer.  It equipped its witness with “memory aids”—lawyer-prepared scripts that were hundreds of pages in length—from which the witness repeatedly engaged in “filibuster-style reading.”  And despite the district court’s instruction that it should answer questions concerning exculpatory facts, the CFPB took the position that it had not identified any exculpatory facts in the entire voluminous record.

Given the CFPB’s tactics during the first deposition, the defendants requested, and the district court conducted, a telephonic hearing.  During the hearing, the district court provided further instruction warning the CFPB off of these tactics.  The district court also reiterated that “defendants were entitled to question the CFPB about exculpatory facts.”  And that while “exculpatory information” is generally a term used in criminal cases, a defendant in a civil case is entitled to discovery of exculpatory evidence that would be in the possession of a government agency that would show the defendant had not committed the alleged violations.

During the next four 30(b)(6) depositions, “the CFPB continued its obstructionist conduct.”  Specifically, it continued to object on work product grounds, its witness continued to rely exclusively on memory aids for his testimony, and its witness refused even to answer yes or no questions as to whether certain facts existed.

Consequently, defendants moved for sanctions.  The district court granted sanctions, struck all claims against the five defendants, and dismissed them from the case.

In granting this sanction, the district court found that the CFPB had willfully disregarded the district court’s instructions by reading from memory aids to bury defendants in so much information that they could not possibly identify, with any reasonable particularity, what supported the CFPB’s claims.  The district court also found that the CFPB’s witness failed to appear because, even though he was physically present, he was effectively unavailable because he could not answer questions without memory aids and because of his “refusal to address exculpatory evidence.”  Finally, the district court explained that it was not optimistic that reopening the depositions would be fruitful given the CFPB’s pattern of conduct in the case.

On appeal, the Eleventh Circuit explained that the district court’s instructions and orders were clear, so the CFPB’s failure to comply with them warranted sanctions.  It also held that in light of the district court’s conclusion that reopening discovery would not be fruitful, the severe sanction of dismissal was warranted.

Takeaways from the Court’s Ruling

In affirming, the Eleventh Circuit provided an important reminder that government agencies are not exempt from the rules of discovery.  They “do[] not have the power to decide which discovery rules [they] will abide by and which [they] will ignore.”

Throughout its decision, the Eleventh Circuit also highlighted the proper and improper uses of memory aids during 30(b)(6) depositions.  Memory aids can be used (and can be useful) during these types of depositions so long as they do not replace the witness’s testimony.  It is when they stop being memory aids and become lawyer‑prepared scripts that their use becomes improper.  They cannot replace live testimony, and where the 30(b)(6) witness cannot testify without relying upon the memory aids, the witness is effectively unavailable.

Finally, in its decision, the Eleventh Circuit stressed that it was improper for the CFPB “to take the incredible position that exculpatory facts did not exist as to any defendant in the case.”  While the CFPB argued on appeal that it was improper for the district court to order it to specifically identify evidence that it considered exculpatory, the circuit court concluded that the district court had not asked the CFPB to go that far.  Rather, the district court had merely made clear that exculpatory evidence is fair game as part of the discovery process.

In short, parties being sued by a government agency are entitled to discovery, including through 30(b)(6) deposition testimony, about the factual bases for the government agency’s claims against them.  This entitlement extends to exculpatory evidence in possession of the government agency that would show the defendant had not committed the alleged violations.

CFPB Issues Preemption Determination that State Commercial Financing Disclosure Laws Are Not Preempted By TILA

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A&B Abstract:

The Consumer Financial Protection Bureau (CFPB) recently announced that it issued a final preemption determination concluding that certain state disclosure laws applicable to commercial financing transactions in California, New York, Utah, and Virginia are not preempted by the federal Truth in Lending Act (TILA). As covered in a previous post, we note that the California, Utah, and Virginia laws have already gone into effect, and New York’s is set to become effective on August 1, 2023.

State Commercial Lending Laws

After examining the state disclosure laws in California, New York, Utah, and Virginia, the CFPB recently affirmed that there is no conflict with TILA because the state laws extend disclosure protections to businesses seeking commercial financing, which are beyond the scope of TILA’s statutory consumer credit protections.  Specifically, the CFPB determined that TILA only preempts state laws under conflict preemption, which the CFPB interprets to mean that TILA preempts state laws only if they are “inconsistent” with TILA.

In California, New York, and Utah, state laws require lenders to issue disclosures in certain commercial financing transactions, the purpose of which is generally defined to mean primarily for other than personal, family, or household purposes.  This is in contrast to TILA’s application to consumer credit, which is extended primarily for personal, family, or household purposes.  In December 2022, the CFPB made a preliminary determination that New York’s commercial financing disclosure law was not preempted by TILA because the state law regulates commercial financial transactions rather than consumer-purpose transactions.

In Virginia, disclosures are required in connection with “sales-based financing,” which is defined generally as a transaction in which the financing is repaid by the recipient based on a percentage of sales or revenue.  “Recipient” means a person whose principal place of business is in Virginia and that applies for sales-based financing and is made a specific offer of sales-based financing by a sales-based financing provider.  Based on these definitions, it appears that the Virginia law would not apply to a consumer credit transaction.  However, the CFPB generally noted that, to the extent state law could apply to a consumer credit transaction, there would still be no inconsistency with TILA.

Accordingly, the CFPB found that the four states’ commercial financing disclosure laws are not inconsistent with and, therefore, not preempted by the federal TILA.

Takeaway

As states continue to propose and enact similar laws requiring disclosures in commercial financing transactions, an argument that federal law preempts such state laws is unlikely to succeed.  Thus, companies should monitor ongoing state regulatory trends in commercial financing transactions to ensure compliance with the consumer-style disclosure requirements that may apply.

Second Circuit Deepens Circuit Split over CFPB Funding Structure

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A&B ABstract:

On March 23, 2023, the Second Circuit held the Consumer Financial Protection Bureau’s (CFPB) funding structure is constitutional.  This decision comes on the heels of the Supreme Court granting certiorari to review the Fifth Circuit’s ruling in Community Financial that reached the opposite conclusion.

The Second Circuit’s Ruling

The Second Circuit case, styled Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, looks at a challenge to a civil investigative demand (CID) for documents made to a law firm that principally advises and services clients seeking to collect debts.  On appeal, the law firm argued the CID could not be enforced because, for among other reasons, the funding structure of the CFPB violated the Appropriations Clause of Article I of the Constitution.

Rejecting this argument, the Second Circuit held that the Appropriations Clause provides “simply that no money can be paid out of the Treasury unless it has been appropriated by an act of Congress.”  That is, if a payment of money from the Treasury is “authorized by statute,” then it does not run afoul of the Appropriations Clause.  And “[t]here can be no dispute that the CFPB’s funding structure was authorized by the CFPBA – a statute passed by Congress and signed into law by the President.”

In reaching this conclusion, the Second Circuit declined to follow the Fifth Circuit’s rationale in Community Financial.  There, the Fifth Circuit reasoned that the CFPB’s funding structure violated the separation of powers embodied in the Appropriations Clause because it was “doubly” insulated from Congressional control.  Specifically, the Fifth Circuit posited that Congress had first ceded control directly over the CFPB’s budget by insulating it from review during the annual appropriations process and second conceded control indirectly by providing that the CFPB’s funding be drawn from a source that was itself outside the appropriations process.

In response to this, the Second Circuit explained that, in its view, the design of the Constitution in the Appropriations Clause was to ensure that the purpose, limit, and fund of every expenditure be ascertained by a previous law.  Thus, as long as the CFPB’s budget had an articulated purpose (as set forth in the CFPA), came from an articulated fund (the earnings of the Federal Reserve System), and had articulable limits (a 12% cap set by Congress in the CFPA), then it was constitutional.  In short, Congress specified the purpose, limit, and fund of its appropriation for the CFPB’s budget in the CFPA, which was all that the Constitution required.

Takeaway

Whether the CFPB’s funding structure is constitutional poses a possibly existential threat to the CFPB’s operations.  The Second Circuit’s decision deepens the split on the issue, which the Supreme Court has already begun undertaking to resolve.  Stay tuned for further updates on how the Supreme Court resolves this split.

CFPB Issues Special Edition of Supervisory Highlights Focusing on Junk Fees

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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.

Deposits

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.

Takeaways

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.