CFPB Acts Against Mortgage Servicing Fees

On April 24, 2024, the Consumer Financial Protection Bureau (CFPB) continued its assault on fees in the consumer finance industry. In its most recent edition of Supervisory Highlights, the CFPB reported that mortgage servicers charged fees—and engaged in related practices—in violation of the Dodd-Frank Act's prohibition of unfair practices and other regulatory provisions:

1. Servicers improperly and unfairly charged for property inspection fees when such inspections were in violation of Fannie Mae guidelines;
2. Servicers improperly and unfairly charged late fees in excess of the amounts allowed in the loan agreements;
3. Servicers improperly and unfairly charged late fees after borrowers had entered into loss mitigation agreements that prevented the imposition of such fees;
4. In violation of Regulation X, servicers failed to waive existing fees after offering borrowers streamlined COVID-19 loan modifications;
5. By labeling many fees as simply "service fees," servicers violated Regulation Z's requirement to provide a "brief description of the transaction" on periodic billing statements;
6. In violation of Regulation X, servicers did not make timely disbursements from escrow accounts, resulting in consumers incurring late payment penalties.

In addition, the CFPB found that servicers provided deceptive loss mitigation and delinquency notices, improperly handled loss mitigation applications, and failed to establish live contact with borrowers following a delinquency.

Following on its recent rule to reduce credit card late fees and proposed rule concerning overdraft fees, this edition of Supervisory Highlights further confirms the CFPB's relentless efforts to characterize as "junk" any fee associated with a consumer financial service product, including the imposition of fees by other parties resulting from servicer errors. Additionally, the CFPB's actions demonstrate that it expects strict compliance surrounding servicers' communications with borrowers.

Mortgage servicers—indeed all financial services providers—should thoroughly inventory each fee charged to borrowers and ensure that the basis for and amount of the fees conform to their loan agreements, program participation obligations, and regulatory requirements. In addition, servicers should review borrower-facing communications for clarity and accuracy and ensure that customer call centers are adequately staffed to meet consumer demand.

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