CFPB’s Releases a Special Supervisory Highlights Report All About Junk Fees

Fee practices continue to be in the spotlight and with the release of the special addition of the CFPB’s Supervisory Highlight, it looks like they are about to get even more attention and scrutiny. The Highlights come within a few months of major enforcement actions and other CFPB guidance.

Since the fall of 2022, three financial institutions have had the unfortunate experience of being cited and accused of having potentially unfair, deceptive, or abusive policies and practices around certain fee income practices.

On October 26, 2022,  the CFPB issued guidance explaining that two junk fee practices were unfair and unlawful – effectively banning both.

  • First, the CFPB stated that surprise overdraft fees were unlawful. Focusing on authorize positive, settle negative(APSN)).
  • Second, the CFPB focused on surprise depositor fees. These are fees charged to customers who deposit a check from someone else and it does not clear their financial institution, thus penalizing the depositor and making them victim to unreasonable fees.

The CFPB stated “Junk fees are unnecessary charges that inflate costs while adding little to no value to the consumer. These 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.”  Furthermore, they estimate that the elimination of these fees will save consumers more than $1 billion annually.

The release speaks to the fees that the Agencies have touted as corroding family finances, forcing up families’ banking and borrowing costs, and are not easily avoided – even by financially savvy consumers.

Detailed in the Supervisory Highlights, the CFPB speaks to their practices when rooting unlawful fees out of consumer financial markets. CFPB Director Rohit Chopra stated that “for years, junk fees have been creeping across the economy,” and “Our report describes a host of illegal junk fee practices that the CFPB has uncovered across the financial services sector.”

The report focusses on five main areas and analyses them based on what CFPB examiners found during examinations between July 1, 2022, and February 1, 2023.

  1. Deposit Accounts
  • Surprise overdraft fees: Institutions assessed unfair overdraft fees by authorizing a debit that was made with a positive balance, but later charging an overdraft fee because of intervening transactions that were processed before the debit settled. Account holders could not reasonably avoid these surprise fees, irrespective of account disclosures.
  • Multiple non-sufficient funds (NSF) fees:  Institutions charged customers multiple NSF fees for a single item against an insufficient balance in the consumer’s account, potentially as soon as the next day. These have been considered both unfair and abusive.


  1. Auto Loan Servicing

On February 28, 2022, the CFPB issued compliance guidance to the auto loan servicing industry in response to identified practices that included the illegal seizure of cars, sloppy record keeping, unreliable balance statements, and ransom for personal property contained within repossessed vehicles.

The Supervisory Report indicates that the CFPB examiners found illegal servicing practices, primarily the charging of unlawful fees, including:

  • Out-of-bounds and fake late fees: Servicers charged late fees that exceeded the permissible amounts stated in borrowers’ contracts. Servicers also charged late fees to consumers whose cars had been repossessed and their loans accelerated, which means that no payment was due that could have been subject to a late fee.
  • Inflated estimated repossession fees: Servicers, before returning vehicles to some consumers, charged inflated estimated repossession fees of $1,000. Research showed that the average cost to repossess a vehicle is $350.
  • Pay-to-pay payment fees and kickback payments: After borrowers were locked into servicer relationships, some auto loan servicers charged payment processing fees for the most common payment methods that far exceeded servicers’ costs for processing payments. Payment processors collected the inflated fees, and the servicers then profited through kickbacks from the processors.


  1. Mortgage Loan Servicing

In the Fall 2022 addition of Supervisory highlights,  the CFPB had already identified illegal fees being charged in the mortgage servicing market, and, in November 2022, the CFPB took action against a mortgage servicer for cheating homeowners out of CARES Act rights.

CFPB examiners identified old and new ways that mortgage servicers attempt to run-up unlawful fees that are charged to homeowners. Specifically:

  • Excessive late fee amounts: Mortgage servicers charged the top late fee amount allowed by relevant state laws, even when homeowners’ mortgage contracts capped late fee amounts below state maximums.
  • Fees for unnecessary property inspections: Mortgage servicers charged consumers $10 to $50 fees for every property inspection visit to addresses that were known to be incorrect. Servicers continued to pay inspectors to go to the known incorrect addresses and continued to charge consumers for those visits.
  • Fake Private Mortgage Insurance (PMI) premium charges: Servicers included monthly PMI premiums that homeowners did not owe in their monthly statements.
  • Fees for the removal of Private Mortgage Insurance (PMI): 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.  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.
  • Failure to waive fees for homeowners entering some loss mitigation options: CARES Act mortgage forbearance covered not only a mortgage’s principal and interest but also stopped servicers from charging late fees during the period of forbearance. The Department of Housing and Urban Development (HUD) put further protections in place for homeowners that exited forbearance and went into permanent COVID-19 loss mitigation options, including waiving certain fees or other charges that accrued outside of forbearance periods. However, CFPB examiners found that some servicers failed to adhere to HUD’s additional protections, and charged homeowners late charges, fees, and penalties that should have been waived.


  1. Payday and Title Lending

Also in 2022, the CFPB released a research report on free repayment plans offered in many states for payday loans that often go unused by borrowers. In July 2022, the CFPB filed a lawsuit against ACE Cash Express for concealing free repayment plans from its borrowers who ended up paying hundreds or thousands of dollars in unnecessary re-borrowing fees.

In the Supervisory Highlights, it was shown how other short-term, high-cost payday and title loan lenders have been profiting off unlawful fees.

  • Vehicle repossession and property retrieval fees: Some borrowers were charged repossession fees as well as fees to retrieve personal property found in repossessed vehicles, which sometimes included lifesaving medical equipment. The borrowers’ loan agreements did not allow the lenders to charge these fees.
  • Vehicles being repossessed with fees tacked on despite prior payment arrangements: Lenders that repossessed vehicles despite having entered into payment agreements with borrowers to allow them to avoid repossession. When borrowers went to reclaim their vehicles, they were forced to pay repossession fees as well as forced to refinance their debts – a practice which generally adds new costs to the initial title loan principal.


  1. Student Loan Servicing

In the student loan servicing market, it was found that servicers sometimes charged late fees and interest after payments were made on time. Servicers’ policies did not allow borrowers to pay by credit card; however, sometimes their customer representatives erroneously accepted credit card payments. The servicers then cancelled the payments and did not offer borrowers the chance to pay again. Instead, the servicers acted as if no payment had been made and charged the borrowers late fees and additional interest.

The CFPB has had several program developments issued by way of circulars, bulletins, advisory opinions, and proposed rules regarding fees.  In the last nine months alone, we have seen:

  • A proposed a rule to curb excessive credit card late fees on February 1, 20223.
  • A circular on unanticipated overdraft fee assessment practices on October 26, 2022
  • A bulletin on unfair returned deposited item fee assessment practices on October 26, 2022
  • An advisory opinion on debt collectors’ collection of pay-to-pay fees on June 29, 2022

It would appear that the CFPB is taking an aggressive stance and will not be letting up on their agenda.  Looking at the recent Wells Fargo and Regions Banks’ enforcement actions it clear that expectations are for financial institutions to be proactive in reviewing, updating, and changing the “how we always did it fee practices”.

We here at COMPLIANCE RESOURCE have previously made suggestions and sought to raise awareness of the ever-increasing risk surrounding overdraft fees and the potential for enforcement action danger.  However, based on what the CFPB released, now would be the time to take a hard look at your financial institution’s fee practices in more than just the overdraft area.

Waiting no longer appears to be an option!  Understanding what risk, you have with the fees you charge is more important than ever.

As always, the team here at COMPLIANCE RESOURCE are here to help. We have developed several sessions to help Overdraft programs that serves both your bank and your community. Consider looking at these courses to help you manage your program.

On-Demand training sessions related to fees.

  1. Overdraft Programs and their Risk to Your Financial Institution Webinar Recording
  2. RESPA Section 8 – Unearned Fees and Kickback Violations
  3. Evolving from Fair Lending to Fair Banking Webinar Recording
  4. 10 Overdraft Privilege Hotspots Including Regulations, Lawsuits & Guidance Webinar Recording