Back in the day, the old Chase Manhattan Bank had a slogan: “You've got a friend at Chase Manhattan.” Someone, likely a competitor, is said to have retorted, “If you want a friend, get a dog.”
You may want to consider that advice following a Consumer Financial Protection Bureau (CFPB) report on unlawful bank junk fees.
In a special edition of its Supervisory Highlights , the CFPB points to unlawful junk fees in a variety of products that it says “corrode family finances, force up families’ banking and borrowing costs, and are not easily avoided – even by financially savy consumers.”
“For years, junk fees have been creeping across the economy,” said CFPB Director Rohit Chopra. “Our report describes a host of illegal junk fee practices that the CFPB has uncovered across the financial services sector.”
Mark Hamrick, Washington bureau chief and senior economic analyst for Bankrate.com, told ConsumerAffairs there seems to be plenty of blame to go around.
"In some cases, these are cases where fees have been slipping through the cracks and into the marketplace because of a failure of sufficient legislation or oversight." In addition, he says, "Many businesses have come to rely on the fact that consumers don't always know what they're getting into."
The report, based on examinations between July 1, 2022, and February 1, 2023, covers five major areas:
Deposit Accounts
Examiners found some financial institutions charged surprise overdraft fees, which authorized a debit that was made with a positive balance, but later charged an overdraft fee because of intervening transactions that were processed before the debit was settled. Banks also charged multiple non-sufficient funds (NSF) fees for a single item against an insufficient balance in the consumer’s account, potentially as soon as the next day.
Auto Loan Servicing
CFPB examiners found illegal servicing practices, particularly around the charging of unlawful fees, including hitting car owners with late fees that exceeded the permissible amounts stated in borrowers’ contracts.
Servicers also inflated estimated repossession fees. Before returning vehicles to some consumers, some charged inflated estimated repossession fees of $1,000. The average cost to repossess a vehicle is $350.
Mortgage Loan Servicing
The CFPB identified old and new ways that mortgage servicers attempt to run up unlawful fees that are charged to homeowners.
Included are charging the top late fee amount allowed by relevant state laws, even when homeowners’ mortgage contracts capped late fee amounts below state maximums and fees for unnecessary property inspections.
Payday and Title Lending
Examiners found that payday and title lenders charged repossession fees as well as fees to retrieve personal property found in repossessed vehicles, which sometimes included lifesaving medical equipment. The loan agreements did not allow the lenders to charge these fees.
Student Loan Servicing
Some servicers were found to have charged late fees and interest after payments were made on time and, while servicers' policies did not allow borrowers to pay by credit card, customer representatives erroneously accepted credit card payments and then canceled the payments, acting as if no payment had been made, and charging borrowers late fees and additional interest.
Ed Mierzwinski, senior director of the Federal Consumer Program at the Public Interest Research Group, a consumer advocacy organization, says reports like this can actually benefit those institutions that engage in responsible conduct.
This, he points out, "could result in resolving violations non-publicly through the supervisory process. Overall, the reports are a win-win for both consumers and firms that act responsibly."
The complete report may be found at https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights-junk-fees-special-edition_2023-03.pdf.