Read the Actual Report: CFPB Supervisory Highlights Report Suggests That “Illegal Junk Fees” Are Not a Widespread Problem in Mortgage Servicing

On April 24, the CFPB  issued a press release entitled “CFPB Takes Action to Stop Illegal Junk Fees in Mortgage Servicing,” which touts its latest Supervisory Highlights report on mortgage servicing.  

According to the release, this edition of Supervisory Highlights describes “the agency’s actions to combat junk fees charged by mortgage servicers, as well as other illegal practices” and “builds on prior CFPB exam work combatting junk fees in the mortgage servicing and other consumer financial markets.”  

Notwithstanding the press release’s focus on “junk fees,” however, the report itself discusses an assortment of different mortgage servicing violations, some but not all of which involve fees and which may have been committed by only a single servicer.  Nothing in the Supervisory Highlights report suggests that existing law is insufficient to protect consumers, nor does the report provide a basis for concluding that violations of existing law are widespread.

What the Report Actually Covers

The Supervisory Highlights publication contains findings from select mortgage servicing examinations completed between April 1, 2023 through December 31, 2023.  The report states that examiners found the following violations by mortgage servicers: 

• Inspection Practices:  Charging for inspections that were not permitted by Fannie Mae guidelines (e.g., when the borrower occupied the property and had made a payment within the last 30 days or when the borrower was operating under a loss mitigation option), which the CFPB found was an unfair practice.
• Late Fee Practices:  Charging late fees higher than what the loan agreement allowed or assessing late fees on consumers in loss mitigation plans that prevented such fees, which the CFPB found was an unfair practice.
• Failing to Waive Fees:  Offering streamlined COVID-19 loan modifications but failing to waive existing fees after borrowers accepted the modifications, in violation of Regulation X.
• Not Adequately Describing Fees:  Not providing a “brief description” of fees and charges on the periodic statement, in violation of Regulation Z.
• Late Escrow Payments:  Payments made out of escrow never reached the payee, and payments were not re-sent until months later, in alleged violation of Regulation X.
• Inaccurate Loss Mitigation Eligibility Notices:  Informing consumers that they had been approved for a streamlined loss mitigation option prior to actually determining the consumer’s eligibility, and then ultimately denying the consumer for the loss mitigation option.
• Inaccurate Delinquency Notices:  Informing consumers they had missed payments and should fill out loss mitigation applications when consumers were current on their payments, in a trial modification plan or had an inactive loan.
• Improper Handling of Loss Mitigation Plans:  Sending notices to borrowers acknowledging their loss mitigation application but not indicating whether the applications were complete, and/or not providing timely notices about loss mitigation options or the deadline to accept such options.  In some cases, servicers were automatically denying certain options, contrary to investor guidelines.  The CFPB found that this conduct violated Regulation X.
• Insufficient Efforts to Contact Borrowers:  Failing to make good faith efforts to establish contact with delinquent borrowers or to provide them with written early intervention notices within 45 days of delinquency, both in violation of Regulation X.
• Document Retention Issues:  Failing to maintain records regarding actions taken on a mortgage account for at least one year after discharge – or the loan was transferred to another servicer, in violation of Regulation X.

What Does This Have to do With Junk Fees?

Aside from the language of the press release, not a lot.  The report contains a variety of mortgage servicing-related findings, only some of which relate to servicing-related fees.  In fact, only two of the 10 findings in the Supervisory Highlights relate at all to servicers charging fees.  Notably, neither finding suggests the fees at issue (inspection fees and late fees) are illegal; instead, the CFPB criticized certain contexts in which they were impermissible.

What Does This Mean?

The CFPB’s decision to highlight “illegal junk fees” in a report containing numerous servicing-related findings suggests that the Bureau continues to consider “junk fees” as a top policy priority and will continue to closely scrutinize any fee charged to consumers.  It also further reflects an ongoing coordinated federal effort on the subject, including recent FTC rulemakings, additional CFPB action and White House statements.

Additionally, as is the case with all Supervisory Highlights, the report does not describe how widespread the criticized practices are.  There is no way to tell, for example, how many servicers were found to have charged impermissible late fees (or how many servicers were not found to have charged impermissible late fees).  

Nevertheless, mortgage servicers should review the findings to better understand the types of issues the CFPB is focused on as to ensure their policies and procedures regarding compliance with default servicing rules, including Regulation X, Regulation Z, and investor guidelines (such as Fannie Mae).  Institutions also should continue to be mindful of the Bureau’s efforts to scrutinize and prevent charging fees it believes are impermissible under the law (including general UDAAP theories).

To learn more about the CFPB's report and what it could mean for your business, please reach out to John Coleman, Jay Williams or Norma Ramirez-Marin.