The CFPB marketed its latest set of supervisory highlights as the “Junk Fees Special Edition.” The splashy headline is consistent with the agency’s recent focus on fees that it asserts are hidden from the competitive process. In speeches, press releases, and blog posts (and now a single proposed rule), the CFPB has stressed its growing concern with “junk” fees. The CFPB even created a section of its web site solely devoted to press releases on “junk” fees.

Gleaning compliance guidance from Supervisory Highlights is not always straightforward, as they do not provide full details. However, in this Special Edition, the CFPB notes that it has characterized the following types of fees and practices as junk:

Deposit Accounts

  • Overdraft Fees – specifically, those charged when the consumer had a sufficient balance when the financial institution authorized the transaction, but not at the time of settlement.
  • Multiple Non-Sufficient Funds Fees for the Same Transaction.

Auto/Title Financing

  • Late Fees that Exceed the Credit Contract or After Acceleration/Repossession.
  • Estimated Repossession Fees that Greatly Exceed Average Costs – even if the excess was refunded.
  • Payment Processing Fees – specifically, those that exceed processing costs, when free payment options are only available for checks or ACH transfers.
  • Fees to Retrieve Personal Property from Repossessed Vehicles – the CFPB said such fees were “unexpected” and unfair.
  • Premature Repossession and Related Fees – charging late fees and repossessing vehicles before title loan payments became due.

Mortgage Loan Servicing

  • Late Fees that Exceed the Maximum Fee Allowed by the Loan Agreement – which the CFPB asserts is also a violation of Regulation Z when those excessive fees appear on a periodic statement.
  • Property Inspection Fees for Visits to Known Incorrect Addresses.
  • Wrongly Charged Mortgage Insurance Premiums – when policy was lender-paid, or should have been terminated.
  • Unwaived Fees After CARES Act Forbearance on FHA Loans – when HUD requires such waiver.
  • Charging Late Fees After $0 Fee Disclosed on Periodic Statement – related to mortgages emerging from forbearance.

Payday / Small Dollar Loans

  • Splitting and Re-Presenting Payments Without Authorization – which may cause borrowers to incur fees or other repercussions.

Student Loan Servicing

  • Retroactively Rejecting Credit Card Payments – after initially accepting the payments in violation of the servicers’ internal policies, causing borrowers to incur overdraft fees or other repercussions.

Loan servicing has never been a simple task. The Herculean efforts of mortgage servicers to manage the COVID crisis may soon be matched by new challenges created by the emergence from the pandemic (President Biden has promised to end the national emergency in May, which may lead to a slew of new loan servicing compliance and procedural obligations). The lessons from this Supervisory Highlights Special Edition, for servicers of all types of consumer financial accounts, include ensuring that their servicing systems do not allow for fees that exceed the provisions of their consumer agreements and to avoid unlawfully charging fees to borrowers who take advantage of federal loan relief initiatives. Servicers may also want to examine the types and amounts of servicing and default fees to understand the circumstances in which they are incurred, as the CFPB has alleged that a variety of other common fee practices are unfair.

For its part, the CFPB encourages servicers to self-assess their compliance with federal consumer financial law, self-report “likely” violations to the CFPB, remediate the harm resulting from these likely violations, and cooperate “above and beyond what is required by law.”

In early February 2023, as part of its broader mission to support and sustain the financing of affordable single family and multifamily housing for all Americans, Ginnie Mae further refined its focus on social responsibility in the mortgage-backed security (MBS) market by launching an enhanced Low-to-Moderate Income (LMI) disclosure as part of its Ginnie Mae MBS program.  

Read more at this Legal Update.

Can online lead generation be done compliantly under Section 8 of the Real Estate Settlement Procedures Act? The answer is yes, but it is important to navigate the impermissible activities recently identified by the Consumer Financial Protection Bureau. On February 7, 2023, the CFPB issued long-awaited guidance in an advisory opinion addressing how it interprets RESPA and its implementing regulation, Regulation X, in the context of digital marketing and lead generation platforms for real estate settlement services. These comparison platforms allow consumers to search for and compare options for settlement services. If consumers input contact information as part of their search, the platform operator may share or sell this information to settlement service providers. This guidance, the first issued by the CFPB on online lead generation, highlights several key compliance considerations for participants engaging in digital marketing of settlement services.

Read more at Mayer Brown’s Legal Update.

Although the transition from LIBOR interest rates has been planned for quite some time now, Fannie Mae and Freddie Mac recently provided additional details of the necessary changes to outstanding adjustable rate mortgage loans that currently are linked to LIBOR indices.  As expected, these changes largely mirror the changes mandated in the recently enacted LIBOR Act, described below, as well as current practice for new Fannie Mae and Freddie Mac loans. Consequently, loan servicers can now solidify plans for adjustments to the rate calculations this summer, but should take care to do so accurately.

Continue Reading Fannie and Freddie Confirm Choice of SOFR as Replacement for LIBOR in Existing Mortgage Loans

Small business financers and brokers active in New York must comply with New York’s Commercial Finance Disclosure Law (“CFDL”) by August 1, 2023, according to the new effective date the New York Department of Financial Services provided in final administrative rules on February 1.

In addition to the new effective date, the final rules include important changes regarding the New York nexus that triggers the CFDL, exemptions for depository institution subsidiaries, and the content of required disclosures, among others.

Read more in Mayer Brown’s Legal Update.

Today, in another legal blow to the CFPB, a federal court in Illinois dismissed the Bureau’s redlining lawsuit against Townstone Financial (“Townstone”) and its owner.

The Bureau made waves back in 2020 when it filed the lawsuit, which was the first public redlining action brought by the Bureau against a non-bank mortgage lender. While the case has been working its way through the judicial process, the CFPB, DOJ, OCC, and state attorneys general have racked up a number of large dollar redlining settlements with both bank and non-bank mortgage lenders using the same theory of liability.

In the lawsuit, the Bureau alleged that Townstone “redlined” majority-Black areas in Chicago and illegally “discouraged” prospective applicants in violation of ECOA. In its motion to dismiss, Townstone argued that, although ECOA prohibits discrimination against applicants, its scope does not extend to prospective applicants. In granting Townstone’s motion to dismiss, the court applied the Chevron standard and held that “[t]he plain text of the ECOA thus clearly and unambiguously prohibits discrimination against applicants, which the ECOA clearly and unambiguously defines as a person who applies to a creditor for credit. . . . The Court therefore finds that Congress has directly and unambiguously spoken on the issue at hand and only prohibits discrimination against applicants.” The court went on to state that, because ECOA is unambiguous, it affords no deference to the language in Regulation B that would purport to prohibit discrimination against prospective applicants.

The court’s decision has wide-reaching ramifications for future fair lending examinations, enforcement actions and lawsuits, including the DOJ’s recently announced “Combatting Redlining Initiative.”

Stay tuned for a more detailed analysis of the decision and its ramifications for the mortgage industry.

High rates and a steep reduction in mortgage refinance applications have created stiff competition for the origination of purchase-money mortgages. Settlement service providers often seek creative strategic alliances to help secure more business. Companies can refer to recent informal guidance from the Consumer Financial Protection Bureau relating to marketing services agreements and other promotional opportunities.

Read more about the CFPB’s October 2020 guidance and other practical tips to assist in structuring new or existing marketing relationships in Mayer Brown’s Legal Updates.

Much has been written about Rohit Chopra’s tenure as Director of the Consumer Financial Protection Bureau (CFPB or Bureau). While many expected an aggressive enforcement posture, in part because of an aggressive hiring spree in enforcement, his tenure has been marked more by an aggressive use of guidance and exhortation. Recently released statistics bear this out. In response to a FOIA request, the CFPB released data about the number of enforcement investigations opened in Fiscal Year 2022, which is roughly equivalent to Chopra’s first full year as Director. (New enforcement investigations are non-public unless and until they blossom into enforcement actions, typically a year or more after they are opened. The data discussed here relate to the number of investigations opened, not the number of actions brought.) That data demonstrates that the Bureau opened only 25 new enforcement investigations in the last fiscal year—fewer than in any year since FY2019, when Mick Mulvaney and Kathleen Kraninger served as Directors. Below is a table showing the number of enforcement investigations opened in each Fiscal Year, according to data released by the CFPB.

Fiscal YearEnforcement Investigations OpenedDirector(s)

Other data released by the CFPB shows a mild drop in the number and percent of supervisory matters referred to enforcement during the same time period. In FY2022, the CFPB referred 45 supervisory matters to its Action Review Committee (ARC) for consideration as to whether the matter should be referred to enforcement. Nine of those 45 matters—or 20%—were referred at least in part to enforcement. That is slightly lower than the agency’s historical average of referring about 29% of ARC matters at least in part to enforcement.  

It will be interesting to see if these trends continue or if the agency ramps up its enforcement activity in the coming years. We will continue to monitor and report on these issues.

State-chartered banks lending to Iowa residents will want to take note of an Assurance of Discontinuance entered into in December between the State of Iowa and an out-of-state bank to settle claims that the bank charged usurious rates of interest to Iowa consumers. The settlement also highlights the Iowa Attorney General’s interpretation of the state’s opt-out from the federal Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) — with the potential to impact loan eligibility parameters and enforcement risk for state-chartered banks and programs doing business in Iowa.

Mayer Brown’s Legal Update provides further detail.

New York Governor Kathy Hochul signed the Foreclosure Abuse Prevention Act on December 30, 2022. The new law, which takes effect immediately, threatens to significantly constrain the ability of lenders, servicers, and investors to foreclose and may jeopardize their recovery, including with regard to pending foreclosure actions.

Read more in Mayer Brown’s Legal Update.