CFPB Takes Action to Stop Illegal Junk Fees in Mortgage Servicing

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today published an edition of Supervisory Highlights describing the agency’s actions to combat junk fees charged by mortgage servicers, as well as other illegal practices. CFPB examinations found servicers charging illegal junk fees, such as prohibited property inspection fees; sending deceptive notices to homeowners; and violating loss mitigation rules that help struggling borrowers stay in their homes. In response to the CFPB’s findings, financial institutions refunded junk fees to borrowers and stopped their illegal practices.

The mortgage servicing examination work announced today builds on prior CFPB exam work combatting junk fees in the mortgage servicing and other consumer financial markets. In October of last year, the CFPB announced that its examination work from February to August of 2023 resulted in $140 million refunded to consumers for unlawful junk fees in the areas of bank account deposits, auto loan servicing, and international money transfers. Since that time, the CFPB’s supervision junk fee work has resulted in more than $120 million in additional junk fee refunds in the area of bank account deposits.

“Homeowners cannot just simply switch providers if their mortgage servicer charges them illegal junk fees," said CFPB Director Rohit Chopra. "Since mortgage borrowers are captive to a company they never chose to do business with, we are working hard to detect and deter violations of law.”

Mortgage servicers are the companies responsible for, among other things, processing mortgage payments and managing mortgage accounts. They play a critical role in assisting homeowners with repayment, including by helping mortgage borrowers access repayment options when they face financial difficulties. A mortgage servicer is chosen by the lender or investor that owns the mortgage, and not by the homeowner. Residential mortgage servicers currently handle more than $13 trillion in mortgage balances.

Over the last few years, the CFPB has prioritized combatting illegal junk fees in a wide range of consumer financial markets. Most recently, the CFPB announced a final rule that, when it goes into effect, would reduce credit card late fees by more than $10 billion every year. The CFPB has also proposed a rule that would save consumers more than $3.5 billion in overdraft fees every year, and has addressed junk fees charged on international money transfers. Overdraft and non-sufficient funds fees have declined by more than $6.1 billion since the CFPB began scrutinizing junk fees.

The CFPB has also announced that it is working to address other anticompetitive mortgage fees, including those charged in connection with closing costs.

Some key findings from today’s edition of Supervisory Highlights include mortgage servicers:

• Illegally charging and obscuring fees: Mortgage servicers charged homeowners prohibited and unauthorized fees. These included prohibited fees for property inspections and late fees that exceeded amounts allowed by their mortgage loan agreements. Mortgage servicers also failed to explain the reasons for fees by not describing them adequately on statements.
• Keeping homeowners on the hook for fees during COVID-19: During COVID-19, many servicers used a streamlined process to determine repayment options for struggling homeowners. Some servicers failed to waive late fees and penalties, as required.
• Missing deadlines to pay property tax and home insurance: Mortgage servicers that accepted or required money from borrowers to pay taxes and insurance failed to make those payments in a timely manner, which caused some borrowers to incur penalties. Servicers only took responsibility for those penalties for missed on-time payments if homeowners submitted complaints.
• Deceiving homeowners and failing to properly evaluate them for repayment options: Some servicers sent notices to homeowners in financial distress that stated they had been approved for a repayment option. In fact, no final decisions had been made, and some of the homeowners were ultimately rejected. Examiners also found servicers sent some homeowners false notices saying that they had missed payments and should apply for repayment options. Servicers also improperly denied requests for help and failed to evaluate struggling borrowers for repayment options as required under the CFPB’s mortgage servicing rules.

In response to the CFPB’s findings, mortgage servicers are taking corrective actions, including changes to their policies and procedures. For the fee-related findings, servicers are remediating homeowners, including providing refunds.

The CFPB has been looking at ways to streamline mortgage servicing rules, while making sure mortgage servicers fulfill their obligations to treat homeowners fairly. Findings from this edition of Supervisory Highlights will help inform any proposed changes.

Read this edition of Supervisory Highlights.

Read consumer complaints about mortgage servicers.

Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).

Employees who they believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to whistleblower@cfpb.gov.