One Person’s Junk Fee is Another’s Treasure | Alston and bird

The Consumer Financial Protection Bureau has asked for feedback on how best to crack down on what it calls “unwanted charges.” Our Financial Services and Products group examines how mortgage services are distinguished and why mortgage servicers should be aware that their fees will be closely monitored.

  • Republican attorneys general urge greater federal-state cooperation
  • Democratic attorneys general want to add convenience fees to list
  • Takeaway: Now is the time for service agents to review their fee structures

On January 26, 2022, Rohit Chopra, the director of the Consumer Financial Protection Bureau (CFPB), published a Information request (RFI) seeking public comment on the fees which “are not subject to competitive processes ensuring fair pricing”. The director said when consumers don’t select their provider, as in loan servicing, “it can lead to stagnation, unwanted fees and poor treatment.” Chopra also said the CFPB would launch other initiatives to identify ways to lower barriers to entry and increase the pool of companies competing for customers based on quality, price and service. .

By the close of the comment period on April 11, the CFPB had received thousands of responses. While the broad RFI extends to providers of consumer financial products and services, the mortgage service is isolated and should alert mortgage servicers that their fees will be closely watched. In fact, Chopra indicated in a blog post that the CFPB will use this information to review existing rules and to develop new ones “to stimulate competition and transparency” and to identify “illegal practices through…supervision and enforcement”.

The CFPB has sought comment on what the CFPB pejoratively calls “junk fees” and “operating, back-end and excessive fees”. Examples of such mortgage servicing fees cited by the CFPB include late fees, insufficient funds (NSF) fees, payment processing convenience fees, and delinquency-related fees such as monthly fees. property inspection, new title fees, legal fees, appraisal and appraisal fees. , broker price opinion fees, forced insurance, foreclosure fees and corporate advances. Comments received by the CFPB include those from Attorneys General (AGs) in Republican– and Democratic– leaning jurisdictions.

Republican AGs: How about federal-state cooperation?

To date, GAs in Alabama, Arizona, Arkansas, Georgia, Idaho, Indiana, Kentucky, Louisiana, Mississippi, Montana, ‘Ohio, Oklahoma, South Carolina, South Dakota, Utah, Texas and West Virginia have all demanded that the CFPB drop its plan to regulate fees and, instead , to coordinate and cooperate with states to determine where federal action is “duplicated or unwarranted.” Republican AGs argue that the CFPB is trying to establish itself as the primary regulator in the consumer financial products pay-for-services space and, therefore, infringing on states’ right to regulate business practices within their borders. . These AGs argue that the CFPB’s RFI on “Undesirable Charges – Abusive, Indirect, Hidden or Excessive” suggests that the CFPB is “predisposed to create a subjective standard for identifying problematic charges”.

And these AG Republicans argue that the CFPB fails to recognize that state laws already regulate many such fees in consumer financial products and that federal regulation would be duplicative. According to AG Republicans, states are better able to assess the needs of their citizens as well as the impact of royalties on state markets. They point to the fact that states specifically allow many types of fees, such as late fees, NSF fees, filing fees, administrative fees, amendment and deferral fees, and title fees. They also note that states are prepared to enforce their laws if a consumer financial services provider fails to comply with or take action under the state’s Unfair or Deceptive Acts or Practices (UDAP) provisions when a consumer is misled. AG Republicans also expressed concern that the CFPB would seek to use its UDAAP authority to regulate fees and questioned the use of that authority for fees that are “disclosed pursuant to state law.” or federal, in some cases permitted by state law, and agreed to by a consumer in writing.

This is a dominance concern – Republican AGs are concerned that the CFPB sees itself as the primary regulator and intends to limit states’ power to regulate fees. Of course, the CFPB’s retort may simply be that it fixes the ground and states are free to go further. The real question is where the CFPB draws the line – and if that line goes further than some states have, will that raise preemption concerns.

Democrat AGs: Go get them, Director Chopra!

The AG Democrats praise the CFPB’s RFI and call for comment and limit their comments to one issue: convenience fees charged by mortgage services. California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania GAs , Rhode Island and Washington, along with the Hawaii Consumer Protection Bureau, consider convenience fees (along with overdrafts and NSFs) to be “harmful unwanted fees” and urge the CFPB to prohibit mortgage managers to impose convenience fees or, failing that, to restrict mortgage loan services from charging convenience fees that exceed the documented actual cost of the service.

It’s ironic: Not too long ago, many of these same blue states allowed convenience fees with restrictions in a multi-state settlement agreement with a large loan servicer.

Now the AG Democrats are arguing that because lenders are supposed to make their profit for mortgage servicing through the interest rate and other fees upfront, managers have already been compensated for the costs of accepting mortgages. payments (a core function of managers) and therefore are compensated twice for accepting payments. The CFPB should recognize that this argument reflects a fundamental misapplication of basic service business practices.

Indeed, the CFPB has recognized the remuneration structures for the maintenance activity in its Mortgage Administration Rules 2013. Although structures can vary between portfolio loans and securitized loans, as well as other factors, loan owners generally negotiate prices with the manager, usually a monthly management fee. Repairers also receive ancillary fees, late fees and, as the CFPB acknowledged in 2013, “telephone payment processing fees”. It should be noted that the CFPB did not prohibit convenience fees in its 2013 Mortgage Servicing Rules. The CFPB also declined to address convenience fees in its recently enacted Bylaw F, although this issue has been raised during the CFPB’s Small Business Regulatory Enforcement Fairness Act review process.

Mortgage managers will argue that borrowers enter into a contract, in the form of a promissory note, and agree to repay the borrowed money in monthly installments. The borrower also agrees to pay late fees if their payments are not received by the end of the grace period, usually 15 days after the contractual due date. Typical mortgage agreements don’t require managers to offer expedited payment options, such as online and phone payments, for borrowers waiting until the last day to make their payment.

Nevertheless, many mortgage servicers choose to make these payment options available to borrowers, even if these accelerated options come at a cost to the servicer. For example, expedited options often require the use of third-party payment processing providers such as Western Union, and among other costs, the mortgage servicer typically must hire and train customer service agents to receive payments over the phone and hire computer programmers to build and maintain the systems necessary to accept payments online or through interactive voice response telephone technology. It should also be noted that managers do not assess convenience fees without the knowledge and consent of borrowers. Rather, the fact and amount of the convenience fee is disclosed to borrowers at that time, before borrowers choose to continue with that payment method.

The GA Democrats argue that “like refinancing, this so-called choice is actually delusional for many borrowers,” noting that “convenience fees actually work like alternative late fees — maybe cheaper, but with a delay.” shorter grace period, and in breach of contract the terms of most mortgages which outline the exact amount and timing of late fees, so rationally the consumer chooses the cheapest option and accepts the convenience fee But the simple fact of choosing the least bad option does not mean that the consumer really has a choice Does the borrower have no choice to make his payment on time, or at least in the contractually agreed grace period?Borrowers who choose a modest, fully disclosed convenience fee leave themselves much better off financially than incurring considerably more expensive late fees (not to mention avoiding ra negative credit reports, which can negatively impact the consumer even more broadly).

Penalizing mortgage servicers by eliminating their ability to charge clearly disclosed and agreed fees for services – those they are not required to provide – will, at a minimum, reduce their incentive to offer such options, limit the choice of consumers and discourage future service innovation. for the benefit of borrowers.

Take away food

In 2013, the CFPB recognized that repairers are not really subject to market discipline from consumers, as consumers have little opportunity to change repairers. The CFPB acknowledged, however, that “service agents compete for contracts with loan owners (investors, assignees and creditors) and therefore competitive pressures tend to cause service agents to lower the price. prices of services and to adjust their investments in the provision of services to consumers accordingly”. .” Chopra seems to challenge this premise. While service portability is something to consider in the future, now is the time for services to take a close look at the fees charged to consumers to ensure these fees are legally permitted and properly disclosed.

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