CFPB Expands its Growing List of “Junk” Fees to Include NSF Fees on Represented Items (and other fees)
By Raza Ali
Our office periodically sends clients alerts related to emerging issues in areas of potential risk to financial institutions, such as guidance from regulators that may require more immediate attention from such institutions. In such regard, the CFPB released a “special edition” of its Supervisory Highlights earlier today in which the CFPB focused on its recent supervisory work related to “exploitative fees charged by banks and financial companies, commonly referred to as ‘junk fees’.” The Supervisory Highlights focused on financial institutions’ activities related to the imposition of certain fees, and CFPB examiners’ assessment as to whether such financial institutions “had engaged in any UDAAPs” (spoiler alert: the CFPB examiners determined that the institutions that charged fees discussed in the Supervisory Highlights had engaged in UDAAPs and/or unlawful activities).
Some of the fees discussed by the CFPB in its Supervisory Highlights include:
- Charging Multiple NSF Fees on the Same Transaction: The CFPB stated that charging multiple NSF fees on the same transaction when it is presented multiple times for payment violates UDAAP standards because the practice is “unfair”.
- Charging Late Fees on Auto Loans Post-Repossession: The CFPB also focused on auto loan servicing practices, including the imposition of late fees on an auto loan after the vehicle has been repossessed and the servicer accelerates the loan balance. Again, the Bureau found that servicers that continued charging late fees after a vehicle is repossessed and loan balance accelerated engaged in “unfair” acts or practices.
- Charging “Estimated” Repossession Costs: Also in the auto loan servicing context, the CFPB noted that some servicers will charge borrowers a higher “estimated” repossession fee for purposes of borrowers’ redemption and/or reinstatement rights, and such “estimated” repossession fee typically far exceeds the actual cost of repossession. Imposition of such an “estimated” repossession fee was also described as “unfair”, even if the servicer refunded any difference after receiving the actual cost of repossession from its repossession agent.
We recommend that clients assess the fees and practices discussed in the Supervisory Highlights to determine whether any of your institution’s fees or practices may require changes to avoid potential regulatory scrutiny or the unwanted attention of class action attorneys who often based the subject matter of their litigation on fees/practices they characterize as “unfair” or “deceptive”. Unfortunately, we have concerns that the CFPB may have provided the class action attorneys potential ammunition in pursuing new or additional claims against financial institutions.
For purposes of the current alert, we also wanted to devote particular attention to the imposition of multiple NSF fees on the same transaction. As most institutions are likely aware, such NSF fees have been the subject of class action litigation for a number of years; however, the class action attorneys have only targeted institutions that allegedly do not clearly disclose the institution’s practices related to imposing multiple NSF fees on the same transaction. The FDIC also has separately stated in supervisory guidance that imposition of multiple NSF fees on the same transaction is a UDAP violation if not fully or clearly disclosed to consumers. However, the CFPB’s recent Supervisory Highlights breaks new ground because, for the first time, the Bureau characterizes the practice of charging multiple NSF fees on the same transaction as “unfair” “regardless of account opening disclosures.”
Given the CFPB’s characterization of charging such NSF fees as “unfair,” institutions that are subject to CFPB supervisory authority should determine whether they need to update their NSF fees practices and related disclosures, as well as instituting measures “encouraged” by the CFPB such as self-reporting, remediation of harm, and “cooperation above and beyond what is required by law.”
For those institutions that are not subject to the CFPB’s supervisory authority, they should be mindful of their regulators potentially following the CFPB’s lead and also of the risk that class action attorneys may pursue class actions targeting the imposition of multiple NSF fees on the same transaction as an “unfair” practice. Consequently, even those institutions not subject to CFPB supervision should assess their practices, the risk of regulatory action or class action litigation, and their appetite for such risk and making changes to their practices.