Junk Fees That Harm Competition

The Consumer Financial Protection Bureau is working to combat junk fees that hamper fair, transparent, and competitive markets and to ensure that companies don’t use fine print to escape accountability when they break the law. The CFPB has addressed illegal junk fees in a variety of consumer financial markets, including bank accounts, credit cards, and international money transfers, and took further action this week to address fees associated with taking out and paying a mortgage. Rising mortgage fees affect the affordability of home ownership as well as household balance sheets. These fees are particularly problematic where they serve as barriers to competition in the marketplace, such as when fees serve as an obstacle for consumers to shop around for a better interest rate. And the CFPB is also working to ensure that consumers have the freedom to hold companies responsible when they break the law.

The CFPB is the primary enforcer of the Fair Debt Collection Practices Act (FDCPA). As the CFPB has advised, the FDCPA prohibits debt collectors – including mortgage servicers acting as debt collectors – from charging borrowers fees unless there is a law affirmatively allowing them or the amount is expressly authorized by the agreement creating the debt. For instance, a CFPB amicus brief explained that debt collectors can’t charge “pay to pay” fees for people to pay their mortgage online or by phone if the borrowers didn’t expressly agree to those fees in their mortgage agreements and there isn’t any law affirmatively allowing them. CFPB examiners have also found that mortgage servicers violated the federal prohibition on unfair, deceptive, or abusive acts or practices by deceiving consumers about “pay to pay” fees.

And the legal protections from unlawful charges extend beyond “pay to pay” fees. For example, in an ongoing case, consumers claim that a mortgage servicer called Nationstar improperly charged consumers a fee to tell them how much they would have to pay to fully pay off their mortgage. The original mortgage contract doesn’t mention such a fee. But Nationstar claims that federal law says it can charge them.

Nationstar’s argument is wrong. The CFPB filed an amicus brief with the court arguing that the law on which Nationstar relies does not actually apply to the consumer’s loan. Since the consumer’s mortgage agreement also did not mention such a fee, Nationstar can’t charge them.

Nationstar also claims that these consumers can’t sue the company about this fee because the fine print of their mortgage contracts says they are required to first notify the company when it’s violating the agreement, instead of suing right away. The CFPB’s brief explains why that’s wrong, too. While these contract terms may sound innocent, they allow companies to silence or buy-off anyone who complains and sidestep broader accountability or the need to fix problems company-wide. Allowing companies to make consumers give up fundamental protections in this manner would interfere with the law, which is supposed to let consumers hold debt collectors accountable for their actions and protect consumers from unauthorized charges.

The CFPB’s brief builds on a variety of actions the CFPB has taken to ensure freedom and fairness in people’s interactions with financial institutions. To give just a few examples, this year, the CFPB warned that companies using illegal or unenforceable terms and conditions in contracts risk breaking the law. The CFPB also filed an amicus brief to help ensure that servicemembers can file lawsuits to enforce the Servicemembers Civil Relief Act. Last year, the CFPB proposed a rule to require certain supervised nonbank companies to register with the CFPB about their use of contractual terms that claim to waive or limit consumer rights. And the CFPB brought an enforcement action against Chime (Sendwave) for illegally forcing consumers to waive their legal rights.

In short, the CFPB is committed to ensuring that companies don’t use fine print to limit consumer freedom.

The case is Salom v. Nationstar, No. 2:24-cv-00444-BJR (W.D. Wa.).

Read CFPB’s amicus brief.