CFPB Unearths Junk Fees in Mortgages and Auto Loans

America’s consumer protection watchdog says an examination has uncovered illegal fees in several industries.

The Consumer Financial Protection Bureau (CFPB) announced Wednesday (March 8) that its recent Supervisory Highlights report found “unlawful junk fees” in auto loan, student loan and mortgage servicing, payday lending and bank account deposits.

The announcement comes as the CFPB and the Biden administration are pushing for a larger crackdown on illegal and/or unnecessary fees paid by consumers.

“For years, junk fees have been creeping across the economy,” CFPB Director Rohit Chopra said in a news release. “Our report describes a host of illegal junk fee practices that the CFPB has uncovered across the financial services sector.”

According to the CFPB, the examination found junk fees that range from surprise overdraft fees at banks to “out of bounds and fake” late fees by auto loan servicers.

Last week, the bureau warned that the financial products used to deliver Social Security and unemployment payments often include high surcharges that cut into people’s benefits.

A report from the CFPB outlined a number of problems with the system including the fact that some prepaid cards can charge several fees — for example, maintenance, balance inquiry, customer service or ATM fees – that “can quickly erode the amount of available funds.”

The agency cites figures from the Federal Reserve that show 2020 administrators of prepaid cards collected $1.3 billion in transaction fees in 2020 on $409 billion in public benefits.

The CFPB also insists that fees can mean uneven access to benefits in different states, as Temporary Assistance for Needy Families and Unemployment are administered at the state or county level, leading to a variety of program structure and a variety of fees.

The CFPB’s latest announcement came as the Biden administration met with state legislators to drum up support for its anti-junk fee campaign on the state level.

As part of the effort, the administration has published a guide for states with suggestions on how to do away with these fees, either with legislation, the enforcement of laws already on the books, or setting limits on fees in the contracts states sign with vendors.

“While President Biden and federal agencies are doing what they can to crack down on junk fees, states too can play a critical role,” the guide stated.