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AG Nessel Takes Action to Eliminate Overdraft Fees, Convenience Fees from Mortgage Servicers
April 15, 2022
LANSING - Michigan Attorney General Dana Nessel joined two multistate actions this month aimed at eliminating unnecessary fees that negatively affect consumers.
"We know the costs of goods and services are at an all-time high," Nessel said. "That's why it's more important than ever to fight against companies that charge fees that ultimately do more to hurt the customer than offset their own operating costs."
The actions are summarized below.
MULTISTATE COALITION CALLS ON CONSUMER BANKS TO ELIMINATE OVERDRAFT FEES
Nessel joined a multistate coalition of attorneys general have called on the CEOs of JPMorgan Chase, Bank of America, U.S. Bank, and Wells Fargo to eliminate all overdraft fees on consumer bank accounts.
In a letter to the financial institutions, Nessel urged each bank to eliminate overdraft fees by this summer to create a fairer and more inclusive consumer financial system. Overdraft fees have disproportionately affected vulnerable families and communities of color by straddling them deeper into debt.
"Charging overdraft fees that can sometimes be more than five times the amount of the original purchase is abhorrent," Nessel said. "By eliminating these fees altogether, banks will show that they care as much for their customers' financial well-being as they do their own."
Overdraft fees have had harmful effects on millions of consumers nationwide. In some instances, consumers can be charged $35 for a purchase of $5 or less. Studies have shown that the vast majority of such fees fall on low-income consumers, who earn less than $50,000 a year, and communities of color. The consequences are devastating to consumers' financial health and, in the worst-case scenarios, result in individuals not using banking services.
Despite this well-known fallout from overdraft practices, these fees remain big business for big banks, according to a recent study published by the Consumer Financial Protection Bureau (CFPB). JPMorgan Chase, Bank of America, U.S. Bank, and Wells Fargo are among the top five U.S. banks in total assets. According to the CFPB, three of these institutions alone brought in 44 percent of total overdraft and overdraft-like fees in 2019 among major banks. Elimination of overdraft fees by these four institutions alone would drastically improve the financial health of millions of Michiganders and consumers across the country.
MULTISTATE COALITION CALLS ON CFPB TO PROHIBIT MORTGAGE SERVICERS FROM CHARGING CONVENIENCE FEES
Nessel joined a coalition of 22 attorneys general urging the CFPB to prohibit mortgage servicers from charging convenience fees. According to the coalition, convenience fees charged by mortgage servicers are one of the more exploitative "pay to pay" fees consumers face.
In their letter, the attorneys general highlighted convenience fees in response to the CFPB's request for information about various fees imposed upon consumers in the financial marketplace. The coalition urges the CFPB to evaluate convenience fees in the mortgage industry and argue they are particularly unfair and abusive, as unlike most marketplaces, homeowners have no choice in their mortgage servicers.
"Convenience fees are exploitative and ultimately allow mortgage servicers to be paid twice. It is unfair that consumers face additional charges depending on how they decide to pay their bills," Nessel said.
In their comments, the attorneys general point out that when taking out a mortgage, many consumers believe they are entering into a long-term relationship with a specific financial institution. However, after origination, many mortgage loans and their servicing rights are sold in the secondary markets and may be sold many times over the course of the loan. As a result, consumers do not know which company will service their mortgage loan and have no ability to change servicers. The letter says the CFPB's further evaluation of discretionary fees charged by servicers is warranted due to the duration of mortgage loans coupled with consumers' lack of servicer choice and the fact that some servicers have attempted to impose convenience fees even when they are not authorized by the original loan documents.
The coalition also raises concerns that the convenience fees charged exceed their actual cost to accept payments online or over the phone. In their comment letter, the coalition cites an industry study, which found that processing a check costs debt collectors between $1 and $4, while processing payments made online or over the phone typically costs debt collectors approximately $.50 per transaction. When a mortgage servicer's most basic function is to accept payments, the attorneys general argue that a servicer being able to impose an additional fee for performing its core function is fundamentally flawed. Mortgage servicers have already been compensated for the costs of accepting payments when they either enter into the original loan or choose to acquire servicing rights for the loan. By charging convenience fees, mortgage servicers are essentially being compensated twice when accepting a payment.
Alternatively, the attorneys general encourage the CFPB to prohibit servicers from charging convenience fees that exceed the actual cost of processing a borrower's payment. The coalition further asks that the CFPB require servicers to fully document their costs supporting the imposition of convenience fees.