CFPB announced a crackdown on junk fees in servicing last April, but if you don’t charge junk fees, why should you care?
Before I answer, I should define “junk fees,” and the problem is that there is no technical definition. It is essentially a political term to characterize any fee under scrutiny. Intuitively, we all understand the concept: junk fees are unreasonable and unnecessary. But, as the logic of UDAAP takes over, what’s unfair, and what’s deceptive or abusive? The speed and quality of service weren’t UDAAP issues a few years ago, but they are now. The scope of UDAAP is expanding. The Minnesota attorney general cited solar companies’ fee structures as “deceptive.” Could something like that be applied to mortgage servicing?
For now, at a minimum, there are some obvious risk areas:
- late fees in excess of loan agreements,
- mortgage insurance premiums past the prescribed termination date,
- fees in excess of what was on periodic statements,
- property inspections that should not have occurred,
- late fees after the beginning of certain loss mit options.
And, for each company, an extra risk area is any issue that you’ve found in the past. Repeat issues are a particular focus. One obvious strategy is to build in checks for mistakes that have been found in the past.
MESH Auditor checks for everything that can be captured with data. We run 34 checks for fees based on CFPB rules and several dozen more based on agency, insurer and state regulations. We believe that the best strategy is to automate whatever checks you can, and we expect that it won’t be long before regulators will have that expectation as well.