The Consumer Financial Protection Bureau (CFPB) on Wednesday released a report highlighting unlawful junk fees uncovered in deposit accounts and in multiple loan servicing markets, including student loans.
In the report, CFPB notes that student loan servicers were initially processing payments but then later reversing those payments, leading to additional late fees and interest accrual for the borrower.
Specifically, while servicers don’t allow student loan payments to be made with a credit card, customer service representatives accepted credit card payment information from borrowers and then processed those payments. Then, the servicers manually reversed the payments because they violated their policies and as a result, borrowers became delinquent on their loans and were charged late fees, received negative credit reporting, and additional accrued interest. CFPB states that servicers have no benefit of retroactively reversing credit card payments, as opposed to just implementing a way to prevent them.
“Consumers could not reasonably avoid the injury because they could not anticipate that servicers would reverse payments after initially accepting them, and the servicers did not send notices explaining the reversals in all cases,” the report states. “Moreover, the servicers did not provide consumers with an opportunity to make a payment with another method before reversing the payments.”
CFPB notes in the report that after notifying student loan servicers about these findings, the servicers enhanced their system to make sure credit card payments weren’t accepted, and trained customer service representatives to inform borrowers that credit card payments weren’t accepted. CFPB also directed servicers to reimburse any late fees and correct any negative credit reporting as a result of reversed credit card payments, the report states.
CFPB called out these illegal fees in its report as they “corrode” family finances, increase borrowing costs, and are not easily avoided — meaning anyone can be susceptible.
“For years, junk fees have been creeping across the economy,” said CFPB Director Rohit Chopra in a statement. “Our report describes a host of illegal junk fee practices that the CFPB has uncovered across the financial services sector.”
Publication Date: 3/9/2023