Spearheaded by the attorney general of Illinois, a coalition of attorneys general from 22 states have called on the Consumer Financial Protection Bureau (CFPB) to forbid mortgage servicers from charging convenience fees to borrowers.
Illinois Attorney General Kwame Raoul announced that the group had sent a letter calling the convenience fees to the CFPB’s attention. The letter was sent after the bureau requested market input about various fees imposed on consumers, and it described the convenience fees as particularly unfair and abusive.
The ire of the coalition stems from the fact that some servicers charge fees if a consumer chooses to use a certain payment method, such as over the phone, online or via third-party service. As an example, Raoul’s statement singled out PHH Mortgage, based in New Jersey. The company charges borrowers $7.50 to pay online or over the phone via an automated service, while those paying over the phone by speaking to a live agent are charged $17.50.
Such “pay to pay” fees are common in other business sectors, but unlike other marketplaces, homeowners have no choice in their mortgage servicer, making such fees “one of the more exploitative ‘pay to pay’ fees consumers face,” according to Raoul’s statement.
“When consumers decide to take out a mortgage, many believe that they are entering into a long-term relationship with a specific financial institution,” the letter stated. “Unfortunately, after origination, many mortgage loans and their servicing rights are sold in secondary markets, and may be sold many times over the course of the loan. In short, consumers don’t and can’t know which company will service their mortgage loan, and they have no ability to change servicers.
“Considering the length of mortgage loans, and their importance in the financial and emotional well-being of consumers’ lives, the lack of consumer choice warrants special attention to discretionary fees imposed by mortgage servicers, like convenience fees. This is especially true given that some servicers have attempted to impose convenience fees even when the fees are not authorized by the original mortgage loan documents and therefore may be unlawful in certain jurisdictions.”
The letter goes on to state that while borrowers can submit payments using alternative methods without incurring fees, the choice to do so is actually “illusory for many borrowers.”
“In most instances, a borrower is choosing to submit a payment by phone or through a website because they want the payment to post immediately; mailing a check would take too long to post to avoid a late fee. And the late fee that a servicer may impose will likely exceed the cost of making a payment by phone or through a website.”
Because of this, a convenience fee actually operates as a late fee, the attorneys argue.
“So, rationally, the consumer chooses the option that costs less and accepts the convenience fee charge,” the letter stated. “But simply choosing the less bad option doesn’t mean that the consumer really has a choice.”
Raoul was joined in the letter by the attorneys general of California, Colorado, Connecticut, Delaware, Hawaii, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Washington and the District of Columbia, as well as the Hawaii Office of Consumer Protection.
While the group is advocating for the prohibition of convenience fees altogether, it also alternatively suggested a ban on charging convenience fees that exceed the actual cost of processing a borrower’s payment. Concerns were raised that the fees charged often surpass such expenses.
“That consumers should face additional charges depending on how they pay their bills, for instance by paying online, is absurd. Convenience fees allow mortgage servicers to be paid twice for simply performing their most basic function of accepting payments,” Raoul said. “Convenience fees are unfair and result in people paying more in the long run. I am urging the CFPB to prohibit mortgage servicers from being able to charge convenience fees that exploit residents when they are trying to pay their bills.”