California Attorney General Rob Bonta has recently spent a lot of time and energy tackling the fees that financial institutions charge customers.
But it’s unclear what the basis of his crusade against overdraft fees and mortgage service processing fees is, as none of the restrictions violate the California laws he is charged with enforcing. They are simply unpopular with progressives and the social justice crowd.
This week, Bonta took on the fees that mortgage-service companies charge customers to process payments, joining a multi-state coalition that has urged the federal Consumer Financial Protection Bureau to ban the payments.
“For struggling homeowners trying to make their monthly mortgage payment, the ‘pay to pay’ fee just rubs a knife in the wound,” Bonta said in a statement. “The fact is, we are facing a housing affordability crisis of epic proportions here in California. And as the cost of living continues to rise, the last thing Californians need is Mortgage managers are taking advantage of this captive market to inflate their results.I urge the CFPB to put an end to these abusive junk fees.
According to Bonta, “pay to pay” fees “are for payments made online, over the phone or through a third-party service, with the amount of the fee often exceeding the actual cost to the payment processing provider. In today’s letter, the coalition argues that these charges are excessive and exploitable because owners are unable to choose their repairer and therefore constitute a captive market.
There is no charge if you send your payment by regular mail. Thus, consumers are essentially being charged a convenience fee.
Bonta sent a letter to Consumer Financial Protection Bureau Director Rohit Chopra, which was also co-signed by the attorneys general of Illinois, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island and Washington State.
“While we share the Bureau’s grave concern about the proliferation of unwanted fees in the consumer financial marketplace,” the letter began, “we focus these comments on a specific type of fee that we have determined is unfair and abusive to consumers: convenience fees charged by mortgage servicers Some financial service providers charge a fee if a consumer decides to use a certain type of payment method, such as making a payment over the phone, through a website, or through a third-party service. Although these types of pay-to-pay fees are charged by service providers in several different markets, the problems raised by these fees are particularly insidious in the mortgage industry because, unlike in most markets, homeowners have no no choice of their mortgage agent.
The letter addresses the fact that consumers can simply pay by mail to avoid fees. AGs argue that this is not a viable option.
“Mortgage officers who charge this fee will no doubt argue that borrowers can submit their payment without incurring a fee using alternative methods, such as mailing a check or perhaps setting up direct debits on a bank account. But like refinancing, this so-called choice is actually an illusion for many borrowers. In most cases, a borrower chooses to submit a payment over the phone or via a website because they want the payment released. immediately; mailing a check would take too long to mail to avoid late fees. And the late fees a repairer may impose will likely exceed the cost of paying by phone or via a website. In this scenario, the convenience fees actually work like alternative late fees – perhaps cheaper, but with a shorter grace period, and in violation of contract terms. most mortgages that define the exact amount and timing of late fees. Thus, rationally, the consumer chooses the cheapest option and accepts the convenience charge. But simply choosing the least bad option does not mean that the consumer really has a choice.
Bonta and his cronies then take issue with the fact that companies make a profit on fees.
“Additionally, we are concerned that the convenience fees charged by these repairers may exceed the actual cost to the repairer of accepting payments made through a website or over the phone,” they write. “The most basic function of a mortgage manager is to accept payments. The concept that a repairer should be able to charge additional fees for the performance of their primary function is fundamentally flawed. We don’t deny that managers incur certain costs in setting up their business to accept payments – but that’s true for all businesses in all settings, and accepting payments is the core business of mortgage services. Lenders are supposed to profit from servicing the loan in the origination fees and the interest rate that consumers pay. In other words, mortgage servicers have already been compensated for the costs of accepting payments submitted by the borrower when these servicers take out the original loan or choose to acquire the servicing rights to the loan. Thanks to their convenience fees, mortgage managers are essentially compensated twice for accepting a payment. »
For all of these reasons, according to the letter, “we urge the Bureau to consider prohibiting mortgage agents from charging convenience fees to consumers. Alternatively, we urge the Bureau to prohibit service agents from charging convenience fees that exceed the actual cost of processing the consumer’s payment and to require service agents to fully document the costs justifying the imposition of such fees.
The letter concluded by urging the Consumer Financial Bureau to also investigate overdrafts and the insufficient fees that banks charge customers who overdraw their accounts. “We urge the Bureau to investigate fees in other captive markets where consumers do not have the option of doing business elsewhere to avoid fees, or where fees imposed on consumers are hidden profit centers for businesses. without the ability of consumers to adequately avoid such charges. costs.”
So that was this week’s effort. Last week, Bonta and nearly all of the same attorneys general who signed the letter to the Consumer Financial Protection Bureau sent letters to four of the nation’s largest banks demanding that they eliminate overdraft fees. Like the letter to the Consumer Financial Protection Bureau, the letters to the banks do not cite any broken laws in their case.
Announcing the multi-state effort, Bonta said “eliminating overdraft fees is an important step toward a fairer financial system. These unwanted fees often pile up, forcing already cash-strapped consumers to pay an extra $20, $30, or $40 for even a minor transaction. For banks, overdraft fees are an easy way to boost their profits, but for struggling consumers, these fees can seriously derail their financial plans. It is high time that the banks put an end to this predatory practice. I urge JPMorgan, Bank of America, US Bank and Wells Fargo to act in the best interests of their customers and eliminate overdraft fees by this summer.
“No one should ever be charged a $35 fee for a $2 carton of eggs,” he argued, meaning buying two dollars if unfunded would result in $35 overdraft fee “But under many banks’ current policies, that’s exactly what could happen if a consumer overdrafts their bank account.
Bonta and his comrades sent identical letters to the heads of JPMorgan, Bank of America, US Bank and Wells Fargo noting that Citi and Capital One have already pledged to end overdraft fees. They urged other banks to follow suit for the sake of fairness and justice.
“The deleterious effects of overdraft fees and other overdraft-related practices on American consumers and families are well documented,” Bonta and the other attorneys general wrote. “An in-depth study of overdraft fees charged in 2019, the last year before the Covid-19 pandemic, found that over $11 billion in fees were charged, with the vast majority of these fees being charged to local consumers. most vulnerable with the lowest average. account balances. A similar study noted that more than 90% of these fees are paid by a small subset of consumers, who typically paid three or more of these fees per year while earning less than $50,000.4 Consumers of Color are disproportionately affected by these fees, which often result in account closures and leave many affected consumers totally unbanked.
Bonta and the other writers of the AG letter found it highly offensive that the banks were making a profit on the fees. “Disturbingly, the cost to the typical bank to cover unfunded transactions is typically much less than the size of the fees charged.”
Saying that “no one should ever be charged a $35 fee for a $5 cup of coffee,” the letters concluded by urging every bank “to consider the enormous societal costs of overdraft, overdraft protection, and similar charges, and to immediately commit to eliminating such practices on the same schedule as Citi.
Bonta’s press office told the California Globe that they had not heard from any of the banks. JP Morgan declined to comment and all other banks did not respond to email inquiries.