On May 30, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a request for information (Request) regarding alleged “junk fees” in closing costs charged by mortgage lenders and related settlement service providers. The Bureau is accepting public comments until August 2, 2024.

According to the Request, from 2021 to 2023, the median total loan costs for home purchase loans increased by over 36%. In 2022, the median dollar amount in closing costs was nearly $6,000. The CFPB states that this increase, coupled with rising home prices and interest rates, has put significant pressure on borrowers’ budgets, contributing to decreased home affordability and limited access to credit.

The Request also states that borrowers may encounter dozens of different fees, such as credit reporting, appraisal, and title insurance fees, all of which can increase the overall cost of a mortgage. The Request explains that the Bureau is looking for ways to reduce closing cost fees, which can negatively affect both homebuyers and mortgage lenders.

The CFPB is seeking input from the public, including consumers and lenders, on their experience with closing costs, including:

• Are there particular fees that cause hardships?
• Are there any fees charged that are not or should not be necessary to close the loan?
• Data on the degree to which consumers compare or shop for closing costs across lenders.
• How are fees set? Who profits from the fees? Who benefits from the service provided? What leverage do lenders have over third-party costs that are passed onto the consumer?
• Which closing costs have recently increased the most and why?
• Would lenders be more effective at negotiating closing costs than consumers?

Our Take:

The Request continues the Bureau’s focus on alleged “junk fees,” but expands that focus to include the mortgage origination and real estate settlement industries. The CFPB has highlighted its supervision and enforcement of junk fees over the past several years, including in two special editions of its Supervisory Highlights in the winter and fall of 2023, discussed here and here, and in another special edition of its Supervisory Highlights in the spring of 2024, discussed here. To date, the Bureau’s activity has taken aim at fees in various industries, including deposits, credit cards, payday and small dollar lending, auto servicing, student lending, and mortgage servicing. However, this is the first indication that the Bureau is seriously planning to scrutinize mortgage closing costs for possible junk fees.

The Bureau’s recent interest in closing cost fees is not surprising — particularly given the expected increase in CFPB activity due to its ongoing hiring initiative and the Supreme Court’s decision upholding the constitutionality of the Bureau’s funding, as discussed here. We expect that this inquiry will lead to various new CFPB initiatives, including an increased focus on mortgage closing costs during examinations, enforcement actions over mortgage lenders’ fee practices, and potential rulemaking and guidance to address closing cost fees. In light of this expected activity, financial institutions involved in mortgage origination and real estate settlement should reevaluate their fee practices, with an eye towards any fees that the Bureau could classify as junk fees, such as fees for services that consumers cannot easily shop or negotiate for and fees for services that appear unnecessary or that provide little apparent benefit to consumers.