Uncle Sam Trashes GARBAGE FEES

A mind-boggling array of deceptive fees punishing homeowners

BY LEW SICHELMAN, CONTRIBUTOR, NATIONAL MORTGAGE PROFESSIONAL MAGAZINE

Uncle Sam is going hard after what it deems to be unconscionable, if not illegal, junk fees, particularly in the servicing and rental sectors.

Most recently, U.S. Housing and Urban Development Secretary Marcia Fudge called out property managers and apartment owners for nailing their tenants with such suspect charges as move-in fees and convenience fees. But before her, Rohit Chopra, head of the Consumer Finance Protection Bureau, chastised servicers for charging excessive late fees and fake mortgage insurance premiums, among other fishy tariffs.

It appears as if one federal agency is trying to outdo the other, except they’re not. Rather, it’s all part of a concerted effort by the Biden Administration to rid the real estate sector, among others, of excessive and often unwarranted charges. Fees, said Fudge, should reflect “the actual and legitimate costs to housing providers.”

Corroding Finances

In a special edition of its supervisory highlights, the CFPB reported finding “old and new ways that mortgage servicers attempt to run up unlawful fees that are charged to homeowners.” The consumer watchdog agency said such charges corrode family finances, drive up families’ banking and borrowing costs, and are not easily avoided, even by financially savvy consumers.

I mentioned these charges last month, but they are so onerous they deserve repeating:

• Charging the maximum late fee allowed by state law, even though the borrower’s mortgage contract capped the charges below the state limits.

• Sending inspectors to addresses known to be incorrect and charging consumers for each visit.

• Including monthly private mortgage insurance premiums that borrowers did not owe.

• Failing to waive fees that were forbidden by law for borrowers entering some loss mitigation were nailing

The bureau addressed improper fees in its previous supervisory highlights, noting that some servicers hammered consumers with late fees and other “default-related” charges while they were in forbearance. And it raked several unnamed mortgage companies for violating the Equal Credit Opportunity Act by discriminating against African Americans and women — but not Hispanics.

Nasty stuff, for sure. No wonder the CFPB received some 29,000 mortgage complaints last year. In 95% of these gripes, moreover, consumers reported they attempted to resolve their issues before resorting to seeking help from the government. That, alone, is very telling.

But when it comes to junk fees, mortgage servicers don’t hold a candle to landlords. A recent report from the National Consumer Law Center (NCLC) lists 16 “gotcha” charges renters face when they try to find and keep apartments.

Some of the 16 are not trash, at least in my mind. For example, nearly all property managers charge application fees, which they use to pay for credit reports and criminal background checks. But the charges slide into garbage territory when they are nonrefundable and are completely over the line when the reports can’t be used to apply at other properties.

MIND-BOGGLING FEES

The NCLC also found some add-ons that boggle the mind, including convenience fees, roommate fees and processing fees. In one instance, landlords charged a “January” fee for no other apparent reason than it was the first month of the new year.

It’s all about finding ways to monetize whatever landlords can get away with. For instance, one Tampa firm sends invoices for sub-metered water and sewer service. Nothing underhanded there. Most places charge for utilities. But it also charged a billing fee and a meter reading fee.

Tenants were dunned electronically, not with a more expensive snail-mail process. So, landlords can’t gripe about the extra cost of paper and postage. But no matter how the invoice was delivered, why should anyone have to pay to be billed? How can you pay without a bill?

The extra charges amounted to only a few bucks. But multiply that by each tenant annually, and you end up with a nice little profit center. But pure and simple, these are costs of doing business that should be borne by the property owner, not his tenants.

Speaking of utilities, one major landlord came under fire last month for stripping utilities out of its rental rates and charging by occupancy rather than usage. Under that system, why should tenants care about saving energy?

Elsewhere, a Kansas City property demands a $200 one-time fee for pets — plus $15 a month. Nothing unusual there; most places charge for cats and dogs. But this place also charges for fish. Not only that, but it also lists them as “aggressive” breeds. Even goldfish!

I am informed that the real worry isn’t the fish but water damage from the tank, so maybe the fee isn’t all that outlandish. But other owners are looking to save money by operating their properties without any on-site personnel. No resident manager, no maintenance people, no security staffers. One outfit reportedly already operates unstaffed properties and plans to push that number to 35-40 by year’s end.

Unnecessary Fees

The Law Center report comes in the wake of an “open letter” from HUD Secretary Fudge, who called on the housing industry to address such fees, charges she said raise costs and hit vulnerable people the hardest.

“Many renters today face fees that are hidden, duplicative and unnecessary,” Fudge wrote. “These fees limit options for renters and strain household budgets, particularly for renters with low and moderate incomes who already face high rental cost burdens.”

In particular, the HUD secretary cited non-refundable application fees, which she said can run into hundreds or even thousands of dollars for tenants applying to multiple places. She also noted that the credit reports for which applicants pay often have inaccurate information and are of questionable validity in predicting renter behavior.

Fudge also mentioned such “hidden fees” as move-in charges, late charges, high-risk fees, security bonds and convenience fees for tenants who pay their rent online. But the Law Center went further, noting that the vast majority of landlords impose excessive late fees, and more than half charge other bogus fees.

To compile its list, the Washington, D.C.-based nonprofit surveyed legal services and non-profit attorneys about the types of fees they have seen. The survey period was in November and December last year.

Of the 95 responses from 26 states and the District, nearly nine out of 10 said landlords collect application fees. And almost three out of four said they had seen utility-related charges.

So far, not totally dubious. But 87% said landlords also impose excessive late charges. Moreover, 68% have seen processing or administrative fees, 60% noticed convenience fees, 59% reported seeing insurance fees, and 56% saw notice fees.

Seven percent reported seeing fees to report on-time rent payments to credit bureaus. And the aforementioned January fee was reported by two Minnesota advocates, “seemingly for no reason,” the survey said.

Preventing Deceptive Practices

Noting that nearly half of all renters — some 19 million households — spend more than a third of their incomes on housing, April Kuehnhoff, a senior attorney at the law center and a co-author of the report, said: “There simply isn’t room in their budgets for junk fees.”

The report calls on the Federal Trade Commission and state legislatures to investigate landlords who impose against the burdensome fees, calling them “unavoidable and exploitive.” The FTC should develop guidance to prevent “this potentially deceptive practice,” it said, and states must limit or ban fees that exceed landlords’ costs.

HUD’s Fudge had essentially the same message in her open letter, urging all housing providers and state and local governments to “take action to limit and better disclose fees charged to renters in advance of and during tenancy.” Fees, she said, should reflect “the actual and legitimate costs to housing providers.”

The secretary’s message amplifies the Biden Administration’s “Blueprint for a Renter Bill of Rights,” which challenges stakeholders to commit to clear and fair leases without hidden or illegal fees. Since the White House launched the challenge, Fudge wrote, “many” state and local governments and housing providers, as well as several rental platforms and small property owners, have announced policies aligned with the program. Among other things, they have agreed to limit application fees and allow applicants to reuse their applications multiple times at no extra cost. n

Lew Sichelman is a contributing writer to National Mortgage Professional magazine. He has been covering the housing and mortgage sectors for 52 years. His syndicated column appears in major newspapers throughout the country.