Mortgage Servicers’ Convenience Fees Are ‘Pay to Pay’ and Exploit Homeowners, Michigan Attorney General Says

A coalition of state attorneys general wants an end to excessive mortgage “convenience” fees. 

Need to Know

• Michigan AG Dana Nessel joined a coalition of 22 attorneys general demanding mortgage servicers stop eliminate convenience fees.
• Mortgage servicers sometimes charge convenience fees to customers paying online or via telephone instead of by mail. 
• The coalition argued that “pay to pay” fees exploit homeowners.

MICHIGAN—Convenience fees—a payment on top of a payment that can exploit homeowners—are commonly charged by financial institutions in exchange for allowing a consumer to easily make payments online or via telephone, as opposed to making payments by mail.

When taking out a mortgage, many consumers believe they are entering into a long-term relationship with their financial institution. But mortgage loans and their service rights are frequently sold in a secondary market multiple times over, leaving many borrowers in the dark about who’s servicing their loan. 

What’s more, every mortgage service sets its own fees for processing certain types of payments. State Attorney General Dana Nessel says these “convenience fees” take advantage of Michigan homeowners. 

“Convenience fees are exploitative and ultimately allow mortgage officers to be paid twice,” Nessel said. “It is unfair that consumers face additional fees depending on how they decide to pay their bills.”

Nessel recently joined a coalition of 22 attorneys general to urge the Consumer Financial Protection Bureau (CFPB) to prohibit mortgage servicers from charging convenience fees. The coalition stated that convenience fees charged by mortgage servicers are one of the extreme exploitative “pay to pay” fees that consumers face today.

There is notably no uniformity in convenience fees. Some servicers charge them while others don’t – and some servicers attempt to charge them even when the original loan documents do not authorize the fees. Sometimes, the convenience fee charged can exceed the servicer’s actual cost of accepting payments online or over the phone. An industry study found that check processing costs debt collectors between $1 and $4, while processing payments made online or over the phone typically costs debt collectors about $0.50 per transaction. 

Nessel and the other attorneys general argued in a letter that because a mortgage servicer’s most basic function is to accept payments, imposing an additional fee for performing its core function is fundamentally flawed. Mortgage servicers have already been compensated for the costs of accepting payments when they either enter into the original loan or choose to acquire servicing rights for the loan.

In their letter, the coalition encouraged the CFPB to prohibit servicers from charging convenience fees that exceed the actual cost of processing a borrower’s payment. The coalition further asked that the CFPB require fee transparency – making servicers fully document their costs supporting the imposition of convenience fees. 

The coalition also urged the CFPB to evaluate the facility fee in the mortgage industry, citing that homeowners, unlike most markets, do not have a choice in mortgage providers. The letter said the CFPB’s further evaluation of discretionary fees charged by servicers is warranted due to the lengthy duration of mortgage loans coupled with consumers’ lack of servicer choice.

The CFPB has not yet responded to the coalition’s letter.