Bank of America faces lawsuit alleging it charged servicing junk fees

Stephanie Keith/Bloomberg

Bank of America is at the center of a new class-action lawsuit, which claims it unlawfully charged fees to mortgage servicing customers paying by telephone or online.

Attorneys for plaintiff Diana Higginbotham, a resident of Nitro, West Virginia, allege the banking giant illegally charged her $6 whenever making phone payments, a violation of the state's consumer credit and protection act. The lawsuit, which was filed last month in U.S. District Court for the Southern District of West Virginia, also asserts so-called pay-to-pay fees represent a breach of contract and unjust enrichment by the Charlotte, North Carolina-based company through the creation of an "additional profit center for itself."

"Neither the note nor deed of trust entitled defendant to assess fees for scheduled payments, electronic payments, online payments or telephone payments," according to the lawsuit.

Typically, the cost to servicers to process online or phone transactions would be close to 30 cents, well below the $6 charged by Bank of America, Higginbotham's attorneys claimed, adding the bank had no authorization to assess such a fee per any statute or agreement. Even if such charges were permitted in a lender agreement, pay-to-pay would still violate West Virginia regulations.  

"Despite its uniform contractual obligations to charge only fees explicitly allowed under the mortgage and applicable law, defendant leverages its position of power over homeowners and demands exorbitant pay-to-pay fees," the filing stated.

Higginbotham's lawsuit also alleged that Bank of America included other charges in 2020 amounting to just over $47, which have yet to be explained on her monthly statements.

The plaintiff first took out the mortgage in 1998, with the loan and servicing rights later transferred to Bank of America. Higginbotham is suing the bank on behalf of herself and a proposed class of West Virginia consumers holding residential mortgages who incurred fees when making loan payments to the company. The law firm Bailey & Glasser is providing legal representation to Higginbotham in the case.

While the lawsuit requested a civil penalty be awarded to Higginbotham and all class members, no specific monetary amount was included in the filing. 

Bank of America and Bailey & Glasser had not responded to inquiries at time of publication.

Bank of America is currently one of the country's leading depository institutions with mortgage servicing operations based on the unpaid principal balance of loans involved. At the end of the first quarter, it held $735 billion worth of mortgages in its servicing portfolio, placing it in 10th place among banks. Wells Fargo topped the list with close to $9 trillion on its books, but it is in the process of downsizing its servicing portfolio.

The lawsuit arrives amid an ongoing dispute surrounding regulation of junk fees, with the Biden Administration, Consumer Financial Protection Bureau and several state governments all weighing in over the past 18 months. While the term can entail everything from ticketing surcharges to hotel fees, the financial services industry has been a regular target of criticism by the CFPB for proliferating and relying on them as a source of revenue. 

Last year, several state regulators also called for an end of pay-to-pay within mortgage and other loan servicing, a practice the CFPB says falls under the definition of a junk fee, In a letter addressed to the CFPB, officials cited the frequency liens could be transferred in their life cycle, with borrowers having no say in who might service them as reason to eliminate them. No officials from West Virginia signed onto that letter.

Several trade groups, including the Mortgage Bankers Association, pushed back against calls for additional regulation in this area, saying the CFPB already provides a sufficient number of rules to ensure borrowers understand fee structure.