In its Winter 2015 Supervisory Highlights, which covers supervision work generally completed between July and December 2014, the CFPB highlights legal violations resolved using non-public supervisory actions involving debt collection, consumer reporting, overdraft practices, mortgage origination, and fair lending.
The report indicates that recent supervisory resolutions in the areas of payday lending, mortgage servicing, and mortgage origination resulted in remediation of approximately $19.4 million to more than 92,000 consumers.
The publication of such Supervisory Highlights is a tremendous tool for companies to learn of non-public supervisory actions taken by the Bureau and to inform ongoing efforts to remain in compliance with Federal consumer financial law. As a former examiner-in-charge at the CFPB, I can assure you that highlights such as this distill findings from dozens of exams and can provide significant insight into the priorities and likely future supervisory focus of the Bureau.
The CFPB’s “supervisory observations” include the following:
- Debt collection. “In one or more examinations of debt collectors performing debt collection services of defaulted student loans for the Department of Education,” CFPB examiners identified collection calls, scripts, and letters containing various misrepresentations, such as overstatements regarding the benefits of participating in a federal student loan rehabilitation program (e.g., overstating a program’s impact on credit score) and misrepresentations that consumers could not participate in such a program unless they paid by credit card, debit card, or ACH payment, when, in fact, “no such program requirement existed.” Examiners also found that some collectors created a false impression that if consumers did not make a payment they would be sued when, in fact, “none of the collection agents knew whether legal action would be taken and did not intend to take legal action.”
CFPB examiners also found “in one or more examinations” of debt collectors that the collectors had “created a risk of deception” by promoting a consumer’s ability to adjust or cancel a recurring ACH payment with only 24 hours’ notice when offering consumers the option to make such payments on delinquent accounts. According to the report, this representation contradicted both an express representation in monthly periodic statements and internal policies and procedures which stated that a minimum of 72 hours’ notice was required.
- Consumer reporting. While CFPB examiners found that “one or more” consumer reporting agencies had “significantly enhanced their dispute handling systems” following prior “CFPB directives,” examiners still “identified several practices that failed to meet dispute handling obligations.” For example, “one or more” consumer reporting agencies failed to comply with FCRA section 611 obligations to forward “all relevant information” received from consumers in letters and supporting documents to furnishers. And examiners also identified deficiencies in the handling of consumer disputes of public record items in their credit reports which led “to errors in the updating of files after a reinvestigation and in the reporting of dispute results to consumers.”
- Overdraft practices. In reviewing bank overdraft protection services, CFPB examiners found that “one or more institutions” had changed from a ledger-balance method to an available-balance method for purposes of deciding whether to authorize electronic and other transactions. The examiners found that such changes “were not disclosed at all, or were not sufficiently disclosed, resulting in consumers being misled as to the circumstances in which overdraft fees would be assessed.” This practice was found to be deceptive. In addition, examiners found “deceptive practices relating to the disclosure of overdraft processing logic” at “one or more institutions.” According to the report, the institutions charged overdraft fees on electronic transactions “in a manner inconsistent with the overall net impression created by the disclosures.”
- Mortgage origination. “In one or more examinations,” CFPB examiners found that branch managers, who were loan originators and owners of related marketing services entities, were illegally receiving compensation based on the terms of loans they were originating. According to the report, examiners “found instances of improperly allocated expenses on branch income statements which resulted in marketing services entities receiving income based on the profitability of retail loans originated by branch managers. Consequently, branch managers, as owners of the marketing services entities, received compensation based on the terms of transactions originated by the branch managers themselves.” CFPB examiners also found Regulation X and Z violations “at one or more institutions” involving improper use of lender credit absent changed circumstances and failure to provide timely Good Faith Estimates. They also found “in one or more institutions” where “social media advertising was not subject to monitoring or compliance audit” that loan originators were allowed to create their own advertisements that included “triggering terms” (such as the length of payment, amount of payments, numbers of payments, and finance charges) without providing the additional disclosures required by Regulation Z.
CFPB examiners also found that “one or more supervised entities” failed to provide requisite information in adverse action notices as set forth in Regulation B and failed to provide such notices on a timely basis. “These errors were attributed to weaknesses in the [entities’] compliance audit programs and the monitoring and corrective action component of the compliance programs.” More generally, at “one or more institutions, examiners concluded that a weak compliance management system allowed numerous violations of Regulations B, X, and Z to occur.” The report describes various circumstances that created or permitted the compliance weaknesses.
- Fair lending. Bureau examiners found “one or more violations of the ECOA and Regulation B related to the treatment of protected forms of income,” such as income derived from a public assistance program or retirement benefits. Examiners found that applicants had been “automatically declined” if they were relying on income from a non-employment source, such as social security income or retirement benefits, to repay a loan. Examiners also found that marketing materials may have unlawfully “discouraged applicants who received public assistance or other protected sources of income from applying for credit.”
- Supervision program developments. The Bureau also highlighted recent developments, such as the publication of new Credit Card Account Management examination procedures, the issuance of a bulletin providing guidance to help lenders avoid prohibited discrimination against consumers receiving Social Security disability income (Rich Andreano previously wrote a blog post about this bulletin), and the launch of the CFPB’s Examiner Commissioning Program.