In its Summer 2015 Supervisory Highlights, which covers supervision work generally completed between January and April 2015, the CFPB highlights legal violations resolved using non-public supervisory actions involving consumer reporting, debt collection, student loan servicing, mortgage origination and servicing, and fair lending. The report indicates that recent supervisory resolutions in the areas of mortgage origination, fair lending, mortgage servicing, deposits, payday lending and debt collection have resulted in remediation of approximately $11.6 million to more than 80,000 consumers.
As we have previously commented, the publication of such Supervisory Highlights is a tremendous tool for companies to learn of the CFPB’s non-public supervisory actions and to inform ongoing efforts to remain in compliance with Federal consumer financial law. Our experience indicates that highlights such as this distill findings from dozens of exams and can provide significant insight into the CFPB’s priorities and likely future supervisory focus.
The CFPB’s “supervisory observations” include the following:
- Consumer reporting. In examinations of consumer reporting agencies, CFPB examiners found weaknesses in policies and procedures at one or more CRAs for vetting and overseeing new furnishers, such as not updating policies and procedures to describe actual practices or failing to conduct regular monitoring to ensure furnishers followed the CRA’s vetting requirements. Other deficiencies related to information collection included a lack of formal programs to oversee and manage data provided by furnishers and weak oversight of public records providers. CFPB examiners also found a lack of quality control policies and procedures to test consumer reports for accuracy.
- Debt collection. Deficiencies in compliance management systems at financial institutions found by CFPB examiners included (1) a failure by boards of directors of one or more institutions to hold regularly scheduled meetings or receive information sufficient to oversee compliance practices, and (2) weaknesses in inquiry and complaint management for collection operations, such as a failure to record, categorize or process complaints forwarded by third-party debt collectors. CFPB examiners also found that one or more debt collectors were deleting trade lines of accounts after they received disputes without fulfilling the requirement to conduct a reasonable investigation with respect to disputed information. The CFPB noted that online statements made by one or more entities that they rarely deleted trade lines and regularly investigated disputes were deceptive in violation of the FDCPA when, in practice, such entities summarily deleted trade lines or failed to conduct investigations. CFPB examiners also found that one or more debt collectors lacked appropriate written policies and procedures regarding the accuracy and integrity of consumer information they furnished to CRAs.
- Student loan servicing. During one or more examinations, CFPB examiners found that servicers had (1) included deceptive language on periodic statements suggesting that borrowers could not deduct interest paid on student loans unless they paid more than $600 in interest, and (2) failed to include all required information in FCRA adverse action notices when denying cosigner release requests.
- Mortgage origination. CFPB examiners found that one or more supervised entities violated the Regulation Z loan originator compensation rule by failing to maintain written procedures instructing employees how to comply with the entity’s written policies on loan originator compensation. During one or more examinations, CFPB examiners found that supervised entities failed to give mortgage applicants the list of housing counseling agencies required by Regulation X. Other Regulation X violations found in one or more examinations were failing to (1) provide a timely GFE or revised GFE, (2) include all fees on a GFE, and (3) ensure that the HUD-1 settlement statement accurately reflected actual settlement charges paid by the borrower.
With regard to home equity loans, CFPB examiners found that the agreements used by one or more supervised entities included language which provided that consumers who signed the agreement waived all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of the agreement. Regulation Z provides that an agreement relating to a loan secured by a consumer’s principal dwelling cannot be applied or interpreted to bar a consumer from bringing a lawsuit for damages or other relief in connection with an alleged federal law violation. CFPB examiners found the waiver language to be deceptive because it implied that the borrower was agreeing to a waiver that is unenforceable as to any claims based on federal law.
- Mortgage servicing. Deficiencies at one or more servicers found by CFPB examiners relating to Regulation X loss mitigation requirements included (1) sending borrowers loss mitigation acknowledgment notices requesting documents the borrower had previously submitted or that were inapplicable to the borrower’s circumstances and which the servicer did not need to evaluate the borrower for loss mitigation, and (2) failing to send loss mitigation acknowledgement notices to borrowers who had requested short-term payment relief. It is interesting that the CFPB took issue with a servicer requesting documents that were inapplicable to the borrower’s circumstances or not necessary for evaluation. The general approach of the Regulation X loss mitigation procedures is to evaluate a borrower for the full spectrum of loss mitigation options, regardless of the borrower’s circumstances or even the borrower’s initial stated preference for a particular option. Further, the Official Staff Commentary makes it clear that “[a] servicer has flexibility to establish its own application requirements and to decide the type and amount of information it will require from borrowers applying for loss mitigation options.”
CFPB examiners also found a deceptive practice related to the disclosure by one or more servicers of the terms of a payment plan that deferred payments for daily simple interest mortgage loans. The communications incorrectly suggested that deferred interest would be repayable at the end of the loan term when, in fact, it would be collected immediately after the deferment ended. With regard to transferred loans, CFPB examiners found that one or more servicers failed to honor the terms of some trial modifications after transfer. This was cited as an unfair practice.
Unfair or deceptive foreclosure-related practices of at least one servicer found by CFPB examiners included sending notices (1) of intent to foreclose to borrowers approved for a trial modification before the modification’s first payment was due without first verifying whether the borrower had a pending loss mitigation plan, and (2) warning borrowers who were current on their loans that foreclosure was imminent (with the practice stemming from a system error that caused default letters to be generated for borrowers with low-balance home equity credit lines and no monthly payment due.) CFPB examiners also found that (1) periodic statements sent by one or more servicers did not comply with Regulation Z for various reasons that included listing the same fee twice in the transaction history section of the statement, and (2) one or more servicers violated the Homeowners Protection Act by failing to automatically cancel PMI of borrowers who became current on their mortgages after having been delinquent when their mortgage balances reached 78 percent of the original property value.
- Fair Lending. CFPB examiners found that one or more institutions were improperly excluding or refusing to consider income derived from Section 8 Homeownership Program Vouchers or restricting the use of such vouchers to only certain mortgage products or delivery channels. (Last month, the CFPB issued a compliance bulletin (Bulletin 2015-02) to remind creditors of their obligation not to discriminate against applicants because their income includes such vouchers.)
- Supervision program developments. The CFPB discussed its mortgage origination examination procedures, its risk-based prioritization approach to supervision, its use of Potential Action and Request for Response (PARR) letters, and its Action Review Committee process after an entity responds to a PARR letter.