In its Fall 2015 Supervisory Highlights, which covers supervision work generally completed between May and August 2015, the CFPB highlights legal violations resolved using non-public supervisory actions involving consumer reporting, debt collection, student loan servicing, and mortgage origination and servicing. The report includes a discussion of targeted ECOA reviews and an announcement that the CFPB has revised its supervisory appeal process.
The report indicates that recent supervisory resolutions have resulted in restitution of approximately $107 million to more than 238,000 consumers. It also indicates that the CFPB’s supervisory activities “have either led to or supported” six recent public enforcement actions described in the report that resulted in $764.9 million being returned to consumers and $50.7 million in civil money penalties. The CFPB states that as of September 10, 2015, it had approximately 442 examination staff, with more than 180 CFPB examiners commissioned either through the CFPB’s internal process or holding commissions from previous service with other regulators.
The CFPB’s “supervisory observations” include the following:
- Consumer reporting. In examinations focusing on compliance with FCRA and Regulation V furnisher obligations, CFPB examiners found that while one or more entities had written policies and procedures regarding the accuracy and integrity of information furnished to CRAs with respect to credit information, they failed to have such policies and procedures with respect to information furnished on deposit accounts. Examiners also found one or more entities had failed to periodically review and update their policies and procedures. Other deficiencies included failing to provide consumers with notices of the results of investigations of direct disputes of information furnished to CRAs, failing to include all required information in adverse action notices, and failing to maintain adequate dispute handling processes, policies and procedures.
- Debt collection. In examinations of debt collectors, deficiencies found by CFPB examiners included employees of one or more debt collectors failing to state during subsequent phone calls that the calls were from a debt collector, inadequate systems for tracking and implementing consumer requests regarding communications, and failing to maintain adequate written policies and procedures regarding the accuracy and integrity of information furnished to CRAs.
- Student loan servicing. Deficiencies identified by CFPB examiners included various practices related to the handling of partial payments, such as allocating partial payments proportionally to each loan without communicating the consequences of this allocation method to affected consumers or telling consumers they had the ability to direct payments themselves (or in some cases, not giving consumers such ability). CFPB examiners found that by maximizing late fees through such practices, servicers had engaged in an unfair practice. Other deficiencies included (1) issues relating to automatic payments such as processing debits early and failing to make clear to consumers that the servicer would not credit back payments to the due date when the due date fell on a date when the bank is closed and the payment could not be processed until the next business day, (2) making deceptive statements about late fees on Department of Education-held loans, (3) failing to inform consumers when payoff attempts failed, and (4) failing to maintain adequate written policies and procedures regarding the accuracy and integrity of information furnished to CRAs.
- Mortgage origination. CFPB examiners found that one or more entities had failed to fully comply with the Regulation X requirement that settlement charges not exceed the amounts on the good faith estimate by more than the specified tolerances, including not documenting the reason for a revised GFE. Other deficiencies included (1) improperly completing settlement statements, (2) failing to provide the required homeownership counseling disclosure or an accurate loan servicing disclosure, (3) failing to comply with privacy notice requirements (including using inconsistent notices), (4) failing to require employees engaged in loan originator activities to register with the Nationwide Mortgage Licensing Systems and Registry, and (5) failing to reimburse borrowers for understated APRs and finance charges.
- Mortgage servicing. CFPB examiners found that one or more servicers had failed to maintain policies and procedures that were reasonably designed to achieve certain objectives as required by Regulation X or were unable to compile a servicing file within the five day period required by Regulation X or produce a schedule of fees charged to borrowers in such files. It also found deficiencies in how servicers handled loss mitigation applications, use of deceptive language in loss mitigation agreements regarding the waiver of federal claims, violations of various requirements relating to private mortgage insurance in the Homeowners Protection Act, and FDCPA violations, such as collecting pay-by-phone fees where such fees were not authorized by contract or state law. Despite these findings, the CFPB nevertheless states that it “recognizes efforts made by certain servicers to develop an adequate compliance position through increased resources devoted to compliance” and that “one or more servicers have made significant improvements in the last several years,” such as conducting thorough compliance audits and taking prompt corrective action to address issues identified. It also notes that one or more servicers conducted formal information technology reviews which led them to replace outdated systems. The CFPB adds, however, that it continues “to see that the inadequacies of outdated or deficient systems pose considerable compliance risk for mortgage servicers.”
The report also includes a discussion of the CFPB’s process for initiating and conducting targeted ECOA reviews, with a focus on underwriting reviews. The CFPB states that underwriting reviews typically evaluate potential disparities in denial rates and describes the different methodologies it may use in underwriting reviews (such as marginal effects and odds ratios) to measure whether outcomes differ based on a prohibited basis. The CFPB describes the methods it uses to select files when a file review is conducted and steps an institution can take to limit the risk of ECOA violations due to disparate outcomes in underwriting.
The section of the report on supervision program developments includes a discussion of the process followed by the CFPB’s Office of Fair Lending when sending a Potential Action and Request for Response (PAAR) letter to an institution. It also announces that on November 3, 2015, the CFPB revised its supervisory appeal process and lists the changes that were made. The revised policy will apply to appeals of any exam report emailed on or after September 21, 2015.