In its Summer 2016 Supervisory Highlights, which covers supervision work generally completed between January and April 2016, the CFPB highlights violations found by its examiners involving automobile origination, debt collection, mortgage origination, small-dollar lending, and fair lending.
The report states that recent non-public supervisory actions have resulted in restitution of approximately $24.5 million to more than 257,000 consumers. The report also indicates that the CFPB’s supervisory activities “have either led to or supported” a recent public enforcement action described in the report that resulted in approximately $5 million in consumer remediation and $3 million in civil money penalties.
The CFPB’s “supervisory observations” include the following:
- Automobile origination. The CFPB does not specify whether the “auto lenders” it examined were engaged in making loans directly to consumers or in “indirect lending,” a term the CFPB uses to refer to persons who engage in the sales finance business of purchasing retail installment sale contracts from auto dealers. CFPB examiners found that that one or more “lenders” had deceptively advertised the benefits of gap coverage products by creating the false impression that such products would fully cover the remaining loan balance in the event of a vehicle loss. They also found that one or more “lenders” had engaged in a deceptive practice by using a telephone script that created the “false overall net impression” that the only effect of taking advantage of a loan deferral would be to extend the maturity date and accrue interest during the deferral. Instead, the deferral could result in a consumer paying more in finance charges than the lender originally disclosed because subsequent payments would be applied to cover the interest earned on the unpaid amount from the date of the consumer’s last payment. At one or more “institutions,” CFPB examiners found various weakness in compliance management systems, such as the failure to raise compliance-related issues to the institution’s board of directors or follow the institution’s policies and procedures in daily practices.
- Debt collection. During one of more examinations, CFPB examiners found that debt sellers, as a result of “widespread coding errors,” sold thousand of debts that did not properly reflect that the accounts (1) were in bankruptcy, (2) had been determined by the debt sellers to be products of fraud, or (3) had been settled in full. The CFPB determined that the debt sellers had engaged in unfair practices. CFPB examiners found that one or more debt collectors had falsely represented to consumers that a down payment was necessary to establish a repayment arrangement or a checking account had to be used for repayment.
- Mortgage origination. CFPB examiners found that one or more institutions had violated Regulation Z by (1) miscalculating the amount financed and finance charge on loans with discount credits, or (2) failing to accurately disclose the interest payment on interest-only bridge loans. They also found that one or more institutions had made improper referrals under RESPA Section 8 by requiring customers to use an affiliated provider of tax services and flood determination or had violated the FCRA by taking adverse action based on information in a consumer report without providing adverse action notices containing the required disclosures. CFPB examiners concluded that one or more institutions had a weak compliance management system that allowed violations of Regulations V, X, and Z to occur, such as weak oversight of automated systems, including inadequate testing of codes that calculate the finance charge and amount financed when originating mortgage loans.
- Small-dollar lending. CFPB examiners found that one or more payday lenders had not complied with the Regulation E advance notice requirement for preauthorized electronic fund transfers (EFT) where the amount of a preauthorized EFT differs from the preceding EFT. In lieu of providing advance notice, Regulation E allows the lender to give the consumer the option of receiving notice only when the preauthorized EFT amount falls outside a specified range or varies from the most recent EFT by more than a specified amount. Examiners found that the installment loan agreements of one or more lenders failed to state an acceptable range of preauthorized EFTs in lieu of providing individual notice of EFTs of varying amounts. For new loans, such lenders seeking to use the alternative of providing a range of EFTs were directed to revise their loan agreements to specify a range of EFT amounts that the consumer can reasonably anticipate. For existing loans not governed by a revised agreement, examiners directed such entities, before initiating a new EFT, to notify borrowers of the amount of any new EFT that would vary from the amount of the previous EFT or from the preauthorized amount.
- Fair lending. During HMDA data integrity reviews, CFPB examiners found that after issuing a conditional approval subject to underwriting conditions, one or more institutions did not accurately report the action taken on the loans or applications. The report also describes various ECOA/Regulation B special purpose credit programs reviewed by CFPB examiners. Noting that special purpose credit program status depends on adherence to applicable ECOA/Regulation B requirements, the CFPB states that it “generally takes a favorable view of conscientious efforts that institutions may undertake to develop special purpose credit programs to promote extensions of credit to any class of persons who would otherwise be denied credit or would receive it on less favorable terms.”