The CFPB’s newly-released Spring 2017 edition of Supervisory Highlights covers supervisory activities generally completed between September and December 2016. The report indicates that supervisory resolutions resulted in restitution payments of approximately $6.1 million to more than 16,000 consumers and notes that “[r]ecent non-public resolutions were reached in several auto finance origination matters.” It also indicates that recent supervisory activities have either led to or supported five recent public enforcement actions, resulting in over $39 million in consumer remediation and $19 million in civil money penalties. The five enforcement actions are described in the report. (They include the CFPB’s March 2017 consent order with Experian and its December 2016 consent order with Moneytree.)
The report includes the following:
Mortgage origination. The report discusses compliance with the Regulation Z ability-to-repay (ATR) requirements, specifically how examiners assess a creditor’s ATR determination that includes reliance on verified assets rather than income. It states that to evaluate whether a creditor’s ATR determination is reasonable and in good faith, examiners will review relevant lending policies and procedures and assess the facts and circumstances of each extension of credit in sample loan files. After determining whether a creditor considered the required underwriting factors, examiners will determine whether the creditor properly verified the information it relied upon to make an ATR determination. When a creditor relies on assets and not income for an ATR determination, examiners evaluate whether the creditor reasonably and in good faith determined that the consumer’s verified assets were sufficient to establish the consumer’s ability to repay the loan according to its terms in light of the creditor’s consideration of other required ATR factors (such as the consumer’s mortgage payments on the transaction and other debt obligations). The report states that in considering such factors, a creditor relying on assets and not income could, for example, assume income is zero and properly determine that no income is necessary to make a reasonable determination of the consumer’s ability to repay the loan in light of the consumer’s verified assets. (The report notes that a creditor that considers monthly residual income to determine repayment ability for a consumer with no verified income could allocate verified assets to offset what would be a negative monthly residual income.)
The report also discusses a creditor’s reliance on a down payment to support the repayment ability of a consumer with no verified assets or income. It states that a down payment cannot be treated as an asset for purposes of considering a consumer’s assets or income under the ATR rule and, standing alone, will not support a reasonable and good faith determination of ability to repay. The report also indicates that even where a loan program as a whole has a history of strong performance, the CFPB “cannot anticipate circumstances where a creditor could demonstrate that it reasonably and good faith determined ATR for a consumer with no verified income or assets based solely on down payment size.”
Mortgage servicing. The report indicates that examiners continue to find “serious problems” with the loss mitigation process at certain servicers, including “one or more servicers” that after failing to request additional documents from borrowers needed to obtain complete loss mitigation applications denied the applications for missing such documents. In particular, examiners found that “one or more servicers” did not properly classify loss mitigation applications as facially complete after receiving the documents and information requested in the loss mitigation acknowledgment notice and failed to provide the Regulation X foreclosure protections for facially complete applications to those borrowers. Examiners also determined that “servicer(s)” violated Regulation X by failing to maintain policies and procedures reasonably designed to properly evaluate a loss mitigation applicant for all loss mitigation options for which the applicant might be eligible. Another servicing issue observed by examiners was the use of phrases such as “Misc. Expenses” or “Charge for Service” on periodic statements. Examiners found such phrases to be insufficiently specific or adequate to comply with the Regulation Z requirement to describe transactions on periodic statements.
Student loan servicing. Examiners found that “servicers” had engaged in an unfair practice by failing to reverse the financial consequences of an erroneous deferment termination, such as late fees charged for non-payment when the borrower should have been in deferment, and interest capitalization. Examiners also found that “one or more servicers” had engaged in deceptive practices by telling borrowers that interest would capitalize at the end of a deferment period but, for borrowers who had been placed in successive periods of forbearance or deferment, capitalized interest after each period of deferment or forbearance. Although the CFPB provides no support for this statement, it asserts that “[r]easonable consumers likely understood this to mean interest would capitalize once, when the borrower ultimately exited deferment and entered repayment.”
Service provider examinations. We recently blogged about the announcement made at an American Bar Association meeting by Peggy Twohig, the CFPB’s Assistant Director for Supervision Policy, that the CFPB had begun to examine service providers on a regular, systematic basis, particularly those supporting the mortgage industry. In the report, the CFPB discusses its plans to directly examine key service providers to institutions it supervises. It states that its initial work involves conducting baseline reviews of some service providers to learn about their structure, operations, compliance systems, and compliance management systems. The CFPB also confirms that “in more targeted work, the CFPB is focusing on service providers that directly affect the mortgage origination and servicing markets.” The CFPB plans to shape its future service provider supervisory activities based on what it learns through its initial work.
Fair lending. The report indicates that as of April 2017, examiners are relying on updated proxy methodology for race and ethnicity in their fair lending analysis of non-mortgage products. The updated methodology reflects new surname data released by the U.S. Census Bureau in December 2016.
Spike and trend complaint monitoring. The report indicates that, for purposes of its risk-based prioritization of examinations, the CFPB is now continuously monitoring spikes and trends in consumer complaints. To do so, the CFPB is using an automated monitoring capability that relies on algorithms to “identify short, medium, and long-term changes in complaint volumes in daily, weekly, and quarterly windows.” The CFPB states that the tool works “regardless of company size, random variation, general complaint growth, and seasonality” and is intended to be an “early warning system.” Unfortunately, the validity of the complaints does not seem to factor into the algorithm.