The CFPB has released the Summer 2020 edition of its Supervisory Highlights. The report discusses the Bureau’s examinations in the areas of consumer reporting, debt collection, deposits, fair lending, mortgage servicing, and payday lending that were completed between September 2019 and December 2019.
Key findings are described below.
Consumer reporting. CFPB examiners found:
- One or more lenders violated the FCRA by obtaining credit reports without a permissible purpose as a result of the lender’s employees having obtained credit reports without first establishing that the lender had a permissible purpose to do so. The CFPB notes that while consumer consent to obtain a credit report is not required where a lender has another permissible purpose, one or more mortgage lenders decided to require their employees to obtain consumer consent before obtaining credit reports “as an additional precaution to ensure that the lender had a permissible purpose to obtain the consumers’ reports.”
- Third party debt collection furnishers of information about cable, satellite, and telecommunications accouns violated the FCRA requirement for furnishers of information about delinquent accounts to report the date of first delinquency to the consumer reporting companies (CRC) within 90 days. The date of first delinquency is “the month and year of commencement of the delinquency on the account that immediately preceded the action.” The CFPB found the furnishers were incorrectly reporting, as the date of first delinquency, the date that the consumer’s service was disconnected even though service was not disconnected until several months after the first missed payment that commenced the delinquency. In addition, one or more furnishers were found to have incorrectly provided the charge-off date as the date of first delinquency, which was often several months after the delinquency commenced.
- One or more furnishers violated the FCRA requirement to conduct a reasonable investigation of direct and indirect disputes. CFPB examiners found that for both direct and indirect disputes, the furnishers failed to review underlying account information and documentation, account history notes, or dispute-related correspondence provided by the consumer. The CFPB notes that inadequate staffing and high daily dispute resolution requirements contributed to the furnishers’ failures.
Debt collection. CFPB examiners found that one or more debt collectors engaged in the following violations:
- Violations of the FDCPA prohibitions regarding threatening actions that cannot legally be taken or are not intended to be taken and using false representations to collect a debt by (1) falsely threatened consumers with lawsuits that the collectors could not legally file or did not intend to file, (2) made false representations regarding the litigation process and a consumer’s obligations in the event of litigation, and (3) made implied representations to consumers that debts would be reported to CRCs if not paid by a certain date when the collectors did not report the debts.
- Violations of the FDCPA prohibitions regarding making false representations that a debt collector operates or is employed by a CRC by falsely representing or implying to consumers that that they operated or were employed by CRCs.
Deposits. CFPB examiners found that one or more financial institutions had engaged in the following violations:
- Violations of the EFTA provision that prohibits the use of agreements that contain a waiver of a consumer’s EFTA rights by requiring consumers to (1) sign deposit agreements stating that consumers would cooperate with the institution’s investigation of any errors alleged by the consumer, including by providing affidavits and notifying law enforcement authorities, and (2) sign stop payment request forms and deposit agreements in which the consumer agreed to indemnify and hold the institutions harmless for various claims and expenses arising from honoring the stop payment request, including not holding the institution liable if it was unable to stop the payment due to inadvertence, accident, or oversight. The CFPB deemed such requirements to be provisions that waived consumer rights in violation of the EFTA because they required consumers to do more than what the EFTA and Regulation E allow to assert their rights.
- Violations of Regulation E requirements regarding qualifying notices of EFTA errors. CFPB examiners found that although the EFTA and Regulation E provide that a qualifying notice is one that is received within 60 days after the institution sends the statement on which the alleged error is first reflected, the institutions required that error notices relating to ACH transactions had to be received within 60 days from the transaction date.
- Violations of the EFTA/Regulation E requirement that an institution investigating an alleged error must provide to consumers the investigation determination, an explanation for the determination when it determines there was no error or a different error occurred, and notice of the consumer’s right to request the documents relied on by the institution to make its determination when it determines no error or a different error occurred. CFPB examiners found that the institutions failed to provide an explanation for their determinations and/or provided inaccurate or irrelevant responses and did not provide consumers with notice of their right to request documents relied on by the institutions.
- Violations of the Regulation DD requirement that deposit account advertisements not mislead, be inaccurate, or misrepresent the deposit account terms by failing to provide advertised bonuses to consumers. The CFPB attributed the violations to quality control and monitoring procedures that did not appropriately ensure that all eligible consumers received the bonus.
Fair lending. CFPB examiners found:
- One or more bank or nonbank mortgage lenders violated the ECOA/Regulation B prohibition against using advertising that discourages prospective applicants on a prohibited basis. CFPB examiners found the lenders had “intentionally redlin[ed] majority-minority neighborhoods in two Metropolitan Statistical Areas (MSAs) by engaging in acts or practices directed at prospective applicants that may have discouraged reasonable people from applying for credit.” Those acts or practices consisted of: (1) prominently featuring a white model in ads run on a weekly basis for two years in a publication with wide circulation in the MSAs, (2) featuring almost exclusively white models in marketing materials intended to be distributed to consumers by the lenders’ retail loan originators, and (3) including headshots of the lenders’ mortgage professionals who appeared to be white in almost all of the lenders’ open house marketing materials. The CFPB states that (1) a statistical analysis of HMDA and U.S. census data provided evidence of the lenders’ intent to discourage prospective applicants from majority-minority neighborhoods, (2) general and refined peer analysis showed the lenders received significantly fewer applications from majority-minority neighborhoods and high-minority neighborhoods relative to other peer lenders in the MSAs, and (3) the lender’s direct marketing campaign that focused on majority-white areas in the MSAs was additional evidence of the lenders’ intent to discourage prospective applicants on a prohibited basis. (The CFPB indicates that the lenders have implemented outreach and marketing programs focused on increasing their visibility among consumers living in or seeking credit in majority-minority census tracts in the MSAs.)
- One or more lenders violated the ECOA prohibition against discrimination against an applicant because the applicant’s income is based entirely or in part on the receipt of public assistance. CFPB examiners found that the lenders had a policy or practice of excluding certain forms of public assistance without considering the applicant’s actual circumstances in determining a borrower’s eligibility for mortgage modification programs. (The CFPB indicates that borrowers who were denied mortgage modifications or otherwise harmed by this practice were provided with “financial remuneration and an appropriate mortgage modification.”)
Mortgage servicing. CFPB examiners found that one or more servicers had engaged in the following violations:
- Violations of the Regulation Z requirement to provide periodic statements to certain consumers in bankruptcy. CFPB examiners attributed the violations to system limitations, and in some cases, a failure to reconcile accounting records of bankruptcy costs maintained by third parties with the servicers’ systems of record.
- Violations of the Regulation X provision that prohibits a servicer from assessing a premium charge or fee for force-placed insurance unless the servicer has a reasonable basis to believe the borrower failed to maintain required hazard insurance. CFPB examiners found that servicers had charged borrowers for force-placed insurance who had provided the servicers with proof of required hazard insurance. Other servicers were found to have charged borrowers for forced-placed insurance where the servicers had received a bill for the borrowers’ hazard insurance but did not assign the bill to the proper account. CFPB examiners attributed these violations to inadequate procedures and staffing and weak service provider oversight.
- Violations of the Regulation X requirement to cancel force-placed insurance and refund premiums for any period where a consumer provides evidence of overlapping coverage within 15 days of receiving such evidence. CFPB examiners attributed these violations to failure to process proof of insurance and inadequate staffing.
- One or more servicers violated Regulation X requirements regarding the treatment of escrow account shortages and deficiencies. CFPB examiners found that for borrowers with either shortages or deficiencies equal to or greater than one month’s escrow payment, the servicers had included a lump sum repayment option in the borrowers’ annual account statements, which servicers cannot not require under Regulation X in that scenario.
- Various violations after servicing transfers, including: failing to provide an accurate effective date for the transfer of servicing in the notice of servicing transfer; failing to exercise reasonable diligence to obtain documents and information necessary to complete a loss mitigation application; failing to credit a periodic payment as of the date of receipt; and when acting as a debt collector, failing to provide a validation notice in accordance with the FDCPA’s timing requirements. The CFPB noted that its examiners’ conclusion that servicers had failed to exercise reasonable diligence was based on the servicers’ request for consumers to submit a new application when an application was virtually complete at the time of servicing transfer. The CFPB attributed the post-transfer violations to errors during the onboarding process and inadequate policies and procedures.
- Violations of the Regulation Z requirement for a new owner to send a mortgage transfer disclosure after acquiring a loan.
Payday lending. CFPB examiners found that one or more lenders engaged in the following violations:
- Violations of the Dodd-Frank UDAAP prohibition of deceptive practices by:
- representing on websites and in mailed advertisements that consumers could apply for loans online. CFPP examiners found that although consumers could enter some information online, the lenders required them to visit a storefront location to re-enter information and complete the loan application process
- falsely representing on proprietary websites, on social media, and in other advertising that they would not conduct a credit check when, in fact, the lenders used consumer reports in determining whether to extend credit
- sending collection letters that falsely threatened lien placement or asset seizure if consumers did not make payments where the lenders did not take such actions and certain assets may have been exempt from lien or seizure under state law
- sending collection letters that falsely threatened to charge late fees if consumers did not make payments when the lenders did not charge late fees
- Violations of the Regulation Z advertising requirement to include certain additional information when certain “trigger terms” appear in an advertisement.
- Violations of the Regulation Z requirement for an advertisement that states specific credit terms to state terms that actually are or will be arranged or offered by the creditor. CFPB examiners found that the lenders had advertised that a new customer’s first loan would be free but were not actually prepared to offer the advertised terms. Instead, the lenders offered consumers one free week for loans with a term longer than one week, with such loans carrying “considerable APRs.”