The CFPB has released the Summer 2021 edition of its Supervisory Highlights. The report, which contains 48 pages of supervisory observations, discusses the Bureau’s examinations in the areas of auto servicing, consumer reporting, debt collection, deposits, fair lending, mortgage origination and servicing, private student loans, payday lending, and student loan servicing that were completed between January 1, 2020 and December 31, 2020 (which was the last full year of Kathleen Kraninger’s tenure as CFPB Director).
Key findings by CFPB examiners are described below.
Servicers were found to have engaged in unfair practices in violation of the CFPA UDAAP prohibition by:
- Adding and maintaining charges for collateral protection insurance (CPI) premiums as a result of deficient processes when consumers had adequate insurance in place, with some servicers causing additional injury by applying refunds of CPI charges to principal instead of returning the amounts directly to consumers.
- Collecting or attempting to collect CPI premiums after repossession, even though no actual insurance protection was provided for those periods.
- Posting payments to the wrong account or posting certain payments as principal-only payments instead of periodic installment payments, resulting in late fees and additional interest.
- Accepting loan payoff amounts that included overcharges for optional products (as a result of the method used to calculate refunds), after telling consumers that they owed the larger amount.
Servicers were found to have engaged in deceptive practices in violation of the CFPA UDAAP prohibition by representing on their websites that payments would be applied in a specified order (as between principal, interest and fees) and subsequently applying payments in a different order.
Consumer reporting companies (CRCs) were found to have violated the FCRA by:
- Not complying with the FCRA requirement to follow reasonable procedures to assure maximum accuracy of information in consumer report as a result of continuing to include information that was provided by unreliable furnishers (i.e. furnishers who had responded to disputes in ways that suggested they were no longer sources of reliable, verifiable information about consumers). In particular, the CFPB stated that the furnishers’ failure to respond to disputes, or deleting all disputed tradelines, or validating all disputes, should have alerted the CRCs that the furnishers’ information was unreliable.
- Not complying with the FCRA 3-business day requirement for placing a security freeze on a consumer’s credit report after receiving the consumer’s freeze request.
- Not complying with the FCRA 4-business day requirement to block the reporting of information that the consumer identifies as information resulting from an alleged identity theft.
Auto loan furnishers were found to have violated the FCRA requirement to promptly notify CRCs of furnished information determined to be inaccurate or incomplete by failing to send updated or corrected information to CRCs after making a determination that furnished information was no longer accurate.
Mortgage furnishers were found to have violated the Regulation V requirement to conduct reasonable investigations of direct disputes as a result of maintaining procedures that instructed employees to (1) verify that consumers’ signatures matched the signature on file and, (2) if they did not match, to send a letter to the borrower stating that the information provided in the dispute did not match the furnishers’ records and take no further steps to investigate the dispute. Interestingly, however, the discussion of how the furnishers resolved this issue included the statement that the furnishers adopted policies and procedures to reasonably identify disputes that were “frivolous or irrelevant” because they originated from a credit repair organization.
Debt collection. Debt collectors were found to have violated the FDCPA by:
- Communicating with consumers at their places of employment during work hours when the collector knew or should have known that calls during work hours were inconvenient to the consumers.
- Communicating with third parties other than those permitted by the FDCPA and, when communicating with third parties for the purpose of acquiring location information, disclosing the name of the debt collector to third parties who had not expressly requested the collector’s name.
- Continuing to attempt to collect a debt from the consumer after receiving a written request from the consumer to cease further communications.
- Harassing consumers by emphasizing multiple times to consumers who had stated they were unable to make or complete payment arrangements that the collector would place a note in the account system stating that the consumer was refusing to make a payment.
- Threatening to report to CRCs that consumers owed debts that the collectors knew or should have known were disputed, resulted from identity theft, and were not owed by the consumers and reporting such debts to CRCs without reporting that the debts were disputed.
- Falsely representing to consumers the impact on their credit files of paying off their debts, such as telling the consumer the debt would no longer impact their credit profile once paid.
- Entering inaccurate information regarding state interest rate caps in an automated system, resulting in overcharges to consumers.
- Sending wage garnishment orders to consumers’ employers by mistake, despite having received completed applications from the consumers to consolidate their debts which should have stopped the garnishment process based on standard procedures.
- Sending validation notices that did not include required information.
Financial institutions were found to have violated Regulation E by:
- Failing to comply with provisional credit requirements for disputed transactions.
- Failing to complete investigations of disputes and make a determination within the applicable time periods.
- Failing to conduct reasonable investigations of disputes by denying claims solely because the consumers had previously conducted business with the merchant.
- Failing to refund associated fees and credit interest when resolving disputes in the consumer’s favor.
- Failing to comply with overdraft opt-in requirements, including by failing to advise consumers of their right to revoke an opt-in to overdraft services as part of their opt-in confirmation and failing to retain evidence of having obtained affirmative consent to opt into overdraft services.
Financial institutions were found to have violated Regulation DD by disclosing to consumers, through automated systems available account balance amount that included potential discretionary overdraft credit and by failing to correctly disclosed on periodic statements the amount of overdraft fees incurred by the consumer during the statement cycle.
- HMDA. CFPB examiners found widespread errors within 2018 HMDA loan application registers of several financial institutions. In several examinations that identified such errors, the root causes were deficiencies in the institutions’ compliance management systems.
- Redlining. CFPB examiners found that a lender violated the ECOA and Regulation B by engaging in acts or practices directed at prospective applicants that would have discouraged reasonable people in minority neighborhoods in Metropolitan Statistical Areas (MSAs) from applying for credit. The lender was prioritized for a redlining examination because an initial analysis of HMDA and U.S. census data showed that the lender received significantly fewer applications from majority-minority and high-minority neighborhoods relative to other peer lenders in the MSA. These differences relative to the lender’s peer lenders were confirmed by examiners in subsequent, in-depth analyses. Evidence of communications that would have discouraged reasonable people on a prohibited basis from applying to the lender for a mortgage loan included: (1) direct marketing materials that only featured models appearing to be non-Hispanic white, (2)open house marketing materials that only included headshots of mortgage professionals appearing to be non-Hispanic white, and (3) locating nearly all offices in majority non-Hispanic white areas.
Lenders were found to have violated Regulation Z by:
- Compensating loan originators differently based on product type, specifically lower compensation for bond program loans subject to state Housing Finance Agency requirements, and higher compensation for construction loans.
- For a simultaneous purchase of lender and owner title insurance policies, disclosing the lender’ title insurance premium at the discounted rate and the owner’s title insurance at the full premium on the Loan Estimate.
Lenders were found to have engaged in deceptive practices in violation of the CFPA UDAAP prohibition by using:
- A waiver provision in a rider to a security deed that provided that borrowers who signed the agreement waived all of their rights to notice or judicial hearing before the lender exercised its right to nonjudicially foreclose on the property. This practice was deemed deceptive because a reasonable consumer could understand the provision to waive the consumer’s right under Regulation X to sue over a loss mitigation notice violation in the nonjudicial foreclosure context.
- A security agreement for cooperative units that required borrowers to agree to a waiver, in the event of default, of any equity or right of redemption. This practice was deemed deceptive in light of the Regulation Z provision prohibiting the interpretation of dwelling-secured contracts to bar federal claims because the waiver language would likely mislead a consumer into believing that by signing the agreement they waived their right to bring any claim in court, including federal claims.
Servicers were found to have violated Regulation X by:
- Failing to apply foreclosure protections on the date that outstanding loss mitigation application information was received, which rendered the application “facially-complete.” Instead of applying the foreclosure hold on the date the information was received, the servicer only did so after an internal analysis of that information, which caused a delay of more than a day, during which a foreclosure filing occurred.
- Making the first notice or filing for foreclosure before fully evaluating borrowers’ appeals.
- Having a process in place for directing foreclosure counsel to stop all legal filings only after the servicer had sent borrowers the notice acknowledging receipt of a complete loss mitigation application. Such a process violates Regulation X because the notice of complete application can be sent up to five days after receipt of the application, whereas the foreclosure protections apply on the date that a complete loss mitigation application is received.
- Including in the estimated disbursements for an annual escrow analysis a full year of private mortgage insurance (PMI) disbursements despite knowing that PMI would be charged for only part of the year.
Servicers were found to have engaged in a deceptive practice in violation of the CFPA UDAAP prohibition by representing to borrowers, who had submitted a repeat loss mitigation application, that they would not initiate a foreclosure until a specified date. However, because repeat loss mitigation applications are excluded from coverage under the loss mitigation procedures and foreclosure protections of Regulation X, foreclosures were initiated prior to the date provided in the communications
Payday lending. Lenders were found to have engaged in deceptive practices in violation of the CFPA UDAAP prohibition by:
- Sending collection letters to delinquent borrowers stating an intent to sue if the consumer did not repay the loan when the lenders, in fact, had not decided prior to sending the letters that they would sue if borrowers did not pay, and in most cases did not sue borrowers who did not pay.
- Falsely representing on storefronts and in photos on proprietary websites that they would not check a consumer’s credit history when, in fact, the lenders used consumer reports in determining whether to extend credit.
- Presenting fee-based refinance options to struggling borrowers while withholding information about contractually available no-cost repayment plan options.
Private student loan origination. Entities were found to have engaged in deceptive practices in violation of the CFPA UDAAP prohibition as a result of the net impression created by marketing materials that advertised rates “as low as” X%, disclosed certain conditions to obtain that rate, and omitted that a borrower’s rate would depend on creditworthiness.
Student loan servicing. Servicers were found to have engaged in deceptive practices in violation of the CFPA UDAAP prohibition by providing Federal Family Education Loan Program (FFELP) borrowers inaccurate information about eligibility for the Public Service Loan Forgiveness (PSLF) program. Such practices included:
- Representing to FFELP borrowers that they could submit their employer certification forms (ECF) to receive a determination on whether their employers are eligible for PSLF when under PSLF program guidelines, FFELP borrowers who submit an ECF before consolidating into a Direct Loan will be rejected without any determination about employer eligibility.
- Advising FFELP borrowers that their loans could not become eligible for PSLF.
- Informing borrowers interested in the PSLF program that they were only eligible if their employer was a non-profit.
Servicer practices found to be unfair in violation of the CFPB UDAAP prohibition included:
- For consumers whose accounts were automatically placed into a natural disaster forbearance, failing to unenroll consumers from forbearances upon their request and failing to reenroll consumers in auto-debit programs when forbearances ended.
- Failing to waive or refund overcharges assessed following loan transfers that resulted in income-based repayment plans not being honored.
- Failing to follow borrowers’ explicit standing instructions on payment allocation.