The CFPB has released the Fall 2021 edition of its Supervisory Highlights. The report discusses the Bureau’s examinations in the areas of credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts, and remittances that were completed between January 2021 and June 2021. Accordingly, the majority of examinations discussed in the report would have taken place under the leadership of former Acting Director Uejio.
The CFPB’s press release about the report carries the hyperbolic title “CFPB Report Highlights Supervisory Findings of Wide-Ranging Violations of Law in 2021.” The report does not characterize the causes of the violations found by examiners, and even consumer financial protection laws recognize that violations can occur despite good faith compliance efforts. Nevertheless, the press release includes a statement from Director Chopra indicating that the violations occurred because companies were “irresponsible or mismanaged.”
Key findings by CFPB examiners are described below.
Credit card management. In addition to finding that creditors have violated Regulation Z billing error resolution provisions, card issuers were found to have engaged in deceptive acts or practices by:
- Advertising to certain existing customers that they would receive bonus offers if they opened a new credit card account and met certain spending requirements but failing to provide the advertised bonuses to customers who satisfied these requirements
- Advertising to other customers that they would receive bonus offers if they opened a new credit card account and met certain spending requirements but failing to disclose or adequately disclose that consumers had to apply online to receive the bonus.
Debt collection. Debt collectors were found to have created a risk of a false representation or deceptive means to collect or attempt to collect a debt in violation of the FDCPA by representing to consumers that improvements to the consumers’ creditworthiness and deletion of a tradeline would occur upon making final payment under a restarted payment plan. Such payment might not, in fact, improve a consumer’s credit score because numerous factors influence an individual consumer’s credit score, including potential tradelines previously furnished by owners of the same debt.
Deposits. Financial institutions were found to have violated Regulation E error resolution provisions in connection with the provision of person-to-person digital payment network services. Errors are defined by Regulation E to include “[a]n incorrect electronic transfer to or from the consumer’s account.” Examiners found that due to inaccurate or outdated information in the digital payment network directory, consumers’ EFTs were misdirected to unintended recipients even though the consumer had accurately provided the recipient’s correct phone number or email address. Referred to as “token errors,” such errors are “incorrect” EFTs because the funds are not transferred to the correct account. Examiners found that the institutions violated Regulation E by failing to determine that token errors were “incorrect” EFTs for purposes of Regulation E and by failing to conduct reasonable error investigations when they received notices from consumers alleging that funds had not been received by the intended recipients. Reasonable investigations were not conducted because the institutions only looked at whether the EFTs had been processed in accordance with the sender’s instructions and not at whether the payment went to an unintended recipient due to a token error.
Fair lending. Examiners found instances of pricing discrimination and religious discrimination in violation of the ECOA and Regulation B as follows:
- Pricing discrimination. Mortgage lenders were found have unlawfully discriminated against African American and female borrowers in granting pricing exceptions based on competitive offers from other lenders. The lenders had policies and procedures permitting loan officers to offer pricing exceptions but did not specifically address the circumstances when a pricing exception could be offered in response to a competitive offer. Lenders instead relied on managers to adopt a verbal policy that a consumer had to initiate or request an exception. Examiners identified lenders with statistically significant disparities in the incidence of pricing exceptions for African American and female applicants compared to similarly situated non-Hispanic white and male borrowers. Examiners identified instances where lenders provided pricing exceptions for a competitive offer to non-Hispanic white and male borrowers with no evidence of customer initiation. There was also a lack of documentation to support pricing exceptions. The report cites lenders’ lack of oversight and control over mortgage loan officers’ use of exceptions and managements’ failure to take appropriate corrective action as to self-identified risks as having contributed to the disparities.
- Religious discrimination. Lenders were found to have unlawfully discriminated based on religion by improperly inquiring about the religion of small business applicants and considering an applicant’s religion in the credit decision. For applicants that were religious institutions, the lenders used a questionnaire that explicitly asked about the applicant’s religion. Lenders also denied credit to religious institution applicants because they had not responded to the questionnaire.
Mortgage servicing. Servicers were found to have engaged in unfair acts or practices by:
- Charging delinquency-related fees to borrowers in CARES Act forbearances in violation of the CARES Act prohibition
- Failing to terminate preauthorized EFTs from closed accounts after receiving notice of the closures, resulting in repeated NSF fees for failed preauthorized EFTs
- Charging more to borrowers for the cost of home inspections and broker-price opinions than the actual costs of such services
- Inaccurately describing payment and transaction information in borrowers’ online accounts
Servicers were also found to have:
- Violated Regulation X by failing to evaluate complete loss mitigation applications within 30 days
- Violated Regulation Z by applying payments in excess of the amount due to borrowers’ escrow accounts rather than handling them in accordance with the requirements for the treatment of partial payments (which required the servicers to either return the excess payment to the borrower or credit the payment to the borrower’s next regularly scheduled monthly payment).
- Violated the Homeowners Protection Act by failing to terminate private mortgage insurance on the date that the principal balance of a mortgage that was current was first scheduled to reach 78 percent loan-to-value
Payday lending. Lenders were found to have engaged in deceptive acts or practices by:
- Debiting or attempting to debit from consumers’ accounts the remaining loan balance on the original due date after the consumers had (1) applied for an extension, and (2) received a confirmation email stating that only an extension fee would be charged on the due date
- Misrepresenting in loan confirmation emails that consumers would only pay an extension fee on the original due dates of their loans
- Debiting or attempting one or more additional, identical, unauthorized debits from consumers’ bank accounts due to a coding error or after consumers called to authorize a loan payment by debit card and the lenders’ systems erroneously indicated that the payments had not processed. (These facts were also the basis for the finding that lenders had violated Regulation E by failing to retain evidence of compliance with Regulation E for the required time period.)
Prepaid accounts. Financial institutions issuing prepaid accounts were found to have violated the EFTA and Regulation E by failing to honor stop payment requests they received orally or in writing at least 3 business days before the scheduled date of the transfer. The institutions’ service providers improperly required consumers to first contact the merchant before they would process a stop-payment request. Financial institutions were also found to have violated the Regulation E error investigation provisions by failing to (1) promptly begin investigations upon receipt of an oral error notice, (2) complete investigations of disputed point-of-sale debit transactions within 90 days of receipt of the initial error notice, after issuing provisional credit when required, and (3) reporting investigation results in the determination letter sent to consumers.
Remittance transfers. Providers were found to have violated the error investigation provisions of the remittances rule by failing to (1) investigate whether a deduction imposed by a foreign recipient bank was a fee that the institutions were required to refund to the sender, and (2) refund that fee after the providers had received notices of error alleging that remitted funds had not been made available to the designated recipient by the disclosed date of availability.