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.

 

The CFPB has issued its April 2017 complaint report that highlights student loan complaints.  The report also highlights complaints from consumers in Nevada and the Las Vegas metro area.

On June 8, 2017, from 12:00 p.m. to 1:00 p.m. ET, Ballard Spahr will hold a webinar, “CFPB Criticism of Student Loan Servicers – What’s Coming Next?”  Click here to register.

General findings include the following:

  • As of April 1, 2017, the CFPB handled approximately 1,163,200 complaints nationally, including approximately 28,000 complaints in March 2017.
  • Debt collection continued to be the most-complained-about financial product or service in March 2017, representing about 31 percent of complaints submitted.
  • Debt collection complaints, together with complaints about credit reporting and student loans, collectively represented about 65 percent of the complaints submitted in March 2017.
  • Complaints about student loans showed the greatest month-over-month decrease, decreasing 20 percent from February 2017.  At the same time, student loans had the greatest percentage increase based on a three-month average, increasing about 325 percent from the same time last year (January 2016 to March 2016 compared with January 2017 to March 2017).  In February 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education.  As we have noted in blog posts about prior CFPB monthly complaint reports issued beginning in April 2016, rather than reflecting an increase in the number of borrowers making student loan complaints, the increasing percentages represented by student loan complaints received by the CFPB most likely reflected the change in where such complaints were sent.  For the first time, the CFPB has acknowledged the impact of such change, stating “Part of [the 325 percent year-to-year increase] can be attributed to the CFPB updating its student loan complaint form to accept complaints about Federal student loan servicing, starting in late February 2016.”
  • Payday loans showed the greatest percentage decrease based on a three-month average, decreasing about 29 percent from the same time last year (January 2016 to March 2016 compared with January 2017 to March 2017).  Complaints during those periods decreased from 417 complaints in 2016 to 298 complaints in 2017.  In the February and March 2017 complaint reports, payday loans also showed the greatest percentage decrease based on a three-month average.

Findings regarding student loan complaints include the following:

  • The CFPB has handled approximately 44,400 student loan complaints since July 21, 2011, representing 4 percent of all complaints.
  • The most common issues identified in complaints involved problems dealing with lenders or servicers and being unable to repay loans.
  • Federal student loan borrowers contacting servicers about financial distress complained about receiving information about hardship forbearance and deferment instead of options such as income-driven repayment plans.  Borrowers also complained about difficulty enrolling in such plans and unclear guidance when seeking to switch plans.
  • Federal student loan borrowers reported not receiving sufficient information from servicers to meet recertification deadlines for income-driven repayment plans.  They also complained about misapplication of payments, such as payments being applied to all accounts handled by a servicer rather than specific accounts and overpayments intended to reduce the principal balance being treated as early payments that put the accounts in paid ahead status.  Borrowers also reported various problems with Public Student Loan Forgiveness and other forgiveness programs, such as not being enrolled in a qualifying program despite years of making payments.
  • Non-federal loan borrowers complained about misapplied payments and inaccurate accounting of payments.
  • Federal and non-federal loan borrowers reported issues involving incorrect reporting to consumer reporting companies.  (The CFPB does not provide enough information in the report to determine the number of complaints that involved the issues described above.)

Findings regarding complaints from Nevada consumers include the following:

  • As of April 1, 2017, approximately 14,600 complaints were submitted by Nevada consumers of which approximately 10,800 were from Las Vegas consumers.
  • Debt collection was the most-complained-about product, representing 29 percent of all complaints submitted by Nevada consumers, which was higher than the national average rate of 27 percent of all complaints submitted by consumers.
  • Average monthly complaints received from Nevada consumers increased 17 percent from the same time last year (January 2016 to March 2016 compared with January 2017 to March 2017), lower than the increase of 19 percent nationally.

 

 

The CFPB recently released a “Special Edition” of its Supervisory Highlights that focuses exclusively on data accuracy issues in consumer credit reporting and the handling and resolution of consumer disputes. The report describes the observations of CFPB examiners during examinations of both consumer reporting agencies and the creditors and other companies that furnish information to consumer reporting agencies.

The CFPB acknowledges that consumer reporting agencies have made significant advances in promoting the accuracy of data reported to them by overseeing data furnishers and enhancing the dispute resolution process, but the CFPB believes that continued improvements are still necessary in these areas. In their examinations of furnishers, the CFPB examiners found “CMS weaknesses and numerous violations of the FCRA and Regulation V that required corrective action by furnisher(s).”

The CFPB’s “supervisory observations” include the following:

  • Data governance. CFPB examiners found that one or more consumer reporting agencies had decentralized data governance functions and undefined data governance responsibilities, a lack of quality control policies and procedures, and inconsistent practices for vetting furnishers and providing data quality feedback to them. CFPB examiners also found that one or more furnishers had weaknesses in its compliance management system, including weak oversight by management over data furnishing practices and no formal data governance program.
  • Reinvestigation of disputes. CFPB examiners found that one or more consumer reporting agencies did not comply with its obligation to conduct a reasonable reinvestigation when consumers dispute the completeness or accuracy of items in their consumer files. CFPB examiners also found that one or more consumer reporting agencies did not review and consider certain categories of documentary evidence in support of a dispute submitted by consumers. Furthermore, CFPB examiners found that one or more furnishers’ policies and procedures failed to promote reasonable investigations of disputes.
  • Required dispute notices. One or more consumer reporting agencies examined by the CFPB failed to provide notification of a consumer dispute within five business days to the furnisher who provided the information because the furnishers’ contact information was no longer valid at the time of the consumer’s dispute. CFPB examiners also found that one or more consumer reporting agencies sent dispute notices to consumers that failed to clearly articulate the results of the dispute investigation as required by the FCRA. In cases where furnishers decided to not investigate disputed information, the CFPB found that one or more furnishers failed to provide consumers with proper notice of a reasonable determination that a dispute was frivolous or irrelevant.
  • Quality control. One or more furnishers examined by the CFPB failed to perform quality checks on the data furnished to consumer reporting agencies, failed to conduct ongoing periodic evaluations or audits of furnishing practices, and failed to conduct audits of disputed information to identify and correct root causes of any inaccurate furnishing.
  • Data accuracy requirements. CFPB examiners found that one or more furnishers provided consumer information to consumer reporting agencies while knowing or having reasonable cause to believe that the information was inaccurate, including information that consumers were delinquent, had no payment history, or had an unpaid charged-off balance when they had settled the account in full.

The report indicates that the consumer reporting market is a “high priority” for the CFPB. Notably, the report states that the CFPB has “targeted substantial resources” to improving the accuracy of consumer information and will continue to do so.

The CFPB recently released a “Special Edition” of its Supervisory Highlights that focuses exclusively on data accuracy issues in consumer credit reporting and the handling and resolution of consumer disputes. The report describes the observations of CFPB examiners during examinations of both consumer reporting agencies and the creditors and other companies that furnish information to consumer reporting agencies.

The CFPB acknowledges that consumer reporting agencies have made significant advances in promoting the accuracy of data reported to them by overseeing data furnishers and enhancing the dispute resolution process, but the CFPB believes that continued improvements are still necessary in these areas. In their examinations of furnishers, the CFPB examiners found “CMS weaknesses and numerous violations of the FCRA and Regulation V that required corrective action by furnisher(s).”

The CFPB’s “supervisory observations” include the following:

  • Data governance. CFPB examiners found that one or more consumer reporting agencies had decentralized data governance functions and undefined data governance responsibilities, a lack of quality control policies and procedures, and inconsistent practices for vetting furnishers and providing data quality feedback to them. CFPB examiners also found that one or more furnishers had weaknesses in its compliance management system, including weak oversight by management over data furnishing practices and no formal data governance program.
  • Reinvestigation of disputes. CFPB examiners found that one or more consumer reporting agencies did not comply with its obligation to conduct a reasonable reinvestigation when consumers dispute the completeness or accuracy of items in their consumer files. CFPB examiners also found that one or more consumer reporting agencies did not review and consider certain categories of documentary evidence in support of a dispute submitted by consumers. Furthermore, CFPB examiners found that one or more furnishers’ policies and procedures failed to promote reasonable investigations of disputes.
  • Required dispute notices. One or more consumer reporting agencies examined by the CFPB failed to provide notification of a consumer dispute within five business days to the furnisher who provided the information because the furnishers’ contact information was no longer valid at the time of the consumer’s dispute. CFPB examiners also found that one or more consumer reporting agencies sent dispute notices to consumers that failed to clearly articulate the results of the dispute investigation as required by the FCRA. In cases where furnishers decided to not investigate disputed information, the CFPB found that one or more furnishers failed to provide consumers with proper notice of a reasonable determination that a dispute was frivolous or irrelevant.
  • Quality control. One or more furnishers examined by the CFPB failed to perform quality checks on the data furnished to consumer reporting agencies, failed to conduct ongoing periodic evaluations or audits of furnishing practices, and failed to conduct audits of disputed information to identify and correct root causes of any inaccurate furnishing.
  • Data accuracy requirements. CFPB examiners found that one or more furnishers provided consumer information to consumer reporting agencies while knowing or having reasonable cause to believe that the information was inaccurate, including information that consumers were delinquent, had no payment history, or had an unpaid charged-off balance when they had settled the account in full.

The report indicates that the consumer reporting market is a “high priority” for the CFPB. Notably, the report states that the CFPB has “targeted substantial resources” to improving the accuracy of consumer information and will continue to do so.

The CFPB’s Fall 2016 rulemaking agenda has been published as part of the Fall 2016 Unified Agenda of Federal Regulatory and Deregulatory Actions.  The preamble indicates that the information in the agenda is current as of October 19, 2016.  Accordingly, given the results of the Presidential election, including its potential impact on the CFPB’s leadership, there is likely to be a post-election reevaluation by the CFPB of its agenda.  The agenda sets the following timetables for key rulemaking initiatives:

Arbitration.  The CFPB released its proposed arbitration rule in May 2016 and the comment period ended on August 22, 2016.  The Fall 2016 agenda indicates that the CFPB “is reviewing and considering comments on the proposed rule” as it “considers development of a final rule for early 2017.”  The agenda gives a February 2017 estimated date for a final rule.  In recent days, we have heard speculation that the CFPB will issue a final rule before Donald Trump’s inauguration as President on January 20.  As we discussed in a recent blog post, a final arbitration rule or other new final rules issued by the CFPB (and potentially any final rules issued since late May 2016) could be nullified by Congress under the Congressional Review Act (CRA).  The CRA establishes a special set of procedures that allow Congress to pass a joint resolution disapproving a rule which cannot be filibustered in the Senate and can be passed by only a simple majority vote.

Payday, title, and deposit advance loans.  The CFPB released its proposed rule on payday, title, and high-cost installment loans in June 2016 and the comment period ended on October 22, 2016.  While there has also been speculation that the CFPB will attempt to finalize a rule by January 20, that possibility seems more remote given the unprecedented level of comments (approximately one million) received by the CFPB and the complexity of the proposed rule.  The Fall 2016 agenda does not give an estimated date for a final rule.

Debt collection.  In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection.  In July 2016, it issued an outline of the proposals it is considering in anticipation of convening a SBREFA panel.  It has been reported that the SBREFA panel for the CFPB’s debt collection rulemaking met with small entity representatives (SER) at the end of August 2016.  Within 60 days from the date it is considered to have “convened,” the panel must submit a report to the CFPB on the input received from the SERs.  However, the report will not become public until the CFPB issues its proposed rule.

The CFPB’s proposals only cover “debt collectors” that are subject to the FDCPA.  They are not intended to apply to a first-party creditor collecting its own debts or to a servicer when collecting debts that were current when servicing began to the extent the creditor or servicer would not be a “debt collector” under the FDCPA.  When it issued the proposals, the CFPB stated that it “expects to convene a second proceeding in the next several months” for creditors and others engaged in debt collection not covered by the proposals, noting that it believes a separate SBREFA process “is the most efficient way to proceed, particularly because it will allow participants to provide more focused and specific insights.”

In the Fall 2016 agenda, the CFPB states that it “expects to convene a separate SBREFA proceeding focusing on companies that collect their own debts in 2017.”  The agenda gives a February 2017 estimated date for further prerule activities.

Overdrafts.  The CFPB issued a June 2013 white paper and a July 2014 report on checking account overdraft services.  In the Fall 2016 agenda, as it did in its Fall 2015 and Spring 2016 agendas, the CFPB states that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.”  Although the Spring 2016 agenda estimated an August 2016 date for further prerule activities, the new agenda moves that date to January 2017.  As we have previously noted, the extended timeline may reflect that the CFPB feels less urgency to promulgate a rule prohibiting the use of a high-to-low dollar amount order to process electronic debits because most of the banks subject to its supervisory jurisdiction have already changed their processing order.

Larger participants.  As it did in its Fall 2015 and Spring 2015 agendas, the CFPB states in the Fall 2016 agenda that it is considering “larger participant” rules “in markets for consumer installment loans and vehicle title loans for purposes of supervision.”  It also repeats its previous statement that the CFPB is “also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.”  (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”)  While the Spring 2016 agenda estimated a December 2016 date for prerule activities, the new agenda estimates a May 2017 date.

Small business lending data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data include the race, sex, and ethnicity of the principal owners of the business.  While the Spring 2016 agenda estimated a December 2016 date for prerule activities, the new agenda estimates a March 2017 date.  The CFPB states in the Fall 2016 agenda that it “is focusing on outreach and research to develop its understanding of the players, products, and practices in business lending markets and of the potential ways to implement section 1071.  The CFPB then expects to begin developing proposed regulations concerning the data to be collected and determining the appropriate procedures and privacy protections needed for information-gathering and public disclosure under this section.”

Mortgage rules.  In July 2016, the CFPB issued a proposed rule containing both substantive amendments and technical corrections to the final TILA-RESPA Integrated Disclosure rule.  The comment period on the proposal ended on October 18, 2016 and the Fall 2016 agenda gives a March 2017 estimated date for issuance of a final rule.  The Fall 2016 agenda gives a March 2017 estimated date for a proposed rule “to amend certain provisions of Regulation C to make technical corrections and to clarify certain requirements under Regulation C” and a proposed rule “to amend Regulation B to reconcile how creditors may collect information about the ethnicity and race of applicants to clarify how financial institutions and creditors subject to Regulation C and Regulation B may comply with both regulations.”

Student Loan Servicing and Consumer Reporting.  As they were in the Fall 2015 and Spring 2016 agendas, both of these topics continue to be listed in the Fall 2016 agenda as “long-term action” items with no estimated dates for further action.  The Office of Management and Budget defines “long-term action” items as “items under development but for which an agency does not expect to have a regulatory action within 12 months after publication of this edition of the Unified Agenda.”

The CFPB has reissued its guidance on service providers which was formerly titled CFPB Bulletin 2012-03, and as published in the Federal Register on October 26, 2016, is now titled “Compliance Bulletin and Policy Guidance 2016-02.”

The reissued guidance includes an amendment that the CFPB described as “needed to clarify that supervised entities have flexibility [in their risk management program for service providers] and to allow appropriate risk management.”  The amendment consists of the addition of the following language to the guidance:

The Bureau expects that the depth and formality of the entity’s risk management program for service providers may vary depending upon the service being performed-its size, scope, complexity, importance and potential for consumer harm – and the performance of the service provider in carrying out its activities in compliance with Federal consumer financial laws and regulations.  While due diligence does not provide a shield against liability for actions by the service provider, it could help reduce the risk that the service provider will commit violations for which the supervised bank or nonbank may be liable, as discussed above.

(The words “as discussed above” in the added language refer to the section of the guidance that indicates a supervised bank or nonbank can also have liability for a service provider’s noncompliance.)

Although other CFPB Bulletins were published in the Federal Register, it appears that the CFPB did not previously publish Bulletin 2012-03 when it was issued.  Accordingly, similar to other published bulletins, Compliance Bulletin and Policy Guidance 2016-02 contains a section on regulatory requirements stating that the Compliance Bulletin and Policy Guidance is exempt from notice and comment rulemaking requirements under the Administrative Procedure Act because it “is a non-binding general statement of policy articulating considerations relevant to the Bureau’s exercise of its supervisory and enforcement authority.”

 

Without an announcement, the CFPB has proposed a rule that would expand its discretion to share confidential supervisory information (CSI) with state attorneys general and other agencies that do not have supervisory authority over companies.

The proposed rule, published yesterday in the Federal Register, would amend the CFPB’s information disclosure rules under 12 CFR 1070.43 to:

  1. Expand the agencies that can receive CSI from federal and state agencies to any “Agency” defined as a “Federal, State, or foreign governmental authority, or an entity exercising governmental authority” regardless of whether it has jurisdiction over the company whose CSI is shared.
  2. Lower the standard for disclosure of CSI from “having jurisdiction over [the] supervised financial institution” to disclosure if it is “relevant to the exercise of the Agency’s statutory or regulatory authority.”
  3. Replace the CFPB General Counsel as the person who decides whether to disclose CSI with the head of Supervision, Enforcement, and Fair Lending.

By the CFPB’s own admission in the proposal, these changes would eliminate the stricter standard for disclosing CSI and apply the more relaxed and subjective standard for non-supervisory confidential information.  The amendments mean that any agency (including local authorities such as the New York City Department of Consumer Affairs)—which doesn’t have jurisdiction over a company—could still receive the company’s CSI because it is “relevant” to the requesting agency’s authority.

The CFPB attempts to justify this radical and potentially far-reaching change by arguing that it has reached a “better” interpretation of Section 1022 of Dodd-Frank.  The proposed rule, however, deviates from the plain language in Section 1022:

“[T]he Bureau may, in its discretion, furnish to a prudential regulator or other agency having jurisdiction over a covered person or service provider any other report or other confidential supervisory information concerning such person examined by the Bureau under the authority of any other provision of Federal law.”

12 USC 5512(c)(6)(C)(ii) (Emphasis added).

The proposed rule, while alarming by itself, begs the question: Why does the CFPB want to expand its power to share CSI with state AGs and other agencies that don’t have supervisory authority, especially since the Bureau has been assuring companies that, under the current rules, such disclosures are rare?  The CFPB should answer this question and explain why highly sensitive, proprietary, and sometimes privileged CSI should be disclosed more widely and easily.  The proposed rule would affect supervised banks and non-banks alike.  We therefore urge industry stakeholders to submit comments by the deadline, which is October 24, 2016.