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.

 

 

A group of 20 state attorneys general, the D.C. attorney general, and the Executive Director of the Office of Consumer Protection of Hawaii have sent a letter to U.S. Department of Education Secretary Betsy DeVos criticizing the ED’s withdrawal of various memoranda issued during the Obama Administration regarding federal student loan servicing reforms.

The memoranda were intended to guide the development of provisions in new contracts to be entered into by the ED with servicers it selected for a new federal student loan servicing system and included directions to contractors to designate, train, and appropriately compensate specialized servicing personnel to assist at-risk and certain other borrowers. and standards to provide consistency in the handling, processing, and application of payments by servicers and other servicing practices.  Secretary DeVos had indicated that withdrawal of the memoranda was necessary to “negate any impediment, ambiguity or inconsistency” in the ED’s approach to acquiring new federal student loan servicing capabilities.

In their letter, the state AGs assert that the ED’s “stated rationale does not justify summarily denying student borrowers [the] basic protections [provided by the new servicing standards].”  The state AGs highlight requirements for servicers to apply overpayments to loans with the highest interest rates unless instructed otherwise by the borrower and to inform a borrower of income-driven repayment options before placing the borrower in forbearance or deferment.  They note that ‘[s]ervicers’ failure to comply with such standards may be independent violations of state law.”

 

In a memorandum issued last week, U.S. Department of Education Secretary Betsy DeVos withdrew various memoranda issued by the Obama Administration ED Secretary and the ED’s Financial Student Aid Division (FSA) that provided policy direction for a new federal student loan “state-of-the-art loan servicing ecosystem” to be procured by the ED.  The memoranda were intended to guide the development of provisions in new contracts to be entered into by the ED with “customer service providers” it selected to participate in servicing federal student loans on the new servicing ecosystem.  ED had also planned to work with federal and state law enforcement agencies and regulators to apply the policy direction to the servicing of all student loans, to the maximum extent possible.

The memoranda had included: recommendations for changes to the compensation structure and performance measurements included in the federal Direct Loan servicing contracts; directions to contractors to designate, train, and appropriately compensate specialized servicing personnel to assist at-risk and certain other borrowers; and standards to provide consistency in the handling, processing, and application of payments by servicers and other servicing practices, such as how information about student loans is reported to credit bureaus and the process for servicing transfers.

In the fifth annual report of the CFPB Student Loan Ombudsman released in October 2016, the CFPB focused on servicers’ alleged failure to help distressed private and federal student loan borrowers enroll or stay enrolled in affordable or income-driven repayment (IDR) plans.  To address problems discussed in the report, the Ombudsman urged policymakers and industry to consider various actions, including requiring collectors to initiate and assist borrowers seeking to complete applications for IDR plans and to hand-off these documents to servicers for processing, enhancing servicer communications to borrowers transitioning out of default, and using incentive compensation for debt collectors and servicers that is linked to a borrower’s enrollment in an IDR plan and successful recertification of income after the first year of enrollment.  In light of Secretary DeVos’s action, the CFPB could intensify its efforts to address servicing issues through heightened supervisory and enforcement activity, and potentially rulemaking.

It is unclear what the ED’s next steps will be.  In her memo, Secretary DeVos indicated the memoranda were withdrawn because ED “must promptly address not only [moving deadlines, changing requirements and a lack of consistent objectives in the student loan servicing procurement process] but also any other issues that may impede our ability to ensure borrowers do not experience deficiencies in service.”  She stated that she looked forward to working with FSA staff “as well as others, in order to acquire new federal student loan capabilities that will provide borrowers with the tools necessary to efficiently repay their debt.”

 

In his remarks at the Mortgage Bankers Association’s annual meeting in Boston on October 25, Director Cordray signaled that mortgage servicing will continue to be a focus of CFPB supervisory and enforcement activity, with the CFPB taking a rigorous approach to compliance.  

While noting that the CFPB has seen “some progress” in compliance with CFPB mortgage servicing rules,” most notably efforts by certain servicers to adequately staff up effective compliance management programs,”  Director Cordray stated that “many troubling issues persist.”  In particular, he pointed to “[o]utdated and deficient servicing technology [that]continues to put many consumers at risk,” and said “[t]his problem is made worse by a lack of training to use their technology effectively.”  He also observed that “[t]hese shortcomings can become chronic when servicers do not implement proper system testing and auditing processes.”   Director Cordray warned servicers that “[t]o spur” improved compliance, the CFPB “will, in appropriate circumstances, be insisting on specific and credible plans from servicers describing how their information technology systems will be upgraded and improved to resolve these issues effectively.”

Director Cordray gave a more positive message when discussing lender compliance with the final TILA-RESPA Integrated Disclosure rule.  He commented that he was “happy to report that our initial examinations seem to indicate, just as we expected, that lenders did in fact make good faith efforts to comply with the rules and generally we are finding that consumers are receiving timely and accurate Loan Estimates and Closing Disclosures.”

We have previously commented that, in our view, the CFPB is likely to seeking a rehearing of the D.C. Circuit’s decision in PHH Corporation v. CFPB by the November 25th deadline.  In his remarks, Director Cordray appeared to confirm that a CFPB petition for rehearing is likely.  He stated that “[t]he case is not final at this point” and that the CFPB “has made clear that it respectfully disagrees with the panel’s decision and is considering its options for seeking further review.”

Director Cordray also emphasized the need for companies to give “careful attention” to customer complaints.  He reminded companies of the CFPB’s use of complaints, stating that “[b]y closely analyzing complaint patterns, we can identify spikes in specific complaint types, emerging trends, issues with new and evolving products, and patterns across geographic areas, companies and consumer demographics.”  He told companies that they should “be doing the same thing, not only with our complaints and the feedback you receive directly from your own customers, but also by reviewing complaints made about others in the same markets.”

 

 

 

 

The CFPB has published a notice in the Federal Register announcing that a meeting of its Consumer Advisory Board (CAB) will be held on October 27, 2016.

The notice indicates that the CAB will discuss “student loan servicing issues and trends and themes in debt collection.”  Presumably, the student loan servicing issues will include servicers’ handling of partial payments, which was the subject of a recent CFPB blog post, and the Department of Education’s recent announcements concerning student loan servicing.  The debt collection discussion can be expected to include the debt collection proposals that the CFPB is considering, which it outlined in July 2016 in anticipation of convening a SBREFA panel.

 

The Department of Education has released a memorandum to provide policy direction for the new federal student loan “state-of-the-art loan servicing ecosystem” that the ED is currently procuring.  According to the memorandum, ED expects the policy direction to guide the development of contract provisions in the new contracts that the ED will enter into with the “customer service providers” it selects to participate in servicing federal student loans on the new servicing ecosystem.  ED also states that it “will continue to work with federal and state law enforcement agencies and regulators to apply this policy direction expeditiously to the servicing of all student loans, to the maximum extent possible.”  However, not only has ED acknowledged that applicable law could currently prohibit some of the measures it contemplates (in a footnote, it states that “[t]o the extent aspects of this policy guidance are not currently allowable under Education’s regulations, they should be considered for future rulemakings”), ED’s focus on implementing the new requirements through contractual provisions strongly suggests that it does not consider these measures to be required under applicable law.   

The memorandum builds on the joint principles issued last fall by the ED, CFPB and Treasury Department and the borrower “rights and expectations” concerning student loan repayment rights that were part of a vision for student loan servicing outlined by the ED earlier this year.  In prepared remarks, Director Cordray called the memorandum’s release “an important milestone in our continued efforts to better protect consumers by addressing the many student loan servicing problems that we have highlighted in recent years.”  He noted that the CFPB “also remain[s] committed to taking immediate action to protect consumers in this market, and we will use our enforcement and supervisory tools to address illegal student loan servicing practices.”

The memorandum gives direction to the ED’s Financial Student Aid Division (FSA) in five specific areas:

  • Economic Incentives. The ED makes a series of “performance-based contracting recommendations” to FSA that “contemplate a servicing incentive structure designed to balance the need to keep borrowers current and the need to direct servicer resources to borrowers most in need of assistance.”  The recommendations suggest specific changes to the compensation structure and performance measurements included in the federal Direct Loan servicing contracts “with the goal of maximizing the financial incentives for servicers to provide borrowers with high-quality customer service.”
  • Accurate and Actionable Information. To improve oral and written communications with borrowers, the ED wants FSA to direct its contractors “to designate, train, and appropriately compensate a specialized unit of servicing personnel to assist at-risk borrowers and borrowers who have expressed interest in a more affordable monthly payment.”  The memorandum contains a set of standards to be followed by such specialized personnel (termed “high-touch servicing staff” by the ED) when interacting with borrowers, and details notices and procedures that should be used in connection with recertifying income and family size of borrowers in income-driven repayment plans, enrolling or re-enrolling borrowers in such repayment plans, and serving the needs of military borrowers.  It also includes steps to be taken by servicers to “strengthen the consumer experience” for all borrowers through “accurate servicing, actionable, personalized communications and state-of-the-art technology.”
  • Consistency. The memorandum contains a set of standards to provide consistency in the handling, processing, and application of payments by servicers.  It also contains standards to provide consistency in (1) how information about student loans is reported to credit bureaus, (2) borrower access to payment histories and billing statements, (3) the payoff process, and (4) the process for transferring servicing.
  • Accountability. On July 1, 2016, the ED launched a new online complaint system, the “FSA Feedback System,” which was required by a Presidential directive.  The memorandum describes how the complaint data should be analyzed  and used by FSA in monitoring servicers and deciding whether to take action.  It directs FSA to identify thresholds for servicers (such as a certain number of complaints identifying the same servicing error, certain types of “serious” errors, and/or unreasonable delays in responding to complaints) that would trigger “appropriate remediation plans or sanctions…requir[ing] the servicing servicers to pay for the costs resulting from the action.”  (In another footnote, the ED states that it is also “exploring additional ways to expand the role borrowers can play when policing servicers for compliance with servicer obligations under the law and under any contract servicers may hold with Education.”)  The memorandum also provides standards for servicers to follow in taking, tracking, and resolving  borrower requests for assistance and account disputes, such as policies and procedures that should apply if an account dispute cannot be fully resolved in the borrower’s favor within ten days.
  • Transparency. The memorandum describes servicer-level data that should be published by servicers or the ED on portfolio performance and composition, customer service performance, payment processing and borrower preferences relating to repayment, enrollment in income-driven repayment plans and other repayment plans, administration of borrower benefits and protections, and the performance of previously-defaulted borrowers.  The memorandum provides standards for internal tracking, monitoring of servicing personnel, automated processes, and requests for assistance and account disputes.

In its Winter 2016 Supervisory Highlights, which covers supervision work generally completed between September and December 2015, the CFPB highlights violations found by CFPB examiners involving consumer reporting, debt collection, mortgage origination, remittances, and student loan servicing.

The report states that recent non-public supervisory actions have resulted in restitution of approximately $14.3 million to more than 228,000 consumers.  It  indicates that these non-public supervisory actions generally have resulted from CFPB ongoing supervision and/or targeted examinations.  The non-public resolutions involved deposits, debt collection, and mortgage origination.  The report also indicates that the CFPB’s supervisory activities “have either led to or supported” three recent public enforcement actions described in the report that resulted in $52.75 million in consumer remediation and $8.5 million in civil money penalties.

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

  • Credit reporting.  CFPB reviews of compliance with FCRA furnisher obligations focused on furnishers of information to nationwide specialty consumer reporting agencies (NSCRA) that specialize in reporting in connection with deposit accounts and the NSCRAs themselves.  CFPB examiners found that while one or more furnishers generally had policies and procedures regarding FCRA furnishing requirements, they did not have policies and procedures for furnishing deposit account information.  Deficiencies involving deposit account information found at one or more furnishers involved a lack of processes for verifying data furnished to NSCRAs through automated internal systems, the failure to correct and update information furnished to NSCRAs, or the failure to institute reasonable policies and procedures regarding accuracy, including prompt updating of outdated information.  Specifically, CFPB examiners found that although such furnishers would update their records to reflect a consumer’s payment in full of a charged off account, they would not send an update of the change in status from “charged-off” to “paid-in-full” to NSCRAs.  The report also describes various deficiencies found at NSCRAs such as weaknesses in their systems for credentialing of furnishers before accepting deposit account information from a furnisher.
  • Debt collection.  The CFPB observed that the use of exception reports by consumer reporting agencies (CRA) had led to greater accuracy in the information furnished to CRAs.  CFPB examiners found that one or more debt collectors had failed to comply with the general FDCPA requirement to stop contacting a consumer after receiving written notice from the consumer that he or she refuses to pay a debt or wants the collector to stop contacting him or her.  One or more debt collectors were also found to have made false, deceptive, or misleading representations regarding administrative wage garnishment when collecting defaulted student loans for the Department of Education.  Specifically, collectors were found to have threatened garnishment against borrowers who were not eligible for garnishment or to have given borrowers inaccurate information about when garnishment would begin, creating a false sense of urgency.
  • Student loan servicing.  The CFPB describes supervising the student loan servicing market as “a priority” for its supervision program. The CFPB noted that its examiners found improved practices regarding payment allocation and modification practices at some servicers.  CFPB examiners found that one or more student loan servicers had used “auto-default” clauses to place loans into default when a co-borrower filed for bankruptcy, regardless of whether the borrower was current on all payments, or to disclose the potential impact of forbearance on the availability of cosigner release.  Examiners also found that one or more servicers, in connection with “converting” an account to reflect a new loan owner, had incorrectly updated the account by using an interest rate that was higher than the rate for which the borrower was contractually liable.  Such servicers were directed to implement a plan to reimburse all affected borrowers.
  • Mortgage origination.  Deficiencies found by CFPB examiners involved failing to maintain written policies and procedures required by the loan originator rule and weak compliance management systems.
  • Remittances.  The CFPB’s press release notes that the Winter 2016 report is the first Supervisory Highlights to cover exams of banks and nonbanks in the remittance market.  Deficiencies found by CFPB examiners at one or more remittance providers included giving incomplete and/or inaccurate disclosures to consumers, failing to refund cancelled transactions within the required timeframe, and failing to promptly credit consumers’ accounts when errors occurred.

Student loan servicers and providers of campus financial product were the focus of remarks given yesterday by Director Cordray at the Ohio College Presidents’ Conference.

Director Cordray stated that the CFPB estimates that eight million Americans “are now in default on a student loan – and strengthening student loan servicing is essential to getting this growing problem under control.”  He also stated that the CFPB shares “the concerns of many in the higher education community that student loan servicing needs drastic improvement.”

Servicing issues related to the collection of defaulted student loans were specifically identified in the CFPB’s Winter 2015 Supervisory Highlights.  In addition, earlier this year, the CFPB sent letters to check on the progress that student loan lenders and servicers have made in developing modification options.  However, to date, the CFPB has said nothing further about the responses it has received.‎ 

With regard to campus financial products, Director Cordray continued to take colleges to task for failing to adequately disclose their marketing agreements with financial institutions.  He referenced the model “Safe Student Account Scorecard” the CFPB issued for comment in January 2015 which is intended to be used by colleges and universities to obtain information from prospective financial institution partners offering financial products to students.

He also commented that “all contracts between schools and financial institutions to offer financial products to students-including checking account products, prepaid account products, and credit card products-should be entirely transparent to students, their families, and the public.  I frankly see no reason why any school would fail to put these contracts on-line as an easy means of disclosure that allows ready access to their terms.  That is now easy as a matter of technology, and any further obstacles to this kind of transparency are not justified.”

Director Cordray’s remarks on campus financial products echo statements made in the CFPB’s fifth annual report on college credit card agreements issued in December 2014.  In that report, the CFPB appeared to be criticizing colleges and financial institutions for not disclosing marketing agreements for such products on their websites.

As we commented when we blogged about the report, the CFPB’s apparent position that adequate public disclosure of campus agreements requires the agreements to be posted on a website finds no support in applicable law.  The Official Commentary to Regulation Z  expressly allows colleges to satisfy the CARD Act requirement for public disclosure of their credit card marketing agreements either by posting the agreements on their websites or by making the agreements available on request, as long as the procedures for requesting the documents are reasonable and free of cost.  And unlike credit cards, there is no federal law that requires financial institutions to publicly disclose their marketing agreements or similar information for other financial products.

The December 2014 report contained a veiled threat of increased CFPB scrutiny for financial institutions that fail to meet the CFPB’s expectations for disclosure of campus marketing agreements.  Director Cordray’s latest remarks suggest that both financial institutions that partner with colleges and student loan servicers will continue to be a CFPB focus in 2015.

While mortgage and student loan servicing violations cited by the CFPB in its Fall 2014 Supervisory Highlights have grabbed the headlines, the report also includes noteworthy observations regarding the violations found by the CFPB in debt collection, electronic fund transfers and consumer reporting. The report covers supervision work completed by the CFPB between March 2014 and June 2014.  As in prior supervisory reports, the CFPB continues to be imprecise as to the number of entities at which it found the various violations discussed, thereby obscuring the magnitude or pervasiveness of the purported problems and detracting from the transparency it has promised.

The violations found by the CFPB include the following:

Mortgage servicing.  The CFPB’s observations are based on targeted reviews it conducted for compliance with the new mortgage rules.  The CFPB found that “one or more servicers” did not have any policies and procedures relating to oversight of service providers as mandated by the new rules or had policies relating to service providers that did not satisfy specific regulatory requirements.  The CFPB also found violations relating to loan modifications.  “[I]in at least one examination,” CFPB examiners found that a servicer had failed to timely convert a substantial number of trial modifications to permanent modifications after successful completion of the trial modifications.  Observing that interest accrued during the delay at the original contract rate rather than the permanent modification’s lower rate, the CFPB indicates that “servicers” capitalized interest at the higher rate into the principal balance due under the modification and continued to report as delinquent borrowers who were delinquent at the beginning of their trial modifications.  The delays combined with the negative consequences attributable to the delays were found by the CFPB to constitute an unfair practice.

“At least one servicer” was found to have initially sent permanent modification agreements to borrowers that did not match the terms approved by its underwriting software and, after receiving signed agreements from such borrowers, sent the borrowers updated modifications with materially different terms.  Having characterized the initial agreements as “misrepresentations about the available terms,” CFPB examiners determined that “one or more servicers” engaged in a deceptive practice in connection with the modifications.  The CFPB’s examiners also identified a deceptive practice “at one or more servicers” based on the servicer having told consumers that it would not seek a short sale deficiency judgment but not specifically waiving the loan owner’s right to pursue a deficiency judgment in short sale approval agreements.

Student loan servicing.  The CFPB found that “one or more supervised entities” had engaged in an unfair practice by allocating partial payments proportionally, or pro rata, among all loans, thereby creating delinquencies on all of the borrower’s loans and then imposing a late fee charge on each loan.  “[O]ne or more supervised entities” were also found to have engaged in unfair or deceptive practices by charging late fees on full payments received during the grace period.

“[A] student loan servicer” was found to have engaged in a deceptive practice by inflating minimum payments on periodic statements and online account statements through the inclusion of accrued interest on loans that were still in deferment.  CFPB examiners found that “one or more student loan servicers” failed to provide consumers with information needed to deduct student loan interest payments on their tax returns, with “at least one examination” revealing that a servicer, without adequate disclosures, had engaged in a deceptive practice by requiring consumers to provide an additional certification regarding the loan’s use for higher education expenses to obtain 1098-E forms.  CFPB examiners found it was a deceptive practice for the servicer if the certification was not completed, to issue online account statements indicating that the borrower had paid no deductible interest when the borrower had in fact paid such interest.

Other CFPB findings were that (1) “one or more supervised entities” had engaged in deceptive practices by communicating to borrowers that student loans were never dischargeable in bankruptcy, and (2) “at least one examination” revealed that a servicer had engaged in an unfair practice by using an automated dialer to make calls to delinquent borrowers that was not programmed to account for borrowers’ locations, thereby causing borrowers to receive “inconvenient” calls in the early morning or late at night (presumably the servicer was not considered to be a debt collector but was calling borrowers at times that would have been deemed to be inconvenient under or otherwise prohibited by the Fair Debt Collection Practices Act ).

Debt collection.  CFPB examiners found “[i]n one or more examinations” that debt collectors had charged convenience fees to consumers who paid by credit or debit card and lived in states where (1) such fees were prohibited by state law, or (2) the law was silent regarding the legality of such fees and the agreements creating the debt did not expressly authorize such fees.  The FDCPA limits fees that can be charged by a debt collector to those expressly authorized by the agreement creating the debt or “permitted by law.”  The implication of the CFPB’s view that a debt collector violates the FDCPA by charging convenience fees when state law is silent and the agreement creating the debt does not expressly authorize such fees is that (notwithstanding case law to the contrary) a fee is not “permitted by law” within the meaning of the FDCPA when it is assessed pursuant to a subsequent contract.

“In at least one examination” CFPB examiners found that a debt collector violated the FDCPA by routinely threating consumers with litigation even though it only initiated litigation on a “small fraction” of the accounts it collected.  “During one or more examinations,” CFPB examiners found debt collector employees had violated the FDCPA by regularly identifying their employer without being expressly requested to do so as required by the FDCPA.  CFPB examiners “[i]n examining one or more financial institutions” found unfair practices relating to debt sales in the form of overstated APRs in the account documents provided to debt buyers and significant delays in forwarding to debt buyers post-sale payments received from consumers.

Electronic fund transfers.  CFPB examiners found violations of the Regulation E error resolution requirements, including by “one or more institutions” that, when receiving oral notice of an error from a consumer, did not initiate an investigation until the consumer returned a dispute confirmation form or told consumers complaining about unauthorized transactions that they must first contact the merchant before an investigation could begin.  “During one or more examinations,” CFPB examiners found a violation of  the Regulation E limits on consumer liability for unauthorized transfers by denying the claim of a consumer who was unable to explain how his PIN was compromised even though the consumer had provided details about the theft of his debit card and subsequent unauthorized PIN-based transfers.  CFPB examiners found that the standard error resolution notice used by “one or more of the financial institutions” examined failed to include a statement regarding the consumer’s right to obtain documentation relied on by the institution in investigating an error and that “at least one institution” used notice templates referring to the issuance of provisional credit regardless of whether such credit was issued.

Consumer reporting.  CFPB examiners found that “one or more” consumer reporting agencies (CRA) did not comply with the Fair Credit Reporting Act requirements regarding the information that must be included in a notice informing the consumer of the results of a reinvestigation triggered by a consumer’s dispute of the completeness or accuracy of his or her credit report information.  Other deficiencies observed by CFPB examiners were that the complaint procedures of “at least one or more nationwide CRA” failed to cover complaints received directly from consumers and “at least one specialty CRA” (1) provided inconsistent information to consumers about the ability to lodge disputes by telephone, and (2) maintained a weak consumer complaint program.

The CFPB’s report also includes a discussion of the CFPB’s use of resubmission standards in conducting Home Mortgage Disclosure Act data integrity reviews and recent CFPB public enforcement actions, supervisory guidance, and larger participant rulemaking.  Among those enforcement actions is the CFPB’s action against Flagstar Bank, which represented the CFPB’s first enforcement action related to its new mortgage servicing rules.