Earlier this month, the Bureau released its Summer 2019 edition of Supervisory Highlights. This is the second edition issued under Bureau Director Kathy Kraninger, who was confirmed to a five-year term in December 2018. The report covers examinations that were generally completed between December 2018 and March 2019 and, as such, is the first edition of Supervisory Highlights to cover examination activities that occurred during Kraninger’s tenure as Director. This edition is much the same as previous editions, but unlike many past versions, it does not address any mortgage servicing-related findings. Instead the report focuses on, among other things, UDAAPs (including, notably, an abusiveness finding), furnishing of consumer report information, and technical regulatory violations. The report also details supervision program developments.
Remarkably, there is no mention of any public enforcement action resulting from supervisory examination work. It is standard practice for the Bureau to use these reports to tout both public and nonpublic remedial actions that stemmed from examinations—but here we don’t see that, and it is not clear whether that is because none of the enforcement actions the Bureau has taken as of late actually came out of supervisory exams or if they chose not to highlight remedial actions for some other reason.
Supervisory Observations
The report discusses findings stemming from examinations involving automobile and reverse mortgage loan origination, credit card account management, debt collection, and furnishing of consumer report information. Here are some of the Bureau’s findings:
Auto Loan Origination. Bureau examiners found that auto lenders engaged in an abusive practice by selling an insurance product to consumers who wouldn’t benefit from it. A guaranteed asset protection (GAP) product covers the difference between the amount the borrower owes on the auto loan and the amount he would receive from insurance in the event his car is totaled or stolen. The Bureau found that borrowers who had a low loan-to-value ratio would not benefit from this product, because an insurance payout for a totaled vehicle may cover the outstanding debt, thereby making the GAP insurance unnecessary. Selling the product to consumers lenders knew would not benefit constituted an abusive practice, according to the CFPB, because the lenders “took unreasonable advantage of the consumers’ lack of understanding of the material risks, costs, or conditions of the product.” In response to the findings, the lenders are reimbursing consumers for the cost of the product and establishing an LTV minimum for GAP product sales.
Abusiveness claims have been rare since the resignation of former Bureau Director Richard Cordray in 2017 (and rare in Supervisory Highlights even during his tenure). This edition of Supervisory Highlights and an action filed by the Bureau earlier this month signal that the CFPB will continue to exercise its abusiveness authority.
Credit Card Account Management. Bureau examinations revealed that entities failed to comply with a Regulation Z requirement to provide certain disclosures clearly and consciously. For example, the Bureau found the disclosures were not clear and conspicuous where they were available to consumers via a hyperlink that was not labeled in a way that referenced the disclosures. Another Regulation Z provision was violated when an issuer offset consumers’ credit card debt against funds on deposit without indication of the consumers’ intent to grant a security interest in those funds.
The Bureau also identified deceptive practices relating to credit card collections and marketing. Collection letters suggesting that issuers could repossess consumers’ vehicles or foreclose on their mortgages were deceptive where it was against the issuers’ policies to repossess or foreclose in connection with delinquent credit card debt, and in fact they did not do so. This finding underscores the fact that the Bureau considers the statements made by a company in the overall context of the company’s practices. Even if a statement that a company could repossess or foreclose on consumers’ property were true because the company had a legal right to do so, the Bureau may find the statement misleading if in practice the company does not repossess or foreclose on property and has a policy against such repossessions and foreclosures. As we have previously explained, prior editions of Supervisory Highlights have identified other, similar statements as deceptive, and the CFPB has initiated numerous enforcement actions over false threats. Separately, examiners also found oral misrepresentations about the timeframe in which secured credit cards would be considered for an upgrade, and similar misrepresentations in prescreened offers of credit, to be deceptive practices.
Debt Collection. According to the report, some debt collectors claimed and collected interest from consumers that was not authorized by the underlying contracts, violating the Fair Debt Collection Practices Act prohibition on using any false, deceptive, or misleading representations or means to collect a debt. The report notes that the debt collectors at issue are providing remediation to affected consumers.
Furnishing. The report detailed several findings related to furnishing consumer report information, many of which involve dispute handling. For example, examiners found that one or more furnishers failed to complete dispute investigations within the time period specified in the Fair Credit Reporting Act (“FCRA”).
Examiners also noted that some FCRA violations were the result of systemic errors. In one instance, a systemic failure caused one or more furnishers to fail to report updates or corrections to one particular consumer reporting agency (“CRA”), in violation of the FCRA requirement that a furnisher report results of a dispute to certain CRAs if it finds that the disputed information is incomplete or inaccurate. (Oddly, the report refers to consumer reporting agencies—which is a statutorily defined term—as “credit reporting companies.”) In another instance, one or more furnishers made an inadvertent change to their data that caused the furnishers to fail to correct and update previously furnished information for certain accounts, in violation of the requirement that a furnisher update information it previously furnished if it determines that information is not complete or accurate.
In addition, the report highlights that a furnisher’s failure to implement reasonable written policies and procedures about furnishing accurate information violates Regulation V. According to the Bureau, one or more furnishers did not have written policies or procedures for certain aspects of dispute handling and existing policies did not address compliance with the FCRA requirement to conduct a reasonable investigation or fully cover the investigations of consumer disputes alleging fraud. The Bureau previously released guidance on the Regulation V requirement to establish and implement reasonable written policies and procedures, and this edition of Supervisory Highlights further emphasizes the importance of having comprehensive policies or procedures that cover all relevant aspects of an entity’s furnishing obligations.
Mortgage Origination. Examinations revealed that some creditors provided inaccurate annual percentage rate (“APR”) and total annual loan cost (“TALC”) disclosures to consumers in reverse mortgage transactions in violation of Truth in Lending Act and Regulation Z requirements. In the report, the Bureau explains that these creditors violated Regulation Z by calculating the APR or TALC based on an incorrect unit-period. In response to the exam findings, the creditors revised their calculation methodology and provided reimbursements to affected consumers.
Supervision Program Developments
Finally, the report mentions several supervision program developments, including an update to the Bureau’s small entity compliance guide for the Payday Lending Rule. The guide was updated to reflect the delay of the mandatory underwriting provisions and certain technical corrections to the rule. Other developments include the fact that the Bureau and Federal Trade Commission reauthorized their longstanding memorandum of understanding to facilitate cooperation and coordination and the fact that as part of its implementation of Regulation P, the Gramm-Leach-Bliley Act rule, the Bureau is providing timing requirements for the delivery of annual privacy notices and removing a provision that allows for the use of an alternative delivery method because the Bureau believes it is no longer necessary.
Conclusion
The report does not discuss monetary remediation except in cases where consumer injury seems readily calculable (i.e., reimbursement for GAP product cost, refund of excess interest collection, reimbursement for incorrect APR/TALC disclosures), and it references no public enforcement actions stemming from supervisory activity, despite the abusive practice examiners identified. Reading the tea leaves, these may be indications that under the current leadership, exam findings are less likely to result in referrals to the Enforcement Division and more likely to be dealt with through the supervisory process, with a focus on practice changes and remediation for calculable harm.