On May 2, 2022, the Consumer Financial Protection Bureau released the Spring 2022 edition of its Supervisory Highlights (“Supervisory Highlights” or “Report”). This edition covers examinations completed between July 2021 and December 2021, and notably is the first edition that covers some examinations completed during Director Rohit Chopra’s tenure at the Bureau.
Interestingly, although the Bureau recently has emphasized fair lending and anti-discrimination concerns and the Report itself states that an important goal of the Bureau’s supervisory work “is to foster financial inclusion and racial equity,” this edition does not include any fair lending-related findings. The Report also does not include any mortgage servicing-related findings despite the Bureau’s recent focus on servicing for borrowers impacted by the COVID-19 pandemic.
The Supervisory Highlights identifies violations of law in nine areas: auto loan servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, prepaid accounts, remittances, and student loan servicing. As is the Bureau’s common practice, the Report refers to institutions in the plural even if the related findings pertain to only a single institution.
As we point out below, many of the issues discussed in this edition of Supervisory Highlights are issues the CFPB has addressed in other recent editions of Supervisory Highlights or other recent guidance. Supervised entities should take note of the Bureau’s continued focus on these issues.
- Auto Loan Servicing. This edition of Supervisory Highlights discusses several violations of the prohibition on unfair, deceptive, or abusive acts or practices (“UDAAPs”) related to auto loan servicing. Among other things, CFPB examiners identified wrongful repossessions at auto servicers. According to the Bureau, servicers engaged in unfair acts or practices when they repossessed vehicles after consumers took action that should have prevented the repossession. Along these lines, the CFPB released a bulletin earlier this year that focused on mitigating the harm of repossession.
In addition, according to the Report, some servicers engaged in a deceptive act or practice in connection with deferrals offered to consumers. The deferrals at issue were likely to increase consumers’ final payment amounts, and the servicers sent consumers notices stating that their final payment “may be larger.” In fact, consumers’ final payments often increased dramatically. The CFPB determined that the “imprecise conditional statements” in the notices the servicers sent to consumers misled consumers about the amount of their final loan payment after the deferral. In response to these findings, servicers updated their notices and practices. For example, some servicers included estimated final payment amounts in the deferral notices.
- Consumer Reporting. The Report also identifies violations of the Fair Credit Reporting Act (“FCRA”) and Regulation V by furnishers of consumer information and by consumer reporting agencies, which the Report refers to as consumer reporting companies (“CRCs”). According to the Bureau, examinations uncovered deficiencies in CRCs’ compliance with FCRA requirements related to disputes of reported information. For example, the Report states that in many cases CRCs deleted disputed tradelines rather than resolving the disputes and potentially replacing inaccurate derogatory information with accurate positive information. Some CRCs also failed to provide notification of a dispute to the person who provided the disputed information within five business days, as required by the FCRA. In addition, the Report states that some CRCs failed to provide written notice of the results of a dispute reinvestigation within five business days after the completion of the reinvestigation, as required by the FCRA. Moreover, in some cases, the notices incorrectly described the results of the reinvestigation or failed to include material information necessary to understand the results of the reinvestigation.
The Report also discusses several findings with respect to furnishers. Among other things, the CFPB determined that some furnishers failed to establish or implement reasonable written policies and procedures regarding the accuracy and integrity of the information that they furnish to CRCs. For example, according to the Report, some furnishers’ policies and procedures failed to explain how particular data fields, such as the date of first delinquency, should be populated when furnishing information. In response to these findings, furnishers are developing appropriate written policies and procedures. The Report also states that some furnishers failed to send updated or corrected information to CRCs after making a determination that information the furnishers initially reported was not complete or accurate, as required by the FCRA. In response to the findings, the CFPB directed furnishers to update their systems. The Bureau included similar findings in its Summer 2021 edition of Supervisory Highlights.
- Credit Card Account Management. Next, the Report details several findings related to credit card account management, including violations of Regulation Z and the UDAAP prohibition. With respect to Regulation Z, Bureau examiners determined that creditors failed to comply with requirements related to billing errors. Specifically, according to Supervisory Highlights, institutions failed to mail or deliver written acknowledgements to consumers within 30 days of receiving a billing error notice, failed to resolve disputes within two billing cycles after receiving a billing error notice, and failed to conduct a reasonable investigation after receiving a billing error notice, among other violations. The Report indicates that some of the violations were caused by human error or system issues. In response to the exams, entities are enhancing training and monitoring, improving their systems, and creating additional controls for consumer complaints. The Bureau’s Fall 2021 edition of Supervisory Highlights included many similar findings.
The Report also includes UDAAP findings related to credit card account management. For example, examiners found that some entities engaged in deceptive acts or practices when they advertised an interest-free financing feature of a credit card without adequately disclosing the preconditions for obtaining the financing.
- Debt Collection. Examiners also cited debt collectors for violations of the Fair Debt Collection Practices Act (“FDCPA”) and the UDAAP prohibition. First, the Report states that some debt collectors violated the FDCPA prohibition on falsely representing the character, amount, or legal status of a debt when they continued to collect the debt and offered to allow consumers to pay a reduced amount to settle the debt after being informed by the consumer that the debt was the result of identity theft. Interestingly, the Report does not label this activity to be a deceptive act or practice in violation of the UDAAP prohibition. In response to the findings, the debtor collectors issued refunds to consumers of payments made after the misrepresentations.
Bureau examiners also found that debt collectors may have engaged in an unfair act or practice by failing to timely refund overpayments and credit balances to consumers. Among other things, the Report states that consumers could not reasonably avoid the injury because they were unlikely to know about the credit balances and because they had no way to expedite the refund process. In response to these findings, the entities will issue refunds to consumers, revise their policies and procedures, and strengthen monitoring.
- Deposits. The Supervisory Highlights identifies numerous violations in connection with deposits. For example, according to the Report, some institutions violated Regulation E by failing to complete investigations following consumers’ notices of error because the consumers did not submit an affidavit despite the fact that a financial institution cannot require a consumer to file a police report or submit other documentation as a condition to initiating or completing an investigation. This is not the first time the CFPB has focused on this issue. The CFPB discussed similar findings in its Summer 2021 edition of Supervisory Highlights and also addressed the issue in its FAQs on Electronic Funds Transfers. The institutions at issue have updated their policies and procedures and implemented consumer remediation.
- Mortgage Origination. According to the Supervisory Highlights, Bureau examiners identified several Regulation Z violations in connection with mortgage origination. Among other things, the Bureau found that some lenders’ loan originator compensation agreements provided for higher loan originator compensation where Fannie Mae conforming fixed rate loans surpassed a designated threshold percentage of the total loans closed by the loan originator. According to the Bureau, paying compensation based on the credit product type constitutes basing compensation on the terms of the transaction in violation of Regulation Z. The lenders at issue plan to revise their compensation plans accordingly. This issue was also discussed in the Bureau’s Summer 2021 edition of Supervisory Highlights.
- Prepaid Accounts. The Report also discusses several violations with respect to prepaid accounts. For example, examiners found violations of Regulation E related to the receipt of stop payment requests from consumers. Specifically, examiners noted that some financial institutions failed to honor oral stop payment requests with respect to payments originating through certain bill pay systems. In response to these findings, institutions corrected their processes and remediated impacted consumers.
- Remittance Transfers. In addition, the Supervisory Highlights details alleged violations in connection with remittance transfers. As an example, examiners found that remittance transfer providers engaged in deceptive acts or practices by making representations of “instant” or “30 second” transfers, even though the transfers may not be completed in 30 seconds and could instead be delayed up to 48 hours. In response to these findings, institutions implemented additional UDAAP training and ensured that their compliance departments reviewed advertisements.
- Student Loan Servicing. Finally, the Supervisory Highlights identified UDAAPs in connection with student loan servicing. Among other findings, the Report states that servicers engaged in unfair acts or practices when they failed to make incentive payments or pay bonuses that were advertised and to which the servicers agreed in contracts with consumers. As a result of the findings, servicers remediated affected consumers and implemented monitoring systems.
Supervision Program Developments
The Report also discusses the following supervision program developments:
- In April 2022, the CFPB announced that it was invoking a legal provision that gives it the authority to examine nonbank financial companies that pose risks to consumers. Read our analysis of this announcement here.
- In March 2022, the CFPB published an updated version of its UDAAP examination manual, which significantly expands the scope of the CFPB’s supervisory procedures to include examining supervised entities for discriminatory conduct the agency alleges could constitute unfair practices. Read our analysis of this development here.
- In March 2022, the CFPB issued a compliance bulletin discussing UDAAPs in connection with auto repossessions.
- In February 2022, the CFPB issued a compliance bulletin discussing the servicing of federal student loans for borrowers who may be eligible for the Public Service Loan Forgiveness program and the importance of providing complete and accurate information to borrowers about changes to the program.
- In January 2022, the CFPB issued a compliance bulletin reminding debt collectors and CRCs of their obligations in light of the No Surprises Act which is designed to protect consumers from unexpected medical bills.
Although it is not mentioned in the Supervisory Highlights, in January 2022, the CFPB announced that it will begin examining the in-house lending operations of colleges and universities. For more information regarding this update, please read our analysis here.
The Report closes with a description of several public enforcement actions stemming from its supervisory activity, including a complaint against a CRC, its subsidiaries, and an executive that alleges, among other things, violations of a prior consent order. This lawsuit is consistent with the Bureau’s announcement that it will aggressively pursue repeat offenders.
As this edition of the Supervisory Highlights makes clear, the CFPB has been busy in the last several months conducting examinations and releasing compliance bulletins and other guidance. As Director Chopra continues his tenure at the Bureau, we expect to continue to see an increase in activity at the Bureau.