On August 10, 2022, the Consumer Financial Protection Bureau (“CFPB”) issued an interpretive rule clarifying its position that digital marketers providing consumer financial services companies with customer targeting and advertisement delivery services are subject to the Consumer Financial Protection Act as “service providers.” Critically, the rule takes the position that tech companies offering such marketing
Latest CFPB Supervisory Highlights Cites Violations in Auto Servicing, Consumer Reporting, Debt Collection, and Other Areas
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.
Supervisory Observations
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.
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FHFA Suspends Foreclosure for Borrowers Applying for HAF Assistance
On April 6, 2022, the Federal Housing Finance Agency (“FHFA”) announced that Fannie Mae and Freddie Mac will require servicers to suspend foreclosure activities for up to 60 days if the servicer has been notified that a borrower has applied for assistance from the Homeowner Assistance Fund (“HAF”). HAF was established by the American Rescue Plan Act of 2021, and the program is designed to distribute funds to states, tribes, and territories to help homeowners who have been financially impacted by the pandemic with housing-related costs. For example, among other uses, the funds may be used to reduce mortgage principal or pay arrearages so that homeowners can qualify for affordable loan modifications. The specific HAF programs available to borrowers and the required application procedures depend on the borrowers’ state or territory.
Many COVID-related borrower protections expired in 2021, including federal foreclosure moratoriums and the Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) temporary Regulation X restrictions on foreclosure initiations. However, the CFPB estimated that, as of March 1, 2022, over 700,000 borrowers remain in forbearances and are at risk of foreclosure. According to FHFA Acting Director Sandra L. Thompson, FHFA’s foreclosure suspension for borrowers who applied for HAF “will provide borrowers who need temporary mortgage assistance with additional time to be evaluated for relief through their state’s approved Homeownership Assistance Fund.”
Fannie Mae and Freddie Mac have issued guidance providing that servicers of loans sold to either entity must delay initiating any judicial or non-judicial foreclosure process, moving for a foreclosure judgment or order of sale, or executing a foreclosure sale for up to 60 days if the following criteria are met:
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First CFPB Supervisory Highlights Issued Under Director Chopra Cites “Wide-Ranging Violations of Law”
Earlier this week, the Consumer Financial Protection Bureau released the Fall 2021 edition of its Supervisory Highlights (“Supervisory Highlights” or “Report”). This marks the first edition issued under Director Rohit Chopra, President Biden’s pick to head the agency. The press release accompanying this edition of Supervisory Highlights cites “wide-ranging violations of law” and asserts that “irresponsible or mismanaged firms harmed Americans during the COVID-19 pandemic,” statements that signal that the Chopra-led Bureau is taking an aggressive approach to supervision and is scrutinizing supervised entities closely.
Supervisory Observations
This edition of Supervisory Highlights covers examinations completed between January 2021 and June 2021 and identifies violations in eight areas: credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts, and remittance transfers. 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.
- Credit Card Account Management. The Report details several findings related to credit cards, including violations of Regulation Z and the prohibition against unfair, deceptive, and abusive acts and practices (“UDAAPs”). With respect to Regulation Z, Bureau examiners determined that creditors failed to comply with requirements related to billing errors. Specifically, the Bureau details alleged failures concerning the timing of resolving notices of billing errors (within two complete billing cycles), reimbursing late fees when payment had not been credited to an account, and conducting reasonable investigations based on consumer allegations of missing payments and unauthorized transactions. The Report indicates that creditors are working to identify and remediate affected customers and develop training on Regulation Z’s billing error resolution requirements for employees.
The Bureau also alleged deceptive practices relating to the marketing of credit card bonus offers in two separate instances. First, examiners determined that credit card issuers engaged in deceptive acts by failing to provide advertised bonuses to existing customers who satisfied the bonus program requirements of opening a new account and meeting the spending requirements. Moreover, the Bureau noted that issuers failed to ensure employees followed procedures to enroll existing consumers correctly. Second, the examiners determined that issuers also engaged in deceptive acts when their advertising to consumers failed to disclose or adequately disclose material information about qualifying for the bonus. In this situation, the bonus was tied to applying for the card online, so consumers who otherwise satisfied advertised requirements, but applied through a different channel, did not receive the bonus. In response to these findings, issuers are modifying applicable advertisements and undertaking remedial and corrective actions.
- Debt Collection. According to the Report, examiners found that larger participant debt collectors were at risk of violating the Fair Debt Collection Practices Act (“FDCPA”) as it relates to using false representations or deceptive means to collect a debt. The Report explained that debt collectors, in the context of discussing the consumer restarting a payment plan, represented that making the final payment of the plan would improve the consumer’s creditworthiness. The Bureau, however, indicated that this could lead the least sophisticated consumer to assume that deleting derogatory information would result in improved creditworthiness, when in fact numerous factors influence a consumer’s creditworthiness and making a final payment may not necessarily improve a person’s credit score. As a result of the findings, the debt collectors revised their FDCPA policies and procedures and enhanced their training and monitoring systems.
CFPB Announces Return to Mortgage Servicing Enforcement
Mortgage servicers should prepare for increased scrutiny of their default servicing activities. Earlier this week, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”), along with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and state financial regulators, issued a statement that the agencies would resume their full supervision and enforcement of mortgage servicers, ending the flexible approach the agencies announced at the onset of the COVID-19 pandemic. This move is consistent with the Bureau’s March 2021 rescission of similar statements issued during the pandemic that provided temporary flexibilities to financial institutions.
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CFPB Releases Feedback on Supervised Institutions’ COVID-19 Operations
In response to the significant impacts of the COVID-19 pandemic, the US Consumer Financial Protection Bureau (“CFPB”) announced in July 2020 that it would shift its supervisory priorities and begin performing Prioritized Assessments instead of planned examinations. On January 19, 2021, the CFPB issued its findings in a COVID-19 Prioritized Assessments Special Edition of Supervisory
Treating a Nonbank Like a Bank: New Proposed Prudential Standards for Nonbank Mortgage Servicers
Should US state nonbank mortgage servicers be subject to “safety and soundness” standards of the type imposed by federal law on insured depository institutions, even though the nonbanks do not solicit and hold customer funds in federally insured deposit accounts or pose a direct risk of a government bailout? Well, state mortgage banking regulators think
CFPB Provides Relief to Servicers Offering Loss Mitigation in Wake of Pandemic
Earlier this week the CFPB released an interim final rule that allows mortgage servicers flexibility to offer additional short-term loss mitigation options to borrowers impacted by the COVID-19 pandemic. The mortgage servicing rules include many requirements for the servicing of mortgage loans in default, including limitations on the types of loss mitigation that may be offered in certain instances. The unique challenges facing servicers and borrowers in the wake of the pandemic, as well as the unique loss mitigation options being announced by federal housing agencies designed to assist borrowers negatively impacted by COVID-19 that do not fit neatly into the CFPB’s existing servicing requirements, have prompted the CFPB to amend those rules to provide servicers with additional flexibility.
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CFPB Issues Guidance for Transfers of Residential Mortgage Servicing
Against the backdrop of the COVID-19 pandemic and the economic stress it is imposing on residential mortgage borrowers, lenders and servicers, the Consumer Financial Protection Bureau recently released a compliance bulletin and policy guidance regarding the handling of information and documents in mortgage servicing transfers. While not specifically motivated by the COVID-19 crisis, Bulletin 2020-02
CFPB’s Latest Supervisory Highlights Focuses on UDAAPs, Furnishing, and Technical Regulatory Requirements
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.
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