On May 9, 2022, the CFPB issued an Advisory Opinion outlining its position that the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, extend beyond applicants seeking credit to include those who have received credit. The 16-page Advisory Opinion lays out the Bureau’s position that the statutory text, legislative purpose and judicial
Consumer Financial Protection Bureau (CFPB)
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.
Continue Reading Latest CFPB Supervisory Highlights Cites Violations in Auto Servicing, Consumer Reporting, Debt Collection, and Other Areas
US CFPB Says Hiding Negative Reviews Violates UDAAP Rules
On March 22, 2022, the US Consumer Financial Protection Bureau (CFPB) released a compliance bulletin on “Unfair and Deceptive Acts or Practices That Impede Consumer Reviews.” The bulletin announced that the CFPB would view practices that discourage or hide consumer reviews as unfair or deceptive practices under Sections 1031 and 1036 of the Consumer Financial…
CFPB Announces It Will Seek to Extend ECOA-Like Antidiscrimination Provisions Broadly to All Consumer Finance Activities
In an extraordinary announcement yesterday, the US Consumer Financial Protection Bureau (CFPB or Bureau) unveiled a broad expansion of its supervisory procedures to include examining supervised entities for discriminatory conduct that the agency alleges could constitute unfair practices in violation of the Dodd-Frank Act. Going forward, it appears that every exam for unfair, deceptive or abusive acts or practices (UDAAP) is likely to include an assessment of a company’s antidiscrimination programs as applied to all aspects of all consumer financial products or services, regardless of whether that company extends any credit or would otherwise be subject to the Equal Credit Opportunity Act (ECOA). In recent months, the Bureau has been laser focused on issues of fair lending and racial equity in the consumer credit market, including redlining, pricing and algorithmic bias, among others. With this change, the CFPB will be broadening its racial equity focus to cover every aspect of the consumer financial services sector.
Continue Reading CFPB Announces It Will Seek to Extend ECOA-Like Antidiscrimination Provisions Broadly to All Consumer Finance Activities
Mortgage Servicing “Notices of Error” – Does The Catch-All Catch It All?
Mortgage loan servicers have a wide range of responsibilities. However, does everything servicers do constitute “servicing”? Or do servicers do some things that are not “servicing”?
The answer is important because the Real Estate Settlement Procedures Act and its Regulation X impose strict obligations on servicers to respond to certain borrower communications related to “servicing,” but not to nonservicing. The courts, including two recent federal courts of appeals, are drawing fine lines between the two.
RESPA requires a mortgage loan servicer to respond in a timely manner to a borrower’s request to correct errors relating to “allocation of payments, final balances for purposes of paying off the loan, or avoiding foreclosure, or other standard servicer’s duties.” Section 1024.35 of Regulation X specifies that a servicer must acknowledge, investigate, and respond to a borrower’s “notice of error” within strict timeframes, so long as the notice is in writing and provides enough information for the servicer to identify the account and the asserted error. In addition, after receipt of a notice of error, a servicer is prohibited, for 60 days, from furnishing adverse information to a consumer reporting agency regarding any payment that is the subject of the notice.
Section 1024.35 then provides a list of covered errors that are subject to those requirements. The list includes errors that could arise in typical servicing activities – errors related to the acceptance, application, or crediting of borrower payments; and to disbursing amounts for taxes, insurance premiums, or other charges. The list of covered errors also includes those that could arise in default servicing – errors related to providing information regarding loss mitigation options, making foreclosure notices or filings, moving for foreclosure judgments or orders of sale, or conducting foreclosure sales.
Then, the Consumer Financial Protection Bureau (“CFPB”) included a catch-all provision to section 1024.35, such that a covered error includes “any other error relating to the servicing of a borrower’s mortgage loan.”
Courts have been considering the scope of those responsibilities since even before the CFPB issued that list in 2013. Recently, two circuit courts of appeals have indicated that some activities of servicers do not constitute “servicing,” particularly where loan modifications are involved.
Continue Reading Mortgage Servicing “Notices of Error” – Does The Catch-All Catch It All?
CFPB Publishes Proposals to Prevent Algorithmic Bias in AVMs
On February 23, 2022, the US Consumer Financial Protection Bureau (“CFPB” or “Bureau”) took the first step in an eventual rulemaking by publishing an outline of proposals and alternatives under consideration to prevent algorithmic bias in automated valuation models (AVMs). AVMs are software-based tools used to determine the value of real estate as an alternative…
CFPB Issues Revised Administrative Litigation Procedures, Signaling Possible Increase in In-House Adjudications
The upshot, for busy people:
- The Consumer Financial Protection Bureau (CFPB) can sue companies in federal court or in its in-house administrative proceedings. Although the CFPB regularly announces settlements styled as administrative proceedings, it has rarely held administrative trials or other contested enforcement proceedings in that forum.
- On February 22, 2022, and without an accompanying press release, the CFPB published in the Federal Register a number of changes to its in-house adjudication procedures. Some changes are administrative—how to count days, etc. But others clarify and expand the powers Director Rohit Chopra has to shape proceedings, including to bifurcate remedial and liability determinations and to decide all dispositive motions.
- These procedural changes don’t alter any of the CFPB’s substantive rules. But these changes do signal that the agency may start bringing enforcement cases in-house, where Director Chopra will decide what does and does not violate the law.
Court Dismisses Challenge to CFPB Payday Rule Repeal
A district court has dismissed a challenge to the Consumer Financial Protection Bureau’s (“CFPB”) repeal of the underwriting provisions of its 2017 payday rulemaking. The CFPB’s payday lending rule has a long and tortured history. First promulgated in 2017, the rule had two main prohibitions—a prohibition on making payday loans without assessing a borrower’s ability…
CFPB Wins Reversal of Dismissal – And Key Ruling on Securitization Trusts
Earlier this week, the Consumer Financial Protection Bureau (“CFPB”) won an important court ruling in a long-running case against student loan securitization trusts. The case has a long (and for the CFPB, somewhat ignoble) history. The CFPB first filed suit against 15 Delaware statutory student loan securitization trusts (the “Trusts”) in September 2017. The complaint…
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.