[Federal Register Volume 82, Number 201 (Thursday, October 19, 2017)]
[Notices]
[Pages 48703-48714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22700]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights: Summer 2017
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory Highlights; notice.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau or CFPB)
is issuing its fifteenth edition of its Supervisory Highlights. In this
issue of Supervisory Highlights, we report examination findings in the
areas of auto finance lending; credit card account management; debt
collection; deposits; mortgage servicing; mortgage origination; service
providers; short-term, small-dollar lending; remittances; and fair
lending. As in past editions, this report includes information on the
Bureau's use of its supervisory and enforcement authority, recently
released examination procedures, and Bureau guidance.
DATES: The Bureau released this edition of the Supervisory Highlights
on its Web site on September 12, 2017.
FOR FURTHER INFORMATION CONTACT: Adetola Adenuga, Consumer Financial
Protection Analyst, Office of Supervision Policy, 1700 G Street NW.,
20552, (202) 435-9373.
SUPPLEMENTARY INFORMATION:
1. Introduction
The Consumer Financial Protection Bureau is committed to a consumer
financial marketplace that is fair, transparent, and competitive, and
that works for all consumers. The Bureau supervises both bank and
nonbank institutions to help meet this goal. The findings reported here
reflect information obtained from supervisory activities that were
generally completed between January 2017 and June 2017 (unless
otherwise stated). In some instances, not all corrective actions,
including through enforcement, have been completed at the time of this
report's publication.
CFPB supervisory reviews and examinations typically involve
assessing a supervised entity's compliance management system and
compliance with Federal consumer financial laws. When Supervision
determines that a supervised entity has violated a statute or
regulation, Supervision directs the entity to undertake appropriate
corrective measures, such as implementing new policies, changing
written communications, improving training or monitoring, or otherwise
changing conduct to ensure the illegal practices cease. Supervision
also directs the entity to send refunds to consumers, pay restitution,
credit borrower accounts, or take other remedial actions as
appropriate.
Recent supervisory resolutions have resulted in total restitution
payments of approximately $14 million to more than 104,000 consumers
during the review period. In addition to these nonpublic supervisory
activities, the Bureau also resolves violations using public
enforcement actions.\1\ CFPB's recent supervisory activities have
either led to or supported two recent public enforcement actions,
resulting in about $1.15 million in consumer remediation and an
additional $1.75 million in civil money penalties.
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\1\ In 2016, about 70 percent of CFPB examinations did not raise
issues that led the Bureau to consider opening an enforcement
investigation. Instead, these matters were resolved with nonpublic
agreements by the company to quickly fix any problems and provide
appropriate relief to consumers. See infra pp. 37-39 (discussing
these figures). See also https://www.consumerfinance.gov/about-us/blog/how-we-keep-you-safe-consumer-financial-marketplace/.
_____________________________________-
Please submit any questions or comments to
[email protected].
2. Supervisory Observations
Recent supervisory observations are reported in the areas of
automobile loan servicing, credit card account management, debt
collection, deposits, mortgage origination, mortgage servicing,
remittances, service provider program, short-term small-dollar lending,
and fair lending.
2.1 Automobile Loan Servicing
In the Bureau's recent auto servicing examinations, examiners
reviewed how servicers are overseeing repossession agents and how
repossessions are conducted. Through that work, examiners identified an
unfair practice relating to repossession at one or more automobile
servicers.
2.1.1 Repossessions of Borrower Vehicles After Borrowers Make Catch-Up
Payments or Enter Agreements To Avoid Repossession
To secure an auto loan, borrowers give creditors a security
interest in their vehicles. When a borrower defaults, a creditor can
exercise its rights under the contract and repossess the secured
vehicle. Many auto servicers provide options to borrowers to avoid
repossession once a loan is delinquent or in default. Servicers may
have formal extension agreements that allow borrowers to forbear
payments for a certain period of time or may cancel a repossession
order once a borrower makes a payment.
In one or more recent exams, examiners found that one or more
entities were repossessing vehicles after the repossession was supposed
to be cancelled. In these instances, the servicer(s) wrongfully coded
the account as remaining delinquent, customer service representatives
did not timely cancel the repossession order after borrowers made
sufficient payments or entered an agreement with the servicer to avoid
repossession, or repossession agents had not checked the documentation
before repossessing and thus did not learn that the repossession had
been cancelled.
Bureau examiners concluded that it was an unfair practice to
repossess vehicles where borrowers had brought the account current,
entered an agreement with the servicer to avoid repossession, or made a
payment sufficient to stop the repossession, where reasonably
practicable given the timing of the borrower's action.
Supervision directed the servicer(s) to stop the practice. In
response to our examiners' findings, the servicer(s) informed
Supervision that the affected consumers were refunded the
[[Page 48704]]
repossession fees. The servicer(s) also implemented a system that
requires repossession agents to verify that the repossession order is
still active immediately prior to repossessing the vehicle, for
example, through a specially designed mobile application for that
purpose.
2.2 Credit Card Account Management
Supervision reviewed the credit card account management operations
of one or more supervised entities over the past few months. Typically,
examiners assess advertising and marketing, account origination,
account servicing, payments and periodic statements, dispute
resolution, and the marketing, sale and servicing of credit card add-on
products. Bureau examiners found that supervised entities generally are
complying with Federal consumer financial laws. However, in one or more
recent examinations, examiners observed that one or more entities
violated Regulation Z and committed the deceptive practices as
described below.
2.2.1 Failure To Provide Required Tabular Account-Opening Disclosures
Examiners observed that one or more credit card issuers violated
Regulation Z by failing to provide the requisite tabular disclosures
with the account opening materials provided to numerous cardholders.\2\
Specifically, the account-opening disclosures were missing the table
set forth in Appendix G-17 of Regulation Z, resulting in consumers
receiving incomplete disclosures.\3\ At one or more entities,
management attributed this violation to an employee's incorrect entry
of source code for printing disclosures, controls that were not
appropriately structured to detect errors, and the entity's lack of an
independent disclosure review. After acknowledging the violations with
examiners, one or more entities initiated a review to ensure that the
errors were limited, the root causes were further identified, and
corrective actions were developed.
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\2\ 12 CFR 1026.6(b)(1)-(2).
\3\ Appendix G to 12 CFR part 1026, Form G-17(A)--Account-
Opening Model Form.
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2.2.2 Deceptive Misrepresentations to Consumers Regarding Costs and
Availability of Pay-by-Phone Options
During one or more examinations, credit card companies provided
consumers with the opportunity to pay their credit card bills by mail,
online, or in person free of charge or by using one of two pay-by-phone
services. The first pay-by-phone service permitted consumers to make an
expedited payment for a predetermined fee, credited the same day or the
following business day. The second pay-by-phone service allowed
consumers to arrange future payments options free of charge to be
credited to the consumer's account as soon as two days after the call.
Customer service representatives were given a call script to read to
consumers describing both the fee-based expedited payment option and
the free future payments option.
A review of calls between customer service representatives and
consumers revealed that in one or more examinations representatives did
not follow the script in its entirety and often read the script for
expedited payments only. Typically, customer service representatives
did not inform consumers of any free payment options until after the
consumer authorized the expedited phone payment and the customer
service representatives did not inform consumers that the payment could
be paid free of charge by phone by not expediting when the payment was
credited. This practice resulted in consumers incurring fees for
expedited payments that could have been avoided. Supervision found this
practice was deceptive because these customer service representatives
made an implied misrepresentation to consumers paying over the phone
that all of the pay-by-phone services carried a fee.\4\
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\4\ 12 U.S.C. 5536(a)(1)(B).
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Supervision directed the entity(ies) to establish effective
controls over communications to consumers, ensure representatives
informed consumers of free payment options prior to authorization of an
expedited phone payment, and reimburse fees to consumers impacted by
the deceptive representations about the costs and availability of pay-
by-phone options.
2.2.3 Deceptive Misrepresentations to Consumers Concerning Benefits and
Terms of Credit Card Add-On Products
One or more entities provided its customer service representatives
with call scripts that contained basic information about debt
cancellation credit card add-on product(s). A review of calls by
examiners indicated that customer service representatives often did not
read the entire script, and in some instances, did not read the script
at all. In one or more instances, the customer service representatives
did not correct consumers' stated erroneous assumptions concerning the
benefits of the product(s), misrepresented the potential fees, and
assured consumer(s) that the product(s) would avoid the accrual of late
fees or other penalties.
Supervision found such practices constituted deceptive marketing
and sales practices by misrepresenting product features, such as the
cost and coverage of the optional debt cancellation add-on product.\5\
Supervision directed these entities to establish effective controls
over marketing and sales practices for the debt cancellation credit
card add-on products, ensure representatives make accurate disclosure
of the add-on product's terms, conditions, and costs, and to reimburse
the costs of the credit card add-on products to impacted consumers.
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\5\ 12 U.S.C. 5536(a)(1)(B).
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2.2.4 Failure To Comply With Billing Error Resolution and Unauthorized
Transactions
Regulation Z requires credit card issuers to follow an error
resolution process when a cardholder submits a billing error notice and
provides that, during resolution, the cardholder may withhold payment
for the disputed amount and the issuer shall not report the disputed
amount as delinquent.\6\ In addition, Regulation Z also limits the
amount a cardholder can be held liable for any unauthorized use.\7\
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\6\ 12 CFR 1026.13.
\7\ 12 CFR 1026.12(b).
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During one or more examinations, examiners observed that entities:
(1) Failed to provide consumers with a timely written acknowledgement
of receipt of a billing error notice; \8\ (2) generally failed to
timely comply with the billing error resolution procedures; \9\ (3)
failed to limit the liability of cardholders for unauthorized use to
the lesser of $50 or the amount of money, property, labor or services
obtained by the unauthorized use before the card issuer is notified;
\10\ (4) before a billing error was resolved, made or threatened to
make an adverse credit report concerning the consumer's credit
standing, or that the amount or account was delinquent, because the
consumer failed to pay the disputed amount or applicable related
finance or other charges; \11\ (5) failed to timely correct billing
errors and credit consumers' accounts with disputed amounts or related
finance or other charges, as applicable; \12\ (6) failed to send, or
failed to timely send, consumers a correction notice where the issuer
concluded that the billing error occurred as asserted; \13\ (7) failed
to conduct, or failed to timely
[[Page 48705]]
conduct, a reasonable investigation before determining that no billing
error occurred; \14\ or (8) failed to provide, or failed to timely
provide, consumers with a written explanation for its determination as
to why it concluded that a billing error did not occur.\15\
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\8\ 12 CFR 1026.13(c)(1).
\9\ 12 CFR 1026.13(c)(2).
\10\ 12 CFR 1026.12(b)(1)(ii).
\11\ 12 CFR 1026.13(d)(2).
\12\ 12 CFR 1026.13(c)(2) & 1026.13(e)(1).
\13\ 12 CFR 1026.13(c)(2) & (e)(2).
\14\ 12 CFR 1026.13(c)(2) & (f).
\15\ 12 CFR 1026.13(c)(2) & (f)(1).
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The root cause of these regulatory violations can, among other
things, be attributed to weak oversight of service providers that
handle dispute resolution for the card issuers. At one or more
entities, management failed to perform sufficient due diligence of a
service provider hired to perform intake of incoming phone calls from
customers who reported billing errors and other disputes, and ceased
doing business with the service provider because of increasing
complaints about the service provider's customer service. One or more
entities failed to have sufficient documentation of its monitoring of
service providers and did not audit its oversight of service providers.
Supervision directed one or more entities to develop a plan that
ensures the handling of billing error disputes is corrected, identifies
all impacted consumers, and remediates harmed consumers. One or more
entities were directed to revise their service provider program(s) to
require document retention relating to service provider monitoring and
risk assessment reviews.
2.3 Debt Collection
The Bureau's Supervision program covers certain bank and nonbank
creditors that originate and collect their own debt, as well as
nonbanks that are larger participants in the debt collection market.
These reviews, among other things, evaluate the adequacy of the
relevant entities' compliance management systems and communications
with consumers. At one or more entities, examiners' review of these
systems and practices included activities conducted in a foreign
country. During recent examinations of larger participants, examiners
identified several violations of the Fair Debt Collection Practices Act
(FDCPA),\16\ including unauthorized communications with third parties,
false representations made to authorized credit card users regarding
their liability for debts, false representations regarding credit
reports, and communications with consumers at inconvenient times.
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\16\ 15 U.S.C. 1692-1692p.
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At one or more entities, examiners discovered that debt collectors
followed client instructions that led to violations of the FDCPA.
Entities can mitigate the risk of an FDCPA violation if they determine
whether client instructions would violate the FDCPA before following
them.
2.3.1 Impermissible Communications With Third Parties
Under section 805(b) of the FDCPA, a debt collector generally may
not communicate with a person other than the consumer in connection
with the collection of a debt without permission from the consumer.
Examiners determined that one or more entities did not confirm that the
correct party had been contacted prior to beginning collection
activities. As a result, one or more entities communicated with a third
party in connection with the collection of a debt by discussing the
debt with an authorized user of a credit card who was not financially
responsible for the debt (and who was not otherwise a ``consumer''
under section 805(b)). In response to these findings, one or more
entities enhanced consumer verification processes to include the
verification of first and last names, and confirmation of date of birth
or the last four digits of Social Security number, before disclosing
the debt or the nature of the call to the consumer. Additionally, one
or more entities revised their processes to discuss the debt with an
authorized user only after explicit authorization from the cardholder.
Lastly, the entities trained their collection agents on the enhanced
policies and procedures.
2.3.2 Deceptively Implying That Authorized Users Are Responsible for a
Debt
Under section 807(10) of the FDCPA, a debt collector may not use
false representations or deceptive means to collect or attempt to
collect any debt. Examiners determined that one or more entities
violated the FDCPA by attempting to collect a debt directly from the
authorized user of a credit card even though the authorized user was
not financially responsible for the debt. The practice of soliciting
payment from a non-obligated user in a manner that implies that the
authorized user is personally responsible for the debt constitutes a
deceptive means to collect a debt in violation of the FDCPA. One or
more entities have undertaken remedial and corrective actions regarding
these violations, which are under review by Supervision.
2.3.3 False Representations Regarding the Effect on a Consumer's Credit
Report of Paying a Debt in Full Rather Than Settling the Debt in Full
As noted above, a debt collector may not use false representations
or deceptive means to collect or attempt to collect any debt under
section 807(10) of the FDCPA. Examiners found that one or more entities
made false representations to consumers about the effect on their
credit score of paying a debt in full rather than settling the debt for
less than the full amount. As the CFPB explained in a 2013 bulletin,
representations about the impact of paying a debt on a consumer's
credit score may be deceptive. The bulletin states that ``in light of
the numerous factors that influence an individual consumer's credit
score, such payments may not improve the credit score of the consumer
to whom the representation is being made. Consequently, debt owners or
third-party debt collectors may well deceive consumers if they make
representations that paying debts in collection will improve a
consumer's credit score.'' \17\ In response to these findings, one or
more entities amended training materials to remove references to how a
consumer's credit score may be affected by either settling the debt in
full or paying the debt in full.
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\17\ CFPB Bulletin 2013-08, Representations Regarding Effect of
Debt Payments on Credit Reports and Scores, available at: http://files.consumerfinance.gov/f/201307_cfpb_bulletin_collections-consumer-credit.pdf.
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2.3.4 Communicating With Consumers at a Time Known To Be Inconvenient
Under section 805(a)(1) of the FDCPA, a debt collector may not
communicate with a consumer in connection with the collection of any
debt at any unusual time or place or a time or place known or which
should be known to be inconvenient to the consumer. Examiners
discovered that consumers were contacted by one or more entities
outside of the hours of 8:00 a.m. to 9:00 p.m. (which, in the absence
of knowledge to the contrary, may be assumed to be convenient) or at
times consumers had previously informed the entities were inconvenient.
These violations were caused by the failure to accurately update
account notes and the use of auto dialers that based call parameters
solely on the consumer's area code, rather than also considering the
consumer's last known address. Supervision directed one or more
entities to enhance compliance monitoring for dialer systems to ensure
that they input system parameters accurately and to ensure that they
[[Page 48706]]
properly monitor collectors for inputting and adhering to account
notations.
2.4 Deposits
The CFPB continues to examine banks for compliance with Regulation
E as well as review for any unfair, deceptive, or abusive acts or
practices (UDAAPs) in connection with deposit accounts. As described in
more detail below, CFPB examiners continue to find deceptive acts or
practices related to deposit disclosures and representations that
incorrectly inform consumers about fees, including conditions when
certain fees will apply. Separately, Supervision concluded that one or
more institutions were engaging in deceptive acts or practices by
misrepresenting deposit overdraft protection products. Examiners also
found unfair acts or practices related to conditions where one or more
institutions froze deposit accounts. Finally, examiners continue to
find issues associated with Regulation E error resolution
investigations.
In all cases where examiners found UDAAPs or violations of
Regulation E, Supervision directed institutions to make appropriate
changes to address the underlying issue(s), as well as enhance
compliance management systems to prevent future violations and, where
appropriate, to remediate consumers for harm they experienced.
2.4.1 Freezing of Deposit Accounts
Examiners found that one or more institutions engaged in unfair
acts or practices by placing hard holds on customer accounts to stop
all activity when the institution(s) observed suspicious activity.
These hard holds resulted in the consumers' accounts being locked,
resulting in payments not being honored, deposits being rejected, and
the consumer lacking access to his or her funds for as long as two
weeks. Examiners also found that one or more institutions failed to
clearly, consistently, and promptly communicate information about the
nature and status of these hard holds to consumers. Examiners found
that less drastic measures would have sufficiently addressed the
suspicious activity concern in many instances. Even where the hard
holds were appropriate, the failure to properly communicate with
consumers prevented consumers from being able to take measures to
mitigate the injury.
Supervision directed the institution(s) to cease unnecessarily
placing hard holds on consumer deposit accounts and to develop and
implement policies and procedures to clearly, consistently, and
promptly communicate with consumers with respect to hard holds placed
on their accounts.
2.4.2 Misrepresentations About Monthly Service Fees
Examiners found that one or more institutions engaged in deceptive
acts or practices by representing in deposit account fee schedules that
monthly account service fees would be waived under circumstances in
which those fees, in fact, would be assessed. One or more institutions
offered a deposit product that contained a monthly service fee. The
service fee was waived if consumers met certain qualifications. One
such qualification--as described in the fee schedules--was if the
consumer made ten or more payments from the checking account during a
statement cycle. In fact, only debit card purchases and debit card
payments qualified toward the fee waiver threshold, and other payments
from a consumer's checking account, such as ACH payments, did not
qualify. Moreover, only payments that ``posted'' during the statement
cycle qualified toward the waiver and payments that were initiated but
not posted during the statement cycle did not qualify. The
representations that the institution(s) made in the fee schedules could
lead a reasonable consumer to believe that all checking-account
payments initiated during the statement cycle would qualify toward the
ten-payment fee waiver threshold, a material aspect of the product or
service. As a result, Supervision cited the institution(s) for
deceptive acts or practices. Supervision directed the institution(s) to
ensure that all disclosures regarding the fee waivers include accurate
and non-misleading information.
2.4.3 Violations of Error Resolution Requirements
Supervision continues to find violations of Regulation E's error
resolution requirements. As noted in the Fall 2014 edition of
Supervisory Highlights, Regulation E, which implements the Electronic
Fund Transfer Act, imposes specific requirements on financial
institutions for how to resolve error allegations reported by consumers
related to electronic fund transfers. Among other requirements,
Regulation E requires financial institutions to promptly investigate
error allegations, to provide timely provisional credit to consumers,
to promptly provide consumers with notice of the findings of the
financial institution's investigation, and to allow consumers to review
the documentation the financial institution relied upon in the course
of the investigation.\18\
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\18\ 12 CFR 1005.11.
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Examiners found that one or more institutions violated several of
the error resolution provisions of Regulation E. Among other things,
examiners observed that one or more entities prematurely closed
investigations and denied claims when consumers failed to submit, or
delayed in submitting, supplemental information beyond that which
financial institutions may require under Regulation E.\19\ Examiners
also found that the institution(s) failed to investigate claims and to
provide provisional credit within 10 business days of receiving notice
of the alleged error.\20\ Examiners further observed that one or more
institutions refused consumers' requests to review material relied upon
by the institution(s) in denying error claims, and incorrectly informed
consumers that subpoenas would be required to review that material.\21\
With respect to these types of violations, Supervision directed the
relevant entities to take measures to ensure compliance with the error
resolution provisions of Regulation E.
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\19\ See 12 CFR 1005.11(b).
\20\ See 12 CFR 1005.11(c)(1) & (c)(2)(i).
\21\ See 12 CFR 1005.11(d)(1).
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2.4.4 Deceptive Statements About Overdraft Protection Products
In 2010, Federal rules took effect that prohibited banks and credit
unions from charging overdraft fees on ATM and one-time debit card
transactions unless consumers affirmatively opted in.\22\ Many
depository institutions provide a variety of overdraft products that
may cover consumer transactions that overdraw accounts.
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\22\ 74 FR 59033 (Nov. 17, 2009) (codified at 12 CFR part
1005.17), available at https://www.gpo.gov/fdsys/granule/FR-2009-11-17/E9-27474.
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Supervision determined that one or more institutions engaged in a
deceptive act or practice by misrepresenting their opt-in deposit
overdraft protection products when answering inbound telephone calls
from consumers, including that:
[ssquf] The overdraft protection product applied to check,
automated clearing house (ACH), and recurring bill payment
transactions, when the overdraft protection product did not apply to
those transactions;
[ssquf] The overdraft protection product would allow a consumer to
withdraw more than the daily ATM cash withdrawal limit and be subject
to only one overdraft fee. In actuality, a consumer would not have been
allowed to surpass the daily ATM cash
[[Page 48707]]
withdrawal limit, regardless of enrollment in the overdraft protection
product, and it was not possible to do so while incurring only one
overdraft fee; and
[ssquf] The overdraft protection product would take effect on the
same day as enrollment, when the product would not actually take effect
until the next day.
Supervision determined that these representations misled or were
likely to mislead a reasonable consumer regarding a material aspect of
the overdraft protection product and that account opening disclosures
or subsequent enrollment disclosures did not cure the misleading
representations. Supervision directed one or more depository
institutions to cease misrepresenting features of their overdraft
protection products.
2.5 Mortgage Origination
Supervision assessed the mortgage origination operations of one or
more supervised entities for compliance with applicable Federal
consumer financial laws. Examiners identified instances of regulatory
violations and one or more instances where supervised entities engaged
in a deceptive practice, as described below.
2.5.1 Know Before You Owe Mortgage Disclosure Rule
Supervision has completed its first round of mortgage origination
examinations for compliance with the Know Before You Owe mortgage
disclosure rule. The Bureau stated that it would be sensitive to the
progress made by supervised entities focused on making good faith
efforts to come into compliance with the rule upon the effective date
of October 3, 2015. Initial examination findings and observations
conclude that, for the most part, supervised entities, both banks and
nonbanks, were able to effectively implement and comply with the Know
Before You Owe mortgage disclosure rule changes. However, examiners did
find some violations. Listed below are violations found by examiners
relating to the content and timing of Loan Estimates and Closing
Disclosures:
[ssquf] Amounts paid by the consumer at closing exceeded the amount
disclosed on the Loan Estimate beyond the applicable tolerance
threshold; \23\
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\23\ 12 CFR 1026.19(e)(3)(i), (ii).
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[ssquf] The entity(ies) failed to retain evidence of compliance
with the requirements associated with the Loan Estimate; \24\
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\24\ 12 CFR 1026.25(c)(1).
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[ssquf] The entity(ies) failed to obtain and/or document the
consumer's intent to proceed with the transaction prior to imposing a
fee in connection with the consumer's application; \25\
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\25\ 12 CFR 1026.19(e)(2)(i)(A), 1026.25(c)(1).
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[ssquf] Waivers of the three-day review period did not contain a
bona fide personal financial emergency; \26\
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\26\ 12 CFR 1026.19(f)(1)(iv).
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[ssquf] The entity(ies) failed to provide consumers with a list
identifying at least one available settlement service provider, if the
creditor permits the consumer to shop for a settlement service; \27\
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\27\ 12 CFR 1026.19(e)(1)(vi)(c).
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[ssquf] The entity(ies) failed to disclose the amount payable into
an escrow account on the Loan Estimate and Closing Disclosure when the
consumer elected to escrow taxes and insurance; \28\
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\28\ 12 CFR 1026.37(c)(2)(iii), .38(c)(1).
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[ssquf] Loan Estimates did not include the date and time at which
estimated closings cost expire; \29\ and
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\29\ 12 CFR 1026.37(a)(13)(ii).
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[ssquf] The entity(ies) failed to properly disclose on the Closing
Disclosure fees the consumer paid prior to closing.\30\
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\30\ 12 CFR 1026.38(f)(2), (f)(5), (h)(2), (i)(2)(ii).
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Examiners worked in a collaborative manner with one or more
entities to identify the root cause of these violations and determine
appropriate corrective actions, including reimbursement to consumers
where tolerance violations occurred.
2.5.2 Failure To Reimburse Unused Portions of a Required Service
Deposit Where Certain Disclosure Language Was Used Constituted an
Unfair Practice
At one or more entities, pursuant to certain disclosure language a
specified service deposit was collected from consumers but unused
portions were not reimbursed when consumers withdrew their
applications. This would constitute unfair acts or practices in those
cases where the loans did not proceed to closing due to the entity's
unreasonable actions or inactions. Supervision directed each entity to
conduct a review to identify impacted consumers. Refunds were provided
to consumers where the loan files could not support retention of the
service deposit.
2.5.3 Deceptive Practice Involving an Arbitration Notice on Certain
Residential Mortgage Loan Documents
Under Regulation Z, a contract or other agreement for a consumer
credit transaction secured by a dwelling (including a home equity line
of credit secured by the consumer's principal dwelling) may not include
terms that require arbitration or any other non-judicial procedure to
resolve any controversy or settle any claims arising out of the
transaction.\31\
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\31\ 12 CFR 1026.36(h)(1).
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Despite this prohibition, at one or more entities examiners
identified template language for certain residential loan document(s)
containing a notice that the note is subject to arbitration.
Supervision concluded that use of the arbitration-related notice
constitutes a deceptive act or practice since it is likely to mislead a
reasonable consumer into believing that a claim arising under the
residential loan document must be submitted to arbitration. After
having viewed the notice, a consumer would have been more likely to
agree to post-dispute arbitration or to fail to pursue judicial
remedies under the mistaken belief that arbitration was required.
Supervision directed one or more of the entities to cease further use
of the template.
2.6 Mortgage Servicing
2.6.1 Requirements To Help Borrowers Complete Loss Mitigation
Applications
Regulation X provides important process protections for borrowers
in financial distress who apply for a foreclosure alternative.
Specifically, it requires mortgage servicers to exercise reasonable
diligence in obtaining documents and information to complete a loss
mitigation application.\32\ A complete loss mitigation application
includes all the information that the servicer requires from a borrower
in evaluating applications for the loss mitigation options available to
the borrower.\33\
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\32\ 12 CFR 1024.41(b)(1).
\33\ 12 CFR 1024.41(b)(1).
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While Regulation X permits a servicer to offer a loss mitigation
option based on a borrower's incomplete application under certain
circumstances,\34\ the servicer still must act with reasonable
diligence to collect the information needed to complete the
application.\35\ For example, in the context of a short-term payment
forbearance program offered based on an incomplete loss mitigation
application, reasonable diligence could include notifying the borrower
that the borrower is being offered a payment forbearance program based
on an evaluation of an incomplete application and that the borrower
retains the option of completing the application to receive a full
evaluation of all loss mitigation options available to
[[Page 48708]]
the borrower.\36\ Near the end of the program, and prior to the end of
the forbearance period, it may also be necessary for the servicer to
contact the borrower to determine if the borrower wishes to complete
the application and proceed with a full loss mitigation evaluation.\37\
Generally, the reasonable diligence requirement helps address the
concern that borrowers offered a short-term payment forbearance program
or short-term repayment plan may be experiencing a hardship, for which
other, longer-term loss mitigation solutions might be more appropriate
given their individual circumstances.
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\34\ 12 CFR 1024.41(c)(2)(ii) and (iii).
\35\ 12 CFR 1024.41(b)(1) and Comments 41(b)(1)-4.iii and
41(c)(2)(iii)-2.
\36\ Comment 1024.41(b)(1)-4.iii.
\37\ Comment 1024.41(b)(1)-4.iii.
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In recent exams, examiners found that one or more servicers
received oral incomplete loss mitigation applications and pre-approved
borrowers for short-term payment forbearance programs based on those
applications. However, the servicer(s) did not notify borrowers of
their right to complete the application and did not separately request
other information needed to evaluate for all the other loss mitigation
options offered by the owner or assignee of the loan. And near the end
of the program, and prior to the end of the short-term payment
forbearance period, the servicer(s) failed to conduct outreach to
determine whether borrowers wished to complete the application and
proceed with a full loss mitigation evaluation.
Supervision determined that the servicer(s) violated Regulation X
by failing to exercise reasonable diligence in obtaining documents and
information to complete a loss mitigation application.\38\ Supervision
directed the servicer(s) to implement policies and procedures to ensure
that the servicer(s) exercise reasonable diligence in obtaining
documents and information to complete a loss mitigation application for
borrowers entering into short term payment forbearance programs based
on incomplete applications, including by contacting the borrowers near
the end of the program, and prior to the end of the forbearance period.
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\38\ 12 CFR 1024.41(b)(1).
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2.6.2 Broad Waivers in Short Sale and Cash-for-Keys Agreements
Supervision previously identified broad waiver of rights clauses in
forbearance, loan modification and other loss mitigation options as
violating the Dodd-Frank Act's prohibition against unfair or deceptive
acts or practices.\39\ Supervision determined such waivers to be
deceptive where reasonable consumers could construe the waivers as
barring them from bringing claims in court--including Federal claims--
related to their mortgages. Regulation Z states that a ``contract or
other agreement relating to a consumer credit transaction secured by a
dwelling . . . may not be applied or interpreted to bar a consumer from
bringing a claim in court pursuant to any provision of law for damages
or other relief in connection with any alleged violation of any Federal
law.'' \40\ Supervision also determined broad waivers to be unfair
insofar as they are offered in a ``take it or leave it'' fashion in the
ordinary course of offering loss mitigation agreements, rather than in
the context of resolution of a contested claim or another
individualized analysis of the servicer's risks and the consumer's
potential claims.\41\
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\39\ 12 U.S.C. 5536(a)(1).
\40\ 12 CFR 1026.36(h)(2).
\41\ See Supervisory Highlights: Winter 2013, at 6, available at
http://files.consumerfinance.gov/f/201401_cfpb_supervision-highlights.pdf.
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Supervision continues to find broad waivers of rights in loss
mitigation agreements. For example, in exchange for a short sale
agreement, one or more servicers required consumers to completely
waive, release, and relinquish any claims of any nature against the
servicer(s) arising out of or relating to the mortgage note and any
obligations thereunder, and to agree that they had no defenses to
payment in full under the note. Supervision determined the waiver to be
deceptive and required the servicer(s) to remove it from the
agreements.
In one or more servicing exams, Supervision also identified blanket
waivers in cash-for-keys agreements that gave borrowers the opportunity
to receive a payment in exchange for their commitment to vacate the
property by a date certain, thereby avoiding eviction proceedings. The
servicer(s) presented the waivers as take-it-or-leave-it boilerplate
and a reasonable borrower would have construed them to broadly waive
all claims or defenses including any in connection with the original
credit transaction that the borrower might have asserted against the
servicer(s). Supervision determined the waiver to be deceptive and
unfair, and directed the servicer(s) to remove all such waivers from
the agreements.
2.7 Remittances
The CFPB continues to examine both large banks and nonbanks for
compliance with the CFPB's amendments to Regulation E governing
international money transfers (or remittances).\42\ Regulation E,
Subpart B (or the Remittance Rule) provides protections, including
disclosure requirements, and error resolution and cancellation rights
to consumers who send remittance transfers to other consumers or
businesses in a foreign country.\43\ The amendments implement statutory
requirements set forth in the Dodd-Frank Act.
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\42\ See 78 FR 30662 (May 22, 2013) (codified at 12 CFR part
1005), available at http://www.gpo.gov/fdsys/pkg/FR-2013-05-22/pdf/2013-10604.pdf.
\43\ Regulation E implements the Electronic Fund Transfer Act
(EFTA).
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CFPB's examination program for both bank and nonbank remittance
providers assesses the adequacy of each entity's CMS for remittance
transfers. These reviews also check for providers' compliance with the
Remittance Rule and other applicable Federal consumer financial laws.
Supervision directed entities to make appropriate changes to compliance
management systems to prevent future violations and, where appropriate,
to remediate consumers for harm they experienced.
2.7.1 International Top-Up and Bill Pay Services
Examiners found that one or more supervised entities violated
section 919(a)(1) \44\ of EFTA and applicable provisions of Regulation
E by failing to treat international mobile top-up services in excess of
$15 as a remittance transfer. An international mobile top-up service
converts funds from consumers in the United States to airtime on a
phone account based on the usage and rate plan selected by the owner of
the phone residing in a foreign country. The entirety of these
transactions occurs exclusively in currencies up until the point funds
are received by the international cellphone carrier. The entity(ies)
failed to provide the disclosures, cancellation, or error resolution
rights to international top-up consumers required by EFTA and
Regulation E.
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\44\ 15 U.S.C. 1693o-1(a)(1).
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Similarly, one or more institutions violated section 919(a)(1) of
EFTA and applicable provisions of Regulation E by failing to treat
international bill payment services in excess of $15 as remittance
transfers and, as a result, failed to comply with the required
disclosure, error resolution, and cancellation requirements of the
Remittance Rule. Supervision directed entities to make appropriate
changes to their CMS in order to prevent future violations.
[[Page 48709]]
2.8 Service Provider Program
The Spring 2017 edition of Supervisory Highlights described
Supervision's service provider program, which involves the direct
examination of service providers, particularly in the mortgage
origination and mortgage servicing markets. Examiners are focusing on
the structure, operations and compliance management systems of various
service providers, as well as certain other targeted areas.
2.8.1 Deficient Mortgage Periodic Statements
Examiners reviewed whether one or more service provider(s)
adequately considered certain requirements of the Title XIV Final Rule
in developing products for mortgage servicers.\45\ Examiners found that
the service provider(s) developed a mortgage servicing information
technology (IT) system functionality that failed to implement certain
Regulation Z requirements for periodic statements. The service
provider(s)' billing files failed to list the total sum of any fees or
charges imposed, and the transaction activity that occurred since the
last statement.\46\ Moreover, the service provider(s) did not
adequately consider client concerns about the issue. Supervision
concluded that these weaknesses contributed to the clients' violations
of Regulation Z and directed the service provider(s) to implement
policies and procedures that span systems design and application
controls to ensure that the billing files made available through the
mortgage servicing IT system functionality enable compliance with
Regulation Z. In addition, Supervision directed the service provider(s)
to ensure that when clients communicate potential regulatory issues,
the service provider(s) analyze and implement changes as appropriate to
enable users of the mortgage servicing IT system functionality to
comply with Regulation Z.
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\45\ Title XIV Final Rule updates effective January 10, 2014,
with the exception of the appraisal requirements effective for
applications received on or after January 18, 2014.
\46\ 12 CFR 1026.41(d)(2)(ii); (d)(4).
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2.9 Short-Term, Small-Dollar Lending
The Bureau's Supervision program covers entities that offer or
provide payday loans. Such entities often offer other short-term, small
dollar (STSD) products to consumers as well such as single payment,
installment, or auto or vehicle title loans. During the examinations of
STSD entities, examiners identified CMS weaknesses and violations of
Federal consumer financial law, including the Dodd-Frank Act's
prohibition on UDAAPs. Highlighted below are some of the UDAAP findings
in recent examinations regarding collection practices, marketing
representations, representations regarding use of references, and
payment practices.
2.9.1 Short-Term, Small-Dollar Debt Collection
As noted in the Spring 2014 Supervisory Highlights, a continued
focus of the CFPB's short-term, small-dollar lending examination
program is how lenders collect consumer debt. Since then, we have
learned that 11 percent of consumers who indicated that they had been
contacted about a debt in collection reported attempts to collect on a
payday loan.\47\ Nearly ten percent of all debt collection complaints
handled by the CFPB are related to payday loans.\48\ Examiners have
identified a range of illegal collections practices by small-dollar
lenders, some of which are highlighted below.
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\47\ Consumer Experiences with Debt Collection (Jan. 2017) at
19, available at http://files.consumerfinance.gov/f/documents/201701_cfpb_Debt-Collection-Survey-Report.pdf.
\48\ Semi-annual report of the Consumer Financial Protection
Bureaus (Fall 2016) at 31, available at https://www.consumerfinance.gov/documents/1977/122016_cfpb_SemiAnnualReport.pdf.
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Workplace Collection Calls
Examiners found that one or more entities, in the course of
collecting their own debt, called borrowers at their places of
employment. The entity(ies) placed repeated calls to borrowers at work
even after borrowers asked the lenders to stop calling them at work or
told the lenders that the borrowers' employers did not allow such
calls. Examiners determined that this collection activity constituted
an unfair act or practice. The practice of continuing to call borrowers
repeatedly at the workplace after requests to stop causes or is likely
to cause substantial injury because continued contact may result in
negative employment consequences to the borrower. Borrowers cannot
avoid the injury when the lenders continue to make repeated calls after
the borrowers requested that they stop. Where the lender has been
expressly told to stop contacting the consumer at work or that the
employer prohibits such calls, the harm to consumers from continued
calling outweighs any countervailing benefits to consumers and
competition. One or more lenders have undertaken remedial and
corrective actions regarding these violations, which are under review
by Supervision.
Repeated Collection Calls to Third Parties
Examiners observed one or more entities routinely making repeated
calls to third parties, including personal and work references that
borrowers listed on their loan applications. In some instances, one or
more entities repeatedly requested that the third parties relay
messages to delinquent borrowers in a manner that disclosed or risk
disclosing the debt. The loan applications required consumers to list
the names and numbers of third parties and, in some instances,
disclosures provided to consumers conveyed that the individuals listed
would be contacted by the entity(ies) only as part of the origination
and underwriting process. The collection calls to third parties were
not made for the purpose of locating the borrowers.
Supervision determined that these collection activities constituted
unfair acts or practices. Through these calls, the entity(ies) caused
or was likely to cause substantial injury because the entity(ies)
either disclosed or risked disclosing borrowers' default or delinquency
to third parties. The consumer injury associated with the calls could
not be reasonably avoided because the borrowers were not aware that the
lenders would contact references or other third parties for debt
collection purposes, nor were they aware that one or more lenders would
continue to call such references after requests to stop. The benefits
to consumers and to competition did not outweigh the injury; the
entities had the borrower's location information and therefore had
other ways to reach consumers without disclosing or risking disclosure
of the borrowers' default or delinquency to third parties. One or more
entities have undertaken remedial and corrective actions regarding
these violations, which are under review by Supervision.
Misrepresentations in Collections
Examiners observed one or more entities in the course of collecting
delinquent or defaulted loans making statements to borrowers that they
must immediately contact the lenders to avoid additional collection
activity, including being visited at home or work. In fact, the
entity(ies) did not actually conduct such in-person collection visits.
Supervision concluded these representations constituted deceptive acts
or practices. Delinquent consumers could reasonably interpret the
entity(ies)' statements to mean that in-
[[Page 48710]]
person visits to the consumers' place of employment or home would take
place if the consumers did not immediately contact the entity(ies). The
representations were material to consumers because they could cause
consumers to change their behavior to avoid the promised visits. One or
more entities agreed to modify their collection practices to comply
with Federal consumer financial laws.
2.9.2 Marketing Misrepresentations About Small Dollar Loan Products
No Credit Check
Examiners observed that one or more entities advertised that
consumers could receive loans without undergoing credit checks.
However, these entity(ies) obtained consumer reports from specialty
consumer reporting companies during their underwriting processes and
sometimes denied loans to consumers based on the information in the
reports. Supervision concluded that this conduct constituted deceptive
acts or practices. The advertisements were deceptive because they were
likely to mislead reasonable consumers into believing that no credit
inquiries would be conducted and thus, they could receive a loan
without a credit check. These misrepresentations were likely to
influence consumers' decisions to choose to apply for the loans.
Supervision directed the one or more entities to cease advertising that
consumers could receive loans without credit checks.
Availability of Products and Services
Examiners observed that one or more entities advertised products
and services in outdoor signage that the entity(ies) did not, in fact,
offer. They consisted of products and services that the lenders had not
offered for several years but would be of interest to payday loan
customers. Supervision concluded that by advertising products and
services the entity(ies) did not, in fact, offer, the lenders engaged
in deceptive acts or practices. A reasonable consumer could interpret
the outdoor advertising to mean that the consumers who wished to
purchase the advertised services could do so inside the stores. The
representations were material because they impacted a consumer's
conduct in terms of whether to visit the stores. Supervision directed
the one or more entities to cease advertising products and services
that they did not offer.
Comparisons to Competitors
Examiners observed one or more entities advertising that many of
their products and services had substantially lower fees than their
competitors' products and services. The entity(ies), however, did not
have substantiation to support these claims. The entity(ies) relied on
out-of-date internal analyses that only covered fees for a small number
of products and services and did not reflect current rates, products,
or services or those of their competitors. Supervision concluded that
by making these misleading comparisons, the entity(ies) engaged in
deceptive acts or practices. The representations were likely to mislead
reasonable consumers into believing that the entity(ies) had a basis
for claiming that consumers would pay lower fees for the products and
services identified in the advertisement. This misrepresentation was
material because it likely influenced consumers' decisions to obtain
these products and services from the entity(s) over other short-term,
small-dollar lenders. Supervision directed one or more entities to
cease advertising that their fees were lower than their competitors,
absent adequate substantiation.
Ability To Apply Online
Examiners observed one or more entities representing on their Web
sites that consumers may ``apply online'' by completing lengthy online
forms. The forms solicited all or most of the information that a
consumer would typically submit in order to apply for a short-term,
small-dollar loan. The forms also permitted consumers to list most
states as their home State, suggesting that an application for an
online loan was available to consumers nationwide. In fact, consumers
could not apply online because the entity(ies) only originate loans at
their physical store front locations and do not originate loans based
on the purported online loan applications. Consumers could only receive
a loan from the lenders if they visited storefront locations. In
addition, the entity(ies) only extends credit in a small number of
States where they operate, not nationwide. Supervision determined that
the entity(ies)' representations constituted deceptive acts or
practices. Consumers acting reasonably were likely to view the ``apply
online'' advertisements on the lenders' Web sites and comprehensive
online applications as invitations to apply for, and receive, loans
online. The representations were material because had consumers
understood that they could not obtain a loan from the entity(ies) based
on where they lived or that would be required to visit a storefront
location to obtain a loan, many consumers would decide not to submit
the purported application forms with detailed contact and financial
information, and instead seek out other loan options. Supervision
directed the one or more entities to revise their Web sites and other
marketing materials.
2.9.3 Misrepresentations Regarding Use of References Provided by
Borrowers in Small Dollar Loan Applications
Examiners observed one or more entities making false
representations regarding the use of information provided by consumers
in loan applications. The entity(ies) required applicants to provide
names of references, including work colleagues, neighbors, and family
members, on the loan applications. On its loan applications, the
entity(ies) represented, directly and by implication, that the
references would only be contacted to verify information and evaluate
creditworthiness in connection with the consumers' loans. However, the
entity(ies) also contacted the applicants' references to market loan
products to them. Supervision concluded that the entity(ies), by
misleading consumers about how they would use the consumers'
references, engaged in deceptive acts or practices. A consumer acting
reasonably under the circumstances could interpret the loan
applications to mean that the entity(ies) would only contact references
in connection with the consumers' loans and that the entity(ies) would
not market their services to the individuals identified by consumers as
references. The representations were material because they were likely
to impact consumer behavior. For example, if borrowers were aware that
the entity(ies) makes marketing calls to the references listed on
applications, borrowers may provide different references or not apply
for the loan at all. Supervision directed one or more lenders to ensure
that all disclosures regarding the collection and use of references do
not include any false or misleading information.
Examiners also observed one or more entities representing, directly
or by implication, in loan applications that the reference information
provided by borrowers would be used only to contact references
regarding the borrowers' loan applications. The entity(ies) indicated
that these references would be ``checked,'' implying that they would be
contacted only at loan origination. Instead, the entity(ies) repeatedly
contacted the references when the borrowers' loans became delinquent.
Supervision concluded that these representations constituted deceptive
acts or practices.
[[Page 48711]]
The entity(ies) applications were likely to mislead consumers acting
reasonably under the circumstances by creating the net impression that
references would be contacted only at origination. This representation
was material because borrowers might have supplied other names of
references or not applied for loans at all if they had known their
references would be contacted for debt collection purposes. Supervision
directed one or more entities to review all disclosures regarding the
collection and use of references, including references listed by
borrowers on loan applications, and to ensure that the disclosures do
not include any false or misleading information.
2.9.4 Small Dollar Lending Unauthorized Debits and Overpayments
Examiners observed that one or more entities debited the accounts
of borrowers who had already paid their debts. Under the applicable
loan agreements, the entity(ies) was permitted to initiate ACH debits
from the accounts of borrowers whose loans were past due. However, one
or more entities sought payment through the ACH system from the
accounts of borrowers who had already paid their loans by making cash
payments at branch locations. Supervision concluded that failing to
implement adequate processes to reasonably avoid unauthorized charges
of, debits to, and overpayments by borrowers constituted unfair acts or
practices. The failure to prevent successful and unsuccessful payment
attempts to the accounts of borrowers who paid their debts caused
substantial injury in the form of overpayments and fees. Consumers
could not avoid this injury because they were not aware, regardless of
whether they were making payments in response to collection efforts,
that ACH debits had been initiated. The injury to consumers from
failing to have adequate processes to avoid the unauthorized charges,
debits and overpayments outweighs the benefits to consumers or
competition, given that implementing such processes would not involve
excessive costs to the entity(ies). One or more entities have
undertaken remedial and corrective actions regarding these violations,
which are under review by Supervision.
One or more entities also failed to implement adequate processes to
accurately and promptly identify and refund borrowers who paid more
than they owed, either in person at stores or via the ACH network.
Several consumers did not receive refunds until examiners alerted the
entity(ies) to the overpayments, which in some cases was almost a year
after the borrowers made the overpayments. Supervision concluded that
by failing to implement adequate processes to accurately and promptly
monitor, identify, correct, and refund overpayments by consumers, the
entity(ies) engaged in unfair acts or practices. The acts or practices
caused injury to borrowers who have paid their debts because a number
of consumers were deprived of their funds for extended periods of time.
They could not avoid the injury because they were unaware that the
entity(ies) would double debit their accounts and the consumers have no
control over the lenders' refund process. The injury to borrowers from
failing to have adequate processes to refund borrowers outweighs the
benefits to them or to competition, given that implementing such
processes would not involve excessive costs to the entity(ies). One or
more entities have undertaken remedial and corrective actions regarding
these violations, which are under review by Supervision.
2.10 Fair Lending
2.10.1 Mortgage Servicing
As part of its fair lending work, the Bureau seeks to ensure that
creditworthy consumers have access to the full array of appropriate
options when they have trouble paying their mortgages, without regard
to any prohibited basis. Mortgage servicing, and specifically default
servicing, may introduce fair lending risks because of the complexity
of certain processes, the range of default servicing options, and the
discretion that can sometimes exist in evaluating and selecting among
available default servicing options.
In mortgage servicing, our supervisory work has included use of the
Mortgage Servicing Exam Procedures and the ECOA Baseline Modules, both
of which are part of the CFPB Supervision and Examination Manual.
Examination teams use these procedures to conduct ECOA Baseline
Reviews, which evaluate institutions' compliance management systems
(CMS), or ECOA Targeted Reviews, which are more in-depth reviews of
activities that may pose heightened fair lending risks to consumers. As
discussed in the Mortgage Servicing Special Edition of Supervisory
Highlights,\49\ published in June 2016, these exam procedures contain
questions about, among other things, the fair lending training of
servicing staff, fair lending monitoring of servicing, and servicing of
consumers with limited English proficiency.
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\49\ See Supervisory Highlights Mortgage Servicing Special
Edition 2016, at 5, available at http://files.consumerfinance.gov/f/documents/Mortgage_Servicing_Supervisory_Highlights_11_Final_web_.pdf.
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In one or more ECOA targeted reviews of mortgage servicers, CFPB
examiners found weaknesses in fair lending CMS. In general, examiners
found deficiencies in oversight by board and senior management,
monitoring and corrective action processes, compliance audits, and
oversight of third-party service providers.
In one or more examinations, data quality issues, which were
related to a lack of complete and accurate loan servicing records, made
certain fair lending analyses difficult or impossible to perform.
Examiners attributed these data quality issues to significant
weaknesses in CMS-related policies, procedures, and service provider
oversight.
Separately, fair lending analysis at one or more mortgage servicers
was affected by a lack of readily-accessible information concerning a
borrower's ethnicity, race, and sex information that had been collected
pursuant to Regulation B or Regulation C and transferred to the
servicer. One or more mortgage servicers acknowledged the importance of
retaining in readily-accessible format--for the express purpose of
performing future fair lending analyses--ethnicity, race, and sex data
that it had received in the borrower's origination file.
3. Remedial Actions
3.1 Public Enforcement Actions
3.1.1 Fay Servicing
On June 7, 2017, the CFPB announced an enforcement action against
Fay Servicing for failing to provide mortgage borrowers with certain
protections against foreclosure that are required by law.\50\ The
Bureau found that Fay violated the CFPB's servicing rules by keeping
borrowers in the dark about critical information about the process of
applying for foreclosure relief. As part of the requirements for
keeping borrowers informed, servicers generally must send an
acknowledgement notice when they receive an application for foreclosure
relief. The notice must state whether and what additional documents or
information are required from the borrower to complete the application.
After a borrower completes the application, servicers must also
generally send an evaluation notice spelling out what foreclosure
relief options they are offering, the deadline to
[[Page 48712]]
accept or reject the offer, and the rights borrowers have to appeal a
servicer's decision to deny certain types of relief.
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\50\ See related Consent Order, available at http://www.consumerfinance.gov/documents/4820/062017_cfpb_Fay_Servicing-consent_order.pdf.
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Fay Servicing failed to send or timely send both acknowledgment and
evaluation notices with the relevant, correct information, putting the
onus on borrowers to try to determine what else they had to do to
attempt to save their homes or otherwise avoid foreclosure. The Bureau
also found instances where the servicer illegally launched or moved
forward with the foreclosure process while borrowers were actively
seeking help to save their homes. The CFPB has ordered Fay Servicing to
provide timely and accurate acknowledgment and evaluation notices, to
solicit certain consumers for available loss mitigation options and pay
up to $1.15 million to harmed borrowers.
3.1.2 Nationstar Mortgage LLC, d/b/a Mr. Cooper
On March 15, 2017, the Bureau announced an enforcement action
against Nationstar Mortgage LLC, d/b/a Mr. Cooper (Nationstar) for
violating the Home Mortgage Disclosure Act (HMDA) by consistently
failing to report accurate data from 2012 through 2014, under the
version of the HMDA rule that predates the creation of the CFPB.
Through its supervision process, the Bureau found that Nationstar's
HMDA compliance systems were flawed and generated mortgage lending data
with significant, preventable errors. Nationstar also failed to
maintain detailed HMDA data collection and validation procedures, and
failed to implement adequate compliance procedures. It also created
reporting discrepancies by failing to maintain consistent data
definitions among its various lines of business.
Nationstar has a history of HMDA non-compliance. In 2011, the
Commonwealth of Massachusetts Division of Banks reached a settlement
with Nationstar to address HMDA compliance deficiencies. The loan file
samples reviewed by the Bureau showed substantial error rates in three
consecutive reporting years, even after the settlement with the
Massachusetts Division of Banks. In the samples reviewed, the Bureau
found error rates of 13 percent in 2012, 33 percent in 2013, and 21
percent in 2014.
The Bureau's consent order requires Nationstar to pay a $1.75
million penalty to the Bureau's Civil Penalty Fund. Nationstar must
also review, correct, and make available its corrected HMDA data from
2012-14. In addition, Nationstar must assess and undertake any
necessary improvements to its HMDA compliance management system to
prevent future violations. The action includes the largest HMDA civil
penalty imposed by the Bureau to date, which stems from Nationstar's
market size, the substantial magnitude of its errors, and its history
of previous violations.
3.2 Non-Public Supervisory Actions
In addition to the public enforcement actions above, recent
supervisory activities have resulted in approximately $14 million in
restitution to more than 104,000 consumers. These nonpublic supervisory
actions generally have been the product of CFPB supervision and
examinations, often involving either examiner findings or self-reported
violations of Federal consumer financial law during the course of an
examination. Recent nonpublic resolutions were reached in auto finance
origination matters.
4. Supervision Program Developments
4.1 Use of Enforcement and Supervisory Authority
In the Summer 2015 edition of Supervisory Highlights, the Bureau
provided information on its Potential Action and Request for Response
(PARR) letter process and the Action Review Committee (ARC) process.
The ARC process is used by senior executives in the Bureau's Division
of Supervision, Enforcement, and Fair Lending to determine through a
deliberative and rigorous process whether matters that originate from
examinations will be resolved through confidential supervisory action
or be further investigated for possible public enforcement action.\51\
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\51\ See Supervisory Highlights: Summer 2015, at 27, available
at http://files.consumerfinance.gov/f/201506_cfpb_supervisory-highlights.pdf.
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In June 2017, the Bureau released a blog which noted that in fiscal
year 2016, about one-third of those examinations that were considered
through the ARC process were determined appropriate for further
investigation for possible public enforcement action. This equated to
approximately 10 percent of all examinations in fiscal year 2016.\52\
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\52\ For more information regarding the evaluation factors, see
CFPB blog titled ``How we keep you safe in the consumer financial
market place'' available at https://www.consumerfinance.gov/about-us/blog/how-we-keep-you-safe-consumer-financial-marketplace/.
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More detailed information on the number of ARC decisions is
presented in Table 1 below. This table reflects the total number of ARC
decisions and their outcomes for the fiscal years 2012 through 2016.
The numbers in the table do not reflect all supervisory examinations or
all enforcement investigations in any given year. Instead, they show
the ARC decisions made on the subset of matters that go through the ARC
process, which are generally those examinations in which the exam team
found evidence of significant violations of Federal consumer financial
law. These numbers are also reflective in part of the Bureau's risk-
based approach to supervision. Pursuant to that approach, the Bureau
concentrates its efforts on institutions and product lines that it
determines through its analytical prioritization process pose the
greatest risk to consumers.
As reflected in the table, since 2014, the number of matters
raising issues that trigger the ARC process and the number of those
matters that are determined appropriate for further investigation for
possible public enforcement action moving to enforcement--in whole or
in part--have remained somewhat consistent. Taken together, about a
third of the ARC decisions in fiscal years 2014 to 2016 were determined
appropriate for further investigation for possible public enforcement
action. Any violations identified in the remaining matters were
determined appropriate to be resolved through confidential supervisory
action.
Table 1--ARC Decisions Through FY 2016
[September 30, 2016]
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Outcome FY 12 * FY 13 FY 14 FY 15 FY 16 Total % of total
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Determined appropriate for further investigation for possible 7 10 11 9 8 45 24.59
public enforcement action...................................
Determined appropriate for resolution through confidential 7 6 32 41 31 117 63.93
supervisory action..........................................
[[Page 48713]]
Determined appropriate, in part for further investigation for 0 1 8 5 7 21 11.48
possible public enforcement, and in part for resolution
through confidential supervisory action **..................
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Total.................................................... 14 17 51 55 46 183 100.00
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* Reflects part of the Fiscal Year; the ARC process was first implemented partway through FY 2012.
** With respect to some exams, some findings are referred to supervision and some findings are referred to enforcement. Either Enforcement or
Supervision will exclusively consider each finding.
The Bureau commits to publishing ARC data going forward at the
conclusion of each fiscal year, beginning with the data for fiscal year
2017 in the next edition of Supervisory
4.2 Fair Lending Developments
4.2.1 HMDA Data Collection and Reporting Reminders for 2017
As reported in previous editions of Supervisory Highlights,
beginning with Home Mortgage Disclosure Act (HMDA) data collected in
2017 and submitted in 2018, responsibility to receive and process HMDA
data will transfer from the Federal Reserve Board (FRB) to the
CFPB.\53\ The HMDA agencies have agreed that a covered institution
filing HMDA data collected in or after 2017 with the CFPB will be
deemed to have submitted the HMDA data to the appropriate Federal
agency.\54\
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\53\ For additional information regarding HMDA data collection
and reporting reminders for 2017, see Supervisory Highlights, Fall
2016, available at http://files.consumerfinance.gov/f/documents/Supervisory_Highlights_Issue_13__Final_10.31.16.pdf.
\54\ The ``HMDA agencies'' refers collectively to the CFPB, the
Office of the Comptroller of the Currency (OCC), the Federal Deposit
Insurance Corporation (FDIC), the FRB, the National Credit Union
Administration (NCUA) and the Department of Housing and Urban
Development (HUD).
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The effective date of the change in the Federal agency that
receives and processes the HMDA data does not coincide with the
effective date for the new HMDA data to be collected and reported under
the Final Rule amending Regulation C published in the Federal Register
on October 28, 2015. The Final Rule's new data requirements will apply
to data collected beginning on January 1, 2018. The data fields for
data collected in 2017 have not changed.
Additional information about HMDA, the HMDA Filing Instructions
Guide (FIG) and other data submission resources are located at: http://www.consumerfinance.gov/data-research/hmda/.
4.2.2 HMDA Data Reviews and the Adequacy of HMDA Compliance Programs
As part of its supervision of very large banks and nonbank mortgage
lenders, the CFPB reviews the accuracy of HMDA data and the adequacy of
HMDA compliance programs. In 2013, the CFPB issued a bulletin reminding
mortgage lenders about the importance of submitting correct mortgage
loan data. The CFPB has conducted HMDA reviews at dozens of bank and
nonbank mortgage lenders, and has found that many lenders have adequate
compliance systems and produce HMDA data with few errors. Moreover,
while some lenders have been required to resubmit their HMDA data
because their errors exceeded the relevant resubmission thresholds,
most of those matters have been addressed through a supervisory
resolution.
As noted above, the 2015 Final Rule's new data requirements will
apply to data collected beginning on January 1, 2018. Given the recent
updates to the rule, the Bureau's current principal focus is on
providing regulatory implementation support to financial institutions,
to assist them in operationally implementing the recent changes to the
HMDA requirements. After the rule takes effect, consistent with our
approach to the implementation of other Bureau rules requiring
significant systems and operational changes, our approach will
generally be diagnostic and corrective, not punitive. In our initial
examinations for compliance with the rule, we intend to consider
whether companies have made good faith efforts to come into compliance
with the rule in a timely manner. Specifically, we will be evaluating a
company's overall efforts to come into compliance, including assessing
the compliance management system and conducting transaction testing. If
errors are identified, we will work with the institution to determine
the root cause of the issue and determine what corrective actions, if
any, are necessary.
4.2.3 FFIEC Releases Updates to HMDA Examiner Transaction Testing
Guidelines
In August 2017, the FFIEC, of which the Bureau is a member agency,
released the FFIEC HMDA Examiner Transaction Testing Guidelines
(Guidelines).\55\ For HMDA data collected by financial institutions in
or after 2018, these new FFIEC Guidelines replace the Bureau's HMDA
Resubmission Schedule and Guidelines which was released in October
2013.
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\55\ See the related Guidelines, available at https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201708_cfpb_ffiec-hmda-examiner-transaction-testing-guidelines.pdf.
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The Guidelines Will Help Ensure Accurate Data and Address Reporting
Burden Concerns
When examining financial institutions, federal supervisory agencies
may check the accuracy of HMDA data within a sample of reported
transactions. If examiners find that the number of errors in the sample
exceeds certain thresholds, the lender is directed to correct and
resubmit its HMDA data.
In light of the new data fields that will be required beginning in
2018, the new Guidelines:
[ssquf] Eliminate the file error resubmission threshold under which
a financial institution would be directed to correct and resubmit its
entire Loan Application Register (LAR) if the total number of sample
files with one or more errors equaled or exceeded a certain threshold.
[ssquf] Establish, for the purpose of counting errors toward the
field error resubmission threshold, allowable tolerances for certain
data fields.
[ssquf] Provide a more lenient 10 percent field error resubmission
threshold for financial institutions with LAR counts of 100 or less,
many of which are community banks and credit unions.
[[Page 48714]]
At the same time, the Guidelines ensure HMDA data integrity by
maintaining field error resubmission thresholds that safeguard the
accuracy of each data field, and thus all data, reported under HMDA.
Furthermore, under the Guidelines, examiners may direct financial
institutions to change their policies, procedures, audit processes, or
other aspects of its compliance management system to prevent the
reoccurrence of errors.
All Federal HMDA Supervisory Agencies Will Use the Same Guidelines
The Guidelines represent a joint effort by the Bureau, the FRB, the
OCC, the FDIC, and the NCUA to provide--for the first time--uniform
guidelines across all Federal HMDA supervisory agencies. This
collaboration began with the Bureau issuing a Request for Information
\56\ and holding outreach meetings in which the other supervisory
agencies participated. The agencies then worked together to develop the
Guidelines.
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\56\ See the related Request for Information, available at
http://files.consumerfinance.gov/f/201601_cfpb_request-for-information-regarding-home-mortgage-disclosure-act-resubmission.pdf.
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Information about HMDA and other data submission resources are
located at http://www.consumerfinance.gov/adata-research/hmda/.
4.3 Examination Procedures
4.3.1 Updates to the Compliance Management Review Examination
Procedures
On August 30, 2017, the CFPB released revised Compliance Management
Review examination procedures. The procedures were updated in order to
reflect changes to the FFIEC Interagency Consumer Compliance Ratings
System (CC Ratings System), which became effective March 31, 2017.
These procedures do not reflect any new or additional expectations of
institutions regarding their CMS, nor do they change the examiner's
assessment from that which examiners have been conducting in the past:
They only reorganize the procedures to align with the CC Ratings System
and formalize current CMS review processes.
As revised, the CMS examination procedures are divided into five
Modules:
[ssquf] Module 1: Board and Management Oversight
[ssquf] Module 2: Compliance Program
[ssquf] Module 3: Service Provider Oversight
[ssquf] Module 4: Violations of Law and Consumer Harm
[ssquf] Module 5: Examiner Conclusions and Wrap-Up
In general, all CFPB reviews will include Modules 1, 2, 3, and 5.
Module 4 will generally be included in targeted reviews of individual
product lines, as well as examinations that will result in the
institution receiving a consumer compliance rating. The CMS review for
target reviews will generally be limited to reviewing aspects of CMS
pertaining to the product line under review. To the extent that CMS for
a particular product line or a specific institution has been previously
reviewed, CFPB examiners may evaluate CMS by reviewing previous
conclusions and assessing only the changes to the current CMS program.
4.4 Recent CFPB Guidance
The CFPB is committed to providing guidance on its supervisory
priorities to industry and members of the public.
4.4.1 Phone Pay Fees Bulletin
On July 31, 2017, the Bureau released Bulletin 2017-01,\57\ which
provides guidance to covered persons and service providers regarding
fee assessments for pay-by-phone services. The bulletin provides
examples of conduct observed during supervisory examinations and
enforcement investigations that may violate the Dodd-Frank Act
prohibition on engaging in UDAAPs, as well as the FDCPA. The bulletin
clarifies that the Bureau is not mandating specific pay-by-phone
disclosure requirements, but states that the Bureau expects supervised
entities to review their practices on charging phone pay fees for
potential risks of violating Federal consumer financial laws. To that
end, the bulletin offers a number of suggestions for entities assessing
whether their practices violate these laws and further recommends
having in place a corrective action program to address any violations
identified and reimburse consumers when appropriate.
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\57\ See Compliance Bulletin 2017-01, available at https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/bulletin-phone-pay-fees/.
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5. Conclusion
The Bureau recognizes the value of communicating its program
findings to CFPB-supervised entities to help them comply with Federal
consumer financial law, and to other stakeholders to foster a better
understanding of the CFPB's work.
To this end, the Bureau remains committed to publishing its
Supervisory Highlights report periodically to share information about
general supervisory and examination findings (without identifying
specific institutions, except in the case of public enforcement
actions), to communicate operational changes to the program, and to
provide a convenient and easily accessible resource for information on
the Bureau's guidance documents.
Dated: September 7, 2017.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2017-22700 Filed 10-18-17; 8:45 am]
BILLING CODE 4810-AM-P