The Consumer Financial Protection Bureau (CFPB) recently published its Fall 2022 Supervisory Highlights. In the most recent issue several trends were evident: 1) the same violations keep popping up, even though past Supervisory Highlights have addressed these types of violations, 2) continued unfair, deceptive or abusive acts or practices (UDAAPs) in violation of the Consumer Financial Protection Act (CFPA), and 3) CARES Act or COVID-19-related issues. The Fall 2022 Supervisory Highlights cover examinations in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, mortgage servicing and payday lending completed between January 1, 2022, and June 31, 2022.
Auto Servicing
The CFPB continues to evaluate these activities, primarily to see if entities have engaged in any UDAAPs. Examiners identified unfair and deceptive acts or practices, including violations related to add-on product charges, loan modifications, double billing, use of devices that interfered with driving, collection tactics, and payment allocation. Among the things specifically called out, the CFPB noted:
“…consumers paid off their loans early, but servicers failed to ensure consumers received refunds for unearned fees…”
“…servicers stated that the consumers were âpreliminarily approvedâ for loan modifications but had to make a payment equal to the standard monthly payment before the servicers would finalize the modifications…In fact, servicers denied most of the modification requests…”
Servicers activated devices that interfere with driving (sometimes called starter interrupt devices) when consumers were not past due on payment and caused the devices to sound late payment warning beeps despite consumers being current.
“…servicersâ representatives told delinquent consumers that their driverâs licenses and tags would be or may be suspended if they did not make a prompt payment…”
Consumer Reporting
Companies that regularly assemble or evaluate consumer information for the purpose of providing reports to third parties are Consumer Reporting Companies (CRCs). These CRCs play a vital role in availability of credit and are subject to the Fair Credit Reporting Act (FCRA). Recently, examiners found deficiencies in CRCsâ compliance with dispute investigation requirements and furnisher compliance with accuracy and dispute investigation requirements. Among the things specifically called out, the CFPB noted:
“…continuing to find that furnishers are violating the FCRA by inaccurately reporting information despite actual knowledge of errorsâŚ. found that furnishers reported a consumerâs account as delinquent despite placing the account in deferment…”
“…furnishers continued to report consumer accounts with an indication that the dispute investigation was still open when, in fact, the furnisher had determined that the accounts were no longer being investigated…”
“…furnishersâ policies and procedures did not document the basis on which dispute agents should determine consumer direct disputes reasonably qualify as frivolous or irrelevant…and lacked reasonable internal controls regarding the accuracy and integrity of furnished information, such as verifying random samples of furnished information…”
“…servicers neither conducted reasonable investigations nor sent notices that disputes were frivolous or irrelevant where direct dispute notices may have been prepared by a credit repair organization…”
Credit Card Account Management
The CFPB assessed the credit card account management operations for compliance with Federal consumer financial services laws. Examinations of these supervised entities identified Regulation Z violations and UDAAPs. Among the things specifically called out, the CFPB noted:
“…after increasing a consumerâs APR, credit card issuers must periodically assess whether it is appropriate to reduce the accountâs APR and did not…”
“…claimed that consumers could cancel the product coverage simply by calling a toll-free number when, instead, they were required to take additional steps to cancel…” (Deceptive)
“…claimed that consumers would not be required to pay product premiums for months in which they had a zero balance when, in fact, consumers were required to carry a zero average daily balance for the billing cycle…” (Deceptive)
“…omitted disclosure of the burdensome administrative requirements that consumers were required to satisfy to submit benefits claims for the product…” (Unfair)
“…failed to cancel the products on the date of the consumerâs request and failed to issue pro rata refunds based on the date of the request…” (Unfair)
Debt Collection
The CFPB has authority to examine certain institutions that engage in consumer debt collection activities. Recent examinations identified violations of the Fair Debt Collection Practices Act (FDCPA). Among the things specifically called out, the CFPB noted:
“…continued to engage the consumer after the consumer stated multiple times they were driving and needed to discuss the account at another time…”
“…used combative statements and continued the call after the consumer stated they were unemployed, affected by COVID-19, and unable to pay, and even after the consumer clearly stated that the call was âmaking him agitatedâ…”
“…communicating with a person other than the consumer about the consumerâs debt, when the person had a name similar or identical to the consumer…”
Deposits
The CFPB evaluated how financial institutions handled pandemic relief benefits deposited into consumer accounts. Â Among the things specifically called out, the CFPB noted:
Using protected unemployment insurance or economic impact payments funds to set off a negative balance in the account into which the benefits were deposited
Garnishing protected economic impact payments
In connection with out-of-state garnishment orders, processing garnishments in violation of applicable state laws
Mortgage Origination
The CFPB, in examining the mortgage origination operations of certain supervised entities identified Regulation Z violations and UDAAPs. Among the things specifically called out, the CFPB noted:
Reducing loan originator compensation to cover settlement cost increases that were not unforeseen – “…entities then reduced the amount of compensation to the loan originator after loan consummation by the amount provided to cure the tolerance violation…”
Deceptive waiver of borrowersâ rights in loan security agreements – “…waiver provided that borrowers who signed the agreement waived their right to initiate or participate in a class action…reasonable consumer could understand the provision to waive their right to bring a class action on any claim…”
Mortgage Servicing
The CFPB focused on servicersâ actions related to the COVID-19 pandemic. Servicers were found to be engaged in UDAAPs by charging fees for phone payments when consumers were unaware of the fees. Examiners further noted Regulation X violations and UDAAPs for failure to provide consumers with CARES Act forbearances. Among the things specifically called out, the CFPB noted:
“…servicers engaged in abusive acts or practices by charging sizable phone payment fees when consumers were unaware of the fees…During calls with consumers, representatives did not disclose the phone pay feesâ existenceâŚÂ general disclosures, provided prior to making the payment, indicating that consumers âmayâ incur a fee for phone payments did not sufficiently inform consumers of the material costs…”
Charging illegal fees during CARES Act forbearances
“…policies and procedures were not reasonably designed to inform consumers of all available loss mitigation options…” or “…to properly evaluate consumers for all available loss mitigation options, resulting in improper denial of deferral options…”
Feel free to reach out to us on the hotline if you have any questions about the Supervisory Highlights, and what the implications may be for banks going forward.