On September 4, the CFPB released the latest edition of their “Supervisory Highlights” which gives us insight into recent examiner findings. This recent edition focuses on findings in the areas of consumer reporting, deposits, and fair lending, among others. Since each of these areas play major roles in all banks, let’s take a close look at what the regulators are seeing.
First up, consumer reporting, which falls under FCRA and Regulation V. According to this edition, examiners found deficiencies in user and furnisher compliance with FCRA permissible purpose, accuracy, and dispute investigation requirements. We see lots of questions about whether or not a specific scenario is considered a “permissible purpose” to pull credit. Section 604 of the FCRA tells us that a permissible purpose exists when (a) the consumer has instructed/authorized the bank in writing to pull credit; (b) when ordered by a court or a federal grand jury subpoena; (c) for the extension of credit as a result of an application, or the review or collection of an account; (d) for employment purposes, with the consumer’s written permission; (e) when there is a legitimate business need, in connection with a consumer initiated business transaction; and (f) to review an account to determine whether the consumer continues to meet the terms of the account. In addition, creditors may pull credit making “prescreened” unsolicited offers of credit or insurance. Ensure that your policies and procedures clearly define “permissible purpose” and test to ensure these procedures are followed.
Next, issues with the deposits regulations; Electronic Funds Transfer Act, Regulation E and Truth in Savings Act, and Regulation DD. Regulation E and the EFTA together establish that consumers have a right to have an error investigated subject only to the requirements set forth in EFTA and Regulation E. Examiners found that some banks were having consumers sign deposit agreements stating that consumers would “cooperate” with the bank’s investigation of any errors by providing affidavits and notifying law enforcement. By forcing consumers to provide this type of information or take these additional steps, these agreements effectively waived the consumers’ rights in violation of EFTA. This is another area that we see a large number of questions about. While you can suggest that the consumer notify law enforcement in cases of theft or fraud, you cannot require that they do so as part of your investigation process and delay the timing until such notification has been made.
Fair lending is next, but this issue is one that many don’t think of…models in advertising and redlining. Examiners observed that lenders were intentionally redlining majority-minority neighborhoods through marketing by engaging in acts or practices directed at prospective applicants that may have discouraged reasonable people from applying for credit. So what were the lenders doing? Their advertisements and marketing materials featured almost exclusively white models. The lenders also included headshots of their mortgage professionals, who appeared to be white, in most of the open house marketing materials. In examining data, evidence showed intent to discourage prospective applicants on a prohibited basis. Be sure that you are diverse in your advertising and be aware of materials that go out to the public. With so many other things that require attention, don’t let this one sneak up on you.