CFPB Summarizes Supervisory Trends for May through August, 2015

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CFPBOn November 3, 2015, the Consumer Financial Protection Bureau (CFPB) released its Supervisory Highlights report​ detailing the Bureau’s supervision efforts for May through August of 2015. The report summarizes the violations of consumer protection laws the Bureau observed during the four-month period and identifies the areas in which the Bureau has been focusing its supervision efforts. The report identified compliance issues at depository institutions, debt collection companies, mortgage originators, mortgage servicers, and student loan servicing companies.

The CFPB noted a number of alleged violations of the Fair Credit Reporting Act at banks and other depository institutions. The Fair Credit Reporting Act and its implementing regulation require that financial institutions maintain policies and procedures designed to ensure the accuracy of information furnished to Credit Reporting Agencies (CRAs) for both credit accounts and deposit accounts (when the institution reports deposit information to CRAs that collect depository account information). The CFPB found that some depository institutions that furnished information to CRAs allegedly failed to maintain appropriate policies and procedures designed to ensure the transmittal of accurate depository account information to the CRAs. The CFPB also noted that some financial institutions allegedly failed to provide notices required by the FCRA. For example, some institutions allegedly failed to provide notice when it took an adverse action on a consumer’s account based on information obtained from a CRA. Other institutions allegedly failed to provide consumers with the results of investigations into disputes about information furnished to CRAs.

The CFPB identified a number of problems at certain debt collection companies. During debt collection calls, some companies allegedly failed to identify themselves as debt collectors. Debt collectors are generally required to identify themselves as debt collectors even during subsequent (i.e. after the initial) calls with consumers. The CFPB also noted that some debt collectors failed to maintain adequate safeguards to ensure they were not contacting consumers who were represented by attorneys or contacting consumers at their place of employment when employers prohibited such calls.

The CFPB also identified a variety of issues related to mortgage origination. According to the CFPB, some originators charged fees that exceeded the limits imposed by the Real Estate Settlement Procedures Act (RESPA). For example, originators cannot charge origination fees or charges associated with selecting an interest rate that vary from the disclosures of such fees on the good faith estimate. The CFPB noted that some originators had allegedly failed to comply with this requirement. The CFPB also noted issues with inaccurate HUD-1 settlement statements, failures to provide accurate disclosures regarding servicing transfers, and failures to ensure staff were properly registered with the National Mortgage Licensing System and Registry, as required by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008. Finally, the CFPB noted that some originators allegedly failed to reimburse borrowers when the originators disclosed inaccurate finance charges or annual percentage rates, as required by the Truth in Lending Act and its implementing regulation.

With respect to mortgage servicing, the CFPB pursued supervisory actions related to deficient policies and procedures, loss mitigation applications, private mortgage insurance rules, and debt collection activities. The CFPB noted that some mortgage servicers allegedly failed to maintain adequate policies and procedures designed to (1) ensure effective communication with successors in interest in the event of the death of a borrower; (2) identify all the loss mitigation options available to borrowers; (3) properly evaluate loss mitigation applications; and (4) share accurate information regarding the status of loss mitigation applications. Some mortgage servicers also allegedly failed to provide 30 days for borrowers to obtain the required documentation for their​ loss mitigation applications, and allegedly failed to notify borrowers that they had a right to appeal when loss mitigation applications were denied, both of which are required by the regulation implementing RESPA. The CFPB also noted that some mortgage servicers allegedly failed to comply with rules regarding termination of private mortgage insurance under the Homeowners Protection Act and debt collection under the Fair Debt Collection Practices Act.

The CFPB also identified compliance issues at student loan servicers. Most student loan servicers service multiple student loan accounts for each student borrower. Some student loan servicers allegedly allocated partial payments across each student loan account, which caused late fees for each account. These servicers also allegedly failed to disclose to borrowers that they could direct partial payments to specific accounts and in some cases specifically instructed borrowers that they could not direct payments to particular loans. The CFPB also noted compliance issues related to charging automatic debits before the scheduled payment dates (typically due to technology malfunctions) and failing to post-date automatic payments that were made on the first business day after a holiday or weekend, which caused improper interest charges. The CFPB also identified a number of misrepresentations regarding the dischargeability of student loans in bankruptcy and late fees. The CFPB also directed some student loan servicers to improve their internal controls and policies regarding furnishing accurate information to CRAs, as required by the FCRA.

The CFPB also noted that it has pursued remedial action against some institutions over alleged violations of the Equal Credit Opportunity Act. The CFPB recommended that institutions take the following steps to identify and remedy lending discrimination issues: (1) internal monitoring for disparities in lending practices, including statistical sampling methods for larger institutions; (2) investigation into the “root cause” of any observed disparities, including evaluation of whether any form of illegal discrimination occurred or whether the practices have a disparate effect on minority groups; (3) remedial efforts to address any discrimination, including potential restitution to borrowers who were denied credit on a prohibited basis; and (4) development of appropriate policies and procedures regarding fair lending and appropriate training.

The CFPB also highlighted some of the developments in its supervision program. The CFPB noted that entities who are being investigated for fair lending violations may receive a “Fair Lending Potential Action and Request for Response Letter” (PARR-FL) that summarizes the potential violations and permits the institution to draft a response. The PARR-FL letter will also notify the institution that the CFPB is considering taking corrective action and that the CFPB may refer the matter to the DOJ for further investigation. The CFPB has also updated the automobile finance examination procedures and the mortgage origination examination procedures. The new procedures are available in the CFPB’s Supervision and Examination Manual​​.

Finally, the CFPB announced that it has significantly revised its appeals process. The changes include: (1) permitting members of the supervision, enforcement and fair lending divisions to participate on the appeal committee; (2) permitting an odd number of appeal committee members; (3) limiting oral presentations to matters presented in the written briefs; (4) providing additional information regarding the standard by which appeals are decided and other details regarding how appeals are decided; (5) preventing institutions from appealing adverse findings or ratings until the investigation or enforcement action has been fully resolved; and (6) extending the expected time for receiving the appeal decision from 45 to 60 days. As of November 3, 2015, the full policy has not been made available on the CFPB’s website.