Supervisory Highlights: Winter 2016, 30257-30264 [2016-11423]
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the methods and the assumptions used;
(c) Ways to enhance the quality, utility,
and clarity of the information to be
collected; and (d) Ways to minimize the
burden of the collection of information
on respondents, including through the
use of automated collection techniques
or other forms of information
technology. Comments submitted in
response to this notice will be
summarized and/or included in the
request for OMB approval. All
comments will become a matter of
public record.
1. Introduction
that is fair, transparent, and
competitive, and that works for all
consumers. One of the tools the CFPB
uses to further this goal is the
supervision of bank and nonbank
institutions that offer consumer
financial products and services. In this
tenth edition of Supervisory Highlights,
the CFPB shares recent supervisory
observations in the areas of consumer
reporting, debt collection, mortgage
origination, remittances, student loan
servicing, and fair lending. One of the
Bureau’s goals is to provide information
that enables industry participants to
ensure their operations remain in
compliance with Federal consumer
financial law. The findings reported
here reflect information obtained from
supervisory activities completed during
the period under review as captured in
examination reports or supervisory
letters. In some instances, not all
corrective actions, including through
enforcement, have been completed at
the time of this report’s publication.
The CFPB’s supervisory activities
have either led to or supported three
recent public enforcement actions,
resulting in $52.75 million in consumer
remediation and other payments and an
additional $8.5 million in civil money
penalties. The Bureau also imposed
other corrective actions at these
institutions, including requiring
improved compliance management
systems (CMS). In addition to these
public enforcement actions, Supervision
continues to resolve violations using
non-public supervisory actions. When
Supervision examinations determine
that a supervised entity has violated a
statute or regulation, Supervision
directs the entity to implement
appropriate corrective measures,
including remediation of consumer
harm when appropriate. Recent
supervisory resolutions have resulted in
restitution of approximately $14.3
million to more than 228,000
consumers. Other corrective actions
have included, for example, furnishing
corrected information to consumer
reporting agencies, improving training
for employees to prevent various law
violations, and establishing and
maintaining required policies and
procedures.
This report highlights supervision
work generally completed between
September 2015 and December 2015,
though some completion dates may
vary. Any questions or comments from
supervised entities can be directed to
CFPB_Supervision@cfpb.gov.
The Consumer Financial Protection
Bureau (CFPB or Bureau) is committed
to a consumer financial marketplace
2. Supervisory Observations
Summarized below are some recent
examination observations in consumer
Dated: May 10, 2016.
Darrin A. King,
Paperwork Reduction Act Officer, Bureau of
Consumer Financial Protection.
[FR Doc. 2016–11424 Filed 5–13–16; 8:45 am]
BILLING CODE 4810–AM–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
Supervisory Highlights: Winter 2016
Bureau of Consumer Financial
Protection.
ACTION: Supervisory Highlights; notice.
AGENCY:
The Bureau of Consumer
Financial Protection (CFPB) is issuing
its tenth edition of its Supervisory
Highlights. In this issue, the CFPB
shares findings from recent
examinations in the areas of student
loan servicing, remittances, mortgage
origination, debt collection, and
consumer reporting. This issue also
shares important updates to past fair
lending settlements reached by the
CFPB. As in past editions, this report
includes information about recent
public enforcement actions that
resulted, at least in part, from our
supervisory work. Finally, the report
recaps recent developments to the
CFPB’s supervision program, such as
the release of updated fair lending
examination procedures and guidance
documents in the areas of credit
reporting, in-person debt collection, and
preauthorized electronic fund transfers.
DATES: The Bureau released this edition
of the Supervisory Highlights on its Web
site on March 8, 2016.
FOR FURTHER INFORMATION CONTACT:
Christopher J. Young, Managing Senior
Counsel and Chief of Staff, Office of
Supervision Policy, 1700 G Street NW.,
20552, (202) 435–7408.
SUPPLEMENTARY INFORMATION:
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SUMMARY:
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reporting, debt collection, mortgage
origination, remittances, student loan
servicing, and fair lending. As the
CFPB’s Supervision program progresses,
we will continue to share positive
practices found in the course of
examinations (see sections 2.2.1, 2.4.4,
and 2.5.1), as well as common
opportunities for improvement.
One such common area for
improvement is the accuracy of
information about consumers that is
supplied to consumer reporting
agencies. As discussed in previous
issues, credit reports are vital to a
consumer’s access to credit; they can be
used to determine eligibility for credit,
and how much consumers will pay for
that credit. Given this, the accuracy of
information furnished by financial
institutions to consumer reporting
agencies is of the utmost importance. As
in the last issue of Supervisory
Highlights, this issue shares
observations regarding the furnishing of
consumer information across a number
of product areas (see sections 2.1.1,
2.1.2, 2.1.4, 2.2.1 and 2.5.5).
2.1 Consumer Reporting
CFPB examiners conducted one or
more reviews of compliance with
furnisher obligations under the Fair
Credit Reporting Act (FCRA) and its
implementing regulation, Regulation V,
at depository institutions. The reviews
focused on (i) entities furnishing
information (furnishers) to nationwide
specialty consumer reporting agencies
(NSCRAs) that specialize in reporting in
connection with deposit accounts and
(ii) NSCRAs themselves.
2.1.1 Furnisher Failure To Have
Reasonable Policies and Procedures
Regarding Information Furnished to
NSCRAs
Regulation V requires companies that
furnish information to consumer
reporting companies to establish and
implement reasonable written policies
and procedures regarding the accuracy
and integrity of the information they
furnish. Whether policies and
procedures are reasonable depends on
the nature, size, complexity, and scope
of each furnisher’s activities. Examiners
found that while one or more furnishers
had policies and procedures generally
pertaining to FCRA furnishing
obligations, they failed to have policies
and procedures addressing the
furnishing of information related to
deposit accounts. One or more
furnishers also lacked processes or
policies to verify data furnished through
automated internal systems. For
example, one or more furnishers
established automated systems to
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inform NSCRAs when an account was
paid-in-full and when the account
balance reached zero. But the furnishers
did not have controls to check whether
such information was actually
furnished. To correct this deficiency,
Supervision directed one or more
furnishers to establish and implement
policies and procedures to monitor the
automated functions of its deposit
furnishing processes.
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2.1.2 Furnisher Failure To Promptly
Update Outdated Information
The FCRA requires furnishers that
regularly and in the ordinary course of
business furnish information to
consumer reporting agencies to
promptly update information they
determine is incomplete or inaccurate.
Examiners found that one or more such
furnishers of deposit account
information failed to correct and update
the account information they had
furnished to NSCRAs and/or did not
institute reasonable policies and
procedures regarding accuracy,
including prompt updating of outdated
information. When consumers paid
charged-off accounts in full, one or more
furnishers would update their systems
of records to reflect the payment, but
would not update the change in status
from ‘‘charged-off’’ to ‘‘paid-in-full’’ and
send the update to the NSCRAs. One or
more furnishers also required
consumers to call the entity to request
updated furnishing information when
they made final payments on settlement
accounts. If a consumer did not call,
furnishing on accounts settled-in-full
were not updated to the NSCRAs. Not
updating an account to paid-in-full or
settled-in-full status could adversely
affect consumers’ attempts to establish
new deposit or checking accounts.
Supervision directed one or more
furnishers to update the furnishing for
all impacted accounts.
2.1.3 NSCRAs Ensuring Data Quality
Supervision conducted examinations
of one or more NSCRAs to assess their
efforts to ensure data quality in their
consumer reports. Examiners noted that
one or more NSCRAs had internal
inconsistencies in linking certain
identifying information (e.g., Social
Security numbers and last names) to
consumer records associated with
negative involuntary account closures,
such as checking account closures for
fraud or account abuse. These
inconsistencies in some cases resulted
in incorrect information being placed in
consumers’ files. Based on the
weaknesses identified, Supervision
directed one or more NSCRAs to
develop and implement internal
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processes to monitor, detect, and
prevent the association of account
closures to incorrect consumer profiles,
and to notify affected consumers.
2.1.4 NSCRA Oversight of Furnishers
Examiners reviewed one or more
NSCRAs, focusing on their various
systems and processes used to oversee
and approve furnishers. They found that
one or more NSCRAs had weaknesses in
their systems and processes for
credentialing of furnishers before the
furnishers were allowed to supply
consumer information to an NSCRA.
Specifically, examiners found that one
or more NSCRAs did not always follow
their own policies and procedures for
issuing credentials to furnishers and did
not implement a timeframe for
furnishers to submit NSCRA-required
documentation during the credentialing
process. In addition, one or more
NSCRAs failed to maintain
documentation adequate under their
policies and procedures to demonstrate
the steps that were taken to approve a
furnisher after the initial credentialing
process. Supervision directed one or
more NSCRAs to strengthen their
oversight and establish documented
policies and procedures for the timely
tracking of credentialing and recredentialing of furnishers.
2.2 Debt Collection
The Supervision program covers
certain bank and nonbank creditors who
originate and collect their own debt, as
well as the larger nonbank third-party
debt collectors. During recent
examinations, examiners observed a
beneficial practice that involved using
exception reports provided by consumer
reporting agencies (CRAs) to improve
the accuracy and integrity of
information furnished to CRAs.
However, examiners also identified
several violations of the Fair Debt
Collection Practices Act (FDCPA),
including failing to honor consumers’
requests to cease communication, and
using false, deceptive or misleading
representations or means regarding
garnishment.
2.2.1 Use of Exception Reports by
Furnishers To Reduce Errors in
Furnished Information
Banks and nonbanks that engage in
collections activity and that furnish
information about consumers’ debts to
CRAs must comply with the FCRA and
Regulation V. As noted above,
furnishers must establish and
implement reasonable written policies
and procedures regarding the accuracy
and integrity of the information that
they furnish to a CRA. CRAs routinely
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provide or make available exception
reports to furnishers. These exception
reports identify for furnishers the
specific information a CRA has rejected
from the furnisher’s data submission to
the CRA, and thus has not been
included in a consumer’s credit file. The
reports also provide information that a
furnisher can use to understand why the
furnished information was rejected. In
some circumstances, these rejections
may help identify mechanical problems
in transmitting data or potential
inaccuracies of the information the
furnisher attempted to furnish.
In responding to a matter requiring
attention requiring one or more entities
engaging in collections activities to
enhance policies and procedures to
ensure proper and timely identification
of information rejected by the CRAs, one
or more entities enhanced its policies
and procedures regarding the utilization
of exception reports to resolve rejected
information. Examiners found that the
one or more entities reviewed and
corrected rejections related to errors in
consumer names, updated name and
address information through customer
outreach, and met regularly with the
CRAs to discuss the exception reports
and to identify patterns in rejections. As
a result of these efforts, one or more
entities had a significant reduction in
errors and exceptions, which led to
greater accuracy in the information
furnished to CRAs.
2.2.2 Cease-Communication Requests
Under section 805(c) of the FDCPA,
when consumers notify a debt collector
in writing that they refuse to pay a debt
or that they wish the debt collector to
cease further communication with them,
the debt collector must, with certain
exceptions, cease communication with
the consumer with respect to the debt.
Examiners determined that one or more
debt collectors failed to honor some
consumers’ written requests to cease
communication. The failures resulted
from system data migration errors and
from mistakes during manual data entry.
In some instances, the debt collectors
had not properly coded the accounts to
prevent further calls. In other instances,
debt collectors changed the accounts
back to ‘‘active’’ status, allowing further
communications to be made.
Supervision directed one or more debt
collectors to improve training for their
employees on how to identify and
properly handle cease-communication
requests.
2.2.3 False, Deceptive or Misleading
Representations Regarding Garnishment
Under section 807 of the FDCPA, a
debt collector may not use any false,
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deceptive, or misleading representation
or means in connection with the
collection of any debt. Examiners
determined that one or more debt
collectors used false, deceptive, or
misleading representations or means
regarding administrative wage
garnishment when performing
collection services of defaulted student
loans for the Department of Education.
The debt collectors threatened
garnishment against certain borrowers
who were not eligible for garnishment
under the Department of Education’s
guidelines. The debt collectors also gave
borrowers inaccurate information about
when garnishment would begin,
creating a false sense of urgency.
Supervision directed one or more debt
collectors to conduct a root-cause
analysis of what led their employees to
make these statements and to improve
training to prevent such statements in
the future.
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2.3 Mortgage Origination
During the period covered by this
report, the Title XIV rules were the
focus of mortgage origination
examinations. In addition, these
examinations evaluated compliance for
other applicable Federal consumer
financial laws as well as evaluating
entities’ compliance management
systems. Findings from examinations
within this period demonstrate, with
some exceptions, general compliance
with the Title XIV rules. Exceptions
include, for example, the absence of
written policies and procedures at
depository institutions required under
the loan originator rule. Examiners also
found certain deficiencies in
compliance management systems, as
discussed below.
2.3.1 Failure To Maintain Written
Policies and Procedures Required by the
Loan Originator Rule
The loan originator rule under
Regulation Z requires depository
institutions to establish and maintain
written policies and procedures for loan
originator activities, which specifically
cover prohibited payments, steering,
qualification requirements, and
identification requirements. In one or
more examinations, depository
institutions violated this provision by
failing to maintain such written policies
and procedures. In most of these cases,
examiners found violations of one or
more related substantive provisions of
the rule. For example, one or more
institutions did not provide written
policies and procedures—a violation
itself—and violated the rule by failing to
comply with the requirement to include
the loan originator’s name and
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Nationwide Multistate Licensing System
and Registry identification on loan
documents. In these instances,
examiners determined that the failure to
have written policies and procedures
covering identification requirements
was a violation of the rule and
Supervision directed one or more
institutions to establish and maintain
the required written policies and
procedures.
2.3.2 Deficiencies in Compliance
Management Systems
At one or more institutions,
examiners concluded that a weak
compliance management system
allowed violations of Regulations X and
Z to occur. For example, one or more
supervised entities failed to allocate
sufficient resources to ensure
compliance with Federal consumer
financial law. As a result, these entities
were unable to institute timely
corrective-action measures, failed to
maintain adequate systems, and had
insufficient preventive controls to
ensure compliance and the correct
implementation of established policies
and procedures. Supervision notified
the entities’ management of these
findings, and corrective action was
taken to improve the entities’
compliance management systems.
2.4
Remittances
The CFPB’s amendments to
Regulation E governing international
money transfers (or remittances) became
effective on October 28, 2013.
Regulation E, Subpart B (or the
Remittance Rule) provides new
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. The amendments implement
statutory requirements set forth in the
Dodd-Frank Act.
The CFPB began examining large
banks for compliance with the
Remittance Rule after the effective date,
and, in December 2014, the Bureau
gained supervisory authority over
certain nonbank remittance transfer
providers pursuant to one of its larger
participant rules. The 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. Below are some recent findings
from Supervision’s remittance transfer
examination program.
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In all cases where examiners found
violations of the Remittance Rule,
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.
2.4.1 Compliance Management
Systems
Overall, remittance transfer providers
examined by Supervision have
implemented changes to their CMS to
address compliance with the Remittance
Rule. But for some providers, CMS is in
the early stages of development and
weaknesses were noted. At both bank
and nonbank remittance transfer
providers, boards of directors and
management have dedicated some
resources to comply with the
Remittance Rule, and have updated
policies and procedures, complaint
management and training programs to
cover this area. But some providers did
not implement these changes until
sometime after the effective date of the
Remittance Rule. Moreover, examiners
found implementation gaps or systems
issues, some of which were not
addressed by pre-implementation
testing and post-implementation
monitoring and audit. For example,
examiners found that failure by one or
more remittance transfer providers to
conduct adequate testing of their
systems led to consumers receiving
inaccurate disclosures or, in some
instances, no disclosures at all. At some
nonbank remittance transfer providers,
Supervision found weaknesses in the
oversight of agents/service providers,
consumer complaint response, and
compliance audit.
2.4.2 Violations of the Remittance Rule
The Remittance Rule requires that
providers of remittance transfers give
their customers certain disclosures
before (i.e., a prepayment disclosure)
and after (i.e., a receipt) the customer
pays for the remittance transfer. The
prepayment disclosure must include,
among other things, the amount to be
transferred; front-end fees and taxes; the
applicable exchange rate; covered thirdparty fees (if applicable); the total
amount to be received by the designated
recipient; and a disclaimer that the total
amount received by the designated
recipient may be less than disclosed due
to recipient bank fees and foreign taxes.
The receipt includes all the information
on the prepayment disclosure and
additional information, including the
date the funds will be available,
disclosures on cancellation, refund and
error resolution rights, and whom to
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contact with issues related to the
transfer. In lieu of separate disclosures,
a provider can provide a combined
disclosure when it would otherwise
provide a prepayment disclosure and a
proof of payment when it would
otherwise provide a receipt.
Examiners noted the following
violations at one or more providers:
• Providing incomplete, and in some
instances, inaccurate disclosures
• Failing to adhere to the regulatory
timeframes (typically three business
days) for refunding cancelled
transactions
• Failing to communicate the results of
error investigations at all or within
the required timeframes, or
communicating the results to an
unauthorized party instead of the
sender; and
• Failing to promptly credit consumers’
accounts (for amounts transferred and
fees) when errors occurred.
The Remittance Rule requires that
certain disclosures be given to
consumers orally in transactions
conducted orally and entirely by
telephone. Examiners have also cited
various violations of the rule related to
oral disclosures. The Remittance Rule
further requires disclosures in each of
the foreign languages that providers
principally use to advertise, solicit, or
market remittance transfer services, or
in the language primarily used by the
sender to conduct the transaction,
provided that the sender uses the
language that is principally used by the
remittance transfer provider to
advertise, solicit, or market remittance
transfer services. Compliance with the
Remittance Rule’s foreign language
requirements has generally been
adequate, though Supervision has cited
one or more providers for failing to give
oral disclosures and/or written results of
investigations in the appropriate
language.
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2.4.3
Deceptive Representations
One or more remittance providers
made deceptive statements leaving
consumers with a false impression
regarding the conditions placed on
designated recipients in order to access
transmitted funds. Supervision directed
one or more entities to review their
marketing materials and make the
necessary changes to cease these
deceptive representations.
2.4.4 Zero-Money-Received
Transactions
At one or more remittance transfer
providers, examiners observed
transactions in which the provider
disclosed to consumers that the
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recipients would receive zero dollars
after fees were deducted. In some cases,
consumers completed these transactions
after receiving disclosures indicating
that no funds would be received. When
examiners informed providers of these
transactions, multiple providers took
voluntary proactive steps to alter their
systems to either provide consumers
with an added warning to ensure they
understood the possible result of the
transaction, or simply prevent these
transactions from being completed.
While not a violation of the Remittance
Rule, the CFPB is continuing to gather
information about transactions with this
possible outcome.
2.5 Student Loan Servicing
In September of last year, the Bureau
released joint principles of student loan
servicing together with the Departments
of Education and Treasury as a
framework to improve student loan
servicing practices, promote borrower
success and minimize defaults. We are
committed to ensuring that student loan
servicing is consistent, accurate and
actionable, accountable, and
transparent. The Bureau has made it a
priority to take action against companies
that are engaging in illegal servicing
practices. To that end, supervising the
student loan servicing market has
therefore been a priority for the
Supervision program. Our ongoing
supervisory program has already
touched a significant portion of the
student loan servicing market, and
industry members who service student
loans would be well served by carefully
reviewing the findings described below.
The CFPB continues to examine
entities servicing both Federal and
private student loans, primarily
assessing whether entities have engaged
in unfair, deceptive, or abusive acts or
practices prohibited by the Dodd-Frank
Act. As in all applicable markets,
Supervision also reviews student loan
servicers’ practices related to furnishing
of consumer information to CRAs for
compliance with the FCRA and its
implementing regulation, Regulation V.
In the Bureau’s student loan servicing
examinations, examiners have identified
a number of positive practices, as well
as several unfair acts or practices, and
Regulation V violations.
2.5.1 Improved Student Loan Payment
Allocation and Loan Modification
Practices at Some Servicers
As described in previous editions of
Supervisory Highlights, examiners have
found UDAAPs relating to payment
allocation among multiple student loans
in a borrower’s account. However,
examiners have also found that one or
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more servicers have adopted payment
allocation policies for overpayments
designed to be more beneficial to
consumers by minimizing interest
expense. For example, one or more
servicers allocated payments exceeding
the total monthly payment on the
account by allocating the excess funds
to the loan with the highest interest rate.
These servicers also clearly explained
the allocation methodology to
consumers, communicated that
consumers can provide instructions on
allocating overpayments, and provided
mechanisms for providing these
instructions, so that borrowers could
choose to allocate excess funds in a
different manner if they’d like.
Several reports of the CFPB Student
Loan Ombudsman have noted that some
private student loan borrowers have
complained that they were not being
offered repayment plans or loan
modifications to assist them when they
were struggling to make payments. In
light of that, Supervision notes that it
has observed reasonable borrower workout plans at some private student loan
servicers, suggesting that providing this
kind of assistance is feasible.
2.5.2 Auto-Default
Some private student loan promissory
notes contain ‘‘whole loan due’’ clauses.
In general, these clauses provide that if
certain events occur, such as a
consumer’s bankruptcy or death, the
loan will be accelerated and become
immediately due. If the consumer does
not satisfy the accelerated loan, the
servicer will place the loan in default.
This practice is sometimes referred to as
an ‘‘auto-default.’’
Examiners determined that one or
more servicers engaged in an unfair
practice in violation of the Dodd-Frank
Act relating to auto-default. When a
private student loan had a borrower and
a cosigner, one or more servicers would
auto-default both borrower and cosigner
if either filed for bankruptcy. These
auto-defaults were unfair where the
whole loan due clause was ambiguous
on this point because reasonable
consumers would not likely interpret
the promissory notes to allow their own
default based on a co-debtor’s
bankruptcy. Further, one or more
servicers did not notify either co-debtor
that the loan was placed in default.
Some consumers only learned that a
servicer placed the loan in a default
status when they identified adverse
information on their consumer reports,
the servicer stopped accepting loan
payments, or they were contacted by a
debt collector.
Supervision directed one or more
servicers to immediately cease this
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practice. Additionally, since the CFPB’s
April 2014 report first highlighted autodefaults as a concern, some companies
have voluntarily ceased the practice.
2.5.3 Failure To Disclose Impact of
Forbearance on Cosigner Release
Eligibility
In one or more examinations,
examiners determined that servicers
committed unfair practices by failing to
disclose a significant adverse
consequence of forbearance. For some
private student loans, a borrower’s use
of forbearance can delay, or
permanently foreclose, the cosigner
release option agreed to in the contract.
Examiners found that one or more
servicers committed an unfair practice
by not disclosing this potential
consequence when borrowers applied
for forbearance. Consumers are at risk of
substantial injury when, as a result of
forbearance, the ability to release a
cosigner is delayed or foreclosed. As a
result of these findings, examiners
directed one or more servicers to
improve the content of its
communications regarding the impact
that forbearance use has on the
availability of cosigner release.
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2.5.4 Servicing Conversion Errors
Costing Borrowers Money
Multiple loan owners have their loans
serviced by student loan servicers.
When ownership of student loans
changes but the servicer continues to
service the account, a servicer may need
to ‘‘convert’’ the account to reflect the
new loan owner. Similar conversions
might be necessary when other major
changes are made to the account (like
the identity of the primary borrower). At
one or more servicers, examiners found
unfair practices connected to these
conversions. Examiners found that,
during a loan conversion process, one or
more servicers used inaccurate interest
rates that exceeded the rate for which
the consumer was liable under the
promissory note instead of using the
correct interest rate information to
update the relevant loan records.
Examiners found this to be an unfair
practice, and Supervision directed one
or more servicers that committed this
unfair practice to implement a plan to
reimburse all affected consumers.
2.5.5 Furnishing and Regulation V
Compliance with the FCRA and
Regulation V remains a top priority in
the CFPB’s student loan servicing
examinations. Regulation V requires
companies that furnish information on
consumers to CRAs to establish and
implement reasonable written policies
and procedures regarding the accuracy
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and integrity of the information they
furnish. Whether policies and
procedures are reasonable depends on
the nature, size, complexity, and scope
of the entity’s furnishing activities.
Servicers and other furnishers must
consider the guidelines in Appendix E
to 12 CFR 1022 in developing their
policies and procedures and incorporate
those guidelines that are appropriate.
Many student loan servicers have
extensive furnishing operations, sending
information on millions of consumers to
CRAs every month. During one or more
student loan servicing examinations,
examiners found one or more servicers
that did not have any written policies
and procedures regarding the accuracy
and integrity of information furnished to
the CRAs. Examiners also found policies
and procedures that were insufficient to
meet the obligations imposed by
Regulation V. For example, examiners
found:
• Policies and procedures that do not
reference one another so that it is
difficult to determine which policy or
procedure applies;
• Policies and procedures that do not
contemplate record retention, internal
controls, audits, testing, third party
vendor oversight, or the technology
used to furnish information to CRAs;
and
• Policies and procedures that lack
sufficient detail on employee training.
In light of the extensive nature, size,
complexity, and scope of the furnishing
activities, examiners found that these
policies and procedures were not
reasonable according to Regulation V.
Supervision directed one or more
servicers to enhance their policies and
procedures regarding the accuracy and
integrity of information furnished to
CRAs, including by addressing the
conduct described in the bullets listed
above.
2.6
Fair Lending
2.6.1 Updates: Fair Lending
Enforcement Settlement Administration
Ally Financial Inc. and Ally Bank
On December 19, 2013, working in
close coordination with the DOJ, the
CFPB ordered Ally Financial Inc. and
Ally Bank (Ally) to pay $80 million in
damages to harmed African-American,
Hispanic, and Asian and/or Pacific
Islander borrowers. This public
enforcement action represented the
Federal Government’s largest auto loan
discrimination settlement in history.
On January 29, 2016, harmed
borrowers participating in the
settlement were mailed checks by the
Ally settlement administrator, totaling
$80 million, plus interest. The Bureau
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found that Ally had a policy of allowing
dealers to increase or ‘‘mark up’’
consumers’ risk-based interest rates, and
paying dealers from those markups, and
that the policy lacked adequate controls
or monitoring. As a result, the Bureau
found that between April 2011 and
December 2013, this markup policy
resulted in African-American, Hispanic,
Asian and Pacific Islander borrowers
paying more for auto loans than
similarly situated non-Hispanic white
borrowers.
In the summer and fall of 2015, the
Ally settlement administrator contacted
potentially eligible borrowers to confirm
their eligibility and participation in the
settlement. To be eligible for a payment,
a borrower must have:
• Obtained an auto loan from Ally
between April 2011 and December 2013;
• Had at least one borrower on the
loan who was African-American,
Hispanic, Asian or Pacific Islander; and
• Been overcharged.
Through that process, the settlement
administrator identified approximately
301,000 eligible, participating borrowers
and co-borrowers who were overcharged
as a result of Ally’s discriminatory
markup policy during the relevant time
period, representing approximately
235,000 loans.
In addition to the $80 million in
settlement payments for consumers who
were overcharged between April 2011
and December 2013, and pursuant to its
continuing obligations under the terms
of the orders, Ally recently paid
approximately $38.9 million to
consumers that Ally determined were
both eligible and overcharged on auto
loans issued during 2014.
Additional information regarding this
public enforcement action can be found
in the Summer 2014 edition of
Supervisory Highlights.
Synchrony Bank, formerly known as GE
Capital Retail Bank
On June 19, 2014, the CFPB, as part
of a joint enforcement action with the
DOJ, ordered Synchrony Bank, formerly
known as GE Capital, to provide $169
million in relief to about 108,000
borrowers excluded from debt relief
offers because of their national origin, in
violation of ECOA. This public
enforcement action represented the
Federal Government’s largest credit card
discrimination settlement in history.
In the course of administering the
settlement, Synchrony Bank identified
additional consumers who have a
mailing address in Puerto Rico or who
indicated a preference to communicate
in Spanish and were excluded from
these offers. Synchrony Bank provided
a total of approximately $201 million in
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redress including payments, credits,
interest, and debt forgiveness to
approximately 133,463 eligible
consumers. This amount includes
approximately $4 million of additional
redress based on the bank’s
identification of additional eligible
consumers. Redress to consumers in the
Synchrony matter was completed as of
August 8, 2015. Additional information
regarding this enforcement action can be
found in the Fall 2014 edition of
Supervisory Highlights.
3. Remedial Actions
3.1
Public Enforcement Actions
The Bureau’s supervisory activities
resulted in or supported the following
public enforcement actions.
3.1.1
EZCORP, Inc.
On December 16, 2015, the CFPB
announced a consent order with
EZCORP, Inc., a short-term, small-dollar
lender, for illegal debt collection
practices, some of which were initially
discovered during the course of a
Bureau examination. These practices
related to in-person collection visits at
consumers’ homes or workplaces,
risking disclosing the existence of
consumers’ debt to unauthorized third
parties, falsely threatening consumers
with litigation for non-payment of debts,
misrepresenting consumers’ rights, and
unfairly making multiple electronic
withdrawal attempts from consumer
accounts which caused mounting bank
fees. EZCORP violated the Electronic
Fund Transfer Act and the Dodd-Frank
Act’s prohibition against unfair or
deceptive acts or practices.
EZCORP will refund $7.5 million to
93,000 consumers, pay a $3 million civil
money penalty, and stop collection of
remaining payday and installment loan
debts owed by roughly 130,000
consumers. The consent order also bars
EZCORP from future in-person debt
collection. In addition, the CFPB issued
an industry-wide warning about
potentially unlawful conduct during inperson collections at homes or
workplaces.
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3.1.2
Fifth Third Bank
On September 28, 2015, the CFPB
resolved an action with Fifth Third
Bank (Fifth Third) that requires Fifth
Third to change its pricing and
compensation system by substantially
reducing or eliminating discretionary
markups to minimize the risks of
discrimination. On that same date, the
DOJ filed a complaint and proposed
consent order in the U.S. District Court
for the Southern District of Ohio
addressing the same conduct. That
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consent order was entered by the court
on October 1, 2015. The CFPB found
and the DOJ alleged that Fifth Third’s
past practices resulted in thousands of
African-American and Hispanic
borrowers paying higher interest rates
than similarly-situated non-Hispanic
white borrowers for their auto loans.
The consent orders require Fifth Third
to pay $18 million in restitution to
affected borrowers.
As of the second quarter of 2015, Fifth
Third was the ninth largest depository
auto loan lender in the United States
and the seventeenth largest auto loan
lender overall. As an indirect auto
lender, Fifth Third sets a risk-based
interest rate, or ‘‘buy rate,’’ that it
conveys to auto dealers. Fifth Third
then allows auto dealers to charge a
higher interest rate when they finalize
the transaction with the consumer. This
is typically called ‘‘discretionary
markup.’’ Markups can generate
compensation for dealers while giving
them the discretion to charge similarlysituated consumers different rates. Fifth
Third’s policy permitted dealers to mark
up consumers’ interest rates as much as
2.5% during the period under review.
From January 2013 through May 2013,
the Bureau conducted an examination
that reviewed Fifth Third’s indirect auto
lending business for compliance with
ECOA and Regulation B. On March 6,
2015, the Bureau referred the matter to
the DOJ. The CFPB found and the DOJ
alleged that Fifth Third’s indirect
lending policies resulted in minority
borrowers paying higher discretionary
markups, and that Fifth Third violated
ECOA by charging African-American
and Hispanic borrowers higher
discretionary markups for their auto
loans than non-Hispanic white
borrowers without regard to the
creditworthiness of the borrowers. The
CFPB found and the DOJ alleged that
Fifth Third’s discriminatory pricing and
compensation structure resulted in
thousands of minority borrowers from
January 2010 through September 2015
paying, on average, over $200 more for
their auto loans.
The CFPB’s administrative consent
order and the DOJ’s consent order
require Fifth Third to reduce dealer
discretion to mark up the interest rate to
a maximum of 1.25% for auto loans
with terms of five years or less, and 1%
for auto loans with longer terms, or
move to non-discretionary dealer
compensation. Fifth Third is also
required to pay $18 million to affected
African-American and Hispanic
borrowers whose auto loans were
financed by Fifth Third between January
2010 and September 2015. The Bureau
did not assess penalties against Fifth
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Third because of the bank’s responsible
conduct, namely the proactive steps the
bank is taking that directly address the
fair lending risk of discretionary pricing
and compensation systems by
substantially reducing or eliminating
that discretion altogether. In addition,
Fifth Third Bank must hire a settlement
administrator who will contact
consumers, distribute the funds, and
ensure that affected borrowers receive
compensation. The CFPB will release a
consumer advisory with contact
information for the settlement
administrator once a settlement
administrator is named.
3.1.3 M&T Bank, as Successor to
Hudson City Savings Bank
On September 24, 2015, the CFPB and
the DOJ filed a joint complaint against
Hudson City Savings Bank (Hudson
City) alleging discriminatory redlining
practices in mortgage lending and a
proposed consent order to resolve the
complaint. The complaint alleges that
from at least 2009 to 2013, Hudson City
illegally redlined in violation of the
Equal Credit Opportunity Act (ECOA)
by providing unequal access to credit to
neighborhoods in New York, New
Jersey, Connecticut, and Pennsylvania.
The DOJ also alleged that Hudson City
violated the Fair Housing Act, which
also prohibits discrimination in
residential mortgage lending.
Specifically, the complaint alleges that
Hudson City structured its business to
avoid and thereby discourage
prospective borrowers in majorityBlack-and-Hispanic neighborhoods from
accessing mortgages. The consent order
requires Hudson City to pay $25 million
in direct loan subsidies to qualified
borrowers in the affected communities,
$2.25 million in community programs
and outreach, and a $5.5 million
penalty. This represents the largest
redlining settlement in history as
measured by such direct subsidies. On
November 1, 2015, Hudson City was
acquired by M&T Bank Corporation, and
Hudson City was merged into
Manufacturers Banking and Trust
Company (M&T Bank), with M&T Bank
as the surviving institution. As the
successor to Hudson City, M&T Bank is
responsible for carrying out the terms of
the Consent Order.
Hudson City was a federally-chartered
savings association with 135 branches
and assets of $35.4 billion and focused
its lending on the origination and
purchase of mortgage loans secured by
single-family properties. According to
the complaint, Hudson City illegally
avoided and thereby discouraged
consumers in majority-Black-and-
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Hispanic neighborhoods from applying
for credit by:
• Placing branches and loan officers
principally outside of majority-Blackand-Hispanic communities;
• Selecting mortgage brokers that
were mostly located outside of, and did
not effectively serve, majority-Blackand-Hispanic communities;
• Focusing its limited marketing in
neighborhoods with relatively few Black
and Hispanic residents; and
• Excluding majority-Black-andHispanic neighborhoods from its credit
assessment areas.
The consent order which was entered
by the court on November 4, 2015,
requires Hudson City to pay $25 million
to a loan subsidy program that will offer
residents in majority-Black-andHispanic neighborhoods in New Jersey,
New York, Connecticut, and
Pennsylvania mortgage loans on a more
affordable basis than otherwise available
from Hudson City; spend $1 million on
targeted advertising and outreach to
generate applications for mortgage loans
from qualified residents in the affected
majority-Black-and-Hispanic
neighborhoods; spend $750,000 on local
partnerships with community-based or
governmental organizations that provide
assistance to residents in majorityBlack-and-Hispanic neighborhoods; and
spend $500,000 on consumer education,
including credit counseling and
financial literacy. In addition to the
monetary requirements, the decree
orders Hudson City to open two fullservice branches in majority-Black-andHispanic neighborhoods, expand its
assessment areas to include majorityBlack-and-Hispanic communities, assess
the credit needs of majority-Black-andHispanic communities, and develop a
fair lending compliance and training
program.
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3.2
Non-Public Supervisory Actions
In addition to the public enforcement
actions above, recent supervisory
activities have resulted in
approximately $14.3 million in
restitution to more than 228,000
consumers. These non-public
supervisory actions generally have been
the product of CFPB ongoing
supervision and/or targeted
examinations, often involving either
examiner findings or self-reported
violations of Federal consumer financial
law. Recent non-public resolutions were
reached in the areas of deposits, debt
collection, and mortgage origination.
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4. Supervision Program Developments
4.1
Examination Procedures
4.1.1 Updated ECOA Baseline Review
Modules
On October 30, 2015, the CFPB
published an update to the ECOA
baseline review modules, which are part
of the CFPB Supervision and
Examination Manual. Examination
teams use the ECOA baseline review
modules to evaluate how institutions’
compliance management systems
identify and manage fair lending risks
under ECOA. The procedures have been
reorganized into five modules: Fair
Lending supervisory history; Fair
Lending compliance management
system; and modules on Fair Lending
risks related to origination, servicing,
and underwriting models. Examination
teams will use the second module, ‘‘Fair
Lending compliance management
system,’’ to evaluate compliance
management as part of in-depth ECOA
targeted reviews. The fifth module,
‘‘Fair Lending risks related to models,’’
is a new addition that examiners will
use to review models that supervised
financial institutions may use. The
ECOA baseline review modules are
consistent with and cross-reference the
FFIEC interagency Fair Lending
examination procedures. They can be
utilized to evaluate fair lending risk at
any supervised institution and in any
product line.
When using the modules to conduct
an ECOA baseline review, CFPB
examination teams review an
institution’s fair lending supervisory
history, including any history of fair
lending risks or violations previously
identified by the CFPB or any other
Federal or state regulator. Examination
teams collect and evaluate information
about an entity’s fair lending
compliance program, including board of
director and management participation,
policies and procedures, training
materials, internal controls and
monitoring and corrective action. In
addition to responses obtained pursuant
to information requests, examination
teams may also review other sources of
information, including any publicly
available information about the entity as
well as information obtained through
interviews with institution staff or
supervisory meetings with an
institution.
4.2
Recent CFPB Guidance
The CFPB is committed to providing
guidance on its supervisory priorities to
industry and members of the public.
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4.2.1 Bulletin on Furnisher Fair Credit
Reporting Act (FCRA) Obligation To
Have Reasonable Written Policies and
Procedures
On February 3, 2016, the CFPB issued
a bulletin 1 to emphasize the obligation
of furnishers under the FCRA and its
implementing Regulation V to establish
and implement reasonable written
policies and procedures regarding the
accuracy and integrity of information
relating to consumers that they furnish
to CRAs. The supervisory experience of
the Bureau suggests that some financial
institutions are not compliant with their
obligations under Regulation V with
regard to furnishing to specialty CRAs.
This obligation, which has been
required under Regulation V since July
2010, applies to furnishing to all CRAs,
including furnishing to specialty CRAs,
such as the furnishing of deposit
account information to CRAs. The
bulletin emphasizes that furnishers
must have policies and procedures that
meet this requirement with respect to all
CRAs to which they furnish.
4.2.2 Bulletin on In-Person Collection
of Consumer Debt
Bulletin 2015–07, released on
December 16, 2015, notes that both firstparty and third-party debt collectors
may run a heightened risk of
committing unfair acts or practices in
violation of the Dodd-Frank Act when
they conduct in-person debt collection
visits, including to a consumer’s
workplace or home. An act or practice
is unfair under the Dodd-Frank Act
when it causes or is likely to cause
substantial injury to consumers which is
not reasonably avoidable by consumers
and is not outweighed by countervailing
benefits to consumers or to competition.
With respect to substantial injury, the
bulletin explains that depending on the
facts and circumstances, these visits
may cause or be likely to cause
substantial injury to consumers. For
example, in-person collection visits may
result in third parties such as
consumers’ co-workers, supervisors,
roommates, landlords, or neighbors
learning that the consumers have debts
in collection, which could harm the
consumer’s reputation and, with respect
to in-person collection at a consumer’s
workplace, result in negative
employment consequences.
In addition, depending on the facts
and circumstances, in-person collection
visits may result in substantial injury to
consumers even when there is no risk
that the existence of the debt in
collections will be disclosed to third
1 Published in the Federal Register on February
4, 2016 (81 FR 5992).
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parties. For example, a consumer who is
not allowed to have visitors at work may
suffer adverse employment
consequences as a result of these visits,
regardless of whether there is a risk of
disclosure to third parties. Further, if
the likely or actual consequence of the
visits is to harass the consumer, an inperson collection visit may also be
likely to cause substantial injury to the
consumer.
Finally, the bulletin also notes that
third-party debt collectors and others
subject to the FDCPA engaging in inperson collection visits risk violating
certain provisions of the FDCPA, such
as section 805(b) of the FDCPA’s
prohibition on communicating with
third parties in connection with the
collection of any debt (subject to certain
exceptions).
4.2.3 Bulletin on Requirements for
Consumer Authorizations for
Preauthorized Electronic Fund Transfers
On November 23, 2015, the CFPB
released bulletin 2015–06, which
reminds entities of their obligations
under the Electronic Fund Transfer Act
(EFTA) and its implementing regulation,
Regulation E, when obtaining consumer
authorizations for preauthorized
electronic fund transfers (EFTs) from a
consumer’s account. The bulletin
explains that oral recordings obtained
over the phone may authorize
preauthorized EFTs under Regulation E
provided that these recordings also
comply with the E-Sign Act. Further,
the bulletin outlines entities’ obligations
to provide a copy of the terms of
preauthorized EFT authorizations to
consumers, summarizes the current law,
highlights relevant supervisory findings,
and articulates the CFPB’s expectations
for entities obtaining consumer
authorizations for preauthorized EFTs to
help them ensure their compliance with
Federal consumer financial law.
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The CFPB recognizes the value of
communicating program findings to
CFPB-supervised entities to aid them in
their efforts to comply with Federal
consumer financial law, and to other
stakeholders to foster better
understanding of the CFPB’s work.
To this end, the Bureau remains
committed to publishing its Supervisory
Highlights report periodically in order
to share information regarding 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
18:48 May 13, 2016
6. Regulatory Requirements
This Supervisory Highlights
summarizes existing requirements
under the law, summarizes findings
made in the course of exercising the
Bureau’s supervisory and enforcement
authority, and is a non-binding general
statement of policy articulating
considerations relevant to the Bureau’s
exercise of its supervisory and
enforcement authority. It is therefore
exempt from notice and comment
rulemaking requirements under the
Administrative Procedure Act pursuant
to 5 U.S.C. 553(b). Because no notice of
proposed rulemaking is required, the
Regulatory Flexibility Act does not
require an initial or final regulatory
flexibility analysis. 5 U.S.C. 603(a),
604(a). The Bureau has determined that
this Supervisory Highlights does not
impose any new or revise any existing
recordkeeping, reporting, or disclosure
requirements on covered entities or
members of the public that would be
collections of information requiring
OMB approval under the Paperwork
Reduction Act, 44 U.S.C. 3501, et seq.
Dated: May 10, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial
Protection.
[FR Doc. 2016–11423 Filed 5–13–16; 8:45 am]
BILLING CODE 4810–AM–P
DEPARTMENT OF DEFENSE
Department of the Army
Army Science Board Request for
Information on Robotic and
Autonomous Systems-of-Systems
(RAS) Technology Initiatives
Department of the Army, DoD.
Request for information
regarding support to Army RAS
Competencies.
AGENCY:
ACTION:
5. Conclusion
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accessible resource for information on
the CFPB’s guidance documents.
Jkt 238001
Pursuant to the Federal
Advisory Committee Act of 1972 (5
U.S.C., Appendix, as amended), the
Sunshine in Government Act of 1976
(U.S.C. 552b, as amended) and 41 Code
of the Federal Regulations (CFR 102–
3.140 through 160) the Department of
the Army requests industry information
on products, science and technology
(S&T) research, operational concepts,
and mission support innovations to
support Army RAS competencies. No
funds are available for any proposal or
information submission and submitting
information does not bind the Army for
SUMMARY:
PO 00000
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Sfmt 4703
any future contracts/grants resulting
from this request for information.
The Army Science Board is requesting
information from organizations external
to the Army that will help the board
complete its analysis and ensure that all
viable sources of information are
explored. Based on information
submitted in response to this request,
the Army Science Board may invite
selected organizations to provide
additional information on technologies
of interest.
To supplement the information
developed in previous studies and
otherwise available to the Board,
organizations are invited to submit
information on products or technologies
to support RAS competencies and can
be developed externally, either with
support from the Army or from other
sources.
Specific information requested from
industry on RAS products or technology
(including Unmanned Air Systems
(UAS) or Unmanned Ground Vehicles
(UGV)) that companies are offering, or
plan to offer, to government, civil or
commercial customers is: Identification
of the product and its capabilities;
Description of the product or
technology, including on-board
processing architecture and
functionality (e.g., vehicle guidance,
navigation and control, sensor
processing); Description of the current
autonomous functionality and
capabilities (e.g., waypoint navigation,
sensor management, perception/
reasoning); Description of plans to
increase autonomy and changes, if any,
to on-board processing architecture/
functionality enabling greater
autonomy; Description of the HumanRAS collaboration capabilities, or
planned capabilities, and changes, if
any, to on-board processing
architecture/functionality enabling
greater human-RAS collaboration;
Assessment of utility of current, or
planned, products or technologies to
Army applications and missions.
ADDRESSES: Written submissions are to
be submitted to the: Army Science
Board, ATTN: Designated Federal
Officer, 2530 Crystal Drive, Suite 7098,
Arlington, VA 22202.
FOR FURTHER INFORMATION CONTACT: LTC
Stephen K Barker at
stephen.k.barker.mil@mail.mil.
SUPPLEMENTARY INFORMATION:
Background. The Terms of Reference
(ToR) provided by the Office of the
Secretary of the Army directs the Army
Science Board (ASB) to undertake a
2016 Study on ‘‘Robotic and
Autonomous Systems-of-Systems
Architecture.’’
E:\FR\FM\16MYN1.SGM
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Agencies
[Federal Register Volume 81, Number 94 (Monday, May 16, 2016)]
[Notices]
[Pages 30257-30264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11423]
-----------------------------------------------------------------------
BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights: Winter 2016
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory Highlights; notice.
-----------------------------------------------------------------------
SUMMARY: The Bureau of Consumer Financial Protection (CFPB) is issuing
its tenth edition of its Supervisory Highlights. In this issue, the
CFPB shares findings from recent examinations in the areas of student
loan servicing, remittances, mortgage origination, debt collection, and
consumer reporting. This issue also shares important updates to past
fair lending settlements reached by the CFPB. As in past editions, this
report includes information about recent public enforcement actions
that resulted, at least in part, from our supervisory work. Finally,
the report recaps recent developments to the CFPB's supervision
program, such as the release of updated fair lending examination
procedures and guidance documents in the areas of credit reporting, in-
person debt collection, and preauthorized electronic fund transfers.
DATES: The Bureau released this edition of the Supervisory Highlights
on its Web site on March 8, 2016.
FOR FURTHER INFORMATION CONTACT: Christopher J. Young, Managing Senior
Counsel and Chief of Staff, Office of Supervision Policy, 1700 G Street
NW., 20552, (202) 435-7408.
SUPPLEMENTARY INFORMATION:
1. Introduction
The Consumer Financial Protection Bureau (CFPB or Bureau) is
committed to a consumer financial marketplace that is fair,
transparent, and competitive, and that works for all consumers. One of
the tools the CFPB uses to further this goal is the supervision of bank
and nonbank institutions that offer consumer financial products and
services. In this tenth edition of Supervisory Highlights, the CFPB
shares recent supervisory observations in the areas of consumer
reporting, debt collection, mortgage origination, remittances, student
loan servicing, and fair lending. One of the Bureau's goals is to
provide information that enables industry participants to ensure their
operations remain in compliance with Federal consumer financial law.
The findings reported here reflect information obtained from
supervisory activities completed during the period under review as
captured in examination reports or supervisory letters. In some
instances, not all corrective actions, including through enforcement,
have been completed at the time of this report's publication.
The CFPB's supervisory activities have either led to or supported
three recent public enforcement actions, resulting in $52.75 million in
consumer remediation and other payments and an additional $8.5 million
in civil money penalties. The Bureau also imposed other corrective
actions at these institutions, including requiring improved compliance
management systems (CMS). In addition to these public enforcement
actions, Supervision continues to resolve violations using non-public
supervisory actions. When Supervision examinations determine that a
supervised entity has violated a statute or regulation, Supervision
directs the entity to implement appropriate corrective measures,
including remediation of consumer harm when appropriate. Recent
supervisory resolutions have resulted in restitution of approximately
$14.3 million to more than 228,000 consumers. Other corrective actions
have included, for example, furnishing corrected information to
consumer reporting agencies, improving training for employees to
prevent various law violations, and establishing and maintaining
required policies and procedures.
This report highlights supervision work generally completed between
September 2015 and December 2015, though some completion dates may
vary. Any questions or comments from supervised entities can be
directed to CFPB_Supervision@cfpb.gov.
2. Supervisory Observations
Summarized below are some recent examination observations in
consumer reporting, debt collection, mortgage origination, remittances,
student loan servicing, and fair lending. As the CFPB's Supervision
program progresses, we will continue to share positive practices found
in the course of examinations (see sections 2.2.1, 2.4.4, and 2.5.1),
as well as common opportunities for improvement.
One such common area for improvement is the accuracy of information
about consumers that is supplied to consumer reporting agencies. As
discussed in previous issues, credit reports are vital to a consumer's
access to credit; they can be used to determine eligibility for credit,
and how much consumers will pay for that credit. Given this, the
accuracy of information furnished by financial institutions to consumer
reporting agencies is of the utmost importance. As in the last issue of
Supervisory Highlights, this issue shares observations regarding the
furnishing of consumer information across a number of product areas
(see sections 2.1.1, 2.1.2, 2.1.4, 2.2.1 and 2.5.5).
2.1 Consumer Reporting
CFPB examiners conducted one or more reviews of compliance with
furnisher obligations under the Fair Credit Reporting Act (FCRA) and
its implementing regulation, Regulation V, at depository institutions.
The reviews focused on (i) entities furnishing information (furnishers)
to nationwide specialty consumer reporting agencies (NSCRAs) that
specialize in reporting in connection with deposit accounts and (ii)
NSCRAs themselves.
2.1.1 Furnisher Failure To Have Reasonable Policies and Procedures
Regarding Information Furnished to NSCRAs
Regulation V requires companies that furnish information to
consumer reporting companies to establish and implement reasonable
written policies and procedures regarding the accuracy and integrity of
the information they furnish. Whether policies and procedures are
reasonable depends on the nature, size, complexity, and scope of each
furnisher's activities. Examiners found that while one or more
furnishers had policies and procedures generally pertaining to FCRA
furnishing obligations, they failed to have policies and procedures
addressing the furnishing of information related to deposit accounts.
One or more furnishers also lacked processes or policies to verify data
furnished through automated internal systems. For example, one or more
furnishers established automated systems to
[[Page 30258]]
inform NSCRAs when an account was paid-in-full and when the account
balance reached zero. But the furnishers did not have controls to check
whether such information was actually furnished. To correct this
deficiency, Supervision directed one or more furnishers to establish
and implement policies and procedures to monitor the automated
functions of its deposit furnishing processes.
2.1.2 Furnisher Failure To Promptly Update Outdated Information
The FCRA requires furnishers that regularly and in the ordinary
course of business furnish information to consumer reporting agencies
to promptly update information they determine is incomplete or
inaccurate. Examiners found that one or more such furnishers of deposit
account information failed to correct and update the account
information they had furnished to NSCRAs and/or did not institute
reasonable policies and procedures regarding accuracy, including prompt
updating of outdated information. When consumers paid charged-off
accounts in full, one or more furnishers would update their systems of
records to reflect the payment, but would not update the change in
status from ``charged-off'' to ``paid-in-full'' and send the update to
the NSCRAs. One or more furnishers also required consumers to call the
entity to request updated furnishing information when they made final
payments on settlement accounts. If a consumer did not call, furnishing
on accounts settled-in-full were not updated to the NSCRAs. Not
updating an account to paid-in-full or settled-in-full status could
adversely affect consumers' attempts to establish new deposit or
checking accounts. Supervision directed one or more furnishers to
update the furnishing for all impacted accounts.
2.1.3 NSCRAs Ensuring Data Quality
Supervision conducted examinations of one or more NSCRAs to assess
their efforts to ensure data quality in their consumer reports.
Examiners noted that one or more NSCRAs had internal inconsistencies in
linking certain identifying information (e.g., Social Security numbers
and last names) to consumer records associated with negative
involuntary account closures, such as checking account closures for
fraud or account abuse. These inconsistencies in some cases resulted in
incorrect information being placed in consumers' files. Based on the
weaknesses identified, Supervision directed one or more NSCRAs to
develop and implement internal processes to monitor, detect, and
prevent the association of account closures to incorrect consumer
profiles, and to notify affected consumers.
2.1.4 NSCRA Oversight of Furnishers
Examiners reviewed one or more NSCRAs, focusing on their various
systems and processes used to oversee and approve furnishers. They
found that one or more NSCRAs had weaknesses in their systems and
processes for credentialing of furnishers before the furnishers were
allowed to supply consumer information to an NSCRA. Specifically,
examiners found that one or more NSCRAs did not always follow their own
policies and procedures for issuing credentials to furnishers and did
not implement a timeframe for furnishers to submit NSCRA-required
documentation during the credentialing process. In addition, one or
more NSCRAs failed to maintain documentation adequate under their
policies and procedures to demonstrate the steps that were taken to
approve a furnisher after the initial credentialing process.
Supervision directed one or more NSCRAs to strengthen their oversight
and establish documented policies and procedures for the timely
tracking of credentialing and re-credentialing of furnishers.
2.2 Debt Collection
The Supervision program covers certain bank and nonbank creditors
who originate and collect their own debt, as well as the larger nonbank
third-party debt collectors. During recent examinations, examiners
observed a beneficial practice that involved using exception reports
provided by consumer reporting agencies (CRAs) to improve the accuracy
and integrity of information furnished to CRAs. However, examiners also
identified several violations of the Fair Debt Collection Practices Act
(FDCPA), including failing to honor consumers' requests to cease
communication, and using false, deceptive or misleading representations
or means regarding garnishment.
2.2.1 Use of Exception Reports by Furnishers To Reduce Errors in
Furnished Information
Banks and nonbanks that engage in collections activity and that
furnish information about consumers' debts to CRAs must comply with the
FCRA and Regulation V. As noted above, furnishers must establish and
implement reasonable written policies and procedures regarding the
accuracy and integrity of the information that they furnish to a CRA.
CRAs routinely provide or make available exception reports to
furnishers. These exception reports identify for furnishers the
specific information a CRA has rejected from the furnisher's data
submission to the CRA, and thus has not been included in a consumer's
credit file. The reports also provide information that a furnisher can
use to understand why the furnished information was rejected. In some
circumstances, these rejections may help identify mechanical problems
in transmitting data or potential inaccuracies of the information the
furnisher attempted to furnish.
In responding to a matter requiring attention requiring one or more
entities engaging in collections activities to enhance policies and
procedures to ensure proper and timely identification of information
rejected by the CRAs, one or more entities enhanced its policies and
procedures regarding the utilization of exception reports to resolve
rejected information. Examiners found that the one or more entities
reviewed and corrected rejections related to errors in consumer names,
updated name and address information through customer outreach, and met
regularly with the CRAs to discuss the exception reports and to
identify patterns in rejections. As a result of these efforts, one or
more entities had a significant reduction in errors and exceptions,
which led to greater accuracy in the information furnished to CRAs.
2.2.2 Cease-Communication Requests
Under section 805(c) of the FDCPA, when consumers notify a debt
collector in writing that they refuse to pay a debt or that they wish
the debt collector to cease further communication with them, the debt
collector must, with certain exceptions, cease communication with the
consumer with respect to the debt. Examiners determined that one or
more debt collectors failed to honor some consumers' written requests
to cease communication. The failures resulted from system data
migration errors and from mistakes during manual data entry. In some
instances, the debt collectors had not properly coded the accounts to
prevent further calls. In other instances, debt collectors changed the
accounts back to ``active'' status, allowing further communications to
be made. Supervision directed one or more debt collectors to improve
training for their employees on how to identify and properly handle
cease-communication requests.
2.2.3 False, Deceptive or Misleading Representations Regarding
Garnishment
Under section 807 of the FDCPA, a debt collector may not use any
false,
[[Page 30259]]
deceptive, or misleading representation or means in connection with the
collection of any debt. Examiners determined that one or more debt
collectors used false, deceptive, or misleading representations or
means regarding administrative wage garnishment when performing
collection services of defaulted student loans for the Department of
Education. The debt collectors threatened garnishment against certain
borrowers who were not eligible for garnishment under the Department of
Education's guidelines. The debt collectors also gave borrowers
inaccurate information about when garnishment would begin, creating a
false sense of urgency. Supervision directed one or more debt
collectors to conduct a root-cause analysis of what led their employees
to make these statements and to improve training to prevent such
statements in the future.
2.3 Mortgage Origination
During the period covered by this report, the Title XIV rules were
the focus of mortgage origination examinations. In addition, these
examinations evaluated compliance for other applicable Federal consumer
financial laws as well as evaluating entities' compliance management
systems. Findings from examinations within this period demonstrate,
with some exceptions, general compliance with the Title XIV rules.
Exceptions include, for example, the absence of written policies and
procedures at depository institutions required under the loan
originator rule. Examiners also found certain deficiencies in
compliance management systems, as discussed below.
2.3.1 Failure To Maintain Written Policies and Procedures Required by
the Loan Originator Rule
The loan originator rule under Regulation Z requires depository
institutions to establish and maintain written policies and procedures
for loan originator activities, which specifically cover prohibited
payments, steering, qualification requirements, and identification
requirements. In one or more examinations, depository institutions
violated this provision by failing to maintain such written policies
and procedures. In most of these cases, examiners found violations of
one or more related substantive provisions of the rule. For example,
one or more institutions did not provide written policies and
procedures--a violation itself--and violated the rule by failing to
comply with the requirement to include the loan originator's name and
Nationwide Multistate Licensing System and Registry identification on
loan documents. In these instances, examiners determined that the
failure to have written policies and procedures covering identification
requirements was a violation of the rule and Supervision directed one
or more institutions to establish and maintain the required written
policies and procedures.
2.3.2 Deficiencies in Compliance Management Systems
At one or more institutions, examiners concluded that a weak
compliance management system allowed violations of Regulations X and Z
to occur. For example, one or more supervised entities failed to
allocate sufficient resources to ensure compliance with Federal
consumer financial law. As a result, these entities were unable to
institute timely corrective-action measures, failed to maintain
adequate systems, and had insufficient preventive controls to ensure
compliance and the correct implementation of established policies and
procedures. Supervision notified the entities' management of these
findings, and corrective action was taken to improve the entities'
compliance management systems.
2.4 Remittances
The CFPB's amendments to Regulation E governing international money
transfers (or remittances) became effective on October 28, 2013.
Regulation E, Subpart B (or the Remittance Rule) provides new
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. The amendments
implement statutory requirements set forth in the Dodd-Frank Act.
The CFPB began examining large banks for compliance with the
Remittance Rule after the effective date, and, in December 2014, the
Bureau gained supervisory authority over certain nonbank remittance
transfer providers pursuant to one of its larger participant rules. The
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.
Below are some recent findings from Supervision's remittance transfer
examination program.
In all cases where examiners found violations of the Remittance
Rule, 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.
2.4.1 Compliance Management Systems
Overall, remittance transfer providers examined by Supervision have
implemented changes to their CMS to address compliance with the
Remittance Rule. But for some providers, CMS is in the early stages of
development and weaknesses were noted. At both bank and nonbank
remittance transfer providers, boards of directors and management have
dedicated some resources to comply with the Remittance Rule, and have
updated policies and procedures, complaint management and training
programs to cover this area. But some providers did not implement these
changes until sometime after the effective date of the Remittance Rule.
Moreover, examiners found implementation gaps or systems issues, some
of which were not addressed by pre-implementation testing and post-
implementation monitoring and audit. For example, examiners found that
failure by one or more remittance transfer providers to conduct
adequate testing of their systems led to consumers receiving inaccurate
disclosures or, in some instances, no disclosures at all. At some
nonbank remittance transfer providers, Supervision found weaknesses in
the oversight of agents/service providers, consumer complaint response,
and compliance audit.
2.4.2 Violations of the Remittance Rule
The Remittance Rule requires that providers of remittance transfers
give their customers certain disclosures before (i.e., a prepayment
disclosure) and after (i.e., a receipt) the customer pays for the
remittance transfer. The prepayment disclosure must include, among
other things, the amount to be transferred; front-end fees and taxes;
the applicable exchange rate; covered third-party fees (if applicable);
the total amount to be received by the designated recipient; and a
disclaimer that the total amount received by the designated recipient
may be less than disclosed due to recipient bank fees and foreign
taxes. The receipt includes all the information on the prepayment
disclosure and additional information, including the date the funds
will be available, disclosures on cancellation, refund and error
resolution rights, and whom to
[[Page 30260]]
contact with issues related to the transfer. In lieu of separate
disclosures, a provider can provide a combined disclosure when it would
otherwise provide a prepayment disclosure and a proof of payment when
it would otherwise provide a receipt.
Examiners noted the following violations at one or more providers:
Providing incomplete, and in some instances, inaccurate
disclosures
Failing to adhere to the regulatory timeframes (typically
three business days) for refunding cancelled transactions
Failing to communicate the results of error investigations at
all or within the required timeframes, or communicating the results to
an unauthorized party instead of the sender; and
Failing to promptly credit consumers' accounts (for amounts
transferred and fees) when errors occurred.
The Remittance Rule requires that certain disclosures be given to
consumers orally in transactions conducted orally and entirely by
telephone. Examiners have also cited various violations of the rule
related to oral disclosures. The Remittance Rule further requires
disclosures in each of the foreign languages that providers principally
use to advertise, solicit, or market remittance transfer services, or
in the language primarily used by the sender to conduct the
transaction, provided that the sender uses the language that is
principally used by the remittance transfer provider to advertise,
solicit, or market remittance transfer services. Compliance with the
Remittance Rule's foreign language requirements has generally been
adequate, though Supervision has cited one or more providers for
failing to give oral disclosures and/or written results of
investigations in the appropriate language.
2.4.3 Deceptive Representations
One or more remittance providers made deceptive statements leaving
consumers with a false impression regarding the conditions placed on
designated recipients in order to access transmitted funds. Supervision
directed one or more entities to review their marketing materials and
make the necessary changes to cease these deceptive representations.
2.4.4 Zero-Money-Received Transactions
At one or more remittance transfer providers, examiners observed
transactions in which the provider disclosed to consumers that the
recipients would receive zero dollars after fees were deducted. In some
cases, consumers completed these transactions after receiving
disclosures indicating that no funds would be received. When examiners
informed providers of these transactions, multiple providers took
voluntary proactive steps to alter their systems to either provide
consumers with an added warning to ensure they understood the possible
result of the transaction, or simply prevent these transactions from
being completed. While not a violation of the Remittance Rule, the CFPB
is continuing to gather information about transactions with this
possible outcome.
2.5 Student Loan Servicing
In September of last year, the Bureau released joint principles of
student loan servicing together with the Departments of Education and
Treasury as a framework to improve student loan servicing practices,
promote borrower success and minimize defaults. We are committed to
ensuring that student loan servicing is consistent, accurate and
actionable, accountable, and transparent. The Bureau has made it a
priority to take action against companies that are engaging in illegal
servicing practices. To that end, supervising the student loan
servicing market has therefore been a priority for the Supervision
program. Our ongoing supervisory program has already touched a
significant portion of the student loan servicing market, and industry
members who service student loans would be well served by carefully
reviewing the findings described below.
The CFPB continues to examine entities servicing both Federal and
private student loans, primarily assessing whether entities have
engaged in unfair, deceptive, or abusive acts or practices prohibited
by the Dodd-Frank Act. As in all applicable markets, Supervision also
reviews student loan servicers' practices related to furnishing of
consumer information to CRAs for compliance with the FCRA and its
implementing regulation, Regulation V. In the Bureau's student loan
servicing examinations, examiners have identified a number of positive
practices, as well as several unfair acts or practices, and Regulation
V violations.
2.5.1 Improved Student Loan Payment Allocation and Loan Modification
Practices at Some Servicers
As described in previous editions of Supervisory Highlights,
examiners have found UDAAPs relating to payment allocation among
multiple student loans in a borrower's account. However, examiners have
also found that one or more servicers have adopted payment allocation
policies for overpayments designed to be more beneficial to consumers
by minimizing interest expense. For example, one or more servicers
allocated payments exceeding the total monthly payment on the account
by allocating the excess funds to the loan with the highest interest
rate. These servicers also clearly explained the allocation methodology
to consumers, communicated that consumers can provide instructions on
allocating overpayments, and provided mechanisms for providing these
instructions, so that borrowers could choose to allocate excess funds
in a different manner if they'd like.
Several reports of the CFPB Student Loan Ombudsman have noted that
some private student loan borrowers have complained that they were not
being offered repayment plans or loan modifications to assist them when
they were struggling to make payments. In light of that, Supervision
notes that it has observed reasonable borrower work-out plans at some
private student loan servicers, suggesting that providing this kind of
assistance is feasible.
2.5.2 Auto-Default
Some private student loan promissory notes contain ``whole loan
due'' clauses. In general, these clauses provide that if certain events
occur, such as a consumer's bankruptcy or death, the loan will be
accelerated and become immediately due. If the consumer does not
satisfy the accelerated loan, the servicer will place the loan in
default. This practice is sometimes referred to as an ``auto-default.''
Examiners determined that one or more servicers engaged in an
unfair practice in violation of the Dodd-Frank Act relating to auto-
default. When a private student loan had a borrower and a cosigner, one
or more servicers would auto-default both borrower and cosigner if
either filed for bankruptcy. These auto-defaults were unfair where the
whole loan due clause was ambiguous on this point because reasonable
consumers would not likely interpret the promissory notes to allow
their own default based on a co-debtor's bankruptcy. Further, one or
more servicers did not notify either co-debtor that the loan was placed
in default. Some consumers only learned that a servicer placed the loan
in a default status when they identified adverse information on their
consumer reports, the servicer stopped accepting loan payments, or they
were contacted by a debt collector.
Supervision directed one or more servicers to immediately cease
this
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practice. Additionally, since the CFPB's April 2014 report first
highlighted auto-defaults as a concern, some companies have voluntarily
ceased the practice.
2.5.3 Failure To Disclose Impact of Forbearance on Cosigner Release
Eligibility
In one or more examinations, examiners determined that servicers
committed unfair practices by failing to disclose a significant adverse
consequence of forbearance. For some private student loans, a
borrower's use of forbearance can delay, or permanently foreclose, the
cosigner release option agreed to in the contract. Examiners found that
one or more servicers committed an unfair practice by not disclosing
this potential consequence when borrowers applied for forbearance.
Consumers are at risk of substantial injury when, as a result of
forbearance, the ability to release a cosigner is delayed or
foreclosed. As a result of these findings, examiners directed one or
more servicers to improve the content of its communications regarding
the impact that forbearance use has on the availability of cosigner
release.
2.5.4 Servicing Conversion Errors Costing Borrowers Money
Multiple loan owners have their loans serviced by student loan
servicers. When ownership of student loans changes but the servicer
continues to service the account, a servicer may need to ``convert''
the account to reflect the new loan owner. Similar conversions might be
necessary when other major changes are made to the account (like the
identity of the primary borrower). At one or more servicers, examiners
found unfair practices connected to these conversions. Examiners found
that, during a loan conversion process, one or more servicers used
inaccurate interest rates that exceeded the rate for which the consumer
was liable under the promissory note instead of using the correct
interest rate information to update the relevant loan records.
Examiners found this to be an unfair practice, and Supervision directed
one or more servicers that committed this unfair practice to implement
a plan to reimburse all affected consumers.
2.5.5 Furnishing and Regulation V
Compliance with the FCRA and Regulation V remains a top priority in
the CFPB's student loan servicing examinations. Regulation V requires
companies that furnish information on consumers to CRAs to establish
and implement reasonable written policies and procedures regarding the
accuracy and integrity of the information they furnish. Whether
policies and procedures are reasonable depends on the nature, size,
complexity, and scope of the entity's furnishing activities. Servicers
and other furnishers must consider the guidelines in Appendix E to 12
CFR 1022 in developing their policies and procedures and incorporate
those guidelines that are appropriate.
Many student loan servicers have extensive furnishing operations,
sending information on millions of consumers to CRAs every month.
During one or more student loan servicing examinations, examiners found
one or more servicers that did not have any written policies and
procedures regarding the accuracy and integrity of information
furnished to the CRAs. Examiners also found policies and procedures
that were insufficient to meet the obligations imposed by Regulation V.
For example, examiners found:
Policies and procedures that do not reference one another
so that it is difficult to determine which policy or procedure applies;
Policies and procedures that do not contemplate record
retention, internal controls, audits, testing, third party vendor
oversight, or the technology used to furnish information to CRAs; and
Policies and procedures that lack sufficient detail on
employee training.
In light of the extensive nature, size, complexity, and scope of
the furnishing activities, examiners found that these policies and
procedures were not reasonable according to Regulation V. Supervision
directed one or more servicers to enhance their policies and procedures
regarding the accuracy and integrity of information furnished to CRAs,
including by addressing the conduct described in the bullets listed
above.
2.6 Fair Lending
2.6.1 Updates: Fair Lending Enforcement Settlement Administration
Ally Financial Inc. and Ally Bank
On December 19, 2013, working in close coordination with the DOJ,
the CFPB ordered Ally Financial Inc. and Ally Bank (Ally) to pay $80
million in damages to harmed African-American, Hispanic, and Asian and/
or Pacific Islander borrowers. This public enforcement action
represented the Federal Government's largest auto loan discrimination
settlement in history.
On January 29, 2016, harmed borrowers participating in the
settlement were mailed checks by the Ally settlement administrator,
totaling $80 million, plus interest. The Bureau found that Ally had a
policy of allowing dealers to increase or ``mark up'' consumers' risk-
based interest rates, and paying dealers from those markups, and that
the policy lacked adequate controls or monitoring. As a result, the
Bureau found that between April 2011 and December 2013, this markup
policy resulted in African-American, Hispanic, Asian and Pacific
Islander borrowers paying more for auto loans than similarly situated
non-Hispanic white borrowers.
In the summer and fall of 2015, the Ally settlement administrator
contacted potentially eligible borrowers to confirm their eligibility
and participation in the settlement. To be eligible for a payment, a
borrower must have:
Obtained an auto loan from Ally between April 2011 and
December 2013;
Had at least one borrower on the loan who was African-
American, Hispanic, Asian or Pacific Islander; and
Been overcharged.
Through that process, the settlement administrator identified
approximately 301,000 eligible, participating borrowers and co-
borrowers who were overcharged as a result of Ally's discriminatory
markup policy during the relevant time period, representing
approximately 235,000 loans.
In addition to the $80 million in settlement payments for consumers
who were overcharged between April 2011 and December 2013, and pursuant
to its continuing obligations under the terms of the orders, Ally
recently paid approximately $38.9 million to consumers that Ally
determined were both eligible and overcharged on auto loans issued
during 2014.
Additional information regarding this public enforcement action can
be found in the Summer 2014 edition of Supervisory Highlights.
Synchrony Bank, formerly known as GE Capital Retail Bank
On June 19, 2014, the CFPB, as part of a joint enforcement action
with the DOJ, ordered Synchrony Bank, formerly known as GE Capital, to
provide $169 million in relief to about 108,000 borrowers excluded from
debt relief offers because of their national origin, in violation of
ECOA. This public enforcement action represented the Federal
Government's largest credit card discrimination settlement in history.
In the course of administering the settlement, Synchrony Bank
identified additional consumers who have a mailing address in Puerto
Rico or who indicated a preference to communicate in Spanish and were
excluded from these offers. Synchrony Bank provided a total of
approximately $201 million in
[[Page 30262]]
redress including payments, credits, interest, and debt forgiveness to
approximately 133,463 eligible consumers. This amount includes
approximately $4 million of additional redress based on the bank's
identification of additional eligible consumers. Redress to consumers
in the Synchrony matter was completed as of August 8, 2015. Additional
information regarding this enforcement action can be found in the Fall
2014 edition of Supervisory Highlights.
3. Remedial Actions
3.1 Public Enforcement Actions
The Bureau's supervisory activities resulted in or supported the
following public enforcement actions.
3.1.1 EZCORP, Inc.
On December 16, 2015, the CFPB announced a consent order with
EZCORP, Inc., a short-term, small-dollar lender, for illegal debt
collection practices, some of which were initially discovered during
the course of a Bureau examination. These practices related to in-
person collection visits at consumers' homes or workplaces, risking
disclosing the existence of consumers' debt to unauthorized third
parties, falsely threatening consumers with litigation for non-payment
of debts, misrepresenting consumers' rights, and unfairly making
multiple electronic withdrawal attempts from consumer accounts which
caused mounting bank fees. EZCORP violated the Electronic Fund Transfer
Act and the Dodd-Frank Act's prohibition against unfair or deceptive
acts or practices.
EZCORP will refund $7.5 million to 93,000 consumers, pay a $3
million civil money penalty, and stop collection of remaining payday
and installment loan debts owed by roughly 130,000 consumers. The
consent order also bars EZCORP from future in-person debt collection.
In addition, the CFPB issued an industry-wide warning about potentially
unlawful conduct during in-person collections at homes or workplaces.
3.1.2 Fifth Third Bank
On September 28, 2015, the CFPB resolved an action with Fifth Third
Bank (Fifth Third) that requires Fifth Third to change its pricing and
compensation system by substantially reducing or eliminating
discretionary markups to minimize the risks of discrimination. On that
same date, the DOJ filed a complaint and proposed consent order in the
U.S. District Court for the Southern District of Ohio addressing the
same conduct. That consent order was entered by the court on October 1,
2015. The CFPB found and the DOJ alleged that Fifth Third's past
practices resulted in thousands of African-American and Hispanic
borrowers paying higher interest rates than similarly-situated non-
Hispanic white borrowers for their auto loans. The consent orders
require Fifth Third to pay $18 million in restitution to affected
borrowers.
As of the second quarter of 2015, Fifth Third was the ninth largest
depository auto loan lender in the United States and the seventeenth
largest auto loan lender overall. As an indirect auto lender, Fifth
Third sets a risk-based interest rate, or ``buy rate,'' that it conveys
to auto dealers. Fifth Third then allows auto dealers to charge a
higher interest rate when they finalize the transaction with the
consumer. This is typically called ``discretionary markup.'' Markups
can generate compensation for dealers while giving them the discretion
to charge similarly-situated consumers different rates. Fifth Third's
policy permitted dealers to mark up consumers' interest rates as much
as 2.5% during the period under review.
From January 2013 through May 2013, the Bureau conducted an
examination that reviewed Fifth Third's indirect auto lending business
for compliance with ECOA and Regulation B. On March 6, 2015, the Bureau
referred the matter to the DOJ. The CFPB found and the DOJ alleged that
Fifth Third's indirect lending policies resulted in minority borrowers
paying higher discretionary markups, and that Fifth Third violated ECOA
by charging African-American and Hispanic borrowers higher
discretionary markups for their auto loans than non-Hispanic white
borrowers without regard to the creditworthiness of the borrowers. The
CFPB found and the DOJ alleged that Fifth Third's discriminatory
pricing and compensation structure resulted in thousands of minority
borrowers from January 2010 through September 2015 paying, on average,
over $200 more for their auto loans.
The CFPB's administrative consent order and the DOJ's consent order
require Fifth Third to reduce dealer discretion to mark up the interest
rate to a maximum of 1.25% for auto loans with terms of five years or
less, and 1% for auto loans with longer terms, or move to non-
discretionary dealer compensation. Fifth Third is also required to pay
$18 million to affected African-American and Hispanic borrowers whose
auto loans were financed by Fifth Third between January 2010 and
September 2015. The Bureau did not assess penalties against Fifth Third
because of the bank's responsible conduct, namely the proactive steps
the bank is taking that directly address the fair lending risk of
discretionary pricing and compensation systems by substantially
reducing or eliminating that discretion altogether. In addition, Fifth
Third Bank must hire a settlement administrator who will contact
consumers, distribute the funds, and ensure that affected borrowers
receive compensation. The CFPB will release a consumer advisory with
contact information for the settlement administrator once a settlement
administrator is named.
3.1.3 M&T Bank, as Successor to Hudson City Savings Bank
On September 24, 2015, the CFPB and the DOJ filed a joint complaint
against Hudson City Savings Bank (Hudson City) alleging discriminatory
redlining practices in mortgage lending and a proposed consent order to
resolve the complaint. The complaint alleges that from at least 2009 to
2013, Hudson City illegally redlined in violation of the Equal Credit
Opportunity Act (ECOA) by providing unequal access to credit to
neighborhoods in New York, New Jersey, Connecticut, and Pennsylvania.
The DOJ also alleged that Hudson City violated the Fair Housing Act,
which also prohibits discrimination in residential mortgage lending.
Specifically, the complaint alleges that Hudson City structured its
business to avoid and thereby discourage prospective borrowers in
majority-Black-and-Hispanic neighborhoods from accessing mortgages. The
consent order requires Hudson City to pay $25 million in direct loan
subsidies to qualified borrowers in the affected communities, $2.25
million in community programs and outreach, and a $5.5 million penalty.
This represents the largest redlining settlement in history as measured
by such direct subsidies. On November 1, 2015, Hudson City was acquired
by M&T Bank Corporation, and Hudson City was merged into Manufacturers
Banking and Trust Company (M&T Bank), with M&T Bank as the surviving
institution. As the successor to Hudson City, M&T Bank is responsible
for carrying out the terms of the Consent Order.
Hudson City was a federally-chartered savings association with 135
branches and assets of $35.4 billion and focused its lending on the
origination and purchase of mortgage loans secured by single-family
properties. According to the complaint, Hudson City illegally avoided
and thereby discouraged consumers in majority-Black-and-
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Hispanic neighborhoods from applying for credit by:
Placing branches and loan officers principally outside of
majority-Black-and-Hispanic communities;
Selecting mortgage brokers that were mostly located
outside of, and did not effectively serve, majority-Black-and-Hispanic
communities;
Focusing its limited marketing in neighborhoods with
relatively few Black and Hispanic residents; and
Excluding majority-Black-and-Hispanic neighborhoods from
its credit assessment areas.
The consent order which was entered by the court on November 4,
2015, requires Hudson City to pay $25 million to a loan subsidy program
that will offer residents in majority-Black-and-Hispanic neighborhoods
in New Jersey, New York, Connecticut, and Pennsylvania mortgage loans
on a more affordable basis than otherwise available from Hudson City;
spend $1 million on targeted advertising and outreach to generate
applications for mortgage loans from qualified residents in the
affected majority-Black-and-Hispanic neighborhoods; spend $750,000 on
local partnerships with community-based or governmental organizations
that provide assistance to residents in majority-Black-and-Hispanic
neighborhoods; and spend $500,000 on consumer education, including
credit counseling and financial literacy. In addition to the monetary
requirements, the decree orders Hudson City to open two full-service
branches in majority-Black-and-Hispanic neighborhoods, expand its
assessment areas to include majority-Black-and-Hispanic communities,
assess the credit needs of majority-Black-and-Hispanic communities, and
develop a fair lending compliance and training program.
3.2 Non-Public Supervisory Actions
In addition to the public enforcement actions above, recent
supervisory activities have resulted in approximately $14.3 million in
restitution to more than 228,000 consumers. These non-public
supervisory actions generally have been the product of CFPB ongoing
supervision and/or targeted examinations, often involving either
examiner findings or self-reported violations of Federal consumer
financial law. Recent non-public resolutions were reached in the areas
of deposits, debt collection, and mortgage origination.
4. Supervision Program Developments
4.1 Examination Procedures
4.1.1 Updated ECOA Baseline Review Modules
On October 30, 2015, the CFPB published an update to the ECOA
baseline review modules, which are part of the CFPB Supervision and
Examination Manual. Examination teams use the ECOA baseline review
modules to evaluate how institutions' compliance management systems
identify and manage fair lending risks under ECOA. The procedures have
been reorganized into five modules: Fair Lending supervisory history;
Fair Lending compliance management system; and modules on Fair Lending
risks related to origination, servicing, and underwriting models.
Examination teams will use the second module, ``Fair Lending compliance
management system,'' to evaluate compliance management as part of in-
depth ECOA targeted reviews. The fifth module, ``Fair Lending risks
related to models,'' is a new addition that examiners will use to
review models that supervised financial institutions may use. The ECOA
baseline review modules are consistent with and cross-reference the
FFIEC interagency Fair Lending examination procedures. They can be
utilized to evaluate fair lending risk at any supervised institution
and in any product line.
When using the modules to conduct an ECOA baseline review, CFPB
examination teams review an institution's fair lending supervisory
history, including any history of fair lending risks or violations
previously identified by the CFPB or any other Federal or state
regulator. Examination teams collect and evaluate information about an
entity's fair lending compliance program, including board of director
and management participation, policies and procedures, training
materials, internal controls and monitoring and corrective action. In
addition to responses obtained pursuant to information requests,
examination teams may also review other sources of information,
including any publicly available information about the entity as well
as information obtained through interviews with institution staff or
supervisory meetings with an institution.
4.2 Recent CFPB Guidance
The CFPB is committed to providing guidance on its supervisory
priorities to industry and members of the public.
4.2.1 Bulletin on Furnisher Fair Credit Reporting Act (FCRA) Obligation
To Have Reasonable Written Policies and Procedures
On February 3, 2016, the CFPB issued a bulletin \1\ to emphasize
the obligation of furnishers under the FCRA and its implementing
Regulation V to establish and implement reasonable written policies and
procedures regarding the accuracy and integrity of information relating
to consumers that they furnish to CRAs. The supervisory experience of
the Bureau suggests that some financial institutions are not compliant
with their obligations under Regulation V with regard to furnishing to
specialty CRAs. This obligation, which has been required under
Regulation V since July 2010, applies to furnishing to all CRAs,
including furnishing to specialty CRAs, such as the furnishing of
deposit account information to CRAs. The bulletin emphasizes that
furnishers must have policies and procedures that meet this requirement
with respect to all CRAs to which they furnish.
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\1\ Published in the Federal Register on February 4, 2016 (81 FR
5992).
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4.2.2 Bulletin on In-Person Collection of Consumer Debt
Bulletin 2015-07, released on December 16, 2015, notes that both
first-party and third-party debt collectors may run a heightened risk
of committing unfair acts or practices in violation of the Dodd-Frank
Act when they conduct in-person debt collection visits, including to a
consumer's workplace or home. An act or practice is unfair under the
Dodd-Frank Act when it causes or is likely to cause substantial injury
to consumers which is not reasonably avoidable by consumers and is not
outweighed by countervailing benefits to consumers or to competition.
With respect to substantial injury, the bulletin explains that
depending on the facts and circumstances, these visits may cause or be
likely to cause substantial injury to consumers. For example, in-person
collection visits may result in third parties such as consumers' co-
workers, supervisors, roommates, landlords, or neighbors learning that
the consumers have debts in collection, which could harm the consumer's
reputation and, with respect to in-person collection at a consumer's
workplace, result in negative employment consequences.
In addition, depending on the facts and circumstances, in-person
collection visits may result in substantial injury to consumers even
when there is no risk that the existence of the debt in collections
will be disclosed to third
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parties. For example, a consumer who is not allowed to have visitors at
work may suffer adverse employment consequences as a result of these
visits, regardless of whether there is a risk of disclosure to third
parties. Further, if the likely or actual consequence of the visits is
to harass the consumer, an in-person collection visit may also be
likely to cause substantial injury to the consumer.
Finally, the bulletin also notes that third-party debt collectors
and others subject to the FDCPA engaging in in-person collection visits
risk violating certain provisions of the FDCPA, such as section 805(b)
of the FDCPA's prohibition on communicating with third parties in
connection with the collection of any debt (subject to certain
exceptions).
4.2.3 Bulletin on Requirements for Consumer Authorizations for
Preauthorized Electronic Fund Transfers
On November 23, 2015, the CFPB released bulletin 2015-06, which
reminds entities of their obligations under the Electronic Fund
Transfer Act (EFTA) and its implementing regulation, Regulation E, when
obtaining consumer authorizations for preauthorized electronic fund
transfers (EFTs) from a consumer's account. The bulletin explains that
oral recordings obtained over the phone may authorize preauthorized
EFTs under Regulation E provided that these recordings also comply with
the E-Sign Act. Further, the bulletin outlines entities' obligations to
provide a copy of the terms of preauthorized EFT authorizations to
consumers, summarizes the current law, highlights relevant supervisory
findings, and articulates the CFPB's expectations for entities
obtaining consumer authorizations for preauthorized EFTs to help them
ensure their compliance with Federal consumer financial law.
5. Conclusion
The CFPB recognizes the value of communicating program findings to
CFPB-supervised entities to aid them in their efforts to comply with
Federal consumer financial law, and to other stakeholders to foster
better understanding of the CFPB's work.
To this end, the Bureau remains committed to publishing its
Supervisory Highlights report periodically in order to share
information regarding 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 CFPB's guidance documents.
6. Regulatory Requirements
This Supervisory Highlights summarizes existing requirements under
the law, summarizes findings made in the course of exercising the
Bureau's supervisory and enforcement authority, and is a non-binding
general statement of policy articulating considerations relevant to the
Bureau's exercise of its supervisory and enforcement authority. It is
therefore exempt from notice and comment rulemaking requirements under
the Administrative Procedure Act pursuant to 5 U.S.C. 553(b). Because
no notice of proposed rulemaking is required, the Regulatory
Flexibility Act does not require an initial or final regulatory
flexibility analysis. 5 U.S.C. 603(a), 604(a). The Bureau has
determined that this Supervisory Highlights does not impose any new or
revise any existing recordkeeping, reporting, or disclosure
requirements on covered entities or members of the public that would be
collections of information requiring OMB approval under the Paperwork
Reduction Act, 44 U.S.C. 3501, et seq.
Dated: May 10, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-11423 Filed 5-13-16; 8:45 am]
BILLING CODE 4810-AM-P