Supervisory Highlights: Summer 2016, 46652-46657 [2016-16787]

Agencies

• BUREAU OF CONSUMER FINANCIAL PROTECTION

[Federal Register Volume 81, Number 137 (Monday, July 18, 2016)]
[Notices]
[Pages 46652-46657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16787]


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BUREAU OF CONSUMER FINANCIAL PROTECTION


Supervisory Highlights: Summer 2016

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Supervisory Highlights; notice.

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SUMMARY: The Bureau of Consumer Financial Protection (CFPB) is issuing 
its twelfth edition of its Supervisory Highlights. In this issue of 
Supervisory Highlights, we report examination findings in the areas of 
auto originations, debt collection, mortgage origination, small-dollar 
lending, and fair lending. As in past editions, this report includes 
information about a recent public enforcement action that was a result, 
at least in part, of our supervisory work. The report also includes 
information on our coordination with state and federal regulators on 
supervisory matters, as well as information on recently released 
guidance.

DATES: The Bureau released this edition of the Supervisory Highlights 
on its Web site on June 30, 2016.

FOR FURTHER INFORMATION CONTACT: Adetola Adenuga, Consumer Financial 
Protection Analyst, Office of Supervision Policy, 1700 G Street NW., 
20552, (202) 435-9373.

SUPPLEMENTARY INFORMATION:

1. Introduction

    As the Consumer Financial Protection Bureau (CFPB or Bureau) enters 
its fifth year, it continues to examine bank and nonbank providers of 
consumer financial products and services under the Bureau's 
jurisdiction.\1\ In this twelfth edition of Supervisory Highlights, the 
CFPB shares recent supervisory observations in the areas of auto 
origination, debt collection, mortgage origination, small-dollar 
lending and fair lending. The findings reported here reflect 
information obtained from supervisory activities completed during the 
period under review. In some instances, not all corrective actions, 
including through enforcement, have been completed at the time of this 
report's publication.
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    \1\ The CFPB supervises depository institutions and credit 
unions with total assets of more than $10 billion, and their 
affiliates. In addition, the CFPB has authority under the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) to 
supervise nonbanks, regardless of size, in certain specific markets: 
Mortgage companies (originators, brokers, servicers, and providers 
of loan modification or foreclosure relief services); payday 
lenders; and private education lenders.
    The CFPB may also supervise ``larger participants'' in other 
nonbank markets as the CFPB defines by rule. To date, the CFPB has 
issued five rules defining larger participants in the following 
markets: Consumer reporting (effective September 2012), consumer 
debt collection (effective January 2013), student loan servicing 
(effective March 2014), international money transfers (effective 
December 2014) and automobile financing (effective August 2015).
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    The CFPB's supervisory activities have either led to or supported a 
recent public enforcement action, requiring nearly $5 million in 
consumer remediation and an additional $3 million in civil money 
penalties.\2\ 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

[[Page 46653]]

or regulation, Supervision directs the entity to implement appropriate 
corrective measures, including remediation of consumer harm when 
appropriate.
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    \2\ The CFPB Office of Enforcement also brought other actions 
unrelated to supervisory activities.
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    Recent supervisory resolutions resulted in restitution \3\ of 
approximately $24.5 million to more than 257,000 consumers. Other 
corrective actions included, for example, developing improved policies 
and procedures, building enhanced monitoring systems to ensure 
compliance, and improving training for employees.
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    \3\ The term ``restitution'' as used in this report refers 
specifically to monetary relief (or redress) to consumers, whereas 
remediation includes both monetary and non-monetary forms of relief.
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    This report highlights supervision work generally completed between 
January 2016 and April 2016 (unless otherwise stated), though some 
completion dates may vary. Any questions or comments from supervised 
entities can be directed to CFPB_Supervision@cfpb.gov.

2. Supervisory Observations

    Below are some of Supervision's recent examination observations in 
automobile origination, debt collection, mortgage origination, small-
dollar lending and fair lending.

2.1 Automobile Origination

    The Dodd-Frank Act \4\ gave the CFPB supervisory authority over 
``larger participants'' of certain markets for consumer financial 
products or services as the Bureau defines by rulemaking. In June 2015, 
the CFPB finalized its automobile finance market larger participant 
regulation.\5\ In this market, automobile loans can be made through 
direct or indirect lending channels. For direct lending, consumers go 
directly to a bank, credit union, or other lender and apply for and 
obtain a loan. Consumers will commonly get an interest rate quote or a 
conditional commitment letter from the bank or credit union before 
going to the dealership to buy an automobile. In indirect lending, also 
called dealer-arranged financing, consumers obtain auto financing from 
a lender through a dealership.
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    \4\ 12 U.S.C. 5514(a)(1)(B).
    \5\ 12 CFR 1090.108.
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    The CFPB conducted examinations focused on assessing compliance 
management systems (CMS) and automobile financing practices to 
determine whether entities are complying with applicable Federal 
consumer financial laws.
2.1.1 Deceptive Practice in Advertising Add-On Gap Coverage Products 
and Disclosure of Payment Deferral Terms
    Examiners determined that one or more auto lenders deceptively 
advertised the benefits of their gap coverage products, leaving the 
impression that these products would fully cover the remaining balance 
of a consumer's loan in the event of vehicle loss.\6\ In fact, the 
product only covered amounts below a certain loan to value ratio. 
Bureau examiners further found that one or more auto lenders engaged in 
a deceptive practice by using a telephone script that created the false 
overall net impression that the only effects of taking advantage of a 
loan deferral would be to extend the maturity of the loan and to accrue 
interest during the deferral, but omitted informing consumers that the 
subsequent payment would be applied to the interest earned on the 
unpaid amount financed from the date of the last payment received from 
the consumer. This way of applying the payment could result in the 
consumer paying more finance charges than originally disclosed. These 
violations are under review by the Bureau to determine what, if any, 
remedial and corrective actions should be undertaken by the relevant 
financial institutions.
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    \6\ An act or practice is deceptive when there is a material 
representation, omission, act or practice that misleads or is likely 
to mislead the consumer and the consumer has a reasonable 
interpretation of the representation, omission, act or practice. 12 
U.S.C. 5536(a)(1)(B) prohibits deceptive acts or practices.
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2.1.2 CMS Deficiencies
    At one or more institutions, examiners determined that an overall 
weak CMS allowed violations of Federal consumer financial law during 
the review period. Weaknesses included the failure to raise compliance-
related issues to the institution's board of directors or other 
principal (Board); failure to follow institution's policies and 
procedures in daily practices; failure to properly monitor and correct 
business line practices to align with Federal consumer financial law; 
failure to adequately track training completed by employees and the 
Board; and failure to adequately follow up on consumer complaints with 
a corresponding failure of compliance audit to highlight deficiencies 
in the consumer complaint response process. The relevant financial 
institutions have undertaken remedial and corrective actions regarding 
these violations, which are under review by the Bureau.

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 
identified an unfair practice and violations of the Fair Debt 
Collection Practices Act (FDCPA).\7\
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    \7\ 15 U.S.C. 1692-1692p.
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2.2.1 Miscoding of Accounts Unsuitable for Sale by Debt Sellers
    During one or more examinations, examiners determined that debt 
sellers, as a result of widespread coding errors, sold thousands of 
debts that did not properly reflect that: (1) The accounts were in 
bankruptcy, (2) the debt sellers had concluded the debts were products 
of fraud, or (3) the accounts had been settled in full. The relevant 
accounts sold were in, or likely to be subject to, collections. 
Supervision concluded that this practice was unfair.\8\
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    \8\ 12 U.S.C. 5531(c); 5536(a)(1)(B).
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    In some cases, coding failed to reflect a pending bankruptcy 
proceeding when the debt seller had received notice that the consumer 
had filed for bankruptcy. In other instances, one or more debt sellers 
either failed to code accounts to indicate that a fraud claim was 
pending or failed to code accounts to indicate that fraud had occurred. 
In other cases, one or more debt sellers failed to include codes 
indicating that the debt seller(s) had settled the relevant accounts in 
full. These errors caused or were likely to cause substantial injury in 
the form of subjecting consumers to debt collection efforts either: (1) 
Prohibited by the automatic stay provisions of the Bankruptcy Code,\9\ 
or (2) on debts for which the consumer was not responsible because the 
relevant accounts were impacted by fraud or were settled in full. 
Supervision directed one or more debt sellers to redress consumers 
impacted by each category of the three coding errors and to enhance 
service provider oversight to include critical vendors performing 
collections and processes relating to debt sale arrangements, such as 
suppliers providing coding services.
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    \9\ 11 U.S.C. 362.
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2.2.2 Use of Misleading Statements Regarding Repayment Options
    Section 807(10) of the FDCPA prohibits a debt collector from using 
any false representation or deceptive means to collect any debt.\10\ 
Examiners determined that one or more collectors falsely represented to 
consumers that a down payment was necessary in order

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to establish a repayment arrangement, when the collectors' policies and 
procedures included no such requirement. In other cases, one or more 
collectors falsely represented that the only option for repayment was 
using a checking account, when the debt collectors' policies and 
procedures did not limit repayment to checking accounts. Supervision 
directed one or more debt collectors to analyze their process to 
determine why the collectors made false representations to consumers 
regarding payment options and based on such analysis, to determine the 
appropriate corrective action to ensure future compliance.
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    \10\ 15 U.S.C. 1692e(10).
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2.3 Mortgage Origination

    During the review period covered by this report, several mortgage 
origination examinations focused upon reviewing compliance with 
provisions of CFPB's Title XIV rules,\11\ existing Truth in Lending Act 
(TILA) and Real Estate Settlement Procedures Act (RESPA) \12\ 
disclosure provisions,\13\ and other applicable Federal consumer 
financial laws. Examiners also evaluated entities' CMS. Examiners found 
general compliance with the reviewed Federal consumer financial laws, 
though many entities continue to have CMS deficiencies.
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    \11\ These Title XIV rules include the Loan Originator Rule (12 
CFR 1026.36), the Ability to Repay Rule (12 CFR 1026.43), and rules 
reflecting amendments to the Equal Credit Opportunity Act and Truth 
in Lending Act regarding appraisals and valuations (12 CFR 1002.14 
and 12 CFR 1026.35).
    \12\ TILA is implemented by Regulation Z and RESPA by Regulation 
X.
    \13\ These mortgage origination examination findings cover a 
period preceding the effective date of the Know Before You Owe 
Integrated Disclosure Rule. The disclosures reviewed in these exams 
are the Good Faith Estimate (GFE), the Truth in Lending disclosure, 
and the HUD-1 form.
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2.3.1 Incorrect Calculation of the Amount Financed on Loans With 
Discount Credits
    Regulation Z requires the amount financed to be calculated by 
determining the principal loan amount or the cash price (minus any down 
payment), adding any other amounts that are financed by the creditor 
and that are not part of the finance charge, and subtracting any 
prepaid finance charge.\14\ Regulation Z also provides that finance 
charges disclosed are treated as accurate if they are understated by no 
more than $100 or are greater than the amount required to be 
disclosed.\15\ One or more institutions incorrectly calculated the 
amount financed on loans with discount credits, and subsequently 
incorrectly calculated the finance charge on the same loans. The 
calculation method used to determine the amount financed for these 
loans resulted in a negative finance charge and an amount financed that 
exceeded the stated loan amount, resulting in a violation of Regulation 
Z. Supervision directed that the practice cease and that training and 
revised policies and procedures be provided to ensure that disclosures 
were calculated accurately.
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    \14\ 12 CFR 1026.18(b).
    \15\ 12 CFR 1026.18(d)(1).
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2.3.2 Failure To Comply With RESPA Section 8
    RESPA Section 8 and its implementing Regulation X generally 
prohibit the acceptance of any fee, kickback or other thing of value in 
exchange for a referral.\16\ An affiliated business arrangement (ABA) 
is permitted so long as it meets the requirements of RESPA by not 
offering anything of value in exchange for a referral.\17\ Bureau 
examiners found that one or more institutions had ABAs that did not 
fully meet the requirements of a compliant ABA under RESPA. One or more 
institutions provided a referral and required the use of an affiliated 
provider of flood determination and tax services, a settlement service 
that is not among the prescribed settlement services (attorney, credit 
reporting agency or real estate appraiser chosen by the lender) that 
may be required by a lender who makes a referral and has a compliant 
ABA.\18\ The majority of consumers who received the incorrect ABA 
disclosure did not pay the fees charged by the affiliated service 
provider as these fees were lender paid. Supervision directed the 
institutions to revise the affiliated business disclosures to avoid 
improper referrals.
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    \16\ 12 U.S.C. 2607(a); 12 CFR 1024.14(b).
    \17\ 12 U.S.C. 2607(c)(4); 12 CFR 1024.15.
    \18\ 12 CFR 1024.15(b)(2).
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2.3.3 Failure To Provide Fair Credit Reporting Act Adverse Action 
Notices
    Section 615(a) of the Fair Credit Reporting Act (FCRA) \19\ 
requires that if any person takes any adverse action with respect to 
any consumer that is based on information contained in a consumer 
report, the person must provide the consumer with notice of the adverse 
action (e.g., a denial of credit) including: (1) The name, address, and 
telephone number of the consumer reporting agency that furnished the 
report to the person; (2) a statement that the consumer reporting 
agency did not make the decision to take the adverse action; (3) the 
consumer's right to obtain a free copy of a consumer report from that 
consumer reporting agency; and (4) the consumer's right to dispute with 
the furnishing consumer reporting agency the accuracy or completeness 
of information contained the consumer report.\20\ One or more 
institutions took adverse action based on information in consumer 
reports \21\ but failed to make the required disclosures. Examiners 
found these actions to be violations caused by a lack of both 
appropriate training and adequate policies and procedures. Supervision 
directed the institutions to revise their training and policies and 
procedures mechanisms to ensure that employees provide FCRA-required 
information on adverse action notices.
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    \19\ 15 U.S.C. 1681m(a).
    \20\ 15 U.S.C. 1681m(a)(3)-(4). If a numerical credit score is 
used in taking the adverse action, the credit score and other score-
related information is also required. See 15 U.S.C. 1681m(a)(2).
    \21\ The credit score was not a factor in these decisions.
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2.3.4 Failure To Properly Disclose Interest on Interest-Only Loans
    Regulation Z requires that creditors disclose interest-only loan 
payment amounts that will be applied to interest and principal. These 
amounts must be itemized and labeled as ``interest payment'' and 
``principal payment.'' \22\ One or more institutions offering interest-
only bridge loans \23\ failed to accurately disclose the interest 
payment because it erroneously included a portion of the monthly 
payment amount that was to be applied to fees financed into the 
principal balance. This failure, due to a software error to separately 
itemize and properly disclose the correct interest and principal 
payment, violated Regulation Z. Supervision directed the institutions 
to examine and assess whether the monthly payment amounts of the 
affected loans were correctly applied to accrued interest and the 
principal amount. Institutions were also directed to ensure that the 
final balloon payment was assessed in accordance with the mortgage 
note.
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    \22\ 12 CFR 1026.18(s)(3)(ii)(B).
    \23\ A bridge loan is a short term loan with a term of 12 months 
or less, such as a loan to finance the purchase of a new dwelling, 
or connected with the acquisition or construction of a dwelling 
intended to become the consumer's principal dwelling. See 12 CFR 
1026.32(d)(1)(ii)(B), 1026.35(b)(2)(i)(C) and 1026.43(a)(3)(ii).
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2.3.5 CMS Deficiencies
    At one or more institutions, examiners concluded that a weak CMS 
allowed violations of Regulations V, X, and Z to occur. For example, 
one or more supervised institutions had weak oversight of automated 
systems, including inadequate testing of codes that calculate the 
finance charge and the

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amount financed when originating residential loans to consumers. In 
addition, one or more supervised entities failed to monitor for changes 
that would require updated disclosures to comply with applicable 
Federal consumer financial laws.
    To address the above findings, Supervision directed entities to 
enhance their monitoring and corrective action and compliance audit 
practices prior to using revised disclosures, and to revise training, 
policies and procedures, monitoring and corrective action, and 
compliance audit practices to ensure that adverse action notices were 
properly completed. After Supervision notified the entities' management 
of these findings, the entities took corrective action to improve their 
CMS.

2.4 Small-Dollar Lending

    The Dodd-Frank Act gave the CFPB supervisory and enforcement 
authority over payday lenders, who generally provide small-dollar loans 
directly to consumers. Since launching its payday lending supervisory 
program in January 2012, the Bureau has conducted multiple examinations 
for compliance with Federal consumer laws. During the review period, 
examiners evaluated lenders' compliance with Regulation E,\24\ which 
implements the Electronic Fund Transfer Act.\25\ Among other things, 
these reviews assessed compliance with requirements related to 
preauthorized electronic fund transfers (EFTs).
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    \24\ 12 CFR part 1005.
    \25\ 15 U.S.C. 1693 et seq.
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    Regulation E provides that when the amount of a preauthorized EFT 
differs from the preceding EFT, the designated payee must provide 
notice in advance of the transfer. It also provides an optional, 
alternative approach whereby the payee may give the consumer the option 
of receiving notice only when the amount of a payment either falls 
outside a specified range, or only when the transfer differs from the 
most recent transfer by more than the agreed upon amount. The Rule 
commentary provides that the specified range must be one that could be 
anticipated by the consumer.
    Examiners found that the installment loan agreements of one or more 
entities failed to set out an acceptable range of amounts to be 
debited, in lieu of providing individual notice of transfers of varying 
amounts. These ranges could not be anticipated by the consumer because 
they contained ambiguous or undefined terms in their descriptions of 
the upper and lower limits of the range. When examiners found such 
violations, Supervision directed that entities take the following 
steps:
    For new loans, revise loan agreements to specify a range of amounts 
that consumers can reasonably anticipate if the firms elect to continue 
to give the consumer the option of receiving notice of a range of 
transfers instead of providing advance notice of each preauthorized EFT 
that varies in amount.
    For existing loans not governed by a revised agreement, notify 
borrowers of the amount of any new transfer that will vary from the 
amount of the previous transfer or from the preauthorized amount before 
initiating the new transfer.

2.5 Fair Lending

2.5.1 Reporting Actions Taken for Conditionally-Approved Applications 
With Unmet Underwriting Conditions
    Compliance with the Home Mortgage Disclosure Act (HMDA) and 
Regulation C remains a top priority in the Bureau's fair lending 
examinations.\26\ Among other things, Regulation C requires covered 
depository and non-depository institutions to submit to the appropriate 
Federal agency data they collect and record pursuant to Regulation C, 
including the type of action taken on reportable transactions.\27\ 
Financial institutions use the codes listed in Appendix A of Regulation 
C when reporting the type of action taken on an application or 
loan.\28\ Under Regulation C, when an institution issues a loan 
approval subject to the applicant's meeting underwriting conditions and 
the application does not result in an origination, the reported 
``action taken'' code varies according to the following circumstances: 
\29\
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    \26\ See CFPB Bulletin 2013-11, Home Mortgage Disclosure Act 
(HMDA) and Regulation C--Compliance Management; CFPB HMDA 
Resubmission Schedule and Guidelines; and HMDA Enforcement, 
available at https://files.consumerfinance.gov/f/201310_cfpb_hmda_compliance-bulletin_fair-lending.pdf.
    \27\ 12 CFR 1003.4(a), (a)(8); 12 CFR 1003.5(a)(1).
    \28\ See 12 CFR 1003, app. A, I.B.
    \29\ Underwriting conditions here do not include ``customary 
loan commitment or loan-closing conditions, such as a clear-title 
requirement or an acceptable property survey.'' 12 CFR part 1003, 
Supp. I, 1003.4, comment 4(a)(8)-4.
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    If the institution sent the applicant a written notice of 
incompleteness pursuant to Regulation B,\30\ and the applicant 
responded to the request for additional information within the period 
of time specified in the notice but the applicant did not meet the 
underwriting conditions, then the action taken is reported as 
``Application denied'' (Code 3).\31\
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    \30\ See 12 CFR 1002.9(c)(2).
    \31\ See 12 CFR part 1003, Supp. I, 1003.4, comment 4(a)(8)-4 
(financial institutions report Code 3, ``Application denied,'' 
``[i]f an institution issues a loan approval subject to the 
applicant's meeting underwriting conditions (other than customary 
loan commitment or loan-closing conditions, such as a clear-title 
requirement or an acceptable property survey) and the applicant does 
not meet them'').
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    If the institution sent the applicant a written notice of 
incompleteness pursuant to Regulation B, and the applicant did not 
respond to the request for additional information within the period of 
time specified in the notice, then the action taken is reported as 
``File closed for incompleteness'' (Code 5).\32\
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    \32\ 12 CFR 1003 app. A, I.B.1.e (``Use Code 5 if you sent a 
written notice of incompleteness under 1002.9(c)(2) of Regulation B 
(Equal Credit Opportunity) and the applicant did not respond to your 
request for additional information within the period of time 
specified in your notice.'').
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    If the institution did not send the applicant a written notice of 
incompleteness pursuant to Regulation B, and the applicant did not meet 
the underwriting conditions, then the action taken is reported as 
``Application denied'' (Code 3).\33\
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    \33\ See 12 CFR part 1003, Supp. I, 1003.4, comment 4(a)(8)-4.
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    If the applicant expressly withdrew the application before a credit 
decision was made, then the action taken is reported as ``Application 
withdrawn'' (Code 4).\34\
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    \34\ 12 CFR 1003, app. A, I.B.1.d (``Use Code 4 only when the 
application is expressly withdrawn by the applicant before a credit 
decision is made.'').
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    During one or more HMDA data integrity reviews conducted 
substantially within the last year, examiners found that after issuing 
a conditional approval subject to underwriting conditions, the 
institutions did not accurately report the action taken on the loans or 
applications. For example, examiners found where one or more 
institutions issued a conditional approval subject to the applicants 
meeting underwriting conditions, and then the applicants withdrew their 
applications before the institutions made a credit decision, the 
institutions incorrectly coded the action taken as ``Application 
denied'' (Code 3) or ``File closed for incompleteness'' (Code 5) 
instead of ``Application withdrawn'' (Code 4). In other instances, 
examiners found that one or more institutions incorrectly coded the 
action taken as ``Application approved but not accepted'' (Code 2) 
instead of ``Application denied'' (Code 3) after the applicants failed 
to respond to a conditional approval subject to the applicants meeting 
underwriting

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conditions, and did not send the applicants either a written notice of 
incompleteness or an adverse action notice as required by Regulation 
B.\35\
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    \35\ 12 CFR 1002.9(a)(1)(ii).
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    Supervision directed one or more institutions to enhance their 
policies and procedures regarding their HMDA reporting of the actions 
taken on loans and applications and, where necessary, provide adverse 
action notices. Supervision also required one or more institutions to 
resubmit their HMDA Loan Application Register (LAR) where the number of 
errors exceeded the CFPB's HMDA resubmission thresholds.
2.5.2 Equal Credit Opportunity Act Special Purpose Credit Programs
    The Equal Credit Opportunity Act (ECOA) \36\ and Regulation B \37\ 
permit a creditor to extend special purpose credit to applicants who 
meet eligibility requirements for certain types of credit programs.\38\ 
Regulation B specifically confers special purpose credit program status 
upon:
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    \36\ 15 U.S.C. 1601 et seq.
    \37\ 12 CFR part 1002.
    \38\ 15 U.S.C. 1691(c)(3) (providing that ECOA's prohibitions 
against discrimination are not violated when a creditor refuses to 
extend credit offered pursuant to certain special purpose credit 
programs satisfying Regulation B-prescribed standards); 12 CFR 
1002.8 (special purpose credit program standards).
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    Any special purpose credit program offered by a for-profit 
organization, or in which such an organization participates to meet 
special social needs, if:
    (i) The program is established and administered pursuant to a 
written plan that identifies the class of persons that the program is 
designed to benefit and sets forth the procedures and standards for 
extending credit pursuant to the program; and
    (ii) The program is established and administered to extend credit 
to a class of persons who, under the organization's customary standards 
of creditworthiness, probably would not receive such credit or would 
receive it on less favorable terms than are ordinarily available to 
other applicants applying to the organization for a similar type and 
amount of credit.\39\
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    \39\ 12 CFR 1002.8(a)(3).
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    The commentary to Regulation B clarifies that, in order to satisfy 
these requirements, ``a for-profit organization must determine that the 
program will benefit a class of people who would otherwise be denied 
credit or would receive it on less favorable terms. This determination 
can be based on a broad analysis using the organization's own research 
or data from outside sources, including governmental reports and 
studies.'' \40\
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    \40\ 12 CFR part 1002, Supp. I, 1002.8, comment 8(a)-5.
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    During the course of the Bureau's supervisory activity, examination 
teams have observed credit decisions made pursuant to the terms of 
programs that for-profit institutions have described as special purpose 
credit programs. Examination teams have reviewed the terms of the 
programs, including the written plan required by Regulation B, and the 
institution's determination that the program would benefit a class of 
people who would otherwise be denied credit or would receive it on less 
favorable terms.
    In one or more reviews, examiners observed programs that were 
established pursuant to these provisions of ECOA and Regulation B. For 
example, in one or more reviews, examiners observed a small business 
lending program providing credit to minority-owned businesses. The 
program was established and administered pursuant to a written plan and 
was based on a determination that minority-owned firms were otherwise 
more likely to be denied credit than non-minority owned firms.
    In addition, in one or more reviews, examiners observed a mortgage 
lending program with special rates and terms for individuals with 
income below certain thresholds or buying property in areas where the 
median income was below certain thresholds. The program was established 
and administered pursuant to a written plan and was based on a 
determination that applicants meeting one or both of the aforementioned 
criteria had credit characteristics that otherwise would result either 
in denial of mortgage credit or in higher-priced mortgage credit.
    In every case, special purpose credit program status depends upon 
adherence to the ECOA and Regulation B requirements for special purpose 
credit programs. A program, for example, offering more favorable 
pricing or products exclusively to a particular class of persons 
without evidence that such individuals would otherwise be denied credit 
or would receive it on less favorable terms would not satisfy the ECOA 
and Regulation B requirements for a special purpose credit program. 
With that in mind, however, the Bureau generally takes a favorable view 
of conscientious efforts that institutions may undertake to develop 
special purpose credit programs to promote extensions of credit to any 
class of persons who would otherwise be denied credit or would receive 
it on less favorable terms.

2.6 Remedial Actions

    The public enforcement actions listed below resulted, at least in 
part, from recent supervisory work. As described above, Supervision 
also continues to resolve matters using non-public supervisory tools, 
where appropriate.
2.6.1 Public Enforcement Actions
    The Bureau's supervisory activities resulted in or supported the 
following public enforcement action.
Citibank, N.A.
    On February 23, 2016, the CFPB took action \41\ against Citibank, 
N.A. (Citibank) for illegal debt sales practices. Citibank, from 
February 2010 until June 2013, provided inaccurate and inflated annual 
percentage rate (APR) information for almost 130,000 credit card 
accounts it sold to debt buyers. These buyers then used the exaggerated 
APR in debt collection attempts. Citibank also failed to promptly 
forward to debt buyers approximately 14,000 customer payments totaling 
almost $1 million. This delayed the updating of account balances and 
subjected consumers to collection efforts from debt buyers after they 
had already, in reality, paid off their account. The CFPB ordered 
Citibank to provide nearly $5 million in consumer relief and pay a $3 
million penalty for selling credit card debt with inflated interest 
rates and for failing to forward consumer payments promptly to debt 
buyers.
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    \41\ See Press Release at https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-citibank-to-provide-relief-to-consumers-for-illegal-debt-sales-and-collection-practices/.
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2.6.2 Non-Public Supervisory Actions
    In addition to the public enforcement actions above, recent 
supervisory activities have resulted in approximately $24.5 million in 
restitution to more than 257,000 consumers. These non-public 
supervisory actions generally have been the product of CFPB ongoing 
supervision and/or targeted examinations, involving either examiner 
findings or self-reported violations of Federal consumer financial law. 
Recent non-public resolutions were reached in the areas of automobile 
finance and remittances.

3. Examination Procedures

3.1 Coordination With State and Federal Regulators on Supervisory 
Matters

    The CFPB coordinates certain supervisory activities with 
appropriate

[[Page 46657]]

Federal and State bank and nonbank regulators.
    At the State level, coordinated supervision helps maximize the 
agencies' collective effectiveness at protecting consumers, increasing 
efficiency, avoiding supervisory duplication, and minimizing burden on 
supervised entities. The CFPB, the Conference of State Bank Supervisors 
(CSBS), other State agency associations, and 62 agencies in all fifty 
states, the District of Columbia, Puerto Rico, and Guam have joined a 
cooperative Memorandum of Understanding (MOU) to facilitate coordinated 
activities.
    In addition, the Bureau and State regulatory agencies (through 
CSBS) have established a Framework \42\ for cooperation and 
coordination on State bank and nonbank examinations. The Bureau works 
with State regulators and other State regulatory associations on 
nonbank supervisory matters through the State Coordinating Committee 
(SCC) referenced under the Framework to facilitate scheduling of and 
participation in coordinated examinations. The Bureau and the SCC have 
conducted multiple coordinated examinations during the review period 
and are currently preparing the 2017 nonbank coordinated examination 
schedule. The Bureau has also implemented processes to share its 
examination schedules, examination reports, and supervisory letters 
with its State counterparts.
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    \42\ For more on the framework, see https://files.consumerfinance.gov/f/201305_cfpb_state-supervisory-coordination-framework.pdf.
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    At the Federal level, the Bureau coordinates with the prudential 
regulators, including the Office of the Comptroller of the Currency 
(OCC), the Federal Reserve Banks and the Board of Governors of the 
Federal Reserve System (Federal Reserve), the National Credit Union 
Administration (NCUA), and the Federal Deposit Insurance Corporation 
(FDIC), regarding various supervisory matters. In connection with very 
large State-chartered banks and credit unions and certain nonbanks 
under the CFPB's supervisory authority, the CFPB may coordinate with 
both the appropriate State and Federal agencies. Representatives of the 
Bureau and the Federal prudential regulators meet regularly to 
coordinate supervisory and other activities, and supervisory staff at 
the Bureau and the Federal prudential regulators confer on a routine 
basis to discuss examinations and other supervisory matters regarding 
particular institutions.

3.2 Recent CFPB Guidance

    The CFPB is committed to providing guidance on its supervisory 
priorities to industry and members of the public.
3.2.1 Expiration of the Suspension of Credit Card Agreement Submission 
Under TILA (Regulation Z)
    Regulation Z requires credit card issuers to submit their 
currently-offered credit card agreements to the Bureau, to be posted on 
the Bureau's Web site. In April 2015, the Bureau suspended that 
submission obligation for a period of one year. That suspension has 
expired, and a submission was due on the first business day on or after 
April 30, 2016 (i.e., May 2, 2016).\43\
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    \43\ Submission instructions can be found on the Bureau's Web 
site at https://www.consumerfinance.gov/credit-cards/agreements/.
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3.2.2 Interagency Guidance Regarding Deposit Reconciliation Practices
    On May 18, 2016, the CFPB jointly released guidance with the 
Federal Reserve, the FDIC, the NCUA, and the OCC regarding deposit 
account reconciliation practices. This guidance informs financial 
institutions about supervisory expectations regarding customer account 
deposit reconciliation practices.
    The guidance establishes the supervisory expectation that financial 
institutions will adopt deposit reconciliation policies and practices 
that are designed to avoid or reconcile discrepancies, or designed to 
resolve discrepancies so that customers are not disadvantaged. In 
addition, the guidance affirms the expectation that financial 
institutions will effectively manage their deposit reconciliation 
practices to comply with applicable laws and regulations and to prevent 
potential harm to customers. The guidance also notes that financial 
institutions should implement effective CMS to ensure compliance with 
applicable laws and regulations, and fair treatment of customers. The 
guidance notes that a financial institution's deposit reconciliation 
practices may, depending on the facts and circumstances, violate the 
prohibition against unfair, deceptive, and abusive acts or practices 
found in Section 5 of the Federal Trade Commission Act and sections 
1031 and 1036 of the Dodd-Frank Act.\44\
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    \44\ See, for example, the CFPB's action against Citizens Bank, 
summarized in the Fall 2015 edition of Supervisory Highlights, 
available at https://files.consumerfinance.gov/f/201510_cfpb_supervisory-highlights.pdf and the Order issued on 
August 12, 2015, available at https://files.consumerfinance.gov/f/201408_cfpb_consent-order-rbs-citizens.pdf.
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    The Bureau expects to continue coordinating with other agencies on 
these issues, and will consider appropriate action if law violations 
are identified at institutions or their service providers, consistent 
with the Bureau's authority.

4. Conclusion

    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 CFPB recognizes the value of 
communicating program findings to CFPB-supervised entities to aid 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.

    Dated: June 29, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-16787 Filed 7-15-16; 8:45 am]
 BILLING CODE 4810-AM-P