Supervisory Highlights: Summer 2018, 52816-52822 [2018-22726]

Agencies

• BUREAU OF CONSUMER FINANCIAL PROTECTION

[Federal Register Volume 83, Number 202 (Thursday, October 18, 2018)]
[Notices]
[Pages 52816-52822]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22726]



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BUREAU OF CONSUMER FINANCIAL PROTECTION




Supervisory Highlights: Summer 2018



AGENCY: Bureau of Consumer Financial Protection.



ACTION: Supervisory Highlights; notice.



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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 

issuing its seventeenth edition of its Supervisory Highlights. In this 

issue of Supervisory Highlights, we report examination findings in the 

areas of auto finance lending; credit card account management; debt 

collection; deposits; mortgage servicing; mortgage origination; service 

providers; short-term, small-dollar lending; remittances; and fair 

lending. As in past editions, this report includes information on the 

Bureau's use of its supervisory and enforcement authority, recently 

released examination procedures, and Bureau guidance.



DATES: The Bureau released this edition of the Supervisory Highlights 

on its website on September 06, 2018.



FOR FURTHER INFORMATION CONTACT: Adetola Adenuga, Consumer Financial 

Protection Analyst, Office of Supervision Policy, at (202) 435-9373. If 

you require this document in an alternative electronic format, please 

contact [email protected].



SUPPLEMENTARY INFORMATION:



1. Introduction



    The Bureau of Consumer Financial Protection (Bureau) is committed 

to a consumer financial marketplace that is free, innovative, 

competitive, and transparent, where the rights of all parties are 

protected by the rule of law, and where consumers are free to choose 

the products and services that best fit their individual needs. To 

effectively accomplish this, the Bureau remains committed to sharing 

with the public key findings from its supervisory work to help industry 

limit risks to consumers and comply with Federal consumer financial 

law.

    The findings included in this report cover examinations in the 

areas of automobile loan servicing, credit cards, debt collection, 

mortgage servicing, payday lending, and small business lending that 

were generally completed between December 2017 and May 2018 (unless 

otherwise stated).

    It is important to keep in mind that institutions are subject only 

to the requirements of relevant laws and regulations. The information 

contained in Supervisory Highlights is disseminated to help 

institutions better understand how the Bureau examines institutions for 

compliance with those requirements. This document does not impose any 

new or different legal requirements. In addition, the legal violations 

described in this and previous issues of Supervisory Highlights are 

based on the particular facts and circumstances reviewed by the Bureau 

as part of its examinations. A conclusion that a legal violation exists 

on the facts and circumstances



[[Page 52817]]



described here may not lead to such a finding under different facts and 

circumstances. We invite readers with questions or comments about the 

findings and legal analysis reported in Supervisory Highlights to 

contact us at [email protected].



2. Supervisory Observations



    Recent supervisory observations are reported in the areas of 

automobile loan servicing, credit cards, debt collection, mortgage 

servicing, payday lending, and, for the first time, small business 

lending.



2.1 Automobile Loan Servicing



    The Bureau continues to examine auto loan servicing activities, 

primarily to assess whether servicers have engaged in unfair, 

deceptive, or abusive acts or practices prohibited by the Consumer 

Financial Protection Act of 2010 (CFPA). Recent auto loan servicing 

examinations identified deceptive and unfair acts or practices related 

to billing statements and wrongful repossessions.



2.1.1 Billing Statements Showing Paid-Ahead Status After Applying 

Insurance Proceeds



    One or more examinations observed instances in which notes required 

that insurance proceeds from a total vehicle loss be applied as a one-

time payment to the loan with any remaining balance to be collected 

according to the consumer's regular billing schedule. However, in some 

instances after consumers experienced a total vehicle loss, the 

servicers sent billing statements showing that the insurance proceeds 

had been applied to the loan payments so that the loan was paid ahead 

and that the next payment on the remaining balance was due many months 

or years in the future. Servicers then treated consumers who failed to 

pay by the next month as late and in some cases also reported the 

negative information to consumer reporting agencies.

    The examination found that servicers engaged in a deceptive 

practice by sending billing statements indicating that consumers did 

not need to make a payment until a future date when in fact the 

consumer needed to make a monthly payment.\1\ The billing statements 

contained due dates inconsistent with the note and the servicer's 

insurance payment application. Such information would mislead 

reasonable consumers to think they did not need to make the next 

monthly payment. The misrepresentation is material because it likely 

affected consumers' conduct with regard to auto loans. Consumers would 

have been more likely to make a monthly payment if they knew that not 

doing so would result in a late fee, delinquency notice, or adverse 

credit reporting. In response to examination findings, the servicers 

are sending billing statements that accurately reflect the account 

status of the loan after applying insurance proceeds from a total 

vehicle loss.

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    \1\ 12 U.S.C. 5531, 5536.

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2.1.2 Repossessions



    Many auto servicers provide options to consumers to avoid 

repossession once a loan is delinquent or in default. Servicers may 

offer formal extension agreements that allow consumers to forbear 

payments for a certain period of time or may cancel a repossession 

order once a consumer makes a payment.

    One or more recent examinations found that servicers repossessed 

vehicles after the repossession was supposed to be cancelled. In these 

instances, the servicers incorrectly coded the account as remaining 

delinquent or customer service representatives did not timely cancel 

the repossession order after the consumer's agreement with the 

servicers to avoid repossession. The examinations identified this as an 

unfair practice.\2\ The practice of wrongfully repossessing vehicles 

causes substantial injury because it deprives borrowers of the use of 

their vehicles and potentially leads to additional associated harm, 

such as lost wages and adverse credit reporting. Such injury is not 

reasonably avoidable when consumers take action they believed would 

halt the repossession and there is no additional action the borrower 

can take to prevent it. Finally, the injury is not outweighed by 

countervailing benefits to the consumer or to competition. No benefits 

to competition are apparent from erroneous repossessions. And the 

expense to better monitor repossession activity is unlikely to be 

substantial enough to affect institutional operations or pricing. In 

response to the examination findings, the servicers are stopping the 

practice, reviewing the accounts of consumers affected by a wrongful 

repossession, and removing or remediating all repossession-related 

fees.

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    \2\ Id.

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2.2 Credit Cards



    The Bureau continues to examine the credit card account management 

operations of one or more supervised entities. Typically, examinations 

assess advertising and marketing, account origination, account 

servicing, payments and periodic statements, dispute resolution, and 

the marketing, sale and servicing of credit card add-on products. With 

some notable exceptions, the examinations found that supervised 

entities generally are complying with applicable Federal consumer 

financial laws.



2.2.1 Periodic Re-Evaluation of Rate Increases



    Regulation Z, as revised to implement the Card Accountability 

Responsibility and Disclosure (CARD) Act, requires credit card issuers 

to periodically re-evaluate consumer credit card accounts subjected to 

certain increases in the applicable Annual Percentage Rate(s) (APR or 

rate) to assess whether it is appropriate to reduce the account's 

APR(s).\3\ Issuers must first re-evaluate each such account no later 

than six months after the rate increase and at least every six months 

thereafter.\4\ In re-evaluating each account, the issuer must apply 

either (a) the factors on which the rate increase was originally based 

or (b) the factors the issuer currently considers when determining the 

APR applicable to similar, new consumer credit card accounts.\5\

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    \3\ 12 CFR 1026.59(a).

    \4\ 12 CFR 1026.59(c).

    \5\ 12 CFR 1026.59(d)(1).

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    One or more examinations between January and July 2018 found that 

entities: (a) Failed to re-evaluate all eligible accounts, (b) failed 

to consider the appropriate factors when re-evaluating eligible 

accounts, or (c) failed to appropriately reduce the rates of accounts 

eligible for rate reduction. In one or more instances, the issuers 

failed to re-evaluate all eligible accounts because they inadvertently 

excluded some eligible accounts from the pool of accounts they re-

evaluated. In one or more instances, the issuers failed to consider the 

appropriate factors because they inappropriately conflated re-

evaluation factors, among other reasons. In one or more instances, the 

issuers failed to appropriately reduce the rates for eligible accounts 

because they effectively imposed additional criteria for a rate 

reduction. The issuers have undertaken, or developed plans to 

undertake, remedial and corrective actions in response to these 

examination findings.



2.3 Debt Collection



    The Bureau's Supervision program has authority to examine certain 

entities that engage in consumer debt collection activities, including 

nonbanks that are larger participants in the consumer debt collection 

market. Recent examinations



[[Page 52818]]



of larger participants identified one or more violations of the Fair 

Debt Collection Practices Act (FDCPA).\6\

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    \6\ 15 U.S.C. 1692-1692p.

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2.3.1 Failure To Obtain and Mail Debt Verification Before Engaging in 

Further Collection Activities



    Section 809(b) of the FDCPA requires a debt collector, upon receipt 

of a written debt validation request from a consumer, to cease 

collection of the debt until it obtains verification of the debt and 

mails it to the consumer.\7\ Examinations found that one or more debt 

collectors routinely failed to mail debt verifications before engaging 

in further collections activities. Instead, one or more debt collectors 

forwarded consumer debt validation requests to originating creditors; 

the creditors then reviewed the debts and mailed responses directly to 

consumers. One or more debt collectors accepted creditor determinations 

that the debt was owed by the relevant consumer for the amount claimed 

without receiving information verifying the debt and without mailing 

the required verification to consumers. One or more debt collectors 

then continued collection activities on accounts in violation of 

section 809(b) of the FDCPA.\8\ In response to these examination 

findings, one or more debt collectors are revising their debt 

validation policies, procedures, and practices to ensure both that they 

obtain appropriate verification of the debt when requested and that 

they mail the verification to consumers prior to engaging in further 

collection activities.

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    \7\ 15 U.S.C. 1692g(b).

    \8\ Id.

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2.4 Mortgage Servicing



    Bureau examinations continue to focus on the loss mitigation 

process and, in particular, on how servicers handle trial modifications 

where consumers are paying as agreed. One or more recent mortgage 

servicing examinations observed unfair acts or practices relating to 

conversion of trial modifications to permanent status and initiation of 

foreclosures after consumers accepted loss mitigation offers. Recent 

examinations also identified unfair acts or practices when institutions 

charged consumers amounts not authorized by modification agreements or 

by mortgage notes.



2.4.1 Converting Trial Modifications to Permanent Status



    Past editions of Supervisory Highlights discussed how one or more 

servicers failed to place consumers who successfully completed trial 

modifications into permanent modifications in a timely manner.\9\ Such 

delays may harm consumers when interest accrues at a higher non-

modified rate or when servicers report consumers as delinquent or still 

in trial modifications to consumer reporting agencies during the delay. 

Where a servicer does not provide full financial remediation to the 

consumer for such a delay, one or more examinations have identified an 

unfair practice.

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    \9\ See, e.g., Issue 11 of Supervisory Highlights, section 3.2, 

available at, https://www.consumerfinance.gov/documents/509/Mortgage_Servicing_Supervisory_Highlights_11_Final_web_.pdf.

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    One or more recent examinations reviewed the practices of servicers 

with policies providing for permanent modifications of loans if 

consumers made four timely trial modification payments. However, for 

nearly 300 consumers who successfully completed the trial modification, 

the servicers delayed processing the permanent modification for more 

than 30 days. During these delays, consumers accrued interest and fees 

that would not have been accrued if the permanent modification had been 

processed. The servicers did not remediate all of the affected 

consumers nor did they have policies or procedures for remediating 

consumers in such circumstances. The servicers attributed the 

modification delays to insufficient staffing.

    As a result, one or more examinations identified an unfair act or 

practice. Consumers experienced substantial injury that could not be 

reasonably avoided. The accrued fees and interest that the servicers 

failed to fully remediate were likely significant because the delays 

were more than 30 days. And consumers could not reasonably avoid these 

injuries. They could neither control the processing of their loan 

modifications nor compel remediation from the servicers. The harm to 

consumers outweighs the cost to consumers or to competition, given that 

the servicers acknowledged that the delay was in error and did not 

indicate that the cost of remediation was burdensome. In response to 

examination findings, the servicers are fully remediating affected 

consumers and developing and implementing policies and procedures to 

timely convert trial modifications to permanent modifications where the 

consumers have met the trial modification conditions.\10\

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    \10\ 12 U.S.C. 5531, 5536.

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    In September 2017, examinations also found that one or more 

servicers mitigated the potential consumer harm associated with trial 

conversion delays by maintaining communication with consumers during 

the delay and by proactively remediating individual consumers for the 

costs associated with the delay after eventually making the consumers' 

modifications permanent.



2.4.2 Charging Consumers Unauthorized Amounts



    One or more examinations found instances in which mortgage 

servicers charged consumers more than the amounts authorized by their 

loan modification agreements. The overcharges were caused by data 

errors affecting the modified loan's starting balance, step-rate and 

interest-rate changes, deferred interest, and amortization maturity 

date when the loan was entered into the servicing system. The 

examinations identified this as an unfair practice.\11\ The overcharges 

resulted in substantial injury to consumers when consumers made 

payments higher than those stipulated in the modification agreements or 

when they made payments for a term longer than stipulated in the 

modification agreements. Consumers could not reasonably avoid this 

injury, which was caused by errors in the servicers' systems. The 

injury to consumers is not outweighed by any countervailing benefits to 

consumers or to competition. No benefits to competition are apparent 

from the systemic errors that resulted in erroneous billing statements. 

And the expense of instituting validation procedures for loan-

modification data is unlikely to be substantial enough to affect 

institutional operations or pricing. In response to the examination 

findings, the servicers are remediating affected consumers and 

correcting loan modification terms in their systems.

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    \11\ 12 U.S.C. 5531, 5536.

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2.4.3 Representations Regarding Initiation of Foreclosure



    When one or more mortgage servicers approved borrowers for a loss 

mitigation option on a non-primary residence, the servicers represented 

to borrowers that the servicers would not initiate foreclosure if the 

borrower accepted loss mitigation offers in writing or by phone by a 

specified date. However, the servicers then initiated foreclosure even 

if borrowers had called or written to accept the loss mitigation offers 

by that date. Examinations identified this as a deceptive act or 

practice.

    The misrepresentations were likely to mislead borrowers when the 

servicers expressly indicated that the servicers would not initiate 

foreclosure proceedings if borrowers accepted the



[[Page 52819]]



loss mitigation offers. The borrowers' interpretation of the 

misrepresentations was reasonable in this circumstance, i.e., that the 

servicers would not initiate foreclosure after the borrowers accepted 

the loss mitigation offers. The misrepresentations were material 

because they were likely to prompt borrowers to accept the loss 

mitigation offers to avoid the initiation of foreclosure proceedings.



2.4.4 Representations Regarding Foreclosure Sales



    Examinations observed that when borrowers submitted complete loss 

mitigation applications less than 37 days from a scheduled foreclosure 

sale date, one or more servicers sent the borrowers notices indicating 

that the applications were complete and stating that the servicer(s) 

would notify the borrowers of the decision on the applications in 

writing within 30 days. But after sending these notices, the servicers 

proceeded to conduct the scheduled foreclosure sales without making a 

decision on the borrowers' loss mitigation applications.

    The examinations did not find that this conduct amounted to a legal 

violation but observed that it could pose a risk of a deceptive 

practice. The notices could potentially mislead borrowers by stating 

that the borrowers would receive a decision on their loss mitigation 

applications. Borrowers reasonably could take that statement to mean 

that foreclosure sales would be postponed until a decision was reached.



2.5 Payday Lending



    The Bureau's Supervision program covers entities that offer or 

provide payday loans. Examinations of payday lenders identified unfair 

and deceptive acts or practices as well as violations of Regulation 

E.\12\

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    \12\ 12 CFR 1005.10(b).

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2.5.1 Misleading Collection Letters



    Examinations observed one or more entities engaging in a deceptive 

act or practice in their collection letters. These entities represented 

in their letters that they will, or may have no choice but to, 

repossess consumers' vehicles if the consumers fail to make payments or 

contact the entities. This was despite the fact that these entities did 

not have business relationships with any party to repossess vehicles 

and, as a general matter, did not repossess vehicles. Given these 

facts, the examination concluded that the net impression of these 

representations in the context of each letter was to mislead consumers 

to believe that these entities would repossess or were likely to 

repossess consumers' vehicles. The representations were material 

because they were likely to affect the behavior of consumers who were 

misled. The representations were likely to induce consumers to make 

payments to these entities, as opposed to allocating their funds toward 

other expenses. In response to the examination findings, the entity or 

entities are ensuring that their collection letters do not contain 

deceptive content.



2.5.2 Debiting Consumers' Accounts Without Valid Authorization by Using 

Account Information Previously Provided for Other Purposes



    Examinations observed one or more entities using debit card numbers 

or Automated Clearing House (ACH) credentials that consumers had not 

validly authorized the entities to use to debit funds in connection 

with a single-payment or installment loan in default. Upon a consumer's 

failure to repay the loan obligation as agreed, one or more entities 

attempted to initiate electronic fund transfers (EFTs) using debit card 

numbers or ACH credentials that borrowers had identified on 

authorization forms executed in connection with the defaulted loan at 

issue. If those attempts were unsuccessful, the entities would then 

seek to collect balances due and owing via EFTs using debit card 

numbers or ACH credentials that the borrowers had supplied to the 

entities for other purposes, such as when obtaining other loans or 

making one-time payments on other loans or the loan at issue. Through 

these invalidly authorized EFTs, the entities sought payment of up to 

the entire amount due on the loan.

    The examinations identified these as unfair acts or practices and 

also, in some cases, as violations of Regulation E. With respect to 

unfairness, the invalidly authorized debits caused substantial injury 

in the form of debits that consumers could not anticipate, leading to 

potential fees. Because the credentials were provided to the entities 

for other purposes, such as account information consumers provided in 

previous credit applications, consumers could not anticipate that the 

entities would use them for the defaulted loan at issue and thus could 

not reasonably avoid such injury. Finally, the injury was not 

outweighed by any countervailing benefits to consumers, such as 

satisfying their debts, or to competition, such as passing on lower 

costs to consumers derived from easier debt collection. By giving an 

unfair advantage over other entities that obtain authorization to 

initiate debits from consumers pursuant to clear and readily 

understandable terms, the unfair acts or practices likely harmed 

competition.\13\

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    \13\ 12 U.S.C. 5531, 5536.

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    With respect to loans for which the consumer entered into 

preauthorized EFTs that recurred at substantially regular intervals, 

the examinations identified this practice as a violation of Regulation 

E, which requires that preauthorized EFTs from a consumer's account be 

authorized only by a writing signed or similarly authenticated by the 

consumer.\14\ Here, the loan agreements and EFT authorization forms 

failed to provide clear and readily understandable terms regarding the 

entities' use of debit card numbers or ACH credentials that consumers 

provided for other purposes. Accordingly, the entities did not obtain 

valid preauthorized EFT authorizations for the debits they initiated 

using debit card numbers or ACH credentials consumers provided for 

other purposes.

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    \14\ 12 CFR 1005.10(b).

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    In response to examination findings, the entity or entities are 

ceasing the violations, remediating borrowers impacted by the invalid 

EFTs, and revising loan agreement templates and ACH authorization 

forms.



2.6 Small Business Lending



    The Equal Credit Opportunity Act (ECOA) prohibition against 

discrimination is not limited to consumer transactions; it also applies 

to business-purpose credit transactions, including credit extended to 

small businesses. In 2016 and 2017, the Bureau began conducting 

supervision work to assess ECOA compliance in institutions' small 

business lending product lines, focusing in particular on the risks of 

an ECOA violation in underwriting, pricing, and redlining. The Bureau 

anticipates an ongoing dialogue with supervised institutions and other 

stakeholders as the Bureau moves forward with supervision work in small 

business lending.



2.6.1 Supervisory Observations



    In the course of conducting ECOA small business lending reviews, 

Bureau examination teams have observed instances in which one or more 

financial institutions effectively managed the risks of an ECOA 

violation in their small business lending programs.

    Examinations at one or more institutions observed that the board of 

directors and management maintained active oversight over the 

institutions' compliance management system (CMS) framework. 

Institutions developed and



[[Page 52820]]



implemented comprehensive risk-focused policies and procedures for 

small business lending originations and actively addressed the risks of 

an ECOA violation by conducting periodic reviews of small business 

lending policies and procedures and by revising those policies and 

procedures as necessary. Examinations also observed that one or more 

institutions maintained a record of policy and procedure updates to 

ensure that they were kept current.

    With regard to self-monitoring, one or more institutions 

implemented small business lending monitoring programs and conducted 

semi-annual ECOA risk assessments that include assessments of small 

business lending. In addition, one or more institutions actively 

monitored pricing-exception practices and volume through a committee.

    When examinations included file reviews of manual underwriting 

overrides at one or more institutions, they found that credit decisions 

made by the institutions were consistent with the requirements of ECOA, 

and thus the examinations did not find any violations of ECOA.

    At one or more institutions, however, examinations observed that 

institutions collect and maintain (in useable form) only limited data 

on small business lending decisions. Limited availability of data could 

impede an institution's ability to monitor and test for the risks of 

ECOA violations through statistical analyses.



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 Citibank N.A.



    On June 29, 2018, the Bureau announced an enforcement action 

against Citibank, N.A., (Citibank or Bank). The Bureau found Citibank 

violated the Truth in Lending Act (TILA) and its implementing 

regulation, Regulation Z, by failing to properly periodically re-

evaluate and reduce the Annual Percentage Rates (rates) applicable to 

credit card accounts that had been subject to certain rate increases 

between 2011 and 2017 and by failing to have in place reasonable 

written policies and procedures to do so.

    In 2016, Citibank initiated a significant compliance review program 

across its credit cards line of business. That review led to Citibank's 

self-identifying several deficiencies and errors in its rate re-

evaluation methodologies. After the Bank promptly self-disclosed the 

violations, the Bureau ultimately found through its supervisory process 

that Citibank violated TILA by failing to reevaluate and reduce the 

APRs for approximately 1.75 million consumer credit card accounts and 

thereby imposed on those accounts excess interest charges of $335 

million.

    Under the terms of the resulting consent order, Citibank was 

required to correct these practices and pay $335 million in restitution 

to the impacted consumers.\15\ The Bureau did not assess civil money 

penalties based on a number of factors, including Citibank's self-

identifying and self-reporting the violations to the Bureau and its 

self-initiating remediation to affected consumers.

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    \15\ See Citibank Consent Order available at, https://www.consumerfinance.gov/about-us/newsroom/bureau-consumer-financial-protection-settles-citibank-na/.

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3.1.2 Triton Management Group



    On July 19, 2018, the Bureau entered into a consent order with 

Triton Management Group, Inc., a payday lender that operates in 

Alabama, Mississippi, and South Carolina under several names including 

``Always Money'' and ``Quik Pawn Shop.'' The Bureau found that Triton 

violated the CFPA and the disclosure requirements of TILA by failing to 

properly disclose finance charges associated with their auto title 

loans in Mississippi. The Bureau also found that Triton used 

advertisements that failed to disclose the annual percentage rate and 

other information in violation of TILA. The consent order bars Triton 

from misrepresenting the costs of its loans and requires Triton to 

remediate consumers $1,522,298. Based on Triton's inability to pay, it 

will remediate consumers $500,000.\16\

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    \16\ See Triton Management Group Consent Order available at, 

https://www.consumerfinance.gov/about-us/newsroom/bureau-consumer-financial-protection-settles-triton-management-group/.

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Supervision Program Developments



3.2 Recent Bureau Rules and Guidance



3.2.1 Mortgage Servicing Final Rule



    On March 8, 2018, the Bureau issued a final rule to help mortgage 

servicers communicate with certain borrowers facing bankruptcy. The 

final rule gives mortgage servicers a clearer and more straightforward 

standard for providing periodic statements to consumers entering or 

exiting bankruptcy by amending the Bureau's 2016 mortgage servicing 

rule. Specifically, the final rule provides a clear single-statement 

exemption for servicers to make the transition, superseding the single-

billing-cycle exemption included in the 2016 rule. The effective date 

for the rule was April 19, 2018.\17\

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    \17\ See Mortgage Service Rules under the Truth in Lending Act 

(Regulation Z), 83 FR 10553 (Mar. 8, 2018), https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing_final-rule_2018-amendments.pdf.

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3.2.2 2017-2018 Amendments of the TILA-RESPA Integrated Disclosure Rule



    On August 11, 2017, the Bureau published a final rule \18\ in the 

Federal Register amending the Federal mortgage disclosure requirements 

under the Real Estate Settlement Procedures Act (RESPA) and the Truth 

in Lending Act (TILA) as implemented by Regulation Z (2017 TILA-RESPA 

Rule). These amendments are intended to provide greater certainty and 

clarity to the 2013 TILA-RESPA Rule, which went into effect on October 

3, 2015. Changes and clarifications in the 2017 TILA-RESPA Rule include 

creating a tolerance for the total of payments disclosure, clarifying 

the partial exemption for housing assistance lending, expanding 

coverage of the disclosure rule to include operative units regardless 

of whether State law considers the units real property or personal 

property, and clarifying when disclosures may be shared with third 

parties. Additionally, the 2017 TILA-RESPA Rule includes several 

additional clarifications and technical changes addressing various 

parts of the 2013 TILA-RESPA Rule, including the calculating cash to 

close table, construction-to-permanent lending, principal reductions, 

rounding requirements, and simultaneous second lien loans. The 2017 

TILA-RESPA Rule became effective October 10, 2017. However, compliance 

with the 2017 TILA-RESPA Rule is mandatory only with respect to 

transactions for which a creditor or mortgage broker receives an 

application on or after October 1, 2018 (except for compliance with the 

escrow cancellation notice \19\ and compliance with the partial payment 

policy disclosure requirements,\20\ which will become mandatory on 

October 1, 2018, regardless of when an application was received).

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    \18\ Amendments to Federal Mortgage Disclosure Requirements 

under the Truth in Lending Act (Regulation Z), 82 FR (Aug. 11, 

2017).

    \19\ 12 CFR 1026.20(e).

    \20\ 12 CFR 1026.39(d)(5).

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    On May 2, 2018, the Bureau published a final rule in the Federal 

Register amending the Federal mortgage disclosure requirements to 

address when a creditor may use a Closing Disclosure to determine if an 

estimated closing cost was disclosed in good faith



[[Page 52821]]



and within tolerance (2018 TILA-RESPA Rule).\21\ The 2013 TILA-RESPA 

Rule in effect as of October 3, 2015 included a timing restriction 

limiting the use of the Closing Disclosure to reset tolerances to a 

period relative to the date of consummation, resulting in a creditor's 

inability to pass through closing cost increases \22\ to the consumer 

in certain limited circumstances. The 2018 TILA-RESPA Rule removes this 

timing restriction, permitting the use of the Closing Disclosure to 

establish good faith and reset tolerances regardless of when the 

Closing Disclosure is provided relative to consummation. The final rule 

took effect on June 1, 2018.

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    \21\ Federal Mortgage Disclosure Requirements under the Truth in 

Lending Act (Regulation Z), 83 FR 19159 (May 2, 2018).

    \22\ 12 CFR 1026.19(e)(3)(iv).

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3.3 Fair Lending Developments



3.3.1 HMDA Implementation and New Data Submission Platform



    On December 21, 2017, the Bureau provided the following statement 

regarding HMDA implementation:

    Recognizing the impending January 1, 2018 effective date of the 

Bureau's amendments to Regulation C and the significant systems and 

operational challenges needed to adjust to the revised regulation, for 

HMDA data collected in 2018 and reported in 2019 the Bureau does not 

intend to require data resubmission unless data errors are material. 

Furthermore, the Bureau does not intend to assess penalties with 

respect to errors in data collected in 2018 and reported in 2019. 

Collection and submission of the 2018 HMDA data will provide financial 

institutions an opportunity to identify any gaps in their 

implementation of amended Regulation C and make improvements in their 

HMDA CMS for future years. Any examinations of 2018 HMDA data will be 

diagnostic to help institutions identify compliance weaknesses and will 

credit good faith compliance efforts. The Bureau intends to engage in a 

rulemaking to reconsider various aspects of the 2015 HMDA Rule such as 

the institutional and transactional coverage tests and the rule's 

discretionary data points. For data collected in 2017, financial 

institutions will submit their reports in 2018 in accordance with the 

current Regulation C using the Bureau's HMDA Platform.\23\

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    \23\ CFPB Issues Public Statement on Home Mortgage Disclosure 

Act Compliance (December 21, 2017), available at https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-public-statement-home-mortgage-disclosure-act-compliance/.

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    On July 5, 2018, the Bureau provided the following statement 

regarding recent HMDA amendments:

    The President signed the Economic Growth, Regulatory Relief, and 

Consumer Protection Act (the Act) on May 24, 2018, a section of which 

amends the Home Mortgage Disclosure Act (HMDA). The Act provides 

partial exemptions for some insured depository institutions and insured 

credit unions from certain HMDA requirements.\24\ The partial 

exemptions are generally available to insured depository institutions 

and insured credit unions:

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    \24\ Public Law 115-174, section 104(a) (to be codified at 12 

U.S.C. 2803).

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    [ssquf] For closed-end mortgage loans if the institution originated 

fewer than 500 closed-end mortgage loans in each of the two preceding 

calendar years.

    [ssquf] For open-end lines of credit if the institution originated 

fewer than 500 open-end lines of credit in each of the two preceding 

calendar years.

    For closed-end mortgage loans or open-end lines of credit subject 

to the partial exemptions, the Act states that the ``requirements of 

[HMDA section 304(b)(5) and (6)]'' shall not apply. Accordingly, for 

these transactions, those institutions are exempt from the collection, 

recording, and reporting requirements for some, but not all, of the 

data points specified in current Regulation C.

    The Bureau expects to provide further guidance soon on the 

applicability of the Act to HMDA data collected in 2018.\25\

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    \25\ The partial exemptions are not available to insured 

depository institutions that do not meet certain Community 

Reinvestment Act performance evaluation rating standards. Guidance 

will include information on how this provision will be implemented.

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    For all institutions filing HMDA data collected in 2018, the Act 

will not affect the format of the LARs:

    [ssquf] LARs will be formatted according to the previously released 

2018 Filing Instructions Guide for HMDA Data Collected in 2018 (2018 

FIG).\26\

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    \26\ https://s3.amazonaws.com/cfpb-hmda-public/prod/help/2018-hmda-fig.pdf.

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    [ssquf] If an institution does not report information for a certain 

data field due to the Act's partial exemptions, the institution will 

enter an exemption code for the field specified in a revised 2018 FIG 

that the Bureau expects to release later this summer.

    [ssquf] All LARs will be submitted to the same HMDA Platform. A 

beta version of the HMDA Platform for submission of data collected in 

2018 will be available later this year for filers to test.



3.3.2 Small Business Lending Review Procedures



    Each ECOA small business lending review includes a fair lending 

assessment of the institution's CMS related to small business lending. 

To conduct this portion of the review, examinations use Module II of 

the ECOA Baseline Review Modules. CMS reviews include assessments of 

the institution's board and management oversight, compliance program 

(policies and procedures, training, monitoring and/or audit, and 

complaint response), and service provider oversight.

    Examinations also use the Interagency Fair Lending Examination 

Procedures, which have been adopted in the Bureau's Supervision and 

Examination Manual. In some ECOA small business lending reviews, 

examination teams may evaluate an institution's fair lending risks and 

controls related to origination or pricing of small business lending 

products. Some reviews may include a geographic distribution analysis 

of small business loan applications, originations, loan officers, or 

marketing and outreach, in order to assess potential redlining risk.

    As with other in-depth ECOA reviews, ECOA small business lending 

reviews may include statistical analysis of lending data in order to 

identify fair lending risks and appropriate areas of focus during the 

examination. Notably, statistical analysis is only one factor taken 

into account by examination teams that review small business lending 

for ECOA compliance. Reviews typically include other methodologies to 

assess compliance, including policy and procedure reviews, interviews 

with management and staff, and reviews of individual loan files.



3.3.3 FFIEC HMDA Examiner Transaction Testing Guidelines Effective Date



    On August 22, 2017, the Federal Financial Institutions Examination 

Council (FFIEC) members, including the Bureau, announced new FFIEC Home 

Mortgage Disclosure Act (HMDA) Examiner Transaction Testing Guidelines 

for all financial institutions that report HMDA data.\27\ The 

Guidelines apply to the examination of HMDA data collected beginning in



[[Page 52822]]



2018, which financial institutions must report to the Bureau by March 

1, 2019.\28\

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    \27\ The Guidelines were published by the FFIEC member agencies 

including the Bureau, the Federal Deposit Insurance Corporation, the 

Board of Governors of the Federal Reserve System, the National 

Credit Union Administration, the Office of the Comptroller of the 

Currency, and the State Liaison Committee. These new Guidelines are 

available at https://files.consumerfinance.gov/f/documents/201708_cfpb_ffiec-hmda-examiner-transaction-testing-guidelines.pdf.

    \28\ For HMDA data collected in 2017 and submitted in 2018, the 

Bureau will follow the HMDA resubmission guidelines published on 

October 9, 2013 and available at https://files.consumerfinance.gov/f/201310_cfpb_hmda_resubmission-guidelines_fair-lending.pdf.

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3.3.4 Upstart No-Action Letter



    The Bureau is continuing to monitor Upstart Network, Inc. (Upstart) 

regarding its compliance with the terms of the no-action letter (NAL) 

it received from Bureau staff. As part of its request for a NAL, 

Upstart agreed to conduct ongoing fair lending testing of its 

underwriting model, notify the Bureau before new variables are 

considered eligible for use in production, and maintain a robust model-

related compliance management system.

    In addition to the ongoing fair lending testing discussed above, 

Upstart agreed as part of its request for a NAL to employ other 

consumer safeguards. These safeguards, which are described in the 

application materials posted on the Bureau's website, include ensuring 

compliance with requirements to provide adverse action notices under 

Regulation B and the Fair Credit Reporting Act and its implementing 

regulation, Regulation V, and ensuring that all of its consumer-facing 

communications are timely, transparent, and clear, and use plain 

language to convey to consumers the type of information that will be 

used in underwriting. Upstart has committed to monitoring the 

effectiveness of all safeguards and sharing the results of its testing, 

along with other relevant information, with the Bureau during the term 

of the NAL.

    On July 18, 2018, the Bureau announced the creation of its Office 

of Innovation, to foster consumer-friendly innovation, which is now a 

key priority for the Bureau. The Office of Innovation is in the process 

of revising the Bureau's NAL and trial disclosure policies, in order to 

increase participation by companies seeking to advance new products and 

services.



4. Conclusion



    The Bureau expects that the publication of Supervisory Highlights 

will continue to aid Bureau-supervised entities in their efforts to 

comply with Federal consumer financial law. The report shares 

information regarding general supervisory and examination findings 

(without identifying specific institutions, except in the case of 

public enforcement actions), communicates operational changes to the 

program, and provides a convenient and easily accessible resource for 

information on the Bureau's guidance documents.



    Dated: September 6, 2018.

Mick Mulvaney,

Acting Director, Bureau of Consumer Protection.

[FR Doc. 2018-22726 Filed 10-17-18; 8:45 am]

 BILLING CODE 4810-AM-P