Supervisory Highlights, Issue 19 (Summer 2019), 49250-49255 [2019-20215]
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(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,
e.g., permitting electronic submission of
responses.
Comments submitted in response to
this notice will be summarized or
included in the request for OMB
approval of this information collection;
they will also become a matter of public
record.
Marcie Lovett,
Records Management Division Director,
OCIO, United States Patent and Trademark
Office.
[FR Doc. 2019–20266 Filed 9–18–19; 8:45 am]
BILLING CODE 3510–16–P
COMMITTEE FOR THE
IMPLEMENTATION OF TEXTILE
AGREEMENTS
Limitations of Duty- and Quota-Free
Imports of Apparel Articles Assembled
in Beneficiary Sub-Saharan African
Countries From Regional and ThirdCountry Fabric
Committee for the
Implementation of Textile Agreements
(CITA).
ACTION: Publishing the new 12-month
cap on duty- and quota-free benefits.
AGENCY:
DATES:
Applicable: October 1, 2019.
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FOR FURTHER INFORMATION CONTACT:
Rebecca Geiger, International Trade
Specialist, Office of Textiles and
Apparel, U.S. Department of Commerce,
(202) 482–3117.
SUPPLEMENTARY INFORMATION:
Authority: Title I, Section 112(b)(3) of
the Trade and Development Act of 2000
(TDA 2000), Public Law (Pub. L.) 106–
200, as amended by Division B, Title
XXI, section 3108 of the Trade Act of
2002, Public Law 107–210; Section
7(b)(2) of the AGOA Acceleration Act of
2004, Public Law 108–274; Division D,
Title VI, section 6002 of the Tax Relief
and Health Care Act of 2006 (TRHCA
2006), Public Law 109–432, and section
1 of The African Growth and
Opportunity Amendments (Pub. L. 112–
163), August 10, 2012; Presidential
Proclamation 7350 of October 2, 2000
(65 FR 59321); Presidential
Proclamation 7626 of November 13,
2002 (67 FR 69459); and Title I, Section
103(b)(2) and (3) of the Trade
Preferences Extension Act of 2015, Pub.
L. 114–27, June 29, 2015. Title I of TDA
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2000 provides for duty- and quota-free
treatment for certain textile and apparel
articles imported from designated
beneficiary sub-Saharan African
countries. Section 112(b)(3) of TDA
2000 provides duty- and quota-free
treatment for apparel articles wholly
assembled in one or more beneficiary
sub-Saharan African countries from
fabric wholly formed in one or more
beneficiary sub-Saharan African
countries from yarn originating in the
United States or one or more beneficiary
sub-Saharan African countries. This
preferential treatment is also available
for apparel articles assembled in one or
more lesser-developed beneficiary subSaharan African countries, regardless of
the country of origin of the fabric used
to make such articles, subject to
quantitative limitation. Public Law 114–
27 extended this special rule for lesserdeveloped countries through September
30, 2025.
The AGOA Acceleration Act of 2004
provides that the quantitative limitation
for the twelve-month period beginning
October 1, 2019 will be an amount not
to exceed 7 percent of the aggregate
square meter equivalents of all apparel
articles imported into the United States
in the preceding 12-month period for
which data are available. See Section
112(b)(3)(A)(ii)(I) of TDA 2000, as
amended by Section 7(b)(2)(B) of the
AGOA Acceleration Act of 2004. Of this
overall amount, apparel imported under
the special rule for lesser-developed
countries is limited to an amount not to
exceed 3.5 percent of all apparel articles
imported into the United States in the
preceding 12-month period. See Section
112(b)(3)(B)(ii)(II) of TDA 2000, as
amended by Section 6002(a)(3) of
TRHCA 2006. The Annex to Presidential
Proclamation 7350 of October 2, 2000
directed CITA to publish the aggregate
quantity of imports allowed during each
12-month period in the Federal
Register.
For the one-year period, beginning on
October 1, 2019, and extending through
September 30, 2020, the aggregate
quantity of imports eligible for
preferential treatment under these
provisions is 2,146,573,294 square
meters equivalent. Of this amount,
1,073,286,647 square meters equivalent
is available to apparel articles imported
under the special rule for lesserdeveloped countries. Apparel articles
entered in excess of these quantities will
be subject to otherwise applicable
tariffs.
These quantities are calculated using
the aggregate square meter equivalents
of all apparel articles imported into the
United States, derived from the set of
Harmonized System lines listed in the
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Annex to the World Trade Organization
Agreement on Textiles and Clothing
(ATC), and the conversion factors for
units of measure into square meter
equivalents used by the United States in
implementing the ATC.
Lloyd Wood,
Chairman, Committee for the Implementation
of Textile Agreements.
[FR Doc. 2019–20302 Filed 9–18–19; 8:45 am]
BILLING CODE 3510–DR–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
Supervisory Highlights, Issue 19
(Summer 2019)
Bureau of Consumer Financial
Protection.
ACTION: Supervisory highlights.
AGENCY:
The Bureau of Consumer
Financial Protection (Bureau) is issuing
its nineteenth edition of its Supervisory
Highlights. In this issue of Supervisory
Highlights, we report examination
findings in the areas of automobile loan
origination, credit card account
management, debt collection,
furnishing, and mortgage origination
that were generally completed between
December 2018 and March 2019 (unless
otherwise stated). The report does not
impose any new or different legal
requirements, and all violations
described in the report are based only
on those specific facts and
circumstances noted during those
examinations.
DATES: The Bureau released this edition
of the Supervisory Highlights on its
website on September 13, 2019.
FOR FURTHER INFORMATION CONTACT:
Jaclyn Sellers, Attorney-Advisor, at
(202) 435–7449. If you require this
document in an alternative electronic
format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
1. Introduction
The 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.
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The findings included in this report
cover examinations in the areas of
automobile loan origination, credit card
account management, debt collection,
furnishing, and mortgage origination
that were generally completed between
December 2018 and March 2019 (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
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 CFPB_
Supervision@cfpb.gov.
2. Supervisory Observations
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2.1 Automobile Loan Origination
The Bureau continues to examine
auto loan origination activities,
including assessing whether originators
have engaged in any unfair, deceptive,
or abusive acts or practices prohibited
by the Consumer Financial Protection
Act of 2010 (CFPA).
2.1.1 Abusive Act or Practice When
Selling Add-On GAP Products
Under the prohibition against abusive
acts or practices in sections 1031 and
1036 of the CFPA,1 an act or practice is
abusive if, among other things, it takes
unreasonable advantage of a consumer’s
lack of understanding of the material
risks, costs, or conditions of the product
or service.2
Some auto lenders may sell
consumers a guaranteed asset protection
(GAP) product to cover the difference,
or ‘‘gap,’’ between the amount the
consumer owes on the auto loan and the
amount received from the auto insurer
in the event a vehicle is stolen,
damaged, or totaled. Such a gap is more
likely to occur in an auto loan with a
high loan-to-value (LTV) ratio than one
with a low LTV, because in a loan with
1 12
2 12
U.S.C. 5531 and 12 U.S.C. 5536.
U.S.C. 5531(d)(2)(A).
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a low LTV, the insurance payout for a
totaled vehicle may cover the
outstanding debt.
One or more examinations completed
in 2018 3 found instances in which auto
lenders sold a GAP product to
consumers under circumstances that led
to an abusive practice. Specifically,
examiners observed that lenders sold a
GAP product to consumers whose low
LTV meant that they would not benefit
from the product. By purchasing a
product they would not benefit from,
consumers demonstrated that they
lacked an understanding of a material
aspect of the product. The lenders had
sufficient information to know that
these consumers would not benefit from
the product. These sales show that the
lenders took unreasonable advantage of
the consumers’ lack of understanding of
the material risks, costs, or conditions of
the product. In response to these
examination findings, the lenders have
undertaken remedial and corrective
actions, including reimbursing
consumers for the cost of the product
and establishing an LTV minimum for
GAP product sales.
2.2
Credit Card Account Management
The Bureau continues to examine the
credit card account management
operations of one or more supervised
entities. These examinations may focus
on all aspects of credit card origination
and account servicing for compliance
with various Federal consumer financial
laws including the Truth in Lending Act
and its implementing regulation,
Regulation Z. Selected recent findings
are below.
2.2.1 Triggered Disclosures for Online
Credit Card Advertisements
Regulation Z, 12 CFR 1026.16(b),
requires credit card issuers in credit
card advertisements to clearly and
conspicuously provide certain
disclosures if the advertisements
contain certain pricing terms
(‘‘triggering terms’’).
In one or more examinations
completed in 2018,4 examiners found
that entities failed to clearly and
conspicuously provide disclosures
required by triggering terms in online
advertisements. In some instances, the
triggered disclosures were available to
consumers via a hyperlink that was not
labeled in a way that referred to the
triggered disclosures. Consumers would
have to click on the insufficiently clear
or conspicuous hyperlink, and then
3 This examination work was completed prior to
the review period for this report.
4 This examination work was completed prior to
the review period for this report.
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navigate through an online application
before arriving at triggered disclosures.
In other instances, consumers had to
click on multiple hyperlinks and could
only view the triggered disclosures after
completing an eight-page application.
Issuers have undertaken corrective
actions in these cases in response to
examination findings.
2.2.2 Offset of Credit Card Debt
Regulation Z, 12 CFR 1026.12(d),
prohibits credit card issuers from
offsetting credit card debt with funds
the consumer has on deposit with the
issuer. However, subsection
1026.12(d)(2) expressly permits issuers
to obtain or enforce a consensual
security interest in such funds, so long
as certain requirements specified in the
Staff Commentary are met. Such
security interests must be affirmatively
agreed to by the consumer and must be
disclosed in the account-opening
disclosures. A security interest may not
simply be the functional equivalent of
offset, however. Thus, routinely
including a provision in a cardholder
agreement indicating that consumers are
giving a security interest in any deposit
accounts maintained with the issuers
would not qualify for the exception
under subsection 1026.12(d)(2). Instead,
for a security interest to qualify, the
consumer must be aware that granting a
security interest is a condition for the
credit card (or for more favorable
account terms) and must specifically
intend to grant a security interest in the
deposit account. Indicators of the
consumers’ awareness and intent
include at least one of the following (or
a substantially similar procedure):
• Separate signature or initials on the
agreement indicating that a security
interest is being given;
• Placement of the security agreement
on a separate page, or otherwise
separate security interest provisions
from other contract and disclosure
provisions; or
• Reference to a specific amount of
deposited funds or to a specific deposit
account number.
One or more examinations completed
in 2018 5 found that issuers violated
Regulation Z, 12 CFR 1026.12(d)(1), by
offsetting consumers’ credit card debt
against funds that the consumers had on
deposit with the issuers without
sufficient indication of the consumer’s
awareness of, and intent to grant, a
security interest in those funds. The
issuers’ policies or procedures required
the issuers to have obtained a signed
authorization form from consumers
5 This examination work was completed prior to
the review period for this report.
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before attempting to enforce the security
interest. However, in some instances,
the issuers enforced the security interest
against the funds on deposit where such
forms had not been signed by the
consumer or could not be located. In
response to examination findings,
issuers have implemented corrective
action to ensure compliance with the
regulatory requirements.
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2.2.3 Deceptive Threats of
Repossession or Foreclosure in Credit
Card Collections
Under the prohibition against
deceptive acts or practices in sections
1031 and 1036 of the CFPA,6 an act or
practice is deceptive when: (1) It
misleads or is likely to mislead the
consumer; (2) the consumer’s
interpretation is reasonable under the
circumstances; and (3) the misleading
act or practice is material. In one or
more examinations completed in 2018,7
examiners found that one or more credit
card issuer(s) misled or were likely to
mislead consumer credit card holders
by sending collection letters that
suggested that the issuer(s) could
repossess consumers’ automobiles, or
foreclose on homes, securing loans or
mortgages owned by the issuer(s). In
fact, the issuer(s) did not repossess any
vehicles or foreclose on any mortgages
in connection with delinquent credit
card accounts, and it was against the
policies of the issuer(s) to do so. The
representations by the issuer(s) were
likely to mislead consumers into
believing that they might be subject to
repossession or foreclosure for
delinquent credit card accounts if they
had an automobile loan or mortgage
with the issuer(s). The consumers’
beliefs were reasonable given the
representations made in the collection
letters. The misrepresentations were
material since they were likely to
induce cardholders to change their
conduct with respect to their delinquent
credit card accounts. In response to
these examiner findings, the issuers
discontinued the use of the collection
letters.
2.2.4 Deceptive Marketing Regarding
Secured Credit Card Accounts
Under the prohibition against
deceptive acts or practices in sections
1031 and 1036 of the CFPA,8 a practice
is deceptive when: (1) It misleads or is
likely to mislead the consumer; (2) the
consumer’s interpretation is reasonable
under the circumstances; and (3) the
6 12
U.S.C. 5531 and 12 U.S.C. 5536.
7 This examination work was completed prior to
the review period for this report.
8 12 U.S.C. 5531 and 12 U.S.C. 5536.
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misleading act or practice is material. In
one or more examinations, examiners
found that credit card issuers misled or
were likely to mislead consumers by
orally representing that secured credit
card accounts would automatically
graduate (or be upgraded) to unsecured
credit card accounts on a specific
timeframe, such as six or twelve months
after origination, so long as cardholders
maintained their accounts in good
standing. In fact, the issuers did not
upgrade secured card accounts on any
preset timeframe, and upgrade or
graduation was conditioned on
additional factors, as some subsequent
disclosures and online and print
solicitations suggested. The oral
representations misled or were likely to
mislead consumers about both the
timing and likelihood of upgrade or
graduation, and subsequent written
disclosures were inadequate to cure the
oral representations. The consumers’
interpretation of the preset graduation
or upgrade was reasonable based on the
oral representations. The
representations were also material to the
consumers’ decisions to apply for a
secured card account with the issuers.
In one or more examinations,
examiners found that credit card issuers
misled or were likely to mislead
consumers by representing in
prescreened offers of credit that secured
credit card accounts subject to an
annual fee would be ‘‘periodically’’
reviewed for graduation (or upgrade). In
fact, the issuers did not review such
accounts for a year or more but did not
provide additional disclosures to
accountholders or modify their
marketing materials. Such
representations were likely to mislead
consumers about the timing for a
potential upgrade. Consumers’
interpretations of such representations
were reasonable under the
circumstances. The issuers’
misrepresentations were material to
consumers’ decisions to apply for a
secured card account and to existing
cardholders’ decisions to maintain their
secured card accounts.
In all the above cases, the issuers have
developed action plans to identify and
compensate impacted consumers, and
updated their policies and procedures to
prevent future violations.
2.3
Debt Collection
Supervision continues to examine
consumer debt collection for
compliance with various Federal
consumer financial laws, including the
Fair Debt Collection Practices Act
(FDCPA). Below are findings resulting
from these supervisory activities.
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2.3.1 False Representation of the
Amount and Legal Status of Debt
Section 807 of the FDCPA prohibits
the use of any false, deceptive, or
misleading representation or means in
the collection of any debt. Specifically,
section 807(2)(A) of the FDCPA
prohibits the false representation of the
character, amount, or legal status of any
debt. Examiners found that one or more
debt collectors claimed and collected
from consumers, interest not authorized
by the underlying contracts between the
debt collectors and the creditors. In
doing so, one or more debt collectors
falsely represented to consumers the
amount due and authorized in violation
of section 807(2)(A) of the FDCPA. In
response to these examination findings,
one or more debt collectors conducted
or are conducting a full accounting of
these charges and providing
remediation for affected consumer
accounts, including accounts in which
consumers paid in full, settled in full,
or made partial payments.
2.4 Furnishing
Entities that furnish information
relating to consumers to consumer
reporting companies for inclusion in
consumer reports (furnishers) play a
vital role in the consumer reporting
process. They are subject to several
requirements under the Fair Credit
Reporting Act (FCRA) 9 and its
implementing regulation, Regulation
V,10 including accuracy and dispute
handling requirements.
In one or more recent furnishing
reviews, examiners found deficiencies
in furnisher compliance with FCRA
accuracy and dispute investigation
requirements.
2.4.1 Duty To Timely Complete
Dispute Investigations
The FCRA requires that when a
furnisher receives notice of a dispute
from a credit reporting company (CRC)
pursuant to FCRA section 623(b)(1),11
the furnisher must complete its
investigation of disputes ‘‘before the
expiration of the period under section
611(a)(1) . . .’’ within which the CRC
must complete its own dispute
investigation.12 This period of time is
normally 30 days from the date the CRC
receives a dispute and can be extended
to 45 days in certain limited
circumstances.13 Examiners found that
one or more furnishers failed to
complete dispute investigations within
9 15
U.S.C. 1681s–2(a)–(e).
CFR 1022.40–43.
11 15 U.S.C. 1681s–2(b)(1).
12 15 U.S.C. 1681s–2(b)(2).
13 15 U.S.C. 1681i(a)(1)(B).
10 12
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the required time period. At one or more
furnishers, examiners found certain
disputes of which the furnisher(s)
received notice from the CRC but failed
to conduct an investigation or respond
to the CRC. In response to these
findings, one or more furnishers are
establishing and implementing
enhanced monitoring activities, and
policies and procedures regarding
compliance with furnisher-specific
requirements of the FCRA.
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2.4.2 Duty To Provide Results of
Dispute Investigations to CRCs
The FCRA requires that if a
furnisher’s dispute investigation finds
that disputed information is incomplete
or inaccurate, the furnisher must report
the results not only to the CRC that sent
the dispute to the furnisher but also to
all nationwide CRCs to which the
furnisher provided the information.14
Examiners found that one or more
furnishers failed to report updates or
corrections to information found to be
incomplete or inaccurate following a
dispute investigation to all applicable
CRCs. At one or more furnishers,
examiners found the systematic failure
of reporting dispute investigation results
to a particular CRC. In response to these
findings, one or more furnishers are
establishing and implementing
enhanced monitoring activities, as well
as policies and procedures regarding
compliance with furnisher-specific
requirements of the FCRA, and
providing validation of corrective
action.
2.4.3 Duty To Promptly Correct and
Update Previously Furnished
Information
The FCRA requires that if a furnisher
determines that previously furnished
information is not complete or accurate,
the furnisher must promptly notify the
CRC of that determination and provide
the CRC with any corrections to that
information, or any additional
information, that is necessary to make
the information complete and
accurate.15 In addition, a furnisher
cannot thereafter furnish to the CRC any
of the information that remains
incomplete or inaccurate.16
Examiners found that one or more
furnishers failed to promptly send
corrections or updates to all applicable
CRCs after making a determination, as
reflected in the relevant system of
record, that previously furnished
information about certain accounts was
no longer accurate. As a result, one or
14 15
U.S.C. 1681s–2(b)(1)(D).
U.S.C. 1681s–2(a)(2)(B).
16 15 U.S.C. 1681s–2(a)(2)(B).
more furnishers are establishing and
implementing enhanced monitoring
activities, as well as policies and
procedures regarding compliance with
furnisher-specific requirements of the
FCRA, and providing validation of
corrective action.
Examiners found that one or more
furnishers of deposit account
information failed to furnish updated
information regarding accounts that
were paid-in-full or settled-in-full.
When one or more furnishers removed
their company identification from
account number fields at the request of
a nationwide specialty CRC, and the
removal of the identification changed
the search key that the furnishers used
for matching when making account
updates, the furnishers discovered that
almost two thousand accounts were not
corrected to reflect the paid-in-full or
settled-in-full status. Examiners
observed that one or more furnishers
did not promptly notify the nationwide
specialty CRC after having determined
that the accounts were not corrected and
updated, in violation of the FCRA. In
light of these findings, one or more
furnishers have taken action to update
and correct information that it
previously furnished when they
determined that the information was not
complete or accurate.
2.4.4 Duty To Provide Notice of
Dispute
The FCRA prohibits furnishers from
furnishing information to any CRC
without notice that such information is
disputed if the completeness or
accuracy of the information furnished is
disputed by a consumer.17 Examiners
found that one or more furnishers of
deposit account information received
consumer disputes and then continued
furnishing information about the
disputed accounts for several months
without notifying a nationwide
specialty CRC that the information
furnished was disputed, in violation of
the FCRA. As a result of these
examination findings, one or more
furnishers have taken action to provide
timely notice to CRCs upon receipt of a
direct dispute from a consumer who has
disputed information previously
furnished.
2.4.5 Regulation V Duty To Establish
and Implement Policies and Procedures
Regulation V requires furnishers to
establish and implement reasonable
written policies and procedures
regarding the accuracy and integrity of
the information relating to consumers
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that it furnishes to a CRC.18 Examiners
found that one or more furnishers of
deposit account information failed to
implement reasonable written policies
and procedures regarding the accuracy
and integrity of deposit account
information it furnished to nationwide
specialty CRCs. Such policies and
procedures were also not appropriate to
the nature, size, complexity, and scope
of the furnishing activities. For example,
there were no written policies and
procedures for handling disputes
regarding account information from
certain files. The existing policies also
did not address compliance with FCRA
dispute requirements, such as the duty
to conduct a reasonable investigation.
There were also no policies and
procedures for training, monitoring, or
conducting internal audits regarding a
business unit’s responsibilities to
forward disputes of furnished
information. Finally, one or more
furnishers failed to have policies and
procedures for one business unit to
conduct investigations of consumer
disputes alleging account abuse caused
by fraud. As a result of these
observations, one or more furnishers
have taken action to comply with the
Regulation V requirements to establish
and implement reasonable written
policies and procedures regarding the
accuracy and integrity of information
furnished to nationwide CRCs.
Regulation V requires furnishers to
consider and incorporate, as
appropriate, the guidelines in appendix
E of Regulation V.19 Examiners found
that one or more furnishers of deposit
account information failed to consider
the guidelines in appendix E of
Regulation V. For example, such
guidance states that a furnisher’s
policies and procedures should consider
and incorporate, as appropriate,
conducting ‘‘reasonable investigations
of consumer disputes and take
appropriate action based on the
outcome of such investigations.’’
However, the policies of one or more
furnishers did not consider and
incorporate such guidance. Based on
examiner findings, one or more
furnishers have taken action to consider
and incorporate, as appropriate, the
guidance in appendix E of Regulation V.
2.5
Mortgage Origination
Supervision continues to examine
both forward and reverse mortgage
origination activities for compliance
with various Federal consumer financial
laws, including the Truth in Lending
18 12
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CFR 1022.42(a).
CFR 1022.42(b), appendix E.
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Act and its implementing regulation,
Regulation Z.
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2.5.1 Inaccurate APR and TALC
Disclosures in Reverse Mortgage
Transactions
Regulation Z requires creditors to
disclose the annual percentage rate
(APR) in accordance with either the
actuarial method or the U.S. Rule
method.20 The explanations, equations,
and instructions for determining the
APR in accordance with the actuarial
method are set forth in appendix J to 12
CFR part 1026.21
Appendix J provides that the unitperiod for a single advance, single
payment transaction, for the purposes of
determining the APR, shall be the term
of the transaction, but shall not exceed
one year.22 In all other transactions, the
unit-period shall be the common period
that occurs most frequently in the
transaction unless an exception
applies.23
Generally, by its terms, a closed-end
reverse mortgage is a single advance,
single payment transaction because it
includes a single lump-sum advance at
origination and a single payment due at
the end of the loan term. Thus, per
appendix J and Regulation Z, the unitperiod for the purposes of determining
the APR for such a closed-end reverse
mortgage, with a term greater than a
year, is one year.
In addition to a single lump-sum
advance at origination, some closed-end
reverse mortgages may have multiple
advances throughout the loan term. For
example, a closed-end reverse mortgage
with a life-expectancy set-aside (LESA)
typically has a set number of
semiannual advances for the payment of
property taxes, and flood and hazard
insurance premiums. Thus, per
appendix J and Regulation Z, the unitperiod for the purposes of determining
the APR for such a loan would be six
months because that would be the
common period that occurs most
frequently in the transaction.
In addition, Regulation Z states that
the APR shall be considered accurate for
a regular transaction if it is not more
than 1⁄8 of one percentage point above or
below the APR determined in
accordance with section 1026.22(a)(1).24
Likewise, the APR shall be considered
accurate for an irregular transaction if it
is not more than 1⁄4 of one percentage
point above or below the APR
20 12
CFR 1026.22(a)(1).
21 Id.
22 12
CFR part 1026, app. J(b)(4)(ii).
CFR part 1026, app. J(b)(4)(i).
24 12 CFR 1026.22(a)(2).
23 12
VerDate Sep<11>2014
17:30 Sep 18, 2019
Jkt 247001
determined in accordance with section
1026.22(a)(1).25
In one or more examinations,
examiners observed that creditors were
disclosing inaccurate APRs for closedend reverse mortgages. Specifically,
while conducting loan file reviews,
examiners observed creditors using a
unit-period of one month instead of one
year to calculate the APR, leading to
inaccurate calculations outside of
Regulation Z’s permissible tolerances.26
In response to this finding, the creditors
have revised their calculation
methodology to reflect the correct unitperiod and provided affected consumers
with reimbursements.
Examiners also found creditors
disclosing inaccurate APRs for closedend reverse mortgages with a LESA.
While conducting loan file reviews,
examiners observed creditors using a
unit-period of one month instead of six
months to calculate the APR, leading to
inaccurate calculations outside of
Regulation Z’s permissible tolerances.27
In response to this finding, the creditors
have revised their calculation
methodologies to reflect the correct
unit-period.
Examiners observed similar issues in
relation to the calculation of the total
annual loan cost (TALC). Regulation Z
requires that, in a reverse mortgage
transaction, the creditor provide a goodfaith projection of the total cost of
credit, determined in accordance with
paragraph (c) of this section and
expressed as a table of ‘‘total annual
loan cost rates,’’ in accordance with
appendix K of 12 CFR part 1026.28
Per appendix K, the unit-period for a
single advance, single payment
transaction, for the purposes of
determining the TALC rate, shall be the
term of the transaction, but shall not
exceed one year.29 Both a closed-end
reverse mortgage and an open-end
reverse mortgage with a line of credit
are single advance, single payment
transactions, even though the latter may
have multiple advances over the loan
term.30 Accordingly, the appropriate
unit-period for such transactions when
determining the TALC rate and the
future value of all advances, a variable
of the TALC equation, is one year.
While conducting loan file reviews,
examiners observed creditors using a
unit-period of one month instead of one
25 12
CFR 1026.22(a)(3).
26 12 CFR 1026.22(a)(2) and (3).
27 Id.
28 12 CFR 1026.33(b)(2).
29 12 CFR part 1026, app. K(b)(4)(ii).
30 12 CFR part 1026, app. K(b)(9) (Regulation Z
treats such open-end reverse mortgages with a line
of credit as single advance, single payment
transactions for purposes of calculating the TALC).
PO 00000
Frm 00010
Fmt 4703
Sfmt 4703
year to calculate the TALC rate and the
future value of all advances, leading to
inaccurate TALC disclosures. In
response to these findings, the creditors
have revised their calculation
methodologies to reflect the correct
unit-period.
3. Supervision Program Developments
3.1
Recent Bureau Rules and Guidance
3.1.1 Small Entity Compliance Guide
On June 28, 2019, the Bureau updated
the small entity compliance guide
summarizing the Payday Lending Rule’s
payment-related requirements. The
guide has been updated to incorporate
the changes that the Delay Final Rule
made to the 2017 Payday Lending
Rule.31
3.1.2 Memorandum of Understanding
With the Federal Trade Commission
On February 26, 2019, the CFPB and
the Federal Trade Commission (FTC)
announced a new memorandum of
understanding (MOU) between the
agencies that went into effect on
February 25, 2019.32 The MOU, which
facilitates cooperation and coordination
on supervision, enforcement and
consumer response activities, renews a
previous MOU between the agencies,
and is required by the CFPA.33
3.1.3 Amendment to the Annual
Privacy Notice Requirement Under the
Gramm-Leach-Bliley Act (Regulation P)
On August 10, 2018, the CFPB
published a final rule to implement a
December 2015 statutory amendment to
the Gramm-Leach-Bliley Act.34 The rule
provides an exception under which
financial institutions that meet certain
conditions are not required to provide
annual privacy notices to customers. To
qualify for this exception, a financial
institution must not share nonpublic
personal information about customers
except as described in certain statutory
exceptions. In addition, the rule
requires that the financial institution
must not have changed its policies and
practices with regard to disclosing
nonpublic personal information from
those that the institution disclosed in
the most recent privacy notice it sent.
As part of its implementation, the
Bureau is also amending Regulation P to
provide timing requirements for
31 There is currently a stay on the compliance
date for the 2017 Payday Lending Rule.
32 The MOU can be found here: https://
www.consumerfinance.gov/documents/7302/cfpb_
ftc_memo-of-understanding_2019-02.pdf.
33 12 U.S.C. 5514(c)(3)(A).
34 The final rule can be found here: https://
www.consumerfinance.gov/policy-compliance/
rulemaking/final-rules/amendment-annual-privacynotice-requirement-under-gramm-leach-bliley-act/.
E:\FR\FM\19SEN1.SGM
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Federal Register / Vol. 84, No. 182 / Thursday, September 19, 2019 / Notices
delivery of annual privacy notices in the
event that a financial institution that
qualified for this annual notice
exception later changes its policies or
practices in such a way that it no longer
qualifies for the exception. The Bureau
is also removing the Regulation P
provision that allows for use of the
alternative delivery method for annual
privacy notices because the Bureau
believes the alternative delivery method
will no longer be used in light of the
annual notice exception. The final rule
went into effect on September 17, 2018.
4. Conclusion
The Bureau will continue to publish
Supervisory Highlights to aid Bureausupervised 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.
CONSUMER PRODUCT SAFETY
COMMISSION
DEPARTMENT OF DEFENSE
Sunshine Act Meeting
[Docket ID DOD–2019–OS–0108]
Tuesday, September 24,
2019, 2:00 p.m.
Science and Technology Reinvention
Laboratory (STRL) Personnel
Demonstration Project in the Technical
Center of the U.S. Army Space and
Missile Defense Command (USASMDC)
TIME AND DATE:
Hearing Room 420, Bethesda
Towers, 4330 East West Highway,
Bethesda, MD.
PLACE:
Commission Meeting—Open to
the Public.
STATUS:
Briefing
Matter: Fiscal Year 2020 Operating Plan.
A live webcast of the Meeting can be
viewed at https://www.cpsc.gov/live.
MATTERS TO BE CONSIDERED:
CONTACT PERSON FOR MORE INFORMATION:
Alberta Mills, Office of the Secretariat,
Office of the General Counsel, U.S.
Consumer Product Safety Commission,
4330 East West Highway, Bethesda, MD
20814, (301) 504–6833.
Dated: September 17, 2019.
Alberta E. Mills,
Secretary.
[FR Doc. 2019–20426 Filed 9–17–19; 4:15 pm]
BILLING CODE 6355–01–P
5. Regulatory Requirements
jbell on DSK3GLQ082PROD with NOTICES
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: September 12, 2019.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial
Protection.
CONSUMER PRODUCT SAFETY
COMMISSION
Sunshine Act Meeting
Wednesday, September
24, 2019; 10:00 a.m.
TIME AND DATE:
Hearing Room 420, Bethesda
Towers, 4330 East West Highway,
Bethesda, MD 20814.
PLACE:
Commission Decisional
Meeting—Open to the Public.
STATUS:
Final Rule
To Revise Current Fireworks Regulation.
MATTERS TO BE CONSIDERED:
CONTACT PERSON FOR MORE INFORMATION:
Alberta E. Mills, Secretary, Division of
the Secretariat, Office of the General
Counsel, U.S. Consumer Product Safety
Commission, 4330 East West Highway,
Bethesda, MD 20814, (301) 504–7479.
A live webcast of the Meeting can be
viewed at https://www.cpsc.gov/live.
Dated: September 17, 2019.
Alberta E. Mills,
Secretary.
[FR Doc. 2019–20427 Filed 9–17–19; 4:15 pm]
BILLING CODE 6355–01–P
[FR Doc. 2019–20215 Filed 9–18–19; 8:45 am]
BILLING CODE 4810–AM–P
VerDate Sep<11>2014
17:30 Sep 18, 2019
Jkt 247001
49255
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Office of the Secretary
Under Secretary of Defense for
Research and Engineering (USD(R&E)),
DoD.
ACTION: Notice of proposal to adopt and
modify an existing personnel
management demonstration project.
AGENCY:
This Federal Register Notice
(FRN) serves as notice of the proposed
adoption of an existing STRL Personnel
Management Demonstration Project by
the Technical Center, U.S. Army Space
and Missile Defense Command
(USASMDC). The Technical Center
proposes to adopt, with some
modifications, the STRL Personnel
Demonstration Project implemented at
the U.S. Army Combat Capabilities
Development Command (CCDC)
Aviation and Missile Center (AvMC)
(previously designated as the Aviation
and Missile Research, Development, and
Engineering Center).
DATES: The Technical Center’s
demonstration project proposal may not
be implemented until a 30-day comment
period is provided, comments
addressed, and a final FRN published.
To be considered, written comments
must be submitted on or before October
21, 2019.
ADDRESSES: You may submit comments,
identified by docket number and title,
by any of the following methods:
Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
Mail: Department of Defense, Office of
the Chief Management Officer,
Directorate for Oversight and
Compliance, 4800 Mark Center Drive,
Mailbox #24, Suite 08D09, Alexandria,
VA 22350–1700.
Instructions: All submissions received
must include the agency name, docket
number and title for this Federal
Register document. The general policy
for comments and other submissions
from members of the public is to make
these submissions available for public
viewing on the internet at https://
www.regulations.gov as they are
received without change, including any
personal identifiers or contact
information.
FOR FURTHER INFORMATION CONTACT:
• Technical Center, U.S. Army Space
and Missile Defense Command
SUMMARY:
E:\FR\FM\19SEN1.SGM
19SEN1
]]>Agencies
[Federal Register Volume 84, Number 182 (Thursday, September 19, 2019)]
[Notices]
[Pages 49250-49255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20215]
=======================================================================
-----------------------------------------------------------------------
BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights, Issue 19 (Summer 2019)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory highlights.
-----------------------------------------------------------------------
SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
issuing its nineteenth edition of its Supervisory Highlights. In this
issue of Supervisory Highlights, we report examination findings in the
areas of automobile loan origination, credit card account management,
debt collection, furnishing, and mortgage origination that were
generally completed between December 2018 and March 2019 (unless
otherwise stated). The report does not impose any new or different
legal requirements, and all violations described in the report are
based only on those specific facts and circumstances noted during those
examinations.
DATES: The Bureau released this edition of the Supervisory Highlights
on its website on September 13, 2019.
FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Attorney-Advisor, at
(202) 435-7449. If you require this document in an alternative
electronic format, please contact [email protected].
SUPPLEMENTARY INFORMATION:
1. Introduction
The 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.
[[Page 49251]]
The findings included in this report cover examinations in the
areas of automobile loan origination, credit card account management,
debt collection, furnishing, and mortgage origination that were
generally completed between December 2018 and March 2019 (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 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
2.1 Automobile Loan Origination
The Bureau continues to examine auto loan origination activities,
including assessing whether originators have engaged in any unfair,
deceptive, or abusive acts or practices prohibited by the Consumer
Financial Protection Act of 2010 (CFPA).
2.1.1 Abusive Act or Practice When Selling Add-On GAP Products
Under the prohibition against abusive acts or practices in sections
1031 and 1036 of the CFPA,\1\ an act or practice is abusive if, among
other things, it takes unreasonable advantage of a consumer's lack of
understanding of the material risks, costs, or conditions of the
product or service.\2\
---------------------------------------------------------------------------
\1\ 12 U.S.C. 5531 and 12 U.S.C. 5536.
\2\ 12 U.S.C. 5531(d)(2)(A).
---------------------------------------------------------------------------
Some auto lenders may sell consumers a guaranteed asset protection
(GAP) product to cover the difference, or ``gap,'' between the amount
the consumer owes on the auto loan and the amount received from the
auto insurer in the event a vehicle is stolen, damaged, or totaled.
Such a gap is more likely to occur in an auto loan with a high loan-to-
value (LTV) ratio than one with a low LTV, because in a loan with a low
LTV, the insurance payout for a totaled vehicle may cover the
outstanding debt.
One or more examinations completed in 2018 \3\ found instances in
which auto lenders sold a GAP product to consumers under circumstances
that led to an abusive practice. Specifically, examiners observed that
lenders sold a GAP product to consumers whose low LTV meant that they
would not benefit from the product. By purchasing a product they would
not benefit from, consumers demonstrated that they lacked an
understanding of a material aspect of the product. The lenders had
sufficient information to know that these consumers would not benefit
from the product. These sales show that the lenders took unreasonable
advantage of the consumers' lack of understanding of the material
risks, costs, or conditions of the product. In response to these
examination findings, the lenders have undertaken remedial and
corrective actions, including reimbursing consumers for the cost of the
product and establishing an LTV minimum for GAP product sales.
---------------------------------------------------------------------------
\3\ This examination work was completed prior to the review
period for this report.
---------------------------------------------------------------------------
2.2 Credit Card Account Management
The Bureau continues to examine the credit card account management
operations of one or more supervised entities. These examinations may
focus on all aspects of credit card origination and account servicing
for compliance with various Federal consumer financial laws including
the Truth in Lending Act and its implementing regulation, Regulation Z.
Selected recent findings are below.
2.2.1 Triggered Disclosures for Online Credit Card Advertisements
Regulation Z, 12 CFR 1026.16(b), requires credit card issuers in
credit card advertisements to clearly and conspicuously provide certain
disclosures if the advertisements contain certain pricing terms
(``triggering terms'').
In one or more examinations completed in 2018,\4\ examiners found
that entities failed to clearly and conspicuously provide disclosures
required by triggering terms in online advertisements. In some
instances, the triggered disclosures were available to consumers via a
hyperlink that was not labeled in a way that referred to the triggered
disclosures. Consumers would have to click on the insufficiently clear
or conspicuous hyperlink, and then navigate through an online
application before arriving at triggered disclosures. In other
instances, consumers had to click on multiple hyperlinks and could only
view the triggered disclosures after completing an eight-page
application. Issuers have undertaken corrective actions in these cases
in response to examination findings.
---------------------------------------------------------------------------
\4\ This examination work was completed prior to the review
period for this report.
---------------------------------------------------------------------------
2.2.2 Offset of Credit Card Debt
Regulation Z, 12 CFR 1026.12(d), prohibits credit card issuers from
offsetting credit card debt with funds the consumer has on deposit with
the issuer. However, subsection 1026.12(d)(2) expressly permits issuers
to obtain or enforce a consensual security interest in such funds, so
long as certain requirements specified in the Staff Commentary are met.
Such security interests must be affirmatively agreed to by the consumer
and must be disclosed in the account-opening disclosures. A security
interest may not simply be the functional equivalent of offset,
however. Thus, routinely including a provision in a cardholder
agreement indicating that consumers are giving a security interest in
any deposit accounts maintained with the issuers would not qualify for
the exception under subsection 1026.12(d)(2). Instead, for a security
interest to qualify, the consumer must be aware that granting a
security interest is a condition for the credit card (or for more
favorable account terms) and must specifically intend to grant a
security interest in the deposit account. Indicators of the consumers'
awareness and intent include at least one of the following (or a
substantially similar procedure):
Separate signature or initials on the agreement indicating
that a security interest is being given;
Placement of the security agreement on a separate page, or
otherwise separate security interest provisions from other contract and
disclosure provisions; or
Reference to a specific amount of deposited funds or to a
specific deposit account number.
One or more examinations completed in 2018 \5\ found that issuers
violated Regulation Z, 12 CFR 1026.12(d)(1), by offsetting consumers'
credit card debt against funds that the consumers had on deposit with
the issuers without sufficient indication of the consumer's awareness
of, and intent to grant, a security interest in those funds. The
issuers' policies or procedures required the issuers to have obtained a
signed authorization form from consumers
[[Page 49252]]
before attempting to enforce the security interest. However, in some
instances, the issuers enforced the security interest against the funds
on deposit where such forms had not been signed by the consumer or
could not be located. In response to examination findings, issuers have
implemented corrective action to ensure compliance with the regulatory
requirements.
---------------------------------------------------------------------------
\5\ This examination work was completed prior to the review
period for this report.
---------------------------------------------------------------------------
2.2.3 Deceptive Threats of Repossession or Foreclosure in Credit Card
Collections
Under the prohibition against deceptive acts or practices in
sections 1031 and 1036 of the CFPA,\6\ an act or practice is deceptive
when: (1) It misleads or is likely to mislead the consumer; (2) the
consumer's interpretation is reasonable under the circumstances; and
(3) the misleading act or practice is material. In one or more
examinations completed in 2018,\7\ examiners found that one or more
credit card issuer(s) misled or were likely to mislead consumer credit
card holders by sending collection letters that suggested that the
issuer(s) could repossess consumers' automobiles, or foreclose on
homes, securing loans or mortgages owned by the issuer(s). In fact, the
issuer(s) did not repossess any vehicles or foreclose on any mortgages
in connection with delinquent credit card accounts, and it was against
the policies of the issuer(s) to do so. The representations by the
issuer(s) were likely to mislead consumers into believing that they
might be subject to repossession or foreclosure for delinquent credit
card accounts if they had an automobile loan or mortgage with the
issuer(s). The consumers' beliefs were reasonable given the
representations made in the collection letters. The misrepresentations
were material since they were likely to induce cardholders to change
their conduct with respect to their delinquent credit card accounts. In
response to these examiner findings, the issuers discontinued the use
of the collection letters.
---------------------------------------------------------------------------
\6\ 12 U.S.C. 5531 and 12 U.S.C. 5536.
\7\ This examination work was completed prior to the review
period for this report.
---------------------------------------------------------------------------
2.2.4 Deceptive Marketing Regarding Secured Credit Card Accounts
Under the prohibition against deceptive acts or practices in
sections 1031 and 1036 of the CFPA,\8\ a practice is deceptive when:
(1) It misleads or is likely to mislead the consumer; (2) the
consumer's interpretation is reasonable under the circumstances; and
(3) the misleading act or practice is material. In one or more
examinations, examiners found that credit card issuers misled or were
likely to mislead consumers by orally representing that secured credit
card accounts would automatically graduate (or be upgraded) to
unsecured credit card accounts on a specific timeframe, such as six or
twelve months after origination, so long as cardholders maintained
their accounts in good standing. In fact, the issuers did not upgrade
secured card accounts on any preset timeframe, and upgrade or
graduation was conditioned on additional factors, as some subsequent
disclosures and online and print solicitations suggested. The oral
representations misled or were likely to mislead consumers about both
the timing and likelihood of upgrade or graduation, and subsequent
written disclosures were inadequate to cure the oral representations.
The consumers' interpretation of the preset graduation or upgrade was
reasonable based on the oral representations. The representations were
also material to the consumers' decisions to apply for a secured card
account with the issuers.
---------------------------------------------------------------------------
\8\ 12 U.S.C. 5531 and 12 U.S.C. 5536.
---------------------------------------------------------------------------
In one or more examinations, examiners found that credit card
issuers misled or were likely to mislead consumers by representing in
prescreened offers of credit that secured credit card accounts subject
to an annual fee would be ``periodically'' reviewed for graduation (or
upgrade). In fact, the issuers did not review such accounts for a year
or more but did not provide additional disclosures to accountholders or
modify their marketing materials. Such representations were likely to
mislead consumers about the timing for a potential upgrade. Consumers'
interpretations of such representations were reasonable under the
circumstances. The issuers' misrepresentations were material to
consumers' decisions to apply for a secured card account and to
existing cardholders' decisions to maintain their secured card
accounts.
In all the above cases, the issuers have developed action plans to
identify and compensate impacted consumers, and updated their policies
and procedures to prevent future violations.
2.3 Debt Collection
Supervision continues to examine consumer debt collection for
compliance with various Federal consumer financial laws, including the
Fair Debt Collection Practices Act (FDCPA). Below are findings
resulting from these supervisory activities.
2.3.1 False Representation of the Amount and Legal Status of Debt
Section 807 of the FDCPA prohibits the use of any false, deceptive,
or misleading representation or means in the collection of any debt.
Specifically, section 807(2)(A) of the FDCPA prohibits the false
representation of the character, amount, or legal status of any debt.
Examiners found that one or more debt collectors claimed and collected
from consumers, interest not authorized by the underlying contracts
between the debt collectors and the creditors. In doing so, one or more
debt collectors falsely represented to consumers the amount due and
authorized in violation of section 807(2)(A) of the FDCPA. In response
to these examination findings, one or more debt collectors conducted or
are conducting a full accounting of these charges and providing
remediation for affected consumer accounts, including accounts in which
consumers paid in full, settled in full, or made partial payments.
2.4 Furnishing
Entities that furnish information relating to consumers to consumer
reporting companies for inclusion in consumer reports (furnishers) play
a vital role in the consumer reporting process. They are subject to
several requirements under the Fair Credit Reporting Act (FCRA) \9\ and
its implementing regulation, Regulation V,\10\ including accuracy and
dispute handling requirements.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 1681s-2(a)-(e).
\10\ 12 CFR 1022.40-43.
---------------------------------------------------------------------------
In one or more recent furnishing reviews, examiners found
deficiencies in furnisher compliance with FCRA accuracy and dispute
investigation requirements.
2.4.1 Duty To Timely Complete Dispute Investigations
The FCRA requires that when a furnisher receives notice of a
dispute from a credit reporting company (CRC) pursuant to FCRA section
623(b)(1),\11\ the furnisher must complete its investigation of
disputes ``before the expiration of the period under section 611(a)(1)
. . .'' within which the CRC must complete its own dispute
investigation.\12\ This period of time is normally 30 days from the
date the CRC receives a dispute and can be extended to 45 days in
certain limited circumstances.\13\ Examiners found that one or more
furnishers failed to complete dispute investigations within
[[Page 49253]]
the required time period. At one or more furnishers, examiners found
certain disputes of which the furnisher(s) received notice from the CRC
but failed to conduct an investigation or respond to the CRC. In
response to these findings, one or more furnishers are establishing and
implementing enhanced monitoring activities, and policies and
procedures regarding compliance with furnisher-specific requirements of
the FCRA.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 1681s-2(b)(1).
\12\ 15 U.S.C. 1681s-2(b)(2).
\13\ 15 U.S.C. 1681i(a)(1)(B).
---------------------------------------------------------------------------
2.4.2 Duty To Provide Results of Dispute Investigations to CRCs
The FCRA requires that if a furnisher's dispute investigation finds
that disputed information is incomplete or inaccurate, the furnisher
must report the results not only to the CRC that sent the dispute to
the furnisher but also to all nationwide CRCs to which the furnisher
provided the information.\14\ Examiners found that one or more
furnishers failed to report updates or corrections to information found
to be incomplete or inaccurate following a dispute investigation to all
applicable CRCs. At one or more furnishers, examiners found the
systematic failure of reporting dispute investigation results to a
particular CRC. In response to these findings, one or more furnishers
are establishing and implementing enhanced monitoring activities, as
well as policies and procedures regarding compliance with furnisher-
specific requirements of the FCRA, and providing validation of
corrective action.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 1681s-2(b)(1)(D).
---------------------------------------------------------------------------
2.4.3 Duty To Promptly Correct and Update Previously Furnished
Information
The FCRA requires that if a furnisher determines that previously
furnished information is not complete or accurate, the furnisher must
promptly notify the CRC of that determination and provide the CRC with
any corrections to that information, or any additional information,
that is necessary to make the information complete and accurate.\15\ In
addition, a furnisher cannot thereafter furnish to the CRC any of the
information that remains incomplete or inaccurate.\16\
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\15\ 15 U.S.C. 1681s-2(a)(2)(B).
\16\ 15 U.S.C. 1681s-2(a)(2)(B).
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Examiners found that one or more furnishers failed to promptly send
corrections or updates to all applicable CRCs after making a
determination, as reflected in the relevant system of record, that
previously furnished information about certain accounts was no longer
accurate. As a result, one or more furnishers are establishing and
implementing enhanced monitoring activities, as well as policies and
procedures regarding compliance with furnisher-specific requirements of
the FCRA, and providing validation of corrective action.
Examiners found that one or more furnishers of deposit account
information failed to furnish updated information regarding accounts
that were paid-in-full or settled-in-full. When one or more furnishers
removed their company identification from account number fields at the
request of a nationwide specialty CRC, and the removal of the
identification changed the search key that the furnishers used for
matching when making account updates, the furnishers discovered that
almost two thousand accounts were not corrected to reflect the paid-in-
full or settled-in-full status. Examiners observed that one or more
furnishers did not promptly notify the nationwide specialty CRC after
having determined that the accounts were not corrected and updated, in
violation of the FCRA. In light of these findings, one or more
furnishers have taken action to update and correct information that it
previously furnished when they determined that the information was not
complete or accurate.
2.4.4 Duty To Provide Notice of Dispute
The FCRA prohibits furnishers from furnishing information to any
CRC without notice that such information is disputed if the
completeness or accuracy of the information furnished is disputed by a
consumer.\17\ Examiners found that one or more furnishers of deposit
account information received consumer disputes and then continued
furnishing information about the disputed accounts for several months
without notifying a nationwide specialty CRC that the information
furnished was disputed, in violation of the FCRA. As a result of these
examination findings, one or more furnishers have taken action to
provide timely notice to CRCs upon receipt of a direct dispute from a
consumer who has disputed information previously furnished.
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\17\ 15 U.S.C. 1682s-2(a)(3).
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2.4.5 Regulation V Duty To Establish and Implement Policies and
Procedures
Regulation V requires furnishers to establish and implement
reasonable written policies and procedures regarding the accuracy and
integrity of the information relating to consumers that it furnishes to
a CRC.\18\ Examiners found that one or more furnishers of deposit
account information failed to implement reasonable written policies and
procedures regarding the accuracy and integrity of deposit account
information it furnished to nationwide specialty CRCs. Such policies
and procedures were also not appropriate to the nature, size,
complexity, and scope of the furnishing activities. For example, there
were no written policies and procedures for handling disputes regarding
account information from certain files. The existing policies also did
not address compliance with FCRA dispute requirements, such as the duty
to conduct a reasonable investigation. There were also no policies and
procedures for training, monitoring, or conducting internal audits
regarding a business unit's responsibilities to forward disputes of
furnished information. Finally, one or more furnishers failed to have
policies and procedures for one business unit to conduct investigations
of consumer disputes alleging account abuse caused by fraud. As a
result of these observations, one or more furnishers have taken action
to comply with the Regulation V requirements to establish and implement
reasonable written policies and procedures regarding the accuracy and
integrity of information furnished to nationwide CRCs.
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\18\ 12 CFR 1022.42(a).
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Regulation V requires furnishers to consider and incorporate, as
appropriate, the guidelines in appendix E of Regulation V.\19\
Examiners found that one or more furnishers of deposit account
information failed to consider the guidelines in appendix E of
Regulation V. For example, such guidance states that a furnisher's
policies and procedures should consider and incorporate, as
appropriate, conducting ``reasonable investigations of consumer
disputes and take appropriate action based on the outcome of such
investigations.'' However, the policies of one or more furnishers did
not consider and incorporate such guidance. Based on examiner findings,
one or more furnishers have taken action to consider and incorporate,
as appropriate, the guidance in appendix E of Regulation V.
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\19\ 12 CFR 1022.42(b), appendix E.
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2.5 Mortgage Origination
Supervision continues to examine both forward and reverse mortgage
origination activities for compliance with various Federal consumer
financial laws, including the Truth in Lending
[[Page 49254]]
Act and its implementing regulation, Regulation Z.
2.5.1 Inaccurate APR and TALC Disclosures in Reverse Mortgage
Transactions
Regulation Z requires creditors to disclose the annual percentage
rate (APR) in accordance with either the actuarial method or the U.S.
Rule method.\20\ The explanations, equations, and instructions for
determining the APR in accordance with the actuarial method are set
forth in appendix J to 12 CFR part 1026.\21\
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\20\ 12 CFR 1026.22(a)(1).
\21\ Id.
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Appendix J provides that the unit-period for a single advance,
single payment transaction, for the purposes of determining the APR,
shall be the term of the transaction, but shall not exceed one
year.\22\ In all other transactions, the unit-period shall be the
common period that occurs most frequently in the transaction unless an
exception applies.\23\
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\22\ 12 CFR part 1026, app. J(b)(4)(ii).
\23\ 12 CFR part 1026, app. J(b)(4)(i).
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Generally, by its terms, a closed-end reverse mortgage is a single
advance, single payment transaction because it includes a single lump-
sum advance at origination and a single payment due at the end of the
loan term. Thus, per appendix J and Regulation Z, the unit-period for
the purposes of determining the APR for such a closed-end reverse
mortgage, with a term greater than a year, is one year.
In addition to a single lump-sum advance at origination, some
closed-end reverse mortgages may have multiple advances throughout the
loan term. For example, a closed-end reverse mortgage with a life-
expectancy set-aside (LESA) typically has a set number of semiannual
advances for the payment of property taxes, and flood and hazard
insurance premiums. Thus, per appendix J and Regulation Z, the unit-
period for the purposes of determining the APR for such a loan would be
six months because that would be the common period that occurs most
frequently in the transaction.
In addition, Regulation Z states that the APR shall be considered
accurate for a regular transaction if it is not more than \1/8\ of one
percentage point above or below the APR determined in accordance with
section 1026.22(a)(1).\24\ Likewise, the APR shall be considered
accurate for an irregular transaction if it is not more than \1/4\ of
one percentage point above or below the APR determined in accordance
with section 1026.22(a)(1).\25\
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\24\ 12 CFR 1026.22(a)(2).
\25\ 12 CFR 1026.22(a)(3).
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In one or more examinations, examiners observed that creditors were
disclosing inaccurate APRs for closed-end reverse mortgages.
Specifically, while conducting loan file reviews, examiners observed
creditors using a unit-period of one month instead of one year to
calculate the APR, leading to inaccurate calculations outside of
Regulation Z's permissible tolerances.\26\ In response to this finding,
the creditors have revised their calculation methodology to reflect the
correct unit-period and provided affected consumers with
reimbursements.
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\26\ 12 CFR 1026.22(a)(2) and (3).
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Examiners also found creditors disclosing inaccurate APRs for
closed-end reverse mortgages with a LESA. While conducting loan file
reviews, examiners observed creditors using a unit-period of one month
instead of six months to calculate the APR, leading to inaccurate
calculations outside of Regulation Z's permissible tolerances.\27\ In
response to this finding, the creditors have revised their calculation
methodologies to reflect the correct unit-period.
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\27\ Id.
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Examiners observed similar issues in relation to the calculation of
the total annual loan cost (TALC). Regulation Z requires that, in a
reverse mortgage transaction, the creditor provide a good-faith
projection of the total cost of credit, determined in accordance with
paragraph (c) of this section and expressed as a table of ``total
annual loan cost rates,'' in accordance with appendix K of 12 CFR part
1026.\28\
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\28\ 12 CFR 1026.33(b)(2).
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Per appendix K, the unit-period for a single advance, single
payment transaction, for the purposes of determining the TALC rate,
shall be the term of the transaction, but shall not exceed one
year.\29\ Both a closed-end reverse mortgage and an open-end reverse
mortgage with a line of credit are single advance, single payment
transactions, even though the latter may have multiple advances over
the loan term.\30\ Accordingly, the appropriate unit-period for such
transactions when determining the TALC rate and the future value of all
advances, a variable of the TALC equation, is one year. While
conducting loan file reviews, examiners observed creditors using a
unit-period of one month instead of one year to calculate the TALC rate
and the future value of all advances, leading to inaccurate TALC
disclosures. In response to these findings, the creditors have revised
their calculation methodologies to reflect the correct unit-period.
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\29\ 12 CFR part 1026, app. K(b)(4)(ii).
\30\ 12 CFR part 1026, app. K(b)(9) (Regulation Z treats such
open-end reverse mortgages with a line of credit as single advance,
single payment transactions for purposes of calculating the TALC).
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3. Supervision Program Developments
3.1 Recent Bureau Rules and Guidance
3.1.1 Small Entity Compliance Guide
On June 28, 2019, the Bureau updated the small entity compliance
guide summarizing the Payday Lending Rule's payment-related
requirements. The guide has been updated to incorporate the changes
that the Delay Final Rule made to the 2017 Payday Lending Rule.\31\
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\31\ There is currently a stay on the compliance date for the
2017 Payday Lending Rule.
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3.1.2 Memorandum of Understanding With the Federal Trade Commission
On February 26, 2019, the CFPB and the Federal Trade Commission
(FTC) announced a new memorandum of understanding (MOU) between the
agencies that went into effect on February 25, 2019.\32\ The MOU, which
facilitates cooperation and coordination on supervision, enforcement
and consumer response activities, renews a previous MOU between the
agencies, and is required by the CFPA.\33\
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\32\ The MOU can be found here: https://www.consumerfinance.gov/documents/7302/cfpb_ftc_memo-of-understanding_2019-02.pdf.
\33\ 12 U.S.C. 5514(c)(3)(A).
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3.1.3 Amendment to the Annual Privacy Notice Requirement Under the
Gramm-Leach-Bliley Act (Regulation P)
On August 10, 2018, the CFPB published a final rule to implement a
December 2015 statutory amendment to the Gramm-Leach-Bliley Act.\34\
The rule provides an exception under which financial institutions that
meet certain conditions are not required to provide annual privacy
notices to customers. To qualify for this exception, a financial
institution must not share nonpublic personal information about
customers except as described in certain statutory exceptions. In
addition, the rule requires that the financial institution must not
have changed its policies and practices with regard to disclosing
nonpublic personal information from those that the institution
disclosed in the most recent privacy notice it sent. As part of its
implementation, the Bureau is also amending Regulation P to provide
timing requirements for
[[Page 49255]]
delivery of annual privacy notices in the event that a financial
institution that qualified for this annual notice exception later
changes its policies or practices in such a way that it no longer
qualifies for the exception. The Bureau is also removing the Regulation
P provision that allows for use of the alternative delivery method for
annual privacy notices because the Bureau believes the alternative
delivery method will no longer be used in light of the annual notice
exception. The final rule went into effect on September 17, 2018.
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\34\ The final rule can be found here: https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/amendment-annual-privacy-notice-requirement-under-gramm-leach-bliley-act/.
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4. Conclusion
The Bureau will continue to publish Supervisory Highlights 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.
5. 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: September 12, 2019.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2019-20215 Filed 9-18-19; 8:45 am]
BILLING CODE 4810-AM-P
