Supervisory Highlights, Issue 25, Fall 2021, 71047-71054 [2021-26949]
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TABLE 2—TOTAL BURDEN HOURS AND HOURLY COSTS TO PRIVATE SECTOR RESPONDENTS
Item
No.
1 .........
2 .........
3 .........
Item
Estimated
annual
respondents
Estimated
responses per
respondent
Estimated annual
responses
Estimated time for
response (hour)
Estimated burden
(hour/year)
Rate 2
($/hour)
Estimated annual
respondent cost
burden
(a)
(b)
(a) × (b) = (c)
(d)
(c) × (d) = (e)
(f)
(e) × (f) = (g)
Petition for Participation in the Collaborative Search Pilot
(CSP) Program
Between the
Japan Patent Office (JPO) and the
USPTO.
Petition for Participation in the Collaborative Search Pilot
(CSP) Program
Between the Korean Intellectual
Property Office
(KPO) and the
USPTO.
CSP Survey .............
Totals ................
13
1
13
3 .............................
39
$435
$16,965
25
1
25
3 .............................
75
435
32,625
38
1
38
0.08 ........................
(5 minutes) .............
3
435
1,305
76
........................
76
.................................
117
..................
$50,895
2 Ibid.
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Estimated Total Annual Respondent
Non-hourly Cost Burden: $0. There are
no capital start-up, maintenance costs,
recordkeeping costs, filing fees, or
postage costs associated with this
information collection.
IV. Request for Comments
The USPTO is soliciting public
comments to:
(a) Evaluate whether the collection of
information is necessary for the proper
performance of the functions of the
Agency, including whether the
information will have practical utility;
(b) Evaluate the accuracy of the
Agency’s estimate of the burden of the
collection of information, including the
validity of the methodology and
assumptions used;
(c) Enhance the quality, utility, and
clarity of the information to be
collected; and
(d) Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriate automated,
electronic, mechanical, or other
technological collection techniques or
other forms of information technology,
e.g., permitting electronic submission of
responses.
All comments submitted in response
to this notice are a matter of public
record. USPTO will include or
summarize each comment in the request
to OMB to approve this information
collection. Before including an address,
phone number, email address, or other
personally identifiable information (PII)
in a comment, be aware that the entire
comment—including PII—may be made
publicly available at any time. While
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you may ask in your comment to
withhold PII from public view, USPTO
cannot guarantee that it will be able to
do so.
Kimberly Hardy,
Information Collections Officer, Office of the
Chief Adminstrative Officer, United States
Patent and Trademark Office.
[FR Doc. 2021–26960 Filed 12–13–21; 8:45 am]
BILLING CODE 3510–16–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
Supervisory Highlights, Issue 25, Fall
2021
Bureau of Consumer Financial
Protection.
ACTION: Supervisory highlights.
AGENCY:
The Bureau of Consumer
Financial Protection (CFPB or Bureau) is
issuing its twenty fifth edition of
Supervisory Highlights.
DATES: The Bureau released this edition
of the Supervisory Highlights on its
website on December 8, 2021. The
findings included in this report cover
examinations completed between
January 2021 and June 2021 in the areas
of credit card account management, debt
collection, deposits, fair lending,
mortgage servicing, payday lending,
prepaid accounts, and remittance
transfers.
FOR FURTHER INFORMATION CONTACT:
Jaclyn Sellers, Counsel, at (202) 435–
7449. If you require this document in an
alternative electronic format, please
contact CFPB_Accessibility@cfpb.gov.
SUMMARY:
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SUPPLEMENTARY INFORMATION:
1. Introduction
A key function of the CFPB is to
supervise the institutions subject to its
supervisory authority.1 The CFPB helps
consumers take control over their
economic lives through its supervision
program by making consumer financial
markets more transparent and
competitive. To accomplish this, the
CFPB examines institutions to assess
compliance with Federal consumer
financial law, obtain information about
compliance management systems
(CMS), and detect and assess risks to
consumers and markets for consumer
financial products and services.2 The
CFPB’s supervision program is focused
on preventing violations of law and
consumer harm before they occur.
The findings included in this report
cover examinations completed between
January 2021 and June 2021 in the areas
of credit card account management, debt
collection, deposits, fair lending,
mortgage servicing, payday lending,
prepaid accounts, and remittance
transfers. To maintain the anonymity of
the supervised institutions discussed in
Supervisory Highlights, references to
institutions generally are in the plural
and the related findings may pertain to
one or more institutions. This edition of
Supervisory Highlights also summarizes
recent developments in the Bureau’s
supervision program and remedial
actions.
The CFPB publishes Supervisory
Highlights to help institutions and the
1 12
2 12
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U.S.C. 5514(b) and 5515(b).
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general public better understand how
we examine institutions for compliance
with Federal consumer financial laws.
Supervisory Highlights summarizes
existing legal requirements and
violations identified in the course of the
Bureau’s exercise of supervisory and
enforcement authority.3
We invite readers with questions or
comments about Supervisory Highlights
to contact us at CFPB_Supervision@
cfpb.gov.
2. Supervisory Observations
2.1 Credit Card Account Management
The Bureau assessed the credit card
account management operations of
supervised institutions for compliance
with applicable Federal consumer
financial laws. Examinations of these
institutions identified violations of
Regulation Z and deceptive acts or
practices prohibited by the Consumer
Financial Protection Act (CFPA).
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2.1.1 Billing Error Resolution Violations
Regulation Z contains billing error
resolution provisions with which a
creditor must comply following receipt
of a billing error notice from a
consumer. Examiners found that
creditors violated the following
provisions of Regulation Z:
• 12 CFR 1026.13(c)(2) by failing to
resolve a dispute within two complete
billing cycles after receiving a billing
error notice regarding the failure to
credit a payment that the consumer
made;
• 12 CFR 1026.13(e)(1) by failing to
reimburse a consumer for a late fee after
the creditor determined a missing
payment had not been credited to the
consumer’s account, as the consumer
had asserted; and
• 12 CFR 1026.13(f) by failing to
conduct reasonable investigations after
receiving billing error notices related to
a missing payment and unauthorized
transactions.
In response to these findings, the
creditors are implementing plans to
identify and remediate affected
consumers. They are also developing
and providing training to employees on
Regulation Z’s billing error resolution
requirements and relevant policies and
procedures.
2.1.2 Deceptive marketing of credit
card bonus offers
Sections 1031 and 1036 of the CFPA
prohibit deceptive acts or practices.4 An
3 If
a supervisory matter is referred to the Office
of Enforcement, Enforcement may cite additional
violations based on these facts or uncover
additional information that could impact the
conclusion as to what violations may exist.
4 12 U.S.C. 5531 and 5536(a)(1)(B).
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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.
Examiners found that credit card
issuers engaged in deceptive acts or
practices by advertising to certain
existing customers that they would
receive bonus offers if they opened a
new credit card account and met certain
spending requirements. A consumer
could reasonably conclude that an
issuer would perform according to the
plain terms of its advertisement. The
bonus offers were material because they
were central characteristics of the credit
card advertisements. In fact, the issuers
misled consumers because they failed to
provide the advertised bonuses to
customers who satisfied these
requirements. And the issuers failed to
ensure that their employees followed
procedures for making correct system
entries when enrolling existing
consumers.
Examiners also found that the credit
card issuers engaged in deceptive acts or
practices by advertising to other
consumers that they would receive
certain bonuses if they opened new
credit card accounts in response to the
advertisements and met certain
spending requirements. The issuers,
however, failed to disclose or
adequately disclose that consumers
must apply online for the new credit
card to receive the bonus. In fact, if the
consumers otherwise satisfied the
requirements but applied through a
different channel, the credit card issuers
failed to provide the bonus, as
promised. The advertising’s overall net
impression misled or was likely to
mislead consumers who could
reasonably conclude that they needed
only to satisfy the specified spending
requirements, as the application
channel was not disclosed or was
inadequately disclosed. The
representation regarding the bonus offer
terms was material because it related to
a core feature of the product. Thus, the
credit card issuers’ failure to adequately
disclose the online limitation in light of
the representation constituted a
deceptive act or practice.
In response to these findings, the
issuers are modifying applicable
advertisements and undertaking
remedial and corrective actions.
2.2 Debt Collection
The Bureau has supervisory authority
to examine certain institutions that
engage in consumer debt collection
activities, including nonbanks that are
larger participants in the consumer debt
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collection market and nonbanks that are
service providers to certain covered
persons.5 Recent examinations of larger
participant debt collectors identified
risks of violations of the Fair Debt
Collection Practices Act (FDCPA).
2.2.1 Risk of a False Representation or
Deceptive Means To Collect or Attempt
To Collect a Debt
Section 807(10) of the FDCPA
prohibits the use of any false
representation or deceptive means to
collect or attempt to collect any debt.6
Examiners found that debt collectors
discussed restarting a payment plan
with consumers and represented that
improvements to the consumers’
creditworthiness would occur upon
final payment under the plan and
deletion of the tradeline. However,
numerous factors influence an
individual consumer’s creditworthiness,
including potential tradelines
previously furnished by prior owners of
the same debt. As a result, such
payment may not improve the credit
score of the consumers to whom the
representation is made. Examiners
found that such representations could
lead the least sophisticated consumer to
conclude that deleting derogatory
information would result in improved
creditworthiness, thereby creating the
risk of a false representation or
deceptive means to collect or attempt to
collect a debt in violation of section
807(10). In response to these findings,
the collectors revised their FDCPA
policies and procedures. They also
enhanced training and monitoring
systems to prevent, identify, and
address risks to consumers that may
arise from deceptive statements by
collection agents and third-party service
providers about the effects of payment
or non-payment on consumer credit,
credit reporting, or credit scoring.
2.3 Deposits
The CFPB examines institutions for
compliance with Regulation E,7 which
implements the Electronic Fund
Transfer Act (EFTA).8 The CFPB also
examines for compliance with other
relevant statutes and regulations,
including Regulation DD,9 which
implements the Truth in Savings Act,10
and the CFPA’s prohibition on unfair,
deceptive, and abusive acts or practices
(UDAAPs).11 Examiners found that
institutions violated Regulation E.
5 12
U.S.C. 5514(e).
U.S.C. 1692e(10).
7 12 CFR 1005 et seq.
8 15 U.S.C. 1693 et seq.
9 12 CFR 1030 et seq.
10 12 U.S.C. 4301 et seq.
11 12 U.S.C. 5531, 5536.
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2.3.1 Regulation E Error Resolution for
Misdirected Payments
Supervision conducted examinations
of institutions in connection with the
provision of person-to-person digital
payment network services. Regulation E
defines the term ‘‘error’’ to include,
among other things, ‘‘[a]n incorrect
electronic fund transfer to or from the
consumer’s account.’’ 12 Regulation E
requires institutions to investigate
promptly and determine whether an
error occurred.13 Examiners found that,
in certain cases, due to inaccurate or
outdated information in the digital
payment network directory, consumers’
electronic fund transfers (EFTs) were
misdirected to unintended recipients,
even though the consumer provided the
correct identifying token information for
the recipient, i.e., the recipient’s current
and accurate phone number or email
address. These misdirected transfers are
referred to as ‘‘token errors.’’ Token
errors are incorrect EFTs because the
funds are not transferred to the correct
account.14 Examiners found that
institutions violated Regulation E by
failing to determine that token errors
constituted ‘‘incorrect’’ EFTs under
Regulation E.
Additionally, institutions violated
Regulation E by failing to conduct
reasonable error investigations when the
institutions received error notices from
consumers that alleged that the
consumers had sent funds via a personto-person payment network, but that the
intended recipients had not received the
funds.15 The institutions reviewed only
whether they processed the transactions
in accordance with the sender’s
payment instructions and not whether
the transfer went to an unintended
recipient due to a token error. The
institutions did not consider relevant
information in their own records, or
information that they reasonably could
obtain during their investigation, to
consider whether the consumer’s error
notice constituted an error under
Regulation E.
These violations caused monetary
harm to consumers. As a result of these
findings, the institutions are revising
their policies and procedures, are
conducting lookbacks, and will provide
remediation to injured consumers.
2.4 Fair Lending
The Bureau’s fair lending supervision
program assesses compliance with the
Equal Credit Opportunity Act (ECOA) 16
12 12
CFR 1005.11(a)(1)(iii).
CFR 1005.11(c).
14 12 CFR 1005.11(a)(1)(ii).
15 12 CFR 1005.11(c)(1).
16 15 U.S.C. 1691–1691f.
13 12
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and its implementing regulation,
Regulation B,17 as well as the Home
Mortgage Disclosure Act (HMDA) 18 and
its implementing regulation, Regulation
C,19 at institutions subject to the
Bureau’s supervisory authority.
Examiners found lenders violated ECOA
and Regulation B.
2.4.1 Pricing Discrimination
ECOA prohibits a creditor from
discriminating against any applicant,
with respect to any aspect of a credit
transaction, on the basis of race or sex.20
Examiners observed that mortgage
lenders violated ECOA and Regulation B
by discriminating against African
American and female borrowers in the
granting of pricing exceptions based
upon competitive offers from other
institutions. The failure of the lenders’
mortgage loan officers to follow the
lenders’ policies and procedures with
respect to pricing exceptions for
competitive offers, the lenders’ lack of
oversight and control over their
mortgage loan officers’ use of such
exceptions, and managements’ failure to
take appropriate corrective action
surrounding self-identified risks all
contributed to the observed pricing
disparities.
The examination team observed that
lenders maintained policies and
procedures that permitted mortgage loan
officers to provide pricing exceptions
for consumers, including pricing
exceptions for competitive offers, but
did not specifically address the
circumstances when a loan officer could
provide pricing exceptions in response
to competitive offers. Rather, the lenders
relied on managers to promulgate a
verbal policy that a consumer must
initiate or request a competitor price
match exception.
The examination team identified
lenders with statistically significant
disparities for the incidence of pricing
exceptions for African American and
female applications compared to
similarly situated non-Hispanic white
and male borrowers. Examiners did not
identify evidence that explained the
disparities observed in the statistical
analysis. Instead, examiners identified
instances where lenders provided
17 12
CFR pt. 1002.
U.S.C. 2801–2810.
19 12 CFR pt. 1003.
20 15 U.S.C. 1691(a)(1). ECOA also prohibits a
creditor from discriminating against any applicant,
with respect to any aspect of a credit transaction,
on the basis of color, religion, national origin,
marital status, or age (provided the applicant has
the capacity to contract), because all or part of the
applicant’s income derives from any public
assistance program, or because the applicant has in
good faith exercised any right under the Consumer
Credit Protection Act, 15 U.S.C. 1691(a).
18 12
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pricing exceptions for a competitive
offer to non-Hispanic white and male
borrowers with no evidence of customer
initiation. Furthermore, examiners
noted that lenders failed to retain
documentation to support pricing
exceptions. Also, lenders’ fair lending
monitoring reports and business line
personnel raised fair lending concerns
regarding the lack of documentation to
support pricing exception decisions.
Despite such concerns, lenders did not
improve the processes or document
customer requests to match competitor
pricing during the review period. In
response to these findings, lenders plan
to undertake remedial and corrective
actions regarding these violations,
which are under review by the Bureau.
2.4.2
Religious Discrimination
ECOA prohibits discrimination on the
basis of religion 21 and its implementing
Regulation B states: ‘‘A creditor shall
not inquire about the race, color,
religion, national origin, or sex of an
applicant or any person in connection
with a credit transaction.’’ 22 Regulation
B also states that ‘‘a creditor shall not
take a prohibited basis [including
religion] into account in any system of
evaluating creditworthiness of
applicants.’’ 23
Examiners found that lenders violated
ECOA and Regulation B by improperly
inquiring about small business
applicants’ religion and by considering
an applicant’s religion in the credit
decision. For religious institutions
applying for small business loans,
lenders utilized a questionnaire which
contained explicit inquiries about the
applicant’s religion. Examiners
determined that lenders also denied
credit to an applicant identified as a
religious institution because the
applicant did not respond to the
questionnaire.
In response to these findings, lenders
updated the questionnaire to ensure
compliance with ECOA and Regulation
B. In addition, lenders also identified
affected applicants and provided an
offer for each identified applicant to
reapply for a small business loan.
21 15 U.S.C. 1691(a)(1). ECOA also prohibits a
creditor from discriminating against any applicant,
with respect to any aspect of a credit transaction,
on the basis of race, color, sex, national origin,
marital status, or age (provided the applicant has
the capacity to contract), because all or part of the
applicant’s income derives from any public
assistance program, or because the applicant has in
good faith exercised any right under the Consumer
Credit Protection Act, 15 U.S.C. 1601, et seq. 15
U.S.C. 1691(a).
22 12 CFR pt. 1002.5(b).
23 12 CFR pt. 1002.6(b)(1).
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2.5 Mortgage Servicing
The Bureau is prioritizing mortgage
servicing supervision work in light of
the increase in borrowers needing loss
mitigation assistance this year.24 Recent
mortgage servicing examinations have
identified various Regulation Z and
Regulation X violations, as well as
unfair and deceptive acts or practices
prohibited by the CFPA. Under sections
1031 and 1036 of the CFPA, an act or
practice is unfair when: (1) It causes or
is likely to cause substantial injury; (2)
the injury is not reasonably avoidable by
consumers; and (3) the substantial
injury is not outweighed by
countervailing benefits to consumers or
to competition.
Examiners found that mortgage
servicers engaged in the following
unfair acts or practices:
• Charging delinquency-related fees
to borrowers in Coronavirus Aid, Relief,
and Economic Security (CARES) Act
forbearances;
• failing to terminate EFTs after
receiving notice that the consumer’s
bank account had been closed and an
insufficient fund (NSF) fee had been
assessed; and
• assessing fees for services that
exceeded the actual cost of the services
performed.
Additionally, examiners found that
mortgage servicers engaged in deceptive
acts or practices by incorrectly
disclosing transaction and payment
information in borrowers’ online
mortgage loan accounts.
Examiners also found violations of
Regulation X requirements to evaluate
borrowers’ complete loss mitigation
applications within 30 days of receipt,
Regulation Z requirements relating to
overpayments to borrowers’ escrow
accounts, and Homeowners Protection
Act (HPA) requirements to
automatically terminate private
mortgage insurance (PMI) pursuant to
the applicable deadline.
2.5.1 Charging Delinquency-Related
Fees to Borrowers in CARES Act
Forbearances
Examiners found that mortgage
servicers engaged in unfair acts or
practices by charging late fees and
default-related fees to borrowers in
CARES Act forbearances. Section
4022(b)(3) of the CARES Act prohibits a
mortgage servicer from imposing ‘‘fees,
penalties, or interest beyond the
amounts scheduled or calculated as if
the borrower made all contractual
payments on time and in full under the
24 See CFPB Bulletin 2021–02, ‘‘Supervision and
Enforcement Priorities Regarding Housing
Insecurity’’ (Mar. 31, 2021).
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terms of the mortgage contract’’ in
connection with a CARES Act
forbearance.25 Examiners found that,
due to human and system errors,
mortgage servicers charged late fees and
default-related fees to borrowers in
violation of this provision of the CARES
Act. Borrowers experienced substantial
injury in the form of illegal fees, which
were significant, especially for
consumers experiencing economic
hardship from the COVID–19 pandemic.
The mortgage servicers failed to refund
some of the fees until almost a year
later. Borrowers likely suffered further
harm if they could not pay other
expenses because of the fees. The injury
was also widespread and impacted a
large number of borrowers. Borrowers
could not reasonably avoid the injury
because they could not anticipate that
the mortgage servicers would assess
unlawful fees and borrowers had no
reasonable means to avoid imposition of
the fees. Charging the illegal fees did not
provide any countervailing benefit to
consumers or competition. In response
to these findings, the mortgage servicers
remediated impacted borrowers and
corrected credit reporting to accurately
reflect the current balance and amount
past due. The mortgage servicers also
corrected the underlying system errors.
2.5.2 Failing To Terminate
Preauthorized EFTs
Examiners found that mortgage
servicers engaged in unfair acts or
practices by failing to terminate
preauthorized EFTs resulting in
repeated NSF fees for failed
preauthorized EFTs where the
consumer’s account was closed.
Examiners found that mortgage
servicers, despite receiving notice of
account closures, continued to initiate
EFTs from the closed accounts each
month after the initial NSF until the
consumer affirmatively canceled the
preauthorized EFT arrangement.
Borrowers experienced substantial
injury because the mortgage servicers’
practices resulted in repeated NSF fees.
Borrowers could not reasonably avoid
the injury because they could not
anticipate that the mortgage servicers
would continue to attempt the EFTs,
particularly where, in some cases, the
EFT agreement disclosed that the EFTs
would terminate when the relevant
account closes. The continued attempts
to withdraw payment from closed
accounts and fees associated with the
subsequent NSF transactions did not
provide any countervailing benefit to
consumers or competition. In response
to these findings, the mortgage servicers
25 15
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remediated impacted borrowers and are
changing their practices so that they
cancel preauthorized EFTs upon
receiving notice of a failed draw attempt
tied to a closed account.
2.5.3 Charging Consumers
Unauthorized Amounts
Examiners found that mortgage
servicers engaged in unfair acts or
practices by overcharging consumers for
services rendered by a service provider.
Examiners found that the mortgage
servicers overcharged borrowers
between $3 and $15 more than the
actual cost of home inspection and
Broker Price Opinion fees. The mortgage
servicers caused substantial injury to
consumers by collecting or attempting
to collect fees in excess of the expenses
actually incurred. In some instances,
borrowers paid money they were not
obligated to pay under the loan notes.
Consumers could not reasonably avoid
the injury because the fees were not
disclosed to consumers. The injury
resulting from the overcharges was not
outweighed by countervailing benefits
to consumers or competition. Examiners
found that the lack of Board and
management oversight, training, and
monitoring and audit helped enable this
unfair practice. In response to these
findings, the mortgage servicers are
providing remediation to affected
borrowers and have changed their
practices.
2.5.4 Misrepresenting Mortgage Loan
Transaction and Payment History in
Online Accounts
Examiners found that mortgage
servicers engaged in deceptive acts or
practices by providing inaccurate
descriptions of payment and transaction
information in borrowers’ online
mortgage loan accounts. The inaccurate
description and information were likely
to mislead borrowers because the
information was false. It was reasonable
for borrowers to rely on their mortgage
servicers to report accurate mortgage
payments and account transaction
histories. The inaccurate descriptions
and information were material because
they were likely to affect borrowers’
conduct regarding their mortgage
payments. In response to these findings,
the mortgage servicers are implementing
corrective actions to ensure the accuracy
of account information. The mortgage
servicers will also communicate website
changes to borrowers and provide
access to customer service
representatives. Finally, the mortgage
servicers are providing remediation to
affected borrowers.
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2.5.5 Failing To Evaluate Complete
Loss Mitigation Applications Within 30
Days
Regulation X generally requires
servicers to provide consumers with a
written notice within 30 days of
receiving the complete loss mitigation
application that states the servicers’
determination of which loss mitigation
options, if any, they will offer the
consumer.26 Examiners found that
mortgage servicers violated Regulation
X because the servicers did not evaluate
the borrowers’ complete loss mitigation
applications and provide a written
notice stating the servicers’
determination of available loss
mitigation options within 30 days of
receiving the complete loss mitigation
applications. The mortgage servicers
indicated that the delays were partly
attributable to increased borrower
assistance requests, lack of availability
of key vendors, and a slowdown in
economic activity due to shelter-inplace requirements. Examiners found
that the mortgage servicers had not
engaged in good faith efforts to comply
with the 30-day timeline. In response to
these findings, the mortgage servicers
implemented additional controls and
increased staffing to help ensure timely
evaluation of complete loss mitigation
applications.
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2.5.6 Incorrect Handling of Partial
Payments
Regulation Z contains certain
requirements for treatment of partial
payments. Servicers can take any of the
following actions when receiving a
partial payment: (i) Credit the partial
payment upon receipt, (ii) return the
partial payment to the consumer, or (iii)
hold the payment in a suspense or
unapplied funds account.27 Regulation
Z requires servicers that retain partial
payments in a suspense or unapplied
funds account to: (i) Disclose to the
consumer the total amount of funds
being held on periodic statements (if
periodic statements are required) and
(ii) on accumulation of sufficient funds
to cover a periodic payment treat such
funds as a periodic payment received.28
Examiners found that mortgage
servicers violated Regulation Z by
applying payments in excess of the
amount due to the borrowers’ escrow
accounts, rather than handling them in
accordance with the requirements in 12
26 12 CFR 1024.41(c)(1). This notice is only
required if the servicer receives a loss mitigation
application more than 37 days before a foreclosure
sale.
27 12 CFR 1026.36(c)(1)(ii), supp. I, comment
36(c)(1)(ii)–1.
28 12 CFR 1026.36(c)(1)(ii).
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CFR 1026.36(c)(1)(ii). In situations
where the excess payments were less
than $100, the mortgage servicers
attempted to refund the excess payment
by applying them to the borrowers’
escrow accounts. However, these
amounts remained in the escrow
accounts and the mortgage servicers
failed to either return them to the
borrowers or alternatively credit the
payment to the borrowers’ next
regularly scheduled monthly payment.
In response to these findings, the
mortgage servicers have changed their
practices to apply excess payments as
specified in the underlying loan note in
compliance with Regulation Z.
2.5.7 Failing to Automatically
Terminate PMI Timely
The HPA requires that servicers
automatically terminate PMI when the
principal balance of the mortgage loan
is first scheduled to reach 78 percent of
the original value of the property based
on the applicable amortization
schedule, as long as the borrower is
current.29 Examiners found that
mortgage servicers violated the HPA
when they failed to terminate PMI on
the date the principal balance of the
mortgage was first scheduled to reach 78
percent loan-to-value on a mortgage
loan that was current. The root cause of
the issue was human error, which
resulted in inaccurate data in the
mortgage servicers’ PMI termination
report. In response to these findings, the
mortgage servicers have corrected their
PMI termination reports and
implemented a quality control process
to help ensure timely PMI terminations
in the future.
2.6. Payday Lending
The Bureau’s Supervision program
covers institutions that offer or provide
payday loans. Examinations of these
lenders identified unfair and deceptive
acts or practices and violations of
Regulation E under EFTA.
2.6.1 Erroneous Debiting and
Misrepresentations Surrounding Failure
To Honor Loan Extensions
Examiners found that lenders engaged
in unfair acts or practices when they
debited or attempted to debit from
consumer’s accounts the remaining
balance of their loans on the original
due date after the consumers (1) applied
for a loan extension, and (2) received a
confirmation email stating that only an
extension fee would be charged on the
due date. The practice caused or was
likely to cause substantial injury in the
form of unexpected debits of the full
29 12
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loan balance, as well as possible bank
fees. The injury was not reasonably
avoidable because consumers were not
informed in advance that remitting a
payment or otherwise having their
account balance altered would result in
cancellation of a loan extension, and
received communications indicating
that the loan extension had been granted
and that only an extension fee would be
charged on the original due date. The
substantial injury was not outweighed
by countervailing benefits to consumers
or to competition.
Based on similar facts, examiners
found that lenders engaged in deceptive
acts or practices when they
misrepresented in loan extension
confirmation emails to consumers that
consumers would pay only extension
fees on the original due dates of their
loans. The misrepresentations were
likely to mislead a reasonable consumer
into believing that the extensions were
consummated and only the extension
fees would be debited on the due date.
The misrepresentations were material
because the possibility of debiting the
full loan amount was likely to affect a
consumer’s payment decisions. In
response to these findings, lenders plan
to undertake remedial and corrective
actions regarding these violations,
which are under review by the Bureau.
2.6.2 Unauthorized, Duplicate Debits
and Failure To Retain Records
Examiners found that lenders engaged
in unfair acts or practices when they
debited or attempted one or more
additional, identical, unauthorized
debits from consumers’ bank accounts
after consumers called to authorize a
loan payment by debit card and lenders’
systems erroneously indicated the
transactions did not process. In other
instances, lenders debited or attempted
one or more duplicate, unauthorized
debits on consumer accounts due to a
coding error. Both types of acts or
practices caused or were likely to cause
substantial injury because they deprived
consumers of access to their funds and
created significant risks that consumers
would be charged bank fees. Consumers
could not reasonably avoid the resulting
substantial injury because they had no
reason to anticipate debits or attempted
debits they had not authorized and
could not prevent them from occurring.
The substantial injury was not
outweighed by countervailing benefits
to consumers or to competition. The
lenders’ cost to fix the problem would
not outweigh the injury to consumers.
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Based on the same facts, lenders
violated Regulation E,30 when they
failed to retain, for a period of not less
than two years, evidence of compliance
with the requirements imposed by
EFTA.31 In response to these findings,
lenders plan to undertake remedial and
corrective actions regarding these
violations, which are under review by
the Bureau.
2.7 Prepaid Accounts
The Bureau now examines financial
institutions who issue prepaid accounts
and their service providers, such as
program managers, for compliance with
Regulation E,32 which implements
EFTA,33 in connection with prepaid
accounts. The Bureau also examines for
compliance with other relevant statutes
and regulations, including Regulation
Z,34 which implements the Truth in
Lending Act,35 and the CFPA’s
prohibition on UDAAPs 36 related to
prepaid accounts. Examiners identified
violations of Regulation E and EFTA.
2.7.1 Prepaid Account Stop Payment
and Waiver Violations
Examiners found violations related to
stop-payment waivers at financial
institutions. EFTA and Regulation E
provide that a consumer ‘‘may stop
payment of a preauthorized electronic
fund transfer from the consumer’s
account by notifying the financial
institution orally or in writing at least
three business days before the
scheduled date of the transfer.’’ 37 Under
EFTA, the right to stop such payments
cannot be waived in writing or through
any other agreement.38 Examiners found
that financial institutions included
language in their Terms of Use
agreements that waived a consumer’s
rights under both EFTA and Regulation
E. The Terms of Use required consumers
to first notify the merchants in order to
exercise, through the financial
institutions, the consumers’ right to stop
a pre-authorized payment. This is
inconsistent with the consumers’ rights
set forth under both EFTA and
Regulation E and a violation of EFTA.39
Relatedly, examiners found that
financial institutions enforced the
provisions of the Terms of Use and
failed to honor stop-payment requests
that they received either orally or in
writing at least three business days
before the scheduled date of the
transfer, as required by Regulation E.40
Their service providers improperly
required consumers to first contact the
merchant before they would process any
stop-payment requests. And, in certain
cases, their service providers also
subsequently failed to process stoppayment requests due to system
limitations, even after a consumer had
contacted the merchant. Therefore,
examiners concluded that the financial
institutions had violated Regulation E.41
In response to these findings, the
financial institutions are developing and
implementing comprehensive CMS for
their service providers and ceasing and
desisting from violating EFTA and
Regulation E.
2.7.2 Prepaid Account Notice of Error
Investigation Violations
As noted in the Summer 2020 edition
of Supervisory Highlights,42 both EFTA
section 908(a) and Regulation E require
a financial institution investigating an
alleged EFT error, when it determines
that no error or a different error
occurred, to communicate certain
information to consumers. This
information includes the investigation
determination and an explanation of the
determination.43 To give purpose to
both obligations, the meaning of an
‘‘explanation’’ is not synonymous with
that of a ‘‘determination.’’ Financial
institutions must go beyond just
providing their findings and actually
explain those findings. Examiners found
that financial institutions failed to
explain their determinations within the
report of results, in violation of
Regulation E.
In response to these findings,
financial institutions are developing and
implementing comprehensive CMS
programs capable of ensuring
compliance with all of EFTA and
Regulation E’s requirements.44
Similarly, and as discussed in the
deposits section of the Summer 2021
edition of Supervisory Highlights,45 if a
financial institution is unable to
complete its investigation within 10
40 12
CFR 1005.10(c).
CFR 1005.10(c).
42 Supervisory Highlights, Issue 22 (Summer
2020), available at: https://
www.consumerfinance.gov/f/documents/cfpb_
supervisory-highlights_issue-22_2020-09.pdf.
43 12 U.S.C. 1693f(a) and 1693f(d) and 12 CFR
1005.11(d)(1).
44 12 CFR 1005.11(d)(1).
45 Supervisory Highlights, Issue 24 (Summer
2021), available at: https://
www.consumerfinance.gov/data-research/researchreports/supervisory-highlights-issue-24-summer2021/.
41 12
30 12
CFR 1005.13(b)(1).
CFR 1005.10(b).
32 12 CFR pt. 1005.
33 15 U.S.C. 1693 et seq.
34 12 CFR pt. 1026.
35 15 U.S.C. 1601 et seq.
36 12 U.S.C. 5531, 5536.
37 12 CFR 1005.10(c)(1); see also 15 U.S.C.
1693e(a).
38 15 U.S.C. 1693l.
39 15 U.S.C. 1693l.
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business days of receiving a notice of
error, Regulation E provides that a
financial institution may take up to 45
days from receipt of the error notice to
investigate and determine if an error
occurred, as long as the financial
institution, among other things,
provisionally credits the consumer’s
account in the amount of the alleged
error (including interest where
applicable) within 10 business days of
receiving the error notice.46
If the alleged error involves an EFT
that was not initiated within a State,
resulted from a point-of-sale debit card
transaction, or occurred within 30 days
after the first deposit to the account was
made, the applicable time for
provisional credit is 20 business days
instead of 10 business days and the
financial institution may take up to 90
days, instead of 45 days, to investigate
and determine whether an error
occurred, provided the institution
otherwise complies with the
requirements of Regulation E.47
Examiners found that financial
institutions violated Regulation E by
failing to: (i) Promptly begin their
investigations upon receipt of an oral
error notice, (ii) complete investigations
of disputed point-of-sale debit
transactions within 90 days of the initial
error notice, after issuing provisional
credit where required, and (iii) report
the investigation results in the
determination letter sent to
consumers.48
In response to these findings, the
financial institutions are enhancing
their CMS to ensure compliance with
the requirements of EFTA and
Regulation E applicable to prepaid
accounts.49
2.8 Remittance Transfers
The Bureau continues to examine
institutions under its supervisory
authority for compliance with
Regulation E, Subpart B (Remittance
Rule).50 The Bureau also reviews for any
UDAAPs in connection with remittance
transfers. Examiners identified
violations of Regulation E.
2.8.1 Failure To Investigate Notice of
Errors
Section 1005.33(c)(1) of the
Remittance Rule states that ‘‘a
remittance transfer provider shall
investigate promptly and determine
whether an error occurred within 90
46 12
CFR 1005.11(c)(2).
CFR 1005.11(c)(3). See also 12 CFR
1005.2(l).
48 12 CFR 1005.11(c)(1)–(3).
49 12 CFR 1005.11(c)(1)–(3).
50 See 78 FR 30662 (May 22, 2013), as amended
(codified at 12 CFR 1005.30 through 1005.36).
47 12
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days of receiving a notice of error.’’ The
investigation required under 12 CFR
1005.33(c)(1) must also include an effort
to determine the amount of any required
monetary remediation. Among other
things, section 1005.33(c)(2)(ii)(B) of the
Remittance Rule requires that, in the
event of an error for failure to make
funds available by the disclosed date of
availability, a remittance transfer
provider must ‘‘[r]efund[] to the sender
any fees imposed and, to the extent not
prohibited by law, taxes collected on the
remittance transfer.’’ A remittance
transfer provider must refund any fees
charged in connection with the
remittance transfer unless the provider
investigates and determines that fees
were not ‘‘imposed . . . on the
remittance transfer.’’ 51 A deduction
imposed by a foreign recipient bank
may constitute a fee that must be
refunded to the sender subject to the
requirements of the Remittance Rule.
Comment 33(c)–10 of the Official
Interpretation of Regulation E, however,
provides that ‘‘[a] remittance transfer
provider may correct an error, without
investigation, in the amount or manner
alleged by the sender, or otherwise
determined, to be in error, but must
comply with all other applicable
requirements of § 1005.33.’’
Examiners found that providers
violated section 1005.33(c) of the
Remittance Rule. These providers
received notices of errors alleging that
remitted funds had not been made
available to the designated recipient by
the disclosed date of availability. The
providers then failed to investigate
whether a deduction imposed by a
foreign recipient bank constituted a fee
that the institutions were required to
refund to the sender, and subsequently
did not refund that fee to the sender.
These violations deprived consumers of
their rights under the Remittance Rule.
In response to these findings, the
providers are revising their policies and
procedures to comply with the feerefund provisions of the Remittance
Rule and are conducting lookbacks. The
providers also will remediate consumers
who did not receive fee refunds that
were due to them.
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3. Supervisory Program Developments
3.1.1 Joint Statement on Supervisory
and Enforcement Practices Regarding
the Mortgage Servicing Rules in
Response to the Continuing COVID–19
Pandemic and CARES Act
On November 10, 2021, the Board of
Governors of the Federal Reserve, the
CFPB, the Federal Deposit Insurance
51 12
CFR 1005.33(c)(2)(ii)(B).
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Corporation, the National Credit Union
Administration, the Office of the
Comptroller of the Currency, and the
State financial regulators (collectively,
agencies) issued a joint statement to
communicate to mortgage servicers the
agencies’ supervisory and enforcement
approach as risks associated with the
Coronavirus Disease (COVID–19)
pandemic continue to change.52
On April 3, 2020, the agencies issued
the ‘‘Joint Statement on Supervisory and
Enforcement Practices Regarding the
Mortgage Servicing Rules in Response to
the COVID–19 Emergency and the
CARES Act’’ (April 2020 Joint
Statement) to clarify the application of
the Regulation X mortgage servicing
rules and explain the agencies’
approach to supervision and
enforcement of the rules in response to
the COVID–19 pandemic. In the April
2020 Joint Statement, the agencies
announced that until further notice,
they would not take supervisory or
enforcement action against mortgage
servicers for failing to meet certain
timing requirements under the mortgage
servicing rules as long as the servicers
made good faith efforts to provide those
required notices or disclosures and took
the related actions within a reasonable
period of time.
While the COVID–19 pandemic
continues to affect consumers and
mortgage servicers, the agencies
determined that the temporary
flexibility described in the April 2020
Joint Statement is no longer necessary
because servicers have had sufficient
time to adjust their operations by,
among other things, taking steps to work
with consumers affected by the COVID–
19 pandemic and developing more
robust business continuity and remote
work capabilities. Accordingly, the
temporary supervisory and enforcement
flexibility announced in the April 2020
Joint Statement no longer applies and
the agencies will apply their respective
supervisory and enforcement
authorities, where appropriate, to
address any noncompliance or
violations of the Regulation X mortgage
servicing rules, as described in the
statement.53
52 The joint statement on Supervisory and
Enforcement Practices Regarding the Mortgage
Servicing Rules in Response to the Continuing
Covid–19 Pandemic and CARES Act is available at:
https://files.consumerfinance.gov/f/documents/
cfpb_mortgage-servicing-rules_joint-statement_
2021-11.pdf.
53 This includes the Protections for Borrowers
Affected by the COVID–19 Emergency Under the
Real Estate Settlement Procedures Act (RESPA),
Regulation X (86 FR 34848), which became effective
on August 31, 2021. Though the temporary
supervisory and enforcement flexibility announced
in the April 2020 Joint Statement no longer applies,
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3.1.2 CFPB Publishes CMS–IT
Procedures
On September 21, 2021, the Bureau
published examination procedures for
Compliance Management System—
Information Technology (CMS–IT).54
The CMS–IT procedures are designed to
assess supervised institutions’ use of IT
and associated IT controls that support
consumer financial products and
services. Deficiencies in IT and IT
systems can pose a risk to consumers
and may be the root cause of Federal
consumer financial law violations. The
procedures utilize the fundamental
elements of CMS to review the controls
implemented by institutions to manage
IT and IT systems that are supporting
consumer financial operations. The new
procedures are expected to help
examiners understand the controls for
institutions to manage risks and comply
with Federal consumer financial laws.
3.1.3 CFPB Issues Rules To Facilitate a
Smooth Transition as Federal
Foreclosure Protections Expire
On June 28, 2021, the CFPB finalized
amendments to the Federal mortgage
servicing regulations to reinforce the
ongoing economic recovery as the
Federal foreclosure moratoria are
phased out.55 The rules will help
protect mortgage borrowers from
unwelcome surprises as they exit
forbearance. The amendments will
support the housing market’s smooth
and orderly transition to post-pandemic
operation. The rules establish temporary
special safeguards to help ensure that
borrowers have time before foreclosure
to explore their options, including loan
modifications and selling their homes.
The rules cover loans on principal
residences, generally exclude small
servicers, and took effect on August 31,
2021.
4. Remedial Actions
4.1.1 CFPB Sues LendUp Loans for
Violating a 2016 Consent Order and
Deceiving Borrowers
On September 8, 2021, the CFPB filed
a lawsuit in Federal district court
accusing LendUp Loans, LLC (LendUp)
of violating a 2016 consent order and
deceiving tens of thousands of
guidance in the April 2020 Joint Statement
generally explaining the application of the CARES
Act and interaction with the Regulation X mortgage
servicing rules in effect at that time remain in place.
54 The CMS–IT procedures are available at:
https://files.consumerfinance.gov/f/documents/
cfpb_compliance-management-review-informationtechnology_examination-procedures.pdf.
55 The rule is available at: https://
files.consumerfinance.gov/f/documents/cfpb_covidmortgage-servicing_final-rule_2021-06.pdf.
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borrowers.56 In 2016, the Bureau had
ordered LendUp to pay $1.83 million in
consumer redress and a $1.8 million
civil penalty, and to stop misleading
consumers with false claims about the
cost of loans and the benefits of
repeated borrowing. In the complaint,
the CFPB alleges that, in violation of the
2016 order, LendUp has continued with
much of the same illegal and deceptive
marketing. The CFPB also alleges that
LendUp illegally failed to provide
timely and accurate notices to
consumers whose loan applications
were denied.
LendUp, headquartered in Oakland,
California, offers single-payment and
installment loans to consumers and
presents itself as an alternative to
payday lenders. A central component of
LendUp’s marketing and brand identity
is the ‘‘LendUp Ladder.’’ LendUp told
consumers that by repaying loans on
time and taking free courses offered
through its website, consumers would
move up the ‘‘LendUp Ladder’’ and, in
turn, receive lower interest rates on
future loans and access to larger loan
amounts.
According to the CFPB’s complaint,
LendUp was not telling consumers the
truth. The CFPB’s investigation found
that 140,000 repeat borrowers were
charged the same or higher interest rates
for loans after moving up to a higher
level on the LendUp Ladder. The
investigation also found that many
borrowers had their maximum loan size
reduced, even after reaching the highest
level on the ladder.
The CFPB alleges that LendUp
violated the CFPB’s 2016 consent order,
the CFPA, ECOA, and ECOA’s
implementing regulation, Regulation B.
Specifically, the CFPB alleges that
LendUp:
• Deceived consumers about the
benefits of repeat borrowing: LendUp
misrepresented the benefits of
repeatedly borrowing from the company
by advertising that borrowers who
climbed the LendUp Ladder would gain
access to larger loans at lower rates
when, in fact, that was not true for tens
of thousands of consumers.
• Violated the CFPB’s 2016 consent
order: The CFPB’s 2016 consent order
prohibits LendUp from misrepresenting
the benefits of borrowing from the
company. LendUp’s continued
misrepresentations about the LendUp
Ladder violate this order.
• Failed to provide timely and
accurate adverse action notices:
Adverse action notices inform
56 A copy of the complaint is available at:
https://files.consumerfinance.gov/f/documents/
cfpb_lendup-loans-llc_complaint_2021-09.pdf.
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consumers why they were denied credit,
and timely and accurate notices are vital
to maintaining a transparent
underwriting process and protect
consumers against credit
discrimination. LendUp failed to
provide adverse-action notices within
the 30 days required by ECOA for over
7,400 loan applicants. LendUp also
issued over 71,800 adverse-action
notices that failed to accurately describe
the main reasons why LendUp denied
the application as required by ECOA
and Regulation B.
The CFPB is seeking an injunction,
damages or restitution to consumers,
disgorgement of ill-gotten gains, and the
imposition of a civil money penalty.
LendUp is also subject to a 2021
stipulated final judgment that resolved
the CFPB’s claims that LendUp violated
the Military Lending Act in connection
with its extensions of credit.57
Rohit Chopra,
Director, Bureau of Consumer Financial
Protection.
[FR Doc. 2021–26949 Filed 12–13–21; 8:45 am]
BILLING CODE 4810–AM–P
DEPARTMENT OF ENERGY
Environmental Management SiteSpecific Advisory Board, Northern New
Mexico
Office of Environmental
Management, Department of Energy.
ACTION: Notice of open in-person/virtual
hybrid meeting.
AGENCY:
This notice announces an inperson/virtual hybrid meeting of the
Environmental Management SiteSpecific Advisory Board (EM SSAB),
Northern New Mexico. The Federal
Advisory Committee Act requires that
public notice of this meeting be
announced in the Federal Register.
DATES: Wednesday, January 19, 2022;
1:00 p.m.–5:00 p.m.
ADDRESSES: This hybrid meeting will be
open to the public virtually via WebEx
only. To attend virtually, please contact
the Northern New Mexico Citizens
Advisory Board (NNMCAB) Executive
Director (below) no later than 5:00 p.m.
MT on Friday, January 14, 2022.
Board members, Department of
Energy (DOE) representatives, agency
liaisons, and support staff will
participate in-person, strictly following
COVID–19 precautionary measures, at:
SUMMARY:
57 The stipulated final judgment can be found at:
https://www.consumerfinance.gov/about-us/
newsroom/consumer-financial-protection-bureausettles-with-lendup-loans-llc-for-military-lendingact-violations/.
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Ohkay Owingeh Conference Center, 68
New Mexico 291, Ohkay Owingeh, New
Mexico 87566.
FOR FURTHER INFORMATION CONTACT:
Menice B. Santistevan, NNMCAB
Executive Director, by Phone: (505)
699–0631 or Email:
menice.santistevan@em.doe.gov.
SUPPLEMENTARY INFORMATION: Purpose of
the Board: The purpose of the Board is
to make recommendations to DOE–EM
and site management in the areas of
environmental restoration, waste
management, and related activities.
Tentative Agenda:
1. Consideration of Two Draft EM SSAB
Chairs Recommendations
2. Presentation on Status of 2022
Consent Order Appendix B
Milestones and Targets
3. Various program updates
Public Participation: The in-person/
online virtual hybrid meeting is open to
the public virtually via WebEx only.
Written statements may be filed with
the Board no later than 5:00 p.m. MT on
Monday, January 17, 2022, or within
seven days after the meeting by sending
them to the NNMCAB Executive
Director at the aforementioned email
address. Written public comments
received prior to the meeting will be
read into the record. The Deputy
Designated Federal Officer is
empowered to conduct the meeting in a
fashion that will facilitate the orderly
conduct of business. Individuals
wishing to submit public comments
should follow as directed above.
Minutes: Minutes will be available by
emailing or calling Menice Santistevan,
NNMCAB Executive Director, at
menice.santistevan@em.doe.gov or at
(505) 699–0631.
Signed in Washington, DC, on December 8,
2021.
LaTanya Butler,
Deputy Committee Management Officer.
[FR Doc. 2021–26985 Filed 12–13–21; 8:45 am]
BILLING CODE 6450–01–P
DEPARTMENT OF ENERGY
Agency Information Collection
Extension
National Nuclear Security
Administration, U.S. Department of
Energy.
ACTION: Notice of request for comments.
AGENCY:
The Department of Energy
(DOE), pursuant to the Paperwork
Reduction Act of 1995, intends to
extend for three years, an information
collection request with the Office of
Management and Budget (OMB).
SUMMARY:
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]]>Agencies
[Federal Register Volume 86, Number 237 (Tuesday, December 14, 2021)]
[Notices]
[Pages 71047-71054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26949]
=======================================================================
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BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights, Issue 25, Fall 2021
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory highlights.
-----------------------------------------------------------------------
SUMMARY: The Bureau of Consumer Financial Protection (CFPB or Bureau)
is issuing its twenty fifth edition of Supervisory Highlights.
DATES: The Bureau released this edition of the Supervisory Highlights
on its website on December 8, 2021. The findings included in this
report cover examinations completed between January 2021 and June 2021
in the areas of credit card account management, debt collection,
deposits, fair lending, mortgage servicing, payday lending, prepaid
accounts, and remittance transfers.
FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Counsel, at (202) 435-
7449. If you require this document in an alternative electronic format,
please contact [email protected].
SUPPLEMENTARY INFORMATION:
1. Introduction
A key function of the CFPB is to supervise the institutions subject
to its supervisory authority.\1\ The CFPB helps consumers take control
over their economic lives through its supervision program by making
consumer financial markets more transparent and competitive. To
accomplish this, the CFPB examines institutions to assess compliance
with Federal consumer financial law, obtain information about
compliance management systems (CMS), and detect and assess risks to
consumers and markets for consumer financial products and services.\2\
The CFPB's supervision program is focused on preventing violations of
law and consumer harm before they occur.
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\1\ 12 U.S.C. 5511(c)(4).
\2\ 12 U.S.C. 5514(b) and 5515(b).
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The findings included in this report cover examinations completed
between January 2021 and June 2021 in the areas of credit card account
management, debt collection, deposits, fair lending, mortgage
servicing, payday lending, prepaid accounts, and remittance transfers.
To maintain the anonymity of the supervised institutions discussed in
Supervisory Highlights, references to institutions generally are in the
plural and the related findings may pertain to one or more
institutions. This edition of Supervisory Highlights also summarizes
recent developments in the Bureau's supervision program and remedial
actions.
The CFPB publishes Supervisory Highlights to help institutions and
the
[[Page 71048]]
general public better understand how we examine institutions for
compliance with Federal consumer financial laws. Supervisory Highlights
summarizes existing legal requirements and violations identified in the
course of the Bureau's exercise of supervisory and enforcement
authority.\3\
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\3\ If a supervisory matter is referred to the Office of
Enforcement, Enforcement may cite additional violations based on
these facts or uncover additional information that could impact the
conclusion as to what violations may exist.
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We invite readers with questions or comments about Supervisory
Highlights to contact us at [email protected].
2. Supervisory Observations
2.1 Credit Card Account Management
The Bureau assessed the credit card account management operations
of supervised institutions for compliance with applicable Federal
consumer financial laws. Examinations of these institutions identified
violations of Regulation Z and deceptive acts or practices prohibited
by the Consumer Financial Protection Act (CFPA).
2.1.1 Billing Error Resolution Violations
Regulation Z contains billing error resolution provisions with
which a creditor must comply following receipt of a billing error
notice from a consumer. Examiners found that creditors violated the
following provisions of Regulation Z:
12 CFR 1026.13(c)(2) by failing to resolve a dispute
within two complete billing cycles after receiving a billing error
notice regarding the failure to credit a payment that the consumer
made;
12 CFR 1026.13(e)(1) by failing to reimburse a consumer
for a late fee after the creditor determined a missing payment had not
been credited to the consumer's account, as the consumer had asserted;
and
12 CFR 1026.13(f) by failing to conduct reasonable
investigations after receiving billing error notices related to a
missing payment and unauthorized transactions.
In response to these findings, the creditors are implementing plans
to identify and remediate affected consumers. They are also developing
and providing training to employees on Regulation Z's billing error
resolution requirements and relevant policies and procedures.
2.1.2 Deceptive marketing of credit card bonus offers
Sections 1031 and 1036 of the CFPA prohibit deceptive acts or
practices.\4\ 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.
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\4\ 12 U.S.C. 5531 and 5536(a)(1)(B).
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Examiners found that credit card issuers engaged in deceptive acts
or practices by advertising to certain existing customers that they
would receive bonus offers if they opened a new credit card account and
met certain spending requirements. A consumer could reasonably conclude
that an issuer would perform according to the plain terms of its
advertisement. The bonus offers were material because they were central
characteristics of the credit card advertisements. In fact, the issuers
misled consumers because they failed to provide the advertised bonuses
to customers who satisfied these requirements. And the issuers failed
to ensure that their employees followed procedures for making correct
system entries when enrolling existing consumers.
Examiners also found that the credit card issuers engaged in
deceptive acts or practices by advertising to other consumers that they
would receive certain bonuses if they opened new credit card accounts
in response to the advertisements and met certain spending
requirements. The issuers, however, failed to disclose or adequately
disclose that consumers must apply online for the new credit card to
receive the bonus. In fact, if the consumers otherwise satisfied the
requirements but applied through a different channel, the credit card
issuers failed to provide the bonus, as promised. The advertising's
overall net impression misled or was likely to mislead consumers who
could reasonably conclude that they needed only to satisfy the
specified spending requirements, as the application channel was not
disclosed or was inadequately disclosed. The representation regarding
the bonus offer terms was material because it related to a core feature
of the product. Thus, the credit card issuers' failure to adequately
disclose the online limitation in light of the representation
constituted a deceptive act or practice.
In response to these findings, the issuers are modifying applicable
advertisements and undertaking remedial and corrective actions.
2.2 Debt Collection
The Bureau has supervisory authority to examine certain
institutions that engage in consumer debt collection activities,
including nonbanks that are larger participants in the consumer debt
collection market and nonbanks that are service providers to certain
covered persons.\5\ Recent examinations of larger participant debt
collectors identified risks of violations of the Fair Debt Collection
Practices Act (FDCPA).
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\5\ 12 U.S.C. 5514(e).
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2.2.1 Risk of a False Representation or Deceptive Means To Collect or
Attempt To Collect a Debt
Section 807(10) of the FDCPA prohibits the use of any false
representation or deceptive means to collect or attempt to collect any
debt.\6\ Examiners found that debt collectors discussed restarting a
payment plan with consumers and represented that improvements to the
consumers' creditworthiness would occur upon final payment under the
plan and deletion of the tradeline. However, numerous factors influence
an individual consumer's creditworthiness, including potential
tradelines previously furnished by prior owners of the same debt. As a
result, such payment may not improve the credit score of the consumers
to whom the representation is made. Examiners found that such
representations could lead the least sophisticated consumer to conclude
that deleting derogatory information would result in improved
creditworthiness, thereby creating the risk of a false representation
or deceptive means to collect or attempt to collect a debt in violation
of section 807(10). In response to these findings, the collectors
revised their FDCPA policies and procedures. They also enhanced
training and monitoring systems to prevent, identify, and address risks
to consumers that may arise from deceptive statements by collection
agents and third-party service providers about the effects of payment
or non-payment on consumer credit, credit reporting, or credit scoring.
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\6\ 15 U.S.C. 1692e(10).
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2.3 Deposits
The CFPB examines institutions for compliance with Regulation E,\7\
which implements the Electronic Fund Transfer Act (EFTA).\8\ The CFPB
also examines for compliance with other relevant statutes and
regulations, including Regulation DD,\9\ which implements the Truth in
Savings Act,\10\ and the CFPA's prohibition on unfair, deceptive, and
abusive acts or practices (UDAAPs).\11\ Examiners found that
institutions violated Regulation E.
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\7\ 12 CFR 1005 et seq.
\8\ 15 U.S.C. 1693 et seq.
\9\ 12 CFR 1030 et seq.
\10\ 12 U.S.C. 4301 et seq.
\11\ 12 U.S.C. 5531, 5536.
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[[Page 71049]]
2.3.1 Regulation E Error Resolution for Misdirected Payments
Supervision conducted examinations of institutions in connection
with the provision of person-to-person digital payment network
services. Regulation E defines the term ``error'' to include, among
other things, ``[a]n incorrect electronic fund transfer to or from the
consumer's account.'' \12\ Regulation E requires institutions to
investigate promptly and determine whether an error occurred.\13\
Examiners found that, in certain cases, due to inaccurate or outdated
information in the digital payment network directory, consumers'
electronic fund transfers (EFTs) were misdirected to unintended
recipients, even though the consumer provided the correct identifying
token information for the recipient, i.e., the recipient's current and
accurate phone number or email address. These misdirected transfers are
referred to as ``token errors.'' Token errors are incorrect EFTs
because the funds are not transferred to the correct account.\14\
Examiners found that institutions violated Regulation E by failing to
determine that token errors constituted ``incorrect'' EFTs under
Regulation E.
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\12\ 12 CFR 1005.11(a)(1)(iii).
\13\ 12 CFR 1005.11(c).
\14\ 12 CFR 1005.11(a)(1)(ii).
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Additionally, institutions violated Regulation E by failing to
conduct reasonable error investigations when the institutions received
error notices from consumers that alleged that the consumers had sent
funds via a person-to-person payment network, but that the intended
recipients had not received the funds.\15\ The institutions reviewed
only whether they processed the transactions in accordance with the
sender's payment instructions and not whether the transfer went to an
unintended recipient due to a token error. The institutions did not
consider relevant information in their own records, or information that
they reasonably could obtain during their investigation, to consider
whether the consumer's error notice constituted an error under
Regulation E.
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\15\ 12 CFR 1005.11(c)(1).
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These violations caused monetary harm to consumers. As a result of
these findings, the institutions are revising their policies and
procedures, are conducting lookbacks, and will provide remediation to
injured consumers.
2.4 Fair Lending
The Bureau's fair lending supervision program assesses compliance
with the Equal Credit Opportunity Act (ECOA) \16\ and its implementing
regulation, Regulation B,\17\ as well as the Home Mortgage Disclosure
Act (HMDA) \18\ and its implementing regulation, Regulation C,\19\ at
institutions subject to the Bureau's supervisory authority. Examiners
found lenders violated ECOA and Regulation B.
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\16\ 15 U.S.C. 1691-1691f.
\17\ 12 CFR pt. 1002.
\18\ 12 U.S.C. 2801-2810.
\19\ 12 CFR pt. 1003.
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2.4.1 Pricing Discrimination
ECOA prohibits a creditor from discriminating against any
applicant, with respect to any aspect of a credit transaction, on the
basis of race or sex.\20\
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\20\ 15 U.S.C. 1691(a)(1). ECOA also prohibits a creditor from
discriminating against any applicant, with respect to any aspect of
a credit transaction, on the basis of color, religion, national
origin, marital status, or age (provided the applicant has the
capacity to contract), because all or part of the applicant's income
derives from any public assistance program, or because the applicant
has in good faith exercised any right under the Consumer Credit
Protection Act, 15 U.S.C. 1691(a).
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Examiners observed that mortgage lenders violated ECOA and
Regulation B by discriminating against African American and female
borrowers in the granting of pricing exceptions based upon competitive
offers from other institutions. The failure of the lenders' mortgage
loan officers to follow the lenders' policies and procedures with
respect to pricing exceptions for competitive offers, the lenders' lack
of oversight and control over their mortgage loan officers' use of such
exceptions, and managements' failure to take appropriate corrective
action surrounding self-identified risks all contributed to the
observed pricing disparities.
The examination team observed that lenders maintained policies and
procedures that permitted mortgage loan officers to provide pricing
exceptions for consumers, including pricing exceptions for competitive
offers, but did not specifically address the circumstances when a loan
officer could provide pricing exceptions in response to competitive
offers. Rather, the lenders relied on managers to promulgate a verbal
policy that a consumer must initiate or request a competitor price
match exception.
The examination team identified lenders with statistically
significant disparities for the incidence of pricing exceptions for
African American and female applications compared to similarly situated
non-Hispanic white and male borrowers. Examiners did not identify
evidence that explained the disparities observed in the statistical
analysis. Instead, examiners identified instances where lenders
provided pricing exceptions for a competitive offer to non-Hispanic
white and male borrowers with no evidence of customer initiation.
Furthermore, examiners noted that lenders failed to retain
documentation to support pricing exceptions. Also, lenders' fair
lending monitoring reports and business line personnel raised fair
lending concerns regarding the lack of documentation to support pricing
exception decisions. Despite such concerns, lenders did not improve the
processes or document customer requests to match competitor pricing
during the review period. In response to these findings, lenders plan
to undertake remedial and corrective actions regarding these
violations, which are under review by the Bureau.
2.4.2 Religious Discrimination
ECOA prohibits discrimination on the basis of religion \21\ and its
implementing Regulation B states: ``A creditor shall not inquire about
the race, color, religion, national origin, or sex of an applicant or
any person in connection with a credit transaction.'' \22\ Regulation B
also states that ``a creditor shall not take a prohibited basis
[including religion] into account in any system of evaluating
creditworthiness of applicants.'' \23\
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\21\ 15 U.S.C. 1691(a)(1). ECOA also prohibits a creditor from
discriminating against any applicant, with respect to any aspect of
a credit transaction, on the basis of race, color, sex, national
origin, marital status, or age (provided the applicant has the
capacity to contract), because all or part of the applicant's income
derives from any public assistance program, or because the applicant
has in good faith exercised any right under the Consumer Credit
Protection Act, 15 U.S.C. 1601, et seq. 15 U.S.C. 1691(a).
\22\ 12 CFR pt. 1002.5(b).
\23\ 12 CFR pt. 1002.6(b)(1).
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Examiners found that lenders violated ECOA and Regulation B by
improperly inquiring about small business applicants' religion and by
considering an applicant's religion in the credit decision. For
religious institutions applying for small business loans, lenders
utilized a questionnaire which contained explicit inquiries about the
applicant's religion. Examiners determined that lenders also denied
credit to an applicant identified as a religious institution because
the applicant did not respond to the questionnaire.
In response to these findings, lenders updated the questionnaire to
ensure compliance with ECOA and Regulation B. In addition, lenders also
identified affected applicants and provided an offer for each
identified applicant to reapply for a small business loan.
[[Page 71050]]
2.5 Mortgage Servicing
The Bureau is prioritizing mortgage servicing supervision work in
light of the increase in borrowers needing loss mitigation assistance
this year.\24\ Recent mortgage servicing examinations have identified
various Regulation Z and Regulation X violations, as well as unfair and
deceptive acts or practices prohibited by the CFPA. Under sections 1031
and 1036 of the CFPA, an act or practice is unfair when: (1) It causes
or is likely to cause substantial injury; (2) the injury is not
reasonably avoidable by consumers; and (3) the substantial injury is
not outweighed by countervailing benefits to consumers or to
competition.
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\24\ See CFPB Bulletin 2021-02, ``Supervision and Enforcement
Priorities Regarding Housing Insecurity'' (Mar. 31, 2021).
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Examiners found that mortgage servicers engaged in the following
unfair acts or practices:
Charging delinquency-related fees to borrowers in
Coronavirus Aid, Relief, and Economic Security (CARES) Act
forbearances;
failing to terminate EFTs after receiving notice that the
consumer's bank account had been closed and an insufficient fund (NSF)
fee had been assessed; and
assessing fees for services that exceeded the actual cost
of the services performed.
Additionally, examiners found that mortgage servicers engaged in
deceptive acts or practices by incorrectly disclosing transaction and
payment information in borrowers' online mortgage loan accounts.
Examiners also found violations of Regulation X requirements to
evaluate borrowers' complete loss mitigation applications within 30
days of receipt, Regulation Z requirements relating to overpayments to
borrowers' escrow accounts, and Homeowners Protection Act (HPA)
requirements to automatically terminate private mortgage insurance
(PMI) pursuant to the applicable deadline.
2.5.1 Charging Delinquency-Related Fees to Borrowers in CARES Act
Forbearances
Examiners found that mortgage servicers engaged in unfair acts or
practices by charging late fees and default-related fees to borrowers
in CARES Act forbearances. Section 4022(b)(3) of the CARES Act
prohibits a mortgage servicer from imposing ``fees, penalties, or
interest beyond the amounts scheduled or calculated as if the borrower
made all contractual payments on time and in full under the terms of
the mortgage contract'' in connection with a CARES Act forbearance.\25\
Examiners found that, due to human and system errors, mortgage
servicers charged late fees and default-related fees to borrowers in
violation of this provision of the CARES Act. Borrowers experienced
substantial injury in the form of illegal fees, which were significant,
especially for consumers experiencing economic hardship from the COVID-
19 pandemic. The mortgage servicers failed to refund some of the fees
until almost a year later. Borrowers likely suffered further harm if
they could not pay other expenses because of the fees. The injury was
also widespread and impacted a large number of borrowers. Borrowers
could not reasonably avoid the injury because they could not anticipate
that the mortgage servicers would assess unlawful fees and borrowers
had no reasonable means to avoid imposition of the fees. Charging the
illegal fees did not provide any countervailing benefit to consumers or
competition. In response to these findings, the mortgage servicers
remediated impacted borrowers and corrected credit reporting to
accurately reflect the current balance and amount past due. The
mortgage servicers also corrected the underlying system errors.
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\25\ 15 U.S.C. 9056(b)(3).
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2.5.2 Failing To Terminate Preauthorized EFTs
Examiners found that mortgage servicers engaged in unfair acts or
practices by failing to terminate preauthorized EFTs resulting in
repeated NSF fees for failed preauthorized EFTs where the consumer's
account was closed. Examiners found that mortgage servicers, despite
receiving notice of account closures, continued to initiate EFTs from
the closed accounts each month after the initial NSF until the consumer
affirmatively canceled the preauthorized EFT arrangement. Borrowers
experienced substantial injury because the mortgage servicers'
practices resulted in repeated NSF fees. Borrowers could not reasonably
avoid the injury because they could not anticipate that the mortgage
servicers would continue to attempt the EFTs, particularly where, in
some cases, the EFT agreement disclosed that the EFTs would terminate
when the relevant account closes. The continued attempts to withdraw
payment from closed accounts and fees associated with the subsequent
NSF transactions did not provide any countervailing benefit to
consumers or competition. In response to these findings, the mortgage
servicers remediated impacted borrowers and are changing their
practices so that they cancel preauthorized EFTs upon receiving notice
of a failed draw attempt tied to a closed account.
2.5.3 Charging Consumers Unauthorized Amounts
Examiners found that mortgage servicers engaged in unfair acts or
practices by overcharging consumers for services rendered by a service
provider. Examiners found that the mortgage servicers overcharged
borrowers between $3 and $15 more than the actual cost of home
inspection and Broker Price Opinion fees. The mortgage servicers caused
substantial injury to consumers by collecting or attempting to collect
fees in excess of the expenses actually incurred. In some instances,
borrowers paid money they were not obligated to pay under the loan
notes. Consumers could not reasonably avoid the injury because the fees
were not disclosed to consumers. The injury resulting from the
overcharges was not outweighed by countervailing benefits to consumers
or competition. Examiners found that the lack of Board and management
oversight, training, and monitoring and audit helped enable this unfair
practice. In response to these findings, the mortgage servicers are
providing remediation to affected borrowers and have changed their
practices.
2.5.4 Misrepresenting Mortgage Loan Transaction and Payment History in
Online Accounts
Examiners found that mortgage servicers engaged in deceptive acts
or practices by providing inaccurate descriptions of payment and
transaction information in borrowers' online mortgage loan accounts.
The inaccurate description and information were likely to mislead
borrowers because the information was false. It was reasonable for
borrowers to rely on their mortgage servicers to report accurate
mortgage payments and account transaction histories. The inaccurate
descriptions and information were material because they were likely to
affect borrowers' conduct regarding their mortgage payments. In
response to these findings, the mortgage servicers are implementing
corrective actions to ensure the accuracy of account information. The
mortgage servicers will also communicate website changes to borrowers
and provide access to customer service representatives. Finally, the
mortgage servicers are providing remediation to affected borrowers.
[[Page 71051]]
2.5.5 Failing To Evaluate Complete Loss Mitigation Applications Within
30 Days
Regulation X generally requires servicers to provide consumers with
a written notice within 30 days of receiving the complete loss
mitigation application that states the servicers' determination of
which loss mitigation options, if any, they will offer the
consumer.\26\ Examiners found that mortgage servicers violated
Regulation X because the servicers did not evaluate the borrowers'
complete loss mitigation applications and provide a written notice
stating the servicers' determination of available loss mitigation
options within 30 days of receiving the complete loss mitigation
applications. The mortgage servicers indicated that the delays were
partly attributable to increased borrower assistance requests, lack of
availability of key vendors, and a slowdown in economic activity due to
shelter-in-place requirements. Examiners found that the mortgage
servicers had not engaged in good faith efforts to comply with the 30-
day timeline. In response to these findings, the mortgage servicers
implemented additional controls and increased staffing to help ensure
timely evaluation of complete loss mitigation applications.
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\26\ 12 CFR 1024.41(c)(1). This notice is only required if the
servicer receives a loss mitigation application more than 37 days
before a foreclosure sale.
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2.5.6 Incorrect Handling of Partial Payments
Regulation Z contains certain requirements for treatment of partial
payments. Servicers can take any of the following actions when
receiving a partial payment: (i) Credit the partial payment upon
receipt, (ii) return the partial payment to the consumer, or (iii) hold
the payment in a suspense or unapplied funds account.\27\ Regulation Z
requires servicers that retain partial payments in a suspense or
unapplied funds account to: (i) Disclose to the consumer the total
amount of funds being held on periodic statements (if periodic
statements are required) and (ii) on accumulation of sufficient funds
to cover a periodic payment treat such funds as a periodic payment
received.\28\
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\27\ 12 CFR 1026.36(c)(1)(ii), supp. I, comment 36(c)(1)(ii)-1.
\28\ 12 CFR 1026.36(c)(1)(ii).
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Examiners found that mortgage servicers violated Regulation Z by
applying payments in excess of the amount due to the borrowers' escrow
accounts, rather than handling them in accordance with the requirements
in 12 CFR 1026.36(c)(1)(ii). In situations where the excess payments
were less than $100, the mortgage servicers attempted to refund the
excess payment by applying them to the borrowers' escrow accounts.
However, these amounts remained in the escrow accounts and the mortgage
servicers failed to either return them to the borrowers or
alternatively credit the payment to the borrowers' next regularly
scheduled monthly payment. In response to these findings, the mortgage
servicers have changed their practices to apply excess payments as
specified in the underlying loan note in compliance with Regulation Z.
2.5.7 Failing to Automatically Terminate PMI Timely
The HPA requires that servicers automatically terminate PMI when
the principal balance of the mortgage loan is first scheduled to reach
78 percent of the original value of the property based on the
applicable amortization schedule, as long as the borrower is
current.\29\ Examiners found that mortgage servicers violated the HPA
when they failed to terminate PMI on the date the principal balance of
the mortgage was first scheduled to reach 78 percent loan-to-value on a
mortgage loan that was current. The root cause of the issue was human
error, which resulted in inaccurate data in the mortgage servicers' PMI
termination report. In response to these findings, the mortgage
servicers have corrected their PMI termination reports and implemented
a quality control process to help ensure timely PMI terminations in the
future.
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\29\ 12 U.S.C. 4902(b)(1).
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2.6. Payday Lending
The Bureau's Supervision program covers institutions that offer or
provide payday loans. Examinations of these lenders identified unfair
and deceptive acts or practices and violations of Regulation E under
EFTA.
2.6.1 Erroneous Debiting and Misrepresentations Surrounding Failure To
Honor Loan Extensions
Examiners found that lenders engaged in unfair acts or practices
when they debited or attempted to debit from consumer's accounts the
remaining balance of their loans on the original due date after the
consumers (1) applied for a loan extension, and (2) received a
confirmation email stating that only an extension fee would be charged
on the due date. The practice caused or was likely to cause substantial
injury in the form of unexpected debits of the full loan balance, as
well as possible bank fees. The injury was not reasonably avoidable
because consumers were not informed in advance that remitting a payment
or otherwise having their account balance altered would result in
cancellation of a loan extension, and received communications
indicating that the loan extension had been granted and that only an
extension fee would be charged on the original due date. The
substantial injury was not outweighed by countervailing benefits to
consumers or to competition.
Based on similar facts, examiners found that lenders engaged in
deceptive acts or practices when they misrepresented in loan extension
confirmation emails to consumers that consumers would pay only
extension fees on the original due dates of their loans. The
misrepresentations were likely to mislead a reasonable consumer into
believing that the extensions were consummated and only the extension
fees would be debited on the due date. The misrepresentations were
material because the possibility of debiting the full loan amount was
likely to affect a consumer's payment decisions. In response to these
findings, lenders plan to undertake remedial and corrective actions
regarding these violations, which are under review by the Bureau.
2.6.2 Unauthorized, Duplicate Debits and Failure To Retain Records
Examiners found that lenders engaged in unfair acts or practices
when they debited or attempted one or more additional, identical,
unauthorized debits from consumers' bank accounts after consumers
called to authorize a loan payment by debit card and lenders' systems
erroneously indicated the transactions did not process. In other
instances, lenders debited or attempted one or more duplicate,
unauthorized debits on consumer accounts due to a coding error. Both
types of acts or practices caused or were likely to cause substantial
injury because they deprived consumers of access to their funds and
created significant risks that consumers would be charged bank fees.
Consumers could not reasonably avoid the resulting substantial injury
because they had no reason to anticipate debits or attempted debits
they had not authorized and could not prevent them from occurring. The
substantial injury was not outweighed by countervailing benefits to
consumers or to competition. The lenders' cost to fix the problem would
not outweigh the injury to consumers.
[[Page 71052]]
Based on the same facts, lenders violated Regulation E,\30\ when
they failed to retain, for a period of not less than two years,
evidence of compliance with the requirements imposed by EFTA.\31\ In
response to these findings, lenders plan to undertake remedial and
corrective actions regarding these violations, which are under review
by the Bureau.
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\30\ 12 CFR 1005.13(b)(1).
\31\ 12 CFR 1005.10(b).
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2.7 Prepaid Accounts
The Bureau now examines financial institutions who issue prepaid
accounts and their service providers, such as program managers, for
compliance with Regulation E,\32\ which implements EFTA,\33\ in
connection with prepaid accounts. The Bureau also examines for
compliance with other relevant statutes and regulations, including
Regulation Z,\34\ which implements the Truth in Lending Act,\35\ and
the CFPA's prohibition on UDAAPs \36\ related to prepaid accounts.
Examiners identified violations of Regulation E and EFTA.
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\32\ 12 CFR pt. 1005.
\33\ 15 U.S.C. 1693 et seq.
\34\ 12 CFR pt. 1026.
\35\ 15 U.S.C. 1601 et seq.
\36\ 12 U.S.C. 5531, 5536.
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2.7.1 Prepaid Account Stop Payment and Waiver Violations
Examiners found violations related to stop-payment waivers at
financial institutions. EFTA and Regulation E provide that a consumer
``may stop payment of a preauthorized electronic fund transfer from the
consumer's account by notifying the financial institution orally or in
writing at least three business days before the scheduled date of the
transfer.'' \37\ Under EFTA, the right to stop such payments cannot be
waived in writing or through any other agreement.\38\ Examiners found
that financial institutions included language in their Terms of Use
agreements that waived a consumer's rights under both EFTA and
Regulation E. The Terms of Use required consumers to first notify the
merchants in order to exercise, through the financial institutions, the
consumers' right to stop a pre-authorized payment. This is inconsistent
with the consumers' rights set forth under both EFTA and Regulation E
and a violation of EFTA.\39\
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\37\ 12 CFR 1005.10(c)(1); see also 15 U.S.C. 1693e(a).
\38\ 15 U.S.C. 1693l.
\39\ 15 U.S.C. 1693l.
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Relatedly, examiners found that financial institutions enforced the
provisions of the Terms of Use and failed to honor stop-payment
requests that they received either orally or in writing at least three
business days before the scheduled date of the transfer, as required by
Regulation E.\40\ Their service providers improperly required consumers
to first contact the merchant before they would process any stop-
payment requests. And, in certain cases, their service providers also
subsequently failed to process stop-payment requests due to system
limitations, even after a consumer had contacted the merchant.
Therefore, examiners concluded that the financial institutions had
violated Regulation E.\41\
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\40\ 12 CFR 1005.10(c).
\41\ 12 CFR 1005.10(c).
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In response to these findings, the financial institutions are
developing and implementing comprehensive CMS for their service
providers and ceasing and desisting from violating EFTA and Regulation
E.
2.7.2 Prepaid Account Notice of Error Investigation Violations
As noted in the Summer 2020 edition of Supervisory Highlights,\42\
both EFTA section 908(a) and Regulation E require a financial
institution investigating an alleged EFT error, when it determines that
no error or a different error occurred, to communicate certain
information to consumers. This information includes the investigation
determination and an explanation of the determination.\43\ To give
purpose to both obligations, the meaning of an ``explanation'' is not
synonymous with that of a ``determination.'' Financial institutions
must go beyond just providing their findings and actually explain those
findings. Examiners found that financial institutions failed to explain
their determinations within the report of results, in violation of
Regulation E.
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\42\ Supervisory Highlights, Issue 22 (Summer 2020), available
at: https://www.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf.
\43\ 12 U.S.C. 1693f(a) and 1693f(d) and 12 CFR 1005.11(d)(1).
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In response to these findings, financial institutions are
developing and implementing comprehensive CMS programs capable of
ensuring compliance with all of EFTA and Regulation E's
requirements.\44\
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\44\ 12 CFR 1005.11(d)(1).
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Similarly, and as discussed in the deposits section of the Summer
2021 edition of Supervisory Highlights,\45\ if a financial institution
is unable to complete its investigation within 10 business days of
receiving a notice of error, Regulation E provides that a financial
institution may take up to 45 days from receipt of the error notice to
investigate and determine if an error occurred, as long as the
financial institution, among other things, provisionally credits the
consumer's account in the amount of the alleged error (including
interest where applicable) within 10 business days of receiving the
error notice.\46\
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\45\ Supervisory Highlights, Issue 24 (Summer 2021), available
at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-24-summer-2021/.
\46\ 12 CFR 1005.11(c)(2).
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If the alleged error involves an EFT that was not initiated within
a State, resulted from a point-of-sale debit card transaction, or
occurred within 30 days after the first deposit to the account was
made, the applicable time for provisional credit is 20 business days
instead of 10 business days and the financial institution may take up
to 90 days, instead of 45 days, to investigate and determine whether an
error occurred, provided the institution otherwise complies with the
requirements of Regulation E.\47\
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\47\ 12 CFR 1005.11(c)(3). See also 12 CFR 1005.2(l).
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Examiners found that financial institutions violated Regulation E
by failing to: (i) Promptly begin their investigations upon receipt of
an oral error notice, (ii) complete investigations of disputed point-
of-sale debit transactions within 90 days of the initial error notice,
after issuing provisional credit where required, and (iii) report the
investigation results in the determination letter sent to
consumers.\48\
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\48\ 12 CFR 1005.11(c)(1)-(3).
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In response to these findings, the financial institutions are
enhancing their CMS to ensure compliance with the requirements of EFTA
and Regulation E applicable to prepaid accounts.\49\
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\49\ 12 CFR 1005.11(c)(1)-(3).
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2.8 Remittance Transfers
The Bureau continues to examine institutions under its supervisory
authority for compliance with Regulation E, Subpart B (Remittance
Rule).\50\ The Bureau also reviews for any UDAAPs in connection with
remittance transfers. Examiners identified violations of Regulation E.
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\50\ See 78 FR 30662 (May 22, 2013), as amended (codified at 12
CFR 1005.30 through 1005.36).
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2.8.1 Failure To Investigate Notice of Errors
Section 1005.33(c)(1) of the Remittance Rule states that ``a
remittance transfer provider shall investigate promptly and determine
whether an error occurred within 90
[[Page 71053]]
days of receiving a notice of error.'' The investigation required under
12 CFR 1005.33(c)(1) must also include an effort to determine the
amount of any required monetary remediation. Among other things,
section 1005.33(c)(2)(ii)(B) of the Remittance Rule requires that, in
the event of an error for failure to make funds available by the
disclosed date of availability, a remittance transfer provider must
``[r]efund[] to the sender any fees imposed and, to the extent not
prohibited by law, taxes collected on the remittance transfer.'' A
remittance transfer provider must refund any fees charged in connection
with the remittance transfer unless the provider investigates and
determines that fees were not ``imposed . . . on the remittance
transfer.'' \51\ A deduction imposed by a foreign recipient bank may
constitute a fee that must be refunded to the sender subject to the
requirements of the Remittance Rule. Comment 33(c)-10 of the Official
Interpretation of Regulation E, however, provides that ``[a] remittance
transfer provider may correct an error, without investigation, in the
amount or manner alleged by the sender, or otherwise determined, to be
in error, but must comply with all other applicable requirements of
Sec. 1005.33.''
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\51\ 12 CFR 1005.33(c)(2)(ii)(B).
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Examiners found that providers violated section 1005.33(c) of the
Remittance Rule. These providers received notices of errors alleging
that remitted funds had not been made available to the designated
recipient by the disclosed date of availability. The providers then
failed to investigate whether a deduction imposed by a foreign
recipient bank constituted a fee that the institutions were required to
refund to the sender, and subsequently did not refund that fee to the
sender. These violations deprived consumers of their rights under the
Remittance Rule. In response to these findings, the providers are
revising their policies and procedures to comply with the fee-refund
provisions of the Remittance Rule and are conducting lookbacks. The
providers also will remediate consumers who did not receive fee refunds
that were due to them.
3. Supervisory Program Developments
3.1.1 Joint Statement on Supervisory and Enforcement Practices
Regarding the Mortgage Servicing Rules in Response to the Continuing
COVID-19 Pandemic and CARES Act
On November 10, 2021, the Board of Governors of the Federal
Reserve, the CFPB, the Federal Deposit Insurance Corporation, the
National Credit Union Administration, the Office of the Comptroller of
the Currency, and the State financial regulators (collectively,
agencies) issued a joint statement to communicate to mortgage servicers
the agencies' supervisory and enforcement approach as risks associated
with the Coronavirus Disease (COVID-19) pandemic continue to
change.\52\
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\52\ The joint statement on Supervisory and Enforcement
Practices Regarding the Mortgage Servicing Rules in Response to the
Continuing Covid-19 Pandemic and CARES Act is available at: https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rules_joint-statement_2021-11.pdf.
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On April 3, 2020, the agencies issued the ``Joint Statement on
Supervisory and Enforcement Practices Regarding the Mortgage Servicing
Rules in Response to the COVID-19 Emergency and the CARES Act'' (April
2020 Joint Statement) to clarify the application of the Regulation X
mortgage servicing rules and explain the agencies' approach to
supervision and enforcement of the rules in response to the COVID-19
pandemic. In the April 2020 Joint Statement, the agencies announced
that until further notice, they would not take supervisory or
enforcement action against mortgage servicers for failing to meet
certain timing requirements under the mortgage servicing rules as long
as the servicers made good faith efforts to provide those required
notices or disclosures and took the related actions within a reasonable
period of time.
While the COVID-19 pandemic continues to affect consumers and
mortgage servicers, the agencies determined that the temporary
flexibility described in the April 2020 Joint Statement is no longer
necessary because servicers have had sufficient time to adjust their
operations by, among other things, taking steps to work with consumers
affected by the COVID-19 pandemic and developing more robust business
continuity and remote work capabilities. Accordingly, the temporary
supervisory and enforcement flexibility announced in the April 2020
Joint Statement no longer applies and the agencies will apply their
respective supervisory and enforcement authorities, where appropriate,
to address any noncompliance or violations of the Regulation X mortgage
servicing rules, as described in the statement.\53\
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\53\ This includes the Protections for Borrowers Affected by the
COVID-19 Emergency Under the Real Estate Settlement Procedures Act
(RESPA), Regulation X (86 FR 34848), which became effective on
August 31, 2021. Though the temporary supervisory and enforcement
flexibility announced in the April 2020 Joint Statement no longer
applies, guidance in the April 2020 Joint Statement generally
explaining the application of the CARES Act and interaction with the
Regulation X mortgage servicing rules in effect at that time remain
in place.
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3.1.2 CFPB Publishes CMS-IT Procedures
On September 21, 2021, the Bureau published examination procedures
for Compliance Management System--Information Technology (CMS-IT).\54\
The CMS-IT procedures are designed to assess supervised institutions'
use of IT and associated IT controls that support consumer financial
products and services. Deficiencies in IT and IT systems can pose a
risk to consumers and may be the root cause of Federal consumer
financial law violations. The procedures utilize the fundamental
elements of CMS to review the controls implemented by institutions to
manage IT and IT systems that are supporting consumer financial
operations. The new procedures are expected to help examiners
understand the controls for institutions to manage risks and comply
with Federal consumer financial laws.
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\54\ The CMS-IT procedures are available at: https://files.consumerfinance.gov/f/documents/cfpb_compliance-management-review-information-technology_examination-procedures.pdf.
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3.1.3 CFPB Issues Rules To Facilitate a Smooth Transition as Federal
Foreclosure Protections Expire
On June 28, 2021, the CFPB finalized amendments to the Federal
mortgage servicing regulations to reinforce the ongoing economic
recovery as the Federal foreclosure moratoria are phased out.\55\ The
rules will help protect mortgage borrowers from unwelcome surprises as
they exit forbearance. The amendments will support the housing market's
smooth and orderly transition to post-pandemic operation. The rules
establish temporary special safeguards to help ensure that borrowers
have time before foreclosure to explore their options, including loan
modifications and selling their homes. The rules cover loans on
principal residences, generally exclude small servicers, and took
effect on August 31, 2021.
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\55\ The rule is available at: https://files.consumerfinance.gov/f/documents/cfpb_covid-mortgage-servicing_final-rule_2021-06.pdf.
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4. Remedial Actions
4.1.1 CFPB Sues LendUp Loans for Violating a 2016 Consent Order and
Deceiving Borrowers
On September 8, 2021, the CFPB filed a lawsuit in Federal district
court accusing LendUp Loans, LLC (LendUp) of violating a 2016 consent
order and deceiving tens of thousands of
[[Page 71054]]
borrowers.\56\ In 2016, the Bureau had ordered LendUp to pay $1.83
million in consumer redress and a $1.8 million civil penalty, and to
stop misleading consumers with false claims about the cost of loans and
the benefits of repeated borrowing. In the complaint, the CFPB alleges
that, in violation of the 2016 order, LendUp has continued with much of
the same illegal and deceptive marketing. The CFPB also alleges that
LendUp illegally failed to provide timely and accurate notices to
consumers whose loan applications were denied.
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\56\ A copy of the complaint is available at:
https://files.consumerfinance.gov/f/documents/cfpb_lendup-loans-llc_complaint_2021-09.pdf.
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LendUp, headquartered in Oakland, California, offers single-payment
and installment loans to consumers and presents itself as an
alternative to payday lenders. A central component of LendUp's
marketing and brand identity is the ``LendUp Ladder.'' LendUp told
consumers that by repaying loans on time and taking free courses
offered through its website, consumers would move up the ``LendUp
Ladder'' and, in turn, receive lower interest rates on future loans and
access to larger loan amounts.
According to the CFPB's complaint, LendUp was not telling consumers
the truth. The CFPB's investigation found that 140,000 repeat borrowers
were charged the same or higher interest rates for loans after moving
up to a higher level on the LendUp Ladder. The investigation also found
that many borrowers had their maximum loan size reduced, even after
reaching the highest level on the ladder.
The CFPB alleges that LendUp violated the CFPB's 2016 consent
order, the CFPA, ECOA, and ECOA's implementing regulation, Regulation
B. Specifically, the CFPB alleges that LendUp:
Deceived consumers about the benefits of repeat borrowing:
LendUp misrepresented the benefits of repeatedly borrowing from the
company by advertising that borrowers who climbed the LendUp Ladder
would gain access to larger loans at lower rates when, in fact, that
was not true for tens of thousands of consumers.
Violated the CFPB's 2016 consent order: The CFPB's 2016
consent order prohibits LendUp from misrepresenting the benefits of
borrowing from the company. LendUp's continued misrepresentations about
the LendUp Ladder violate this order.
Failed to provide timely and accurate adverse action
notices: Adverse action notices inform consumers why they were denied
credit, and timely and accurate notices are vital to maintaining a
transparent underwriting process and protect consumers against credit
discrimination. LendUp failed to provide adverse-action notices within
the 30 days required by ECOA for over 7,400 loan applicants. LendUp
also issued over 71,800 adverse-action notices that failed to
accurately describe the main reasons why LendUp denied the application
as required by ECOA and Regulation B.
The CFPB is seeking an injunction, damages or restitution to
consumers, disgorgement of ill-gotten gains, and the imposition of a
civil money penalty.
LendUp is also subject to a 2021 stipulated final judgment that
resolved the CFPB's claims that LendUp violated the Military Lending
Act in connection with its extensions of credit.\57\
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\57\ The stipulated final judgment can be found at: https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-settles-with-lendup-loans-llc-for-military-lending-act-violations/.
Rohit Chopra,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2021-26949 Filed 12-13-21; 8:45 am]
BILLING CODE 4810-AM-P
