Supervisory Highlights, Issue 28, Fall 2022, 72449-72458 [2022-25733]
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[FR Doc. 2022–25309 Filed 11–23–22; 8:45 am]
BILLING CODE 3510–JE–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
Supervisory Highlights, Issue 28, Fall
2022
Bureau of Consumer Financial
Protection.
ACTION: Supervisory Highlights.
AGENCY:
The Consumer Financial
Protection Bureau (CFPB or Bureau) is
issuing its twenty-eighth edition of
Supervisory Highlights.
DATES: The Bureau released this edition
of the Supervisory Highlights on its
website on November 16, 2022. The
findings in this report cover
examinations in the areas of auto
servicing, consumer reporting, credit
card account management, debt
collection, deposits, mortgage
origination, mortgage servicing and
payday lending completed between
January 1, 2022, and June 31, 2022.
FOR FURTHER INFORMATION CONTACT:
Jaclyn Sellers, Senior Counsel, at (202)
435–7449. If you require this document
in an alternative electronic format,
please contact CFPB_Accessibility@
cfpb.gov.
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SUMMARY:
SUPPLEMENTARY INFORMATION:
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1. Introduction
The CFPB’s supervision program is
focused on ensuring that financial
institutions subject to its authority
comply with Federal consumer financial
laws. Where violations of law or
compliance weaknesses are found,
CFPB encourages compliance and deters
misconduct and
recidivism.1 Supervisory Highlights
promotes transparency of the Bureau’s
supervisory work and provides the
public with insight into supervisory
findings.
In this issue of Supervisory Highlights
several trends are evident. The first is
that examiners continue to identify the
same violations of law across multiple
institutions of a certain type, even
though past editions of Supervisory
Highlights have publicized such
violations at other institutions of that
type. Another is findings related to
entities that engaged in unfair,
deceptive or abusive acts or practices
(UDAAP) in violation of the Consumer
Financial Protection Act (CFPA).2 In
addition, there are findings on CARES
Act-related or COVID–19-related issues.
Finally, this issue contains certain types
of novel supervisory findings that have
not previously been reported in
Supervisory Highlights involving unique
factual or legal analysis.
The findings in this report cover
examinations in the areas of auto
servicing, consumer reporting, credit
card account management, debt
collection, deposits, mortgage
origination, mortgage servicing and
payday lending completed between
January 1, 2022, and June 31, 2022. 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.
Supervision is increasing its focus on
repeat offenders, particularly those who
violate agency or court orders. As part
of that focus, Supervision has created a
Repeat Offender Unit.
The Repeat Offender Unit is focused
on:
• Reviewing and monitoring the
activities of repeat offenders;
• Identifying the root cause of
recurring violations;
• Pursuing and recommending
solutions and remedies that hold
entities accountable for failing to
1 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.
2 12 U.S.C. 5531, 5536.
PO 00000
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consistently comply with Federal
consumer financial law; and,
• Designing a model for order review
and monitoring that reduces the
occurrences of repeat offenders.
The Repeat Offender Unit will focus
on ways to enhance the detection of
repeat offenses, develop a process for
rapid review and response designed to
address the root cause of violations, and
recommend corrective actions designed
to stop recidivist behavior. This will
include closer scrutiny of corporate
compliance with orders to ensure that
requirements are being met and any
issues are addressed in a timely manner.
We invite readers with questions or
comments about Supervisory Highlights
to contact us at CFPB_Supervision@
cfpb.gov.
2. Supervisory Observations
2.1 Auto Servicing
The Bureau continues to evaluate auto
loan servicing activities, primarily to
assess whether entities have engaged in
any UDAAPs prohibited by the CFPA.3
Examiners identified unfair and
deceptive acts or practices across many
aspects of auto servicing, including
violations related to add-on product
charges, loan modifications, double
billing, use of devices that interfered
with driving, collection tactics, and
payment allocation.
2.1.1 Overcharging for Add-On
Products at Early Payoff
When consumers purchase an
automobile, auto dealers and finance
companies offer optional, add-on
products that consumers can purchase.
Some of the add-on products provide
specific types of potential benefits, such
as guaranteed asset protection (GAP)
products that offer to help pay off an
auto loan if the car is totaled or stolen
and the consumer owes more than the
car’s depreciated value, accident and
health protection, or credit life
protection. The add-on products’
potential benefits apply only for specific
time periods, such as four years after
purchase or for the term of the loan, and
only under certain circumstances.
Auto dealers and finance companies
often charge consumers all payments for
any add-on products as a lump sum at
origination of the auto loan or purchase
of the vehicle. Dealers and finance
companies generally include the lump
sum cost of the add-on product as part
of the total vehicle financing agreement,
and consumers typically make
payments on these products throughout
the loan term, even if the product
expires years earlier.
3 12
U.S.C. 5531, 5536.
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An act or practice is unfair when: (1)
it causes or is likely to cause substantial
injury to consumers; (2) the injury is not
reasonably avoidable by consumers; and
(3) the injury is not outweighed by
countervailing benefits to consumers or
to competition.4
Examiners identified instances where
consumers paid off their loans early, but
servicers failed to ensure consumers
received refunds for unearned fees
related to add-on products.5 At that
point, certain products no longer offered
any possible benefit to consumers. In
contrast to early payoff scenarios, after
repossession, servicers did ensure that
refunds for unearned fees were applied
to consumers’ accounts either by
obtaining the refunds directly or by
debiting reserve accounts servicers had
established for dealers.
Consumers suffered substantial injury
because they were essentially required
to pay for services they could no longer
use, as the relevant products terminated
when the loan contract terminated.
Consumers could not reasonably avoid
the injury because they had no control
over the servicers’ refund processing
actions. When servicers present
consumers with payoff amounts,
consumers may have no reason to know
that the amounts are inflated by add-on
product premiums as consumers may be
unaware that they paid unearned
premiums, let alone that the amount
could be refunded upon payoff. And
reasonable consumers may not apply for
refunds themselves because they may
have been unaware that the contract
provided that they could do so.
Examiners concluded that the injury
was not outweighed by any
countervailing benefits to consumers or
competition and that servicers engaged
in unfair acts or practices by failing to
ensure consumers received refunds for
the specific unused add-on products.
In response to these findings,
servicers are remediating impacted
consumers and implementing processes
to obtain refunds for consumers for addon products with no benefit after early
payoff.
2.1.2 Misleading Consumers About
Loan Modification Approval
In calls where consumers who were
delinquent on their loans requested
payment assistance, servicers stated that
the consumers were ‘‘preliminarily
approved’’ for loan modifications but
4 12
U.S.C. 5531(c).
Bureau previously discussed similar issues
with add-on product refunds after repossession in
Supervisory Highlights, Issue 26, Spring 2022,
available at: https://files.consumerfinance.gov/f/
documents/cfpb_supervisory-highlights_issue-26_
2022-04.pdf.
5 The
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had to make a payment equal to the
standard monthly payment before the
servicers would finalize the
modifications. This created a net
impression that if consumers made the
payments, they had a high likelihood of
having the modifications finalized. In
fact, servicers denied most of the
modification requests after consumers
made the requested payments.
Sections 1031 and 1036 of the CFPA
prohibit deceptive acts or practices.6 A
representation, omission act, or practice
is deceptive when: (1) the
representation, omission, act, or practice
misleads or is likely to mislead the
consumer; (2) the consumer’s
interpretation of the representation,
omission act, or practice is reasonable
under the circumstances; and (3) the
misleading representation, omission,
act, or practice is material.
Examiners found that servicers
engaged in deceptive acts or practices
by representing to consumers that their
modifications were preliminarily
approved pending a ‘‘good faith’’
payment, when in fact they denied most
of the modification requests.
Consumers’ understanding that they had
a high likelihood of having the
modifications finalized was reasonable
under the circumstances. And the
likelihood that a modification would be
finalized was material to the consumer’s
decision regarding whether to make the
good faith payment.
In response to these findings,
servicers ceased making these
representations, developed policies and
procedures to prevent company
representatives from making these
representations, implemented related
training, and enhanced monitoring.
2.1.3 Double Billing Consumers for
Collateral Protection Insurance
When consumers enter auto finance
agreements, they generally agree to
maintain vehicle insurance that covers
physical damage to the property in
order to protect the lender’s interest in
the collateral. Some contracts allow
servicers to purchase insurance, called
Collateral Protection Insurance (CPI) or
Force-Placed Insurance (FPI), if the
consumer fails to maintain appropriate
coverage; charges for CPI are generally
passed along to consumers.
Examiners found that servicers
engaged in an unfair act or practice
when they double billed consumers for
CPI charges. Servicers purchased CPI
and billed consumers for a certain
amount. Servicers then charged
consumers twice for the CPI in error;
billing and collecting these charges
6 12
PO 00000
U.S.C. 5531 and 5536(a)(1)(B).
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caused, or was likely to cause,
substantial injury to consumers.
Consumers could not reasonably avoid
the injury, and it was reasonable for
consumers to rely on the billed amount.
The injury associated with billing
consumers for erroneous amounts is not
outweighed by any countervailing
benefits to consumers or competition.
In response to these findings,
servicers proposed implementing
changes to address the violation.
2.1.4 Unfairly Engaging Devices That
Interfered With Driving
When consumers enter into auto
finance agreements, lenders sometimes
require consumers to have technologies
that interfere with driving (sometimes
called starter interrupt devices) installed
in their vehicles. These devices, when
activated by servicers, either beep or
prevent a vehicle from starting.
Examiners found that, in certain
instances, servicers engaged in unfair
acts or practices by activating these
devices in consumers’ vehicles when
consumers were not past due on
payment, contrary to relevant contracts
and disclosures. Servicers
inappropriately activated the devices
due to errors with their internal
systems. In these instances, servicers
caused injury in one of two ways. First,
in some instances they activated the
devices and prevented consumers from
starting their vehicles, causing
substantial injury by unexpectedly
depriving these consumers of their
vehicles. Second, in some instances
servicers caused the devices to sound
late payment warning beeps despite
consumers being current, often for
several days. The devices sounded these
beeps each time the consumer started
the car. This caused, or was likely to
cause, substantial injury to consumers
because they may have ceased using the
vehicle because they understood from
the beeps that servicers might disable
the vehicle. Additionally, the warning
beeps were likely to harass consumers
and risk harming consumers’
reputations by communicating to others,
the consumers’ purported
delinquencies. Consumers could not
reasonably avoid these injuries because
they had no control over servicers’
activation of the devices. The harm
outweighed any countervailing benefits
to consumers or competition.
In response to these findings,
servicers proposed implementing
changes to address the violations.
2.1.5 Making Deceptive
Representations During Collection Calls
Examiners found that certain servicers
made deceptive representations during
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collections calls. Specifically, servicers’
representatives told delinquent
consumers that their driver’s licenses
and tags would be or may be suspended
if they did not make a prompt payment
to the servicer. In fact, servicers do not
have authority to suspend consumers’
driver’s licenses and tags. Additionally,
examiners found that some
representatives told consumers that
their accounts had, or would be,
transferred to the legal department. In
fact, consumers’ accounts were not at
risk of imminent referral to the legal
department. In these instances, servicers
engaged in deceptive acts or practices.
It was reasonable for consumers to
believe that servicers had the authority
to take the actions they threatened to
take and would take those actions. And
the representations were material
because they were likely to impact
consumers’ choices regarding whether
to pay their auto loans or other debts.
In response to these findings,
servicers remediated impacted
consumers and enhanced training,
procedures, and call monitoring related
to collection activity.
2.2
Consumer Reporting
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Companies in the business of
regularly assembling or evaluating
information about consumers for the
purpose of providing consumer reports
to third parties are ‘‘consumer reporting
companies’’ (CRCs).7 These companies,
along with the entities—such as banks,
loan servicers, and others—that furnish
information to the CRCs for inclusion in
consumer reports, play a vital role in
availability of credit and have a
significant role to play in the fair and
accurate reporting of credit information.
They are subject to several requirements
under the Fair Credit Reporting Act
(FCRA) 8 and its implementing
regulation, Regulation V,9 including the
requirement to reasonably investigate
disputes and, for furnishers, to furnish
data subject to the relevant accuracy
requirements. In recent reviews,
examiners found deficiencies in CRCs’
compliance with FCRA dispute
investigation requirements and
furnisher compliance with FCRA and
Regulation V accuracy and dispute
investigation requirements.
7 The term ‘‘consumer reporting company’’ means
the same as ‘‘consumer reporting agency,’’ as
defined in the Fair Credit Reporting Act, 15 U.S.C.
1681a(f), including nationwide consumer reporting
agencies as defined in 15 U.S.C. 1681a(p) and
nationwide specialty consumer reporting agencies
as defined in 15 U.S.C. 1681a(x).
8 15 U.S.C. 1681 et seq.
9 12 CFR part 1022.
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2.2.1 NCRC Duty To Review and
Report Determinations and Actions
Taken in Response to Applicable
Complaints
The FCRA requires that nationwide
CRCs (NCRCs) must take certain actions
in response to complaints received from
consumers that the Bureau transmits to
the NCRC if those complaints are about
‘‘incomplete or inaccurate information’’
that a consumer ‘‘appears to have
disputed’’ with the NCRC.10 For this
category of complaints, the FCRA
requires that NCRCs: (1) review such
complaints to determine if all legal
obligations have been met; (2) provide
regular reports to the Bureau regarding
the determinations and actions taken in
response to the reviews; and (3)
maintain records regarding the
disposition of such complaints for a
reasonable amount of time to
demonstrate compliance with the
obligation to review and report on the
complaints.
In recent reviews of one or more
NCRCs, examiners found that NCRCs
failed to report the outcome of
complaint reviews to the Bureau.
Specifically, examiners found that
NCRCs failed to report to the Bureau
determinations about whether all legal
obligations had been met and actions
taken in response to complaints.
Examiners also found that NCRCs failed
to address applicable complaints based
on the NCRCs’ unsubstantiated
suspicions that the complaints were
submitted by unauthorized third parties
(e.g., credit repair organizations). In
response to these findings, NCRCs
revised policies and procedures for
identifying applicable complaints
subject to these heightened obligations.
NCRCs also revised processes for
notifying consumers whose complaints
are identified as being submitted by
unauthorized third parties to allow
consumers to confirm whether the
complaints were authorized.
2.2.2 Furnisher Prohibition of
Reporting Information With Actual
Knowledge of Errors
Examiners are continuing to find that
furnishers are violating the FCRA by
inaccurately reporting information
despite actual knowledge of errors.11 In
reviews of auto loan furnishers,
examiners found that entities furnished
information to CRCs while knowing or
having reasonable cause to believe such
information was inaccurate because the
information furnished did not
accurately reflect the information in the
furnishers’ account servicing systems.
10 15
11 15
PO 00000
U.S.C. 1681i(e).
U.S.C. 1681s–2(a)(1)(A).
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For example, examiners found that
furnishers reported a consumer’s
account to CRCs as delinquent despite
placing the account in deferment during
the time periods for which delinquent
status was furnished. Examiners also
found that the prohibition on furnishing
inaccurate information under this
provision applied because the
furnishers did not clearly and
conspicuously specify to consumers an
address for notices relating to
inaccurately furnished information. For
example, furnishers disclosed a generalpurpose corporate address on their
websites and/or provided instructions
on their websites for the submission of
complaints or general concerns by
consumers. However, examiners found
that the furnishers did provide an
address for consumers to send notices
about inaccurate credit reporting
information.
In response to these findings,
furnishers corrected the furnished
information for affected consumers.
Furnishers also revised website
language to specify the address for the
submission by consumers of notices
relating to inaccurately furnished
information.12
2.2.3 Furnisher Duty To Correct and
Update Information
Examiners are continuing to find that
furnishers are violating the FCRA duty
to correct and update furnished
information after determining such
information is not complete or
accurate.13 In reviews of third-party
debt collection furnishers, examiners
found that furnishers failed to send
updated or corrected information to
CRCs after making a determination that
information the furnishers had reported
was not complete or accurate. For
example, examiners found that
furnishers continued to report consumer
accounts to CRCs with an indication
that the dispute investigation was still
open when, in fact, the furnisher had
determined that the accounts were no
longer being investigated after
completing their dispute investigations.
As a result, furnishers did not promptly
notify CRCs of the determination that
the accounts were no longer under
active dispute investigation and provide
CRCs with corrected information that
the accounts had been corrected or had
previously been disputed. In response to
these findings, furnishers implemented
automated processes to update and
12 The Bureau previously reported similar
violations in Supervisory Highlights, Issue 20, Fall
2019, available at: https://files.consumerfinance.
gov/f/documents/cfpb_supervisory-highlights_issue20_122019.pdf.
13 15 U.S.C. 1681s–2(a)(2).
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provide corrections of account dispute
statuses to CRCs upon the completion of
dispute investigations.14
In addition, in reviews of auto loan
furnishers, examiners found that
furnishers did not promptly correct or
update CRCs following the placement of
consumer accounts into retroactive
deferments. Upon placing consumer
accounts into retroactively applicable
deferments, furnishers updated their
systems of record to reflect that the
accounts did not have any payments
due until a deferment began, and
therefore had not been delinquent.
However, examiners found that
furnishers did not send corrections or
updates to CRCs indicating that the
previously reported delinquencies on
such accounts were no longer accurate
as a result of the accommodation. In
response to these findings, furnishers
are conducting lookbacks to identify
and furnish corrections to the CRCs in
connection with all affected consumer
accounts and are implementing internal
controls to ensure they promptly furnish
such corrections going forward.
to CRCs consistent with FCRA
requirements.16
2.2.5 Furnisher Duty To Establish and
Implement Reasonable Policies and
Procedures Concerning the Accuracy
and Integrity of Furnished Information
Examiners are continuing to find that
furnishers are violating the Regulation V
duty to establish and implement
reasonable written policies and
procedures regarding the accuracy and
integrity of the information furnished to
a CRC and to consider and incorporate,
as appropriate, the guidelines of
Appendix E to Regulation V.17 Recent
supervisory reviews identifying
violations of the Regulation V
requirement for reasonable written
policies and procedures include:
• In reviews of auto loan furnishers,
examiners found furnishers’ policies
and procedures did not document the
basis on which dispute agents should
determine consumer direct disputes
reasonably qualify as frivolous or
irrelevant.
• Examiners found that furnishing
2.2.4 Furnisher Duty To Provide Notice policies and procedures at auto loan
furnishers and debt collection
of Delinquency of Accounts
furnishers did not provide for adequate
Examiners are continuing to find that
document retention. Specifically,
furnishers are violating the FCRA duty
furnishers’ procedures failed to provide
to notify CRCs of the date of first
for the maintenance of records for a
delinquency (DOFD) on applicable
reasonable period of time in order to
accounts.15 In recent reviews of debt
substantiate the accuracy of the
collection furnishers, examiners found
information furnished that was subject
that furnishers violated this provision
to dispute investigations.
by failing to establish and follow
• Examiners also found that
reasonable procedures to report the
furnishers lacked reasonable written
appropriate DOFD. Examiners found
policies and procedures establishing
that furnishers were reporting on
and implementing appropriate internal
collections accounts that arose from
controls regarding the accuracy and
unpaid utility accounts—accounts
integrity of furnished information, such
typically disconnected several months
as by implementing standard
after the first missed payment causing
procedures and verifying random
delinquency before being sent to
samples of furnished information.
collections. Examiners found that
In response to these findings,
reasonable procedures would prevent a
furnishers are taking corrective actions
furnisher from calculating a DOFD that
including developing written policies
preceded the account going to
collections by only a brief window, such and procedures regarding the accuracy
and integrity of information furnished to
as less than 40 days. In response to
CRCs and the proper handling and
these findings, the furnishers worked
document retention of information
with the original creditors to ensure
related to consumer disputes.18
they received the DOFD from them
directly and implemented written
16 The Bureau previously reported similar
policies and procedures and enhanced
violations in Supervisory Highlights, Issue 22,
monitoring and audit to ensure they
Summer 2020, available at: https://files.consumer
obtain the correct DOFD and furnish it
finance.gov/f/documents/cfpb_supervisory14 The
Bureau previously reported similar
violations in Supervisory Highlights, Issue 26,
Spring 2022, available at: https://files.consumer
finance.gov/f/documents/cfpb_supervisoryhighlights_issue-26_2022-04.pdf.
15 15 U.S.C. 1681s–2(a)(5).
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highlights_issue-22_2020-09.pdf.
17 12 CFR 1022.42(a), (b).
18 The Bureau previously reported similar
violations in Supervisory Highlights, Issue 26,
Spring 2022, available at: https://files.consumer
finance.gov/f/documents/cfpb_supervisoryhighlights_issue-22_2020-09.pdf.
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2.2.6 Furnisher Duty To Conduct
Reasonable Investigations of Direct
Disputes
Examiners are continuing to find that
furnishers are violating the Regulation V
duty to conduct a reasonable
investigation of direct disputes.19
Recent examples of failures to conduct
reasonable investigations of direct
disputes include:
• Debt collection furnishers failed to
conduct reasonable investigations by
neglecting to review relevant,
underlying information and
documentation. In response to these
findings, the furnishers updated policies
and procedures to ensure that
furnishing dispute investigations are
reasonable, complete, and reported
within the time periods required by
Regulation V.
• Auto furnishers neither conducted
reasonable investigations nor sent
notices that disputes were frivolous or
irrelevant where direct dispute notices
may have been prepared by a credit
repair organization and such notices
contained all of the information needed
to conduct a reasonable investigation
(e.g., name, address, partial account
number, description of information
disputed, and explanation of the basis
for the dispute). In response to these
findings, the furnishers are revising
procedures regarding documentation
standards and improving training.20
2.3 Credit Card Account Management
The Bureau assessed the credit card
account management operations of
several supervised entities for
compliance with applicable Federal
consumer financial services laws.
Examinations of these entities identified
violations of Regulation Z and deceptive
and unfair acts or practices prohibited
by the CFPA.
2.3.1 Billing Error Resolution
Regulation Z contains billing error
resolution provisions that a creditor
must comply with following receipt of
a billing error notice from a consumer.
Examiners found that certain entities
violated Regulation Z’s billing error
resolution provisions by:
• Failing to mail or deliver written
acknowledgements to consumers within
30 days of receiving a billing error
notice; 21
• Failing to resolve disputes within
two complete billing cycles, or no later
19 12
CFR 1022.43(e).
Bureau previously reported similar
violations in Supervisory Highlights, Issue 22,
Summer 2020, available at: https://files.consumer
finance.gov/f/documents/cfpb_supervisoryhighlights_issue-22_2020-09.pdf.
21 12 CFR 1026.13(c)(1).
20 The
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than 90 days after receiving a billing
error notice; 22
• Failing to conduct reasonable
investigations after receiving billing
error notices; 23
• Failing to provide explanations to
consumers after determining that no
billing error occurred or that a different
billing error occurred from that
asserted.24
In response to these findings, the
relevant entities are implementing plans
to improve compliance with Regulation
Z’s billing error resolution
requirements, which include enhanced
policies and procedures, monitoring and
audit, and training. The entities also are
remediating affected consumers.25
2.3.2 Rate Reevaluation Violations
Under Regulation Z, as revised to
implement the Card Accountability
Responsibility and Disclosure (CARD)
Act, after increasing a consumer’s
Annual Percentage Rate (APR or rate),
credit card issuers must periodically
assess whether it is appropriate to
reduce the account’s APR.26 Issuers
must first reevaluate each such account
no later than six months after the rate
increase and at least every six months
thereafter until the APR is reduced to
the rate applicable immediately prior to
the increase, or, if the rate applicable
immediately prior to the increase was a
variable rate, to a variable rate
determined by the same formula (index
and margin) that was used to calculate
the rate applicable immediately prior to
the increase, or, to a rate that is lower
than the rate applicable immediately
prior to the increase.27 In reevaluating
each account to determine whether it
was appropriate to reduce the account’s
APR, the issuer must review: (a) the
factors on which the rate increase was
originally based (hereinafter, the
original factors); or, (b) the factors the
issuer currently considers when
determining the APR applicable to
similar, new consumer credit card
accounts (hereinafter, the acquisition
factors).28
Examiners found a number of
violations of these provisions of
Regulation Z. In one set of violations,
22 12
CFR 1026.13(c)(2).
CFR 1026.13(f).
24 12 CFR1026.13(f)(1).
25 The Bureau previously reported similar
violations in Supervisory Highlights, Issue 26,
Spring 2022 and Issue 25, Fall 2021. These issues
are available at: https://files.consumerfinance.gov/f/
documents/cfpb_supervisory-highlights_issue-25_
2021-12.pdf and https://files.consumerfinance.gov/
f/documents/cfpb_supervisory-highlights_issue-26_
2022-04.pdf.
26 12 CFR 1026.59(a).
27 12 CFR 1026.59(c), (f).
28 12 CFR 1026.59(d)(1).
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the creditors failed to consider
appropriate factors when performing
rate reevaluations. First, in reevaluating
accounts subject to default pricing, the
creditors used the original factors
method, but also used the acquisition
rate for new customers as one of the
variables in reevaluating these accounts.
As such, examiners determined that the
creditors improperly mixed original
factors and acquisition factors when
reevaluating accounts subject to a rate
increase. Additionally, if the creditors,
after reevaluation, determined that a
consumer’s rate should be reduced, the
rate would be reduced, but not below
the higher of the consumer’s pre-default
interest rate or the lowest current
acquisition rate. In response to these
findings, the creditors will remediate
affected consumers.
Additionally, examiners found that
the creditors violated these provisions
by failing to evaluate the full rate
increase for certain accounts converted
from fixed to variable rate. Specifically,
for consumer accounts that received a
default rate increase and converted from
fixed to variable rate, the creditors
reevaluated the interest rates using
original factors. However, if during the
reevaluation period, the variable rate for
those accounts increased due to an
increase in the prime rate, the creditors
did not consider that increase as part of
the rate reduction reevaluation. In
response to these findings, the creditors
agreed to remediate affected consumers.
In a separate set of violations, the
creditors failed to reevaluate all credit
card accounts subject to the rate
reevaluation provisions at least once
every six months. For certain accounts,
the creditors failed to review the
accounts until they reduced the rate to
the rate applicable immediately prior to
the increase or to a rate that was lower
than the rate applicable immediately
prior to the increase. For other accounts,
the creditors inadvertently excluded
recently added accounts from the master
list file of accounts with an increased
interest rate subject to the rate
reevaluation process. Additionally, once
the master list file of accounts reached
its file size capacity, older accounts
were automatically deleted each time
new accounts were added to the file.
This resulted in monetary harm to
consumers who were not included in
the creditors’ rate reevaluation process
and did not receive potential rate
reductions. In response to these
findings, the creditors will remediate
affected consumers and design and
implement policies and procedures to
ensure compliance.
Finally, examiners found creditors
improperly removed accounts from the
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APR reevaluation process. Specifically,
examiners found that the creditors
improperly removed consumer accounts
from the APR reevaluation process
before the consumer had achieved either
a comparable APR to what the consumer
enjoyed at the time the rate was
increased or the current rate offered to
a new customer with similar credit
characteristics. In response to these
findings, the creditors will remediate
affected consumers.29
2.3.3 Deceptive and Unfair Marketing,
Sale, and Servicing of Add-On Products
The CFPA prohibits unfair and
deceptive acts or practices.30 Examiners
found that certain entities engaged in
deceptive acts or practices in the
marketing, sale, and servicing of credit
card add-on products to consumers.
Examiners found that the entities
engaged in deceptive acts or practices in
relation to the marketing, sale, and
servicing of credit card add-on products.
Specifically, examiners found that the
entities misled consumers when their
service providers used sales scripts that
claimed that self-employed consumers
were eligible for the products when they
were not; when, in marketing materials,
service providers claimed that
consumers could cancel the product
coverage simply by calling a toll-free
number when, instead, they were
required to take additional steps to
cancel; and when, in live sales calls,
service providers claimed that
consumers would not be required to pay
product premiums for months in which
they had a zero balance when, in fact,
consumers were required to carry a zero
average daily balance for the billing
cycle to avoid paying the premium for
that month. In each instance, examiners
concluded it was reasonable for
consumers, under the circumstances, to
believe the misrepresentations because
the entities’ service providers expressly
stated them. These acts or practices
were material because they likely made
consumers more willing to purchase the
products than they otherwise would
have been.
Examiners also found that the entities
engaged in unfair acts or practices in
relation to the marketing, sale, and
servicing of the credit card add-on
products. Specifically, examiners found
that the entities treated consumers
unfairly when they omitted disclosure
of the burdensome administrative
requirements that consumers were
29 The Bureau previously reported similar
violations in Supervisory Highlights, Issue 26,
Spring 2022, available at: https://files.consumer
finance.gov/f/documents/cfpb_supervisoryhighlights_issue-26_2022-04.pdf.
30 12 U.S.C. 5531 and 5536.
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required to satisfy to submit benefits
claims for the product. Examiners also
found that the entities treated
consumers unfairly when they failed to
cancel the products on the date of the
consumer’s request and failed to issue
pro rata refunds based on the date of the
request as required by the insurance
agreement. Examiners concluded that
these acts or practices were unfair
because they caused substantial injury
to consumers by leading them to
purchase a product that was likely of
significantly less value than the
consumer initially believed. The acts or
practices were not reasonably avoidable
by consumers since consumers were
unaware of the coverage restrictions
because the entities did not disclose
those limitations to consumers at the
time of purchase and were not
outweighed by countervailing benefits
to consumers or competition as the acts
or practices were injurious in their net
effects.31
2.3.4 Deceptive Representations
Regarding the Fixed Payment Option for
Automatic Withdrawal of the Minimum
Payment Due
Examiners found that certain entities
engaged in deceptive acts or practices
by inaccurately representing to
consumers enrolled in their fixed
payment option that the entities would
withdraw automatically, from the
consumer’s bank account, an amount
equal to the minimum payment due on
their credit card account whenever such
payment exceeded the fixed amount
designated by the consumer. The
entities’ inaccurate representations
about the fixed payment option
conveyed false messages to consumers
that likely misled them to reasonably
believe that the withdrawn payment
amount would be increased to satisfy
the minimum payment due when such
amount was higher than the fixed
amount designated by the consumer.
These representations are material
because they likely induced consumers
to enroll in the fixed payment option
and led them to believe they did not
need to check that they made the
minimum payment due. In certain
instances, however, the entities failed to
withdraw the minimum payment due,
and only withdrew the fixed amount,
resulting in the consumer failing to pay
the minimum payment due. These
failures resulted in consumers
experiencing late charges, default
pricing, and derogatory credit reporting.
31 The Bureau previously reported similar
violations in Supervisory Highlights, Issue 16
Summer 2017, available at: https://files.consumer
finance.gov/f/documents/cfpb_supervisoryhighlights_issue-26_2022-04.pdf.
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In response to these findings, the
entities agreed to remediate affected
consumers.
2.4
Debt Collection
The Bureau has supervisory authority
to examine certain institutions that
engage in consumer debt collection
activities, including very large
depository institutions,32 nonbanks that
are larger participants in the consumer
debt collection market,33 and nonbanks
that are service providers to certain
covered persons.34 Recent examinations
of larger participant debt collectors
identified violations of the Fair Debt
Collection Practices Act (FDCPA).
2.4.1 Harassment Regarding
Continued Call Conversations
During calls with consumers,
examiners found that debt collectors
engaged in conduct the natural
consequence of which was to harass,
oppress, or abuse the person with whom
they were communicating. In these
calls, examiners found that the debt
collectors continued to engage the
consumers in telephone conversations
after the consumers stated that the
communication was causing them to
feel annoyed, harassed, or abused.
Examiners found that in at least one
call, the debt collector continued to
engage the consumer after the consumer
stated multiple times they were driving
and needed to discuss the account at
another time. In another instance,
examiners found that the debt collector
used combative statements and
continued the call after the consumer
stated they were unemployed, affected
by COVID–19, and unable to pay, and
even after the consumer clearly stated
that the call was ‘‘making him agitated.’’
By continuing the calls after the
consumers expressed their desire to no
longer engage with the collector, the
debt collectors violated the FDCPA’s
prohibition against harassing and
abusive conduct.35
In response to these findings,
Supervision directed the debt collectors
to enhance their training requirements
to ensure compliance with Federal
consumer financial law including the
FDCPA.
2.4.2 Communication With Third
Parties
Examiners found multiple instances
in which debt collectors violated the
FDCPA by communicating with a
person other than the consumer about
32 12
U.S.C. 5515 (a)–(b).
U.S.C. 5514(a)(1)(B) and 12 CFR 1090.105.
34 12 U.S.C. 5514(e), 5514(d), 5516(e).
35 15 U.S.C. 1692d(5).
33 12
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the consumer’s debt, when the person
had a name similar or identical to the
consumer.36
In response to these findings,
Supervision directed the debt collectors
to update their identity authentication
procedures to ensure that the person
with whom the debt collector is
communicating is the consumer
obligated or allegedly obligated to pay
the debt.37
2.5
Deposits
2.5.1 Pandemic Relief Benefits—
Unfairness Risks
The Bureau conducted prioritized
assessments to evaluate how financial
institutions handled pandemic relief
benefits deposited into consumer
accounts, as detailed in the COVID–19
Prioritized Assessments Special Edition
of Supervisory Highlights, Issue 23.38
These pandemic relief benefits included
enhanced unemployment insurance
funds and three rounds of economic
impact payments.39 The Bureau did a
broad assessment centered on whether
consumers may have lost access to
pandemic relief benefits due to financial
institutions’ garnishment or setoff
practices. Generally, requirements
around garnishment practices derive
from state-specific laws. For one
economic impact payment round,
Congress mandated nationwide
protection from most garnishment
orders. Various State and territorial laws
may have protected economic impact
payments and/or unemployment
insurance funds from garnishment or
setoff as well.
During the initial deposits prioritized
assessments review, examiners
identified indicators of risk at over two
dozen depository institutions.
Examiners then conducted follow-up
assessments at these identified
institutions. The follow-up prioritized
assessments analyzed whether the
institutions risked committing an unfair
act or practice in violation of the DoddFrank Act, in connection with their
treatment of pandemic relief benefits.40
Examiners identified unfairness risks
at multiple institutions due to policies
36 15
U.S.C. 1692c(b).
Bureau previously reported similar
violations in Supervisory Highlights, Issue 24,
Summer 2021, available at: https://files.consumer
finance.gov/f/documents/cfpb_supervisoryhighlights_issue-24_2021-06.pdf.
38 This edition is available at: https://files.
consumerfinance.gov/f/documents/cfpb_
supervisory-highlights_issue-23_2021-01.pdf.
39 Congress issued three rounds of economic
impact payments to many consumers under the
Coronavirus Aid, Relief, and Economic Security
Act; the Consolidated Appropriations Act of 2021;
and the American Rescue Plan Act.
40 12 U.S.C. 5531, 5536.
37 The
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and procedures that may have resulted
in one or more of the following
practices:
• Using protected unemployment
insurance or economic impact payments
funds to set off a negative balance in the
account into which the benefits were
deposited (a.k.a. same-account setoff) or
to set off a balance owed to the financial
institution on a separate account (a.k.a.
cross-account setoff), when such
practices were prohibited by applicable
State or territorial protections;
• Garnishing protected economic
impact payments funds in violation of
the Consolidated Appropriations Act of
2021;
• Garnishing protected
unemployment insurance or economic
impact payments funds in violation of
applicable State or territorial
protections;
• In connection with out-of-state
garnishment orders, processing
garnishments in violation of applicable
State prohibitions against out-of-state
garnishment; 41 and/or
• Failing to apply the appropriate
State exemptions to certain consumers’
deposit accounts after receiving
garnishment notices.42
In response to these findings,
Supervision directed the institutions to:
(i) refund any protected economic
impact payments funds that were taken
by the institution in connection with
improper same-account or cross-account
setoffs; (ii) refund any garnishmentrelated fees assessed to account holders
in connection with certain out-of-state
garnishment orders; (iii) review, update,
and implement policies and procedures
to ensure the institution complies with
applicable State and territorial
protections regarding its garnishment
practices, including in connection with
the garnishment of unemployment
insurance funds, Federal benefits, any
funds protected by State law where the
consumer resides, and in connection
with out-of-state garnishment orders;
and/or (iv) review, update, and
implement policies and procedures to
ensure the institution complies with
applicable State and territorial
protections regarding its setoff practices,
including in connection with the setoff
of unemployment insurance funds and
Federal benefits.
These prioritized assessment findings
highlight the importance of State and
41 A similar practice was recently the subject of
a Bureau public enforcement action. This order is
available at: https://www.consumerfinance.gov/
about-us/newsroom/cfpb-orders-bank-of-americato-pay-10-million-penalty-for-illegal-garnishments/
#:∼:text=The%20CFPB’s%20order
%20requires%20Bank,a%20%2410%20million
%20civil%20penalty.
42 Id.
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territorial laws that protect consumer
funds held in deposit accounts,
including critical relief benefits. And it
underscores that the failure to comply
with applicable State and territorial
protections may, under certain
circumstances, give rise to unfair acts or
practices in violation of the CFPA. One
or more cited institutions raised
arguments that guidance on preemption
meant they need not comply with State
or territorial actions. Although
preemption of State and territorial laws
may apply in certain situations, all
depository institutions generally must
comply with, among other consumer
protections, applicable State and
territorial laws that govern garnishment
and certain setoff practices.
2.6 Mortgage Origination
Supervision assessed the mortgage
origination operations of several
supervised entities for compliance with
applicable Federal consumer financial
laws. Examinations of these entities
identified violations of Regulation Z and
deceptive acts or practices prohibited by
the CFPA.
2.6.1 Reducing Loan Originator
Compensation To Cover Settlement Cost
Increases That Were Not Unforeseen
Regulation Z prohibits compensating
mortgage loan originators in an amount
that is based on the terms of a
transaction or a proxy for the terms of
a transaction.43 This means that a
‘‘creditor and a loan originator may not
agree to set the loan originator’s
compensation at a certain level and then
subsequently lower it in selective
cases.’’ 44 The rule, however, permits
decreasing a loan originator’s
compensation due to unforeseen
increases in settlement costs. An
increase is unforeseen if it occurs even
though the estimate provided to the
consumer is consistent with the best
information reasonably available to the
disclosing person at the time of the
estimate.45 Thus, a loan originator may
decrease its compensation ‘‘to defray the
cost, in whole or part, of an unforeseen
increase in an actual settlement cost
over an estimated settlement cost
disclosed to the consumer pursuant to
section 5(c) of RESPA or an unforeseen
actual settlement cost not disclosed to
the consumer pursuant to section 5(c) of
RESPA.’’ 46
Examiners found that certain entities
provided consumers loan estimates
43 12
44 12
CFR 1026.36(d)(1)(i).
CFR part 1026, supp. I, comment 36(d)(1)–
45 12
CFR part 1026, supp. I, comment 36(d)(1)–
5.
based on fee information provided by
loan originators. At closing, the entities
provided consumers a lender credit
when the actual costs of certain fees
exceeded the applicable tolerance
thresholds. The entities then reduced
the amount of compensation to the loan
originator after loan consummation by
the amount provided to cure the
tolerance violation. Examiners
determined, however, that the correct
fee amounts were known to the loan
originators at the time of the initial
disclosures, and that the fee information
was incorrect as a result of clerical error.
Specifically, in each instance, the
settlement service had been performed
and the loan originator knew the actual
costs of those services. The loan
originators, however, entered a cost that
was completely unrelated to the actual
charges that the loan originator knew
had been incurred, resulting in
information being entered that was not
consistent with the best information
reasonably available. Accordingly, the
unforeseen increase exception did not
apply.
As a result of these findings, the
entities are revising their policies and
procedures and providing training to
ensure loan originator compensation is
not reduced based on a term of a
transaction.
2.6.2 Deceptive Waiver of Borrowers’
Rights in Loan Security Agreements
Regulation Z states that a ‘‘contract or
other agreement relating to a consumer
credit transaction secured by a dwelling
. . . may not be applied or interpreted
to bar a consumer from bringing a claim
in court pursuant to any provision of
law for damages or other relief in
connection with any alleged violation of
Federal law.’’ 47 In light of this
provision, examiners previously
concluded that certain waiver
provisions violate the CFPA’s
prohibition on deceptive acts or
practices where reasonable consumers
would construe the waivers to bar them
from bringing Federal claims in court
related to their mortgages.48
Examiners identified a waiver
provision in a loan security agreement
that was used by certain entities in one
State. The waiver provided that
borrowers who signed the agreement
waived their right to initiate or
participate in a class action. Examiners
concluded the waiver language was
misleading, and that a reasonable
consumer could understand the
provision to waive their right to bring a
class action on any claim, including
47 12
7.
46 Id.
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Federal claims, in Federal court. The
misrepresentation was material because
it was likely to affect whether a
consumer would consult with a lawyer
or otherwise initiate or participate in a
class action involving a Federal claim in
relation to the loan transaction. Thus,
examiners concluded that the waiver
provision was deceptive.
In response to these findings, the
entities removed the waiver provision
from the loan security agreements and
sent a notice to affected consumers
rescinding and voiding the waiver.49
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2.7 Mortgage Servicing
The Bureau conducted examinations
focused on servicers’ actions as
consumers experienced financial
distress related to the COVID–19
pandemic. In reviewing customer
service calls, examiners found that
servicers engaged in abusive acts or
practices by charging sizable fees for
phone payments when consumers were
unaware of those fees. Examiners
identified unfair acts or practices and
Regulation X policy and procedure
violations regarding failure to provide
consumers with CARES Act
forbearances.50 Examiners also found
that servicers unfairly charged some
consumers fees while they were in
CARES Act forbearances or failed to
maintain policies and procedures
reasonably designed to properly
evaluate loss mitigation options.51 And
servicers made deceptive
misrepresentations regarding how to
accept deferral offers after forbearance
and how to enroll in automatic payment
programs when entering a deferral.
2.7.1 Charging Sizable Phone Payment
Fees When Consumers Were Unaware of
the Fees
Examiners found that servicers
engaged in abusive acts or practices by
charging sizable phone payment fees
when consumers were unaware of the
fees, thus taking unreasonable
advantage of consumers’ lack of
understanding of the fees. Servicers
charged consumers $15 fees for making
payments by phone with customer
service representatives. During calls
with consumers, representatives did not
disclose the phone pay fees’ existence or
cost but charged them anyway.
An act or practice is abusive if it
‘‘takes unreasonable advantage of . . . a
lack of understanding on the part of the
49 The Bureau previously reported similar
violations in Supervisory Highlights, Issue 24,
Summer 2021, available at: https://files.consumer
finance.gov/f/documents/cfpb_supervisoryhighlights_issue-24_2021-06.pdf.
50 12 CFR 1024.38(b)(2)(i), (v).
51 Id.
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consumer of the material risks, costs, or
conditions of the product or service.’’ 52
Consumers lacked understanding of the
material costs of the phone pay fees
because servicer representatives failed
to inform consumers of the fees during
the phone call. And general disclosures,
provided prior to making the payment,
indicating that consumers ‘‘may’’ incur
a fee for phone payments did not
sufficiently inform consumers of the
material costs. Servicers took
unreasonable advantage of this lack of
understanding because the cost of the
phone pay fee was materially greater
than the cost of other payment options
and servicers profited from collecting
the fees.53 In response to these findings,
servicers are reimbursing all consumers
who paid phone payment fees when
those fees were not disclosed while
processing payments over the phone.
2.7.2 Charging Illegal Fees During
CARES Act Forbearances
Examiners found that servicers
engaged in unfair acts or practices when
they charged consumers fees during
forbearance plans pursuant to the
CARES Act. Section 4022 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’’ on consumers receiving a
CARES Act forbearance.54 Here, the
CARES Act establishes a consumer right
that provides a baseline for measuring
injury. Servicers caused, or were likely
to cause, substantial injury to
consumers when they imposed illegal
fees on their accounts. Consumers could
not reasonably avoid the injury because
they had no reason to anticipate
servicers would impose illegal fees. And
charging illegal fees has no benefits to
consumers or competition.
In response to these findings,
servicers developed remediation plans
to compensate injured consumers.
52 12
U.S.C. 5531(d)(2)(A).
failing to disclose the prices of all
available phone pay fees when different phone pay
options carry materially different fees may be
unfair, and failing to disclose that a phone pay fee
would be added to a consumer’s payment could
create the misimpression that there was no service
fee and thus be deceptive. For more information,
see CFPB Compliance Bulletin, 2017–01 available
at: https://files.consumerfinance.gov/f/documents/
201707_cfpb_compliance-bulletin-phone-payfee.pdf.
54 Public Law 116–136, sec. 4022(b)(3), 134 Stat.
281, 490 (Mar. 27, 2020).
53 Additionally,
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2.7.3 Failure To Process CARES Act
Forbearance Requests
Examiners found that servicers
engaged in unfair acts or practices when
they failed to timely honor requests for
forbearance from consumers. Section
4022 of the CARES Act provides that if
a servicer of a federally backed mortgage
loan receives a borrower request for a
forbearance, and the borrower attests to
a financial hardship caused by the
COVID–19 emergency, then the servicer
‘‘shall’’ provide that borrower a
forbearance.55 During the forbearance
servicers may not charge fees.56 Here,
the CARES Act establishes a consumer
right that provides a baseline for
measuring injury. Consumers suffered
substantial injury when servicers failed
to process forbearances because they did
not gain the benefits of forborne
payments, and the failure also resulted
in additional fees being added to their
accounts. Consumers could not
reasonably avoid the injury because
they had no reason to anticipate that
servicers would fail to process their
requests for forbearance. And even
when consumers realized servicers had
failed to process the requests, the
servicers sometimes did not correct the
errors. The injury was not outweighed
by countervailing benefits to consumers
or competition.
In response to these findings,
servicers developed remediation plans
to compensate injured consumers.
2.7.4 Misrepresenting That Payment
Amounts Were Sufficient To Accept
Deferrals
Examiners found that servicers
engaged in deceptive acts or practices
by misrepresenting that certain payment
amounts were sufficient for consumers
to accept deferral offers at the end of
their forbearance periods, when in fact,
they were not. When consumers were
exiting forbearances, servicers sent
consumers paperwork allowing them to
accept a deferral offer by making a
payment. The specified payment
amounts were often higher than the
consumers’ previous monthly payments
because of updated escrow payments.
When consumers contacted servicer
representatives to confirm the payment
amount, the representatives expressly
represented that consumers’ old
monthly payment amounts (which were
less than the amounts presented in the
letters) were sufficient to accept the
offer, when in fact, payment of these
amounts would not constitute
55 Public Law 116–136, sec. 4022(c)(1), 134 Stat.
281, 490 (Mar. 27, 2020).
56 Public Law 116–136, sec. 4022(b)(3), 134 Stat.
281, 490 (Mar. 27, 2020).
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acceptance. It was reasonable for
consumers to conclude that servicer
representatives would provide accurate
information about the payment amount
necessary to accept the deferrals. These
misrepresentations were material
because borrowers acted on them to
accept the deferral offers, and they led
to improper charges and other negative
consequences, precisely the outcome
borrowers acted to avoid when
contacting servicer representatives.
In response to these findings,
servicers agreed to remediate consumers
for late charges and improve their
training for customer service
representatives handling loss mitigation
issues.
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2.7.5 Failing To Evaluate Consumers
for All Loss Mitigation Options and
Provide Accurate Information
Regulation X 57 requires servicers to
maintain policies and procedures that
are reasonably designed to achieve the
objectives in 12 CFR 1024.38(b).
Commentary to Regulation X clarifies
that ‘‘procedures’’ refers to the actual
practices followed by the servicer.58
Under Regulation X,59 servicers are
required to have certain policies and
procedures concerning properly
evaluating loss mitigation applications.
Specifically, servicers’ policies and
procedures must be reasonably designed
to ensure that servicers can provide
borrowers with accurate information
regarding available loss mitigation
options and properly evaluate borrowers
who submit applications for all
available loss mitigation options that
they may be eligible for.60
Examiners found that some servicers
violated Regulation X when they failed
to maintain policies and procedures
reasonably designed to achieve the
objective of properly evaluating loss
mitigation applications.61 For example,
servicers’ policies and procedures were
not reasonably designed to inform
consumers of all available loss
mitigation options, which resulted in
some consumers not receiving
information about options, such as
deferral, when exiting forbearances.
Additionally, servicers’ policies and
procedures were not reasonably
designed to properly evaluate
consumers for all available loss
mitigation options, resulting in
improper denial of deferral options.
57 12
CFR 1024.38(a).
CFR 1024.38(a)–comment 2.
59 12 CFR 1024.38(b)(2).
60 12 CFR 1024.38(b)(2)(i), (v).
61 12 CFR 1024.38(b)(2)(i) & (v).
58 12
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2.8
Payday Lending
2.8.1 Order Violations
Examiners found lenders failed to
maintain records of call recordings
necessary to demonstrate full
compliance with conduct provisions in
consent orders generally prohibiting
certain misrepresentations. Consent
order provisions required creation and
retention of all documents and records
necessary to demonstrate full
compliance with all provisions of the
consent orders. Failure to maintain
records of such call recordings violated
the consent orders and Federal
consumer financial law. To facilitate
supervision for compliance with the
consent orders, Supervision directed the
lenders to create and retain records
sufficient to capture relevant telephonic
communications.
3. Supervisory Program Developments
3.1 Recent Bureau Supervision
Program Developments
Set forth below are statements,
circulars, advisory opinions, and rules
that have been issued since the last
regular edition of Supervisory
Highlights.
3.1.1 CFPB Issues Circular—Adverse
Action Notification Requirements in
Connection With Credit Decisions Based
on Complex Algorithms
On May 26, 2022, the CFPB confirmed
in a circular 62 that the Equal Credit
Opportunity Act and Regulation B
require companies to explain to
applicants the specific reasons for
denying an application for credit or
taking other adverse actions, even if the
creditor is relying on credit models
using complex algorithms.
3.1.2 Prohibition on Inclusion of
Adverse Information in Consumer
Reports for Victims of Human
Trafficking
On June 24, 2022, the CFPB amended
Regulation V, which implements the
FCRA, to address recent legislation that
assists consumers who are victims of
trafficking.63 This final rule establishes
a method for a victim of trafficking to
submit documentation to consumer
reporting agencies, including
information identifying any adverse
item of information about the consumer
that resulted from certain types of
62 The circular is available at: https://
www.consumerfinance.gov/compliance/circulars/
circular-2022-03-adverse-action-notificationrequirements-in-connection-with-credit-decisionsbased-on-complex-algorithms/.
63 The final rule is available at: https://files.
consumerfinance.gov/f/documents/cfpb_fcratrafficking_final-rule_2022-06.pdf.
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72457
human trafficking, and prohibits the
consumer reporting agencies from
furnishing a consumer report containing
the adverse item(s) of information. The
Bureau is taking this action as mandated
by the National Defense Authorization
Act for Fiscal Year 2022 to assist
consumers who are victims of
trafficking in building or rebuilding
financial stability and personal
independence.
3.1.3 Advisory Opinion on Debt
Collectors’ Collection of Pay-To-Pay
Fees
On June 29, 2022, CFPB issued an
advisory opinion 64 to affirm that the
FDCPA and Regulation F prohibit debt
collectors from charging consumers payto-pay fees (also known as convenience
fees) for making payment a particular
way, such as by telephone or online,
unless those fees are expressly
authorized by the underlying agreement
or are affirmatively permitted by law.
3.1.4 CFPB Issues Advisory To Protect
Privacy When Companies Compile
Personal Data
On July 7, 2022, the CFPB issued an
advisory opinion 65 to ensure that
companies that use and share credit
reports and background reports have a
permissible purpose under the FCRA.
The CFPB’s new advisory opinion
makes clear that credit reporting
companies and users of credit reports
have specific obligations to protect the
public’s data privacy and affirms that a
consumer reporting agency may not
provide a consumer report to a user
under FCRA section 604(a)(3) unless it
has reason to believe that all of the
consumer report information it includes
pertains to the consumer who is the
subject of the user’s request. The
advisory also reminds covered entities
of potential criminal liability for certain
misconduct.
3.1.5 CFPB Issues Circular on
Insufficient Data Protection or Security
for Sensitive Consumer Information
On August 11, 2022, the CFPB
confirmed in a circular 66 that financial
companies may violate Federal
64 The advisory opinion is available at: https://
www.consumerfinance.gov/rules-policy/final-rules/
advisory-opinion-on-debt-collectors-collection-ofpay-to-pay-fees/.
65 The advisory opinion is available at: https://
www.consumerfinance.gov/rules-policy/final-rules/
fair-credit-reporting-permissible-purposes-forfurnishing-using-and-obtaining-consumer-reports/.
66 The circular is available at: https://
www.consumerfinance.gov/compliance/circulars/
circular-2022-04-insufficient-data-protection-orsecurity-for-sensitive-consumer-information/.
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72458
Federal Register / Vol. 87, No. 226 / Friday, November 25, 2022 / Notices
consumer financial protection law when
they fail to safeguard consumer data.
3.1.10 CFPB Issues FCRA Dispute
Resolution Circular
3.1.6 CFPB Issues Circular on Debt
Collection Credit Reporting Practices
Involving Invalid Nursing Home Debts
On November 10, 2022, the CFPB
issued a circular 71 to affirm that neither
consumer reporting companies nor
information furnishers can skirt dispute
investigation requirements under the
FCRA. The circular affirms that
consumer reporting companies and
furnishers are not permitted under the
FCRA to impose obstacles that deter
submission of disputes and that
consumer reporting companies must
promptly provide to the furnisher all
relevant information regarding the
dispute that the consumer reporting
agency receives from the consumer.
On September 8, 2022, the CFPB
issued a circular 67 confirming that debt
collection and consumer reporting
practices related to nursing home debts
that are invalid under the Nursing Home
Reform Act, can violate the FDCPA and
the FCRA.
3.1.7 Advisory Opinion on Fair Credit
Reporting; Facially False Data
On October 20, 2022, the CFPB issued
an advisory opinion 68 to highlight that
a consumer reporting agency that does
not implement reasonable internal
controls to prevent the inclusion of
facially false data, including logically
inconsistent information, in consumer
reports it prepares is not using
reasonable procedures to assure
maximum possible accuracy under
section 607(b) of the FCRA.
3.1.8 CFPB Issues Circular on
Overdraft Fee Assessment Practices
On October 26, 2022, the CFPB issued
a circular 69 about overdraft-related fee
practices that are likely unfair under
existing law. The circular highlighted
financial institution practices regarding
unanticipated overdraft fees and
provided some examples of those
practices that might trigger liability.
While not an exhaustive list, these
examples concerned ‘‘authorize
positive, settle negative’’ transactions.
3.1.9 CFPB Issues Bulletin Regarding
Unfair Returned Deposited Item Fee
Assessment Practices
khammond on DSKJM1Z7X2PROD with NOTICES
On October 26, 2022, the CFPB issued
a bulletin 70 stating that blanket policies
of charging returned deposited item fees
to consumers for all returned
transactions irrespective of the
circumstances or patterns of behavior on
the account are likely unfair under the
CFPA.
67 The circular is available at: https://
www.consumerfinance.gov/compliance/circulars/
circular-2022-05-debt-collection-and-consumerreporting-practices-involving-invalid-nursing-homedebts/.
68 The advisory opinion is available at: https://
files.consumerfinance.gov/f/documents/cfpb_faircredit-reporting-facially-false-data_advisoryopinion_2022-10.pdf.
69 The circular is available at: https://
www.consumerfinance.gov/compliance/circulars/
consumer-financial-protection-circular-2022-06unanticipated-overdraft-fee-assessment-practices/.
70 The bulletin is available at: https://files.
consumerfinance.gov/f/documents/cfpb_returneddeposited-item-fee-assessment-practice_
compliance-bulletin_2022-10.pdf.
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4. Remedial Actions
4.1
Public Enforcement Actions
The Bureau’s supervisory activities
resulted in and supported the following
enforcement actions.
4.1.1
Regions Bank
On September 28, 2022, the CFPB
ordered Regions Bank to pay $50
million into the CFPB’s victims relief
fund and to refund at least $141 million
to consumers harmed by its illegal
surprise overdraft fees.72 Until July
2021, Regions charged customers
surprise overdraft fees on certain ATM
withdrawals and debit card purchases.
The bank charged overdraft fees even
after telling consumers they had
sufficient funds at the time of the
transactions. The CFPB also found that
Regions Bank leadership knew about
and could have discontinued its
surprise overdraft fee practices years
earlier, but they chose to wait while
Regions pursued changes that would
generate new fee revenue to make up for
ending the illegal fees.
This is not the first time Regions Bank
has been caught engaging in illegal
overdraft abuses. In 2015, the CFPB
found that Regions had charged $49
million in unlawful overdraft fees and
ordered Regions to make sure that the
fees had been fully refunded and pay a
$7.5 million penalty for charging
overdraft fees to consumers who had not
opted into overdraft protection and to
consumers who had been told they
would not be charged overdraft fees.73
71 The
circular is available at: https://
www.consumerfinance.gov/compliance/circulars/
consumer-financial-protection-circular-2022-07reasonable-investigation-of-consumer-reportingdisputes/.
72 The consent order is available at: https://files.
consumerfinance.gov/f/documents/cfpb_Regions_
Bank-_Consent-Order_2022-09.pdf.
73 The consent order is available at: https://files.
consumerfinance.gov/f/201504_cfpb_consentorder_regions-bank.pdf.
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4.1.2
Trident Mortgage Company, LP
On July 27, 2022, the CFPB and U.S.
Department of Justice (DOJ) took action
to end Trident Mortgage Company’s
intentional discrimination against
families living in majority-minority
neighborhoods in the greater
Philadelphia area. The CFPB and DOJ
allege Trident redlined majorityminority neighborhoods through its
marketing, sales, and hiring actions.
Specifically, Trident’s actions
discouraged prospective applicants from
applying for mortgage and refinance
loans in the greater Philadelphia area’s
majority-minority neighborhoods. On
September 14, 2022, the court entered
the consent order 74 that, among other
things, requires Trident to pay a $4
million civil penalty to the CFPB to use
for the CFPB’s victims’ relief fund. The
Attorneys General of Pennsylvania, New
Jersey, and Delaware also finalized
concurrent actions.
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2022–25733 Filed 11–23–22; 8:45 am]
BILLING CODE 4810–AM–P
DEPARTMENT OF DEFENSE
Department of the Air Force
Notice of Intent To Grant Partially
Exclusive Patent License
Department of the Air Force,
Department of Defense.
ACTION: Notice of intent.
AGENCY:
Pursuant to the Bayh-Dole Act
and implementing regulations, the
Department of the Air Force hereby
gives notice of its intent to grant a
partially exclusive patent license to
Tensor Networks, a S-Corporation
incorporated in the state of California,
having a place of business at 1289
Reamwood Ave., Ste. G, Sunnyvale, CA
94089.
DATES: Written objections must be filed
no later than fifteen (15) calendar days
after the date of publication of this
notice.
SUMMARY:
Submit written objections to
James F. McBride, Air Force Materiel
Command Law Office, AFMCLO/JAZ,
2240 B Street, Area B, Building 11,
Wright-Patterson AFB, OH 45433–7109;
Facsimile: (937) 255–9318; or Email:
afmclo.jaz.tech@us.af.mil. Include
ADDRESSES:
74 The consent order is available at: https://files.
consumerfinance.gov/f/documents/cfpb_tridentconsent-order_2022-09.pdf.
E:\FR\FM\25NON1.SGM
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]]>Agencies
[Federal Register Volume 87, Number 226 (Friday, November 25, 2022)]
[Notices]
[Pages 72449-72458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25733]
=======================================================================
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BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights, Issue 28, Fall 2022
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory Highlights.
-----------------------------------------------------------------------
SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is
issuing its twenty-eighth edition of Supervisory Highlights.
DATES: The Bureau released this edition of the Supervisory Highlights
on its website on November 16, 2022. The findings in this report cover
examinations in the areas of auto servicing, consumer reporting, credit
card account management, debt collection, deposits, mortgage
origination, mortgage servicing and payday lending completed between
January 1, 2022, and June 31, 2022.
FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Senior Counsel, at
(202) 435-7449. If you require this document in an alternative
electronic format, please contact [email protected].
SUPPLEMENTARY INFORMATION:
1. Introduction
The CFPB's supervision program is focused on ensuring that
financial institutions subject to its authority comply with Federal
consumer financial laws. Where violations of law or compliance
weaknesses are found, CFPB encourages compliance and deters misconduct
and recidivism.\1\ Supervisory Highlights promotes transparency of the
Bureau's supervisory work and provides the public with insight into
supervisory findings.
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\1\ 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.
---------------------------------------------------------------------------
In this issue of Supervisory Highlights several trends are evident.
The first is that examiners continue to identify the same violations of
law across multiple institutions of a certain type, even though past
editions of Supervisory Highlights have publicized such violations at
other institutions of that type. Another is findings related to
entities that engaged in unfair, deceptive or abusive acts or practices
(UDAAP) in violation of the Consumer Financial Protection Act
(CFPA).\2\ In addition, there are findings on CARES Act-related or
COVID-19-related issues. Finally, this issue contains certain types of
novel supervisory findings that have not previously been reported in
Supervisory Highlights involving unique factual or legal analysis.
---------------------------------------------------------------------------
\2\ 12 U.S.C. 5531, 5536.
---------------------------------------------------------------------------
The findings in this report cover examinations in the areas of auto
servicing, consumer reporting, credit card account management, debt
collection, deposits, mortgage origination, mortgage servicing and
payday lending completed between January 1, 2022, and June 31, 2022. 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.
Supervision is increasing its focus on repeat offenders,
particularly those who violate agency or court orders. As part of that
focus, Supervision has created a Repeat Offender Unit.
The Repeat Offender Unit is focused on:
Reviewing and monitoring the activities of repeat
offenders;
Identifying the root cause of recurring violations;
Pursuing and recommending solutions and remedies that hold
entities accountable for failing to consistently comply with Federal
consumer financial law; and,
Designing a model for order review and monitoring that
reduces the occurrences of repeat offenders.
The Repeat Offender Unit will focus on ways to enhance the
detection of repeat offenses, develop a process for rapid review and
response designed to address the root cause of violations, and
recommend corrective actions designed to stop recidivist behavior. This
will include closer scrutiny of corporate compliance with orders to
ensure that requirements are being met and any issues are addressed in
a timely manner.
We invite readers with questions or comments about Supervisory
Highlights to contact us at [email protected].
2. Supervisory Observations
2.1 Auto Servicing
The Bureau continues to evaluate auto loan servicing activities,
primarily to assess whether entities have engaged in any UDAAPs
prohibited by the CFPA.\3\ Examiners identified unfair and deceptive
acts or practices across many aspects of auto servicing, including
violations related to add-on product charges, loan modifications,
double billing, use of devices that interfered with driving, collection
tactics, and payment allocation.
---------------------------------------------------------------------------
\3\ 12 U.S.C. 5531, 5536.
---------------------------------------------------------------------------
2.1.1 Overcharging for Add-On Products at Early Payoff
When consumers purchase an automobile, auto dealers and finance
companies offer optional, add-on products that consumers can purchase.
Some of the add-on products provide specific types of potential
benefits, such as guaranteed asset protection (GAP) products that offer
to help pay off an auto loan if the car is totaled or stolen and the
consumer owes more than the car's depreciated value, accident and
health protection, or credit life protection. The add-on products'
potential benefits apply only for specific time periods, such as four
years after purchase or for the term of the loan, and only under
certain circumstances.
Auto dealers and finance companies often charge consumers all
payments for any add-on products as a lump sum at origination of the
auto loan or purchase of the vehicle. Dealers and finance companies
generally include the lump sum cost of the add-on product as part of
the total vehicle financing agreement, and consumers typically make
payments on these products throughout the loan term, even if the
product expires years earlier.
[[Page 72450]]
An act or practice is unfair when: (1) it causes or is likely to
cause substantial injury to consumers; (2) the injury is not reasonably
avoidable by consumers; and (3) the injury is not outweighed by
countervailing benefits to consumers or to competition.\4\
---------------------------------------------------------------------------
\4\ 12 U.S.C. 5531(c).
---------------------------------------------------------------------------
Examiners identified instances where consumers paid off their loans
early, but servicers failed to ensure consumers received refunds for
unearned fees related to add-on products.\5\ At that point, certain
products no longer offered any possible benefit to consumers. In
contrast to early payoff scenarios, after repossession, servicers did
ensure that refunds for unearned fees were applied to consumers'
accounts either by obtaining the refunds directly or by debiting
reserve accounts servicers had established for dealers.
---------------------------------------------------------------------------
\5\ The Bureau previously discussed similar issues with add-on
product refunds after repossession in Supervisory Highlights, Issue
26, Spring 2022, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
---------------------------------------------------------------------------
Consumers suffered substantial injury because they were essentially
required to pay for services they could no longer use, as the relevant
products terminated when the loan contract terminated. Consumers could
not reasonably avoid the injury because they had no control over the
servicers' refund processing actions. When servicers present consumers
with payoff amounts, consumers may have no reason to know that the
amounts are inflated by add-on product premiums as consumers may be
unaware that they paid unearned premiums, let alone that the amount
could be refunded upon payoff. And reasonable consumers may not apply
for refunds themselves because they may have been unaware that the
contract provided that they could do so. Examiners concluded that the
injury was not outweighed by any countervailing benefits to consumers
or competition and that servicers engaged in unfair acts or practices
by failing to ensure consumers received refunds for the specific unused
add-on products.
In response to these findings, servicers are remediating impacted
consumers and implementing processes to obtain refunds for consumers
for add-on products with no benefit after early payoff.
2.1.2 Misleading Consumers About Loan Modification Approval
In calls where consumers who were delinquent on their loans
requested payment assistance, servicers stated that the consumers were
``preliminarily approved'' for loan modifications but had to make a
payment equal to the standard monthly payment before the servicers
would finalize the modifications. This created a net impression that if
consumers made the payments, they had a high likelihood of having the
modifications finalized. In fact, servicers denied most of the
modification requests after consumers made the requested payments.
Sections 1031 and 1036 of the CFPA prohibit deceptive acts or
practices.\6\ A representation, omission act, or practice is deceptive
when: (1) the representation, omission, act, or practice misleads or is
likely to mislead the consumer; (2) the consumer's interpretation of
the representation, omission act, or practice is reasonable under the
circumstances; and (3) the misleading representation, omission, act, or
practice is material.
---------------------------------------------------------------------------
\6\ 12 U.S.C. 5531 and 5536(a)(1)(B).
---------------------------------------------------------------------------
Examiners found that servicers engaged in deceptive acts or
practices by representing to consumers that their modifications were
preliminarily approved pending a ``good faith'' payment, when in fact
they denied most of the modification requests. Consumers' understanding
that they had a high likelihood of having the modifications finalized
was reasonable under the circumstances. And the likelihood that a
modification would be finalized was material to the consumer's decision
regarding whether to make the good faith payment.
In response to these findings, servicers ceased making these
representations, developed policies and procedures to prevent company
representatives from making these representations, implemented related
training, and enhanced monitoring.
2.1.3 Double Billing Consumers for Collateral Protection Insurance
When consumers enter auto finance agreements, they generally agree
to maintain vehicle insurance that covers physical damage to the
property in order to protect the lender's interest in the collateral.
Some contracts allow servicers to purchase insurance, called Collateral
Protection Insurance (CPI) or Force-Placed Insurance (FPI), if the
consumer fails to maintain appropriate coverage; charges for CPI are
generally passed along to consumers.
Examiners found that servicers engaged in an unfair act or practice
when they double billed consumers for CPI charges. Servicers purchased
CPI and billed consumers for a certain amount. Servicers then charged
consumers twice for the CPI in error; billing and collecting these
charges caused, or was likely to cause, substantial injury to
consumers. Consumers could not reasonably avoid the injury, and it was
reasonable for consumers to rely on the billed amount. The injury
associated with billing consumers for erroneous amounts is not
outweighed by any countervailing benefits to consumers or competition.
In response to these findings, servicers proposed implementing
changes to address the violation.
2.1.4 Unfairly Engaging Devices That Interfered With Driving
When consumers enter into auto finance agreements, lenders
sometimes require consumers to have technologies that interfere with
driving (sometimes called starter interrupt devices) installed in their
vehicles. These devices, when activated by servicers, either beep or
prevent a vehicle from starting.
Examiners found that, in certain instances, servicers engaged in
unfair acts or practices by activating these devices in consumers'
vehicles when consumers were not past due on payment, contrary to
relevant contracts and disclosures. Servicers inappropriately activated
the devices due to errors with their internal systems. In these
instances, servicers caused injury in one of two ways. First, in some
instances they activated the devices and prevented consumers from
starting their vehicles, causing substantial injury by unexpectedly
depriving these consumers of their vehicles. Second, in some instances
servicers caused the devices to sound late payment warning beeps
despite consumers being current, often for several days. The devices
sounded these beeps each time the consumer started the car. This
caused, or was likely to cause, substantial injury to consumers because
they may have ceased using the vehicle because they understood from the
beeps that servicers might disable the vehicle. Additionally, the
warning beeps were likely to harass consumers and risk harming
consumers' reputations by communicating to others, the consumers'
purported delinquencies. Consumers could not reasonably avoid these
injuries because they had no control over servicers' activation of the
devices. The harm outweighed any countervailing benefits to consumers
or competition.
In response to these findings, servicers proposed implementing
changes to address the violations.
2.1.5 Making Deceptive Representations During Collection Calls
Examiners found that certain servicers made deceptive
representations during
[[Page 72451]]
collections calls. Specifically, servicers' representatives told
delinquent consumers that their driver's licenses and tags would be or
may be suspended if they did not make a prompt payment to the servicer.
In fact, servicers do not have authority to suspend consumers' driver's
licenses and tags. Additionally, examiners found that some
representatives told consumers that their accounts had, or would be,
transferred to the legal department. In fact, consumers' accounts were
not at risk of imminent referral to the legal department. In these
instances, servicers engaged in deceptive acts or practices. It was
reasonable for consumers to believe that servicers had the authority to
take the actions they threatened to take and would take those actions.
And the representations were material because they were likely to
impact consumers' choices regarding whether to pay their auto loans or
other debts.
In response to these findings, servicers remediated impacted
consumers and enhanced training, procedures, and call monitoring
related to collection activity.
2.2 Consumer Reporting
Companies in the business of regularly assembling or evaluating
information about consumers for the purpose of providing consumer
reports to third parties are ``consumer reporting companies''
(CRCs).\7\ These companies, along with the entities--such as banks,
loan servicers, and others--that furnish information to the CRCs for
inclusion in consumer reports, play a vital role in availability of
credit and have a significant role to play in the fair and accurate
reporting of credit information. They are subject to several
requirements under the Fair Credit Reporting Act (FCRA) \8\ and its
implementing regulation, Regulation V,\9\ including the requirement to
reasonably investigate disputes and, for furnishers, to furnish data
subject to the relevant accuracy requirements. In recent reviews,
examiners found deficiencies in CRCs' compliance with FCRA dispute
investigation requirements and furnisher compliance with FCRA and
Regulation V accuracy and dispute investigation requirements.
---------------------------------------------------------------------------
\7\ The term ``consumer reporting company'' means the same as
``consumer reporting agency,'' as defined in the Fair Credit
Reporting Act, 15 U.S.C. 1681a(f), including nationwide consumer
reporting agencies as defined in 15 U.S.C. 1681a(p) and nationwide
specialty consumer reporting agencies as defined in 15 U.S.C.
1681a(x).
\8\ 15 U.S.C. 1681 et seq.
\9\ 12 CFR part 1022.
---------------------------------------------------------------------------
2.2.1 NCRC Duty To Review and Report Determinations and Actions Taken
in Response to Applicable Complaints
The FCRA requires that nationwide CRCs (NCRCs) must take certain
actions in response to complaints received from consumers that the
Bureau transmits to the NCRC if those complaints are about ``incomplete
or inaccurate information'' that a consumer ``appears to have
disputed'' with the NCRC.\10\ For this category of complaints, the FCRA
requires that NCRCs: (1) review such complaints to determine if all
legal obligations have been met; (2) provide regular reports to the
Bureau regarding the determinations and actions taken in response to
the reviews; and (3) maintain records regarding the disposition of such
complaints for a reasonable amount of time to demonstrate compliance
with the obligation to review and report on the complaints.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 1681i(e).
---------------------------------------------------------------------------
In recent reviews of one or more NCRCs, examiners found that NCRCs
failed to report the outcome of complaint reviews to the Bureau.
Specifically, examiners found that NCRCs failed to report to the Bureau
determinations about whether all legal obligations had been met and
actions taken in response to complaints. Examiners also found that
NCRCs failed to address applicable complaints based on the NCRCs'
unsubstantiated suspicions that the complaints were submitted by
unauthorized third parties (e.g., credit repair organizations). In
response to these findings, NCRCs revised policies and procedures for
identifying applicable complaints subject to these heightened
obligations. NCRCs also revised processes for notifying consumers whose
complaints are identified as being submitted by unauthorized third
parties to allow consumers to confirm whether the complaints were
authorized.
2.2.2 Furnisher Prohibition of Reporting Information With Actual
Knowledge of Errors
Examiners are continuing to find that furnishers are violating the
FCRA by inaccurately reporting information despite actual knowledge of
errors.\11\ In reviews of auto loan furnishers, examiners found that
entities furnished information to CRCs while knowing or having
reasonable cause to believe such information was inaccurate because the
information furnished did not accurately reflect the information in the
furnishers' account servicing systems. For example, examiners found
that furnishers reported a consumer's account to CRCs as delinquent
despite placing the account in deferment during the time periods for
which delinquent status was furnished. Examiners also found that the
prohibition on furnishing inaccurate information under this provision
applied because the furnishers did not clearly and conspicuously
specify to consumers an address for notices relating to inaccurately
furnished information. For example, furnishers disclosed a general-
purpose corporate address on their websites and/or provided
instructions on their websites for the submission of complaints or
general concerns by consumers. However, examiners found that the
furnishers did provide an address for consumers to send notices about
inaccurate credit reporting information.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 1681s-2(a)(1)(A).
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In response to these findings, furnishers corrected the furnished
information for affected consumers. Furnishers also revised website
language to specify the address for the submission by consumers of
notices relating to inaccurately furnished information.\12\
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\12\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 20, Fall 2019, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-20_122019.pdf.
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2.2.3 Furnisher Duty To Correct and Update Information
Examiners are continuing to find that furnishers are violating the
FCRA duty to correct and update furnished information after determining
such information is not complete or accurate.\13\ In reviews of third-
party debt collection furnishers, examiners found that furnishers
failed to send updated or corrected information to CRCs after making a
determination that information the furnishers had reported was not
complete or accurate. For example, examiners found that furnishers
continued to report consumer accounts to CRCs with an indication that
the dispute investigation was still open when, in fact, the furnisher
had determined that the accounts were no longer being investigated
after completing their dispute investigations. As a result, furnishers
did not promptly notify CRCs of the determination that the accounts
were no longer under active dispute investigation and provide CRCs with
corrected information that the accounts had been corrected or had
previously been disputed. In response to these findings, furnishers
implemented automated processes to update and
[[Page 72452]]
provide corrections of account dispute statuses to CRCs upon the
completion of dispute investigations.\14\
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\13\ 15 U.S.C. 1681s-2(a)(2).
\14\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 26, Spring 2022, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
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In addition, in reviews of auto loan furnishers, examiners found
that furnishers did not promptly correct or update CRCs following the
placement of consumer accounts into retroactive deferments. Upon
placing consumer accounts into retroactively applicable deferments,
furnishers updated their systems of record to reflect that the accounts
did not have any payments due until a deferment began, and therefore
had not been delinquent. However, examiners found that furnishers did
not send corrections or updates to CRCs indicating that the previously
reported delinquencies on such accounts were no longer accurate as a
result of the accommodation. In response to these findings, furnishers
are conducting lookbacks to identify and furnish corrections to the
CRCs in connection with all affected consumer accounts and are
implementing internal controls to ensure they promptly furnish such
corrections going forward.
2.2.4 Furnisher Duty To Provide Notice of Delinquency of Accounts
Examiners are continuing to find that furnishers are violating the
FCRA duty to notify CRCs of the date of first delinquency (DOFD) on
applicable accounts.\15\ In recent reviews of debt collection
furnishers, examiners found that furnishers violated this provision by
failing to establish and follow reasonable procedures to report the
appropriate DOFD. Examiners found that furnishers were reporting on
collections accounts that arose from unpaid utility accounts--accounts
typically disconnected several months after the first missed payment
causing delinquency before being sent to collections. Examiners found
that reasonable procedures would prevent a furnisher from calculating a
DOFD that preceded the account going to collections by only a brief
window, such as less than 40 days. In response to these findings, the
furnishers worked with the original creditors to ensure they received
the DOFD from them directly and implemented written policies and
procedures and enhanced monitoring and audit to ensure they obtain the
correct DOFD and furnish it to CRCs consistent with FCRA
requirements.\16\
---------------------------------------------------------------------------
\15\ 15 U.S.C. 1681s-2(a)(5).
\16\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 22, Summer 2020, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf.
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2.2.5 Furnisher Duty To Establish and Implement Reasonable Policies and
Procedures Concerning the Accuracy and Integrity of Furnished
Information
Examiners are continuing to find that furnishers are violating the
Regulation V duty to establish and implement reasonable written
policies and procedures regarding the accuracy and integrity of the
information furnished to a CRC and to consider and incorporate, as
appropriate, the guidelines of Appendix E to Regulation V.\17\ Recent
supervisory reviews identifying violations of the Regulation V
requirement for reasonable written policies and procedures include:
---------------------------------------------------------------------------
\17\ 12 CFR 1022.42(a), (b).
---------------------------------------------------------------------------
In reviews of auto loan furnishers, examiners found
furnishers' policies and procedures did not document the basis on which
dispute agents should determine consumer direct disputes reasonably
qualify as frivolous or irrelevant.
Examiners found that furnishing policies and procedures at
auto loan furnishers and debt collection furnishers did not provide for
adequate document retention. Specifically, furnishers' procedures
failed to provide for the maintenance of records for a reasonable
period of time in order to substantiate the accuracy of the information
furnished that was subject to dispute investigations.
Examiners also found that furnishers lacked reasonable
written policies and procedures establishing and implementing
appropriate internal controls regarding the accuracy and integrity of
furnished information, such as by implementing standard procedures and
verifying random samples of furnished information.
In response to these findings, furnishers are taking corrective
actions including developing written policies and procedures regarding
the accuracy and integrity of information furnished to CRCs and the
proper handling and document retention of information related to
consumer disputes.\18\
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\18\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 26, Spring 2022, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf.
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2.2.6 Furnisher Duty To Conduct Reasonable Investigations of Direct
Disputes
Examiners are continuing to find that furnishers are violating the
Regulation V duty to conduct a reasonable investigation of direct
disputes.\19\ Recent examples of failures to conduct reasonable
investigations of direct disputes include:
---------------------------------------------------------------------------
\19\ 12 CFR 1022.43(e).
---------------------------------------------------------------------------
Debt collection furnishers failed to conduct reasonable
investigations by neglecting to review relevant, underlying information
and documentation. In response to these findings, the furnishers
updated policies and procedures to ensure that furnishing dispute
investigations are reasonable, complete, and reported within the time
periods required by Regulation V.
Auto furnishers neither conducted reasonable
investigations nor sent notices that disputes were frivolous or
irrelevant where direct dispute notices may have been prepared by a
credit repair organization and such notices contained all of the
information needed to conduct a reasonable investigation (e.g., name,
address, partial account number, description of information disputed,
and explanation of the basis for the dispute). In response to these
findings, the furnishers are revising procedures regarding
documentation standards and improving training.\20\
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\20\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 22, Summer 2020, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf.
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2.3 Credit Card Account Management
The Bureau assessed the credit card account management operations
of several supervised entities for compliance with applicable Federal
consumer financial services laws. Examinations of these entities
identified violations of Regulation Z and deceptive and unfair acts or
practices prohibited by the CFPA.
2.3.1 Billing Error Resolution
Regulation Z contains billing error resolution provisions that a
creditor must comply with following receipt of a billing error notice
from a consumer. Examiners found that certain entities violated
Regulation Z's billing error resolution provisions by:
Failing to mail or deliver written acknowledgements to
consumers within 30 days of receiving a billing error notice; \21\
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\21\ 12 CFR 1026.13(c)(1).
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Failing to resolve disputes within two complete billing
cycles, or no later
[[Page 72453]]
than 90 days after receiving a billing error notice; \22\
---------------------------------------------------------------------------
\22\ 12 CFR 1026.13(c)(2).
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Failing to conduct reasonable investigations after
receiving billing error notices; \23\
---------------------------------------------------------------------------
\23\ 12 CFR 1026.13(f).
---------------------------------------------------------------------------
Failing to provide explanations to consumers after
determining that no billing error occurred or that a different billing
error occurred from that asserted.\24\
---------------------------------------------------------------------------
\24\ 12 CFR1026.13(f)(1).
---------------------------------------------------------------------------
In response to these findings, the relevant entities are
implementing plans to improve compliance with Regulation Z's billing
error resolution requirements, which include enhanced policies and
procedures, monitoring and audit, and training. The entities also are
remediating affected consumers.\25\
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\25\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 26, Spring 2022 and Issue 25, Fall
2021. These issues are available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-25_2021-12.pdf and https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
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2.3.2 Rate Reevaluation Violations
Under Regulation Z, as revised to implement the Card Accountability
Responsibility and Disclosure (CARD) Act, after increasing a consumer's
Annual Percentage Rate (APR or rate), credit card issuers must
periodically assess whether it is appropriate to reduce the account's
APR.\26\ Issuers must first reevaluate each such account no later than
six months after the rate increase and at least every six months
thereafter until the APR is reduced to the rate applicable immediately
prior to the increase, or, if the rate applicable immediately prior to
the increase was a variable rate, to a variable rate determined by the
same formula (index and margin) that was used to calculate the rate
applicable immediately prior to the increase, or, to a rate that is
lower than the rate applicable immediately prior to the increase.\27\
In reevaluating each account to determine whether it was appropriate to
reduce the account's APR, the issuer must review: (a) the factors on
which the rate increase was originally based (hereinafter, the original
factors); or, (b) the factors the issuer currently considers when
determining the APR applicable to similar, new consumer credit card
accounts (hereinafter, the acquisition factors).\28\
---------------------------------------------------------------------------
\26\ 12 CFR 1026.59(a).
\27\ 12 CFR 1026.59(c), (f).
\28\ 12 CFR 1026.59(d)(1).
---------------------------------------------------------------------------
Examiners found a number of violations of these provisions of
Regulation Z. In one set of violations, the creditors failed to
consider appropriate factors when performing rate reevaluations. First,
in reevaluating accounts subject to default pricing, the creditors used
the original factors method, but also used the acquisition rate for new
customers as one of the variables in reevaluating these accounts. As
such, examiners determined that the creditors improperly mixed original
factors and acquisition factors when reevaluating accounts subject to a
rate increase. Additionally, if the creditors, after reevaluation,
determined that a consumer's rate should be reduced, the rate would be
reduced, but not below the higher of the consumer's pre-default
interest rate or the lowest current acquisition rate. In response to
these findings, the creditors will remediate affected consumers.
Additionally, examiners found that the creditors violated these
provisions by failing to evaluate the full rate increase for certain
accounts converted from fixed to variable rate. Specifically, for
consumer accounts that received a default rate increase and converted
from fixed to variable rate, the creditors reevaluated the interest
rates using original factors. However, if during the reevaluation
period, the variable rate for those accounts increased due to an
increase in the prime rate, the creditors did not consider that
increase as part of the rate reduction reevaluation. In response to
these findings, the creditors agreed to remediate affected consumers.
In a separate set of violations, the creditors failed to reevaluate
all credit card accounts subject to the rate reevaluation provisions at
least once every six months. For certain accounts, the creditors failed
to review the accounts until they reduced the rate to the rate
applicable immediately prior to the increase or to a rate that was
lower than the rate applicable immediately prior to the increase. For
other accounts, the creditors inadvertently excluded recently added
accounts from the master list file of accounts with an increased
interest rate subject to the rate reevaluation process. Additionally,
once the master list file of accounts reached its file size capacity,
older accounts were automatically deleted each time new accounts were
added to the file. This resulted in monetary harm to consumers who were
not included in the creditors' rate reevaluation process and did not
receive potential rate reductions. In response to these findings, the
creditors will remediate affected consumers and design and implement
policies and procedures to ensure compliance.
Finally, examiners found creditors improperly removed accounts from
the APR reevaluation process. Specifically, examiners found that the
creditors improperly removed consumer accounts from the APR
reevaluation process before the consumer had achieved either a
comparable APR to what the consumer enjoyed at the time the rate was
increased or the current rate offered to a new customer with similar
credit characteristics. In response to these findings, the creditors
will remediate affected consumers.\29\
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\29\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 26, Spring 2022, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
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2.3.3 Deceptive and Unfair Marketing, Sale, and Servicing of Add-On
Products
The CFPA prohibits unfair and deceptive acts or practices.\30\
Examiners found that certain entities engaged in deceptive acts or
practices in the marketing, sale, and servicing of credit card add-on
products to consumers.
---------------------------------------------------------------------------
\30\ 12 U.S.C. 5531 and 5536.
---------------------------------------------------------------------------
Examiners found that the entities engaged in deceptive acts or
practices in relation to the marketing, sale, and servicing of credit
card add-on products. Specifically, examiners found that the entities
misled consumers when their service providers used sales scripts that
claimed that self-employed consumers were eligible for the products
when they were not; when, in marketing materials, service providers
claimed that consumers could cancel the product coverage simply by
calling a toll-free number when, instead, they were required to take
additional steps to cancel; and when, in live sales calls, service
providers claimed that consumers would not be required to pay product
premiums for months in which they had a zero balance when, in fact,
consumers were required to carry a zero average daily balance for the
billing cycle to avoid paying the premium for that month. In each
instance, examiners concluded it was reasonable for consumers, under
the circumstances, to believe the misrepresentations because the
entities' service providers expressly stated them. These acts or
practices were material because they likely made consumers more willing
to purchase the products than they otherwise would have been.
Examiners also found that the entities engaged in unfair acts or
practices in relation to the marketing, sale, and servicing of the
credit card add-on products. Specifically, examiners found that the
entities treated consumers unfairly when they omitted disclosure of the
burdensome administrative requirements that consumers were
[[Page 72454]]
required to satisfy to submit benefits claims for the product.
Examiners also found that the entities treated consumers unfairly when
they failed to cancel the products on the date of the consumer's
request and failed to issue pro rata refunds based on the date of the
request as required by the insurance agreement. Examiners concluded
that these acts or practices were unfair because they caused
substantial injury to consumers by leading them to purchase a product
that was likely of significantly less value than the consumer initially
believed. The acts or practices were not reasonably avoidable by
consumers since consumers were unaware of the coverage restrictions
because the entities did not disclose those limitations to consumers at
the time of purchase and were not outweighed by countervailing benefits
to consumers or competition as the acts or practices were injurious in
their net effects.\31\
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\31\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 16 Summer 2017, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
---------------------------------------------------------------------------
2.3.4 Deceptive Representations Regarding the Fixed Payment Option for
Automatic Withdrawal of the Minimum Payment Due
Examiners found that certain entities engaged in deceptive acts or
practices by inaccurately representing to consumers enrolled in their
fixed payment option that the entities would withdraw automatically,
from the consumer's bank account, an amount equal to the minimum
payment due on their credit card account whenever such payment exceeded
the fixed amount designated by the consumer. The entities' inaccurate
representations about the fixed payment option conveyed false messages
to consumers that likely misled them to reasonably believe that the
withdrawn payment amount would be increased to satisfy the minimum
payment due when such amount was higher than the fixed amount
designated by the consumer. These representations are material because
they likely induced consumers to enroll in the fixed payment option and
led them to believe they did not need to check that they made the
minimum payment due. In certain instances, however, the entities failed
to withdraw the minimum payment due, and only withdrew the fixed
amount, resulting in the consumer failing to pay the minimum payment
due. These failures resulted in consumers experiencing late charges,
default pricing, and derogatory credit reporting.
In response to these findings, the entities agreed to remediate
affected consumers.
2.4 Debt Collection
The Bureau has supervisory authority to examine certain
institutions that engage in consumer debt collection activities,
including very large depository institutions,\32\ nonbanks that are
larger participants in the consumer debt collection market,\33\ and
nonbanks that are service providers to certain covered persons.\34\
Recent examinations of larger participant debt collectors identified
violations of the Fair Debt Collection Practices Act (FDCPA).
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\32\ 12 U.S.C. 5515 (a)-(b).
\33\ 12 U.S.C. 5514(a)(1)(B) and 12 CFR 1090.105.
\34\ 12 U.S.C. 5514(e), 5514(d), 5516(e).
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2.4.1 Harassment Regarding Continued Call Conversations
During calls with consumers, examiners found that debt collectors
engaged in conduct the natural consequence of which was to harass,
oppress, or abuse the person with whom they were communicating. In
these calls, examiners found that the debt collectors continued to
engage the consumers in telephone conversations after the consumers
stated that the communication was causing them to feel annoyed,
harassed, or abused.
Examiners found that in at least one call, the debt collector
continued to engage the consumer after the consumer stated multiple
times they were driving and needed to discuss the account at another
time. In another instance, examiners found that the debt collector used
combative statements and continued the call after the consumer stated
they were unemployed, affected by COVID-19, and unable to pay, and even
after the consumer clearly stated that the call was ``making him
agitated.'' By continuing the calls after the consumers expressed their
desire to no longer engage with the collector, the debt collectors
violated the FDCPA's prohibition against harassing and abusive
conduct.\35\
---------------------------------------------------------------------------
\35\ 15 U.S.C. 1692d(5).
---------------------------------------------------------------------------
In response to these findings, Supervision directed the debt
collectors to enhance their training requirements to ensure compliance
with Federal consumer financial law including the FDCPA.
2.4.2 Communication With Third Parties
Examiners found multiple instances in which debt collectors
violated the FDCPA by communicating with a person other than the
consumer about the consumer's debt, when the person had a name similar
or identical to the consumer.\36\
---------------------------------------------------------------------------
\36\ 15 U.S.C. 1692c(b).
---------------------------------------------------------------------------
In response to these findings, Supervision directed the debt
collectors to update their identity authentication procedures to ensure
that the person with whom the debt collector is communicating is the
consumer obligated or allegedly obligated to pay the debt.\37\
---------------------------------------------------------------------------
\37\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 24, Summer 2021, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf.
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2.5 Deposits
2.5.1 Pandemic Relief Benefits--Unfairness Risks
The Bureau conducted prioritized assessments to evaluate how
financial institutions handled pandemic relief benefits deposited into
consumer accounts, as detailed in the COVID-19 Prioritized Assessments
Special Edition of Supervisory Highlights, Issue 23.\38\ These pandemic
relief benefits included enhanced unemployment insurance funds and
three rounds of economic impact payments.\39\ The Bureau did a broad
assessment centered on whether consumers may have lost access to
pandemic relief benefits due to financial institutions' garnishment or
setoff practices. Generally, requirements around garnishment practices
derive from state-specific laws. For one economic impact payment round,
Congress mandated nationwide protection from most garnishment orders.
Various State and territorial laws may have protected economic impact
payments and/or unemployment insurance funds from garnishment or setoff
as well.
---------------------------------------------------------------------------
\38\ This edition is available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-23_2021-01.pdf.
\39\ Congress issued three rounds of economic impact payments to
many consumers under the Coronavirus Aid, Relief, and Economic
Security Act; the Consolidated Appropriations Act of 2021; and the
American Rescue Plan Act.
---------------------------------------------------------------------------
During the initial deposits prioritized assessments review,
examiners identified indicators of risk at over two dozen depository
institutions. Examiners then conducted follow-up assessments at these
identified institutions. The follow-up prioritized assessments analyzed
whether the institutions risked committing an unfair act or practice in
violation of the Dodd-Frank Act, in connection with their treatment of
pandemic relief benefits.\40\
---------------------------------------------------------------------------
\40\ 12 U.S.C. 5531, 5536.
---------------------------------------------------------------------------
Examiners identified unfairness risks at multiple institutions due
to policies
[[Page 72455]]
and procedures that may have resulted in one or more of the following
practices:
Using protected unemployment insurance or economic impact
payments funds to set off a negative balance in the account into which
the benefits were deposited (a.k.a. same-account setoff) or to set off
a balance owed to the financial institution on a separate account
(a.k.a. cross-account setoff), when such practices were prohibited by
applicable State or territorial protections;
Garnishing protected economic impact payments funds in
violation of the Consolidated Appropriations Act of 2021;
Garnishing protected unemployment insurance or economic
impact payments funds in violation of applicable State or territorial
protections;
In connection with out-of-state garnishment orders,
processing garnishments in violation of applicable State prohibitions
against out-of-state garnishment; \41\ and/or
---------------------------------------------------------------------------
\41\ A similar practice was recently the subject of a Bureau
public enforcement action. This order is available at: https://
www.consumerfinance.gov/about-us/newsroom/cfpb-orders-bank-of-
america-to-pay-10-million-penalty-for-illegal-garnishments/
#:~:text=The%20CFPB's%20order%20requires%20Bank,a%20%2410%20million%2
0civil%20penalty.
---------------------------------------------------------------------------
Failing to apply the appropriate State exemptions to
certain consumers' deposit accounts after receiving garnishment
notices.\42\
---------------------------------------------------------------------------
\42\ Id.
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In response to these findings, Supervision directed the
institutions to: (i) refund any protected economic impact payments
funds that were taken by the institution in connection with improper
same-account or cross-account setoffs; (ii) refund any garnishment-
related fees assessed to account holders in connection with certain
out-of-state garnishment orders; (iii) review, update, and implement
policies and procedures to ensure the institution complies with
applicable State and territorial protections regarding its garnishment
practices, including in connection with the garnishment of unemployment
insurance funds, Federal benefits, any funds protected by State law
where the consumer resides, and in connection with out-of-state
garnishment orders; and/or (iv) review, update, and implement policies
and procedures to ensure the institution complies with applicable State
and territorial protections regarding its setoff practices, including
in connection with the setoff of unemployment insurance funds and
Federal benefits.
These prioritized assessment findings highlight the importance of
State and territorial laws that protect consumer funds held in deposit
accounts, including critical relief benefits. And it underscores that
the failure to comply with applicable State and territorial protections
may, under certain circumstances, give rise to unfair acts or practices
in violation of the CFPA. One or more cited institutions raised
arguments that guidance on preemption meant they need not comply with
State or territorial actions. Although preemption of State and
territorial laws may apply in certain situations, all depository
institutions generally must comply with, among other consumer
protections, applicable State and territorial laws that govern
garnishment and certain setoff practices.
2.6 Mortgage Origination
Supervision assessed the mortgage origination operations of several
supervised entities for compliance with applicable Federal consumer
financial laws. Examinations of these entities identified violations of
Regulation Z and deceptive acts or practices prohibited by the CFPA.
2.6.1 Reducing Loan Originator Compensation To Cover Settlement Cost
Increases That Were Not Unforeseen
Regulation Z prohibits compensating mortgage loan originators in an
amount that is based on the terms of a transaction or a proxy for the
terms of a transaction.\43\ This means that a ``creditor and a loan
originator may not agree to set the loan originator's compensation at a
certain level and then subsequently lower it in selective cases.'' \44\
The rule, however, permits decreasing a loan originator's compensation
due to unforeseen increases in settlement costs. An increase is
unforeseen if it occurs even though the estimate provided to the
consumer is consistent with the best information reasonably available
to the disclosing person at the time of the estimate.\45\ Thus, a loan
originator may decrease its compensation ``to defray the cost, in whole
or part, of an unforeseen increase in an actual settlement cost over an
estimated settlement cost disclosed to the consumer pursuant to section
5(c) of RESPA or an unforeseen actual settlement cost not disclosed to
the consumer pursuant to section 5(c) of RESPA.'' \46\
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\43\ 12 CFR 1026.36(d)(1)(i).
\44\ 12 CFR part 1026, supp. I, comment 36(d)(1)-5.
\45\ 12 CFR part 1026, supp. I, comment 36(d)(1)-7.
\46\ Id.
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Examiners found that certain entities provided consumers loan
estimates based on fee information provided by loan originators. At
closing, the entities provided consumers a lender credit when the
actual costs of certain fees exceeded the applicable tolerance
thresholds. The entities then reduced the amount of compensation to the
loan originator after loan consummation by the amount provided to cure
the tolerance violation. Examiners determined, however, that the
correct fee amounts were known to the loan originators at the time of
the initial disclosures, and that the fee information was incorrect as
a result of clerical error. Specifically, in each instance, the
settlement service had been performed and the loan originator knew the
actual costs of those services. The loan originators, however, entered
a cost that was completely unrelated to the actual charges that the
loan originator knew had been incurred, resulting in information being
entered that was not consistent with the best information reasonably
available. Accordingly, the unforeseen increase exception did not
apply.
As a result of these findings, the entities are revising their
policies and procedures and providing training to ensure loan
originator compensation is not reduced based on a term of a
transaction.
2.6.2 Deceptive Waiver of Borrowers' Rights in Loan Security Agreements
Regulation Z states that a ``contract or other agreement relating
to a consumer credit transaction secured by a dwelling . . . may not be
applied or interpreted to bar a consumer from bringing a claim in court
pursuant to any provision of law for damages or other relief in
connection with any alleged violation of Federal law.'' \47\ In light
of this provision, examiners previously concluded that certain waiver
provisions violate the CFPA's prohibition on deceptive acts or
practices where reasonable consumers would construe the waivers to bar
them from bringing Federal claims in court related to their
mortgages.\48\
---------------------------------------------------------------------------
\47\ 12 CFR 1026.36(h)(2).
\48\ 12 U.S.C. 5531 and 5536.
---------------------------------------------------------------------------
Examiners identified a waiver provision in a loan security
agreement that was used by certain entities in one State. The waiver
provided that borrowers who signed the agreement waived their right to
initiate or participate in a class action. Examiners concluded the
waiver language was misleading, and that a reasonable consumer could
understand the provision to waive their right to bring a class action
on any claim, including
[[Page 72456]]
Federal claims, in Federal court. The misrepresentation was material
because it was likely to affect whether a consumer would consult with a
lawyer or otherwise initiate or participate in a class action involving
a Federal claim in relation to the loan transaction. Thus, examiners
concluded that the waiver provision was deceptive.
In response to these findings, the entities removed the waiver
provision from the loan security agreements and sent a notice to
affected consumers rescinding and voiding the waiver.\49\
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\49\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 24, Summer 2021, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf.
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2.7 Mortgage Servicing
The Bureau conducted examinations focused on servicers' actions as
consumers experienced financial distress related to the COVID-19
pandemic. In reviewing customer service calls, examiners found that
servicers engaged in abusive acts or practices by charging sizable fees
for phone payments when consumers were unaware of those fees. Examiners
identified unfair acts or practices and Regulation X policy and
procedure violations regarding failure to provide consumers with CARES
Act forbearances.\50\ Examiners also found that servicers unfairly
charged some consumers fees while they were in CARES Act forbearances
or failed to maintain policies and procedures reasonably designed to
properly evaluate loss mitigation options.\51\ And servicers made
deceptive misrepresentations regarding how to accept deferral offers
after forbearance and how to enroll in automatic payment programs when
entering a deferral.
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\50\ 12 CFR 1024.38(b)(2)(i), (v).
\51\ Id.
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2.7.1 Charging Sizable Phone Payment Fees When Consumers Were Unaware
of the Fees
Examiners found that servicers engaged in abusive acts or practices
by charging sizable phone payment fees when consumers were unaware of
the fees, thus taking unreasonable advantage of consumers' lack of
understanding of the fees. Servicers charged consumers $15 fees for
making payments by phone with customer service representatives. During
calls with consumers, representatives did not disclose the phone pay
fees' existence or cost but charged them anyway.
An act or practice is abusive if it ``takes unreasonable advantage
of . . . a lack of understanding on the part of the consumer of the
material risks, costs, or conditions of the product or service.'' \52\
Consumers lacked understanding of the material costs of the phone pay
fees because servicer representatives failed to inform consumers of the
fees during the phone call. And general disclosures, provided prior to
making the payment, indicating that consumers ``may'' incur a fee for
phone payments did not sufficiently inform consumers of the material
costs. Servicers took unreasonable advantage of this lack of
understanding because the cost of the phone pay fee was materially
greater than the cost of other payment options and servicers profited
from collecting the fees.\53\ In response to these findings, servicers
are reimbursing all consumers who paid phone payment fees when those
fees were not disclosed while processing payments over the phone.
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\52\ 12 U.S.C. 5531(d)(2)(A).
\53\ Additionally, failing to disclose the prices of all
available phone pay fees when different phone pay options carry
materially different fees may be unfair, and failing to disclose
that a phone pay fee would be added to a consumer's payment could
create the misimpression that there was no service fee and thus be
deceptive. For more information, see CFPB Compliance Bulletin, 2017-
01 available at: https://files.consumerfinance.gov/f/documents/201707_cfpb_compliance-bulletin-phone-pay-fee.pdf.
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2.7.2 Charging Illegal Fees During CARES Act Forbearances
Examiners found that servicers engaged in unfair acts or practices
when they charged consumers fees during forbearance plans pursuant to
the CARES Act. Section 4022 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''
on consumers receiving a CARES Act forbearance.\54\ Here, the CARES Act
establishes a consumer right that provides a baseline for measuring
injury. Servicers caused, or were likely to cause, substantial injury
to consumers when they imposed illegal fees on their accounts.
Consumers could not reasonably avoid the injury because they had no
reason to anticipate servicers would impose illegal fees. And charging
illegal fees has no benefits to consumers or competition.
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\54\ Public Law 116-136, sec. 4022(b)(3), 134 Stat. 281, 490
(Mar. 27, 2020).
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In response to these findings, servicers developed remediation
plans to compensate injured consumers.
2.7.3 Failure To Process CARES Act Forbearance Requests
Examiners found that servicers engaged in unfair acts or practices
when they failed to timely honor requests for forbearance from
consumers. Section 4022 of the CARES Act provides that if a servicer of
a federally backed mortgage loan receives a borrower request for a
forbearance, and the borrower attests to a financial hardship caused by
the COVID-19 emergency, then the servicer ``shall'' provide that
borrower a forbearance.\55\ During the forbearance servicers may not
charge fees.\56\ Here, the CARES Act establishes a consumer right that
provides a baseline for measuring injury. Consumers suffered
substantial injury when servicers failed to process forbearances
because they did not gain the benefits of forborne payments, and the
failure also resulted in additional fees being added to their accounts.
Consumers could not reasonably avoid the injury because they had no
reason to anticipate that servicers would fail to process their
requests for forbearance. And even when consumers realized servicers
had failed to process the requests, the servicers sometimes did not
correct the errors. The injury was not outweighed by countervailing
benefits to consumers or competition.
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\55\ Public Law 116-136, sec. 4022(c)(1), 134 Stat. 281, 490
(Mar. 27, 2020).
\56\ Public Law 116-136, sec. 4022(b)(3), 134 Stat. 281, 490
(Mar. 27, 2020).
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In response to these findings, servicers developed remediation
plans to compensate injured consumers.
2.7.4 Misrepresenting That Payment Amounts Were Sufficient To Accept
Deferrals
Examiners found that servicers engaged in deceptive acts or
practices by misrepresenting that certain payment amounts were
sufficient for consumers to accept deferral offers at the end of their
forbearance periods, when in fact, they were not. When consumers were
exiting forbearances, servicers sent consumers paperwork allowing them
to accept a deferral offer by making a payment. The specified payment
amounts were often higher than the consumers' previous monthly payments
because of updated escrow payments. When consumers contacted servicer
representatives to confirm the payment amount, the representatives
expressly represented that consumers' old monthly payment amounts
(which were less than the amounts presented in the letters) were
sufficient to accept the offer, when in fact, payment of these amounts
would not constitute
[[Page 72457]]
acceptance. It was reasonable for consumers to conclude that servicer
representatives would provide accurate information about the payment
amount necessary to accept the deferrals. These misrepresentations were
material because borrowers acted on them to accept the deferral offers,
and they led to improper charges and other negative consequences,
precisely the outcome borrowers acted to avoid when contacting servicer
representatives.
In response to these findings, servicers agreed to remediate
consumers for late charges and improve their training for customer
service representatives handling loss mitigation issues.
2.7.5 Failing To Evaluate Consumers for All Loss Mitigation Options and
Provide Accurate Information
Regulation X \57\ requires servicers to maintain policies and
procedures that are reasonably designed to achieve the objectives in 12
CFR 1024.38(b). Commentary to Regulation X clarifies that
``procedures'' refers to the actual practices followed by the
servicer.\58\ Under Regulation X,\59\ servicers are required to have
certain policies and procedures concerning properly evaluating loss
mitigation applications. Specifically, servicers' policies and
procedures must be reasonably designed to ensure that servicers can
provide borrowers with accurate information regarding available loss
mitigation options and properly evaluate borrowers who submit
applications for all available loss mitigation options that they may be
eligible for.\60\
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\57\ 12 CFR 1024.38(a).
\58\ 12 CFR 1024.38(a)-comment 2.
\59\ 12 CFR 1024.38(b)(2).
\60\ 12 CFR 1024.38(b)(2)(i), (v).
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Examiners found that some servicers violated Regulation X when they
failed to maintain policies and procedures reasonably designed to
achieve the objective of properly evaluating loss mitigation
applications.\61\ For example, servicers' policies and procedures were
not reasonably designed to inform consumers of all available loss
mitigation options, which resulted in some consumers not receiving
information about options, such as deferral, when exiting forbearances.
Additionally, servicers' policies and procedures were not reasonably
designed to properly evaluate consumers for all available loss
mitigation options, resulting in improper denial of deferral options.
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\61\ 12 CFR 1024.38(b)(2)(i) & (v).
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2.8 Payday Lending
2.8.1 Order Violations
Examiners found lenders failed to maintain records of call
recordings necessary to demonstrate full compliance with conduct
provisions in consent orders generally prohibiting certain
misrepresentations. Consent order provisions required creation and
retention of all documents and records necessary to demonstrate full
compliance with all provisions of the consent orders. Failure to
maintain records of such call recordings violated the consent orders
and Federal consumer financial law. To facilitate supervision for
compliance with the consent orders, Supervision directed the lenders to
create and retain records sufficient to capture relevant telephonic
communications.
3. Supervisory Program Developments
3.1 Recent Bureau Supervision Program Developments
Set forth below are statements, circulars, advisory opinions, and
rules that have been issued since the last regular edition of
Supervisory Highlights.
3.1.1 CFPB Issues Circular--Adverse Action Notification Requirements in
Connection With Credit Decisions Based on Complex Algorithms
On May 26, 2022, the CFPB confirmed in a circular \62\ that the
Equal Credit Opportunity Act and Regulation B require companies to
explain to applicants the specific reasons for denying an application
for credit or taking other adverse actions, even if the creditor is
relying on credit models using complex algorithms.
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\62\ The circular is available at: https://www.consumerfinance.gov/compliance/circulars/circular-2022-03-adverse-action-notification-requirements-in-connection-with-credit-decisions-based-on-complex-algorithms/.
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3.1.2 Prohibition on Inclusion of Adverse Information in Consumer
Reports for Victims of Human Trafficking
On June 24, 2022, the CFPB amended Regulation V, which implements
the FCRA, to address recent legislation that assists consumers who are
victims of trafficking.\63\ This final rule establishes a method for a
victim of trafficking to submit documentation to consumer reporting
agencies, including information identifying any adverse item of
information about the consumer that resulted from certain types of
human trafficking, and prohibits the consumer reporting agencies from
furnishing a consumer report containing the adverse item(s) of
information. The Bureau is taking this action as mandated by the
National Defense Authorization Act for Fiscal Year 2022 to assist
consumers who are victims of trafficking in building or rebuilding
financial stability and personal independence.
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\63\ The final rule is available at: https://files.consumerfinance.gov/f/documents/cfpb_fcra-trafficking_final-rule_2022-06.pdf.
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3.1.3 Advisory Opinion on Debt Collectors' Collection of Pay-To-Pay
Fees
On June 29, 2022, CFPB issued an advisory opinion \64\ to affirm
that the FDCPA and Regulation F prohibit debt collectors from charging
consumers pay-to-pay fees (also known as convenience fees) for making
payment a particular way, such as by telephone or online, unless those
fees are expressly authorized by the underlying agreement or are
affirmatively permitted by law.
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\64\ The advisory opinion is available at: https://www.consumerfinance.gov/rules-policy/final-rules/advisory-opinion-on-debt-collectors-collection-of-pay-to-pay-fees/.
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3.1.4 CFPB Issues Advisory To Protect Privacy When Companies Compile
Personal Data
On July 7, 2022, the CFPB issued an advisory opinion \65\ to ensure
that companies that use and share credit reports and background reports
have a permissible purpose under the FCRA. The CFPB's new advisory
opinion makes clear that credit reporting companies and users of credit
reports have specific obligations to protect the public's data privacy
and affirms that a consumer reporting agency may not provide a consumer
report to a user under FCRA section 604(a)(3) unless it has reason to
believe that all of the consumer report information it includes
pertains to the consumer who is the subject of the user's request. The
advisory also reminds covered entities of potential criminal liability
for certain misconduct.
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\65\ The advisory opinion is available at: https://www.consumerfinance.gov/rules-policy/final-rules/fair-credit-reporting-permissible-purposes-for-furnishing-using-and-obtaining-consumer-reports/.
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3.1.5 CFPB Issues Circular on Insufficient Data Protection or Security
for Sensitive Consumer Information
On August 11, 2022, the CFPB confirmed in a circular \66\ that
financial companies may violate Federal
[[Page 72458]]
consumer financial protection law when they fail to safeguard consumer
data.
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\66\ The circular is available at: https://www.consumerfinance.gov/compliance/circulars/circular-2022-04-insufficient-data-protection-or-security-for-sensitive-consumer-information/.
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3.1.6 CFPB Issues Circular on Debt Collection Credit Reporting
Practices Involving Invalid Nursing Home Debts
On September 8, 2022, the CFPB issued a circular \67\ confirming
that debt collection and consumer reporting practices related to
nursing home debts that are invalid under the Nursing Home Reform Act,
can violate the FDCPA and the FCRA.
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\67\ The circular is available at: https://www.consumerfinance.gov/compliance/circulars/circular-2022-05-debt-collection-and-consumer-reporting-practices-involving-invalid-nursing-home-debts/.
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3.1.7 Advisory Opinion on Fair Credit Reporting; Facially False Data
On October 20, 2022, the CFPB issued an advisory opinion \68\ to
highlight that a consumer reporting agency that does not implement
reasonable internal controls to prevent the inclusion of facially false
data, including logically inconsistent information, in consumer reports
it prepares is not using reasonable procedures to assure maximum
possible accuracy under section 607(b) of the FCRA.
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\68\ The advisory opinion is available at: https://files.consumerfinance.gov/f/documents/cfpb_fair-credit-reporting-facially-false-data_advisory-opinion_2022-10.pdf.
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3.1.8 CFPB Issues Circular on Overdraft Fee Assessment Practices
On October 26, 2022, the CFPB issued a circular \69\ about
overdraft-related fee practices that are likely unfair under existing
law. The circular highlighted financial institution practices regarding
unanticipated overdraft fees and provided some examples of those
practices that might trigger liability. While not an exhaustive list,
these examples concerned ``authorize positive, settle negative''
transactions.
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\69\ The circular is available at: https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2022-06-unanticipated-overdraft-fee-assessment-practices/.
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3.1.9 CFPB Issues Bulletin Regarding Unfair Returned Deposited Item Fee
Assessment Practices
On October 26, 2022, the CFPB issued a bulletin \70\ stating that
blanket policies of charging returned deposited item fees to consumers
for all returned transactions irrespective of the circumstances or
patterns of behavior on the account are likely unfair under the CFPA.
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\70\ The bulletin is available at: https://files.consumerfinance.gov/f/documents/cfpb_returned-deposited-item-fee-assessment-practice_compliance-bulletin_2022-10.pdf.
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3.1.10 CFPB Issues FCRA Dispute Resolution Circular
On November 10, 2022, the CFPB issued a circular \71\ to affirm
that neither consumer reporting companies nor information furnishers
can skirt dispute investigation requirements under the FCRA. The
circular affirms that consumer reporting companies and furnishers are
not permitted under the FCRA to impose obstacles that deter submission
of disputes and that consumer reporting companies must promptly provide
to the furnisher all relevant information regarding the dispute that
the consumer reporting agency receives from the consumer.
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\71\ The circular is available at: https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2022-07-reasonable-investigation-of-consumer-reporting-disputes/.
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4. Remedial Actions
4.1 Public Enforcement Actions
The Bureau's supervisory activities resulted in and supported the
following enforcement actions.
4.1.1 Regions Bank
On September 28, 2022, the CFPB ordered Regions Bank to pay $50
million into the CFPB's victims relief fund and to refund at least $141
million to consumers harmed by its illegal surprise overdraft fees.\72\
Until July 2021, Regions charged customers surprise overdraft fees on
certain ATM withdrawals and debit card purchases. The bank charged
overdraft fees even after telling consumers they had sufficient funds
at the time of the transactions. The CFPB also found that Regions Bank
leadership knew about and could have discontinued its surprise
overdraft fee practices years earlier, but they chose to wait while
Regions pursued changes that would generate new fee revenue to make up
for ending the illegal fees.
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\72\ The consent order is available at: https://files.consumerfinance.gov/f/documents/cfpb_Regions_Bank-_Consent-Order_2022-09.pdf.
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This is not the first time Regions Bank has been caught engaging in
illegal overdraft abuses. In 2015, the CFPB found that Regions had
charged $49 million in unlawful overdraft fees and ordered Regions to
make sure that the fees had been fully refunded and pay a $7.5 million
penalty for charging overdraft fees to consumers who had not opted into
overdraft protection and to consumers who had been told they would not
be charged overdraft fees.\73\
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\73\ The consent order is available at: https://files.consumerfinance.gov/f/201504_cfpb_consent-order_regions-bank.pdf.
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4.1.2 Trident Mortgage Company, LP
On July 27, 2022, the CFPB and U.S. Department of Justice (DOJ)
took action to end Trident Mortgage Company's intentional
discrimination against families living in majority-minority
neighborhoods in the greater Philadelphia area. The CFPB and DOJ allege
Trident redlined majority-minority neighborhoods through its marketing,
sales, and hiring actions. Specifically, Trident's actions discouraged
prospective applicants from applying for mortgage and refinance loans
in the greater Philadelphia area's majority-minority neighborhoods. On
September 14, 2022, the court entered the consent order \74\ that,
among other things, requires Trident to pay a $4 million civil penalty
to the CFPB to use for the CFPB's victims' relief fund. The Attorneys
General of Pennsylvania, New Jersey, and Delaware also finalized
concurrent actions.
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\74\ The consent order is available at: https://files.consumerfinance.gov/f/documents/cfpb_trident-consent-order_2022-09.pdf.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-25733 Filed 11-23-22; 8:45 am]
BILLING CODE 4810-AM-P
