Notice2021-14525
Supervisory Highlights, Issue 24, Summer 2021
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 8, 2021
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Bureau of Consumer Financial Protection (CFPB or Bureau) is issuing its twenty fourth edition of Supervisory Highlights.
Full Text
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<title>Federal Register, Volume 86 Issue 128 (Thursday, July 8, 2021)</title>
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[Federal Register Volume 86, Number 128 (Thursday, July 8, 2021)]
[Notices]
[Pages 36108-36123]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-14525]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights, Issue 24, Summer 2021
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory highlights.
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SUMMARY: The Bureau of Consumer Financial Protection (CFPB or Bureau)
is issuing its twenty fourth edition of Supervisory Highlights.
DATES: The Bureau released this edition of the Supervisory Highlights
on its website on June 29, 2021. The findings included in this report
cover examinations in the areas of auto servicing, consumer reporting,
debt collection, deposits, fair lending, mortgage origination, mortgage
servicing, private education loan origination, payday lending, and
student loan servicing that were completed from January 1, 2020 to
December 31, 2020.
FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Counsel, at (202) 435-
7449. If you require this document in an alternative electronic format,
please contact <a href="/cdn-cgi/l/email-protection#22616472607d6341414751514b404b4e4b565b62414452400c454d54"><span class="__cf_email__" data-cfemail="eaa9acbaa8b5ab89898f999983888386839e93aa898c9a88c48d859c">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
1. Introduction
The consumer financial marketplace saw significant impacts from the
COVID-19 pandemic beginning around March 2020. The Bureau of Consumer
Financial Protection (CFPB or Bureau) adapted its work by, among other
things, focusing approximately half of its supervisory activities on
prioritized assessments (PAs) starting in May 2020. PAs were designed
to obtain real-time information from a broad group of supervised
entities that operate in markets posing elevated risk of consumer harm
due to pandemic-related issues. The Bureau analyzed pandemic-related
market developments to determine which markets were most likely to pose
risk to consumers. Observations from the Bureau's PA work were detailed
in a special edition of Supervisory Highlights, Issue 23.\1\
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\1\ A copy of Issue 23, Jan. 2021, is available at <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-23_2021-01.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-23_2021-01.pdf</a>.
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This issue of Supervisory Highlights covers findings from the other
supervisory work the Bureau has engaged in since its last regular
edition, Issue 22.\2\ The findings included in this report cover
examinations in the areas of auto servicing, consumer reporting, debt
collection, deposits, fair lending, mortgage origination, mortgage
servicing, private education loan origination, payday lending, and
student loan servicing that were completed from January 1, 2020 to
December 31, 2020. To maintain the anonymity of the supervised
institutions discussed in this edition of Supervisory Highlights,
references to institutions generally are in the plural and the related
findings pertain to one or more institutions unless otherwise noted.
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\2\ A copy of Issue 22, Sept. 2020, is available at <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf</a>.
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The information contained in Supervisory Highlights is disseminated
to help institutions and the general public better understand how the
Bureau examines institutions for compliance with Federal consumer
financial law. Supervisory Highlights summarizes existing requirements
under the law and summarizes findings made in the course of exercising
the Bureau's supervisory and enforcement authority.\3\
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\3\ If a supervisory matter is referred to the Office of
Enforcement, Enforcement may cite additional violations based on
these facts or uncover additional information that could impact the
conclusion as to what violations may exist.
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2. Supervisory Observations
2.1 Auto Servicing
The Bureau continues to examine auto loan servicing activities,
primarily to assess whether entities have engaged in any unfair,
deceptive or abusive acts or practices prohibited by the Consumer
Financial Protection Act (CFPA). Examiners identified two unfair acts
or practices related to lender-placed collateral protection insurance.
Examiners also found unfair or deceptive acts or practices related to
payment application. And examiners identified an unfair act or practice
related to payoff amounts where consumers had ancillary product rebates
due.
2.1.1 Collateral Protection Insurance
Auto finance contracts generally require consumers to maintain
comprehensive and collision insurance that covers physical damage to
the vehicle in order to protect the value of the collateral. If the
consumer fails to maintain appropriate coverage, some contracts provide
that servicers can purchase insurance for the vehicle, often called
collateral protection insurance (CPI). CPI policies only cover damage
to the vehicle. Charges for CPI policies are added to consumers'
accounts and paid on a monthly basis. Servicers generally use
electronic databases to monitor whether consumers are maintaining
adequate insurance coverage. If the database suggests that a consumer
is not maintaining adequate coverage, the servicer will send a notice
requesting proof of insurance and stating that if the borrower does not
provide proof of insurance, then a CPI policy will be purchased at the
consumer's expense. When the CPI policy is purchased, the servicer
sends the consumer another notice with information about the policy. If
the consumer later proves that they had adequate insurance during any
portion of the CPI policy period, the servicer will generally remove
any CPI charges for that period. Examiners identified unfair and
deceptive acts or practices related to placement and removal of CPI
policies and charges.
[[Page 36109]]
2.1.2 Charging for Unnecessary CPI
Under the prohibition on unfair acts or practices in sections 1031
and 1036 of the CFPA, an act or practice is unfair when: (1) It causes
or is likely to cause substantial injury; (2) the injury is not
reasonably avoidable by consumers; and (3) the substantial injury is
not outweighed by countervailing benefits to consumers or to
competition.
Examiners found that servicers engaged in an unfair act or practice
by charging consumers for unnecessary CPI.
Servicers caused consumers substantial injury by adding and
maintaining charges for CPI premiums as a result of deficient processes
when consumers had adequate insurance in place under their contracts.
If a consumer has an adequate insurance policy that covers the vehicle,
the CPI policy provides no benefit to the servicer or consumer. Placing
or maintaining charges for CPI when consumers have adequate insurance
causes consumers injury because consumers must either pay for the
duplicative insurance or incur late fees or other consequences of
delinquency. Additionally, some servicers caused additional injury
because they applied any refunds of paid CPI charges to principal
instead of returning those amounts directly to the consumer. Consumers
could not reasonably avoid the injury for at least three reasons.
First, in many instances, servicers sent notices regarding CPI charges
to inaccurate addresses, so consumers had no notice that servicers
planned to place CPI. Second, servicers did not have adequate
procedures for processing insurance cards submitted by consumers as
proof of insurance. Third, in many instances, servicers failed to
process insurance documentation from consumers. The substantial injury
to consumers was not outweighed by any countervailing benefits to
consumers or competition, such as the cost of improving notices and
improving document processing. Servicers have ceased issuing CPI
policies.
2.1.3 Charging for CPI After Repossession
Examiners found that servicers engaged in unfair acts or practices
by collecting or attempting to collect CPI premiums after repossession
even though no actual insurance protection was provided for those
periods.
CPI automatically terminates on the date of repossession, per the
terms of the contract, and consumers should not be charged after this
date. Despite this, servicers charged consumers for CPI after
repossession in four different circumstances. First, servicers failed
to communicate the date of repossession to the CPI service provider due
to system errors. Second, servicers used an incorrect formula to
calculate the CPI charges that needed to be removed due to the
repossession. Third, servicers' employees entered the wrong
repossession date into their system of record, resulting in improper
termination dates. Fourth, servicers charged consumers--who had a
vehicle repossessed and subsequently reinstated the loan--for the days
the vehicle was in the servicer's possession, despite the automatic
termination of the policy on the date of repossession.
These errors caused consumers substantial injury because they paid
amounts they did not owe or were subject to collection attempts for
amounts they did not owe. This injury was not reasonably avoidable
because consumers did not control the servicers' cancellation processes
and did not have a reasonable way to determine that the charges were
inaccurate. The substantial injury to consumers was not outweighed by
any countervailing benefits to consumers or competition. Servicers have
ceased issuing CPI policies.
2.1.4 Inaccurate Payment Posting
Examiners found that servicers engaged in unfair acts or practices
by posting payments to the wrong account or by posting certain payments
as principal-only payments instead of periodic installment payments,
resulting in late fees and additional interest charges. Servicers
engaged in two types of errors.\4\ First, some payments were applied to
the wrong loan account, despite the consumer providing their account
information. Second, for some payment types, servicer employees applied
the payment as a principal-only payment instead of a periodic payment.
In both instances, consumers' accounts were marked as delinquent for
the month they made the payment, resulting in late fees and additional
interest. Servicers did not have a reliable method to detect the
errors, and primarily relied on consumer complaints to identify
misapplied payments. In some instances, even when consumers complained,
the servicers did not provide refunds.
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\4\ 12 U.S.C. 5531, 5536.
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This conduct caused or was likely to cause substantial injury to
consumers because the servicers misapplied payments, resulting in late
fees and additional interest. Consumers could not reasonably avoid the
injury because they had no control over the servicers' misapplication
of their payments. Even if consumers contacted the servicers regarding
the errors, late fees and interest had accrued. The injury was not
outweighed by countervailing benefits to consumers or competition. For
example, servicers could improve their procedures to reduce the error
rate. In response to examiner findings, servicers remediated affected
consumers and implemented new automated systems.
2.1.5 Failure To Follow Disclosed Payment Application Order
Under the prohibition against deceptive acts or practices in
sections 1031 and 1036 of the CFPA, an act or practice is deceptive
when: (1) It misleads or is likely to mislead the consumer; (2) the
consumer's interpretation is reasonable under the circumstances; and
(3) the misleading act or practice is material.
Examiners found that servicers engaged in deceptive acts or
practices by representing on their websites a specific payment
application order, and subsequently applying payments in a different
order. Specifically, servicers represented on their websites that
payments would be applied to interest, then principal, then past due
payments, before being applied to other charges, such as late fees.
Instead, the servicers applied partial payments to late fees first, in
contravention of the methodology disclosed on the website. As the
result of applying payments to late fees first, servicers repossessed
some consumers' vehicles.
The representation that payments would be applied to interest, then
principal, then past due payments, and then other charges was likely to
mislead consumers because the servicers actually applied payments to
late fees first. It was reasonable for consumers under the
circumstances to believe that the servicers' websites provided accurate
information about payment allocation order. In some instances, the
underlying contract provides the servicer the right to apply payments
in any order. But consumers reasonably relied on the representations on
servicers' websites regarding payment application. And the
representation was material because it was likely to affect consumers'
decisions about how much to pay. Servicers remediated impacted
consumers and now use the disclosed payment application hierarchy.
2.1.6 Inaccurate Payoff Amounts
Examiners found that servicers engaged in unfair acts or practices
by accepting loan payoff amounts that included overcharges for optional
products after incorrectly telling
[[Page 36110]]
consumers that they owed this larger amount.\5\
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\5\ Id.
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Consumers financed the purchase of the optional product by adding
it to the loan amount of a vehicle purchase. The contracts provided
that consumers or servicers could cancel the product at any time and
receive a ``pro-rata'' refund less a cancellation fee. Servicers
prepared payoff statements in response to consumers' requests that
included a line listing credits for refunds from optional products and
a total ``payoff amount.'' Servicers calculated this refund based on
the actuarial value of the policies, instead of using the pro-rata
calculation specified in the contract. In some instances, this resulted
in payoff statements that listed a total amount due that was larger
than the amount the consumer owed.
The conduct caused or was likely to cause substantial injury to
consumers because servicers accepted money from consumers that the
consumers did not actually owe. Consumers could not reasonably avoid
the injury because they paid the servicers the amount they told them
they owed. Consumers are not required to independently verify that
servicers correctly calculated optional product refund amounts and
therefore the injury could not be reasonably avoided. The injury is not
outweighed by countervailing benefits to consumers or competition.
Servicers can update their systems to perform appropriate calculations
without significant cost. Servicers have refunded overpayments to
consumers and updated their systems to perform calculations that are
consistent with the contract terms.
2.2 Consumer Reporting
Entities that obtain or use consumer reports from consumer
reporting companies (CRCs),\6\ or that furnish information relating to
consumers for inclusion in consumer reports, play a vital role in the
consumer reporting process. They are subject to several requirements
under the Fair Credit Reporting Act (FCRA) \7\ and its implementing
regulation, Regulation V.\8\ These include the requirement to furnish
data subject to the relevant accuracy and dispute handling
requirements. In recent reviews, examiners found deficiencies in, among
other things, CRCs' compliance with FCRA: (i) Accuracy requirements,
(ii) security freeze requirements applicable only for nationwide CRCs
as defined in FCRA section 603(p),\9\ and (iii) requirements regarding
ID theft block requests. Examiners also found deficiencies in furnisher
compliance with FCRA and Regulation V accuracy and dispute
investigation requirements.
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\6\ 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).
\7\ 15 U.S.C. 1681 et seq.
\8\ 12 CFR part 1022.
\9\ 15 U.S.C. 1681a(p).
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2.2.1 CRC Duty To Follow Reasonable Procedures To Assure Maximum
Possible Accuracy
The FCRA requires that, whenever a CRC ``prepares a consumer report
it shall follow reasonable procedures to assure maximum possible
accuracy of the information concerning the individual about whom the
report relates.'' \10\ In reviews of CRCs, examiners found that CRCs'
accuracy procedures failed to comply with this obligation because the
CRC continued to include information in consumer reports that was
provided by unreliable furnishers. Specifically, the furnishers had
responded to disputes in ways that suggested that the furnishers were
no longer sources of reliable, verifiable information about consumers.
For example, CRCs received furnisher dispute responses indicating that,
for several months, furnishers failed to respond to all or nearly all
disputes, deleted all or nearly all tradelines disputed by consumers,
or verified as accurate all or nearly all tradelines disputed by
consumers. Despite observing this dispute response behavior by these
furnishers, CRCs continued to include information from these
furnishers. After identification of these issues, CRCs were directed to
revise their accuracy procedures to identify and take corrective action
regarding data from furnishers whose dispute response behavior
indicates the furnisher is not a source of reliable, verifiable
information about consumers.
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\10\ 15 U.S.C. 1681e(b).
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2.2.2 CRC Duty To Timely Place Security Freezes on Consumer Reports
Upon Consumer Request
The FCRA requires that nationwide CRCs must, free of charge, place
a security freeze on a consumer's report ``upon receiving a direct
request from a consumer'' and upon ``receiving proper identification
from the consumer. . . .'' \11\ The security freeze must be placed not
later than ``(ii) in the case of a request that is by mail, 3 business
days after receiving the request directly from the consumer.'' \12\ In
reviews of nationwide CRCs, examiners found that CRCs failed to place
security freezes within three business days after receiving the request
by mail. One root cause was determined to be inadequate training, and
to address that root cause, targeted training to appropriate staff
regarding the requirements and timing of placing security freezes was
provided.
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\11\ 15 U.S.C. 1681c-1(i)(2)(A).
\12\ 15 U.S.C. 1681c-1(i)(2)(A)(ii).
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2.2.3 CRC Duty To Block Reporting of Information Identified as
Resulting From Identity Theft
The FCRA requires that CRCs must ``block the reporting of any
information in the file of a consumer that the consumer identifies as
information that resulted from an alleged identity theft. . . .'' \13\
The block must be made ``not later than 4 business days after the date
of receipt'' of a qualifying block request.\14\ In reviews of CRCs,
examiners found that CRCs failed to place ID theft blocks within four
business days of receipt of qualifying block requests. The block
requests were delayed due to a backlog that the CRCs subsequently
resolved. In response to these issues, the CRCs updated policies and
procedures to ensure the timely processing and blocking of information
identified in ID theft block requests.
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\13\ 15 U.S.C. 1681c-2(a).
\14\ Id.
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2.2.4 Furnisher Duty To Update and Correct Information
The FCRA requires that persons who regularly and in the ordinary
course of business furnish information to CRCs about that person's
transactions or experiences with consumers must, upon determining that
information furnished to CRCs is not complete or accurate, ``promptly
notify the consumer reporting agency of that determination.'' The
furnisher must then provide to the agency any corrections to that
information, or any additional information, that is necessary to make
the information provided by the person to the agency complete and
accurate, and shall not thereafter furnish to the agency any of the
information that remains not complete or accurate.'' \15\
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\15\ 15 U.S.C. 1681s-2(a)(2)(B).
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In a review of auto loan furnishers, examiners found that
furnishers failed to send updating or correcting information to CRCs
after making a determination that information furnishers had reported
was no longer accurate. For example, examiners found that after
consumers had applied for an auto loan but later communicated they
[[Page 36111]]
no longer wanted to proceed with the loan, and the furnisher had
removed the loan from its system of record, the furnisher continued to
furnish information to CRCs as though the loans had been issued rather
than cancelled. Furnishers attributed the errors to failures by a
service provider to follow furnisher's procedures. Following
identification of these issues furnishers implemented a new process
that reconciles loan cancellations and removals of loans from the
system of record with responsive corrections to CRCs.
2.2.5 Furnisher Duty To Conduct Reasonable Investigation of Direct
Disputes
Regulation V requires that, after receiving a direct dispute notice
from a consumer, a furnisher must ``[c]onduct a reasonable
investigation with respect to the disputed information. . . .\16\
Further, Regulation V provides that a ``furnisher is not required to
investigate a direct dispute if the furnisher has reasonably determined
that the dispute is frivolous or irrelevant.'' \17\ However, if a
furnisher determines that a dispute is frivolous or irrelevant, the
furnisher must ``notify the consumer of the determination not later
than five business days after making the determination, by mail or, if
authorized by the consumer for that purpose, by any other means
available to the furnisher.'' \18\ The notice must ``include the
reasons for such determination and identify any information required to
investigate the disputed information, which notice may consist of a
standardized form describing the general nature of such information.''
\19\
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\16\ 12 CFR 1022.43(e)(1).
\17\ 12 CFR 1022.43(f)(1).
\18\ 12 CFR 1022.43(f)(2).
\19\ 12 CFR 1022.43(f)(3).
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In reviews of mortgage furnishers, examiners found that furnishers
failed to conduct reasonable investigations of direct disputes.
Furnishers' dispute procedures instructed their direct dispute
investigating agents to verify that consumers' signatures matched the
signature on file and, if they did not match, send a letter to the
borrower stating that the information provided in the dispute did not
match the furnishers' records. Examiners found that furnishers' agents
had sent such letters to consumers whose dispute letters included only
a typed name or electronic image of a signature. Furnishers' agents did
so without: Conducting an investigation of such disputes, otherwise
reasonably determining that such disputes were frivolous or irrelevant,
or providing any qualifying frivolous or irrelevant notices to
consumers. After identification of these issues, furnishers updated
their policies and procedures to define circumstances when disputes
should reasonably be deemed frivolous because they appear to have
originated from credit repair organizations; furnishers also created
templates to send to consumers whose disputes they deemed frivolous.
Further, furnishers provided training to agents on the new policies and
procedures and the new letter templates.
2.3 Debt Collection
The Bureau has the supervisory authority to examine certain
entities that engage in consumer debt collection activities, including
nonbanks that are larger participants in the consumer debt collection
market and nonbanks that are service providers to certain covered
persons. Recent examinations of larger participant debt collectors
identified violations of the Fair Debt Collection Practices Act
(FDCPA).
2.3.1 Prohibited Calls to Consumer's Workplace
Section 805(a)(3) of the FDCPA prohibits a debt collector from
communicating with a consumer in connection with the collection of a
debt at the consumer's workplace if the debt collector knows or has
reason to know that the consumer's employer prohibits such
communications.\20\ Examiners determined that debt collectors
communicated with consumers at their workplaces after they knew or
should have known that the consumers' employers prohibit such
communications, in violation of section 805(a)(3). In response to these
findings, the collectors are improving their training and monitoring.
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\20\ 15 U.S.C. 1692c(a)(3).
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In addition, section 805(a) of the FDCPA restricts the
circumstances under which a debt collector may contact a consumer.\21\
Specifically, section 805(a)(1) prohibits a debt collector from
communicating with a consumer in connection with the collection of any
debt at a time or place that the collector knows or should know is
inconvenient to the consumer.\22\ Examiners found that debt collectors
communicated with consumers at their places of employment during work
hours when the debt collectors knew or should have known that calls
during work hours were inconvenient to the consumers, in violation of
section 805(a)(1). For example, one debt collector called a consumer
during work hours at a time the consumer had previously specified as
inconvenient. Another debt collector called a consumer on a workplace
phone number after being informed by the consumer that calls to the
workplace number were inconvenient. In response to these findings, the
collectors are improving their training and monitoring.
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\21\ 15 U.S.C. 1692c(a).
\22\ 15 U.S.C. 1692c(a)(1).
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2.3.2 Communication With Third Parties
Section 805(b) of the FDCPA prohibits a debt collector from
communicating in connection with the collection of a debt with any
person other than the consumer and certain other parties.\23\
Exceptions to this prohibition are set out in sections 804 and
805(b).\24\
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\23\ 15 U.S.C. 1692c(b).
\24\ 15 U.S.C. 1692b, c(b).
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Examiners found that debt collectors communicated with third
parties in violation of section 805(b). The communications were not
within an exception listed in sections 804 or 805(b). This violation of
the FDCPA resulted from inadequate compliance controls to verify right-
party contact during efforts to locate the consumer. In several
instances, the third party had a name similar to the consumer's name.
In response to this finding, the collectors are improving various
aspects of their compliance management systems (CMS).
In addition, section 804(1) of the FDCPA states that, when
communicating with third parties for the purpose of acquiring location
information for the consumer, a debt collector may only disclose the
name of their employer if expressly requested.\25\ Examiners observed
that debt collectors identified their employers when communicating with
third parties who had not expressly requested it, in violation of
section 804(1). In response to these findings, the collectors are
improving their training and monitoring.
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\25\ 15 U.S.C. 1692b(1).
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2.3.3 Failure To Cease Communication Upon Written Request or Refusal To
Pay
Section 805(c) of the FDCPA provides that if a consumer notifies a
debt collector in writing that the consumer wishes the collector to
cease further communication or that the consumer refuses to pay the
debt, the collector must cease further communication with the consumer,
with certain exceptions.\26\ Examiners found that a
[[Page 36112]]
consumer used a model form to mail a written statement to a debt
collector stating that the debt was the result of identity theft,
requesting that the collector cease further communication, and
requesting that the collector provide confirmation along with
information concerning the disputed account. After receiving this form,
the collector continued attempts to collect the debt from the consumer
in violation of FDCPA section 805(c). These attempts were not efforts
to respond to the consumer's request for information about the identity
theft claim. In response to these findings, the collector is improving
board and management oversight and monitoring.
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\26\ 15 U.S.C. 1692c(c).
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2.3.4 Harassment Regarding Inability To Pay
Section 806 of the FDCPA prohibits a debt collector from engaging
in any conduct the natural consequence of which is to harass, oppress,
or abuse any person in connection with the collection of a debt.\27\
Examiners found when consumers stated they were unable to make or
complete payment arrangements, debt collectors emphasized two or more
times to each of the consumers that the collector would place a note in
the account system stating that the consumer was refusing to make a
payment. The natural consequence of these inaccurate statements was to
harass or oppress the consumers, in violation of section 806. In
response to these finding, the collectors are improving their training
and monitoring.
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\27\ 15 U.S.C. 1692d.
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2.3.5 Communicating, and Threatening To Communicate, False Credit
Information
Section 807 of the FDCPA prohibits a debt collector from using any
false, deceptive, or misleading representation or means in connection
with the collection of any debt.\28\ Section 807(8) specifically
prohibits communicating or threatening to communicate credit
information which is known or which should be known to be false,
including the failure to communicate that a disputed debt is
disputed.\29\ Examiners found that debt collectors knew or should have
known that debts were disputed, resulted from identity theft, and were
not owed by the relevant consumers. Nonetheless, in these
circumstances, the collectors threatened to report to CRCs that the
consumer owed the debt if it was not paid. The collectors then reported
the debt to CRCs and failed to report that the consumer disputed the
debt. This course of action violated section 807(8) of the FDCPA. In
response to these finding, the collectors are improving their training.
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\28\ 15 U.S.C. 1692e.
\29\ 15 U.S.C. 1692e(8).
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2.3.6 False Representations or Deceptive Means of Collection
Section 807(10) of the FDCPA prohibits a debt collector from using
any false, deceptive, or misleading representation or means in
connection with the collection of any debt or obtain information
concerning a consumer.\30\
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\30\ 15 U.S.C. 1692e.
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Examiners found that several debt collectors falsely represented to
consumers the impact that paying off their debts would have on their
credit profiles, in violation of section 807(10).\31\ For example, one
debt collector told a consumer the debt would no longer ``impact'' her
credit profile once paid, which was false. Another debt collector told
a consumer that making a payment would help to ``fix'' the consumer's
credit. In response to this finding, the collectors are improving
various aspects of their CMS.
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\31\ See CFPB Bulletin 2013-08, ``Representations Regarding
Effect of Debt Payments on Credit Reports and Scores'' (July 10,
2013).
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2.3.7 Incorrect Systemic Implementation of State Interest Rate Cap
Section 808 of the FDCPA states that a debt collector may not use
unfair or unconscionable means to collect or attempt to collect any
debt.\32\ Section 808(1) specifically designates ``the collection of
any amount . . . unless such amount is expressly authorized by the
agreement creating the debt or permitted by law'' as an unfair
practice.\33\ Examiners found that debt collectors entered inaccurate
information regarding State interest rate caps into an automated
system, resulting in some consumers being overcharged, in violation of
section 808(1). In response to these findings, the collectors
remediated impacted consumers and are improving their training and
monitoring.
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\32\ 15 U.S.C. 1692f.
\33\ 15 U.S.C. 1692f(1).
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2.3.8 Unlawful Initiation of Administrative Wage Garnishment During
Consolidation Process
Section 808 of the FDCPA states that a debt collector may not use
unfair or unconscionable means to collect or attempt to collect any
debt.\34\ Examiners found that debt collectors sent administrative wage
garnishment orders to consumers' employers by mistake despite having
received completed applications from the consumers to consolidate the
debt, which should have stopped the wage garnishment process based on
standard procedures, in violation of section 808. In response to these
findings, the collectors are improving their training and monitoring.
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\34\ 15 U.S.C. 1692f.
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2.3.9 Failure To Send Complete Validation Notices
Section 809(a) of the FDCPA requires a debt collector to send a
notice containing certain information (commonly called a ``validation
notice'') to the consumer within five days after the initial
communication with the consumer, with certain exceptions.\35\ Examiners
found that debt collectors violated section 809(a) by sending
validation notices that lacked some of the required information.
Examiners found that the issue resulted from template changes that had
not been reviewed by compliance personnel. In response to these
findings, the collectors are improving their board and management
oversight of new letter templates.
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\35\ 15 U.S.C. 1692g(a).
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2.4 Deposits
The CFPB continues its examinations of financial institutions for
compliance with Regulation E,\36\ which implements the Electronic Fund
Transfer Act (EFTA).\37\ The CFPB also examines for compliance with
other relevant statutes and regulations, including Regulation DD,\38\
which implements the Truth in Savings Act,\39\ and the Dodd-Frank Act's
prohibition on unfair, deceptive, or abusive acts or practices
(UDAAPs).\40\
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\36\ 12 CFR part 1005 et seq.
\37\ 15 U.S.C. 1693 et seq.
\38\ 12 CFR part 1030 et seq.
\39\ 12 U.S.C. 4301 et seq.
\40\ 12 U.S.C. 5531, 5536.
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2.4.1 Regulation E Error Resolution Violations
EFTA establishes a legal framework for the offering and use of
electronic fund transfer (EFT) services. One of the primary objectives
of the EFTA and its implementing regulation, Regulation E, is to
protect consumers engaging in EFTs.
Supervision continues to find violations of EFTA and Regulation E
that it previously discussed in the Fall 2014, Summer 2017, and Summer
2020 editions of Supervisory Highlights, respectively. These violations
include:
<bullet> Requiring written confirmation of an oral notice of error
before investigating;
[[Page 36113]]
<bullet> Requiring consumers to contact merchants about alleged
unauthorized transactions before investigating;
<bullet> Relying on incorrect dates to assess the timeliness of an
EFT error notice;
<bullet> Failing to provide an explanation or an accurate
explanation of investigation results when determining no error or a
different error occurred; and
<bullet> Failing to include in the error investigation report a
statement regarding a consumer's right to obtain the documentation that
an institution relied on in its error investigation.
An effective compliance strategy for institutions includes
evaluation of their practices, including through transaction testing,
monitoring, and review of their policies and procedures. This will help
ensure compliance with applicable Federal consumer financial laws and
stop any practices that were previously identified as violations.
Examples of other violations found by examiners are described below.
2.4.2 Issues With Provisional Credits
Under Regulation E, a financial institution generally must complete
its investigation and determine whether an error occurred within 10
business days of receiving a notice of error.\41\ But an institution
may take up to 45 days \42\ to complete its investigation if it, among
other things, provisionally credits the alleged error amount (including
interest where applicable) to the consumer's account within 10 business
days of receiving the error notice.\43\ The institution need not issue
a provisional credit if it requires, but does not receive, written
confirmation of an oral notice of error within 10 business days.\44\
When institutions issue provisional credits, they must inform the
consumer of the amount and date the credit was applied to the account
within two business days after provisionally crediting the account.\45\
Within three business days of completing an error investigation, the
financial institution must report the results to the consumer,
including, if applicable, notice that a provisional credit has been
made final.\46\
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\41\ 12 CFR 1005.11(c)(1). Note that this 10-day period may be
extended to 20 days for certain new accounts. 12 CFR
1005.11(c)(3)(i).
\42\ This time period may be extended to 90 days for certain
transactions, such as transactions outside the U.S., point of sale
transactions, or transactions that occurred within 30 days of the
first deposit to the account. 12 CFR 1005.11(c)(3)(ii).
\43\ 12 CFR 1005.11(c)(2)(i).
\44\ 12 CFR 1005.11(c)(2)(i)(A). Note that even though a
financial institution may request written confirmation within 10
days of receipt of an oral notice, it must begin its investigation
promptly upon receipt of an oral notice.
12 CFR 1005, supp. I, comment 11(b)(1).
\45\ 12 CFR 1005.11(c)(2)(ii).
\46\ 12 CFR 1005.11(c)(2)(iv).
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If an institution debits a provisional credit from a consumer's
account because it determines that no error occurred or that an error
occurred in a manner or amount different from that described by the
consumer, it must, among other things, notify consumers of the
debiting.\47\ The notice must State the date and amount of the debit
and that the financial institution will honor checks, drafts, or
similar instruments payable to third parties and preauthorized EFTs
from the consumer's account for five business days after the
notification.\48\ As an alternative to this notice, which is specified
in the text of Regulation E, the associated Staff Commentary provides
that a financial institution may notify the consumer that the
consumer's account will be debited five business days from the
transmittal of the notification and specify the calendar date on which
the debiting will occur.\49\
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\47\ 12 CFR 1005.11(d)(2)(i).
\48\ 12 CFR 1005.11(d)(2)(ii).
\49\ 12 CFR part 1005, supp. I, comment 11(d)(2)-1.
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Examiners found that numerous institutions violated Regulation E's
provisional credit requirements, including as follows:
<bullet> Failing to provide provisional credits, despite not
completing error investigations within 10 business days of notice of an
error;
<bullet> Failing to provide provisional credits to consumers who
timely provided required written confirmation of oral error notices;
<bullet> Posting the provisional credit to the wrong account, by
failing to ensure that the ownership of the credited account matched
the account that should have received the credit;
<bullet> Excluding interest from the provisional credit;
<bullet> Using notification templates that either had a timeframe
to disclose when a provisional credit would be applied instead of a
specific date or lacked any date information;
<bullet> Failing to provide notice that a provisional credit had
been made final due to process weakness, including: (i) An unsuccessful
attempt to combine the letter informing consumers of a provisional
credit with the letter notifying them the credit would be final, and
(ii) a process deficiency in which both the financial institution and
the merchant of the disputed charge issued a simultaneous credit; and
<bullet> Sending consumers notices that provisional credits would
be reversed, but excluding either the exact date a credit was or would
be debited or notice that it would honor checks, drafts, or similar
instruments payable to third parties and preauthorized transfers from
the customer's account for five business days after the notification,
or excluding both.
The institutions took a variety of corrective actions to remedy
these violations, including making improvements to compliance
management systems and providing remediation to consumers.
2.4.3 Failure To Timely Investigate Errors
If a financial institution is unable to complete its investigation
within 10 business days, 12 CFR 1005.11(c)(2) provides that an
institution may take up to 45 days from receipt of the notice of error
to investigate and determine whether an error occurred provided it,
among other things, provisionally credits the consumer's account as
discussed above. If the alleged error involves an EFT that was not
initiated within a state, resulted from a point-of-sale debit card
transaction, or occurred within 30 days after the first deposit to the
account was made, the institution may take up to 90 days to investigate
and determine whether an error occurred, provided it otherwise complied
with the requirements of 12 CFR 1005.11(c)(2).\50\
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\50\ See also 12 CFR 1005.2(l) (defining ``state'').
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Examiners found that financial institutions violated Regulation E
by failing to complete investigations and make a determination within
45 days from receipt of the notice of error and within 90 days from
receipt of the notice of error for point-of-sale debit transactions,
respectively, after providing provisional credit within 10 business
days of the error notice. In each instance, the financial institutions
exceeded the applicable timelines.
In response to examiners' findings, the financial institutions
updated their training to ensure that employees were properly trained
on the applicable Regulation E timelines and modified certain policies
and procedures.\51\
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\51\ While certain payment network rules may impose alternative
timing requirements or limitations, network rules do not excuse
institutions from complying with the applicable Regulation E
timelines to complete the error investigation and make a
determination. 12 CFR 1005.11(c)(2) and (3).
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2.4.4 Failure To Conduct Reasonable Investigations
All error investigations ``must be reasonable.'' \52\ When it
applies, Regulation E, 12 CFR 1005.11(c)(4), requires that a financial
institution in
[[Page 36114]]
investigating an error must conduct, at a minimum, a ``review of its
own records regarding [the] alleged error.'' \53\ This review must
include at least ``any relevant information within the institution's
own records.'' \54\
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\52\ 71 FR 1638, 1654 (Jan. 10, 2006). See also USAA Federal
Savings Bank Consent Order, File No. 2019-BCFP-0001.
\53\ 12 CFR 1005.11(c)(4). Section 1005.11(c)(4) applies when
the conditions in Sec. 1005.11(c)(4)(i) and (ii) are satisfied.
\54\ 12 CFR part 1005, supp. I, comment 11(c)(4)-5.
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Examiners found that some financial institutions violated
Regulation E by failing to conduct a reasonable investigation and
instead denied claims solely because the consumers had previously
conducted business with a merchant. One institution, upon seeing that a
consumer was challenging a charge from a merchant with whom the
consumer had prior transactions, closed error investigations without
completing them, and instead instructed consumers to first direct the
claim to the merchant that made the charge.
In response to examiners' findings, the financial institutions
updated their training to ensure that employees were properly trained
on the applicable Regulation E investigation requirements and enhanced
certain policies and procedures and monitoring to ensure investigations
are completed properly. In addition, the financial institutions
identified and remediated all consumers whose Regulation E error claims
were wrongly denied based upon pre-existing relationships with the
merchant and whose error resolution claims were not investigated as
required.
2.4.5 Failure To Properly Remediate Errors
When a financial institution determines an alleged error did occur,
commentary to Regulation E highlights ``it must correct the error . . .
including, where applicable, the crediting of interest and the
refunding of any fees imposed by the institution.'' \55\
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\55\ 12 CFR part 1005, supp. I, somment 11(c)-6.
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Examiners determined that some financial institutions failed to
refund associated fees and credit interest when correcting an error.
One such institution implemented automated processes, as well as policy
updates and enhanced training to address the issue. At another
institution, employees failed to provide proper credits and refunds
although it was required by the institution's procedures. This failure
indicated a lack of proper training, which the institution was asked to
enhance. Both institutions stated that they would or had remediated
impacted consumers.
For another institution, this violation occurred because the
institution's ACH teams reviewed issues on a transaction-by-transaction
basis, which did not allow it to evaluate the impact of the issue at
the account or claim level. This institution reorganized its staff to
evaluate consumer accounts on an individual or account level, conducted
a lookback to remediate impacted consumers, and updated policies to
ensure that fees were credited to the accounts.
Similarly, an organizational issue caused the problem at another
institution. This institution used multiple divisions to investigate
and correct errors, depending on the type of error alleged. Differing
policies and procedures between divisions created various levels of
authority for error resolution. Because of these differences, the
institution failed to refund the fees as is required by the Regulation
E commentary, despite determining the alleged error occurred. The
institution rectified this situation by reviewing and consolidating the
role of error investigation into one division to ensure all Regulation
E errors were consistently processed and committed to remediate harmed
consumers.
2.4.6 Overdraft Opt-In and Disclosure Violations
The CFPB continues to examine financial institutions' overdraft
opt-in and disclosure practices for compliance with relevant statutes
and regulations, including Regulation E,\56\ Regulation DD,\57\ which
implements the Truth in Savings Act,\58\ and the Dodd-Frank Act's
prohibition on unfair, deceptive, or abusive acts or practices.\59\
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\56\ 12 CFR 1005, et seq.
\57\ 12 CFR 1030, et seq.
\58\ 12 U.S.C. 4301, et seq.
\59\ 12 U.S.C. 5531, 5536.
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Many institutions provide various overdraft products that charge
fees for transactions that overdraw accounts. Regulation E prohibits
financial institutions from charging overdraft fees on ATM and one-time
debit card transactions unless consumers affirmatively opt in to
overdraft service.\60\ Among other things, Regulation E requires that
institutions provide consumers ``a reasonable opportunity for the
consumer to affirmatively consent, or opt in, to the service for ATM
and one-time debit card transactions.'' \61\ Moreover, institutions
must provide consumers ``with confirmation of the consumer's consent in
writing, or if the consumer agrees, electronically, which includes a
statement informing the consumer of the right to revoke such consent.''
\62\ Regulation E requires institutions to maintain evidence of
compliance for a period of not less than two years from the date action
is required to be taken or disclosures are required to be given.\63\
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\60\ 12 CFR 1005.17.
\61\ 12 CFR 1005.17(b)(1)(ii).
\62\ 12 CFR 1005.17(b)(iv).
\63\ 12 CFR 1005.13(b)(1).
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Examiners identified a number of violations in connection with
these overdraft opt-in requirements, including the following:
<bullet> Failing to obtain affirmative consent from consumers
before charging them overdraft fees for ATM and one-time debit card
transactions, due to coding errors, systems mergers, or inadequate
phone-based opt-in procedures. These institutions provided remediation
to consumers assessed these overdraft fees without their authorization
and ceased charging overdraft fees to consumers who did not opt in.
<bullet> Failing to advise consumers who opted-in to overdraft
online of their right to revoke their opt-in to ATM and one-time debit
overdraft services as part of the opt-in confirmation notice.
Supervision issued a Matter Requiring Attention (MRA) regarding the
need for a notice that included the right to revoke and also
remediation for consumers impacted by the previous deficient notice.
<bullet> Failing to retain evidence of having obtained affirmative
consent from consumers to opt into overdraft services for ATM and one-
time debit card transactions, including due to process deficiencies for
in-branch opt-in and general document retention failures. The
institutions were directed to rectify their procedures.
<bullet> Failing to provide consumers overdraft opt-in notices that
were substantially similar to the Model Form A-9 disclosure, in
violation of Regulation E.\64\ Institutions corrected their notices.
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\64\ 12 CFR 1005.17(d).
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Supervision identified violations of Regulation DD requirements
related to overdraft services as well, including:
<bullet> Disclosing to consumers, through automated systems,
available account balance amounts that included discretionary overdraft
credit that the bank potentially could provide; \65\ and
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\65\ 12 CFR 1030.11(c).
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<bullet> Failing to correctly disclose on periodic statements the
amount of overdraft fees incurred by consumers during a statement
cycle.\66\
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\66\ See 12 CFR part 1030(6)(a)(3).
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The institutions implemented or proposed policy and procedure
changes to address the violations.
[[Page 36115]]
2.5 Fair Lending
The Bureau's fair lending supervision program assesses compliance
with the Equal Credit Opportunity Act (ECOA) \67\ and its implementing
regulation, Regulation B,\68\ as well as the Home Mortgage Disclosure
Act (HMDA) \69\ and its implementing regulation, Regulation C,\70\ at
banks and nonbanks over which the Bureau has supervisory authority.
Examiners found that supervised institutions engaged in violations of
HMDA and Regulation C, and ECOA and Regulation B.
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\67\ 15 U.S.C. 1691-1691f.
\68\ 12 CFR part 1002.
\69\ 12 U.S.C. 2801-2810.
\70\ 12 CFR part 1003.
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2.5.1 HMDA Examination Findings--2018 & 2019 Data
The Bureau continues to examine mortgage originators, including
bank and nonbank financial institutions, for compliance with HMDA and
its implementing regulation, Regulation C. Regulation C requires
financial institutions to collect and report data regarding
applications for covered loans that they receive, covered loans that
they originate, and covered loans that they purchase each calendar
year.\71\ Recent examinations identified HMDA violations due to
inaccuracy of HMDA data submitted by financial institutions, including
fields newly added to the HMDA loan application register (LAR)
beginning in 2018. In October 2015, the CFPB issued a final rule (2015
HMDA Rule) that included changes to the types of institutions that are
subject to Regulation C; the types of transactions subject to
Regulation C; the specific information that covered institutions are
required to collect, record, and report; and processes for reporting
and disclosing data.\72\ For HMDA data collected on or after January 1,
2018, certain covered institutions were required to collect, record,
and report data points newly added or modified by the 2015 HMDA Rule.
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\71\ 12 CFR 1003.4(a).
\72\ 80 FR 66128 (Oct. 28, 2015).
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Specifically, the 2015 HMDA Rule added new data points for
Applicant or Borrower Age, Credit Score, Automated Underwriting System
information, Unique Loan Identifier, Property Value, Application
Channel, Points and Fees, Borrower-paid Origination Charges, Discount
Points, Lender Credits, Loan Term, Prepayment Penalty, Non-amortizing
Loan Features, Interest Rate, and Loan Originator Identifier as well as
other data points. The 2015 HMDA Rule also modified several existing
data points.\73\ Most of the additions and modifications to the HMDA
LAR fields within the 2015 HMDA rule became effective January 1, 2018.
Examinations evaluating data reported in 2018 and 2019 were the first
examinations in which the Bureau reviewed the accuracy of the data in
HMDA LAR fields added by the 2015 HMDA Rule.
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\73\ See the CFPB HMDA Summary of Reportable Data chart (2015),
<a href="https://files.consumerfinance.gov/f/201510_cfpb_hmda-summary-of-reportable-data.pdf">https://files.consumerfinance.gov/f/201510_cfpb_hmda-summary-of-reportable-data.pdf</a>.
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The CFPB's HMDA examinations include transaction testing of a
sample of the institution's HMDA LAR and review of its CMS as it
relates to HMDA. Transaction testing consists of comparing a sample of
the institution's HMDA LAR to source documents from the loan files
corresponding to each LAR entry (LAR line or row of the data) and
assessing whether or not the LAR entry is accurate. When errors are
identified, examiners evaluate the number of errors relative to the
resubmission threshold, which is the data accuracy standard used in the
CFPB's examinations. Specifically, the HMDA interagency resubmission
thresholds provide that in a LAR of more than 500 entries, when the
total number of errors in any data field exceeds four, examiners should
direct the institution to correct any such data field in the full HMDA
LAR and resubmit its HMDA LARs with the corrected field(s).\74\ These
resubmission thresholds are included in the CFPB's HMDA examination
procedures.\75\
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\74\ LARs of 500 entries or fewer have a resubmission threshold
of three errors. CFPB Examination Procedures, updated April 1, 2019,
available at <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervision-and-examination-manual_hmda-exam-procedures_2019-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervision-and-examination-manual_hmda-exam-procedures_2019-04.pdf</a>.
\75\ For more information about CFPB HMDA LAR transaction
testing and samples, refer to the CFPB HMDA Examination Procedures,
updated April 1, 2019, available at <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervision-and-examination-manual_hmda-exam-procedures_2019-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervision-and-examination-manual_hmda-exam-procedures_2019-04.pdf</a>.
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2.5.2 2018 & 2019 HMDA LAR Errors
Examiners identified widespread errors within 2018 HMDA LARs of
several covered financial institutions. To date, examiners have not
identified widespread LAR errors within institutions' 2019 LARs. In
several examinations, examiners identified errors that exceed the HMDA
resubmission thresholds. In general, examiners identified more errors
in data fields collected beginning in 2018 pursuant to the 2015 HMDA
rule than for other fields. For example, the fields with the highest
number of identified errors across several institutions were the newly
required ``Initially Payable to Your Institution'' field and the
``Debt-to-Income Ratio'' field.
2.5.3 Root Causes of HMDA Data Errors
In several examinations in which examiners identified numerous
errors, the root causes of the HMDA violations were deficiencies in the
institutions' CMS. The CMS deficiencies included the institutions'
board and management oversight, policies and procedures, training,
monitoring and audit, and the institutions' service provider oversight.
Many of the widespread or systemic errors related to problems
within the institutions' data mapping--the data transfers from
operations-based systems, such as loan origination systems, to data
storage systems that populate the HMDA LARs. For example:
<bullet> Examiners determined that numerous errors within the
Credit Scoring model fields were caused by data transfer deficiencies
in which institutions extracted data from credit scoring models then
transferred them to systems that reported inaccurate codes and
descriptions of the credit scores.
<bullet> Examiners identified errors within the Rate Spread field
and observed that these errors occurred due to data mapping or data
transfer deficiencies. Institutions allowed erroneous software updates
within their loan processing systems to result in inaccurate Rate
Spread values reported on their HMDA LARs. Examiners determined that
service provider oversight deficiencies resulted in institutions'
failure to correct the erroneous data transfers.
<bullet> Examiners identified inaccurate values for the debt-to-
income ratio. The institutions acknowledged the errors and stated the
fields reported incorrectly were the result of a change made to the
programming of their loan origination system.
Many of the widespread or systemic errors were caused by
misinterpretation of Regulation C requirements or the institution's
specific policy. For example:
<bullet> Examiners determined that employees at one institution
misinterpreted the institution's policies and procedures for
calculating the ages of applicants and co-applicants. Examiners
determined that these errors were caused by deficiencies in the
institution's monitoring and audit function.
<bullet> Examiners determined that an institution's senior
management misinterpreted HMDA and Regulation C, concluding erroneously
that the Origination Charges, Discount Points, and/or Lender Credits
fields should be reported as ``Not applicable.'' For
[[Page 36116]]
example, examiners observed Origination Charges, displayed as ``zero''
within source documentation, inaccurately reported as ``Not
applicable.'' The Origination Charges field should be entered, in
dollars for the total of all itemized amounts that are designated
borrower-paid at or before closing. If the total is zero, enter 0.
Enter ``NA'' if the requirement to report origination charges does not
apply to the covered loan or application that the institution is
reporting.
2.5.4 HMDA Supervisory Actions
In response to widespread HMDA LAR inaccuracies identified during
examinations, institutions will review, correct, and resubmit their
HMDA LAR.\76\ Some institutions have already resubmitted their HMDA
LARs.
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\76\ On December 21, 2017, the Bureau issued a Statement with
respect to HMDA compliance announcing among other things that the
Bureau does not intend to assess penalties for errors in data
collected in 2018 and that the Bureau does not intend to require
data resubmission unless errors are material. See Consumer Fin.
Prot. Bureau, CFPB Issues Public Statement On Home Mortgage
Disclosure Act Compliance (Dec. 21, 2017), available at <a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-public-statement-home-mortgage-disclosure-act-compliance/">https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-public-statement-home-mortgage-disclosure-act-compliance/</a>. During
examinations of 2018 data in which CFPB Supervision required
financial institutions to resubmit data, Supervision concluded that
the errors identified were material.
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In addition, institutions will enhance monitoring practices to
ensure they are completed timely and appropriately identify and measure
HMDA risk. Some institutions will develop and implement an effective
HMDA monitoring program that prevents, detects, and corrects violations
of HMDA and Regulation C, and ensures appropriate corrective actions
are taken.
Some institutions will make improvements to CMS components that
were the cause of errors, including through (1) implementation of
policies, procedures and/or a plan that ensures that fields that had
errors are reported accurately; (2) improvements to board and
management oversight to ensure that the board and management promptly
responds to CMS deficiencies and violations of Regulation C; and (3)
improvements to their HMDA training program regarding collecting and
recording data for the HMDA LAR, including ensuring it is specifically
tailored to staff with responsibilities relating to HMDA.
2.5.5 Redlining
Regulation B prohibits discouragement of ``applicants or
prospective applicants''. Specifically, it states: ``A creditor shall
not make any oral or written statement, in advertising or otherwise, to
applicants or prospective applicants that would discourage on a
prohibited basis a reasonable person from making or pursuing an
application.'' \77\ The Official Interpretations of Regulation B also
explain that this prohibition ``covers acts or practices directed at
prospective applicants that could discourage a reasonable person, on a
prohibited basis, from applying for credit.'' \78\
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\77\ 12 CFR 1002.4(b).
\78\ 12 CFR part 1002, supp. I, para. 4(b)-1.
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In the course of conducting supervisory activity, examiners
observed that a lender violated ECOA and Regulation B by engaging in
acts or practices directed at prospective applicants that would have
discouraged reasonable people in minority neighborhoods in Metropolitan
Statistical Areas (MSAs) from applying for credit.
Initial statistical analysis of the HMDA data and U.S. census data
showed that the lender received significantly fewer applications from
majority-minority and high-minority neighborhoods relative to other
peer lenders in the MSA, which resulted in the prioritization of the
institution for a redlining examination. The examination teams'
subsequent, in-depth analyses, including general and refined peer
analyses, confirmed these differences relative to its peer lenders in
the MSA.\79\ Examiners identified evidence of communications directed
at prospective applicants that would discourage reasonable persons on a
prohibited basis from applying to the lender for a mortgage loan.
First, the lender conducted a number of direct mail marketing campaigns
that featured models, all of whom appeared to be non-Hispanic white.
Second, the lender included headshots of its mortgage professionals in
its open house marketing materials, and in almost all of these
materials, the headshots showed only professionals who appeared to be
non-Hispanic white. Third, the lender's office locations were nearly
all concentrated in majority non-Hispanic white areas, as confirmed by
the lender's website communicating where the offices are located. Each
of these acts or practices is a form of communication directed at
prospective applicants.
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\79\ Examination teams defined majority-minority areas as >50%
minority and high-minority areas as >80% minority.
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Also, the lender's direct marketing campaign and Multiple Listing
Service (MLS) advertising was focused on majority-white areas in the
MSA, which provided additional evidence of its intent to discourage on
a prohibited basis. In addition, the examination team determined that
the lender employed mostly non-Hispanic white mortgage loan officers
and identified emails among mortgage loan officers containing racist
and derogatory content. The lender plans to undertake remedial and
corrective actions regarding this violation, which are under review by
the Bureau.
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 Compensating Loan Originators Differently Based on Product Type
Regulation Z generally prohibits compensating mortgage loan
originators in an amount that is based on the terms of a
transaction.\80\ Compensation is based on the term of a transaction if
the objective facts and circumstances indicate that the compensation
would have been different if a transaction term had been different.\81\
In the preamble to the Bureau's 2013 Loan Originator Final Rule, the
Bureau responded to questions from commenters about whether it was
permissible to compensate differently based on product types, such as
credit extended pursuant to government programs for low-to moderate-
income borrowers.\82\ As part of its response to these questions, the
Bureau explained that it is not permissible to differentiate
compensation based on credit product type, since products are simply a
bundle of particular terms.\83\
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\80\ 12 CFR 1026.36(d)(1)(i).
\81\ 12 CFR part 1026, supp. I, comment 36(d)(1)-1.i.
\82\ 2013 Loan Originator Compensation Rule, 78 FR 11279, 11326
(Feb. 15, 2013). The Bureau noted that the meaning of loan
``product'' is ``not firmly established and varies with the person
using the term, but it generally refers to various combinations of
features such as the type of interest rate and the form of
amortization.'' Id. at 11284.
\83\ Id. at 11326-27, note 82. The Bureau further noted in the
preamble that permitting different compensation based on different
product types would create ``precisely the type of risk of
steering'' that the statutory provisions implemented through the
2013 Loan Originator Final Rule sought to avoid. Id. at 11328. The
Bureau also declined to exclude State housing finance authority
loans from the scope of the rule. Id. at 11332-33.
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Examiners found that lenders' compensation policies specified lower
compensation for originating a bond loan subject to requirements set
forth by a State Housing Finance Agency (HFA), and that the lenders
followed these policies. Examiners also found that
[[Page 36117]]
lenders compensated loan originators by paying them more for
originating construction loans than for other types of loans. Examiners
determined that by compensating loan originators differently based on
whether the loan was an HFA loan or construction loan, the lenders
compensated loan originators based on the terms of the transaction
because the compensation would have been different if the terms of the
transaction had been different. As a result, each lender involved
agreed to no longer compensate loan originators differently based on
product type.
2.6.2 Disclosure of Simultaneously Purchased Lender and Owner Title
Insurance
Where there is simultaneous purchase of lender and owner title
insurance policies, Regulation Z requires creditors to disclose the
lender's title insurance based on the amount of the premium, without
any discount that might be available for the simultaneous purchase of
an owner's title insurance policy.\84\ Creditors are required to
disclose the premium for the owner's policy showing the impact of the
simultaneous purchase discount.\85\ The intent of this rule is to
provide consumers with information on the incremental additional cost
associated with obtaining an owner's title insurance policy, and the
cost they would be required to pay for the lender's policy if they did
not purchase an owner's policy. Examiners found that some creditors
violated Regulation Z by disclosing the lender's title insurance
premium at the discounted rate and the owner's title insurance at the
full premium on the Loan Estimate. Supervision requested that the
creditors revise their policies and procedures to ensure correct
disclosure of title insurance premiums where there is a simultaneous
issuance rate for lender's and owner's title policies.
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\84\ 12 CFR 1026.37(f)(2); 12 CFR part 1026, supp. I, comment
37(f)(2)-4.
\85\ 12 CFR 1026.37(g)(4); 12 CFR part 1026, supp. I, comment
37(g)(4)-2.
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2.6.3 Deceptive Waivers of Borrowers' Rights in Security Deed Riders
and 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.'' \86\ In light
of this provision, examiners previously concluded that certain waiver
provisions are deceptive where reasonable consumers could construe the
waivers to bar them from bringing Federal claims in court related to
their mortgages. For example, examiners previously identified waiver
provisions in home equity installment loan agreements that provided
that consumers who signed the agreements waived all other notices or
demands in connection with the delivery, acceptance, performance,
default or enforcement of the agreement and concluded that those
provisions violated the CFPA's prohibition on deceptive acts or
practices.\87\ Similarly, in the mortgage servicing context, examiners
previously identified broad waiver of rights clauses in forbearance,
loan modification, and other loss mitigation options and concluded that
they violated the CFPA's prohibition against unfair or deceptive acts
or practices.\88\
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\86\ 12 CFR 1026.36(h)(2).
\87\ Supervisory Highlights, Summer 2015, at 15.
\88\ Supervisory Highlights, Summer 2017, at 22.
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Examiners identified a waiver provision in a rider to a security
deed that is in use in one state.\89\ The waiver provided that
borrowers who signed the agreement waived all of their rights to notice
or to judicial hearing before the lender exercises its right to
nonjudicially foreclose on the property. Examiners concluded that the
use of this provision by mortgage lenders violated the CFPA's
prohibition on deceptive acts or practices. Regulation X, 12 CFR
1024.41, implementing the Real Estate Settlement Procedures Act
(RESPA), requires mortgage servicers to provide borrowers with certain
notices in the loss mitigation context and borrowers may bring suit to
enforce those provisions. A reasonable consumer could understand the
provision to waive the consumer's right to sue over a loss mitigation
notice violation in the nonjudicial foreclosure context. This
misrepresentation is material because it could dissuade consumers from
consulting a lawyer or otherwise bringing Federal claims in court
related to the transaction. Thus, examiners concluded that the waiver
provision was deceptive. In response to the examination findings, the
entities committed to discontinuing use of the form containing the
waiver.
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\89\ This examination work was completed after the review period
for this report.
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Examiners also found that entities required borrowers in another
State to agree to a waiver, in the event of default, of any equity or
right of redemption in the loan security agreement for cooperative
units. Specifically, the waiver stated that in the event of default,
lenders may sell the security at public or private sale and thereafter
hold the security free from any claim or right whatsoever of the
borrower, who waives all rights of redemption, stay or appraisal which
the borrower has or may have under any rule or statute. Examiners
determined that the waiver language would likely mislead a consumer
into believing that by signing the agreement they waived their right to
bring any claim in court, including Federal claims.\90\ This
interpretation could appear reasonable to a consumer. The
misrepresentation was material because it was likely to affect whether
a consumer would choose to retain counsel or pursue claims against the
entity in the future. As a result, the entities implemented an
agreement resolving the issue and committed to providing clarification
to all affected borrowers.
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\90\ 15 U.S.C. 602(dd)(5), (w).
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2.7 Mortgage Servicing
Bureau examinations continue to review for violations of mortgage
servicing requirements. Examiners determined that servicers violated
Regulation X by making the first notice or filing for foreclosure when
it was prohibited.\91\ Examiners also determined that servicers engaged
in a deceptive act or practice when they represented to borrowers that
they would not initiate a foreclosure action until a specified date,
but nevertheless initiated foreclosures prior to that date. Examiners
also found that servicers failed to maintain policies and procedures,
as required by Regulation X, reasonably designed to achieve specific
objectives described in Regulation X.\92\
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\91\ 12 CFR 1024.41(f)(2)(i).
\92\ 12 CFR 1024.38(a), (b).
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Additionally, examiners found that servicers violated Regulation X
by conducting an annual escrow analysis that assumed that private
mortgage insurance (PMI) payments would continue for the entire escrow
analysis period, despite the servicers' knowledge that PMI would be
automatically terminated before the end of the escrow analysis
period.\93\
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\93\ 12 CFR 1024.17(c)(7).
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2.7.1 Dual Tracking Violations
Regulation X generally prohibits a servicer from making the first
notice or filing required for foreclosure if the consumer submits a
complete loss mitigation application unless the servicer has completed
the review of the application, considered any appeals, the borrower
rejects all loss mitigation
[[Page 36118]]
options offered by the servicer, or the borrower fails to perform under
an agreement on a loss mitigation option. If a consumer submits all of
the documents requested by the servicer in response to the notice in 12
CFR 1024.41(b)(2)(i)(B), then the application is ``facially complete''
and the servicer must treat the application as complete for the
purposes of the foreclosure referral protections of 12 CFR
1024.41(f)(2) until the borrower is given a reasonable opportunity to
complete the application.
Examiners found that servicers violated Regulation X by making the
first filing for foreclosure after the loan application was facially
complete but before meeting the requirements of 12 CFR 1024.41(f)(2).
The servicers received all the information requested in the 12 CFR
1024.41(b)(2)(i)(B) notice and therefore the application was facially
complete. However, the servicers did not place a foreclosure hold on
the account when the documents were received. Instead, the servicers
waited until they had completed internal analysis that the application
was facially complete, which took more than a day, during which time a
foreclosure filing occurred in spite of the facially complete
application having been received.
As a result of this finding, servicers remediated foreclosure fees
that were charged to consumers who had submitted facially complete
applications prior to the first foreclosure filing. They also enhanced
their procedures, employee training, and monitoring controls.
Regulation X also prohibits a servicer from making the first notice
or filing for foreclosure before making a decision on a borrower's
timely appeal of a denied loss mitigation application.\94\
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\94\ 12 CFR 1024.41(f)(2)(i).
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Institutions violated Regulation X by making the first notice or
filing for foreclosure before they had evaluated borrowers' appeals.
The servicers denied the borrowers' loss mitigation applications and
provided the borrowers with information about appealing the
determination as required under Regulation X. The borrowers submitted
the appeal within the 14-day period under 12 CFR 1024.41(h)(2). Prior
to making a determination regarding the appeal, the servicers made a
first notice or filing for foreclosure, violating Regulation X.\95\ In
response to this finding, servicers enhanced policies and procedures,
training, and monitoring controls.
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\95\ 12 CFR 1024.41(f)(2)(i).
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Regulation X requires servicers to maintain policies and procedures
reasonably designed to achieve specific objectives described in the
regulation.\96\ It provides that servicers' policies and procedures
shall be reasonably designed to facilitate the sharing of accurate and
current information regarding the status of any evaluation of a
borrower's loss mitigation application and the status of any
foreclosure proceeding among appropriate servicer personnel, including
service provider personnel responsible for handling foreclosure
proceedings.\97\
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\96\ 12 CFR 1024.38(a), (b).
\97\ 12 CFR 1024.38(b)(3)(iii).
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Some servicers had policies and procedures to notify foreclosure
counsel to stop all legal fillings only after the servicer had sent
borrowers the notice acknowledging receipt of a complete loss
mitigation application, which may be sent to a consumer up to five days
after receipt of their application. This represents a failure to
facilitate the sharing with its service providers of accurate and
current information regarding the status of borrowers' loss mitigation
applications. Because the servicers did not inform foreclosure counsel
that a complete loss mitigation application had been submitted until it
sent the loss mitigation acknowledgement notice, they failed to
maintain policies and procedures reasonably designed to achieve the
objective of 12 CFR 1024.38(b)(3)(iii). In response to these findings,
servicers updated their policies and procedures.
2.7.2 Misrepresentations Regarding Foreclosure Timelines
Regulation X's requirements related to loss mitigation applications
do not apply to consumers submitting additional loss mitigation
applications under certain circumstances. Specifically, they do not
apply where a servicer has previously complied with the regulation's
loss mitigation requirements for a complete loss mitigation application
and the borrower has been delinquent at all times since submitting the
prior complete application.\98\
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\98\ 12 CFR 1024.41(i).
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Some servicers failed to adopt appropriate policies and procedures
for responding accurately to such repeat loss mitigation applications.
Examiners identified a deceptive practice when servicers represented to
borrowers that they would not initiate a foreclosure action until a
specified date, but nevertheless initiated a foreclosure prior to that
date. These servicers maintained a policy of using model communications
for all borrowers that included language reflecting Regulation X
protections for borrowers submitting loss mitigation applications
regardless of whether Regulation X protections actually applied to
those borrowers. Examiners identified loss mitigation files where the
servicers specifically indicated in letters that they would not
initiate a foreclosure action until a specific date. Examiners noted
that the date was consistent with the timeline that Regulation X would
require if the application were protected by those provisions.
Nevertheless, the servicers did initiate foreclosure actions prior to
that date.
The inaccurate representations regarding the day foreclosure action
would be initiated were likely to mislead borrowers into believing that
they had more time until foreclosure than they actually did. It was
reasonable for consumers to believe these representations since the
information was provided on multiple loss mitigation related
disclosures sent in response to the application. The representations
were material because borrowers plan how they will obtain and when they
will send necessary documents, and what actions they will take
regarding their delinquent mortgages, based on the information
provided--including the timeline for foreclosure. In response to these
findings, servicers updated the information contained in letters sent
to consumers.
2.7.3 Failure To Consider PMI Termination Date During Annual Escrow
Analysis
Regulation X requires servicers to conduct an annual escrow
analysis, in which they estimate the disbursement amounts of escrow
account items.\99\ If the servicer ``knows the charge'' for an item
``in the next computation year,'' then it ``shall use that amount'' in
its estimate.\100\ Servicers violated the requirements of 12 CFR
1024.17(c)(7) by including in the annual escrow analysis a full year of
PMI disbursements, despite knowing that PMI would be charged for only
part of the year.
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\99\ 12 CFR 1024.17(c)(3).
\100\ 12 CFR 1024.17(c)(7).
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PMI, when required, is automatically terminated when the principal
balance of the mortgage loan reaches 78 percent of the original value
of the property based on the amortization schedule, as long as the
borrower is current. Examiners found that one or more servicers'
systems maintain all relevant information to determine the termination
date. Therefore, these
[[Page 36119]]
servicers ``know'' that the charges for PMI will not last a full twelve
months and will terminate before the end of the escrow year. Because
the servicers know the charges for PMI will terminate for certain
mortgages, including PMI charges after the termination date in the
annual escrow analysis violates 12 CFR 1024.17(c)(7). In response to
these findings, the servicers began considering the PMI termination
information in their systems while conducting the annual escrow
analysis.
2.8 Payday Lending
The Bureau's Supervision program covers entities that offer or
provide payday loans. Examinations of these lenders identified
deceptive acts or practices.
2.8.1 Misrepresentations Regarding an Intent To Sue
Examiners found that lenders engaged in deceptive acts or practices
in violation of the CFPA when they sent delinquent borrowers collection
letters stating an ``intent to sue'' if the consumer did not pay the
loan.\101\ Examiners found the representations misled or were likely to
mislead consumers, and that consumers' interpretations were reasonable.
A reasonable borrower could understand the letters to mean that the
lender had decided it would sue if a borrower did not make payments as
required by the letter. In fact, the lenders had not decided prior to
sending the letters that they would sue if borrowers did not pay, and
in most cases did not sue borrowers who did not pay. The
representations were material because they could induce delinquent
borrowers to change their conduct regarding their loans. For example,
consumers may have made payments they otherwise would not have, in
order to avoid the possibility of suit. In response to examination
findings, the entities ceased issuing letters stating an intent to sue
where such a determination had not already been made, and enhanced
collections communication-related policies and procedures, training,
and monitoring.
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\101\ 12 U.S.C. 5531, 5536(a)(1)(B).
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2.8.2 Misrepresentations That No Credit Check Will Be Conducted
Examiners observed that lenders engaged in a deceptive act or
practice in violation of the CFPA when they falsely represented on
storefronts and in photos on proprietary websites that they would not
check a consumer's credit history. In fact, the lenders used consumer
reports from at least one consumer reporting agency in determining
whether to extend credit. It was reasonable for a consumer to interpret
the representations as meaning that the lenders would not check a
consumer's credit history when deciding whether to extend credit, and
the representations were material because they were likely to affect
consumers' conduct with respect to applying for loans. Prospective
customers may have had concerns about their credit histories and
ability to obtain credit, and consequently made a different choice.
Moreover, storefront advertising claims were express and presumed
material. In response to these findings, the lenders ceased making
misleading representations on signage at branch locations and websites,
and implemented enhanced advertising oversight.
2.8.3 Deceptive Presentation of Repayment Options to Borrowers
Contractually Eligible for No-Cost Repayment Plans
When consumers indicated an inability to repay their payday loans,
lenders engaged in a deceptive act or practice by presenting payment
options to consumers in a manner that misled or was likely to mislead
them. Examiners found that, as a result of the institutions' process of
presenting fee-based refinance options to struggling borrowers while
withholding information about contractually available no-cost repayment
plan options, many consumers entered into fee-based refinances despite
being eligible for a no-cost repayment option.
The presentation of payment options misled, or was likely to
mislead, consumers into believing that there was not a no-cost
installment repayment option despite the loan agreements providing for
one. Consumers may have also been misled into believing that a no-cost
option was only available if the consumers first rejected or were found
ineligible for other options, such as a fee-based refinance. A
consumer's misunderstanding of their repayment options would be
reasonable in light of the fact that the consumers who elected these
other options were not told about the no-cost repayment plan option by
the institution at the time that the consumers expressed difficulty
repaying their loans. The institutions' misleading practice was
material because it caused consumers to incur fees, such as for
refinances, that could have been avoided had they been aware of their
contractual right to a no-cost repayment option.
2.9 Private Education Loan Origination
The Bureau has supervisory authority over entities that offer or
provide private education loans.\102\ The Bureau examines private
education loan origination activities for compliance with applicable
Federal consumer financial laws, including assessing whether entities
have engaged in any unfair, deceptive, or abusive acts or practices
prohibited by the CFPA. Examinations of these entities identified at
least one deceptive act or practice.
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\102\ 12 U.S.C. 5514(a)(1)(D).
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2.9.1 Deceptive Marketing Regarding Private Education Loan Rates
Examiners found that entities engaged in a deceptive act or
practice \103\ by (1) advertising rates ``as low as'' X%, (2)
disclosing certain conditions to obtain that rate (e.g., the borrower
must make automatic payments and the rate was available only for
applications filed by a date certain), and (3) omitting that a
borrower's rate would depend on their creditworthiness. Examiners
determined that the net impression of the marketing materials misled or
was likely to mislead consumers to believe the ``as low as'' rate was
available regardless of creditworthiness. The consumers' interpretation
of such representations was reasonable under the circumstances and the
entities' misleading representations were material to consumers'
decisions to apply for a private education loan because it could impact
the consumer's decision to apply for or take the loan. As a result, the
entities have removed the phrase ``as low as'' from its marketing
materials and, rather, advertises the entire range of rates (e.g.,
``X.XX%-YY.YY%''). Also, each entity involved now discloses that the
lowest rates are only available for the most creditworthy applicants,
in addition to other disclosures.
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\103\ 12 U.S.C. 5531 and 5536(a)(1)(B).
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2.10 Student Loan Servicing
The Bureau continues to examine student loan servicing activities,
primarily to assess whether entities have engaged in any unfair,
deceptive or abusive acts or practices prohibited by the CFPA.
Examiners identified three types of misrepresentations servicers made
regarding consumer eligibility for the Public Service Loan Forgiveness
(PSLF) program. Examiners also identified two unfair acts or practices
related to failure to reverse negative consequences of automatic
natural disaster forbearances and an unfair act or practice related to
failing to honor consumer payment allocation
[[Page 36120]]
instructions. Additionally, examiners continued to find that servicers
engaged in unfair acts or practices related to providing inaccurate
monthly payment amounts to consumers after a loan transfer, as
previously discussed in Supervisory Highlights.\104\
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\104\ Supervisory Highlights, Issue 21, Winter 2020.
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2.10.1 Public Service Loan Forgiveness
PSLF may provide significant relief for consumers that work at
501(c)(3) nonprofits; government organizations; or other types of non-
profit organizations that provide certain types of qualifying public
services. Under the program, consumers that make 120 qualifying
payments on their Direct Loans while working for an eligible employer
and repaying under an eligible repayment plan may have the balance of
their loans forgiven. There is significant confusion about eligibility
for PSLF, which is further complicated by the relative complexity of
student loan types and terms. Consequently, examiners observed
borrowers with Federal Family Education Loan Program (FFELP) loans
requesting information from servicers about their eligibility for PSLF
or inquiring about terms of the program.
While FFELP loans are not initially eligible for PSLF, FFELP
borrowers can consolidate into a Direct Consolidation Loan, which is
eligible. Once consolidated, the consumer can start making eligible
payments toward the 120 needed for forgiveness. Direct Consolidation
Loan borrowers are also eligible for other benefits like improved
income-driven repayment options, while their FFELP loan counterparts
are not.
Examiners observed that servicers regularly provide FFELP borrowers
information about PSLF. Examiners found that servicers regularly
provided inaccurate information about eligibility for PSLF or Direct
Consolidation Loans, resulting in deceptive acts or practices described
below.
2.10.2 Misrepresenting the Effect of Employer Certification Forms
In examinations of student loan servicers, examiners identified a
deceptive act or practice where servicer employees represented to FFELP
loan borrowers that they could submit their employer certification
forms (ECF) to receive a determination on whether their employers are
eligible employers for PSLF. Yet under PSLF program guidelines, FFELP
borrowers who submit an ECF prior to consolidation into a Direct Loan
will be rejected, without any determination about employer eligibility.
The servicers' representations are likely to mislead borrowers into
believing that they should submit an ECF prior to consolidation to
receive confirmation that their employers are eligible. Consumers'
interpretation was reasonable under the circumstances and they were
likely to be misled by the servicers' representations, given the
specificity of agents' statements and the fact that agents routinely
provided information about the PSLF program. FFELP borrowers were
likely interested in entering the PSLF program as soon as possible, so
that they could begin making the 120 payments required for forgiveness.
The agents' information was material because it was likely to affect
FFELP borrowers' conduct in taking the steps necessary to enter PSLF--
most notably, consolidating their loans--and could delay these
borrowers' entry into the program by the time it takes to go through
the ECF process.
2.10.3 Misrepresenting Eligibility of FFELP Loans for PSLF
Examiners found that servicers engaged in a deceptive act or
practice by advising borrowers with FFELP loans that the loans could
not become eligible for PSLF.
Consumers with FFELP loans can consolidate their loans into a
Direct Consolidation Loan and become eligible for PSLF. Examiners found
that during calls servicers represented to consumers with FFELP loans
that they had no potential course of action to become eligible for
PSLF. This representation was likely to mislead consumers because, in
fact, their loans could become eligible through consolidation.
Consumers' interpretation was reasonable under the circumstances
because they reasonably believed that they had made their interest in
eligibility for PSLF clear, and reasonably interpreted the servicers'
representations to mean that they could not take steps to qualify for
PSLF. The representations were material because consumers called to
inquire about loan forgiveness and if they had received accurate
information may have taken steps to convert their FFELP loans to Direct
Loans.
2.10.4 Misrepresenting Employer Types Eligible for PSLF
Examiners found that servicers risked engaging in a deceptive act
or practice by informing borrowers interested in the PSLF program that
they are only eligible if their employer is a nonprofit. The PSLF
program provides loan forgiveness for eligible Federal student loans
after ten years of payments by consumers who meet certain requirements,
including that they work for a qualifying employer. Qualifying
employers include local, State, Federal or tribal government entities;
501(c)(3) nonprofits; and or other types of non-profit organizations
that provide certain types of qualifying public services. Servicers
stated in calls that consumers could be eligible for PSLF if they
worked for nonprofits but did not mention that government employees and
other types of employees are also eligible. This statement created the
net impression that only employees of nonprofits were eligible. This
was likely to mislead consumers, because other employment types are
also eligible. This was a reasonable interpretation under the
circumstances because servicers routinely provide consumers with
information about eligibility for various programs. Finally, the
representation was material to eligible consumers' decision regarding
whether to pursue PSLF. As a result of examiner findings, the servicers
implemented a new training program for agents.
2.10.5 Failure To Reverse the Consequences of Automatic Natural
Disaster Forbearances
Examiners identified unfair practices related to enrollment in
natural disaster forbearances at entities servicing private student
loans. Generally, student loan borrowers become eligible for a natural
disaster forbearance when they, or their cosigners, reside in a zip
code impacted by a declared natural disaster. In most situations this
forbearance is opt-in, allowing consumers to contact their servicer and
request the payment relief. However, at some servicers, examiners
identified that certain populations of loans were automatically
enrolled in the forbearance without a specific request from the
consumer--even if they were otherwise current on their loans. Within
this subset of consumers whose accounts were automatically placed into
a natural disaster forbearance, examiners identified two unfair
practices.
First, examiners noted that despite the natural disaster
declaration, some consumers did not want to be enrolled in the
forbearance and requested to return to repayment. Often consumers
identified negative consequences of forbearance and complained to their
servicer about enrollment. For example, forbearance resulted in certain
consumers losing payment incentives such as interest rate reductions
for making on-time payments. It also resulted in consumers accruing
unpaid interest during the period. And
[[Page 36121]]
following a consumer complaint, one servicer failed to reverse the
consequences of these unwanted automatic forbearances.
Second, at one servicer, enrollment in the automatic forbearance
resulted in unenrollment of borrowers in the auto-debit program
completely. In other words, auto-debit did not resume when these
forbearances ended following cancelation of the forbearance or the
regular termination of the forbearance period. This resulted in
consumers becoming past due on the loan when they believed that their
payments had been automatically debited.
Consumers could not reasonably avoid the injury from either
practice because the natural disaster forbearance was placed on their
accounts automatically. Even where consumers recognized the forbearance
was placed and contacted their servicer to opt-out, the servicers
failed to fully reverse the consequences of the action. For consumers
who explicitly do not want a natural disaster forbearance, the injuries
were not outweighed by countervailing benefits to consumers or
competition. The servicers have ceased automatically enrolling
consumers in natural disaster forbearances.
2.10.6 Inaccurate Monthly Payment Amounts After Servicing Transfer
Examiners found that servicers engaged in an unfair act or practice
by failing to waive or refund overcharges they assessed after loan
transfers. In previous editions of Supervisory Highlights, the Bureau
has discussed other findings related to inaccurately billed amounts
after loan transfers.
More specifically, consumers had enrolled in Income-Based Repayment
(IBR) plans that lowered their student loan payment to a percentage of
their discretionary income. When the loans were transferred to new
servicers, they did not honor the terms of the IBR plan and sent
consumers periodic statements listing inaccurate payment amounts, and
in some instances, initiated automatic electronic debits in the
incorrect amount. The servicers notified consumers of the error but did
not refund or offer to refund any overpayments.
The conduct caused or was likely to cause substantial injury to
consumers because the servicers required payments in excess of the
amount required under the terms of the consumers' IBR plans. Consumers
could not reasonably avoid the injury because they relied on the
servicers' calculations and representations in the periodic statements.
Further, the servicers did not provide refunds to consumers if they
requested refunds of the overpayments. The injury from this activity is
not outweighed by the countervailing benefits to consumers or
competition. For example, the benefits to consumers or competition from
avoiding the cost of better monitoring of servicing transfers between
entities would not outweigh the substantial injury to consumers. In
response to the examination findings, these servicers added additional
controls to their loan onboarding process.
2.10.7 Failure To Honor Payment Allocation Instructions
Most servicers handle multiple student loans for one borrower in
combined student loan accounts. Servicers bill borrowers for the sum of
the minimum monthly payments for each loan.
Examiners found that servicers engaged in an unfair practice by
failing to follow borrowers' explicit standing instructions regarding
payment allocation.\105\
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\105\ The Bureau has previously discussed payment allocation
practices in Supervisory Highlights, Issue 9, Fall 2015 and Issue
10, Winter 2016.
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Examiners found that certain accounts contained at least one
incorrectly applied payment. The failure to follow payment instructions
resulted in borrowers paying more over the life of their loans or
experiencing lost or delayed borrower benefits, such as co-signer
release. Consumers were unable to reasonably avoid the injury because
they relied on the servicers' representation that they would allocate
payments in accordance with the instructions provided. Finally, the
injury from these errors is not outweighed by the countervailing
benefits to consumers or competition. In response to these findings,
services implemented new training and additional monitoring of payment
allocation instructions.
3. Supervisory Program Developments
3.1.1 CFPB and NCUA Enter Into a MOU
The CFPB and the National Credit Union Administration (NCUA)
announced a Memorandum of Understanding (MOU) agreement to improve
coordination between the agencies related to the consumer protection
supervision of credit unions with over $10 billion in assets.\106\
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\106\ The MOU is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_ncua-memorandum-of-understanding_2021-01.pdf">https://files.consumerfinance.gov/f/documents/cfpb_ncua-memorandum-of-understanding_2021-01.pdf</a>.
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The MOU better facilitates coordinated examinations to reduce
redundancy and unnecessary overlap. CFPB and NCUA will also share
information on training activities and content. Finally, the MOU will
permit both agencies to share information related to supervisory
activities and potential enforcement actions.
3.1.2 CFPB Issues Final Rule on the Role of Supervisory Guidance
On January 19, 2021, the CFPB issued a final rule regarding the
Bureau's use of supervisory guidance for its supervised
institutions.\107\ The rule codifies the statement, with amendments,
that the Bureau and other Federal financial regulatory agencies issued
in September 2018, which clarified the differences between regulations
and supervisory guidance. The final rule states that unlike a law or
regulation, supervisory guidance does not have the force and effect of
law and the Bureau does not take enforcement actions or issue
supervisory criticisms based on non-compliance with supervisory
guidance. Rather, supervisory guidance outlines supervisory
expectations and priorities, or articulates views regarding appropriate
practices for a given subject area.
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\107\ The final rule is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_role-of-supervisory-guidance_final-rule_2021-01.pdf">https://files.consumerfinance.gov/f/documents/cfpb_role-of-supervisory-guidance_final-rule_2021-01.pdf</a>.
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The Bureau collaborated closely with other Federal financial
regulatory agencies in this rulemaking, including by issuing a joint
proposal for public comment.
3.1.3 CFPB Issues Interpretive Rule
On March 9, 2021, the Bureau issued an interpretive rule clarifying
that the prohibition against sex discrimination under ECOA and
Regulation B includes sexual orientation discrimination and gender
identity discrimination.\108\ This prohibition also covers
discrimination based on actual or perceived nonconformity with
traditional sex- or gender-based stereotypes, and discrimination based
on an applicant's social or other associations.
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\108\ The interpretive rule is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_ecoa-interpretive-rule_2021-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_ecoa-interpretive-rule_2021-03.pdf</a>.
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3.1.4 CFPB Rescinds Its Statement of Policy on Abusive Acts or
Practices
On March 11, 2021, the Bureau announced that it has rescinded its
January 24, 2020 policy statement, ``Statement of Policy Regarding
Prohibition on Abusive Acts or Practices.'' \109\
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\109\ The Rescission of the Policy Statement is available at:
<a href="https://files.consumerfinance.gov/f/documents/cfpb_abusiveness-policy-statement-consolidated_2021-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_abusiveness-policy-statement-consolidated_2021-03.pdf</a>.
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The Bureau intends to exercise its supervisory and enforcement
authority consistent with the full scope of its statutory authority
under the Dodd-Frank Act as established by Congress.
3.1.5 CFPB Rescinds Series of Policy Statements
On March 31, 2021, the Bureau announced it is rescinding seven
policy statements issued last year that provided temporary
flexibilities to financial institutions in consumer financial markets,
including mortgages, credit reporting, credit cards and prepaid
cards.\110\ The seven rescissions, effective April 1, provide guidance
to financial institutions on complying with their legal and regulatory
obligations. With the rescissions, the CFPB provided notice that it
intends to exercise the full scope of the supervisory and enforcement
authority provided under the Dodd-Frank Act.\111\
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\110\ The rescinded policies include: Statement on Bureau
Supervisory and Enforcement Response to COVID-19 Pandemic (March 26,
2020); Statement on Supervisory and Enforcement Practices Regarding
Quarterly Reporting Under the Home Mortgage Disclosure Act (March
26, 2020); Statement on Supervisory and Enforcement Practices
Regarding CFPB Information Collections for Credit Card and Prepaid
Account Issuers (March 26, 2020); Statement on Supervisory and
Enforcement Practices Regarding the Fair Credit Reporting Act and
Regulation V in Light of the CARES Act (April 1, 2020); Statement on
Supervisory and Enforcement Practices Regarding Certain Filing
Requirements Under the Interstate Land Sales Full Disclosure Act
(ILSA) and Regulation J (April 27, 2020); Statement on Supervisory
and Enforcement Practices Regarding Regulation Z Billing Error
Resolution Timeframes in Light of the COVID-19 Pandemic (May 13,
2020); Statement on Supervisory and Enforcement Practices Regarding
Electronic Credit Card Disclosures in Light of the COVID-19 Pandemic
(June 3, 2020).
\111\ The rescission also announces that the Bureau does not
intend to continue to provide any flexibilities afforded entities in
specific sections of certain interagency statements. More
information is available at: <a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-rescinds-series-of-policy-statements-to-ensure-industry-complies-with-consumer-protection-laws/">https://www.consumerfinance.gov/about-us/newsroom/cfpb-rescinds-series-of-policy-statements-to-ensure-industry-complies-with-consumer-protection-laws/</a>.
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3.1.6 Bureau Issues Bulletin Regarding Changes to Supervisory
Communications
On March 31, 2021, the Bureau issued a bulletin to announce changes
to how its examiners articulate supervisory expectations to supervised
entities in connection with supervisory events.\112\ The bulletin
states that the CFPB will continue to issue Matters Requiring Attention
(MRAs), explains the circumstances under which it will do so, and
announces that the CFPB will discontinue use of Supervisory
Recommendations. This new bulletin rescinds and replaces CFPB Bulletin
2018-01 (September 25, 2018).
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\112\ CFPB Bulletin 2021-01 is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_bulletin_2021-01_changes-to-types-of-supervisory-communications_2021-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_bulletin_2021-01_changes-to-types-of-supervisory-communications_2021-03.pdf</a>.
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3.1.7 CFPB Compliance Bulletin Warns Mortgage Servicers: Unprepared Is
Unacceptable
On April 1, 2021, the Bureau warned mortgage servicers to take all
necessary steps to prevent a wave of avoidable foreclosures this
fall.\113\ Millions of homeowners currently in forbearance will need
help from their servicers when the pandemic-related Federal emergency
mortgage protections expire this summer and fall. Servicers should
dedicate sufficient resources and staff to ensure they are prepared for
a surge in borrowers needing help. The CFPB will closely monitor how
servicers engage with borrowers, respond to borrower requests, and
process applications for loss mitigation. The CFPB will consider a
servicer's overall effectiveness in helping consumers when using its
discretion to address compliance issues that arise.
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\113\ The Compliance Bulletin is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_bulletin-2021-02_supervision-and-enforcement-priorities-regarding-housing_WHcae8E.pdf">https://files.consumerfinance.gov/f/documents/cfpb_bulletin-2021-02_supervision-and-enforcement-priorities-regarding-housing_WHcae8E.pdf</a>.
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3.1.8 Bureau Issues Interim Final Rule on FDCPA
On April 19, 2021, the Bureau issued an interim final rule in
support of the Centers for Disease Control and Prevention (CDC)'s
eviction moratorium.\114\ The CFPB's rule requires debt collectors to
provide written notice to tenants of their rights under the eviction
moratorium and prohibits debt collectors from misrepresenting tenants'
eligibility for protection from eviction under the moratorium. The CDC
established the eviction moratorium to protect the public health and
reduce the spread of the Coronavirus. Debt collectors who evict tenants
who may have rights under the moratorium without providing notice of
the moratorium, or who misrepresent tenants' rights under the
moratorium, can be prosecuted by Federal agencies and State attorneys
general for violations of the FDCPA and are also subject to private
lawsuits by tenants.
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\114\ The interim final rule is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_debt_collection-practices-global-covid-19-pandemic_interim-final-rule_2021-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_debt_collection-practices-global-covid-19-pandemic_interim-final-rule_2021-04.pdf</a>.
Information about the CDC's eviction moratorium is available at:
<a href="https://www.cdc.gov/coronavirus/2019-ncov/more/pdf/CDC-Eviction-Moratorium-03292021.pdf">https://www.cdc.gov/coronavirus/2019-ncov/more/pdf/CDC-Eviction-Moratorium-03292021.pdf</a>.
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4. Remedial Actions
4.1 Public Enforcement Actions
The Bureau's supervisory activities resulted in and supported the
following public enforcement actions.
4.1.1 TD Bank, N.A.
On August 20, 2020, the Bureau announced a settlement with TD Bank,
N.A. (TD Bank) regarding its marketing and sale of its optional
overdraft service: Debit Card Advance (DCA).\115\
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\115\ The consent order can be found at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_td-bank-na_consent-order_2020-08.pdf">https://files.consumerfinance.gov/f/documents/cfpb_td-bank-na_consent-order_2020-08.pdf</a>.
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TD Bank is headquartered in Cherry Hill, New Jersey, and operates
about 1,250 locations throughout much of the eastern part of the
country. The Bureau found that TD Bank's overdraft enrollment practices
violated EFTA and Regulation E by charging consumers overdraft fees for
ATM and one-time debit card transactions without obtaining their
affirmative consent, and that TD Bank engaged in deceptive and abusive
acts or practices in violation of the CFPA.
The Bureau specifically found that TD Bank charged consumers
overdraft fees for ATM and one-time debit card transactions without
obtaining their affirmative consent in violation of EFTA and Regulation
E, both after new customers opened checking accounts at TD Bank
branches and after new customers opened checking accounts at events
held outside of bank branches.
The Bureau further found that when describing DCA to new customers,
TD Bank deceptively claimed DCA was a ``free'' service or benefit or
that it was a ``feature'' or ``package'' that ``comes with'' new
consumer-checking accounts. In fact, TD Bank charges customers $35 for
each overdraft transaction paid through DCA and DCA is an optional
service that does not come with a consumer-checking account. When TD
Bank enrolled some consumers in DCA over the phone, TD Bank deceptively
described DCA as covering transactions unlikely to be covered by DCA.
In some instances, TD Bank engaged in abusive acts or practices by
materially interfering with consumers' ability to understand DCA's
terms and conditions. In some cases, TD Bank required new customers to
sign its overdraft notice with the ``enrolled'' option pre-checked,
without mentioning the DCA service to the consumer at all; enrolled new
customers in DCA without requesting the customer's oral enrollment
decision; and deliberately obscured, or attempted to obscure, the
overdraft notice to prevent a new
[[Page 36123]]
customer's review of their pre-marked ``enrolled'' status in DCA.
To provide relief for consumers affected by TD Bank's unlawful
overdraft enrollment practices, the Bureau's consent order requires TD
Bank to provide an estimated $97 million in restitution to about 1.42
million consumers. TD Bank must also pay a civil money penalty of $25
million. The consent order also requires TD Bank to correct its DCA
enrollment practices, stop using pre-marked overdraft notices to obtain
a consumer's affirmative consent to enroll in DCA, and adopt policies
and procedures designed to ensure that TD Bank's furnishing practices
concerning nationwide specialty consumer reporting agencies comply with
all applicable Federal consumer financial laws.
4.1.2 Sigue Corporation
On August 31, 2020, the Bureau entered into a consent order with
Sigue Corporation and its subsidiaries, SGS Corporation and GroupEx
Corporation.\116\ Sigue and its subsidiaries, which are all
headquartered in Sylmar, California, provide consumers with
international money-transfer services, including remittance-transfer
services.
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\116\ A copy of the consent order is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_sigue-corporation_consent-order_2020-08.pdf">https://files.consumerfinance.gov/f/documents/cfpb_sigue-corporation_consent-order_2020-08.pdf</a>.
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The Bureau's investigation of Sigue and its subsidiaries found that
between 2013 and 2019, they violated EFTA and the Remittance Transfer
Rule. Specifically, the Bureau found that Sigue and its subsidiaries
failed to refund transaction fees when they did not make funds
available by the disclosed date of availability, and they failed to
inform consumers of the remedies available for remittance errors. When
Sigue and its subsidiaries investigated remittance errors, they failed
to report to consumers in writing the results of their investigations
into transaction errors or consumers' rights as required by the
Remittance Transfer Rule. Sigue and its subsidiaries also failed to
develop and maintain adequate written policies and procedures designed
to ensure compliance with certain Remittance Transfer Rule error-
resolution requirements and failed to comply with several Remittance
Transfer Rule disclosure requirements.
The consent order against Sigue and its subsidiaries requires them
to pay about $100,000 in consumer redress and a $300,000 civil money
penalty. They must also implement and maintain written policies and
procedures designed to ensure compliance with the Remittance Transfer
Rule and maintain a compliance-management system that is designed to
ensure that their operations comply with the Remittance Transfer Rule,
including conducting training and oversight of all agents, employees,
and service providers, and not violating the Remittance Transfer Rule
in the future.
4.1.3 Lobel Financial Corporation
On September 21, 2020, the Bureau issued a consent order against
Lobel Financial Corporation (Lobel), an auto-loan servicer based in
Anaheim, California.\117\
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\117\ A copy of the consent order is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_lobel-financial-corporation_consent-order_2020-09.pdf">https://files.consumerfinance.gov/f/documents/cfpb_lobel-financial-corporation_consent-order_2020-09.pdf</a>.
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The Bureau found that Lobel engaged in unfair practices with
respect to its Loss Damage Waiver (LDW) product, in violation of the
CFPA. When a borrower has insufficient insurance, rather than force-
placing CPI, Lobel places the LDW product, which is not itself
insurance, on borrower accounts and charges a monthly premium. The LDW
product provides that Lobel will pay for the cost of covered repairs
and, in the event of a total vehicle loss, cancel the borrower's debt.
The Bureau's investigation found that, since 2012, Lobel charged
customers LDW premiums after they had become ten-days delinquent on
their auto loans but did not provide them with LDW coverage. The Bureau
also found that Lobel charged some customers LDW-related fees that
Lobel had not disclosed in its LDW contract.
The Order requires Lobel to pay $1,345,224 in consumer redress to
approximately 4,000 harmed consumers and a $100,000 civil money
penalty. The consent order also prohibits Lobel from failing to provide
consumers with LDW coverage or similar products or services for which
it has charged consumers or from charging consumers fees that are not
authorized by its LDW contracts.
4.1.4 Envios de Valores La Nacional Corp.
On December 21, 2020, the Bureau announced a consent order with
Envios de Valores La Nacional Corp. (La Nacional) based on the Bureau's
finding that La Nacional violated EFTA and the Remittance Transfer
Rule.\118\ La Nacional is a large remittance transfer provider
incorporated in New York and licensed in 15 states and the District of
Columbia. La Nacional sent $2.2 billion in remittance transfers between
November 2016 and April 2018 from the United States to recipients in
several countries in Central America, South America, the Caribbean, and
Africa.
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\118\ The consent order is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_envios-de-valores-la-nacional-corp_consent-order_2020-12.pdf">https://files.consumerfinance.gov/f/documents/cfpb_envios-de-valores-la-nacional-corp_consent-order_2020-12.pdf</a>.
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The Bureau found that, since the 2013 effective date of the
Remittance Transfer Rule, La Nacional has engaged in thousands of
violations of the Remittance Transfer Rule. Specifically, the Bureau's
investigation found that La Nacional violated EFTA and the Remittance
Transfer Rule by failing to honor cancellation requests and failing to
refund certain fees and taxes when funds were not available on time.
The Bureau also found that La Nacional has failed to maintain
appropriate error resolution policies and procedures, to adhere to
error resolution requirements, and to provide consumers with reports of
investigation findings. The Bureau further found that La Nacional has
failed to treat international bill pay services as remittance transfers
and to make proper disclosures in numerous instances.
The consent order requires La Nacional to pay a $750,000 civil
money penalty and imposes requirements to prevent future violations.
Under the terms of the consent order, in addition to paying a penalty,
La Nacional must adopt a compliance plan to ensure that its remittance
transfer acts and practices comply with all applicable Federal consumer
financial laws and the consent order.
5. Signing Authority
The Acting Director of the Bureau, David Uejio, having reviewed and
approved this document, is delegating the authority to electronically
sign this document to Grace Feola, a Bureau Federal Register Liaison,
for purposes of publication in the Federal Register.
Dated: July 2, 2021.
Grace Feola,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2021-14525 Filed 7-7-21; 8:45 am]
BILLING CODE 4810-AM-P
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</html>Indexed from Federal Register on July 8, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.