Notice2022-09690
Supervisory Highlights, Issue 26, Spring 2022
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
May 5, 2022
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB or Bureau) is issuing its twenty-sixth edition of Supervisory Highlights.
Full Text
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[Federal Register Volume 87, Number 87 (Thursday, May 5, 2022)]
[Notices]
[Pages 26727-26738]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-09690]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights, Issue 26, Spring 2022
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory highlights.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is
issuing its twenty-sixth edition of Supervisory Highlights.
DATES: The Bureau released this edition of the Supervisory Highlights
on its website on May 2, 2022. The findings included in this report
cover examinations completed between July 2021 and December 2021 in the
areas of auto servicing, consumer reporting, credit card account
management, debt collection, deposits, mortgage origination, prepaid
accounts, remittances, and student loan servicing.
FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Senior Counsel, at
(202) 435-7449. If you require this document in an alternative
electronic format, please contact <a href="/cdn-cgi/l/email-protection#98dbdec8dac7d9fbfbfdebebf1faf1f4f1ece1d8fbfee8fab6fff7ee"><span class="__cf_email__" data-cfemail="0e4d485e4c514f6d6d6b7d7d676c6762677a774e6d687e6c20696178">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
1. Introduction
The Consumer Financial Protection Bureau's (CFPB or Bureau)
supervision program examines large banks and certain nonbanks for
compliance with Federal consumer financial law. A key focus of the
program is detecting and assessing risks to consumers and to markets
for consumer financial products and services. Through its supervisory
work, the Bureau promotes the development of markets for consumer
financial products and services that are fair, transparent, and
competitive. One important goal of this work is to foster financial
inclusion and racial equity. The Bureau supervises and applies the law
to entities subject to its authority in a consistent manner, regardless
of charter type (bank or nonbank), market, or geographical location.
The findings included in this report cover examinations completed
between July 2021 and December 2021 in the areas of auto servicing,
consumer reporting, credit card account management, debt collection,
deposits, mortgage origination, prepaid accounts, remittances, and
student loan servicing. To maintain the anonymity of the supervised
institutions discussed in Supervisory Highlights, references to
institutions generally are in the plural and the related findings may
pertain to one or more institutions. This edition of Supervisory
Highlights also summarizes recent developments in the Bureau's
supervision program and remedial actions.
The CFPB publishes Supervisory Highlights to help institutions and
the general public better understand how we examine institutions for
compliance with Federal consumer financial laws. Supervisory Highlights
summarizes existing legal requirements and violations identified in the
course of the Bureau's exercise of supervisory and
[[Page 26728]]
enforcement authority.\1\ We invite readers with questions or comments
about Supervisory Highlights to contact us at
<a href="/cdn-cgi/l/email-protection#b7f4f1e7f5e8e4c2c7d2c5c1dec4ded8d9f7d4d1c7d599d0d8c1"><span class="__cf_email__" data-cfemail="83c0c5d3c1dcd0f6f3e6f1f5eaf0eaecedc3e0e5f3e1ade4ecf5">[email protected]</span></a>.
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\1\ If a supervisory matter is referred to the Office of
Enforcement, Enforcement may cite additional violations based on
these facts or uncover additional information that could impact the
conclusion as to what violations may exist.
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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 (UDAAPs) prohibited by the
Consumer Financial Protection Act of 2010 (CFPA).\2\
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\2\ 12 U.S.C. 5531, 5536.
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2.1.1 Wrongful Repossession
Examiners have continued to identify wrongful repossessions at auto
servicers.\3\ Recent examinations found that servicers engaged in
unfair acts or practices when they repossessed vehicles after consumers
took action that should have prevented the repossession. This caused
substantial injury by depriving borrowers of the use of their vehicles,
and many consumers also experienced consequences such as missed work,
expenses for alternative transportation, repossession-related fees,
detrimental credit reporting, and vehicle damage during the
repossession process. Such injury was not reasonably avoidable because
consumers had taken action they believed would halt repossession and
there was no additional action the consumer could take to prevent the
repossession. Finally, the injury was not outweighed by countervailing
benefits to the consumer or to competition. In response to these
findings, servicers are enhancing their procedures, including enhancing
timely communications with repossession agents, and remediating
consumers.
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\3\ This unfair act or practice was previously described in
Supervisory Highlights, Issue 16, Summer 2017; Supervisory
Highlights, Issue 17, Summer 2018; and CFPB Bulletin 2022-04:
Mitigating Harm from Repossession of Vehicles. These editions of
Supervisory Highlights are available at: Supervisory Highlights
[verbar] Consumer Financial Protection Bureau (<a href="http://consumerfinance.gov">consumerfinance.gov</a>).
The CFPB Bulletin 2022-04 is available at: cfpb_bulletin-2022-
04_mitigating-harm-from-repossession-of-automobiles.pdf
(<a href="http://consumerfinance.gov">consumerfinance.gov</a>).
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2.1.2 Misleading Consumer About the Final Loan Payment Amount After
Deferral
Examiners found that servicers engaged in deceptive acts or
practices when they misled consumers about the final loan payment
amount after a deferral.\4\ Servicers may let consumers defer payments
for many months when they experience financial difficulties, and the
deferrals frequently increase the consumer's final payment amount.
Servicers sent consumers notices about their final payment amounts that
included only imprecise conditional statements, such as stating that
the final payment ``may be larger.'' These conditional statements,
without additional information about the magnitude of the final
payment, likely misled consumers to believe the payment would only
increase somewhat, when in fact the final payment likely would
dramatically increase, by amounts multiple times larger than a normal
payment. The consumers' interpretation of the representation was
reasonable under the circumstances and was material because it likely
impacted consumers' financial planning.
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\4\ Supervision examiners first identified this practice as a
consumer risk in Supervisory Highlights, Issue 23--Winter 2021.
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2.1.3 Overcharging for Add-on Products
When consumers purchase an automobile, auto dealers and finance
companies offer optional, add-on products that consumers can purchase.
Some of the add-on products provide specific types of potential
benefits, such as guaranteed asset protection (GAP) products that offer
to help pay off an auto loan if the car is totaled or stolen and the
consumer owes more than the car's depreciated value. The add-on
products' potential benefits apply only for specific time periods, such
as four years after purchase or for the term of the loan, and only
under certain circumstances.
Auto dealers and finance companies often charge consumers all
payments for any add-on products as a lump sum at origination of the
auto loan or purchase of the vehicle. Dealers and finance companies
generally include the lump sum cost of the add-on product as part of
the total vehicle financing agreement, and consumers typically make
payments on these products throughout the loan term, even if the
product expires years earlier.
Examiners found that servicers engaged in unfair practices by
failing to request refunds from the third-party administrators for
``unearned'' fees related to GAP products and failing to apply the
applicable refunds to the accounts after repossession and cancellation
of the contracts. At that point, the consumers did not have the vehicle
that had been subject to the GAP product, and the product no longer
offered any possible benefit to consumers.
Examiners found that while servicers did maintain policies to
obtain applicable refunds, they frequently failed to apply for these
refunds from third-party administrators. When consumers' vehicles were
repossessed and sold and there was a deficiency balance (that is, the
money unpaid on the sale price of the vehicle after repossession), the
servicers' failure to apply for the GAP product refunds from the third-
party administrators resulted in inaccurate deficiency balances. The
partial refunds from the third-party administrators would have paid for
at least some of the GAP product fees that were financed, but instead,
servicers included charges for the unused portions of the financed GAP
products in the deficiency balances.
Examiners found that servicers sent deficiency notices to consumers
and reported balances to third-party debt buyers that included these
inaccurate amounts as the deficiency balance owed by consumers.
Including these amounts in the deficiency balances resulted in
substantial injury to consumers because the amounts to be collected
were higher than the true amount owed, and the deficiency balances were
likely to be collected by the third-party debt buyers when the products
provided no possible benefit, after the vehicles were repossessed and
the accounts were charged off. Consumers could not reasonably avoid the
injury because they had no control over the servicers' refund
processing actions. And they generally could not apply for such refunds
themselves because they were unaware that the contract provided they
could do so. The injury was not outweighed by any countervailing
benefit to consumers or competition.
In response to these findings, servicers updated disclosure
language and practices. Some servicers included estimated final payment
amounts on deferral notices while other servicers provided consumers
with access to online calculator tools to track their final payment
amounts. Additionally, some servicers conducted affirmative outreach
when the final payment date approached to offer workout options that
allowed borrowers to pay the large final payments in more than one
installment.
2.2 Consumer Reporting
Companies in the business of regularly assembling or evaluating
information about consumers for the purpose of providing consumer
reports to third parties are ``consumer reporting
[[Page 26729]]
companies '' (CRCs).\5\ These companies, along with the entities--such
as banks, loan servicers, and others--that furnish information to the
CRCs for inclusion in consumer reports, play a vital role in
availability of credit and have a significant role to play in the fair
and accurate reporting of credit information. They are subject to
several requirements under the Fair Credit Reporting Act (FCRA) \6\ and
its implementing regulation, Regulation V,\7\ including the requirement
to reasonably investigate disputes and to furnish data subject to the
relevant accuracy requirements. In recent reviews, examiners found
deficiencies in CRCs' compliance with FCRA dispute investigation
requirements and furnisher compliance with FCRA and Regulation V
accuracy and dispute investigation requirements.
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\5\ 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).
\6\ 15 U.S.C. 1681 et seq.
\7\ 12 CFR, part 1022.
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2.2.1 CRC Duty To Conduct Reasonable Reinvestigation of Disputed
Information
The FCRA requires that a CRC must conduct a reasonable
reinvestigation of disputed information to determine if the disputed
information is inaccurate whenever the completeness or accuracy of any
item of information contained in a consumer's file is disputed by the
consumer and the consumer notifies the CRC directly, or indirectly
through a reseller, of such dispute.\8\ In several reviews of CRCs,
examiners found that CRCs failed to conduct reasonable investigations
of disputes in multiple ways. Examiners also found that rather than
resolving disputes consistent with the investigation conducted by the
furnisher, which in many instances would have required correcting
inaccurate derogatory information and replacing it with accurate
positive information, CRCs simply deleted thousands of disputed
tradelines. Examiners also found that CRCs failed to conduct reasonable
dispute investigations when they failed to review and consider all
relevant information submitted by the consumer in support of their
disputes. After identification of these issues, CRCs were directed to
cease violating the FCRA's dispute investigation requirements.
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\8\ 15 U.S.C. 1681i(a)(1)(A).
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2.2.2 CRC Duty To Provide Prompt Notice of Dispute to Furnisher
The FCRA requires that when a CRC receives notice of a dispute from
a consumer or reseller, the CRC must provide notification of the
dispute to any person who provided any item of information in dispute
before the expiration of the five-business-day period beginning on the
date that the CRC received the notice of dispute.\9\ In several reviews
of CRCs, examiners found that CRCs failed to send notifications of
dispute to furnishers within five business days of receiving the
dispute. After identification of these issues, CRCs were directed to
cease violating the FCRA's dispute notification timeliness
requirements.
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\9\ 15 U.S.C. 1681i(a)(2).
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2.2.3 CRC Duty To Provide Written Notice to the Consumer of the Results
of Reinvestigation
The FCRA requires that a CRC must provide written notice of the
results of a dispute reinvestigation not later than five business days
after the completion of the reinvestigation.\10\ In several reviews of
CRCs, examiners found disputes where an FCRA compliant statement of
results was not sent within the required five business days of
completing the dispute investigation. Moreover, examiners found that
CRCs' statements of results omitted material information necessary to
understand the results of the investigation. Examiners also found that
in some cases the statement of results was incorrect--stating, for
example, that disputed information had been corrected when, in fact,
the disputed information was verified as accurate by the furnisher and
not materially changed by the CRC. After identification of these
issues, CRCs were directed to cease violating the FCRA's dispute
results notice requirements.
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\10\ 15 U.S.C. 1681i(a)(6).
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2.2.4 Furnisher Duty To Conduct Reasonable Investigation of Indirect
Disputes
After receiving notice of a dispute of the completeness or accuracy
of any information from a CRC, furnishers are required to conduct an
investigation with respect to the disputed information.\11\ Such
investigations must include a review of all relevant information
provided by the CRC, and the furnisher must complete the investigation
and report the results to the CRC before the expiration of the time
period required for the CRC to complete its investigation and provide
notice of the results to the consumer.\12\ When disputes are forwarded
to furnishers by CRCs, the FCRA does not provide the furnisher with
discretion to deem such disputes frivolous; for indirect disputes, only
the CRC has discretion to determine that disputes are frivolous or
irrelevant.\13\ Examples of failures to conduct reasonable
investigations of indirect disputes from recent Bureau exams include:
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\11\ 15 U.S.C. 1681s-2(b)(1)(A).
\12\ 15 U.S.C. 1681s-2(b)(1)(B)-(C); 15 U.S.C. 1681s-2(b)(2).
\13\ 15 U.S.C. 1681i(a)(3).
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<bullet> Credit card furnishers failed to conduct any
investigations of disputes received from CRCs or send results of
dispute investigations to the CRCs due to furnishing system
implementation issues. Credit card furnishers also failed to conduct
reasonable investigation of disputes due to erroneously deeming
thousands of indirect disputes as frivolous. Credit card furnishers
also sent incorrect results of disputes to CRCs. For example, after
completing the dispute investigation, furnishers included incorrect
special comment codes on the automated credit dispute verification
forms (ACDV) used to communicate the results to the CRCs. After
identifying that incorrect results were sent to the CRCs, the
furnishers sent updates to the CRCs reporting the correct special
comment codes.
<bullet> Deposit furnishers failed to conduct any investigations of
disputes received from specialty CRCs or send results of dispute
investigations to specialty CRCs. The furnishers stated the dispute
investigations were not conducted because they were not aware that any
disputes had been received from specialty CRCs, as a result of the
furnishers' insufficient dispute intake procedures. The specialty CRCs
deleted the disputed information from the consumers' files because the
furnishers failed to timely investigate and respond to the disputes. In
response to these findings, the furnishers developed revised dispute
handling policies and procedures and compliance monitoring procedures
to ensure all disputes are tracked and resolved completely within the
time periods required by the FCRA.
<bullet> Auto furnishers failed to conduct reasonable
investigations of disputes received by CRCs. Specifically, furnishers
incorrectly calculated consumers' payment histories while processing
dispute investigations, resulting in the furnishers including incorrect
payment histories in the dispute results reported to the CRCs.
In response to these findings, furnishers revised their training
programs to ensure that dispute agents
[[Page 26730]]
conduct reasonable investigations of disputes received from CRCs.
Furnishers are also conducting reviews to identify and remediate all
impacted accounts for which payment histories were reported
inaccurately.
2.2.5 Furnisher Duty To Report the Results of Direct Dispute
Investigations to Consumers
The FCRA and Regulation V require furnishers to complete their
investigations of direct disputes received from consumers and to report
the results to the consumer before the expiration of the time period
that would have been required for the CRC to complete its investigation
had the consumer sent the dispute to the CRC rather than the
furnisher.\14\
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\14\ 15 U.S.C. 1681s-2(a)(8)(E)(iii); 12 CFR 1022.43(e)(3).
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In reviews of credit card furnishers, examiners found that the
furnishers conducted investigations of direct disputes and sent the
consumers response letters, but the letters failed to communicate the
results of the investigations. Specifically, for disputes that resulted
in corrections to disputed information, the furnishers used template
response letters that included confusing language, which created
ambiguity about whether changes had been made in response to the
dispute investigations. These letters failed to provide consumers with
the results of the dispute investigations because they did not
affirmatively inform the consumers that changes were made in response
to their disputes. In response to these findings, the furnishers
implemented revised template response letters, which do not contain
ambiguous language and clearly communicate that changes were made in
response to the dispute investigations.
2.2.6 Furnisher Duty To Correct and Update Information
The FCRA requires that when a furnisher determines that information
furnished to CRCs is not complete or accurate, the furnisher must
``promptly'' notify the CRC of that determination and provide the CRC
with any corrections to that information, or any additional
information, that is necessary to make the information provided by the
furnisher to the CRC complete and accurate.\15\ After determining that
information furnished to CRCs is not complete or accurate, furnishers
must also stop furnishing to CRCs information that remains not complete
or accurate.\16\
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\15\ 15 U.S.C. 1681s-(a)(2).
\16\ Id.
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In reviews of credit card furnishers, examiners found that
furnishers failed to send updating or correcting information to CRCs
after making a determination that information the furnishers had
reported was not complete or accurate. For example, examiners found
that after determining that accounts that had been given new account
numbers were erroneously being furnished twice to the CRCs, once under
the old account number and once under the new account number, the
furnishers continued to furnish the duplicate accounts to the CRCs.
Examiners also found that credit card furnishers violated this
provision by failing to promptly update account statuses to settled-in-
full, paid-in-full, voluntarily closed, or discharged in bankruptcy
upon recognizing that the account statuses furnished did not match the
account statuses in the furnishers' systems of record.
Supervision directed the furnishers to update their systems to
allow for prompt updates to, and to prevent the continued furnishing of
information determined to be incomplete or inaccurate.
2.2.7 Furnisher Duty To Establish and Implement Reasonable Policies and
Procedures Concerning the Accuracy and Integrity of Furnished
Information
Regulation V requires that furnishers establish and implement
reasonable written policies and procedures regarding the accuracy and
integrity of the information relating to consumers that it furnishes to
a CRC.\17\ The policies and procedures must be appropriate to the
nature, size, complexity, and scope of each furnisher's activities.''
\18\ Furnishers must consider and incorporate, as appropriate, the
guidelines of Appendix E to Regulation V when developing their policies
and procedures.\19\ These guidelines address key business functions,
such as record retention, training, third-party oversight, and receipt
of feedback from CRCs and others that contribute to a furnisher's
ability to ensure the accuracy and integrity of the data furnished to
CRCs.
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\17\ 12 CFR 1022.42(a).
\18\ Id.
\19\ 12 CFR 1022.42(b).
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In previous issues of Supervisory Highlights, we described
supervisory findings of furnishers that violated these
requirements.\20\ In recent supervisory reviews, we have identified
further violations of the Regulation V requirement for reasonable
written policies and procedures.
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\20\ CFPB, Supervisory Highlights: Consumer Reporting Special
Edition, at 4-7 (Dec. 2019); CFPB, Supervisory Highlights, Winter
2017, at 13-17 (March 2017). These editions are available at:
Supervisory Highlights [verbar] Consumer Financial Protection Bureau
(<a href="http://consumerfinance.gov">consumerfinance.gov</a>).
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<bullet> In reviews of credit card furnishers, examiners found
furnishers' policies and procedures had failed to specify how
particular data fields, such as the date of first delinquency, should
be populated when furnishing information about credit card accounts.
<bullet> Credit card furnishers' policies and procedures also had
failed to provide for the retention of records for a reasonable period
of time to substantiate the accuracy of consumer information furnished
to CRCs. For example, examiners identified multiple instances where
furnishers failed to retain records relating to direct disputes for the
time period required by their own policies due to automated system
purges of dormant accounts occurring on a shorter cycle than the
applicable retention period.
<bullet> Examiners also found that had failed to perform account
level analyses to determine which accounts should be reported in
bankruptcy status after a consumer informs the furnisher of a
bankruptcy filing. The furnishers' processes resulted in the reporting
of bankruptcy status codes for accounts that had already been paid and/
or closed prior to the bankruptcy filing.
<bullet> In reviews of auto loan furnishers, examiners found that
furnishers had failed to incorporate content relating to the specific
activities in which the furnishers engaged. For example, furnishers
lacked procedures for furnishing accurate information in connection
with leased automobiles returned to dealerships.
<bullet> In reviews of deposit furnishers, examiners found that
furnishers had no written policies or procedures for furnishing deposit
account information to specialty CRCs. Examiners also found that
furnishers, in developing their policies and procedures, did not
consider and incorporate the guidelines in Appendix E to Regulation V
with respect to conducting reasonable investigations of consumer
disputes relating to furnished deposit account information. For
example, examiners identified furnishers that claimed to handle
disputes through their existing complaints procedures despite those
procedures failing to address the specific requirements under the FCRA
for investigating and resolving consumer disputes.
After identification of these issues, furnishers are taking
corrective actions including developing written policies and procedures
regarding the accuracy and integrity of information furnished to
[[Page 26731]]
CRCs and the proper handling of consumer disputes.
2.3 Credit Card Account Management
The Bureau assessed the credit card account management operations
of 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.
2.3.1 Billing Error Resolution Violations
Regulation Z contains billing error resolution provisions that a
creditor must comply with following receipt of a billing error notice
from a consumer. Examiners found violations of the following provisions
of Regulation Z:
<bullet> 12 CFR 1026.13(c)(1) by failing to mail or deliver written
acknowledgments to consumers within 30 days of receiving a billing
error notice;
<bullet> 12 CFR 1026.13(c)(2) by failing to resolve disputes within
two complete billing cycles after receiving a billing error notice, due
to human and system intake errors;
<bullet> 12 CFR 1026.13(e)(1) by failing to reimburse consumers
after billing errors were determined to have occurred as consumers
asserted;
<bullet> 12 CFR 1026.13(e)(2) by failing to mail or deliver
correction notices to consumers resolving billing errors in their
favor;
<bullet> 12 CFR 1026.13(f) by failing to conduct reasonable
investigations after receiving billing error notices due to human
errors and system weaknesses;
<bullet> 12 CFR 1026.13(f)(1) by providing inaccurate explanations
to consumers as to why the creditor denied the consumers' billing error
claims in whole or part or, in some instances, providing no explanation
at all; and
<bullet> 12 CFR 1026.13(f)(2) by failing to provide consumers with
the evidence the creditor relied upon to determine no billing error
occurred, after the consumers requested the evidence to understand the
creditor's determination.
In response to these findings, the relevant entities are
implementing plans to improve compliance with Regulation Z's billing
error resolution requirements, which include enhanced training, system
improvements, enhanced monitoring, additional controls for consumer
complaints, and revisions to applicable policies and procedures.
2.3.2 Rate Re-Evaluation Violations
Under Regulation Z, as revised to implement the Card Accountability
Responsibility and Disclosure (CARD) Act, after increasing a consumer's
Annual Percentage Rate (APR or rate), credit card issuers have to
periodically assess whether it is appropriate to reduce the account's
APR(s).\21\ Issuers must first re-evaluate each such account no later
than six months after the rate increase and at least every six months
thereafter.\22\ In re-evaluating each account, the issuer must review
(a) the factors on which the rate increase was originally based or (b)
the factors the issuer currently considers when determining the APR
applicable to similar, new consumer credit card accounts.\23\
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\21\ 12 CFR 1026.59(a).
\22\ 12 CFR 1026.59(c).
\23\ 12 CFR 1026.59(d)(1).
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Examiners found violations of these provisions of Regulation Z in
connection with creditors' acquisitions of pre-existing credit card
accounts from other creditors. In one set of violations, the creditors
conducted rate re-evaluations on the acquired accounts but failed to
reduce APRs to the appropriate level. Specifically, the creditors were
unable to identify the lowest rate applicable to the acquired accounts
because they failed to gather this data from the sellers during the
acquisition. This rate data was necessary to the creditors' rate
reevaluation analysis and, as a result, the creditors did not properly
re-evaluate accounts as required by Regulation Z, causing monetary harm
to consumers who did not receive APR rate reductions. In response to
these findings, the creditors will provide remediation to impacted
consumers and will enhance monitoring to ensure accurate rate
information.
In a separate set of violations, the creditors failed to conduct
re-evaluations of rate increases once every six months after certain
APR increases on acquired accounts. For those accounts, the creditors
failed to accurately record a review date in their system of record for
rate re-evaluation and, as a result, their rate re-evaluation system
did not identify these accounts for inclusion in the rate re-evaluation
process. This resulted in monetary harm to consumers who were not
included in the creditors' rate re-evaluation process and did not
receive potential rate reductions. As a result, the creditors will
remediate all affected consumers, develop new rate re-evaluation
controls, and enhance exception reporting and monitoring activities.
Finally, examiners found violations of these provisions of
Regulation Z in connection with a failure to consider appropriate
factors when performing rate re-evaluations. Specifically, when
evaluating rate reductions, based on the factors considered when
determining the APRs applicable to similar new accounts, the creditors
considered certain minimum rates that formerly applied to their credit
card accounts; however, at the time of their rate re-evaluation
analyses, because these minimum rates no longer applied to the relevant
credit card accounts, using them in the creditors' rate re-evaluation
analyses violated Regulation Z. In response to these findings, the
creditors will remove the inappropriate factors when determining the
applicable APR following the re-evaluation of a rate increase and
revise their relevant policies and procedures.
2.3.3 Deceptive Advertising of Interest-free Financing and Failure To
Process Refunds in Accordance With Account Disclosures
Sections 1031 and 1036 of the CFPA prohibit deceptive acts or
practices.\24\ Examiners found that certain entities engaged in
deceptive acts or practices by advertising the interest-free financing
feature of their credit card without adequately disclosing the
preconditions for obtaining the financing. To receive the interest-free
financing, consumers needed to satisfy two preconditions, including
purchasing the products at a business partner's store or website and
agreeing, at checkout, to pay for the product in monthly installments.
Based on the net impression of the advertisements, consumers were
misled about the preconditions necessary to receive the interest-free
financing promotion, which were material to the consumers' decision to
purchase the products with the credit card. As a result of these
findings, the entities will undertake remedial and corrective actions.
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\24\ 12 U.S.C. 5531 and 5536(a)(1)(B).
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Examiners also found that certain entities engaged in deceptive
acts or practices by failing to process refunds in accordance with
their credit card account holder agreements. The entities issued
certain credit card accounts to customers which had both a revolving
balance that accrued interest and a monthly installment balance that
was interest-free for its duration. The account holder agreements
provided that refunds and credits would be applied to the revolving
balance on the customer's account, and did not contain any provision
stating that, if the purchase refunds on the revolving balance resulted
in a negative revolving balance, the refund would instead be
[[Page 26732]]
applied to the monthly installment balance. Nonetheless, when the
refund would result in a negative revolving balance, the entities (1)
applied revolving purchase refunds to the monthly installment balance,
or (2) applied such refunds to the revolving balance temporarily, but
then applied the negative revolving balance to the monthly installment
balance when the monthly installment balance payment became due. These
practices caused the interest-free installment balances to be paid
prematurely, resulting in consumers losing the interest-free benefit
they expected to receive and having fewer funds available to pay future
interest-accruing revolving balances.
This practice was deceptive because the credit card account holder
agreements misled consumers with regard to how refunds and credits
would be applied to their account balances. In response to these
findings, the entities will undertake remedial and corrective actions.
2.4 Debt Collection
The Bureau has supervisory authority to examine certain
institutions that engage in consumer debt collection activities,
including very large depository institutions,\25\ nonbanks that are
larger participants in the consumer debt collection market,\26\ and
nonbanks that are service providers to certain covered persons.\27\
Recent examinations of larger participant debt collectors identified
risks of violations of the Fair Debt Collection Practices Act (FDCPA)
and the CFPA.
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\25\ 12 U.S.C. 5515(a)-(b).
\26\ 12 U.S.C. 5514(a)(1)(B), (b) and 12 CFR 1090.105.
\27\ 12 U.S.C. 5514(e), 5515(d), 5516(e).
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2.4.1 Using a False or Misleading Representation in Connection With the
Collection of a Debt Cause by Identify Theft
FDCPA section 807(2)(A) \28\ states that a debt collector may not
falsely represent the character, amount, or legal status of any debt in
connection with the collection of any debt. Examiners found instances
in which debt collectors violated this section by misrepresenting or
implying to consumers that they were responsible for paying charges on
their accounts that were incurred as the result of fraudulent activity.
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\28\ 15 U.S.C. 1692e(2)(A).
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Examiners found instances in which consumers had informed
collectors that the establishment of the account was the result of
identity theft. For example, consumers informed collectors that they
had police reports related to the fraud. Notwithstanding the consumers'
proffer of evidence supporting the identify theft, the debt collectors
continued to represent that the consumers owed the debt by offering to
allow the consumers to pay a reduced amount to settle the alleged debt,
and then continuing to attempt to collect the debt. Examiners
determined that, by continuing attempts to collect the debt and
offering settlement, even after being informed of the fraud, the debt
collectors misrepresented that the consumers were legally obligated to
pay a debt created through fraud. In these instances, the debt
collectors' agents deviated from the collectors' established policies
and procedures, and the debt collectors issued refunds of consumer
payments made after the misrepresentations.
2.4.2 Engaging in an Unfair Practice in Connection With the Collection
of a Debt by Failing to Timely Refund Overpayments or Credit Balances
The CFPA prohibits covered entities from engaging in unfair,
deceptive, or abusive acts or practices in their interactions with
consumers.\29\ Examiners found multiple instances in which debt
collectors may have engaged in an unfair act or practice in connection
with the collection of a debt by failing to timely refund overpayments
and credit balances to consumers. These practices caused or were likely
to cause substantial injury to affected borrowers as consumers lost the
ability to use funds for an extended period of time. Consumers could
not reasonably avoid the injury as they were unlikely to know about the
credit balances, and even if they became aware, the consumers had no
way to expedite the refund process. The injury was not outweighed by
countervailing benefits to consumers or competition. In response to
these findings, the entities will report to the CFPB on remedial
measures, including issuing full refunds to consumers, revising their
policies and procedures, and strengthening their monitoring to ensure
credit balances are timely refunded.
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\29\ 12 U.S.C. 5531 and 5536.
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2.5 Deposits
The CFPB continues its examinations of financial institutions for
compliance with Regulation E,\30\ which implements the Electronic Fund
Transfer Act (EFTA).\31\ The CFPB also examines for compliance with
other relevant statutes and regulations, including Regulation DD,\32\
which implements the Truth in Savings Act,\33\ and the CFPA's
prohibitions regarding UDAAPs.\34\
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\30\ 12 CFR 1005 et seq.
\31\ 15 U.S.C. 1693 et seq.
\32\ 12 CFR 1030 et seq.
\33\ 12 U.S.C. 4301 et seq.
\34\ 12 U.S.C. 5531, 5536.
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2.5.1 Failure To Remove a Duplicative Hold on an Account
Examiners found that institutions engaged in unfair acts or
practices by erroneously placing multiple holds on certain mobile check
deposits that were deemed suspicious rather than placing the single
holds that were intended. Through transaction testing, examiners
identified accounts where the institutions had charged a consumer
overdraft fees because the institutions failed to lift the initial
automatic holds on the amounts of mobile check deposits after an
additional suspicious deposit hold was placed on the account. This
practice caused, or was likely to cause, substantial injury due to
consumers incurring fees and losing access to funds that were unrelated
to the suspicious mobile check deposit. Consumers could not reasonably
avoid the injury, given that they could not have prevented the
institutions from failing to comply with their own internal procedures.
And the injury was not outweighed by countervailing benefits to
consumers or to competition.
The institutions' failures to implement policies and procedures
that address these technical limitations led to the unfair practices.
The institutions revised their policies and procedures governing holds
and developed controls to monitor for and detect instances of duplicate
holds. The institutions refunded the fees caused by these duplicate
holds.
2.5.2 Failure To Honor a Timely Stop Payment Request
Institutions violated the stop payment requirements of 12 CFR
1005.10(c) by failing to honor stop payment requests for preauthorized
transfers tied to debit cards. Examiners found that the institutions'
systems did not enable stopping a payment tied to a debit card. The
institutions clarified the policies for this area and revised trainings
to address this issue in the future.
2.5.3 Failure To Investigate and Determine Whether an Error Occurred
Examiners continued to find issues with financial institutions
failing to follow Regulation E error resolution procedures.
Institutions violated Regulation E by failing to complete error
investigations following consumers' notices of error because the
consumers
[[Page 26733]]
did not submit an affidavit.\35\ Where consumers did not submit an
affidavit, the institutions denied the error claims without
investigating the merits of the error claims. A financial institution
cannot require a consumer to file a police report or other
documentation as a condition of initiating or completing an error
investigation. The institutions updated policies and procedures and
implemented remediation programs for affected consumers.
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\35\ 12 CFR 1005.11(c)(1).
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The Bureau has discussed this issue in FAQs on Electronic Funds
Transfers and in Supervisory Highlights, Issue 24, Summer 2021.\36\
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\36\ The Electronic Fund Transfers FAQ (last updated Dec. 13,
2021) are available at: <a href="https://files.consumerfinance.gov/f/documents/cfbp_electronic-fund-transfers-faqs.pdf">https://files.consumerfinance.gov/f/documents/cfbp_electronic-fund-transfers-faqs.pdf</a>; Supervisory
Highlights, Issue 24, Summer 2021 (June 29, 2021), is available at:
<a href="https://www.consumerfinance.gov/documents/9840/cfpb_supervisory-highlights_issue-24_2021-06.pdf">https://www.consumerfinance.gov/documents/9840/cfpb_supervisory-highlights_issue-24_2021-06.pdf</a>.
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2.5.4 Failure To Provide Consumers With Notice of Revocation of
Provisional Credit
Institutions violated 12 CFR 1005.11(d)(2) by failing to provide
notices of revocation of provisional credit to consumers in connection
with error investigations regarding check deposits at ATMs.
Consumers filed error claims stating that checks deposited at ATMs
in specific amounts were not properly credited to their accounts. The
institutions provided the consumers with provisional credits in the
amounts claimed by the consumers; however, when the institutions
retrieved the checks, they determined the check amounts were for lesser
amounts than the consumers alleged in the error claims. The
institutions debited the differences and sent the consumers written
letters indicating the investigations were complete and the provisional
credits of the lesser amounts were final, not addressing the fact that
the institutions debited the difference between the amounts of the
original provisional credits and the face values of the checks.\37\
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\37\ Pursuant to the Official Staff Interpretations to
Regulation E, Comment 1005.3(b)(1)-1, the term ``electronic funds
transfer'' includes ``[a] deposit made at an ATM . . . (including a
deposit in cash or by check).''
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The institutions violated Regulation E by failing to state that
they would be debiting the excess amounts originally provisionally
credited from the consumers' accounts, the dates the institutions would
be debiting the excess provisional credits, or that the institutions
would (as required by the regulation) honor certain transactions for
five days after the notification.
In response to these findings, the institutions provided additional
Regulation E compliance training to applicable staff, transitioned
certain monitoring and oversight functions to an independent quality
assurance/quality control team, and have identified opportunities to
enhance error resolution letter templates.
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.
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.\38\ 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-
and moderate-income borrowers.\39\ As explained by the Bureau there, it
is not permissible to differentiate compensation based on credit
product type, since products are simply a bundle of particular
terms.\40\
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\38\ 12 CFR 1026.36(d)(1)(i).
\39\ 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.
\40\ Id. at 11326-27, n.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.
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Examiners found that certain lenders' loan originator compensation
agreements provided for higher loan originator compensation where
Federal National Mortgage Association (Fannie Mae) conforming fixed
rate loans surpassed a designated threshold percentage of the total
loans closed by the loan originator. This compensation was higher than
the compensation paid when such loans did not surpass the designated
threshold percentage. Paying higher commissions under these
circumstances constitutes paying compensation based on credit product
type, which, in turn, violates the Loan Originator Rule as compensation
based on the term of a transaction, since products are simply a bundle
of particular terms. As a result of these findings, the lenders have
agreed to change their compensation plans to bring them into compliance
with the Loan Originator Rule. The Bureau previously discussed this
issue in Supervisory Highlights, Issue 24, Summer 2021.\41\
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\41\ Supervisory Highlights, Issue 24, Summer 2021, is available
at: cfpb_report_template_logo_092820.docx (<a href="http://consumerfinance.gov">consumerfinance.gov</a>).
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2.6.2 Insufficient Documentation for Changed Circumstance
Regulation Z requires a creditor to provide the consumer with good
faith estimates on the Loan Estimate for certain transactions. The
closing cost estimates are generally considered to be in good faith if
the amount paid by or imposed on the consumer does not exceed the
amount originally disclosed.\42\ A creditor is permitted to use a
revised estimate of a charge instead of the estimate of the charge
originally disclosed to reset tolerances when there is a valid changed
circumstance permitted by Regulation Z that resulted in the increased
costs.\43\ One such valid changed circumstance is where the consumer
requests revisions to the credit terms.\44\ For a creditor to
successfully reset tolerances as permitted by Regulation Z, it must,
among other things, maintain documentation explaining the reason for
revision.\45\
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\42\ 12 CFR 1026.19(e)(3)(i).
\43\ 12 CFR 1026.19(e)(3)(iv).
\44\ 12 CFR 1026.19(e)(3)(iv)(C).
\45\ 12 CFR pt. 1026, supp. I, comment 19(e)(3)(iv)-3.
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Examiners found that certain lenders failed to retain sufficient
documentation to establish the changed circumstance's validity.
Specifically, the lenders disclosed an appraisal fee on initial Loan
Estimates and subsequently disclosed appraisal rush fees, in a higher
amount, on revised Loan Estimates. The lenders claimed the rush
appraisals, which led to the appraisal rush fees, were requested by
consumers. However, in each instance, the lender failed to maintain
sufficient documentation evidencing the consumer's request of the rush
appraisals; in fact, the documentation maintained reflected that either
the appraisal management company notified the lenders that a rush
appraisal would be needed or the lenders' loan officers requested the
rush appraisal. In certain instances, the lenders' documentation
included only a checked box indicating the consumer requested the rush
appraisal, but there was no other evidence retained reflecting this
[[Page 26734]]
occurred. In response to these findings, the lenders agreed to
remediate affected consumers, revise their policies and procedures to
ensure relevant documentation is obtained and maintained, and
strengthen relevant quality control audit functions.
2.6.3 Disclosures Failed To Reflect the Terms of Legal Obligation
Regulation Z provides that closed-end disclosures, including the
mortgage Closing Disclosure, must reflect the terms of the legal
obligation between the parties.\46\
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\46\ 12 CFR 1026.17(c)(1).
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Examiners found violations of this provision relating to items on
Closing Disclosures that did not reflect the legal obligation between
the parties. Specifically, examiners identified instances where
lenders' Closing Disclosures failed to reflect the fully-indexed-rate
as required by the promissory note because the lenders' software
miscalculated the disclosed rates. The software used a rounding method
that is different from the method used in the corresponding promissory
notes. The software automatically rounded up to the nearest one-eighth
percent, despite the promissory note's instruction to round to the
nearest one-eighth percent--up or down. This practice resulted in
Closing Disclosures that do not reflect the terms of the legal
obligation between the parties, and likely affected files and loans
transferred to other loan servicers. As a result of these findings, the
relevant lenders committed to update the rounding methodology and
enhance monitoring and testing procedures to ensure that disclosures to
consumers reflect the terms of the legal obligation between the
parties.
2.7 Prepaid Accounts
The Bureau's Supervision program covers both institutions that
issue prepaid accounts and prepaid account service providers. Recent
examinations identified various violations of EFTA and Regulation E.
2.7.1 Prepaid Account Agreement Submissions
Examiners found violations related to the requirement that
financial institutions submit prepaid account agreements to the Bureau
as set forth in Regulation E. Section 1005.19(b)(1) requires that
prepaid account issuers make submissions of prepaid account agreements
on a rolling basis no later than 30 days after an issuer ``offers,
amends, or ceases to offer any prepaid account agreement.'' \47\
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\47\ 12 CFR 1005.19(b)(1).
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Examiners determined that institutions failed to submit prepaid
account agreements to the Bureau within 30 days of the effective date
after they amend certain prepaid account agreements.
In addition, 12 CFR 1005.19(b)(1)(i) requires that each submission
by a financial institution must contain, among other things, ``the name
of the program manager, if any, and the list of names of other relevant
parties, if applicable (such as the employer for a payroll card program
or the agency for a government benefit program.)'' Examiners determined
that institutions failed to submit, as part of their prepaid account
agreement submissions, the names of the program managers, if any, and
the lists of names of other relevant parties.
In response to these findings, institutions amended their
compliance management systems, submitted, or resubmitted the amended
prepaid account agreements to the Bureau with the additional required
information, as applicable, and instituted increased monitoring of
prepaid account agreements.
2.7.2 Stop Payment Requests
Examiners found violations related to the receipt of valid stop
payment requests from prepaid account users. Regulation E states that a
consumer may stop payment of a preauthorized electronic fund transfer
from the consumer's account by notifying the financial institution
orally or in writing at least three business days before the scheduled
date of the transfer.\48\
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\48\ 12 CFR 1005.10(c)(1).
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Examiners determined that institutions failed to honor oral stop
payment requests with respect to payments originating through certain
bill pay systems, including both those initiated with the merchant, as
well as within the bill pay system housed at the prepaid account
program manager.
In response to these findings, institutions corrected their
processes to allow for stop payment requests received orally or in
writing, regardless of where the payment was originated, and remediated
impacted consumers.
2.7.3 Error Resolution Documentation Notice
Examiners found violations related to the notice provided to
consumers after an institution determined no error or a different error
than alleged by the consumer had occurred upon the completion of a
Regulation E error investigation. Section 1005.11(d)(1) requires a
financial institution to report the results of its investigation,
including a written explanation of the institution's findings and the
consumer's right to request the documents that the institution relied
on in making its determination. Upon request, the institution must
promptly provide copies of these documents.
Examiners determined that institutions violated 12 CFR
1005.11(d)(1) by failing to include a statement noting the consumer's
right to request the documents that the institution relied on in making
its determination after determining no error or a different error
occurred as part of the report of the results. Examiners also found
that institutions failed to fulfill consumers' subsequent requests to
provide the documentation relied upon to make the determinations that
no error occurred.
In response to these findings, institutions updated their report of
results letter templates to explicitly state the consumers' right to
request documents that the institutions relied on in making their error
investigation determinations, and directed their service providers to
institute compliance management system enhancements to ensure requests
for documents were honored.
2.8 Remittances
The Bureau continues to examine institutions under its supervisory
authority for compliance with Regulation E, Subpart B (Remittance
Rule).\49\ The Bureau also reviews for UDAAPs in connection with
remittance transfers. Examiners identified violations of EFTA,
Regulation E, and a deceptive act or practice.
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\49\ See 78 FR 30662 (May 22, 2013), as amended (codified at 12
CFR 1005.30 through 1005.36).
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2.8.1 Deceptive Claims on Transfer Speeds for Remittance Transfers
Examiners found remittance transfer providers engaged in deceptive
acts or practices by making false and misleading representations of
``instant'' and ``30 second'' transfers, even though the transfers may
not be completed in 30 seconds or they may be otherwise delayed.
Certain transfers could be delayed up to an additional 48 hours past
the disclosed date of availability. These express claims, which failed
to disclose or disclose adequately any exceptions, were likely to
mislead consumers acting reasonably. And information about transfer
speed would have been material to a consumer's
[[Page 26735]]
decision as to which remittance transfer provider to use. In response
to these findings, institutions implemented additional UDAAP training
for their staff and ensured that their compliance departments review
advertisements.
2.8.2 Remittance Transfer Account Agreement Waiver Violations
Section 914 of EFTA, 15 U.S.C. 1693l, states that ``[n]o writing or
other agreement between a consumer and any other person may contain any
provision which constitutes a waiver of any right conferred or cause of
action created by this subchapter.'' \50\
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\50\ 15 U.S.C. 1693l.
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Examiners found multiple instances where remittance transfer
service agreements with consumers violated EFTA's prohibition on
waivers of rights conferred or causes of action created by EFTA.
Institutions violated EFTA by:
<bullet> Including a hold harmless and indemnification requirement
that purports to limit claims against the institution, thereby waiving
rights conferred by EFTA section 916.\51\
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\51\ 15 U.S.C. 1693m.
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<bullet> Attempting to limit the consumer's right to recover costs
and attorney's fees in a limited liability clause.\52\
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\52\ EFTA section 916, 15 U.S.C. 1693m(a) allows the consumer to
seek redress comprised of actual damages, up to $1,000 in statutory
damages, and in the case of a successful action the costs of the
action together with reasonable attorney's fees as determined by the
court.
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<bullet> Stating that the entity makes ``no representations or
warranties regarding the time required to complete processing because
the Service is dependent on many factors beyond our control.'' \53\
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\53\ Under 12 CFR 1005.33(a)(1)(iv)(A) failure to make funds
available to the designated recipient by the date of availability is
generally an error unless a specific exception applies. The
exceptions are listed in sec. 1005.33(a)(1)(iv)(A)-(D).
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In response to these findings, the entities undertook a number of
corrective actions including updating their agreements to remove the
offending language.
2.8.3 Disclosure and Timing Issues on Receipts for Remittance Transfers
Examiners found multiple issues with remittance providers failing
to comply with disclosure and timing requirements set forth in the
Remittance Rule.
Section 1005.31(b)(2)(ii) requires remittance transfer providers to
disclose on receipts the date in the foreign country in which funds
will be available to the designated recipient.\54\ Institutions
violated this section by failing to disclose on the remittance transfer
receipts the date the funds are available to the designated recipient.
The institutions disclosed when the funds were delivered to the
designated recipient's bank, but not the date on which the funds would
be available to the recipient.
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\54\ 12 CFR 1005.31(b)(2)(ii).
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Section 1005.31(e)(2) requires the remittance transfer provider to
provide the receipt required under Sec. 1005.31(b)(2) no later than
one business day after the date on which payment is made for remittance
transfers made via mobile applications.\55\ Institutions violated this
section in instances where they failed to issue receipts until after
the funds were successfully delivered to the intended recipients,
outside the timeline required by Sec. 1005.31(b)(2).
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\55\ 12 CFR 1005.31(e)(2).
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In response to these findings, institutions updated their policies
to meet the timing requirements of the Remittance Rule.
2.8.4 Failure To Develop and Maintain Written Policies and Procedures
Designed To Ensure Compliance With the Remittance Transfer Rule,
Include the Rule's Record Keeping Requirements
Examiners found that institutions failed to develop and maintain
written policies and procedures designed to ensure compliance with the
error resolution requirements of the Remittance Transfer Rule as found
in 12 CFR 1005.33(g). The absence of adequate written policies and
procedures resulted in various violations of the substantive provisions
of the error resolution requirements, including the erroneous exclusion
of certain types of claims from the definition of an error under the
Remittance Transfer Rule; improper delays in investigations, refunds
and notices, and notices missing required information.
Several institutions also failed to implement written policies and
procedures regarding the retention of documentation related to error
investigations under the Remittance Transfer Rule. In response to these
findings, Supervision directed institutions to revise error resolution
policies and procedures and provide additional training to relevant
personnel.
2.8.5 Disclosure, Timing and Refund Issues Relating to Error
Investigations
Institutions failed to provide notice of the results of error
investigations, including the notice of available remedies, as is
required.\56\ The institutions had erroneously coded the error claims
as paid and the cases resolved, but failed to contact the senders to
report on the results of their investigations.
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\56\ 12 CFR 1005.33(c)(1).
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Examiners also found that institutions failed to provide refunds in
the amounts needed to resolve the errors within one business day, or as
soon as reasonably practicable, after receiving the sender's
instructions regarding the appropriate remedy, as is required.\57\
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\57\ 12 CFR 1005.33(c)(2)(ii)(A)(1).
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Examiners also determined that institutions failed to refund fees
imposed for remittance transfers when the funds were not delivered to
the designated recipients by the disclosed dates of availability,
consistent with 12 CFR1005.33(c)(2)(ii)(B), as a result of the
institutions' inabilities to reach the senders by phone.
Examiners found that institutions issued error claim denial letters
that did not disclose to the sender that the sender has the right to
request documentation used in the investigation.\58\
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\58\ 12 CFR 1005.33(d)(1).
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In response to these findings, institutions changed their policies
and procedures.
2.9 Student Loan Servicing
The Bureau continues to examine student loan servicing activity,
including at private student loan servicers, primarily to assess
whether entities have engaged in any UDAAPs. Examiners identified three
unfair acts or practices related to private student loan servicing.
2.9.1 Failing To Make Incentive Payments
Examiners found that servicers engaged in unfair acts or practices
by failing to make incentive payments that they offered in
advertisements and agreed to make in the relevant contracts with
consumers.
Examiners found that servicers were not making incentive payments
described in advertisements or loan contracts in a variety of
circumstances. Specifically, servicers failed to provide early
repayment incentive payments, referral bonuses, and welcome bonuses due
to system errors. Furthermore, in some instances servicers did not make
early repayment incentive payments based on policies that made
incentive payments contingent upon maintaining a deposit account with a
specific financial institution, although they did not disclose this
requirement in the loan contracts.
[[Page 26736]]
The servicers' conduct caused or was likely to cause substantial
injury because consumers complied with the promotional program or
contract terms and did not receive payments to which they were
entitled. Because consumers impacted by the system errors had complied
with all required terms and the servicer was in control of the program
administration, consumers could not reasonably avoid the injury.
Similarly, consumers impacted by the requirement to maintain a deposit
account could not reasonably avoid injury because they were not
adequately informed that the rebate was contingent upon maintaining a
deposit account with that financial institution. And the substantial
injury to consumers was not outweighed by countervailing benefits to
consumers or competition. In response to these findings, servicers
remediated affected consumers and implemented monitoring systems
consisting of new weekly reports to capture all accounts with refunds
due so that the servicers could confirm that they had made appropriate
refunds.
2.9.2 Failing To Issue Timely Refunds of Specified Payments After Loan
Modification
Examiners found that servicers engaged in unfair acts or practices
by failing to issue timely refund payments in accordance with the
payment schedules in loan modifications. In response to the COVID-19
pandemic, some servicers offered student loan modifications. These
modifications reduced the payments that a consumer owed for a set
period of time and provided a specific repayment schedule. In some
instances, the servicers entered into modification agreements that
included effective dates that predated the date they were transmitted
to consumers. Some consumers made payments that were not due under the
repayment schedule provided for in the modification agreement and were
therefore entitled to refunds of those payments. Examiners found that
servicers failed to issue timely refunds to consumers.
This practice caused or was likely to cause substantial injury to
consumers because they lost the use of money that should have been
refunded. The injury was not reasonably avoidable because consumers
reasonably relied on the specific terms described in the modification
agreement and the servicers were in charge of the refund process. And
the injury was not outweighed by countervailing benefits to consumers
or competition. In response to these findings, the servicers conducted
outreach to determine if consumers wanted a refund.
3. Supervisory Program Developments
3.1.1 CFPB Invokes Dormant Authority To Examine Nonbank Companies
Posing Risks to Consumers
On April 25, 2022, the CFPB announced that it is invoking a largely
unused legal provision to examine nonbank financial companies that pose
risks to consumers.
Before the CFPA was enacted only banks and credit unions were
subject to Federal supervision. But after the 2008 financial crisis in
which nonbank companies played a pivotal role, Congress tasked the CFPB
with supervising certain nonbanks, in addition to large depository
institutions with more than $10 billion in assets, and their service
providers. Nonbanks do not have a bank, thrift, or credit union
charter; many today operate nationally and brand themselves as
``fintechs.''
Congress authorized several categories of entities subject to
CFPB's nonbank supervision program. First and foremost, all nonbank
entities in the mortgage, private student loan, and payday loan
industries, regardless of size. Another category of supervised entities
includes what the law calls ``larger participants'' in other nonbank
markets for consumer financial products and services. The CFPB
conducted rulemakings to define thresholds for entities subject to
supervision in the markets of consumer reporting, debt collection,
student loan servicing, international remittances, and auto loan
servicing.
The third category of entities subject to CFPB nonbank supervision
are nonbanks whose activities the CFPB has reasonable cause to
determine pose risks to consumers. This authority is not specific to
any particular consumer financial product or service. While the CFPB
did implement the provision through a procedural rule in 2013,\59\ the
agency has now begun to invoke this authority. This will allow the CFPB
to be agile and supervise entities that may be fast-growing or are in
markets outside the existing nonbank supervision program.
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\59\ The 2013 procedural rule is available at: <a href="https://files.consumerfinance.gov/f/201206_cfpb_final-rule_certain-nonbank-covered-persons-risk-determination.pdf">https://files.consumerfinance.gov/f/201206_cfpb_final-rule_certain-nonbank-covered-persons-risk-determination.pdf</a>.
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The CFPB also issued a procedural rule to increase the transparency
of the risk-determination process.\60\ The company involved will have
an opportunity to provide input to the CFPB on what information is
released to the public.
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\60\ The procedural rule is available at: Supervisory Authority
Over Certain Nonbank Covered Persons Based on Risk Determination;
Public Release of Decisions and Orders (<a href="http://consumerfinance.gov">consumerfinance.gov</a>).
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3.1.2 CFPB Targets Unfair Discrimination in Consumer Finance
On March 16, 2022, the CFPB published an updated exam manual for
evaluating UDAAPs. These updates cover discriminatory practices that
may also be ``unfair'' under the CFPA. The manual guides examiners in
evaluating whether certain discriminatory practices meet the criteria
for ``unfairness'' by causing substantial harm to consumers that they
cannot reasonably avoid, where that harm is not outweighed by
countervailing benefits to consumers or competition.\61\ Consumers can
be harmed by discrimination regardless of whether it is intentional.
Discrimination can be unfair in cases where the conduct may also be
covered by Equal Credit Opportunity Act (ECOA), as well as in instances
where ECOA does not apply. For example, denying access to a checking
account because the individual is of a particular race could be an
unfair practice even if ECOA may not cover the transaction.
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\61\ The updated exam manual is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_unfair-deceptive-abusive-acts-practices-udaaps_procedures.pdf">https://files.consumerfinance.gov/f/documents/cfpb_unfair-deceptive-abusive-acts-practices-udaaps_procedures.pdf</a>.
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3.1.3 CFPB Moves To Thwart Illegal Auto Repossessions
On February 28, 2022, the Bureau released a bulletin describing
instances, in examinations and enforcement actions, where servicers
violated the CFPA's prohibition against unfair, abusive, or deceptive
acts and practices.\62\ In particular, the Bureau intends to hold loan
holders and servicers accountable for UDAAPs related to repossession of
consumers' vehicles.
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\62\ The bulletin is available at: <a href="https://www.consumerfinance.gov/compliance/supervisory-guidance/cfpb-bulletin-2022-04-mitigating-harm-from-repossession-of-automobiles/">https://www.consumerfinance.gov/compliance/supervisory-guidance/cfpb-bulletin-2022-04-mitigating-harm-from-repossession-of-automobiles/</a>.
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3.1.4 CFPB Steps Up Scrutiny of Student Loan Servicers That Deceive
Borrowers About Public Service Loan Forgiveness
On February 18, 2022, the Bureau released a bulletin detailing
student loan servicers' obligation to halt unlawful conduct regarding
borrowers' eligibility and benefits under the limited waiver for the
U.S. Department of Education's Public Service Loan Forgiveness (PSLF)
Waiver.\63\ The
[[Page 26737]]
bulletin recommends actions servicers should consider taking to ensure
they do not misrepresent borrower eligibility or make deceptive
statements to borrowers about the PSLF program and the waiver.
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\63\ The bulletin is available at: <a href="https://www.consumerfinance.gov/compliance/supervisory-guidance/cfpb-bulletin-2022-03-servicer-responsibilities-in-public-service-loan-forgiveness-communications/">https://www.consumerfinance.gov/compliance/supervisory-guidance/cfpb-bulletin-2022-03-servicer-responsibilities-in-public-service-loan-forgiveness-communications/</a>.
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3.1.5 CFPB Issues Bulletin To Prevent Unlawful Medical Debt Collection
and Credit Reporting
On January 13, 2022, the Bureau released a bulletin reminding debt
collectors and CRCs of their legal obligations in light of the No
Surprises Act, which protects consumers from certain unexpected medical
bills.\64\ Companies that try to collect on medical bills that are
prohibited by the No Surprises Act, or who furnish information to CRCs
about such invalid debts, may face significant legal liability under
the FDCPA and FCRA. The bulletin advises CRCs that the accuracy and
dispute obligations imposed by the FCRA apply with respect to debts
stemming from charges that exceed the amount permitted by the No
Surprises Act.
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\64\ The bulletin is available at: <a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-bulletin-to-prevent-unlawful-medical-debt-collection-and-credit-reporting/">https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-bulletin-to-prevent-unlawful-medical-debt-collection-and-credit-reporting/</a>.
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4. Remedial Actions
4.1. Public Enforcement Actions
The Bureau's supervisory activities resulted in and supported the
following enforcement actions.
4.1.1 MoneyGram International, Inc. and MoneyGram Payment Systems, Inc
On April 21, 2022, the CFPB and New York Attorney General Letitia
James announced that they filed a lawsuit against MoneyGram
International, Inc. and MoneyGram Payment Systems, Inc. (MoneyGram)--
one of the largest remittance providers in the U.S.--for repeatedly
violating various consumer financial protection laws.\65\
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\65\ A copy of the complaint is available at:
cfpb_moneygram_complaint_2022-04.pdf (<a href="http://consumerfinance.gov">consumerfinance.gov</a>).
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CFPB examined MoneyGram between 2014 and 2016 and found multiple
problems. Then in 2019, the CFPB did a subsequent exam to see if
MoneyGram had fixed its problems. In short, for more than five years,
the CFPB worked with MoneyGram to fully comply with the law, but
MoneyGram continually failed to do so.
Specifically, the CFPB and New York Attorney General James allege:
<bullet> MoneyGram failed to deliver remittance funds by a date
promised to consumers and held up remittance transfers and refunds
unnecessarily. Holding the money in limbo resulted in needless delays
and harmed or risked harm to consumers.
<bullet> MoneyGram failed to adequately instruct or direct its
employees on how to comply with certain laws on resolving disputes. The
company also failed to report the results of its error investigations
to consumers and failed to provide adequate written explanation of its
findings to consumers.
<bullet> MoneyGram failed to put in place policies and procedures
designed to ensure compliance with certain record retention
requirements. MoneyGram also failed to retain evidence of its
compliance with certain money-transferring requirements as required.
The complaint seeks relief including damages and other monetary
relief, an injunction to stop future violations, and imposition of
civil money penalties. The complaint is not a final finding or ruling
that the defendants have violated the law.
4.1.2 TransUnion Interactive, Inc. TransUnion, LLC, TransUnion, and
John T. Danaher
On April 12, 2022, the Bureau filed a complaint in Federal court in
the Northern District of Illinois against TransUnion, two of its
subsidiaries, and longtime executive John Danaher for violating a 2017
law enforcement order, the CFPA's prohibition on deceptive acts and
practices, EFTA and its implementing Regulation E, and Regulation
V.\66\ Chicago-based TransUnion is the parent company of one of the
nation's three largest credit reporting companies. TransUnion collects
consumer credit information, including borrowers' payment histories,
debt loads, maximum credit limits, names and address of current
creditors, and other elements of their credit relationships. Through
its subsidiary, TransUnion Interactive, the company also markets,
sells, and provides credit-related products directly to the public,
such as credit scores, credit reports, and credit monitoring.
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\66\ The complaint is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_transunion_complaint_2022-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_transunion_complaint_2022-04.pdf</a>.
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The Bureau alleges that TransUnion, its subsidiaries, and former
executive John Danaher violated a January 3, 2017, consent order which
settled charges for deceptively marketing credit scores and credit-
related products, including credit monitoring services. As part of the
2017 settlement, TransUnion agreed to pay $13.9 million in restitution
to victims and $3 million in civil penalties. TransUnion and its
subsidiaries also agreed to a formal law enforcement order that, among
other things, required the credit reporting company to warn consumers
that lenders are not likely to use the scores they are supplying,
obtain the express informed consent of customers for recurring payments
for subscription products or services, and provide an easy way for
people to cancel subscriptions. The order was binding on the company,
its board of directors, and its executive officers.
In October 2018, the CFPB commenced an examination of TransUnion.
In May 2019, CFPB examiners informed TransUnion that it was violating
multiple requirements of the order. In these instances, companies
typically work constructively with the CFPB to make quick fixes and
come into compliance. However, in June 2020, CFPB informed TransUnion
that it was still violating the order and engaged in additional
violations of law.
In the April 12, 2022, complaint, the Bureau alleges that
TransUnion and John Danaher engaged in multiple violations of law,
including that TransUnion and Danaher violated the 2017 consent order;
that TransUnion deceived customers through an array of digital dark
patterns to trick people into recurring payments and to make it
difficult to cancel them; and that TransUnion misrepresented numerous
aspects of its products, services, and subscription plans, including
that its credit monitoring service was a standalone credit score or
credit report.
The CFPB is seeking monetary relief for consumers, such as
restitution or return of funds, disgorgement of compensation for unjust
gains, injunctive relief, and civil money penalties. The complaint is
not a final finding or ruling that the defendants have violated the
law.
4.1.3 Edfinancial Services, LLC
On March 30, 2022, the Bureau sanctioned Edfinancial Services, LLC,
a student-loan servicer, for making deceptive statements to student
loan borrowers and misrepresenting their forgiveness and repayment
options to them.\67\ Edfinancial deceived borrowers, with Federal
Family Education Loan Program (FFELP) loans about their eligibility for
PSLF. The Bureau is ordering the company to contact all affected
borrowers, provide them with
[[Page 26738]]
accurate information, and pay a $1 million civil money penalty.
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\67\ The Consent Order is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_edfinancial-services_consent-order_2022-03.pdf">https://files.consumerfinance.gov/f/documents/cfpb_edfinancial-services_consent-order_2022-03.pdf</a>.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-09690 Filed 5-4-22; 8:45 am]
BILLING CODE 4810-AM-P
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</html>Indexed from Federal Register on May 5, 2022.
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.