Notice2022-25733
Supervisory Highlights, Issue 28, Fall 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
November 25, 2022
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB or Bureau) is issuing its twenty-eighth edition of Supervisory Highlights.
Full Text
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<title>Federal Register, Volume 87 Issue 226 (Friday, November 25, 2022)</title>
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[Federal Register Volume 87, Number 226 (Friday, November 25, 2022)]
[Notices]
[Pages 72449-72458]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-25733]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights, Issue 28, Fall 2022
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory Highlights.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is
issuing its twenty-eighth edition of Supervisory Highlights.
DATES: The Bureau released this edition of the Supervisory Highlights
on its website on November 16, 2022. The findings in this report cover
examinations in the areas of auto servicing, consumer reporting, credit
card account management, debt collection, deposits, mortgage
origination, mortgage servicing and payday lending completed between
January 1, 2022, and June 31, 2022.
FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Senior Counsel, at
(202) 435-7449. If you require this document in an alternative
electronic format, please contact <a href="/cdn-cgi/l/email-protection#f9babfa9bba6b89a9a9c8a8a909b9095908d80b99a9f899bd79e968f"><span class="__cf_email__" data-cfemail="02414452405d4361616771716b606b6e6b767b42616472602c656d74">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
1. Introduction
The CFPB's supervision program is focused on ensuring that
financial institutions subject to its authority comply with Federal
consumer financial laws. Where violations of law or compliance
weaknesses are found, CFPB encourages compliance and deters misconduct
and recidivism.\1\ Supervisory Highlights promotes transparency of the
Bureau's supervisory work and provides the public with insight into
supervisory findings.
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\1\ If a supervisory matter is referred to the Office of
Enforcement, Enforcement may cite additional violations based on
these facts or uncover additional information that could impact the
conclusion as to what violations may exist.
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In this issue of Supervisory Highlights several trends are evident.
The first is that examiners continue to identify the same violations of
law across multiple institutions of a certain type, even though past
editions of Supervisory Highlights have publicized such violations at
other institutions of that type. Another is findings related to
entities that engaged in unfair, deceptive or abusive acts or practices
(UDAAP) in violation of the Consumer Financial Protection Act
(CFPA).\2\ In addition, there are findings on CARES Act-related or
COVID-19-related issues. Finally, this issue contains certain types of
novel supervisory findings that have not previously been reported in
Supervisory Highlights involving unique factual or legal analysis.
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\2\ 12 U.S.C. 5531, 5536.
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The findings in this report cover examinations in the areas of auto
servicing, consumer reporting, credit card account management, debt
collection, deposits, mortgage origination, mortgage servicing and
payday lending completed between January 1, 2022, and June 31, 2022. To
maintain the anonymity of the supervised institutions discussed in
Supervisory Highlights, references to institutions generally are in the
plural and the related findings may pertain to one or more
institutions.
Supervision is increasing its focus on repeat offenders,
particularly those who violate agency or court orders. As part of that
focus, Supervision has created a Repeat Offender Unit.
The Repeat Offender Unit is focused on:
<bullet> Reviewing and monitoring the activities of repeat
offenders;
<bullet> Identifying the root cause of recurring violations;
<bullet> Pursuing and recommending solutions and remedies that hold
entities accountable for failing to consistently comply with Federal
consumer financial law; and,
<bullet> Designing a model for order review and monitoring that
reduces the occurrences of repeat offenders.
The Repeat Offender Unit will focus on ways to enhance the
detection of repeat offenses, develop a process for rapid review and
response designed to address the root cause of violations, and
recommend corrective actions designed to stop recidivist behavior. This
will include closer scrutiny of corporate compliance with orders to
ensure that requirements are being met and any issues are addressed in
a timely manner.
We invite readers with questions or comments about Supervisory
Highlights to contact us at <a href="/cdn-cgi/l/email-protection#72313422302d2107021700041b011b1d1c32111402105c151d04"><span class="__cf_email__" data-cfemail="195a5f495b464a6c697c6b6f706a707677597a7f697b377e766f">[email protected]</span></a>.
2. Supervisory Observations
2.1 Auto Servicing
The Bureau continues to evaluate auto loan servicing activities,
primarily to assess whether entities have engaged in any UDAAPs
prohibited by the CFPA.\3\ Examiners identified unfair and deceptive
acts or practices across many aspects of auto servicing, including
violations related to add-on product charges, loan modifications,
double billing, use of devices that interfered with driving, collection
tactics, and payment allocation.
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\3\ 12 U.S.C. 5531, 5536.
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2.1.1 Overcharging for Add-On Products at Early Payoff
When consumers purchase an automobile, auto dealers and finance
companies offer optional, add-on products that consumers can purchase.
Some of the add-on products provide specific types of potential
benefits, such as guaranteed asset protection (GAP) products that offer
to help pay off an auto loan if the car is totaled or stolen and the
consumer owes more than the car's depreciated value, accident and
health protection, or credit life protection. The add-on products'
potential benefits apply only for specific time periods, such as four
years after purchase or for the term of the loan, and only under
certain circumstances.
Auto dealers and finance companies often charge consumers all
payments for any add-on products as a lump sum at origination of the
auto loan or purchase of the vehicle. Dealers and finance companies
generally include the lump sum cost of the add-on product as part of
the total vehicle financing agreement, and consumers typically make
payments on these products throughout the loan term, even if the
product expires years earlier.
[[Page 72450]]
An act or practice is unfair when: (1) it causes or is likely to
cause substantial injury to consumers; (2) the injury is not reasonably
avoidable by consumers; and (3) the injury is not outweighed by
countervailing benefits to consumers or to competition.\4\
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\4\ 12 U.S.C. 5531(c).
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Examiners identified instances where consumers paid off their loans
early, but servicers failed to ensure consumers received refunds for
unearned fees related to add-on products.\5\ At that point, certain
products no longer offered any possible benefit to consumers. In
contrast to early payoff scenarios, after repossession, servicers did
ensure that refunds for unearned fees were applied to consumers'
accounts either by obtaining the refunds directly or by debiting
reserve accounts servicers had established for dealers.
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\5\ The Bureau previously discussed similar issues with add-on
product refunds after repossession in Supervisory Highlights, Issue
26, Spring 2022, available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf</a>.
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Consumers suffered substantial injury because they were essentially
required to pay for services they could no longer use, as the relevant
products terminated when the loan contract terminated. Consumers could
not reasonably avoid the injury because they had no control over the
servicers' refund processing actions. When servicers present consumers
with payoff amounts, consumers may have no reason to know that the
amounts are inflated by add-on product premiums as consumers may be
unaware that they paid unearned premiums, let alone that the amount
could be refunded upon payoff. And reasonable consumers may not apply
for refunds themselves because they may have been unaware that the
contract provided that they could do so. Examiners concluded that the
injury was not outweighed by any countervailing benefits to consumers
or competition and that servicers engaged in unfair acts or practices
by failing to ensure consumers received refunds for the specific unused
add-on products.
In response to these findings, servicers are remediating impacted
consumers and implementing processes to obtain refunds for consumers
for add-on products with no benefit after early payoff.
2.1.2 Misleading Consumers About Loan Modification Approval
In calls where consumers who were delinquent on their loans
requested payment assistance, servicers stated that the consumers were
``preliminarily approved'' for loan modifications but had to make a
payment equal to the standard monthly payment before the servicers
would finalize the modifications. This created a net impression that if
consumers made the payments, they had a high likelihood of having the
modifications finalized. In fact, servicers denied most of the
modification requests after consumers made the requested payments.
Sections 1031 and 1036 of the CFPA prohibit deceptive acts or
practices.\6\ A representation, omission act, or practice is deceptive
when: (1) the representation, omission, act, or practice misleads or is
likely to mislead the consumer; (2) the consumer's interpretation of
the representation, omission act, or practice is reasonable under the
circumstances; and (3) the misleading representation, omission, act, or
practice is material.
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\6\ 12 U.S.C. 5531 and 5536(a)(1)(B).
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Examiners found that servicers engaged in deceptive acts or
practices by representing to consumers that their modifications were
preliminarily approved pending a ``good faith'' payment, when in fact
they denied most of the modification requests. Consumers' understanding
that they had a high likelihood of having the modifications finalized
was reasonable under the circumstances. And the likelihood that a
modification would be finalized was material to the consumer's decision
regarding whether to make the good faith payment.
In response to these findings, servicers ceased making these
representations, developed policies and procedures to prevent company
representatives from making these representations, implemented related
training, and enhanced monitoring.
2.1.3 Double Billing Consumers for Collateral Protection Insurance
When consumers enter auto finance agreements, they generally agree
to maintain vehicle insurance that covers physical damage to the
property in order to protect the lender's interest in the collateral.
Some contracts allow servicers to purchase insurance, called Collateral
Protection Insurance (CPI) or Force-Placed Insurance (FPI), if the
consumer fails to maintain appropriate coverage; charges for CPI are
generally passed along to consumers.
Examiners found that servicers engaged in an unfair act or practice
when they double billed consumers for CPI charges. Servicers purchased
CPI and billed consumers for a certain amount. Servicers then charged
consumers twice for the CPI in error; billing and collecting these
charges caused, or was likely to cause, substantial injury to
consumers. Consumers could not reasonably avoid the injury, and it was
reasonable for consumers to rely on the billed amount. The injury
associated with billing consumers for erroneous amounts is not
outweighed by any countervailing benefits to consumers or competition.
In response to these findings, servicers proposed implementing
changes to address the violation.
2.1.4 Unfairly Engaging Devices That Interfered With Driving
When consumers enter into auto finance agreements, lenders
sometimes require consumers to have technologies that interfere with
driving (sometimes called starter interrupt devices) installed in their
vehicles. These devices, when activated by servicers, either beep or
prevent a vehicle from starting.
Examiners found that, in certain instances, servicers engaged in
unfair acts or practices by activating these devices in consumers'
vehicles when consumers were not past due on payment, contrary to
relevant contracts and disclosures. Servicers inappropriately activated
the devices due to errors with their internal systems. In these
instances, servicers caused injury in one of two ways. First, in some
instances they activated the devices and prevented consumers from
starting their vehicles, causing substantial injury by unexpectedly
depriving these consumers of their vehicles. Second, in some instances
servicers caused the devices to sound late payment warning beeps
despite consumers being current, often for several days. The devices
sounded these beeps each time the consumer started the car. This
caused, or was likely to cause, substantial injury to consumers because
they may have ceased using the vehicle because they understood from the
beeps that servicers might disable the vehicle. Additionally, the
warning beeps were likely to harass consumers and risk harming
consumers' reputations by communicating to others, the consumers'
purported delinquencies. Consumers could not reasonably avoid these
injuries because they had no control over servicers' activation of the
devices. The harm outweighed any countervailing benefits to consumers
or competition.
In response to these findings, servicers proposed implementing
changes to address the violations.
2.1.5 Making Deceptive Representations During Collection Calls
Examiners found that certain servicers made deceptive
representations during
[[Page 72451]]
collections calls. Specifically, servicers' representatives told
delinquent consumers that their driver's licenses and tags would be or
may be suspended if they did not make a prompt payment to the servicer.
In fact, servicers do not have authority to suspend consumers' driver's
licenses and tags. Additionally, examiners found that some
representatives told consumers that their accounts had, or would be,
transferred to the legal department. In fact, consumers' accounts were
not at risk of imminent referral to the legal department. In these
instances, servicers engaged in deceptive acts or practices. It was
reasonable for consumers to believe that servicers had the authority to
take the actions they threatened to take and would take those actions.
And the representations were material because they were likely to
impact consumers' choices regarding whether to pay their auto loans or
other debts.
In response to these findings, servicers remediated impacted
consumers and enhanced training, procedures, and call monitoring
related to collection activity.
2.2 Consumer Reporting
Companies in the business of regularly assembling or evaluating
information about consumers for the purpose of providing consumer
reports to third parties are ``consumer reporting companies''
(CRCs).\7\ These companies, along with the entities--such as banks,
loan servicers, and others--that furnish information to the CRCs for
inclusion in consumer reports, play a vital role in availability of
credit and have a significant role to play in the fair and accurate
reporting of credit information. They are subject to several
requirements under the Fair Credit Reporting Act (FCRA) \8\ and its
implementing regulation, Regulation V,\9\ including the requirement to
reasonably investigate disputes and, for furnishers, to furnish data
subject to the relevant accuracy requirements. In recent reviews,
examiners found deficiencies in CRCs' compliance with FCRA dispute
investigation requirements and furnisher compliance with FCRA and
Regulation V accuracy and dispute investigation requirements.
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\7\ The term ``consumer reporting company'' means the same as
``consumer reporting agency,'' as defined in the Fair Credit
Reporting Act, 15 U.S.C. 1681a(f), including nationwide consumer
reporting agencies as defined in 15 U.S.C. 1681a(p) and nationwide
specialty consumer reporting agencies as defined in 15 U.S.C.
1681a(x).
\8\ 15 U.S.C. 1681 et seq.
\9\ 12 CFR part 1022.
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2.2.1 NCRC Duty To Review and Report Determinations and Actions Taken
in Response to Applicable Complaints
The FCRA requires that nationwide CRCs (NCRCs) must take certain
actions in response to complaints received from consumers that the
Bureau transmits to the NCRC if those complaints are about ``incomplete
or inaccurate information'' that a consumer ``appears to have
disputed'' with the NCRC.\10\ For this category of complaints, the FCRA
requires that NCRCs: (1) review such complaints to determine if all
legal obligations have been met; (2) provide regular reports to the
Bureau regarding the determinations and actions taken in response to
the reviews; and (3) maintain records regarding the disposition of such
complaints for a reasonable amount of time to demonstrate compliance
with the obligation to review and report on the complaints.
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\10\ 15 U.S.C. 1681i(e).
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In recent reviews of one or more NCRCs, examiners found that NCRCs
failed to report the outcome of complaint reviews to the Bureau.
Specifically, examiners found that NCRCs failed to report to the Bureau
determinations about whether all legal obligations had been met and
actions taken in response to complaints. Examiners also found that
NCRCs failed to address applicable complaints based on the NCRCs'
unsubstantiated suspicions that the complaints were submitted by
unauthorized third parties (e.g., credit repair organizations). In
response to these findings, NCRCs revised policies and procedures for
identifying applicable complaints subject to these heightened
obligations. NCRCs also revised processes for notifying consumers whose
complaints are identified as being submitted by unauthorized third
parties to allow consumers to confirm whether the complaints were
authorized.
2.2.2 Furnisher Prohibition of Reporting Information With Actual
Knowledge of Errors
Examiners are continuing to find that furnishers are violating the
FCRA by inaccurately reporting information despite actual knowledge of
errors.\11\ In reviews of auto loan furnishers, examiners found that
entities furnished information to CRCs while knowing or having
reasonable cause to believe such information was inaccurate because the
information furnished did not accurately reflect the information in the
furnishers' account servicing systems. For example, examiners found
that furnishers reported a consumer's account to CRCs as delinquent
despite placing the account in deferment during the time periods for
which delinquent status was furnished. Examiners also found that the
prohibition on furnishing inaccurate information under this provision
applied because the furnishers did not clearly and conspicuously
specify to consumers an address for notices relating to inaccurately
furnished information. For example, furnishers disclosed a general-
purpose corporate address on their websites and/or provided
instructions on their websites for the submission of complaints or
general concerns by consumers. However, examiners found that the
furnishers did provide an address for consumers to send notices about
inaccurate credit reporting information.
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\11\ 15 U.S.C. 1681s-2(a)(1)(A).
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In response to these findings, furnishers corrected the furnished
information for affected consumers. Furnishers also revised website
language to specify the address for the submission by consumers of
notices relating to inaccurately furnished information.\12\
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\12\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 20, Fall 2019, available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-20_122019.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-20_122019.pdf</a>.
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2.2.3 Furnisher Duty To Correct and Update Information
Examiners are continuing to find that furnishers are violating the
FCRA duty to correct and update furnished information after determining
such information is not complete or accurate.\13\ In reviews of third-
party debt collection furnishers, examiners found that furnishers
failed to send updated or corrected information to CRCs after making a
determination that information the furnishers had reported was not
complete or accurate. For example, examiners found that furnishers
continued to report consumer accounts to CRCs with an indication that
the dispute investigation was still open when, in fact, the furnisher
had determined that the accounts were no longer being investigated
after completing their dispute investigations. As a result, furnishers
did not promptly notify CRCs of the determination that the accounts
were no longer under active dispute investigation and provide CRCs with
corrected information that the accounts had been corrected or had
previously been disputed. In response to these findings, furnishers
implemented automated processes to update and
[[Page 72452]]
provide corrections of account dispute statuses to CRCs upon the
completion of dispute investigations.\14\
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\13\ 15 U.S.C. 1681s-2(a)(2).
\14\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 26, Spring 2022, available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf</a>.
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In addition, in reviews of auto loan furnishers, examiners found
that furnishers did not promptly correct or update CRCs following the
placement of consumer accounts into retroactive deferments. Upon
placing consumer accounts into retroactively applicable deferments,
furnishers updated their systems of record to reflect that the accounts
did not have any payments due until a deferment began, and therefore
had not been delinquent. However, examiners found that furnishers did
not send corrections or updates to CRCs indicating that the previously
reported delinquencies on such accounts were no longer accurate as a
result of the accommodation. In response to these findings, furnishers
are conducting lookbacks to identify and furnish corrections to the
CRCs in connection with all affected consumer accounts and are
implementing internal controls to ensure they promptly furnish such
corrections going forward.
2.2.4 Furnisher Duty To Provide Notice of Delinquency of Accounts
Examiners are continuing to find that furnishers are violating the
FCRA duty to notify CRCs of the date of first delinquency (DOFD) on
applicable accounts.\15\ In recent reviews of debt collection
furnishers, examiners found that furnishers violated this provision by
failing to establish and follow reasonable procedures to report the
appropriate DOFD. Examiners found that furnishers were reporting on
collections accounts that arose from unpaid utility accounts--accounts
typically disconnected several months after the first missed payment
causing delinquency before being sent to collections. Examiners found
that reasonable procedures would prevent a furnisher from calculating a
DOFD that preceded the account going to collections by only a brief
window, such as less than 40 days. In response to these findings, the
furnishers worked with the original creditors to ensure they received
the DOFD from them directly and implemented written policies and
procedures and enhanced monitoring and audit to ensure they obtain the
correct DOFD and furnish it to CRCs consistent with FCRA
requirements.\16\
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\15\ 15 U.S.C. 1681s-2(a)(5).
\16\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 22, Summer 2020, available at: <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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2.2.5 Furnisher Duty To Establish and Implement Reasonable Policies and
Procedures Concerning the Accuracy and Integrity of Furnished
Information
Examiners are continuing to find that furnishers are violating the
Regulation V duty to establish and implement reasonable written
policies and procedures regarding the accuracy and integrity of the
information furnished to a CRC and to consider and incorporate, as
appropriate, the guidelines of Appendix E to Regulation V.\17\ Recent
supervisory reviews identifying violations of the Regulation V
requirement for reasonable written policies and procedures include:
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\17\ 12 CFR 1022.42(a), (b).
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<bullet> In reviews of auto loan furnishers, examiners found
furnishers' policies and procedures did not document the basis on which
dispute agents should determine consumer direct disputes reasonably
qualify as frivolous or irrelevant.
<bullet> Examiners found that furnishing policies and procedures at
auto loan furnishers and debt collection furnishers did not provide for
adequate document retention. Specifically, furnishers' procedures
failed to provide for the maintenance of records for a reasonable
period of time in order to substantiate the accuracy of the information
furnished that was subject to dispute investigations.
<bullet> Examiners also found that furnishers lacked reasonable
written policies and procedures establishing and implementing
appropriate internal controls regarding the accuracy and integrity of
furnished information, such as by implementing standard procedures and
verifying random samples of furnished information.
In response to these findings, furnishers are taking corrective
actions including developing written policies and procedures regarding
the accuracy and integrity of information furnished to CRCs and the
proper handling and document retention of information related to
consumer disputes.\18\
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\18\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 26, Spring 2022, available at: <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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2.2.6 Furnisher Duty To Conduct Reasonable Investigations of Direct
Disputes
Examiners are continuing to find that furnishers are violating the
Regulation V duty to conduct a reasonable investigation of direct
disputes.\19\ Recent examples of failures to conduct reasonable
investigations of direct disputes include:
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\19\ 12 CFR 1022.43(e).
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<bullet> Debt collection furnishers failed to conduct reasonable
investigations by neglecting to review relevant, underlying information
and documentation. In response to these findings, the furnishers
updated policies and procedures to ensure that furnishing dispute
investigations are reasonable, complete, and reported within the time
periods required by Regulation V.
<bullet> Auto furnishers neither conducted reasonable
investigations nor sent notices that disputes were frivolous or
irrelevant where direct dispute notices may have been prepared by a
credit repair organization and such notices contained all of the
information needed to conduct a reasonable investigation (e.g., name,
address, partial account number, description of information disputed,
and explanation of the basis for the dispute). In response to these
findings, the furnishers are revising procedures regarding
documentation standards and improving training.\20\
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\20\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 22, Summer 2020, available at: <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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2.3 Credit Card Account Management
The Bureau assessed the credit card account management operations
of several supervised entities for compliance with applicable Federal
consumer financial services laws. Examinations of these entities
identified violations of Regulation Z and deceptive and unfair acts or
practices prohibited by the CFPA.
2.3.1 Billing Error Resolution
Regulation Z contains billing error resolution provisions that a
creditor must comply with following receipt of a billing error notice
from a consumer. Examiners found that certain entities violated
Regulation Z's billing error resolution provisions by:
<bullet> Failing to mail or deliver written acknowledgements to
consumers within 30 days of receiving a billing error notice; \21\
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\21\ 12 CFR 1026.13(c)(1).
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<bullet> Failing to resolve disputes within two complete billing
cycles, or no later
[[Page 72453]]
than 90 days after receiving a billing error notice; \22\
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\22\ 12 CFR 1026.13(c)(2).
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<bullet> Failing to conduct reasonable investigations after
receiving billing error notices; \23\
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\23\ 12 CFR 1026.13(f).
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<bullet> Failing to provide explanations to consumers after
determining that no billing error occurred or that a different billing
error occurred from that asserted.\24\
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\24\ 12 CFR1026.13(f)(1).
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In response to these findings, the relevant entities are
implementing plans to improve compliance with Regulation Z's billing
error resolution requirements, which include enhanced policies and
procedures, monitoring and audit, and training. The entities also are
remediating affected consumers.\25\
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\25\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 26, Spring 2022 and Issue 25, Fall
2021. These issues are available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-25_2021-12.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-25_2021-12.pdf</a> and <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf</a>.
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2.3.2 Rate Reevaluation Violations
Under Regulation Z, as revised to implement the Card Accountability
Responsibility and Disclosure (CARD) Act, after increasing a consumer's
Annual Percentage Rate (APR or rate), credit card issuers must
periodically assess whether it is appropriate to reduce the account's
APR.\26\ Issuers must first reevaluate each such account no later than
six months after the rate increase and at least every six months
thereafter until the APR is reduced to the rate applicable immediately
prior to the increase, or, if the rate applicable immediately prior to
the increase was a variable rate, to a variable rate determined by the
same formula (index and margin) that was used to calculate the rate
applicable immediately prior to the increase, or, to a rate that is
lower than the rate applicable immediately prior to the increase.\27\
In reevaluating each account to determine whether it was appropriate to
reduce the account's APR, the issuer must review: (a) the factors on
which the rate increase was originally based (hereinafter, the original
factors); or, (b) the factors the issuer currently considers when
determining the APR applicable to similar, new consumer credit card
accounts (hereinafter, the acquisition factors).\28\
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\26\ 12 CFR 1026.59(a).
\27\ 12 CFR 1026.59(c), (f).
\28\ 12 CFR 1026.59(d)(1).
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Examiners found a number of violations of these provisions of
Regulation Z. In one set of violations, the creditors failed to
consider appropriate factors when performing rate reevaluations. First,
in reevaluating accounts subject to default pricing, the creditors used
the original factors method, but also used the acquisition rate for new
customers as one of the variables in reevaluating these accounts. As
such, examiners determined that the creditors improperly mixed original
factors and acquisition factors when reevaluating accounts subject to a
rate increase. Additionally, if the creditors, after reevaluation,
determined that a consumer's rate should be reduced, the rate would be
reduced, but not below the higher of the consumer's pre-default
interest rate or the lowest current acquisition rate. In response to
these findings, the creditors will remediate affected consumers.
Additionally, examiners found that the creditors violated these
provisions by failing to evaluate the full rate increase for certain
accounts converted from fixed to variable rate. Specifically, for
consumer accounts that received a default rate increase and converted
from fixed to variable rate, the creditors reevaluated the interest
rates using original factors. However, if during the reevaluation
period, the variable rate for those accounts increased due to an
increase in the prime rate, the creditors did not consider that
increase as part of the rate reduction reevaluation. In response to
these findings, the creditors agreed to remediate affected consumers.
In a separate set of violations, the creditors failed to reevaluate
all credit card accounts subject to the rate reevaluation provisions at
least once every six months. For certain accounts, the creditors failed
to review the accounts until they reduced the rate to the rate
applicable immediately prior to the increase or to a rate that was
lower than the rate applicable immediately prior to the increase. For
other accounts, the creditors inadvertently excluded recently added
accounts from the master list file of accounts with an increased
interest rate subject to the rate reevaluation process. Additionally,
once the master list file of accounts reached its file size capacity,
older accounts were automatically deleted each time new accounts were
added to the file. This resulted in monetary harm to consumers who were
not included in the creditors' rate reevaluation process and did not
receive potential rate reductions. In response to these findings, the
creditors will remediate affected consumers and design and implement
policies and procedures to ensure compliance.
Finally, examiners found creditors improperly removed accounts from
the APR reevaluation process. Specifically, examiners found that the
creditors improperly removed consumer accounts from the APR
reevaluation process before the consumer had achieved either a
comparable APR to what the consumer enjoyed at the time the rate was
increased or the current rate offered to a new customer with similar
credit characteristics. In response to these findings, the creditors
will remediate affected consumers.\29\
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\29\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 26, Spring 2022, available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf</a>.
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2.3.3 Deceptive and Unfair Marketing, Sale, and Servicing of Add-On
Products
The CFPA prohibits unfair and deceptive acts or practices.\30\
Examiners found that certain entities engaged in deceptive acts or
practices in the marketing, sale, and servicing of credit card add-on
products to consumers.
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\30\ 12 U.S.C. 5531 and 5536.
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Examiners found that the entities engaged in deceptive acts or
practices in relation to the marketing, sale, and servicing of credit
card add-on products. Specifically, examiners found that the entities
misled consumers when their service providers used sales scripts that
claimed that self-employed consumers were eligible for the products
when they were not; when, in marketing materials, service providers
claimed that consumers could cancel the product coverage simply by
calling a toll-free number when, instead, they were required to take
additional steps to cancel; and when, in live sales calls, service
providers claimed that consumers would not be required to pay product
premiums for months in which they had a zero balance when, in fact,
consumers were required to carry a zero average daily balance for the
billing cycle to avoid paying the premium for that month. In each
instance, examiners concluded it was reasonable for consumers, under
the circumstances, to believe the misrepresentations because the
entities' service providers expressly stated them. These acts or
practices were material because they likely made consumers more willing
to purchase the products than they otherwise would have been.
Examiners also found that the entities engaged in unfair acts or
practices in relation to the marketing, sale, and servicing of the
credit card add-on products. Specifically, examiners found that the
entities treated consumers unfairly when they omitted disclosure of the
burdensome administrative requirements that consumers were
[[Page 72454]]
required to satisfy to submit benefits claims for the product.
Examiners also found that the entities treated consumers unfairly when
they failed to cancel the products on the date of the consumer's
request and failed to issue pro rata refunds based on the date of the
request as required by the insurance agreement. Examiners concluded
that these acts or practices were unfair because they caused
substantial injury to consumers by leading them to purchase a product
that was likely of significantly less value than the consumer initially
believed. The acts or practices were not reasonably avoidable by
consumers since consumers were unaware of the coverage restrictions
because the entities did not disclose those limitations to consumers at
the time of purchase and were not outweighed by countervailing benefits
to consumers or competition as the acts or practices were injurious in
their net effects.\31\
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\31\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 16 Summer 2017, available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf</a>.
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2.3.4 Deceptive Representations Regarding the Fixed Payment Option for
Automatic Withdrawal of the Minimum Payment Due
Examiners found that certain entities engaged in deceptive acts or
practices by inaccurately representing to consumers enrolled in their
fixed payment option that the entities would withdraw automatically,
from the consumer's bank account, an amount equal to the minimum
payment due on their credit card account whenever such payment exceeded
the fixed amount designated by the consumer. The entities' inaccurate
representations about the fixed payment option conveyed false messages
to consumers that likely misled them to reasonably believe that the
withdrawn payment amount would be increased to satisfy the minimum
payment due when such amount was higher than the fixed amount
designated by the consumer. These representations are material because
they likely induced consumers to enroll in the fixed payment option and
led them to believe they did not need to check that they made the
minimum payment due. In certain instances, however, the entities failed
to withdraw the minimum payment due, and only withdrew the fixed
amount, resulting in the consumer failing to pay the minimum payment
due. These failures resulted in consumers experiencing late charges,
default pricing, and derogatory credit reporting.
In response to these findings, the entities agreed to remediate
affected consumers.
2.4 Debt Collection
The Bureau has supervisory authority to examine certain
institutions that engage in consumer debt collection activities,
including very large depository institutions,\32\ nonbanks that are
larger participants in the consumer debt collection market,\33\ and
nonbanks that are service providers to certain covered persons.\34\
Recent examinations of larger participant debt collectors identified
violations of the Fair Debt Collection Practices Act (FDCPA).
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\32\ 12 U.S.C. 5515 (a)-(b).
\33\ 12 U.S.C. 5514(a)(1)(B) and 12 CFR 1090.105.
\34\ 12 U.S.C. 5514(e), 5514(d), 5516(e).
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2.4.1 Harassment Regarding Continued Call Conversations
During calls with consumers, examiners found that debt collectors
engaged in conduct the natural consequence of which was to harass,
oppress, or abuse the person with whom they were communicating. In
these calls, examiners found that the debt collectors continued to
engage the consumers in telephone conversations after the consumers
stated that the communication was causing them to feel annoyed,
harassed, or abused.
Examiners found that in at least one call, the debt collector
continued to engage the consumer after the consumer stated multiple
times they were driving and needed to discuss the account at another
time. In another instance, examiners found that the debt collector used
combative statements and continued the call after the consumer stated
they were unemployed, affected by COVID-19, and unable to pay, and even
after the consumer clearly stated that the call was ``making him
agitated.'' By continuing the calls after the consumers expressed their
desire to no longer engage with the collector, the debt collectors
violated the FDCPA's prohibition against harassing and abusive
conduct.\35\
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\35\ 15 U.S.C. 1692d(5).
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In response to these findings, Supervision directed the debt
collectors to enhance their training requirements to ensure compliance
with Federal consumer financial law including the FDCPA.
2.4.2 Communication With Third Parties
Examiners found multiple instances in which debt collectors
violated the FDCPA by communicating with a person other than the
consumer about the consumer's debt, when the person had a name similar
or identical to the consumer.\36\
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\36\ 15 U.S.C. 1692c(b).
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In response to these findings, Supervision directed the debt
collectors to update their identity authentication procedures to ensure
that the person with whom the debt collector is communicating is the
consumer obligated or allegedly obligated to pay the debt.\37\
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\37\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 24, Summer 2021, available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf</a>.
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2.5 Deposits
2.5.1 Pandemic Relief Benefits--Unfairness Risks
The Bureau conducted prioritized assessments to evaluate how
financial institutions handled pandemic relief benefits deposited into
consumer accounts, as detailed in the COVID-19 Prioritized Assessments
Special Edition of Supervisory Highlights, Issue 23.\38\ These pandemic
relief benefits included enhanced unemployment insurance funds and
three rounds of economic impact payments.\39\ The Bureau did a broad
assessment centered on whether consumers may have lost access to
pandemic relief benefits due to financial institutions' garnishment or
setoff practices. Generally, requirements around garnishment practices
derive from state-specific laws. For one economic impact payment round,
Congress mandated nationwide protection from most garnishment orders.
Various State and territorial laws may have protected economic impact
payments and/or unemployment insurance funds from garnishment or setoff
as well.
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\38\ This edition 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>.
\39\ Congress issued three rounds of economic impact payments to
many consumers under the Coronavirus Aid, Relief, and Economic
Security Act; the Consolidated Appropriations Act of 2021; and the
American Rescue Plan Act.
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During the initial deposits prioritized assessments review,
examiners identified indicators of risk at over two dozen depository
institutions. Examiners then conducted follow-up assessments at these
identified institutions. The follow-up prioritized assessments analyzed
whether the institutions risked committing an unfair act or practice in
violation of the Dodd-Frank Act, in connection with their treatment of
pandemic relief benefits.\40\
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\40\ 12 U.S.C. 5531, 5536.
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Examiners identified unfairness risks at multiple institutions due
to policies
[[Page 72455]]
and procedures that may have resulted in one or more of the following
practices:
<bullet> Using protected unemployment insurance or economic impact
payments funds to set off a negative balance in the account into which
the benefits were deposited (a.k.a. same-account setoff) or to set off
a balance owed to the financial institution on a separate account
(a.k.a. cross-account setoff), when such practices were prohibited by
applicable State or territorial protections;
<bullet> Garnishing protected economic impact payments funds in
violation of the Consolidated Appropriations Act of 2021;
<bullet> Garnishing protected unemployment insurance or economic
impact payments funds in violation of applicable State or territorial
protections;
<bullet> In connection with out-of-state garnishment orders,
processing garnishments in violation of applicable State prohibitions
against out-of-state garnishment; \41\ and/or
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\41\ A similar practice was recently the subject of a Bureau
public enforcement action. This order is available at: https://
www.consumerfinance.gov/about-us/newsroom/cfpb-orders-bank-of-
america-to-pay-10-million-penalty-for-illegal-garnishments/
#:~:text=The%20CFPB's%20order%20requires%20Bank,a%20%2410%20million%2
0civil%20penalty.
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<bullet> Failing to apply the appropriate State exemptions to
certain consumers' deposit accounts after receiving garnishment
notices.\42\
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\42\ Id.
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In response to these findings, Supervision directed the
institutions to: (i) refund any protected economic impact payments
funds that were taken by the institution in connection with improper
same-account or cross-account setoffs; (ii) refund any garnishment-
related fees assessed to account holders in connection with certain
out-of-state garnishment orders; (iii) review, update, and implement
policies and procedures to ensure the institution complies with
applicable State and territorial protections regarding its garnishment
practices, including in connection with the garnishment of unemployment
insurance funds, Federal benefits, any funds protected by State law
where the consumer resides, and in connection with out-of-state
garnishment orders; and/or (iv) review, update, and implement policies
and procedures to ensure the institution complies with applicable State
and territorial protections regarding its setoff practices, including
in connection with the setoff of unemployment insurance funds and
Federal benefits.
These prioritized assessment findings highlight the importance of
State and territorial laws that protect consumer funds held in deposit
accounts, including critical relief benefits. And it underscores that
the failure to comply with applicable State and territorial protections
may, under certain circumstances, give rise to unfair acts or practices
in violation of the CFPA. One or more cited institutions raised
arguments that guidance on preemption meant they need not comply with
State or territorial actions. Although preemption of State and
territorial laws may apply in certain situations, all depository
institutions generally must comply with, among other consumer
protections, applicable State and territorial laws that govern
garnishment and certain setoff practices.
2.6 Mortgage Origination
Supervision assessed the mortgage origination operations of several
supervised entities for compliance with applicable Federal consumer
financial laws. Examinations of these entities identified violations of
Regulation Z and deceptive acts or practices prohibited by the CFPA.
2.6.1 Reducing Loan Originator Compensation To Cover Settlement Cost
Increases That Were Not Unforeseen
Regulation Z prohibits compensating mortgage loan originators in an
amount that is based on the terms of a transaction or a proxy for the
terms of a transaction.\43\ This means that a ``creditor and a loan
originator may not agree to set the loan originator's compensation at a
certain level and then subsequently lower it in selective cases.'' \44\
The rule, however, permits decreasing a loan originator's compensation
due to unforeseen increases in settlement costs. An increase is
unforeseen if it occurs even though the estimate provided to the
consumer is consistent with the best information reasonably available
to the disclosing person at the time of the estimate.\45\ Thus, a loan
originator may decrease its compensation ``to defray the cost, in whole
or part, of an unforeseen increase in an actual settlement cost over an
estimated settlement cost disclosed to the consumer pursuant to section
5(c) of RESPA or an unforeseen actual settlement cost not disclosed to
the consumer pursuant to section 5(c) of RESPA.'' \46\
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\43\ 12 CFR 1026.36(d)(1)(i).
\44\ 12 CFR part 1026, supp. I, comment 36(d)(1)-5.
\45\ 12 CFR part 1026, supp. I, comment 36(d)(1)-7.
\46\ Id.
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Examiners found that certain entities provided consumers loan
estimates based on fee information provided by loan originators. At
closing, the entities provided consumers a lender credit when the
actual costs of certain fees exceeded the applicable tolerance
thresholds. The entities then reduced the amount of compensation to the
loan originator after loan consummation by the amount provided to cure
the tolerance violation. Examiners determined, however, that the
correct fee amounts were known to the loan originators at the time of
the initial disclosures, and that the fee information was incorrect as
a result of clerical error. Specifically, in each instance, the
settlement service had been performed and the loan originator knew the
actual costs of those services. The loan originators, however, entered
a cost that was completely unrelated to the actual charges that the
loan originator knew had been incurred, resulting in information being
entered that was not consistent with the best information reasonably
available. Accordingly, the unforeseen increase exception did not
apply.
As a result of these findings, the entities are revising their
policies and procedures and providing training to ensure loan
originator compensation is not reduced based on a term of a
transaction.
2.6.2 Deceptive Waiver of Borrowers' Rights in Loan Security Agreements
Regulation Z states that a ``contract or other agreement relating
to a consumer credit transaction secured by a dwelling . . . may not be
applied or interpreted to bar a consumer from bringing a claim in court
pursuant to any provision of law for damages or other relief in
connection with any alleged violation of Federal law.'' \47\ In light
of this provision, examiners previously concluded that certain waiver
provisions violate the CFPA's prohibition on deceptive acts or
practices where reasonable consumers would construe the waivers to bar
them from bringing Federal claims in court related to their
mortgages.\48\
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\47\ 12 CFR 1026.36(h)(2).
\48\ 12 U.S.C. 5531 and 5536.
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Examiners identified a waiver provision in a loan security
agreement that was used by certain entities in one State. The waiver
provided that borrowers who signed the agreement waived their right to
initiate or participate in a class action. Examiners concluded the
waiver language was misleading, and that a reasonable consumer could
understand the provision to waive their right to bring a class action
on any claim, including
[[Page 72456]]
Federal claims, in Federal court. The misrepresentation was material
because it was likely to affect whether a consumer would consult with a
lawyer or otherwise initiate or participate in a class action involving
a Federal claim in relation to the loan transaction. Thus, examiners
concluded that the waiver provision was deceptive.
In response to these findings, the entities removed the waiver
provision from the loan security agreements and sent a notice to
affected consumers rescinding and voiding the waiver.\49\
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\49\ The Bureau previously reported similar violations in
Supervisory Highlights, Issue 24, Summer 2021, available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf">https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf</a>.
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2.7 Mortgage Servicing
The Bureau conducted examinations focused on servicers' actions as
consumers experienced financial distress related to the COVID-19
pandemic. In reviewing customer service calls, examiners found that
servicers engaged in abusive acts or practices by charging sizable fees
for phone payments when consumers were unaware of those fees. Examiners
identified unfair acts or practices and Regulation X policy and
procedure violations regarding failure to provide consumers with CARES
Act forbearances.\50\ Examiners also found that servicers unfairly
charged some consumers fees while they were in CARES Act forbearances
or failed to maintain policies and procedures reasonably designed to
properly evaluate loss mitigation options.\51\ And servicers made
deceptive misrepresentations regarding how to accept deferral offers
after forbearance and how to enroll in automatic payment programs when
entering a deferral.
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\50\ 12 CFR 1024.38(b)(2)(i), (v).
\51\ Id.
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2.7.1 Charging Sizable Phone Payment Fees When Consumers Were Unaware
of the Fees
Examiners found that servicers engaged in abusive acts or practices
by charging sizable phone payment fees when consumers were unaware of
the fees, thus taking unreasonable advantage of consumers' lack of
understanding of the fees. Servicers charged consumers $15 fees for
making payments by phone with customer service representatives. During
calls with consumers, representatives did not disclose the phone pay
fees' existence or cost but charged them anyway.
An act or practice is abusive if it ``takes unreasonable advantage
of . . . a lack of understanding on the part of the consumer of the
material risks, costs, or conditions of the product or service.'' \52\
Consumers lacked understanding of the material costs of the phone pay
fees because servicer representatives failed to inform consumers of the
fees during the phone call. And general disclosures, provided prior to
making the payment, indicating that consumers ``may'' incur a fee for
phone payments did not sufficiently inform consumers of the material
costs. Servicers took unreasonable advantage of this lack of
understanding because the cost of the phone pay fee was materially
greater than the cost of other payment options and servicers profited
from collecting the fees.\53\ In response to these findings, servicers
are reimbursing all consumers who paid phone payment fees when those
fees were not disclosed while processing payments over the phone.
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\52\ 12 U.S.C. 5531(d)(2)(A).
\53\ Additionally, failing to disclose the prices of all
available phone pay fees when different phone pay options carry
materially different fees may be unfair, and failing to disclose
that a phone pay fee would be added to a consumer's payment could
create the misimpression that there was no service fee and thus be
deceptive. For more information, see CFPB Compliance Bulletin, 2017-
01 available at: <a href="https://files.consumerfinance.gov/f/documents/201707_cfpb_compliance-bulletin-phone-pay-fee.pdf">https://files.consumerfinance.gov/f/documents/201707_cfpb_compliance-bulletin-phone-pay-fee.pdf</a>.
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2.7.2 Charging Illegal Fees During CARES Act Forbearances
Examiners found that servicers engaged in unfair acts or practices
when they charged consumers fees during forbearance plans pursuant to
the CARES Act. Section 4022 of the CARES Act prohibits a mortgage
servicer from imposing ``fees, penalties, or interest beyond the
amounts scheduled or calculated as if the borrower made all contractual
payments on time and in full under the terms of the mortgage contract''
on consumers receiving a CARES Act forbearance.\54\ Here, the CARES Act
establishes a consumer right that provides a baseline for measuring
injury. Servicers caused, or were likely to cause, substantial injury
to consumers when they imposed illegal fees on their accounts.
Consumers could not reasonably avoid the injury because they had no
reason to anticipate servicers would impose illegal fees. And charging
illegal fees has no benefits to consumers or competition.
---------------------------------------------------------------------------
\54\ Public Law 116-136, sec. 4022(b)(3), 134 Stat. 281, 490
(Mar. 27, 2020).
---------------------------------------------------------------------------
In response to these findings, servicers developed remediation
plans to compensate injured consumers.
2.7.3 Failure To Process CARES Act Forbearance Requests
Examiners found that servicers engaged in unfair acts or practices
when they failed to timely honor requests for forbearance from
consumers. Section 4022 of the CARES Act provides that if a servicer of
a federally backed mortgage loan receives a borrower request for a
forbearance, and the borrower attests to a financial hardship caused by
the COVID-19 emergency, then the servicer ``shall'' provide that
borrower a forbearance.\55\ During the forbearance servicers may not
charge fees.\56\ Here, the CARES Act establishes a consumer right that
provides a baseline for measuring injury. Consumers suffered
substantial injury when servicers failed to process forbearances
because they did not gain the benefits of forborne payments, and the
failure also resulted in additional fees being added to their accounts.
Consumers could not reasonably avoid the injury because they had no
reason to anticipate that servicers would fail to process their
requests for forbearance. And even when consumers realized servicers
had failed to process the requests, the servicers sometimes did not
correct the errors. The injury was not outweighed by countervailing
benefits to consumers or competition.
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\55\ Public Law 116-136, sec. 4022(c)(1), 134 Stat. 281, 490
(Mar. 27, 2020).
\56\ Public Law 116-136, sec. 4022(b)(3), 134 Stat. 281, 490
(Mar. 27, 2020).
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In response to these findings, servicers developed remediation
plans to compensate injured consumers.
2.7.4 Misrepresenting That Payment Amounts Were Sufficient To Accept
Deferrals
Examiners found that servicers engaged in deceptive acts or
practices by misrepresenting that certain payment amounts were
sufficient for consumers to accept deferral offers at the end of their
forbearance periods, when in fact, they were not. When consumers were
exiting forbearances, servicers sent consumers paperwork allowing them
to accept a deferral offer by making a payment. The specified payment
amounts were often higher than the consumers' previous monthly payments
because of updated escrow payments. When consumers contacted servicer
representatives to confirm the payment amount, the representatives
expressly represented that consumers' old monthly payment amounts
(which were less than the amounts presented in the letters) were
sufficient to accept the offer, when in fact, payment of these amounts
would not constitute
[[Page 72457]]
acceptance. It was reasonable for consumers to conclude that servicer
representatives would provide accurate information about the payment
amount necessary to accept the deferrals. These misrepresentations were
material because borrowers acted on them to accept the deferral offers,
and they led to improper charges and other negative consequences,
precisely the outcome borrowers acted to avoid when contacting servicer
representatives.
In response to these findings, servicers agreed to remediate
consumers for late charges and improve their training for customer
service representatives handling loss mitigation issues.
2.7.5 Failing To Evaluate Consumers for All Loss Mitigation Options and
Provide Accurate Information
Regulation X \57\ requires servicers to maintain policies and
procedures that are reasonably designed to achieve the objectives in 12
CFR 1024.38(b). Commentary to Regulation X clarifies that
``procedures'' refers to the actual practices followed by the
servicer.\58\ Under Regulation X,\59\ servicers are required to have
certain policies and procedures concerning properly evaluating loss
mitigation applications. Specifically, servicers' policies and
procedures must be reasonably designed to ensure that servicers can
provide borrowers with accurate information regarding available loss
mitigation options and properly evaluate borrowers who submit
applications for all available loss mitigation options that they may be
eligible for.\60\
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\57\ 12 CFR 1024.38(a).
\58\ 12 CFR 1024.38(a)-comment 2.
\59\ 12 CFR 1024.38(b)(2).
\60\ 12 CFR 1024.38(b)(2)(i), (v).
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Examiners found that some servicers violated Regulation X when they
failed to maintain policies and procedures reasonably designed to
achieve the objective of properly evaluating loss mitigation
applications.\61\ For example, servicers' policies and procedures were
not reasonably designed to inform consumers of all available loss
mitigation options, which resulted in some consumers not receiving
information about options, such as deferral, when exiting forbearances.
Additionally, servicers' policies and procedures were not reasonably
designed to properly evaluate consumers for all available loss
mitigation options, resulting in improper denial of deferral options.
---------------------------------------------------------------------------
\61\ 12 CFR 1024.38(b)(2)(i) & (v).
---------------------------------------------------------------------------
2.8 Payday Lending
2.8.1 Order Violations
Examiners found lenders failed to maintain records of call
recordings necessary to demonstrate full compliance with conduct
provisions in consent orders generally prohibiting certain
misrepresentations. Consent order provisions required creation and
retention of all documents and records necessary to demonstrate full
compliance with all provisions of the consent orders. Failure to
maintain records of such call recordings violated the consent orders
and Federal consumer financial law. To facilitate supervision for
compliance with the consent orders, Supervision directed the lenders to
create and retain records sufficient to capture relevant telephonic
communications.
3. Supervisory Program Developments
3.1 Recent Bureau Supervision Program Developments
Set forth below are statements, circulars, advisory opinions, and
rules that have been issued since the last regular edition of
Supervisory Highlights.
3.1.1 CFPB Issues Circular--Adverse Action Notification Requirements in
Connection With Credit Decisions Based on Complex Algorithms
On May 26, 2022, the CFPB confirmed in a circular \62\ that the
Equal Credit Opportunity Act and Regulation B require companies to
explain to applicants the specific reasons for denying an application
for credit or taking other adverse actions, even if the creditor is
relying on credit models using complex algorithms.
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\62\ The circular is available at: <a href="https://www.consumerfinance.gov/compliance/circulars/circular-2022-03-adverse-action-notification-requirements-in-connection-with-credit-decisions-based-on-complex-algorithms/">https://www.consumerfinance.gov/compliance/circulars/circular-2022-03-adverse-action-notification-requirements-in-connection-with-credit-decisions-based-on-complex-algorithms/</a>.
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3.1.2 Prohibition on Inclusion of Adverse Information in Consumer
Reports for Victims of Human Trafficking
On June 24, 2022, the CFPB amended Regulation V, which implements
the FCRA, to address recent legislation that assists consumers who are
victims of trafficking.\63\ This final rule establishes a method for a
victim of trafficking to submit documentation to consumer reporting
agencies, including information identifying any adverse item of
information about the consumer that resulted from certain types of
human trafficking, and prohibits the consumer reporting agencies from
furnishing a consumer report containing the adverse item(s) of
information. The Bureau is taking this action as mandated by the
National Defense Authorization Act for Fiscal Year 2022 to assist
consumers who are victims of trafficking in building or rebuilding
financial stability and personal independence.
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\63\ The final rule is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_fcra-trafficking_final-rule_2022-06.pdf">https://files.consumerfinance.gov/f/documents/cfpb_fcra-trafficking_final-rule_2022-06.pdf</a>.
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3.1.3 Advisory Opinion on Debt Collectors' Collection of Pay-To-Pay
Fees
On June 29, 2022, CFPB issued an advisory opinion \64\ to affirm
that the FDCPA and Regulation F prohibit debt collectors from charging
consumers pay-to-pay fees (also known as convenience fees) for making
payment a particular way, such as by telephone or online, unless those
fees are expressly authorized by the underlying agreement or are
affirmatively permitted by law.
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\64\ The advisory opinion is available at: <a href="https://www.consumerfinance.gov/rules-policy/final-rules/advisory-opinion-on-debt-collectors-collection-of-pay-to-pay-fees/">https://www.consumerfinance.gov/rules-policy/final-rules/advisory-opinion-on-debt-collectors-collection-of-pay-to-pay-fees/</a>.
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3.1.4 CFPB Issues Advisory To Protect Privacy When Companies Compile
Personal Data
On July 7, 2022, the CFPB issued an advisory opinion \65\ to ensure
that companies that use and share credit reports and background reports
have a permissible purpose under the FCRA. The CFPB's new advisory
opinion makes clear that credit reporting companies and users of credit
reports have specific obligations to protect the public's data privacy
and affirms that a consumer reporting agency may not provide a consumer
report to a user under FCRA section 604(a)(3) unless it has reason to
believe that all of the consumer report information it includes
pertains to the consumer who is the subject of the user's request. The
advisory also reminds covered entities of potential criminal liability
for certain misconduct.
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\65\ The advisory opinion is available at: <a href="https://www.consumerfinance.gov/rules-policy/final-rules/fair-credit-reporting-permissible-purposes-for-furnishing-using-and-obtaining-consumer-reports/">https://www.consumerfinance.gov/rules-policy/final-rules/fair-credit-reporting-permissible-purposes-for-furnishing-using-and-obtaining-consumer-reports/</a>.
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3.1.5 CFPB Issues Circular on Insufficient Data Protection or Security
for Sensitive Consumer Information
On August 11, 2022, the CFPB confirmed in a circular \66\ that
financial companies may violate Federal
[[Page 72458]]
consumer financial protection law when they fail to safeguard consumer
data.
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\66\ The circular is available at: <a href="https://www.consumerfinance.gov/compliance/circulars/circular-2022-04-insufficient-data-protection-or-security-for-sensitive-consumer-information/">https://www.consumerfinance.gov/compliance/circulars/circular-2022-04-insufficient-data-protection-or-security-for-sensitive-consumer-information/</a>.
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3.1.6 CFPB Issues Circular on Debt Collection Credit Reporting
Practices Involving Invalid Nursing Home Debts
On September 8, 2022, the CFPB issued a circular \67\ confirming
that debt collection and consumer reporting practices related to
nursing home debts that are invalid under the Nursing Home Reform Act,
can violate the FDCPA and the FCRA.
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\67\ The circular is available at: <a href="https://www.consumerfinance.gov/compliance/circulars/circular-2022-05-debt-collection-and-consumer-reporting-practices-involving-invalid-nursing-home-debts/">https://www.consumerfinance.gov/compliance/circulars/circular-2022-05-debt-collection-and-consumer-reporting-practices-involving-invalid-nursing-home-debts/</a>.
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3.1.7 Advisory Opinion on Fair Credit Reporting; Facially False Data
On October 20, 2022, the CFPB issued an advisory opinion \68\ to
highlight that a consumer reporting agency that does not implement
reasonable internal controls to prevent the inclusion of facially false
data, including logically inconsistent information, in consumer reports
it prepares is not using reasonable procedures to assure maximum
possible accuracy under section 607(b) of the FCRA.
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\68\ The advisory opinion is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_fair-credit-reporting-facially-false-data_advisory-opinion_2022-10.pdf">https://files.consumerfinance.gov/f/documents/cfpb_fair-credit-reporting-facially-false-data_advisory-opinion_2022-10.pdf</a>.
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3.1.8 CFPB Issues Circular on Overdraft Fee Assessment Practices
On October 26, 2022, the CFPB issued a circular \69\ about
overdraft-related fee practices that are likely unfair under existing
law. The circular highlighted financial institution practices regarding
unanticipated overdraft fees and provided some examples of those
practices that might trigger liability. While not an exhaustive list,
these examples concerned ``authorize positive, settle negative''
transactions.
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\69\ The circular is available at: <a href="https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2022-06-unanticipated-overdraft-fee-assessment-practices/">https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2022-06-unanticipated-overdraft-fee-assessment-practices/</a>.
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3.1.9 CFPB Issues Bulletin Regarding Unfair Returned Deposited Item Fee
Assessment Practices
On October 26, 2022, the CFPB issued a bulletin \70\ stating that
blanket policies of charging returned deposited item fees to consumers
for all returned transactions irrespective of the circumstances or
patterns of behavior on the account are likely unfair under the CFPA.
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\70\ The bulletin is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_returned-deposited-item-fee-assessment-practice_compliance-bulletin_2022-10.pdf">https://files.consumerfinance.gov/f/documents/cfpb_returned-deposited-item-fee-assessment-practice_compliance-bulletin_2022-10.pdf</a>.
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3.1.10 CFPB Issues FCRA Dispute Resolution Circular
On November 10, 2022, the CFPB issued a circular \71\ to affirm
that neither consumer reporting companies nor information furnishers
can skirt dispute investigation requirements under the FCRA. The
circular affirms that consumer reporting companies and furnishers are
not permitted under the FCRA to impose obstacles that deter submission
of disputes and that consumer reporting companies must promptly provide
to the furnisher all relevant information regarding the dispute that
the consumer reporting agency receives from the consumer.
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\71\ The circular is available at: <a href="https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2022-07-reasonable-investigation-of-consumer-reporting-disputes/">https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2022-07-reasonable-investigation-of-consumer-reporting-disputes/</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 Regions Bank
On September 28, 2022, the CFPB ordered Regions Bank to pay $50
million into the CFPB's victims relief fund and to refund at least $141
million to consumers harmed by its illegal surprise overdraft fees.\72\
Until July 2021, Regions charged customers surprise overdraft fees on
certain ATM withdrawals and debit card purchases. The bank charged
overdraft fees even after telling consumers they had sufficient funds
at the time of the transactions. The CFPB also found that Regions Bank
leadership knew about and could have discontinued its surprise
overdraft fee practices years earlier, but they chose to wait while
Regions pursued changes that would generate new fee revenue to make up
for ending the illegal fees.
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\72\ The consent order is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_Regions_Bank-_Consent-Order_2022-09.pdf">https://files.consumerfinance.gov/f/documents/cfpb_Regions_Bank-_Consent-Order_2022-09.pdf</a>.
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This is not the first time Regions Bank has been caught engaging in
illegal overdraft abuses. In 2015, the CFPB found that Regions had
charged $49 million in unlawful overdraft fees and ordered Regions to
make sure that the fees had been fully refunded and pay a $7.5 million
penalty for charging overdraft fees to consumers who had not opted into
overdraft protection and to consumers who had been told they would not
be charged overdraft fees.\73\
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\73\ The consent order is available at: <a href="https://files.consumerfinance.gov/f/201504_cfpb_consent-order_regions-bank.pdf">https://files.consumerfinance.gov/f/201504_cfpb_consent-order_regions-bank.pdf</a>.
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4.1.2 Trident Mortgage Company, LP
On July 27, 2022, the CFPB and U.S. Department of Justice (DOJ)
took action to end Trident Mortgage Company's intentional
discrimination against families living in majority-minority
neighborhoods in the greater Philadelphia area. The CFPB and DOJ allege
Trident redlined majority-minority neighborhoods through its marketing,
sales, and hiring actions. Specifically, Trident's actions discouraged
prospective applicants from applying for mortgage and refinance loans
in the greater Philadelphia area's majority-minority neighborhoods. On
September 14, 2022, the court entered the consent order \74\ that,
among other things, requires Trident to pay a $4 million civil penalty
to the CFPB to use for the CFPB's victims' relief fund. The Attorneys
General of Pennsylvania, New Jersey, and Delaware also finalized
concurrent actions.
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\74\ The consent order is available at: <a href="https://files.consumerfinance.gov/f/documents/cfpb_trident-consent-order_2022-09.pdf">https://files.consumerfinance.gov/f/documents/cfpb_trident-consent-order_2022-09.pdf</a>.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-25733 Filed 11-23-22; 8:45 am]
BILLING CODE 4810-AM-P
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</html>Indexed from Federal Register on November 25, 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.