Notice2024-15960
Supervisory Highlights: Servicing and Collection of Consumer Debt, Issue 34, Summer 2024
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 19, 2024
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB or Bureau) is issuing its thirty fourth edition of Supervisory Highlights.
Full Text
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<title>Federal Register, Volume 89 Issue 139 (Friday, July 19, 2024)</title>
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[Federal Register Volume 89, Number 139 (Friday, July 19, 2024)]
[Notices]
[Pages 58726-58731]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-15960]
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CONSUMER FINANCIAL PROTECTION BUREAU
Supervisory Highlights: Servicing and Collection of Consumer
Debt, Issue 34, Summer 2024
AGENCY: Consumer Financial Protection Bureau.
ACTION: Supervisory Highlights.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is
issuing its thirty fourth edition of Supervisory Highlights.
DATES: The findings in this edition of Supervisory Highlights cover
select examinations that were generally completed from April 1, 2023,
to December 31, 2023.
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#30737660726f7153535543435952595c59444970535640521e575f46"><span class="__cf_email__" data-cfemail="4a090c1a08150b29292f393923282326233e330a292c3a28642d253c">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
1. Introduction
This edition of Supervisory Highlights focuses on the Consumer
Financial Protection Bureau's (CFPB's) work in connection with debt
collection. The collection of debt is an important and necessary part
of the consumer financial marketplace, whether through servicing of
current loans or the collection of delinquent debt. But servicing and
collections also present risk of harm to consumers if handled
improperly, particularly where there are violations of applicable law.
This edition highlights violations of law and consumer harm in the
areas of auto and student loan servicing and debt collection, including
credit card debt collections.
This edition also presents findings in deposits and prepaid
accounts as well as credit card account management with a focus on
medical credit cards. The findings in this edition of Supervisory
Highlights cover select examinations that were generally completed from
April 1, 2023, to December 31, 2023.
Additionally, this edition summarizes supervisory activity related
to section 1034(c) of the Consumer Financial Protection Act of 2010
(CFPA).\1\ Section 1034(c) requires large banks and credit unions to
comply with consumer requests for information concerning their accounts
for consumer financial products and/or services in a timely manner,
subject to limited exceptions.\2\ The supervisory activity indicates
that some entities have ceased charging consumers fees to obtain
account information and items such as printed copies of check images
and account statements. Some entities are also offering free balance
inquiry information at third-party ATMs. The CFPB is continuing to
gather information and assess industry compliance with section 1034(c)
across products, including mortgage, deposit, and credit card accounts.
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\1\ 12 U.S.C. 5534(c); CFPB, Consumer Information Requests to
Large Banks and Credit Unions, 88 FR 71279 (Oct. 16, 2023),
available at <a href="https://files.consumerfinance.gov/f/documents/cfpb-1034c-advisory-opinion-2023_10.pdf">https://files.consumerfinance.gov/f/documents/cfpb-1034c-advisory-opinion-2023_10.pdf</a>.
\2\ Id.
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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.\3\ We invite readers with questions or comments about
Supervisory Highlights to contact us at <a href="/cdn-cgi/l/email-protection#4e0d081e0c111d3b3e2b3c38273d2721200e2d283e2c60292138"><span class="__cf_email__" data-cfemail="e2a1a4b2a0bdb197928790948b918b8d8ca281849280cc858d94">[email protected]</span></a>.
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\3\ If a supervisory matter is referred to the Office of
Enforcement, Enforcement may cite additional violations based on
these facts or uncover additional information that could impact the
conclusion as to what violations may exist.
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2. Supervisory Observations
2.1 Auto Loan Servicing
The CFPB continues to examine auto loan servicing activities,
primarily to assess servicers' compliance with the CFPA's prohibition
on unfair, deceptive or abusive acts or practices (UDAAP).\4\ Recent
auto loan servicing examinations identified unfair acts or practices
related to collecting the final payment for auto loans.
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\4\ 12 U.S.C. 5531, 5536.
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2.1.1 Failing To Auto-Debit the Final Payments Without Adequate
Notification That Borrowers Must Make the Final Payment Manually
Examiners found that servicers engaged in unfair acts or practices
by failing to debit consumers' final payment via their autopay system
without adequate notification to borrowers enrolled in autopay that
they need to make the final payment manually. 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.\5\
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\5\ Id.
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Servicers offered preauthorized recurring electronic fund transfer
enrollment for consumers to make automatic payments on their loans. The
servicers' autopay systems did not debit consumers' final payments when
they were a different amount from their regular monthly payments.
Servicers failed to adequately communicate to consumers that they must
remit the final payment manually, despite being enrolled in autopay.
Servicers then charged consumers late fees for failing to make the
final payment on time.
This practice caused substantial injury to the consumers in the
form of late fees assessed when the final payment was not made.
Consumers could not reasonably avoid the injury because they had no
control over the autopay system the servicers chose to use. Further,
consumers did not reasonably anticipate that a servicer's autopay
system would not make the final payment. Consumers could not reasonably
foresee incurring a late charge as a result. The injury was not
outweighed by any countervailing benefits to consumers or competition.
In response to these findings, servicers are revising their
policies and procedures to ensure that they either include the final
payment in autopay withdrawals or adequately notify consumers enrolled
in autopay if and when a payment is required to be submitted manually.
2.2 Student Loan Servicing
The CFPB continues to examine student loan servicing activities.
This work includes assessing whether entities have engaged in any
violations of the CFPA's prohibition against UDAAPs,\6\ the Electronic
Fund Transfer Act and its implementing Regulation E,\7\ and the Fair
Debt Collection Practices Act (FDCPA) and its implementing Regulation
F.\8\
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\6\ 12 U.S.C. 5531, 5536.
\7\ 15 U.S.C. 1693 et seq.; 12 CFR part 1005 et seq.
\8\ 15 U.S.C. 1692 et seq.; 12 CFR part 1006 et seq.
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Examiners identified unfair and abusive acts or practices by
student loan servicers related to failing to provide adequate avenues
for communication due to excessive hold times. Examiners also
identified deceptive acts or practices related to misrepresenting which
forms consumers should use to enroll in certain programs. And examiners
found that servicers failed to notify consumers of preauthorized funds
transfers that exceeded the previous transfer amount.
2.2.1 Excessive Barriers to Assistance
Consumers frequently contact their servicer by phone to make
payments, access benefits, and resolve disputes. Examiners found
certain servicers had excessive hold times when consumers contacted
them, with average hold times of 40 minutes over a six-month period.
[[Page 58727]]
As a result of these long hold times almost half of consumers dropped
their calls before speaking with an agent. During the six-month period
the servicers significantly understaffed their call centers. The
servicers also disabled consumers' access to their online account
management portals where consumers could make payments after a
relatively short amount of time and had problems with their interactive
voice response systems, limiting consumers' ability to pay or obtain
assistance accessing benefits without speaking to an agent.
Examiners found that student loan servicers engaged in unfair and
abusive acts or practices by failing to provide, for an extended
period, an adequate avenue for consumers to timely resolve disputes or
inquiries by phone or submit phone payments, when they offered the
option of paying and resolving disputes or inquiries by phone.
An abusive act or practice: (1) materially interferes with the
ability of a consumer to understand a term or condition of a consumer
financial product or service; or (2) 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; the ability of
the consumer to protect the interest of the consumer in selecting or
using a financial product or service; or the reasonable reliance by the
consumer on a covered person to act in the interest of the consumer.\9\
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\9\ 12 U.S.C. 5535(a)(1)(B). See also CFPB, Policy Statement on
Abusive Acts or Practices (Apr. 3, 2023), available at <a href="https://www.consumerfinance.gov/compliance/supervisory-guidance/policy-statement-on-abusiveness/#1">https://www.consumerfinance.gov/compliance/supervisory-guidance/policy-statement-on-abusiveness/#1</a>.
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Examiners found that servicers engaged in abusive acts or practices
because servicers took unreasonable advantage of consumers' inability
to protect their interests. The servicers gained an advantage by
understaffing their call centers because they reduced their salary
expenses. The advantage gained by servicers was unreasonable because
resolving disputes or inquires and receiving payments are essential
functions of a loan servicer.
Consumers were unable to protect their own interests, including
their interest in ``limiting the amount of time or effort necessary''
to remedy problems,\10\ as well as their interest in making payments on
their loans or accessing benefit programs. Typically, consumers are
unable to choose their loan servicer and so are unable to switch to a
new servicer when they encounter problems reaching their servicer.
Because consumers were unable to switch servicers, they were unable to
limit the amount of time spent resolving problems, make payments, or
access benefit programs. Consumers may ordinarily have alternatives to
calling their servicer, such as making payments online or through an
interactive voice response system, but many consumers were unable to
access these alternatives because of problems with the interactive
voice response system and the servicers' disabling of many consumers'
online accounts. As a result, consumers often had no other recourse
than to contact their servicers by phone. Therefore, the servicers
engaged in abusive acts or practices.
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\10\ See id. at 14.
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Examiners also found that the servicers' conduct was unfair. The
long hold times were likely to cause substantial injury to consumers.
First, some consumers were unable to make timely payments because of
long hold times, which likely resulted in additional late fees. Second,
some consumers called to obtain information about how to enroll in
forbearance or deferment programs and were therefore unable to enter
these programs, which could result in additional unnecessary payments
or late fees. Third, servicers injured consumers by forcing them to
spend considerable amounts of time resolving issues or making payments.
Consumers could not reasonably avoid the injury because they could not
switch servicers and they have no control over call hold times. Some
consumers were also unable to make payments through alternative means
because of problems with interactive voice response systems or online
accounts. Finally, the injury to consumers was not outweighed by
countervailing benefits to consumers or competition. Consumers do not
benefit from excessive hold times, and adequate staffing is inherent to
being a functioning student loan servicer.
In response to these findings, servicers developed plans to reduce
hold times and drop rates.
2.2.2 Providing Inaccurate Information About Benefit Forms
Examiners found that servicers engaged in deceptive acts or
practices by providing inaccurate information regarding which forms
consumers should submit in order to qualify for certain loan programs.
Student loans often include certain benefits which consumers are
entitled to access, such as forbearance. To access these programs
consumers often must submit specific forms.
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.\11\
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\11\ 12 U.S.C. 5531.
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Examiners found that some consumers contacted their servicers to
determine the appropriate forms to submit in order to apply for a
specific benefit. The servicers misrepresented to consumers which form
to submit and, when the consumers submitted the specified forms, their
requests were denied. Consumers had a reasonable belief the forms were
correct when specified by the servicers and were acting reasonably when
they followed their instructions. And the misrepresentations were
material because they affected the consumers' decision to fill out the
incorrect forms, which delayed consumers' ability to successfully apply
for the benefit. In response to these findings, servicers improved
training and monitoring.
2.2.3 Failing To Notify Consumers of Larger Preauthorized Electronic
Funds Transfers
Regulation E, 12 CFR 1005.10(d)(1), requires the designated payee
of a preauthorized electronic fund transfer from a consumer's account
to provide the consumer with written notice of the amount and date of
the transfer at least 10 days before the scheduled transfer date if the
amount will vary from the previous transfer under the same
authorization or from the preauthorized amount. Examiners found that
servicers violated this provision when they did not provide written
notices to consumers before withdrawing an amount that exceeded the
previous transfer under the same authorization. In response to these
findings, servicers are remediating consumers.
2.3 Debt Collection
The CFPB has supervisory authority to examine certain institutions
that engage in consumer debt collection activities, including very
large depository institutions, nonbanks that are larger participants in
the consumer debt collection market, including nonbanks that collect
student loan debt, and nonbanks that are service providers to certain
covered persons. Recent examinations of larger participant debt
collectors identified violations of Regulation F,\12\ which implements
the
[[Page 58728]]
FDCPA. Examiners also identified unfair practices related to incorrect
documentation related to the statute of limitations in credit card
collections.
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\12\ 12 CFR part 1006 et seq.
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2.3.1 Failure To Provide Debt Validation Notice to Consumers
Section 1006.34(a) of Regulation F requires that within five days
after the initial communication with the consumer in connection with
the collection of any debt, a debt collector must send a written or
electronic validation notice unless the validation information is
contained, or provided orally, in the initial communication or the
consumer has paid the debt before the validation information is
required to be provided.\13\ A written or electronic validation notice
must be sent in a manner that is reasonably expected to provide actual
notice to the consumer.\14\ The Official Interpretation of Regulation F
states that a debt collector who sends the requisite validation
disclosure in writing or electronically but receives notice that the
disclosure was not delivered to the consumer has not sent the
disclosure in a manner that is reasonably expected to provide actual
notice.\15\
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\13\ 12 CFR part 1006.34(a).
\14\ 12 CFR part 1006.42(a).
\15\ 12 CFR part 1006, supp. I, comment 42(a)(1)-2.
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Examiners found that debt collectors failed to provide the
requisite validation information either orally in, or in writing within
five days of, the initial oral communication with consumers. This
happened when the initial communication occurred via telephone, but
after the debt collector had received notice that its prior written
disclosure was not delivered to the consumer. In response to these
findings, debt collectors are revising their procedures and enhancing
monitoring and training with respect to providing debt validation
notices in these circumstances.
Examiners also found that student loan debt collectors failed to
provide validation notices as required where the initial communication
with the consumer occurred in writing. In response to these findings,
the debt collectors will update their written communications with
borrowers to provide the validation information.
2.3.2 Using False, Deceptive or Misleading Representations
Examiners found that student loan debt collectors violated
Regulation F's prohibition on the use of false or misleading
representations, section 1006.18(c)(4) and (e)(1)-(2). As a result of
these violations, the borrowers may have reasonably believed that the
FDCPA did not apply and may have been misled about their rights under
the FDCPA, such as their right to dispute the debt.
First, examiners found that debt collectors used false, deceptive,
or misleading representations or means in connection with collection of
a debt when they used a business, company, or organization name other
than the true name of the debt collectors' business, company, or
organization.\16\ In written communications and telephone calls
reviewed by examiners, the debt collectors used different names and
failed to disclose their true company names. In response to these
findings, the debt collectors will cease using incorrect names and
update all call scripts and written correspondence to use their true
company names.
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\16\ 12 CFR part 1006.18(c)(4).
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Second, examiners found that debt collectors also used false,
deceptive, or misleading representations or means in connection with
collection of a debt when they failed to provide key initial
disclosures in communications with borrowers. Regulation F requires
debt collectors to disclose, in initial communications with consumers,
that the debt collectors are attempting to collect a debt and that any
information obtained will be used for that purpose.\17\ If the debt
collectors' initial communication with the consumer is oral, the debt
collectors must make the disclosure again in their initial written
communication with the consumer. And in all subsequent communications
with the consumer, the debt collectors must disclose that the
communication is from a debt collector.\18\ Examiners observed that the
debt collectors failed to provide these disclosures in written
communications and telephone calls with borrowers. In response to these
findings, the debt collectors will update their written communications
and call scripts to provide the required disclosures.
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\17\ 12 CFR part 1006.18(e)(1).
\18\ 12 CFR part 1006.18(e)(2).
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2.3.3. Communicating With Consumers at Inconvenient or Unusual Times of
Places
Section 1006.6(b)(1) of Regulation F prohibits communicating or
attempting to communicate, including electronically, with a consumer at
a time or place the debt collector knows or should know to be
inconvenient or unusual, with communications before 8 a.m. or after 9
p.m. in the consumer's time zone presumed to be inconvenient in the
absence of any knowledge of circumstances to the contrary.\19\
Examiners found that debt collectors communicated with consumers at
times and places known by the collectors to be inconvenient or unusual.
For example, debt collectors sent payment reminder emails to the
consumer before 8 a.m. in the consumer's time zone. Examiners
identified multiple phone calls where the consumer directly informed
the collectors' agent that it was an inconvenient time or place for the
consumer, but the agents continued the conversations beyond permissible
follow-up questions. For example, examiners identified multiple
instances where consumers told debt collectors' agents that it was an
inconvenient time to talk, either because they were at work or driving,
but the agents continued the conversation. Examiners also identified
instances in which a consumer informed a debt collector's agent that it
was a ``bad time'' to discuss the debt in question because they were at
church without a wallet, but the agent nevertheless continued to
discuss the debt. In response to these findings, the debt collectors
are enhancing their policies and procedures and training to ensure that
they do not communicate with consumers at inconvenient or unusual times
or places.
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\19\ 12 CFR part 1006.6(b)(1).
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2.3.4 Harassing, Oppressive or Abusive Conduct in Connection With the
Collection of Debt
Section 1006.14(a) of Regulation F prohibits debt collectors, in
connection with the collection of any debt, from engaging in any
conduct the natural consequences of which would be to harass, oppress,
or abuse any person.\20\ Examiners found that debt collectors engaged
in harassing, oppressive, or abusive conduct in connection with the
collection of debt. For example, in phone calls, consumers explained to
the debt collectors' agents that they were unable to make payments
according to a prior settlement agreement because of a recent hospital
stay. In response to consumers' explanations of the medical
difficulties that left them without enough money to pay the debt in
question, the agents took an aggressive tone and were verbally abusive
towards the consumers. At other debt collectors, consumers requested
that the debt collectors stop contacting them. Despite this request,
the debt collectors subsequently placed over 100 telephone calls to the
consumers. Although the frequency of calls to the consumer was within
the limits established by section
[[Page 58729]]
1006.14(b)(2)(i), and so the collectors were entitled to a presumption
that their conduct was not harassing, examiners found that the
collectors placing over 100 calls to the consumer after being
specifically asked to stop overcame that presumption and had the effect
of harassing the consumer. In response to these findings, debt
collectors are enhancing their training and oversight to prevent
harassing communications.
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\20\ 12 CFR part 1006.14(a).
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2.3.5 Failure To Cease Communicating Through a Specific Medium After a
Consumer Request
Section 1006.14(h) of Regulation F provides that if a consumer has
requested that the debt collector not use a medium of communication to
communicate with the consumer, the debt collector must not use that
medium to communicate or attempt to communicate with the consumer in
connection with the collection of any debt, with certain
exceptions.\21\ For example, Regulation F explains that if a consumer
requests that a debt collector ``stop calling'' the consumer, the debt
collector is prohibited from communicating or attempting to communicate
with the consumer through telephone calls.\22\ The regulation also
states that, within a medium of communication, a person may request
that a debt collector not use a specific address or telephone
number.\23\
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\21\ 12 CFR part 1006.14(h).
\22\ 12 CFR part 1006, supp. I, comment 14(h)(1)-3.
\23\ 12 CFR part 1006, supp. I, comment 14(h)(1)-2.
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Examiners found that debt collectors communicated or attempted to
communicate with consumers through a medium of communication, such as a
text message, and/or through a specific telephone number that the
consumers had requested the debt collectors not use to communicate with
the consumers. In response to these findings, debt collectors are
revising their procedures and enhancing monitoring and training to
prevent communications, or attempts to communicate, through specified
mediums following a consumer's request.
2.3.6 Failure To Disclose in Subsequent Communications That
Communication Is From a Debt Collector
Section 1006.18(e) of Regulation F requires that a debt collector
disclose, in each communication subsequent to the initial communication
with the consumer, that the communication is from a debt collector.
Examiners found that debt collectors failed to disclose in subsequent
communications that those communications were from a debt collector.
Examiners found that the debt collectors' service providers, when
communicating about the debt with consumers on the telephone or via
text message on behalf of the collectors, failed to disclose that the
communication was from a debt collector. Examiners also found that when
consumers requested an electronic payment confirmation, service
providers responsible for producing those confirmations on behalf of
debt collectors failed to include the required disclosure that the
communication was from a debt collector. In response to these findings,
the debt collectors are enhancing their service provider oversight.
2.3.7 Incorrect Documentation Related to the Statute of Limitations in
Credit Card Collections
Examiners found that credit card issuers engaged in an unfair act
or practice when they failed to properly calculate and document the
debt collection statute of limitations for a particular State and then
sold the credit card debt to debt collectors. The statute of
limitations for credit card debt is the amount of time--set by each
State--that lenders and collection agencies have to file a lawsuit
against consumers for nonpayment. Examiners determined that the
entities sold thousands of credit card debts to debt collectors
misrepresenting the State's statute of limitations for credit card debt
as ten years rather than five years, including some accounts on which
the statute of limitations had already expired. The entities' practices
created the risk of substantial injury to consumers because third
parties may rely on the entities' statute of limitations data when
determining their ability to file a collections lawsuit. The injury was
not reasonably avoidable because consumers could neither anticipate nor
control how the entities coded accounts in their systems and were not
likely to recognize the entities' errors. Finally, the injury caused by
the miscoding of accounts for sale was not outweighed by countervailing
benefits to consumers or competition. To remedy the issue, the entities
contacted their debt buyers to ensure that they used the correct
statute of limitations period for debts already sold. Also, the
entities updated their systems and procedures to state the correct
statute of limitations period for current and future debts.
2.4 Credit Card Account Management--Medical Payment Products
In assessing the operations of supervised entities for compliance
with Federal consumer financial laws, examiners reviewed medical
payment products issued by supervised entities. Consumers may apply for
medical payment products, such as a medical credit card--often at the
point of sale, such as a doctor's office or hospital. Consumers then
use these products to pay for healthcare-related products or services.
When offering a medical payment product to consumers, healthcare
providers commonly use sales and marketing materials provided by the
issuer of the medical payment product.
2.4.1 Service Provider Oversight in Offering Medical Payment Products
At one entity, examiners identified a significant number of
consumer complaints regarding how dentists and other healthcare
providers promoted, offered, and sold medical credit cards to
consumers. For example, where credit card issuers offer ``deferred
interest'' promotions--credit terms under which interest accrues, but
consumers are not obligated to pay if the balances are paid in full by
a specific date--consumers frequently complained of healthcare
providers misrepresenting the specifics of these promotions. Consumers
also complained that it was unclear whether their monthly payments
would be allocated to their promotional or non-promotional balances.
Other consumers complained that they felt pressured by healthcare
providers to open a credit card while receiving treatment.
Supervision expects supervised entities to have effective processes
for managing the risks of service provider relationships, including
relationships with medical providers who directly communicate with
consumers about medical payment products. In examining entities that
offer medical payment products, examiners reviewed materials related to
oversight of medical providers that directly communicate with consumers
about the entities' medical payment products. These materials did not
provide enough information for examiners to assess the program's
adequacy, and Supervision plans to continue to assess entities'
oversight of medical providers, including whether the oversight is
commensurate to the risks in the product offering. Additionally,
Supervision intends to monitor the incentives entities offer to enroll
[[Page 58730]]
patients in specific products and marketing materials about the
products.
2.5 Deposit and Prepaid Accounts
In reviewing deposits and prepaid account practices, examiners have
focused on practices that prevent consumers from accessing their funds
or important account information, and have assessed whether entities
have complied with the CFPA's prohibition against engaging in
UDAAPs.\24\ In certain instances, examiners found that entities engaged
in unfair acts or practices with respect to account freezes. Examiners
also observed problems related to the failure to provide periodic
statements for allotment accounts. Additionally, in reviewing bank
practices in providing consumers access to account information,
examiners have observed a number of changes in how supervised entities
impose fees when customers seek to obtain basic account information.
Many entities eliminated fees for responding to requests for account
information.
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\24\ 12 U.S.C. 5531, 5536.
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2.5.1 Account Freezes
As part of administering deposit accounts and prepaid accounts,
institutions regularly review account activity to identify fraud and
other suspicious activity and then freeze funds to prevent such
activity. Examiners found that institutions engaged in unfair practices
in connection with how they handle consumer communications related to
these account freezes.
For example, some institutions failed to affirmatively notify
consumers after blocking their accounts. In other instances,
institutions provided notices but failed to provide clear guidance to
consumers, such as directing them to write in by mail for more
information without specifying the information the consumer needed to
unfreeze their accounts. Institutions sometimes exacerbated these
practices by frustrating consumers' ability to contact the institution.
For example, certain institutions dropped or blocked most calls from
numbers associated with the frozen accounts so that consumers could not
connect with a customer service representative to ask questions or
challenge the freezes. In other instances, institutions automatically
forwarded calls from these numbers to a pre-recorded message that did
not provide meaningful information about the consumer's account.
These practices caused or were likely to cause substantial injury
to consumers as those consumers were unable to access frozen funds for
weeks or months. In these instances, this injury was not reasonably
avoidable as consumers would not have reason to believe their account
activity would trigger a freeze. Additionally, institutions deprived
consumers of the information needed to address the account suspensions.
The injury was not outweighed by countervailing benefits to consumers
or competition as consumers need to be able to address holds on their
accounts in a timely manner so they may access their own money.
In response to these findings, the institutions planned to enhance
their processes to provide automatic notice of account freezes and
describe in these notices the process for consumers to unfreeze their
accounts. Institutions also changed their processes to allow consumers
to communicate directly with customer service representatives and
challenge account freezes over the telephone, among other process
improvements.
2.5.2 Failure To Provide Periodic Statements for Allotment Saving
Accounts
Supervision examined institutions holding allotment savings
accounts for servicemembers and other Federal employees. Military and
other Federal employee payroll deductions--called allotments--are one
way that companies can collect first-in-line payments on contracts for
expensive items such as insurance or rent. Without adequate oversight
of these allotment accounts, servicemembers and other Federal employees
may have had accounts opened without their knowledge, or kept open,
resulting in excess fees and other harm.
In its recent exam work, Supervision observed that institutions did
not send periodic statements to consumers with dormant allotment
accounts for an extended time period. The institutions charged fees on
thousands of dormant accounts, including where consumers were not
provided timely notice of their account information. In response to
examiners' observations, the institutions corrected system issues and
committed to remediating affected servicemembers and other Federal
employees.
2.5.3 Consumer Requests for Information
Section 1034(c) requires large banks and credit unions to comply
with consumer requests for information concerning their accounts for
consumer financial products and/or services in a timely manner, subject
to limited exceptions.\25\ In a recent advisory opinion, the CFPB noted
that responding to consumer requests for information is vital to
ensuring high levels of customer service and enabling consumers to
resolve issues with their accounts when they encounter problems.\26\ A
large bank or credit union would not comply with section 1034(c) if it
imposed conditions or requirements on consumer information requests
that unreasonably impede a consumer's ability to request and receive
account information.\27\ Charging fees to consumers to request account
information can impede consumers' ability to exercise their rights
under section 1034(c).\28\ To assess industry practices and compliance
with section 1034(c), the CFPB issued information requests to select
entities regarding their deposit and credit card-related services and
fees associated with consumer requests for information.
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\25\ Id.
\26\ Id.
\27\ Id.
\28\ Id.
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Examiners found that some responding entities ceased charging
consumers fees to obtain account information. This has resulted in
several changes, including consumers being able to request and obtain
printed copies of check images and account statements without charge.
Some responding entities have ceased the practice of charging consumers
fees related to bank account research and analysis when consumers have
questions about their accounts. Some entities are no longer imposing
fees for balance inquiries at third-party ATMs. Finally, some
responding entities are fulfilling requests to confirm a consumer's
deposit activity--often called ``verifications of deposit''--at no
charge.
In line with eliminating these charges, some entities have taken
steps to update policies and procedures and provide their employees
with tailored instructions and training. These changes will ensure that
frontline employees are aware of and able to implement the fee changes.
Some entities have also updated applicable fee schedules to reflect
``No Charge'' for services covered by section 1034(c) and are including
updated fee schedules in consumer correspondence. Concurrently, these
entities also have made relevant system changes to ensure that any
applicable system-generated fees are no longer assessed. The steps
taken also reflect the ability and willingness of these supervised
entities to ensure they comply with Federal consumer financial
[[Page 58731]]
law. The CFPB estimates that these adjustments in fee schedules will
result in millions of dollars in savings on an annual basis for
customers seeking basic account information from these entities.
3. Supervisory Developments
3.1 Recent CFPB Supervisory Developments
Set forth below are select supervision program developments
including circulars and rules that have been issued since the last
regular edition of Supervisory Highlights.
3.1.1 CFPB Creates Registry To Detect Corporate Repeat Offenders
On June 3, 2024, the CFPB finalized a rule to establish a registry
to detect and deter corporate offenders that have broken consumer laws
and are subject to Federal, State, or local government or court
orders.\29\ The registry will also help the CFPB to identify repeat
offenders and recidivism trends.
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\29\ The final rule is available at cfpb_nonbank-registration-
orders_final-rule.pdf (<a href="http://consumerfinance.gov">consumerfinance.gov</a>).
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3.1.2 CFPB Issues Interpretive Rule Regarding Buy Now, Pay Later
On May 22, 2024, the CFPB issued an interpretive rule that confirms
that Buy Now, Pay Later lenders are credit card issuers.\30\
Accordingly, Buy Now, Pay Later lenders must provide consumers some key
legal protections and rights that apply to conventional credit cards.
These include a right to dispute charges and demand a refund from the
lender after returning a product purchased with a Buy Now, Pay Later
loan.
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\30\ The interpretive rule is available at cfpb_bnpl-
interpretive-rule_2024-05.pdf (<a href="http://consumerfinance.gov">consumerfinance.gov</a>).
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3.1.3 CFPB Issues Rule on Procedures for Supervisory Designation
Proceedings
On April 23, 2024, the CFPB updated its procedures for designating
nonbank covered persons for supervision to conform to a recent
organizational change and to further ensure that proceedings are fair,
effective, and efficient for all parties.\31\
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\31\ The final rule is available at <a href="https://www.federalregister.gov/documents/2024/04/23/2024-08430/procedures-for-supervisory-designation-proceedings">https://www.federalregister.gov/documents/2024/04/23/2024-08430/procedures-for-supervisory-designation-proceedings</a>.
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3.1.4 Consumer Financial Protection Circular 2024-02 on Remittance
Transfers
On March 27, 2024, the CFPB issued a circular regarding deceptive
marketing practices about the speed or cost of sending a remittance
transfer.\32\ The circular states that remittance transfer providers
may be liable under the CFPA for deceptive marketing about the speed or
cost of sending a remittance transfer. Providers may be liable under
the CFPA for deceptive marketing practices regardless of whether the
provider follows the disclosure requirements of the Remittance Rule.
For example, among other things, it may be deceptive to: market
remittance transfers as being delivered within a certain time frame
when transfers actually take longer to be made available to recipients;
marketing remittance transfers as ``no fee'' when in fact the provider
charges fees; market promotional fees or promotional exchange rates for
remittance transfers without sufficiently clarifying when an offer is
temporary or limited; market remittance transfers as ``free'' if they
are not in fact free.
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\32\ The circular is available at <a href="https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2024-02/">https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2024-02/</a>.
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4. Remedial Actions
4.1 Public Enforcement Actions
The CFPB's supervisory activities resulted in and supported the
below enforcement actions.
4.1.1 Pennsylvania Higher Education Assistance Agency
On May 31, 2024, the CFPB sued student loan servicer Pennsylvania
Higher Education Assistance Agency (PHEAA), which does business as
American Education Services, for illegally collecting on student loans
that have been discharged in bankruptcy and sending false information
about consumers to credit reporting companies.\33\ The CFPB's lawsuit
asks the court to order PHEAA to stop its illegal conduct, provide
redress to borrowers it has harmed, and pay a civil penalty.
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\33\ The complaint is available at <a href="https://www.consumerfinance.gov/enforcement/actions/pennsylvania-higher-education-assistance-agency-pheaa-dba-american-education-services-or-aes/">https://www.consumerfinance.gov/enforcement/actions/pennsylvania-higher-education-assistance-agency-pheaa-dba-american-education-services-or-aes/</a>.
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4.1.2 Chime, Inc. d/b/a Sendwave
On October 17, 2023, the CFPB issued an order against Chime, Inc.,
doing business as Sendwave, a nonbank remittance transfer provider.
Sendwave offers and provides consumers international money transfer
services, known as remittance transfers, in 50 States and the District
of Columbia through its mobile application, the Sendwave App.\34\ The
app enables users to send money to recipients in several countries
primarily in Africa and Asia. The CFPB found that Sendwave violated the
CFPA's prohibition on deceptive acts and practices by misrepresenting
to consumers the speed and cost of its remittance transfers. The CFPB
also found that Sendwave violated the Electronic Fund Transfer Act
(EFTA) and its implementing Regulation E, including subpart B, known as
the Remittance Transfer Rule, by: (1) wrongly requiring customers to
waive their rights; (2) failing to provide required disclosures,
including the date of fund availability and exchange rate; (3) failing
to provide timely disclosures; and (4) failing to investigate errors
properly and maintain required policies and procedures for error
resolution. The violations of EFTA and Regulation E also constitute
violations of the CFPA. The order requires Sendwave to provide
approximately $1.5 million in redress to consumers and to pay a $1.5
million civil money penalty. Sendwave must also take measures to ensure
future compliance.
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\34\ The consent order is available at cfpb-0012-chime-inc-dba-
sendwave-consent-order_2023-10.pdf (<a href="http://consumerfinance.gov">consumerfinance.gov</a>).
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-15960 Filed 7-18-24; 8:45 am]
BILLING CODE 4810-AM-P
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</html>Indexed from Federal Register on July 19, 2024.
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.