The CFPB has released the Fall 2022 edition of its Supervisory Highlights.  The report discusses the Bureau’s examinations in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, mortgage servicing, and payday lending that were completed between January 1, 2022 and June 31, 2022.  Accordingly, this represents the first edition of Supervisory Highlights in which all of the examinations discussed in the report took place under the leadership of Director Chopra.

Key findings by CFPB examiners are described below.

Auto servicing.  Servicers were found to have engaged in deceptive or unfair acts or practices by:

• Failing to ensure that consumers received refunds for unearned fees related to add-on products such as GAP products upon early pay off (but the CFPB does not state what further steps were required “to ensure” that refunds were actually received);
• Representing to consumers that modifications were preliminarily approved pending a “good faith” payment equal to the standard monthly payment when in fact most modification requests were denied;
• Double-billing consumers for collateral protection insurance (CPI) by purchasing CPI and billing consumers and then erroneously charging consumers again for the CPI;
• Activating starter interrupter devices when consumers were not past due on payments due to errors with the servicers’ internal systems; and
• Telling delinquent consumers that their respective driver’s licenses and tags would or might be suspended if prompt payment was not made despite the servicer’s lack of authority to take such action and telling consumers that their accounts had been, or would be, transferred to the legal department when, in fact, consumers’ accounts were not at imminent risk of referral.

Consumer reporting.  Nationwide consumer reporting agencies (NCRAs) were found to have violated FCRA requirements regarding the actions that NCRAs must take in response to certain consumer complaints transmitted by the CFPB to the NCRC.  Examiners found that, based on their unsubstantiated suspicions that the complaints were submitted by unauthorized third parties such as credit repair organizations, NCRCs failed to report to the CFPB determinations about whether all legal obligations had been met and actions taken in response to the complaints.

Furnishers were found to have violated the FCRA or Regulation V by:

• In the case of auto loan furnishers:
  • inaccurately reporting information to consumer reporting agencies (CRAs) despite knowing or having reasonable cause to know that the furnished information was inaccurate because it did not accurately reflect information in the furnishers’ account servicing systems (such as by reporting an account 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 [the FCRA] applied because the furnishers did not clearly and conspicuously specify to consumers an address for notices relating to inaccurately furnished information.”  Instead of providing an address for consumers to send notices about inaccurate credit reporting information, furnishers had disclosed a general purpose corporate address on their websites and/or provided instructions on their websites for submitting complaints or general concerns;
  • failing to promptly correct or update CRAs after having placed consumer accounts into retroactive deferments and updating their systems to reflect that the accounts did not have payments due until a deferment began, and therefore had not been delinquent;
  • using policies and procedures that did not document the basis on which dispute agents should determine consumer direct disputes reasonably qualify as frivolous or irrelevant and did not provide for records to be retained for a reasonable period of time to substantiate the accuracy of furnished information that was subject to dispute investigations; and
  • not conducting reasonable investigations or sending notices that disputes were frivolous or irrelevant where direct disputes may have been prepared by credit repair organizations and the notices contained all of the information needed to conduct a reasonable investigation.
• In the case of debt collection furnishers:
  • failing to conduct reasonable investigations by not reviewing relevant underlying information and documents; and
  • using policies and procedures that did not provide for records to be retained for a reasonable period of time to substantiate the accuracy of furnished information that was subject to dispute investigations.
• In the case of other furnishers:
  •  failing to send updated or corrected information to CRAs after determining that furnished information was not complete or accurate, such as continuing to report accounts as subject to an open dispute investigation when in fact the furnisher had determined that the accounts were no longer being investigated after completing the dispute investigations; and
  • failing to establish and follow reasonable procedures to report an appropriate date of first delinquency, resulting in the reporting of inappropriate dates of first delinquency on collection accounts that arose from unpaid utility accounts.

Credit card account management.  “Certain entities” were found to have violated Regulation Z billing error resolution by actions that included failing to mail or deliver written acknowledgments to consumers within 30 days of receiving a billing error notice and failing to resolve disputes within two complete billing cycles, or no later than 90 days after receiving a billing error notice.  Issuers were found to have violated Regulation Z requirements for reevaluating accounts after a rate increase by:

• Failing to consider appropriate factors when performing rate reevaluations, such as by using both the original factors method and the acquisition rate for new customers as one of the variables (improperly mixing original factors and acquisition factors);
• Failing to reduce the rate below the higher of the consumer’s pre-default interest rate or the lowest current acquisition rate, after determining that a consumer’s rate should be reduced;
• Failing to evaluate the full rate increase for certain accounts converted from fixed to variable rate;
• Failing to reevaluate all credit accounts subject to the reevaluation requirement at least once every six months; and
• Improperly removing accounts from the reevaluation process before the consumer’s rate was reduced to a rate comparable to the rate immediately before the increase or the current rate for new customers with similar credit characteristics.

“Certain entities” were found to have engaged in various deceptive acts or practices in connection with the marketing, sale, and servicing of credit card add-on products such as claiming that consumers could cancel the product simply by calling a toll-free number when additional steps were required.  These entities were found to have engaged in unfair acts and practices in connection with the marketing, sale, and servicing of credit card add-on products by omitting disclosure of burdensome administrative requirements for submitting benefit claims and failing to cancel products on the date of the consumer’s request and failing to issue pro rata refunds based on the date of request.  “Certain entities” were also found to have engaged in deceptive acts or practices by inaccurately representing to consumers enrolled in their fixed payment option that the entities would automatically withdraw from the consumer’s bank account an amount equal to the minimum payment due whenever the payment exceeded the fixed amount designed by the consumer.

Debt collection.  Debt collectors were found to have engaged in the following FDCPA violations:

• Violations of the FDCPA provision that prohibits collectors from engaging in harassing or abusive conduct as a result of continuing to engage consumers in telephone conversations after the consumer stated that the communication was causing them to feel annoyed, harassed or abused, such as by continuing to engage a consumer after the consumer stated multiple times that he or she was driving and needed to discuss the account at another time or continuing a call after the consumer stated that he was unable to pay, had COVID-19, and was unemployed and that the call was making him agitated; and
• Violations of the FDCPA prohibition of third party communications by communicating with someone who had a name similar or identical to the consumer.

Deposits.  Examiners found unfairness risks at multiple financial institutions due to policies and procedures that may have resulted in the prohibited setoff or garnishment of protected unemployment insurance or pandemic relief benefits, including processing garnishments in violation of applicable state prohibitions against out-of- state garnishments and failing to apply appropriate state exemptions after receiving garnishment notices.  (The CFPB noted that a similar practice was the subject of a recent CFPB enforcement action.  Click here to listen to our podcast about takeaways for banks from the enforcement action.)

Mortgage origination.  Lenders were found to have violated the Regulation Z prohibition on compensating a mortgage loan originator in an amount based on the terms of the transaction or a proxy for such terms.  Although the rule includes a limited exception that permits an originator’s compensation to be decreased due to unforeseen increases in settlement costs, examiners found the exception did not apply to certain transactions.  In those transactions, Loan Estimates were issued to consumers based on fee information provided by the loan originator.  At closing, the consumers received a lender credit when the actual cost of certain fees exceeded the applicable tolerance thresholds.  The loan originator’s compensation was subsequently reduced by the amount provided to cure the tolerance violations.  Examiners determined that the originator knew the correct fee amounts at the time of the estimates (because the settlements service had been performed) and that the fee information was incorrect due to a clerical error.  The originator had entered a cost that was unrelated to the actual charges that the originator knew had been incurred, thereby resulting in information being entered that was not consistent with the best information reasonably available at the time of the estimate.

Lenders were found to have engaged in a deceptive act or practice by using  a loan security agreement containing a  provision providing that borrowers who signed the agreement waived their right to initiate or participate in a class action.  Examiners concluded that the language was misleading because a reasonable consumer could understand the provision to waive their right to bring a class action on any claim, including federal claims in federal court.  (Regulation Z prohibits waivers of federal claims in mortgage agreements.)

Mortgage servicing. Servicers were found to have engaged in abusive acts or practices by charging consumers $15 fees for making payments by phone with customer service representatives when representatives did not disclose the fees’ existence or cost during the phone call.  The CFPB indicated that general disclosures provided by the servicers “prior to making the payment” that indicated that consumers might incur a fee for phone payments did not sufficiently inform consumers of the material costs.

Servicers were found to have engaged in deceptive acts or practices by misrepresenting that certain payment amounts were sufficient for consumers exiting forbearances to accept deferral offers when, in fact, they were not.  The servicers at issue sent consumers documents allowing them to accept a post-forbearance deferral offer by making a specified payment that was often higher than the consumers’ previous monthly payments due to updated escrow payments.  However, when those consumers contacted the servicer to verify that payment amount, they were incorrectly told their previous mortgage payment amount would be sufficient to accept the offer.  Certain consumers relied on these incorrect statements from customer service representatives to their detriment.

Servicers were found to have engaged in unfair acts or practices by charging fees prohibited by the CARES Act to consumers receiving CARES Act forbearances and failing to process requests for forbearances as required by the CARES Act.  The CFPB does not provide further detail on the nature of these violations, such as the types of fees at issue.

Servicers were also found to have violated Regulation X by failing to maintain policies and procedures reasonably designed to inform consumers of all available loss mitigation options or to properly evaluate consumers for all available loss mitigation options.  The details provided for these violations are minimal, but they appear to involve post-forbearance deferral options.  

Payday lenders.  Payday lenders were found to have failed to maintain records of call recordings necessary to demonstrate compliance with conduct provisions in consent orders generally prohibiting misrepresentations.

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