CFPB issues Winter 2016 supervisory report

by Ballard Spahr LLP

In its Winter 2016 Supervisory Highlights, which covers supervision work generally completed between September and December 2015, the CFPB highlights violations found by CFPB examiners involving consumer reporting, debt collection, mortgage origination, remittances, and student loan servicing.

The report states that recent non-public supervisory actions have resulted in restitution of approximately $14.3 million to more than 228,000 consumers. It indicates that these non-public supervisory actions generally have resulted from CFPB ongoing supervision and/or targeted examinations. The non-public resolutions involved deposits, debt collection, and mortgage origination. The report also indicates that the CFPB’s supervisory activities “have either led to or supported” three recent public enforcement actions described in the report that resulted in $52.75 million in consumer remediation and $8.5 million in civil money penalties.

The CFPB’s “supervisory observations” include the following:

  • Credit reporting. CFPB reviews of compliance with FCRA furnisher obligations focused on furnishers of information to nationwide specialty consumer reporting agencies (NSCRA) that specialize in reporting in connection with deposit accounts and the NSCRAs themselves. CFPB examiners found that while one or more furnishers generally had policies and procedures regarding FCRA furnishing requirements, they did not have policies and procedures for furnishing deposit account information. Deficiencies involving deposit account information found at one or more furnishers involved a lack of processes for verifying data furnished to NSCRAs through automated internal systems, the failure to correct and update information furnished to NSCRAs, or the failure to institute reasonable policies and procedures regarding accuracy, including prompt updating of outdated information. Specifically, CFPB examiners found that although such furnishers would update their records to reflect a consumer’s payment in full of a charged off account, they would not send an update of the change in status from “charged-off” to “paid-in-full” to NSCRAs. The report also describes various deficiencies found at NSCRAs such as weaknesses in their systems for credentialing of furnishers before accepting deposit account information from a furnisher.
  • Debt collection. The CFPB observed that the use of exception reports by consumer reporting agencies (CRA) had led to greater accuracy in the information furnished to CRAs. CFPB examiners found that one or more debt collectors had failed to comply with the general FDCPA requirement to stop contacting a consumer after receiving written notice from the consumer that he or she refuses to pay a debt or wants the collector to stop contacting him or her. One or more debt collectors were also found to have made false, deceptive, or misleading representations regarding administrative wage garnishment when collecting defaulted student loans for the Department of Education. Specifically, collectors were found to have threatened garnishment against borrowers who were not eligible for garnishment or to have given borrowers inaccurate information about when garnishment would begin, creating a false sense of urgency.
  • Student loan servicing. The CFPB describes supervising the student loan servicing market as “a priority” for its supervision program. The CFPB noted that its examiners found improved practices regarding payment allocation and modification practices at some servicers. CFPB examiners found that one or more student loan servicers had used “auto-default” clauses to place loans into default when a co-borrower filed for bankruptcy, regardless of whether the borrower was current on all payments, or to disclose the potential impact of forbearance on the availability of cosigner release. Examiners also found that one or more servicers, in connection with “converting” an account to reflect a new loan owner, had incorrectly updated the account by using an interest rate that was higher than the rate for which the borrower was contractually liable. Such servicers were directed to implement a plan to reimburse all affected borrowers.
  • Mortgage origination. Deficiencies found by CFPB examiners involved failing to maintain written policies and procedures required by the loan originator rule and weak compliance management systems.
  • Remittances. The CFPB’s press release notes that the Winter 2016 report is the first Supervisory Highlights to cover exams of banks and nonbanks in the remittance market. Deficiencies found by CFPB examiners at one or more remittance providers included giving incomplete and/or inaccurate disclosures to consumers, failing to refund cancelled transactions within the required timeframe, and failing to promptly credit consumers’ accounts when errors occurred.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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