Earlier this week the CFPB released its Summer 2017 Supervisory Highlights, which covers supervisory activities generally completed between January through June of 2017. The report touts the $14 million total restitution payments consumers received due to nonpublic supervisory activities during this period-plus the approximately $1.15 million in consumer remediation and $1.75 million in civil monetary penalties resulting from public enforcement actions that grew out of or were bolstered by CFPB examinations.
The report includes discussions of the following topics:
Auto Loan Servicing: The publication addresses repossession practices by auto loan servicers, stating that in the course of examinations the Bureau found that “one or more entities were repossessing vehicles after the repossession was supposed to be cancelled,” and concluding that the servicer(s) had committed an unfair practice by repossessing vehicles where “borrowers had brought the account current, entered an agreement with the servicer to avoid repossession, or made payments sufficient to stop the repossession, where reasonably practicable given the timing of the borrower’s action.”
Credit Card Account Management: The report focuses on four alleged credit-card related practices: (1) failure to provide tabular account-opening disclosures as required by Regulation Z (the table set forth in Appendix G-17); (2) deceptive misrepresentations to consumers regarding costs and availability of pay-by-phone options; (3) deceptive misrepresentations to consumers about the benefits of debt cancellation products; and (4) noncompliance with requirements related to billing error resolution and liability for unauthorized transactions.
Debt Collection: According to the report, the CFPB uncovered various FDCPA violations in the course of examinations of larger participants in the debt collection market. These alleged violations include unauthorized communications with third parties, false representations made to authorized credit card users regarding their liability for debts, false representations regarding credit reports, and communications with consumers at inconvenient times.
Deposit Accounts: The CFPB also claims to have found a number of Regulation E and UDAAP violations in connection with deposit accounts offered by banks. The alleged violations relate to (1) the freezing of customer deposit accounts relating to suspicious activity observed by banks; (2) misrepresentations about fee waivers for deposit products subject to a monthly service fee; (3) violations of error resolution requirements under Regulation E; and (4) deceptive statements about overdraft protection products.
Mortgage Origination and Servicing: The report details the results of supervision following the CFPB’s first round of mortgage examinations for compliance with the Bureau’s “Know Before You Owe” mortgage disclosure rule. The publication states that “for the most part, supervised entities, both banks and nonbanks, were able to effectively implement and comply with the Know Before You Owe mortgage disclosure rule changes,” but notes that examiners did find some violations relating to the content and timing of Loan Estimates and Closing Disclosure. Other origination practices addressed in the report include the failure to reimburse unused portions of service deposits and the inclusion of an arbitration notice on certain residential mortgage loan notes that was held to violate Regulation Z even though the note apparently lacked an arbitration provision. On the servicing side, the report focuses on violations of Regulation X in connection with assisting borrowers complete loss mitigation applications, and the inclusion of broad waiver of rights clauses in short sale and cash-for-keys agreements as a UDAAP. The report also cites fair lending concerns identified during examinations of mortgage servicers relating to data quality issues and “a lack of readily-accessible information” concerning borrower characteristics.
Short-Term Small Dollar Lending: The CFPB cites a number of alleged UDAAP violations, such as workplace collection calls, repeated collection calls to third parties, misrepresentations in marketing about small dollar loan products, misrepresentations about the use of references provided by borrowers in connection with loan applications, and the handling of unauthorized debits and overpayments.
Statistics Regarding CFPB’s Action Review Committee Process: Another notable aspect of the report is the inclusion of new statistics about the Bureau’s Action Review Committee (ARC) process, which senior executives in the CFPB’s Division of Supervision, Enforcement, and Fair Lending use to decide whether issues that come up in examinations will be handled using a confidential supervisory action or will be investigated for possibly bringing a public enforcement action. The report includes a table detailing the total number of ARC decisions made—and the outcomes of such decisions—for fiscal years 2012 through 2016. Importantly, only a subset of CFPB matters go through the ARC process, and of these matters, 24.59% were deemed “appropriate for further investigation for possible public enforcement action.” A further 11.48% of these matters were determined to be appropriate in part for further investigation for public enforcement, and in part for resolution through confidential supervisory action. Finally, the CFPB commits in the report to publishing ARC data at the end of each fiscal year (starting with 2017 data to be published in its upcoming Fall 2017 Supervisory Highlights).
As a general matter, we should note that many of the issues discussed in the report appear to stem from system errors and failures to monitor third party vendors and service providers. Given that the CFPB now regularly conducts examinations of service providers, both banks and non-banks should pay careful attention and seek advice from outside counsel in managing their relationships with outside service providers—especially since the CFPB has taken the position that a company can be vicariously liable for violations committed by its service providers.
