The CFPB has released the Spring 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, prepaid accounts, remittance transfers, and student loan servicing that were completed between July 2021 and December 2021.  Accordingly, many of the examinations discussed in the report would have taken place under the leadership of former Acting Director Uejio.

Key findings by CFPB examiners are described below.

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

• Repossessing vehicles after consumers took action that should have prevented repossession.
• Misleading consumers about the final loan payment after a deferral by sending notices about final payment amounts that only included “imprecise conditional statements, such as stating that the final payment ‘may be larger.’”  According to the CFPB, those statements, without additional information about the magnitude of the final payment, “likely led consumers to believe the payment would only increase somewhat, when in fact the final payment likely would dramatically increase by amounts multiple times larger than a normal payment.”  Remedial actions taken by servicers included the addition of estimated final payment amounts on deferral notices or giving consumers access to online calculator tools to track their final payment amounts.
• Overcharging consumers for add-on products by failing to request refunds of unearned GAP product fees from third-party administrators and failing to apply the applicable refunds to the accounts after repossession and cancellation of the financing contract.  Servicers that did maintain policies to obtain refunds frequently failed to apply the refunds which resulted in inaccurate deficiency balances when vehicles were sold after repossession.  (These findings regarding overcharges for add-on products were also the subject of a separate blog post by the CFPB.)

Consumer reporting.  Consumer reporting agencies (CRAs) were found to have violated FCRA dispute investigation requirements through practices that included deleting disputed tradelines instead of resolving disputes consistent with an investigation conducted by the furnisher, which would have often required correcting inaccurate derogatory information and replacing it with accurate information.

Credit card furnishers were found to have violated FCRA accuracy and dispute investigation and requirements through practices that included:

• Failing to conduct reasonable investigation of disputes due to erroneously deeming indirect disputes to be frivolous.  The CFPB noted that when disputes are forwarded to furnishers by CRAs, the FCRA does not give discretion to furnishers to deem such disputes frivolous.  For indirect disputes, only a CRA has discretion to determine that a dispute is frivolous or irrelevant.
• Failing to communicate the results of investigations of direct disputes by using template response letters that included confusing language which created ambiguity about whether changes had been made in response to the investigations.  According to the CFPB, the letters did not provide the results of the investigation because they did not affirmatively inform consumers that changes were made in response to their disputes.

Credit card furnishers were also found to have violated the Regulation V requirement to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of furnished information through practices that included:

• Not specifying in policies and procedures how particular data fields, such as the date of first delinquency, should be populated when furnishing information about accounts.
• Not providing in policies and procedures for the retention of records for a reasonable time to substantiate the accuracy of furnished information by failing to retain records related to direct disputes for the time period required by their own policies.  This resulted from automated system purges of dormant accounts occurring on a shorter cycle than the applicable retention period.
• Failing to perform account level analyses to determine which accounts should be reported in bankruptcy status after a consumer informs the furnisher of a bankruptcy filing, resulting in the reporting of bankruptcy status codes for accounts that had been paid and/or closed before the bankruptcy filing.

Deposit account furnishers were found to have violated the Regulation V requirement to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of furnished information through practices that included

• Not having written policies or procedures for furnishing deposit account information to specialty CRAs.
• Failing to incorporate the guidelines in Appendix E to Regulation V with respect to conducting reasonable investigations of consumer disputes relating to furnished deposit account information.

Credit card account management.  Creditors, in connection with the acquisition of pre-existing credit card accounts from other creditors, were found to have violated the Regulation Z requirement for re-evaluating accounts after increasing a consumer’s APR.  Such violations included:

• Failing to reduce APRs to the appropriate level because the creditors could not identify the lowest rate applicable to the acquired accounts due to their failure to obtain this data from the seller at the time of  acquisition.
• Failing to conduct re-evaluations once every six months after certain APR increases on acquired accounts because the creditors had not accurately recorded a review date in their systems of record for rate re-evaluation which resulted in their systems not identifying these accounts for inclusion in the rate re-evaluation process.

Creditors, when conducting rate re-evaluations based on the factors considered when determining the APRs applicable to similar new accounts, were found to have violated Regulation Z by considering factors that were not appropriate, specifically certain minimum rates that formerly applied to their credit card accounts but no longer applied to the relevant accounts at the time of the re-evaluations.

“Certain entities” were found to have engaged in deceptive acts or practices by advertising the interest-free financing feature of their credit cards without adequately disclosing the pre-conditions for obtaining the financing and failing to process refunds in according with their credit card agreements.  With regard to refunds, the entities had issued certain credit card accounts with both a revolving balance that accrued interest and a monthly installment balance that was interest-free for its duration.  The agreements provided that refunds and credits would be applied to the revolving balance and did not include any provision stating that if purchase refunds on the revolving balance resulted in a negative revolving balance, the refund would instead be applied to the monthly installment balance.  When a refund would result in a negative balance, the entities applied revolving purchase refunds to the monthly installment balance, or applied the refund to the revolving balance temporarily, but then applied the negative revolving balance to the monthly installment balance when it became due.  According to the CFPB, this caused the interest-free balances to be paid prematurely, resulting in consumers losing the interest-free benefit they expected to receive and having less funds available to pay future interest-accruing revolving balances.  The CFPB deemed the practice deceptive because the agreements misled consumers with regard to how refunds and credits would be applied.

Debt collection.  Debt collectors were found to have violated the FDCPA provision that prohibits collectors from falsely representing the character, amount, or legal status of any debt by continuing attempts to collect debts and offering settlements after being informed the debts were created through fraud.  In doing so, the collectors misrepresented that consumers were legally obligated to pay the debts.

Debt collectors were also found to have engaged in unfair acts or practices by failing to make timely refunds of overpayments and credit balances.

Deposits.  Financial institutions were found to have engaged in unfair acts or practices by erroneously placing multiple holds on mobile check deposits that were deemed suspicious rather than placing the single holds that were intended.  This resulted in consumers being charged overdraft fees because the institution failed to lift the initial automatic holds on the amounts of mobile check deposits after an initial suspicious deposit hold was placed on an account.

Financial institutions were also found to have violated Regulation E through conduct that included:

• Failing to complete error investigations after receiving consumers’ notices of error because the consumer did not submit an affidavit.
• Failing to provide notices of revocation of provisional credits to consumers in connection with error investigations regarding check deposits at ATMs.  The institutions had given provisional credits in the amounts claimed by consumers but, upon retrieving the checks, determined the check amounts were less than the consumers alleged in their error claims.  The institutions debited the differences and sent letters to the consumers indicating that the investigations were complete and the provisional credits of the lower amounts were final.  The institutions did not address that they had debited the difference between the amounts of the original provisional credits and the face value of the checks.  According to the CFPB, the institutions had violated Regulation E by failing to state that they would be debiting the excess amounts that were originally provisionally credited, the dates they would be debiting the excess provisional credits, or that they would honor certain transactions for 5 days after the notice.

Mortgage origination.  Lenders were found to have violated the Loan Originator Rule (Regulation Z)  by paying higher loan originator compensation where Fannie Mae conforming fixed rate loans exceeded a designated threshold percentage of the total loans closed by the originator.  According to the CFPB, this constituted paying compensation based on credit product type, which in turn violated the Loan Originator Rule prohibition on payment of compensation based on the terms of a transaction because “products are simply a bundle of particular terms.”

Lenders were found to have also violated Regulation Z by:

• Failing to establish the validity of a changed circumstance that was claimed to be the basis for a revised Loan Estimate.  The lenders claimed that consumers had requested rush appraisals, which resulted in the issuance of revised Loan Estimates with higher appraisal fees than disclosed on the initial estimates. The lenders failed to maintain sufficient documentation evidencing the consumers’ requests for the rushed appraisals. According to the CFPB, the documentation reflected either that the appraisal management company had notified the lenders that rush appraisals were needed or the lenders’ loan officers had requested the rush appraisals.
• Providing Closing Disclosures that did not reflect the terms of consumers’ legal obligation because the disclosures did not reflect the fully-indexed rate as required by the promissory notes due to the software’s use of a rounding method that was different from the method in the promissory notes.

Prepaid accounts.  Institutions were found to have violated Regulation E by conduct that included:

• Failing to honor oral requests to stop payment of preauthorized electronic fund transfers with respect to payments originating through certain bill pay systems.  Such payments included both those initiated with the merchant and payments initiated within the bill pay system housed with the prepaid account manager.
• In notices regarding the results of a Regulation E error investigation in which the institution determined no error or that a different error than alleged by the consumer had occurred, failing to include a statement regarding the consumer’s right to request the documents that the institution relied on in making its determination.
• Failing to provide such documents when requested by consumers.

Remittance transfers.  Remittance transfer providers were found to have engaged in deceptive acts or practices by making representations of “instant” and “30 second” transfers without disclosing the possibility of exceptions to such timing.  Remittance transfer providers were found to have violated Regulation E through conduct that included:

• Including provisions in remittance transfer agreements that waived rights or causes of action conferred by the EFTA, including a hold harmless and indemnification requirement purporting to limit claims against the institution and a statement that the institution made “‘no representations or warranties regarding the time required to complete processing because the Service is dependent on many factors beyond our control.’”
• Failing to provide refunds in the amounts needed to resolve errors within one business day, or as soon as reasonably practicable, after receiving the sender’s instructions regarding the appropriate remedy.
• Issuing error claim denial letters that did not disclose the sender’s right to request documentation used in the investigation.

Student loan servicing.  Servicers were found to have engaged in unfair acts or practices by:

• Failing to make incentive payments they offered in advertisements and agreed to make in the relevant consumer contracts, such as early repayment incentive payments, referral bonuses, and welcome bonuses, or not making early repayment incentive payments where policies made such payments contingent on the consumer maintaining a deposit account with a particular institution and the requirement had not been disclosed in the loan contracts.
• Failing to issue timely refunds in accordance with the payment schedule in loan modifications where servicers had entered into modification agreements with effective dates predating the dates the agreements were sent to consumers and the consumers had made payments that were not due under the repayment schedule in the modification agreements.

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