CFPB Winter 2020 Supervisory Highlights looks at debt collection, mortgage servicing, payday lending, student loan servicing

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The CFPB has released the Winter 2020 edition of its Supervisory Highlights.  The report discusses the Bureau’s examinations findings in the areas of debt collection, mortgage servicing, payday lending, and student loan servicing that were completed between April 2019 and August 2019.

Key findings include the following:

Debt collection. One or more debt collectors were found to have violated the FDCPA requirements to (1) disclose in communications subsequent to the initial written communication that the communication is from a debt collector, and (2) send a written validation notice within five days of the initial communication.

Mortgage servicing. One or more servicers were found to have violated the Regulation X loss mitigation notice requirements to (1) notify borrowers in writing that a loss mitigation application is either complete or incomplete within five days of receiving the application; (2) provide a written notice stating the servicer’s determination of available loss mitigation options within 30 days of receiving a complete loss mitigation application; and (3) provide a written notice containing specified information when the servicer offers the borrower a short-term loss mitigation option based on an evaluation of an incomplete loss mitigation application.  With regard to the third violation, such violations took place when servicers automatically granted short-term payment forbearances based on phone conversations with borrowers in a disaster area who had experienced home damage or incurred a loss of income from the disaster.  The Bureau considered these phone conversations to be loss mitigation applications under Regulation X.  Because the violations were caused in part by the servicers’ efforts to handle a surge in applications due to natural disasters, CFPB examiners did not issue any matters requiring attention for the violations and servicers developed plans to enhance staffing capacity to respond to future disaster-related increases in loss mitigation applications.

Payday lending. CFPB examiners found:

  • One or more lenders engaged in unfair practices in violation of the Dodd-Frank UDAAP prohibition when the lenders failed to apply payments processed by the lenders to the borrowers’ loan balances, continued to assess interest as if the consumer had not made a payment, and incorrectly treated the borrowers as delinquent.  The lenders lacked systems to confirm that payments were applied to borrowers’ loan balances and consumers who viewed their accounts online were provided incorrect information that did not reflect unapplied payments, with the result that consumers paid more than they owed.
  • One or more lenders engaged in unfair practices in violation of the Dodd-Frank UDAAP prohibition by charging borrowers a fee as a condition of paying or settling a delinquent loan which was not authorized by the loan contract and which the loan contract stated would be paid by the lenders.  During the payment or settlement process, the fee was either incorrectly described as a court cost (which the contract would have required the borrower to pay) or not disclosed at all.  In addition to changing their compliance management systems, the lenders refunded the fee to borrowers.
  • One or more lenders disclosed inaccurate APRs in violation of Regulation Z as a result of reliance on employees to calculate APRs when the lenders’ loan origination systems were unavailable.
  • One or more lenders disclosed the APR and finance charge inaccurately in violation of Regulation Z as a result of not including in the calculation of the APR and finance charge a loan renewal fee charged to borrowers who were refinancing delinquent loans.  The fee was deemed to constitute both a change in terms because it was not stated in the outstanding loan agreement and a finance charge associated with the new loan that required new Regulation Z disclosures because the lenders conditioned the new loans on payment of the fee.  The fee was refunded to consumers.
  • One or more lenders violated the Regulation Z requirement to retain evidence of compliance for two years.
  • One or more lenders were found to have violated the Regulation B adverse action notice requirement by sending notices that stated one or more incorrect principal reasons for taking adverse action.  Such violations were attributed to coding system errors.

Student loan servicing.  CFPB examiners found that one or more servicers engaged in unfair practices in violation of the Dodd-Frank UDAAP prohibition in connection with monthly payment calculations.  Servicers were found to have stated monthly payment amounts in periodic statements that exceeded those authorized by the consumers’ promissory notes, where either the servicers either automatically debited incorrect amounts or, for borrowers not enrolled in auto debit, the borrowers made an inflated payment or were charged a late fee for failing to make the inflated payment by the due date.  These inaccurate calculations were the result of data mapping errors that occurred during the transfer of private loans between servicing systems.  Servicers have conducted reviews to identify and remediate affected consumers and implemented new processes to mitigate data mapping errors.

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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