CFPB Issues Supervisory Highlights

Last week, the CFPB issued its Supervisory Highlights for July-December, 2014.  The Bureau’s Supervisory Highlights provide a summary of issues found by the Bureau during recent examinations and provides compliance insight for regulated entities.  The Bureau’s examinations found violations involving credit reporting, debt collection, overdraft protections, mortgage origination, and fair lending.  Here are the highlights:

In General:

• Since the publication of the last Supervisory Highlights, supervisory resolutions have resulted in remediation of approximately $19.4 million to 92,000 consumers;
• A final rule defining larger participants in the nonbank financial market can be expected once the CFPB has finished reviewing the comments received (the comment period as to the proposed rule closed in December 2014);

Credit Reporting:

• The CFPB, while noting progress among the consumer reporting agencies in providing dispute documents to furnishers, still does not believe the CRAs are making consistent efforts in this regard.
• The CFPB noted deficiencies in updating public record information.  As a result, the CFPB has directed certain CRAs to:
  • Develop appropriate training with respect to the notice of dispute and forwarding of relevant information to the information furnishers;
  • Establish policies and procedures to insure that when a provider of public information notifies the CRA of incomplete or incorrect information, the CRA promptly modifies or updates the information in its system.

Debt Collection:

• The CFPB identified issues with the collection of student loans on behalf of the Department of Education which we have previously highlighted in this blog ( Student Lending Remains a Hot Issue for 2015 )
• The CFPB additionally identified a deceptive practice regarding the use of ACH payment options.  “When attempting to collect on delinquent accounts, collectors offered consumers a recurring ACH payment option. When informing consumers about this payment option, collectors promoted the consumers’ ability to adjust or cancel a recurring ACH payment with only 24 hours’ notice. This representation, however, contradicted both an express representation in monthly periodic statements provided to consumers and internal policies and procedures, which stated that a minimum of 72 hours’ notice was required. The contradiction in oral and written disclosures of the timeframe required to cancel or adjust a recurring ACH created a risk of deception.”
• The CFPB further noted that several banking institutions changed balance calculation methods without providing proper notification and disclosures to consumers resulting in overdraft fees.  The CFPB deemed this practice deceptive.
   
  Mortgage Origination:

• The CFPB found that in one or more examinations, examiners found that branch managers, as owners of marketing services entities, received compensation based on the terms of transactions originated by the branch managers themselves in contravention of Reg Z’s prohibition of the same.  The CFPB has directed that the practice cease and desist.
• The CFPB noted violations with Reg X, specifically, that the amount disclosed on the HUD-1 impermissibly exceeded the amount disclosed on the Good Faith Estimate.
• The CFPB noted deficiencies with certain examinee’s policies in procedures concerning the deadline to provide Good Faith Estimates.  The Bureau found that certain examinee’s policies did not adequately define when the application was received.  As a result, the deadline to provide Good Faith Estimates was not properly calculated.
• The CFPB noted issues with advertising which did not comply with the disclosures required by Reg Z.
• The CFPB also noted issues with adverse action notifications.  Specifically, the “CFPB examiners found one or more supervised entities failed to provide the requisite information in denial notices as set forth in Regulation B and failed to notify an applicant of action taken within 30 days after receiving the completed application. These errors were attributed to weaknesses in the compliance audit programs and the monitoring and corrective action component of the compliance programs.”
• The CFPB also noted generally weak compliance management systems. The Bureau reiterated that an “effective compliance management system includes board and management oversight, a compliance program, a consumer complaint management program, and a compliance audit program. The board of directors and senior management should, among other things, adopt clear policy statements concerning consumer compliance, establish a compliance function to set policies and procedures, and assign resources to the compliance function commensurate with the size and complexity of the supervised entity’s practices and operations. A compliance program should include policies and procedures, training, and monitoring and corrective action processes. A compliance audit program should assist the board of directors or board committees in determining whether policies and standards adopted by the board are being implemented, and should also identify any significant gaps in board policies and standards.”
   
  Fair Lending:
• The examiners found ECOA and Reg B violations, including “violations related to the failure to consider public assistance income or other sources of income protected by Reg B. “Applicants were automatically declined if they relied on income from a non-employment source, such as social security income or retirement benefits, in order to repay the loan.”