Does the 9th Edition of the CFPB'S Supervisory Highlights Signal a Kinder Gentler Regulator?
The latest edition of Consumer Financial Protection Bureau's (CFPB) Supervisory Highlights (The Report) marks a bit of a departure from the past eight (8) reports of supervision activity. While The Report still focuses heavily on the significant deficiencies of consumer financial services entities to understand their compliance requirements from a lending, servicing, collecting and credit reporting perspective, The Report, for the first time, highlights what some entities are doing right. The Report also uses the opportunity to announce the Bureau's change in its appeals process in an effort to improve "efficiency, consistency, transparency and fairness to supervised institutions."
Consumer Reporting: Failing to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information furnished to credit reporting agencies (CRAs) still plagues depository and non-depository institutions. Many furnishers still lack systems in place to properly receive, evaluate, and respond to consumer disputes about information being reported to the CRAs and in certain instances furnishers did not notify consumers about the outcome of investigations concerning disputes over consumer reporting information. The problem is seen with furnishers who report deposit account information, traditional debt collection accounts, and student lending information. Some furnishers still did not notify consumers when they took adverse action against them based upon information in their credit reports.
Debt Collection: The Report noted at least one instance where a debt collector did not identify itself as a debt collector when contacting a consumer by phone and several instances where debt collectors continued to call consumers at work when they were verbally told to stop.
Student Loan Servicing: Problems still persist in the student loan servicing market. Examiners continue to find entities engaging in unfair practices when it comes to allocating partial payments being made for multiple accounts. The Bureau sees this as a lack of communication to the borrower and a failure to provide those same borrowers adequate choices to avoid accrued interest and late fees. Also uncovered were instances where malfunctions in servicers' systems caused borrowers' pre-authorized monthly loan payments to be triggered earlier than the scheduled date. This caused unexpected debits and overdraft fees. Furthermore, if the payment date fell on a holiday or non-banking day, servicers were not crediting back accrued interest. Finally, many servicers were providing false or deceptive information in regards to late fees for loans owned by the Department of Education. Misinformation by servicers to borrowers about dischargability of certain loans in bankruptcy was also noted.
Mortgage Origination: The Report reflects the second set of examinations for mortgage originations under Title XIV rules. Here examiners found deficiencies in estimated charges found in the Good Faith Estimates (GFE) which exceed permissible limits found in Regulation X. Similarly, supervised entities showed significant deficiencies in their completion of the HUD-1 and HUD-1A settlement statements. Numerous instances were noted where lenders failed to provide any homeownership counseling disclosures, failed to provide accurate servicing disclosure statements, failed to provide accurate and consistent privacy notices, failed to require employees who engaged in loan origination activities to be registered with the Nationwide Mortgage Licensing System & Registry (NMLSR), failed to identify understated APRs and failed to provide reimbursement in such instances.
Mortgage Servicing: As servicers continue to work through the new servicing rules, certain problems still persist especially in the area of the most recent amendments. Many servicers still lack policies and procedures for identifying and communicating with successors-in-interest in cases of a deceased borrower. Effectively working through the loss mitigation process continues to be a struggle for servicers from the initial application to communicating with service providers about the status of the application. There continues to be confusion amongst servicers about when to automatically terminate private mortgage insurance.
In the Not Entirely Bad News Category
The Report made a significant effort to spell out its fair lending and specifically its Equal Credit Opportunity Act (ECOA) reviews upon institutions in the mortgage, credit card and auto lending markets. While significant philosophical disagreements exist as to disparate impact, the Bureau's detailed roadmap should assist lenders in their review of underwriting procedures. The Report even outlines specific steps institutions should take in order to avoid ECOA violations.
The Report also revealed that, as of November 3, 2015, a revised appeals process was implemented to take into account structural changes in the Bureau and from experienced gained from past appeals. The revised policy expands the number of agency staff who can participate on the appeals committee and extends the timeframe to issue a written decision from 45 to 60 days. Oral presentations are now limited to issues raised in a written appeal and companies are not permitted to appeal adverse findings on a pending matter until that action has been resolved. While some of these revisions may have mixed reviews, it certainly signals the CPFB's willingness to adapt and change.
Now for the Good News
Examinations did reveal positive steps taken by various institutions to improve compliance especially in the mortgage and student loan servicing space. Examiners observed that one or more mortgage servicers made significant improvements to their compliance audits, which led to prompt correction of problems. Other mortgage servicers conducted information technology reviews and identified inadequacies, leading them to the replacement of outdated systems. Certain student loan servicers took positive steps in cases where borrowers tried to pay off their entire loan or account with a large lump sum but fell short of the total amount. In those instances, examiners observed that some servicers alerted borrowers about unpaid balances, which prevented them from accruing interest, having problems with their credit reports, or facing potential delinquency or default.
That the Bureau is willing to identify best practices amongst certain markets is an important and positive step, especially for those charged with ensuring regulatory compliance for their respective entity. Industry has been demanding clear and consistent guidelines rather than "gotcha" scenarios. This Report was an important sign of the Bureau's recognition that while rules are important they must be workable. Let's hope this Report was not an anomaly.
Clark Hill's Consumer Financial Services Regulatory & Compliance Group is a national leader in the field of consumer financial services law, providing strategic legal counsel to clients in all areas of consumer finance. We provide counsel, consultation and litigation services to financial institutions, law firms and debt buyers throughout the country. Our group can help you navigate this rapidly evolving regulatory environment. Our exceptional team of lawyers and government and regulatory advisors has extensive experience in-and an in-depth understanding of the laws and regulations governing consumer financial products and services. We can assist you in developing and implementing compliance programs, as well as defending consumer litigation and regulatory enforcement actions.