The CFPB’s Fall 2022 Supervisory Highlights—Key Findings and Takeaways

Financial Services Law

On November 16, 2022, the Consumer Financial Protection Bureau (Bureau) released its Fall 2022 Supervisory Highlights. The 32-page report discusses the Bureau’s key examination findings in the areas of auto servicing, consumer reporting, credit card services, debt collection, deposit accounts, mortgage origination and servicing, and payday lending between January 1 and June 30, 2022. A summary of notable report findings is below.

Repeat Offenders on Notice. The Bureau has created a special unit within the Office of Supervision to go after repeat offenders, especially those entities and individuals who violate agency or court orders. The Repeat Offender Unit will focus on ways to enhance the detection of repeat offenses and will develop a rapid response process to address the root cause of the violation and recommend corrective actions, including close scrutiny of corporate compliance with court or agency orders. Targeting repeat offenders has been and will continue to be a top priority for Director Chopra.

Auto Servicing. As it has before, the Bureau focused on whether consumers who pay off their car loans early receive partial refunds for add-on products, such as guaranteed asset protection, that they purchased at the time of financing. Although these products are typically purchased from auto dealers—in which case only the dealer, or a third-party administrator for the products, holds the money that should be refunded—the Bureau claimed that some auto servicers violated the federal prohibition on “unfair” acts or practices by “fail[ing] to ensure consumers received refunds,” irrespective of state law requirements. This is the second consecutive time the Bureau has focused on this practice in Supervisory Highlights. Auto servicers should at least take reasonable steps at the time of a payoff to make sure consumers are aware of their rights in regard to a refund, in addition to complying with state laws that may require additional action.

The Bureau also found that servicers engaged in unfair and deceptive acts or practices by misleading consumers about loan modification approvals, double-billing consumers for collateral protection insurance, and engaging a consumer’s starter interrupt device, rendering the car undriveable, when the servicer mistakenly believed the consumer was past due on a loan payment. Finally, the Bureau discovered during an examination that certain servicers made deceptive representations during collection calls, telling consumers that their driver’s licenses or tags would be suspended if they did not make prompt payment. While not specifically identified by the Bureau, such actions could also implicate the Fair Debt Collection Practices Act (FDCPA) and state debt collection laws in instances where servicers collect on their debts under an assumed name.

Consumer Reporting. The report noted violations of the Fair Credit Reporting Act (FCRA) and Regulation V by both consumer reporting companies (CRCs)—the Bureau’s term for “consumer reporting agencies” as defined in the FCRA—as well as furnishers of consumer reports. The CFPB found that CRCs failed to address consumer complaints that disputed the accuracy of their credit reports and report those outcomes to the Bureau as required by the FCRA. For furnishers of consumer credit information, the Bureau found violations of the FCRA and Regulation V where such furnishers, among other things, inaccurately reported information to CRCs despite knowing such information was inaccurate, did not establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information furnished to a CRC, and failed to conduct reasonable investigations of direct disputes.

Credit Cards. The Bureau found instances where companies failed to follow the billing error resolution provisions of Regulation Z, such as the requirement to resolve disputes within two complete billing cycles or no later than 90 days, and the requirement to conduct a reasonable investigation after receiving billing error notices. In addition, the report cited violations where credit card issuers failed to periodically assess whether it was appropriate to reduce a consumer’s APR after increasing it. Under Regulation Z, card issuers must reevaluate an account no later than six months after the rate increase.

Finally, the report identified deceptive acts or practices by entities for the marketing, sale, and servicing of credit card add-on products, as well as for inaccurate representations concerning card autopay services. As to the latter violation, the Bureau found that consumers were likely misled to believe that enrolling in the card’s autopay service automatically paid their account’s monthly minimum balance when instead it paid the same fixed amount each month. Accordingly, when the required minimum monthly payment went up, customers using the autopay service did not pay the full amount, which led to late fees and finance and other default charges.

Debt Collection. Debt collectors were cited for violating the FDCPA by continuing to engage with consumers after the consumers stated that the communication was causing them to feel annoyed, harassed, or abused. Examiners also found instances where debt collectors violated the FDCPA by communicating with a person other than the consumer when the third party had a name similar to the consumer’s. The Bureau cited similar violations in last summer’s Supervisory Highlights.

Deposit Accounts. The way institutions handled pandemic relief benefits continues to be a top priority of the Bureau. In 2021, the Bureau conducted prioritized assessments to evaluate how financial institutions handled pandemic relief benefits deposited into consumer accounts. In a follow-up review, examiners determined unfairness risks at several depository institutions. For example, the report cites instances of institutions using protected unemployment insurance or economic impact payments to set off a negative balance in an account, garnishing protected unemployment insurance or economic payments in violation of federal and state law, and processing out-of-state garnishment orders in violation of applicable state law.

Notably, the Bureau highlighted the importance of state laws in protecting consumer funds held in deposit accounts and stated that the failure to comply with applicable state law could give rise to an unfair act or practice in violation of the Consumer Financial Protection Act, as was the case in a recent Bureau enforcement action.

Mortgage Origination. The mortgage origination operations of supervised entities were cited for violations of Regulation Z where entities improperly reduced loan originator compensation to cover settlement cost increases.

Separately, Regulation Z also prohibits loan agreements from containing waivers barring consumers from bringing federal claims related to their mortgage. The Bureau cited a violation where an entity had a provision in its loan security agreement that waived a consumer’s right to initiate or participate in a class action. The entity was required to remove the waiver provision and send a notice to affected consumers rescinding and voiding the waiver, despite the fact that federal claims may be adjudicated in arbitration.

Mortgage Servicing. The CFPB continues its campaign against what it refers to as “junk fees.” In its report, the Bureau cited mortgage servicers engaged in abusive acts or practices by charging large phone payment fees without disclosing their existence or cost. Moreover, earlier this year, the Bureau stated in an advisory opinion that federal consumer financial law prohibits debt collectors from charging “pay-to-pay” or convenience fees under the FDCPA.

The Bureau also found that servicers engaged in unfair acts and practices for violating the CARES Act by charging illegal fees during CARES Act forbearance (when the statute prohibited them) and by failing to timely honor forbearance requests.

Finally, the report discussed deceptive acts or practices by mortgage servicers for misrepresenting the amount in payments necessary for a consumer to accept deferral offers at the end of their forbearance periods, and violations of Regulation X for failing to evaluate consumers for all loss mitigation options and for failing to provide accurate information.

Payday Lending. The report found violations of a lender’s consent order where the entity failed to maintain records of call recordings as required under that order to demonstrate full compliance with conduct provisions that prohibit misrepresentations.

For more information about any of these topics, please contact any of the authors or the Manatt professional with whom you work.

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