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CFPB exposes private loan servicers’ unfair practices
On May 5, the CFPB discussed examination findings related to private student loan servicers’ alleged failure to follow through with promised loan offers or modifications. The Bureau directed servicers found to have breached their commitments to make “significant remediation amounts” for failing to make promised payments to customers. The Bureau found some servicers offered financial incentives to recruit new customers, but then failed to make the promised payments. In certain instances, servicers’ systems failed to identify customers who earned incentives, and in others, payments were denied based on terms that were not included in the original deal, the Bureau claimed. The Bureau also found that while many servicers offered payment relief options to pause or reduce payments to customers impacted by the Covid-19 pandemic, at least one servicer failed to deliver promised refunds to customers who modified their agreements to allow them to backdate forbearance after making a payment. The Bureau documented two examples of servicers committing unfair acts or practices in this space in its recent spring Supervisory Highlights (covered by InfoBytes here) and warned servicers that it is “closely monitoring” companies that break the law.
Education Dept. rolls out new plan for IDRs
On April 19, the Department of Education announced additional changes to the federal student loan program designed to reduce or eliminate federal student loan debt for many borrowers. In particular:
- To address long-term forbearance steering, Federal Student Aid (FSA) will conduct “a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness” under the income-driven repayment (IDR) and Public Service Loan Forgiveness (PSLF) programs.
- Borrowers “steered” into shorter-term forbearances may file a complaint with the FSA Ombudsman to seek an account review.
- FSA will also partner with the CFPB to conduct regular audits of servicers’ forbearance use, and will seek to improve oversight of loan servicing activities.
- Loan servicers’ ability to enroll borrowers in forbearance by text or email will be restricted.
- FSA will conduct a one-time revision of IDR-qualifying payments for all Direct Student Loans and federally-managed Federal Family Education Loan Program (FFEL) loans, and will count any month in which a borrower made a payment toward IDR, regardless of the payment plan. Borrowers who meet the required number of payments for IDR forgiveness based on the one-time revision will receive automatic loan cancellation. Moreover, months spent in deferment prior to 2013 will count towards IRD forgiveness (with the exception of in-school deferment) to address certain data reliability issues.
In addition, FSA plans to reform its IDR tracking process. New guidance will be issued to student loan servicers to ensure accurate and uniform payment counting practices. FSA will also track payment counts on its own systems and will display IDR payment counts on StudentAid.gov beginning in 2023 so borrowers can monitor their progress. The Department also plans to issue rulemaking that will revise the terms of IDR and “further simplify payment counting by allowing more loan statuses to count toward IDR forgiveness, including certain types of deferments and forbearances.”
CFPB reports cover mortgage challenges, emergency savings
On March 23, the CFPB released two reports, New Data on the Characteristics of Mortgage Borrowers During the COVID-19 Pandemic and Emergency Savings and Financial Security: Insights from the Making Ends Meet Survey and Consumer Credit Panel. As previously covered by InfoBytes, the CFPB first released Characteristics of Mortgage Borrowers During the COVID-19 Pandemic in May 2021, which analyzed mortgage borrowers’ challenges due to the ongoing Covid-19 pandemic. The recently released report explores the characteristics of borrowers who are delinquent or in forbearance based a sample of more than 2 million loans for owner-occupied properties. The report shows, among other things, that Black and Hispanic borrowers are more at risk of poor outcomes than others, as they comprised 31.2 percent of borrowers in forbearance while only constituting 18.2 percent of the overall sample of mortgage borrowers. The report also found that single borrower loans were approximately 1.6 times more likely to be in forbearance through January 2022, compared to loans with a co-borrower, which is an increase relative to March 2021, where single borrowers were only 1.4 times more likely to be in forbearance compared to co-borrowers.
The Emergency Savings and Financial Security Insights from the Making Ends Meet Survey and Consumer Credit Panel report examines how consumers’ financial profiles vary by levels of emergency savings. Using the Making Ends Meet survey and pairing it with credit bureau data from our Consumer Credit Panel, the report found that, among other things: (i) approximately 24 percent of consumers do not have savings set aside for emergencies, “while 39 percent have less than a month of income saved for emergencies and 37 percent have at least a month of income saved for emergencies,” and (ii) “41 percent of consumers with no more than a high school or vocational degree have no emergency savings, [while] the share is 6 percent for those with a college degree.”
FTC settles with remaining student debt relief defendants
On January 26, the FTC announced settlements with the remaining participants in a student loan debt relief operation. As previously covered by InfoBytes, the FTC filed a complaint against the defendants for allegedly using telemarketing calls, as well as media advertisements, to enroll consumers in student debt relief services in violation of the FTC Act and the Telemarketing Sales Rule (TSR). The defendants allegedly misrepresented that they were affiliated with the U.S. Department of Education and misrepresented “material aspects of their debt relief services,” including by promising to enroll consumers in repayment programs to reduce or eliminate payments and balances. Additionally, the defendants allegedly charged illegal upfront fees, and often placed the consumers’ loans into temporary forbearance or deferments with their student loan servicers, without the consumer’s authorization. A $43 million settlement was reached in 2020 with certain of the defendants that was partially suspended conditioned upon the surrender of at least $835,000, as well as additional assets.
The FTC entered two settlements against the remaining defendants. The first settlement imposes a roughly $7.5 million monetary judgment, which is partially suspended after the individual defendant pays $743,386. The second settlement includes a $22 million monetary judgment, which is also partially suspended based on the defendants’ inability to pay. The settlement also requires the defendants to forfeit all frozen funds held by the receiver. Monies recovered in the action will go towards consumer refunds. Additionally, the defendants are banned from providing any debt relief products and services in the future, and are prohibited from making misrepresentations in connection with the sale of any products or services or from making any unsubstantiated claims. Defendants are also enjoined from violating the TSR.
States reach $1.85 billion settlement with student loan servicer
On January 13, a coalition of attorneys general from 38 states and the District of Columbia reached a $1.85 billion settlement with one of the nation’s largest student loan servicers, resolving allegations that it engaged in misconduct when servicing student loans. The settlement, subject to court approval, brings to an end multistate litigation and investigations into the allegations that the servicer steered borrowers into costly forbearances and expensive repayment plans rather than helping borrowers find affordable income-driven repayment (IDR) plans. The servicer denies violating any consumer financial laws or causing borrower harm, as stated in a separate press release, but has agreed to maintain servicing practices to support borrower success.
Under the terms of the settlement, the servicer has agreed to cancel more than $1.7 billion in private student loan balances owed by roughly 66,000 borrowers. An additional $95 million in restitution payments of about $260 each will also be sent to approximately 357,000 federal student loan borrowers, and the servicer will also pay approximately $142.5 million to the signatory AGs. The settlement also requires the servicer to make several reforms, including explaining the benefits of IDR plans and offering estimated income-driven payment options to borrowers prior to placing them into deferment or discretionary forbearance. The servicer is also required to notify borrowers about the Department of Education’s Public Service Loan Forgiveness limited waiver opportunity (covered by InfoBytes here), implement changes to its payment-processing procedures to limit certain fees for late payments or entering forbearance status, and improve communications informing borrowers of their rights and obligations.
VA extends suspension of certain property inspection requirements for Covid-19 forbearance cases
On December 21, the Department of Veterans Affairs (VA) issued Circular 26-21-27 to extend the suspension of certain inspection requirements for properties purchased with loans guaranteed by the VA where the borrower has been negatively impacted by Covid-19. In 2020, the VA temporarily suspended its requirement to conduct a property inspection before the 60th day of delinquency for borrowers whose loans are currently in forbearance and were current or had not reached the 60th day of delinquency when the borrower requested CARES Act forbearance. Circular 26-21-27 sunsets on October 1, 2022.
CFPB examines pandemic’s effects on consumer finances
On December 21, the CFPB released a data point report discussing the results of a Making Ends Meet survey, which examined consumers’ financial health during the Covid-19 pandemic. Using the results from the survey as well associated credit bureau data, the Bureau found that while consumers “were much more likely to face income drops during the pandemic,” their “financial well-being scores improved on average through the end of the survey period (February 2021).” The Bureau reported that this may be attributed to pandemic-assistance policies, including unemployment insurance and pandemic-specific loan and rent flexibilities, many of which have ended or will end soon. Among the report’s observations, the Bureau noted a pattern between credit card debt and credit card utilization rates, where “credit card debt increased and decreased as cash assistance policies started and stopped.” Additionally, with the exception of federal student loan borrowers who received an automatic zero-payment-due plan, the Bureau found that roughly “80 percent of consumers who received rent, mortgage, credit card, or other forbearance suffered a significant income drop.” Recognizing that these policies helped protect consumers impacted by pandemic, the Bureau cautioned that “their expiration may lead to increased consumer distress unless the economic recovery is strong and equitable enough to make up for the loss of protections.”
CFPB, DOJ remind on servicemember protections
On December 20, the CFPB and the DOJ issued two joint letters reminding mortgage servicers and landlords to ensure that military homeowners and tenants are safeguarded during the Covid-19 pandemic and benefit equally as the U.S. economically recovers. One letter was sent to landlords and other housing providers on protections for military tenants, reminding property owners of the critical housing protections for military tenants, some of whom may have had to make alterations to their housing arrangements in response to the pandemic. The other letter was sent to mortgage servicers regarding military borrowers who have exited or will be exiting Covid-19 mortgage forbearance programs. The letter comes in response to complaints from military families and veterans on possible mortgage servicing violations, which include, among other things, inaccurate credit reporting and misleading communications to borrowers. According to the second letter, the CFPB and the DOJ warned, “[s]uch actions, if true, may be in violation of the legal protections under the CARES Act or contrary to administrative guidance issued by federal housing agencies,” and that the Bureau “is currently reviewing these complaints to determine if further investigation is warranted.” The announcement also reminded landlord and servicers that “[s]ervicemembers have several legal protections under the SCRA that are designed to enable them to devote their entire energy to the national defense,” which include, among other things, “a prohibition on foreclosing on certain servicemembers’ mortgages without court orders, the ability for military families to terminate residential leases early, and without penalty, upon receipt of military orders, and a prohibition on evicting military families from their homes without court orders. In addition, under the CARES Act and Regulation X, servicemembers and veterans have the same protections available to all mortgage borrowers.” The announcement also noted that approximately 7.6 million homeowners entered forbearance during the Covid-19 pandemic and 1.25 million borrowers, many of whom are military borrowers, are still currently in forbearance programs that will expire at the end of the year.
New York AG warns mortgage servicers of obligation to help homeowners affected by Covid-19
On December 13, New York Attorney General Letitia James sent a letter warning mortgage servicers operating in the state of their obligation to help homeowners impacted by the Covid-19 pandemic. The letter, which was also sent to mortgage industry trade associations, reiterated that mortgage servicers are expected to comply with New York law and federal regulations and guidelines when providing long-term relief to affected homeowners. James also announced “that the Office of the Attorney General’s (OAG) Mortgage Enforcement Unit (MEU) will be helping to oversee the distribution of New York state’s Homeowner Assistance Fund (HAF) announced last week by New York Governor Kathy Hochul.” According to the letter, HAF funds “may be used to pay off arrears or reduce mortgage principal so that homeowners can qualify for an affordable loan modification.” However, James stressed that these funds “must supplement rather than replace the mortgage industry’s own efforts,” adding that mortgage servicers must “play their part by offering homeowners all available loss mitigation options before that homeowner seeks an outside HAF grant, in order to help the program save as many homes as possible.” MEU will contact the mortgage industry, including New York legal services and housing counseling agencies, to provide additional information on the HAF application process. MEU will also be responsible for reviewing HAF applications to determine whether homeowners have been presented all available and affordable loan modification options.
James’ announcement stated that mortgages servicers are also expected to comply with streamlined modification programs offered by various federal agencies, Fannie Mae, and Freddie Mac, and must also “provide comparable relief (pursuant to New York state Banking Law § 9-x and New York’s mortgage servicing regulations) to homeowners whose mortgages are owned by private investors through private label securities or by banks in their own portfolios.” Mortgage servicers should also prepare for surges in requests for assistance, and will be held responsible for staffing shortages and poor customer communications, James warned. She noted in her letter that the OAG is “currently investigating whether certain servicers of privately-owned mortgages have failed to offer homeowners the forbearance relief and post-forbearance modifications required by New York Banking Law § 9-x,” and emphasized that the OAG “will continue to monitor compliance and initiate enforcement actions against individual mortgage servicers as needed to protect New York homeowners.”
CFPB supervisory highlights cover wide range of violations
On December 8, the CFPB released its fall 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts, and remittance transfers. The report’s findings cover examinations that were completed between January and June of 2021 in addition to prior supervisory findings that led to public enforcement actions in the first half of 2021. Highlights of the examination findings include:
- Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse late fees after determining a missed payment was not credited to a consumer’s account; and (iii) conduct reasonable investigations into billing error notices concerning missed payments and unauthorized transactions. Examiners also identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA violations where debt collectors represented to consumers that their creditworthiness would improve upon final payment under a repayment plan and the deletion of the tradeline. Because credit worthiness is impacted by numerous factors, examiners found “that such representations could lead the least sophisticated consumer to conclude that deleting derogatory information would result in improved creditworthiness, thereby creating the risk of a false representation or deceptive means to collect or attempt to collect a debt in violation of Section 807(10).”
- Deposits. The Bureau discussed violations related to Regulation E, including error resolution violations related to misdirected payment transfers and failure to investigate error notices where consumers alleged funds were sent via a person-to-person payment network but the intended recipient did not receive the funds.
- Fair Lending. The report noted instances where examiners cited violations of ECOA and Regulation B by lenders "discriminating against African American and female borrowers in the granting of pricing exceptions based upon competitive offers from other institutions,” which led to observed pricing disparities, specifically as compared to similarly situated non-Hispanic white and male borrowers. Among other things, examiners also observed that lenders’ policies and procedures contributed to pricing discrimination, and that lenders improperly inquired about small business applicants’ religion and considered religion in the credit decision process.
- Mortgage Servicing. The Bureau noted that it is prioritizing mortgage servicing supervision attributed to the increase in borrowers needing loss mitigation assistance due to the Covid-19 pandemic. Examiners found violations of Regulations Z and X, as well as unfair and deceptive acts and practices. Unfair acts or practices included those related to (i) charging delinquency-related fees to borrowers in CARES Act forbearances; (ii) failing to terminate preauthorized EFTs; and (iii) assessing fees for services exceeding the actual cost of the performed services. Deceptive acts or practices found by examiners related to mortgage servicers included incorrectly disclosed transaction and payment information in a borrower’s online mortgage loan account. Mortgage servicers also allegedly failed to evaluate complete loss mitigation applications within 30 days, incorrectly handled partial payments, and failed to automatically terminate PMI in a timely manner. The Bureau noted in its press release that it is “actively working to support an inclusive and equitable economic recovery, which means ensuring all mortgage servicers meet their homeowner protection obligations under applicable consumer protection laws,” and will continue to work with the Federal Reserve Board, FDIC, NCUA, OCC, and state financial regulators to address any compliance failures (covered by InfoBytes here).
- Payday Lending. The report identified unfair and deceptive acts or practices related to payday lenders erroneously debiting consumers’ loan balances after a consumer applied and received confirmation for a loan extension, misrepresenting that consumers would only pay extension fees on the original due dates of their loans, and failing to honor loan extensions. Examiners also found instances where lenders debited or attempted one or more duplicate unauthorized debits from a consumer’s bank account. Lenders also violated Regulation E by failing “to retain, for a period of not less than two years, evidence of compliance with the requirements imposed by EFTA.”
- Prepaid Accounts. Bureau examiners found violations of Regulation E and EFTA related to stop-payment waivers at financial institutions, which, among other things, failed to honor stop-payment requests received at least three business days before the scheduled date of the transfer. Examiners also observed instances where service providers improperly required consumers to contact the merchant before processing a stop-payment request or failed to process stop-payment requests due to system limitations even if a consumer had contacted the merchant. The report cited additional findings where financial institutions failed to properly conduct error investigations.
- Remittance Transfers. Bureau examiners identified violations of Regulation E related to the Remittance Rule, in which providers “received notices of errors alleging that remitted funds had not been made available to the designated recipient by the disclosed date of availability” and then failed to “investigate whether a deduction imposed by a foreign recipient bank constituted a fee that the institutions were required to refund to the sender, and subsequently did not refund that fee to the sender.”
The report also highlights recent supervisory program developments and enforcement actions.