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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.
On August 2, the OCC issued Bulletin 2021-33, which outlines supplemental examination procedures on remittance transfers used by OCC examiners and rescinds certain related booklets and bulletins. The examination procedures supplement EFTA procedures issued by the Federal Financial Institutions Examination Council that were adopted by the OCC in 2019 and address several provisions for implementing Regulation E’s requirement to disclose the exact cost of remittance transfers. These include: (i) a safe harbor threshold increase, which “excludes certain banks from the requirements for a bank that provides remittance transfers for consumers in the normal course of the bank’s business,” and (ii) certain allowable exchange rate and third-party fee disclosure exceptions. The bulletin also provides a summary of the CFPB’s Regulation E amendments concerning remittance transfers that took effect July 2020 (covered by InfoBytes here).
On December 21, the CFPB announced a settlement with a large non-bank remittance transfer provider resolving allegations that the company violated the Electronic Fund Transfer Act (EFTA) and the Remittance Transfer Rule by failing to adequately comply with the rules’ requirements. According to the Bureau, the company sent $2.2 billion in remittance transfers from the United States to several countries in Central America, South America, the Caribbean, and Africa. In sending the remittance transfers, the Bureau claims the company failed to (i) honor cancellation requests or provide cancellation rights; (ii) develop and maintain appropriate error resolution policies and procedures; (iii) promptly investigate whether errors have occurred and make error determinations; (iv) provide consumers with written reports of investigation findings; (v) refund certain fees and taxes when funds were not available on time; (vi) treat international bill pay services as remittances covered by the Remittance Rule; and (vii) make proper disclosures in numerous instances. The consent order requires the company to pay a $750,000 civil money penalty, and prohibits the company from offering or providing remittance transfers without complying with EFTA and Remittance Rule requirements. The company is also required to adopt a compliance plan to ensure that its remittance transfer acts and practices are in compliance with all applicable federal consumer financial laws and the consent order.
On June 18, the CFPB updated its Remittance Transfer Small Entity Compliance Guide to reflect the final amendments to the Remittance Transfer Rule (Final Rule) issued by the Bureau in May (covered by InfoBytes here). Among other things, the Final Rule grants a permanent safe harbor from exact remittance cost disclosures to insured institutions that do fewer than 500 remittances annually in the current and prior calendar years. Additionally, the Final Rule adopts a new, permanent exception that permits insured institutions to estimate the exchange rate for a remittance transfer to a particular country if, among other things, the remittance payment is made in the local currency of the designated recipient’s country and the insured institution processing the transaction made 1,000 or fewer remittance payments to that country in the previous calendar year.
As previously covered by InfoBytes, the CFPB issued FAQs covering Covid-19 and the Final Rule, and the Bureau issued a policy statement, which established a temporary exception allowing institutions providing remittance transfers to estimate fees to consumers in light of the Covid-19 pandemic. For the period between July 1 to January 21, 2021, the Bureau will not cite supervisory violations or initiate enforcement actions against certain institutions for disclosing estimated fees and exchange rates.
On June 2, the CFPB released Regulation E Remittance Rule FAQs related to the Covid-19 pandemic. The FAQs state that a provider’s failure to deliver remittance transfer funds to a designated recipient by the disclosed date of availability due to a government-mandated closure of commercial activity in response to Covid-19 would not be considered an error under the rule if the provider could not have reasonably anticipated the closure. The FAQs note that a provider would not be able to reasonably anticipate a closure, for example, if the closure of remittance transfer services was announced in the foreign country after the provider initiated the transfer, but before the guaranteed availability date.
The Bureau previously issued a policy statement (covered by InfoBytes here), which established a temporary exception allowing institutions providing remittance transfers to estimate fees to consumers in light of the Covid-19 pandemic. From July 1 until January 21, 2021, the Bureau will not cite supervisory violations or initiate enforcement actions against certain institutions for disclosing estimated fees and exchange rates.
On May 11, the CFPB issued final amendments to the Remittance Transfer Rule (Final Rule), which implements the Electronic Fund Transfer Act and imposes requirements on insured institutions that handle international money transfers—also known as remittance transfers—on behalf of consumers. The Final Rule follows a notice of proposed rulemaking issued last December (covered by InfoBytes here). Among other things, the Final Rule grants a permanent safe harbor from exact remittance cost disclosures to insured institutions that do fewer than 500 remittances annually in the current and prior calendar years.
The Final Rule also addresses anticipated compliance challenges following the July 21 expiration of an existing exemption that allows certain insured institutions to disclose estimated exchange rates and third-party money transfer fees. Specifically, the Final Rule adopts a new, permanent exception that permits insured institutions to estimate the exchange rate for a remittance transfer to a particular country if, among other things, the remittance payment is made in the local currency of the designated recipient’s country and the insured institution processing the transaction made 1,000 or fewer remittance payments to that country in the previous calendar year. A second permanent exception will allow insured institutions to estimate covered third-party fees for remittance transfers to a recipient’s institution provided, among other things, the insured institution made 500 or fewer remittance transfers to the recipient’s institution in the prior calendar year. While the adopted final amendments will take effect July 21, the Bureau is adopting a transition period for both exceptions that will allow insured institutions that exceed the 1000-transfer or 500-transfer thresholds to “provide estimates for a reasonable period of time while they come into compliance with the requirement to provide exact amounts.”
The Bureau also reminded institutions of its April 10 policy statement (covered by InfoBytes here), which established a temporary exception allowing institutions providing remittance transfers to estimate these fees to consumers in light of the Covid-19 pandemic. From July 1 until January 21, 2021, the Bureau will not cite supervisory violations or initiate enforcement actions against certain institutions for disclosing estimated fees and exchange rates.
On April 10, the CFPB announced the release of a policy statement “Supervisory and Enforcement Practices Regarding the Remittance Rule in Light of the COVID-19 Pandemic” addressing the implementation of the Electronic Fund Transfer Act (EFTA), and the Regulation E Remittance Rule (Rule). EFTA’s consumer protections, implemented by the Rule, require financial companies handling international money transfers, or remittance transfers, to disclose the exact exchange rate, fees, and amount delivered to the consumer making the transfer. However, it also provides a temporary exception, which allows institutions that provide remittance transfers to estimate these fees to consumers. (Covered by InfoBytes here.) The temporary exception is set to expire on July 1, and section 919 of the EFTA does not authorize the Bureau to extend it past that date. Accordingly, “[i]n order to minimize the impact of the pandemic on the remittances market…the Bureau will neither cite supervisory violations nor initiate enforcement actions against certain remittance transfer providers” for disclosing estimated fees and exchange rates from July 1 until January 21, 2021.
On December 3, the CFPB issued a Notice of Proposed Rulemaking (NPRM) relating to the Remittance Transfer Rule (Rule), which implements the Electronic Fund Transfer Act’s (EFTA) protections for consumers sending international money transfers, or remittance transfers. The NPRM makes three proposals. First, the Bureau proposes to increase the Rule’s safe harbor threshold, mitigating compliance costs for financial institutions. The EFTA and the Rule consider a “remittance transfer provider” to include “any person that provides remittance transfers for a customer in the normal course of business.” However, the Rule currently includes a “safe harbor” provision that excludes persons that process 100 or fewer remittance transfers annually. The NPRM proposes increasing this threshold from 100 to 500 international remittance transfers per year. According to the Bureau’s announcement, the change would “reduce the burden on over 400 banks and almost 250 credit unions that send a relatively small number of remittances—less than .06 percent of all remittances.”
Second, the NPRM proposes adopting two permanent exceptions. The first is a permanent statutory exception that would allow certain insured institutions to estimate exchange rates and money transfer fees they are required to disclose, rather than provide consumers with exact costs when they send money abroad. Such an exemption would only apply in instances where a remittance payment is made in the local currency of the designated recipient’s country and the insured institution processing the transaction made 1,000 or fewer remittance payments to that country in the previous calendar year. An identical exemption provision is currently set to expire July 21, 2020. (Previous InfoBytes coverage here.) The NPRM proposes adopting a second permanent exception to allow insured institutions to estimate covered third-party fees for remittance transfers to a recipient’s institution provided, among other things, the insured institution made 500 or fewer remittance transfers to the recipient’s institution the prior calendar year.
Third, the NPRM requests comments on a list of safe harbor countries for which providers may use estimates for remittance transfers.
Comments must be received 45 days after publication in the Federal Register. In conjunction with the NPRM, the Bureau also released a summary of the NPRM, a table of contents, and an unofficial redline of the proposed amendments to the Rule.
On November 20, the Office of Information and Regulatory Affairs released the CFPB’s fall 2019 rulemaking agenda. According to a Bureau announcement, the information released represents regulatory matters it “reasonably anticipates having under consideration during the period from October 1, 2019, to September 30, 2020.”
Key rulemaking initiatives include:
- Property Assessed Clean Energy (PACE) Financing: As previously covered by InfoBytes, the Bureau published an Advanced Notice of Proposed Rulemaking (ANPR) in March 2019 seeking feedback on the unique features of PACE financing and the general implications of regulating PACE financing under TILA. The Bureau notes it is currently reviewing comments as it considers next steps.
- Small Business Rulemaking: On November 6, the Bureau held a symposium on small business lending to gather information for upcoming rulemaking (previously covered by InfoBytes here). The Bureau emphasized it will focus on rulemaking that would not impede small business access to credit by imposing unnecessary costs on financial institutions. According to the Bureau, materials will be released prior to convening a panel under the Small Business Regulatory Enforcement Fairness Act to consult with businesses that may be affected by future rulemaking.
- HMDA/Regulation C: The Bureau plans to finalize the permanent thresholds for reporting data on open-end lines of credit and closed-end mortgage loans in March 2020, and expects to issue a Notice of Proposed Rulemaking (NPRM) to govern the collection of HMDA data points and the disclosure of this data in July 2020. Both initiatives follow an NPRM and an ANPR issued by the Bureau in May (previously covered by InfoBytes here).
- Payday, Vehicle Title, and Certain High-Cost Installment Loans: As previously covered by InfoBytes, the Bureau published two NPRMs related to certain payday lending requirements under the final rule titled “Payday, Vehicle Title, and Certain High-Cost Installment Loans.” Specifically, the Bureau proposed to rescind the portion of the rule that would make it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay, and to delay the rule’s compliance date for mandatory underwriting provisions. The Bureau notes it is currently reviewing comments and expects to issue a final rule in April 2020.
- Debt Collection: Following an NPRM issued in May concerning debt collection communications, disclosures, and related practices (previously covered by InfoBytes here), the Bureau states it is currently “engaged in testing of consumer disclosures related to time-barred debt disclosure issues that were not addressed in the May 2019 proposal.” Once testing has concluded, the Bureau will assess the need for publishing a supplemental NPRM related to time-barred debt disclosures.
- Remittance Transfers: The Bureau expects in December to issue a proposed rule to address the July 2020 expiration of the Remittance Rule’s temporary exception for certain insured depository institutions from the rule’s disclosure requirements related to the estimation of fees and exchange rates. (Previously covered by InfoBytes here.)
- GSE Patch: The Bureau plans to address in December the so-called GSE patch, which confers Qualified Mortgage status for loans purchased or guaranteed by Fannie Mae and Freddie Mac while those entities operate under FHFA conservatorship. The patch is set to expire in January 2021, or when Fannie and Freddie exit their conservatorships, whichever comes first. (See Buckley Special Alert here.)
The Bureau further notes in its announcement the addition of entries to its long-term regulatory agenda “to address issues of concern in connection with loan originator compensation and to facilitate the use of electronic channels of communication in the origination and servicing of credit card accounts.”
As previously covered in InfoBytes, the CFPB recently released its summer 2017 Supervisory Highlights (Highlights) outlining its supervisory progress this year. Included among the issues highlighted by the Bureau is its recent activity in the remittance transfer rule (RTR) space under Regulation E. The Highlights indicate that the CFPB intends to continue its focus on RTR compliance at both large and small institutions. Of particular note, the Bureau—for the first time—has provided informal guidance on international mobile top-up products for telephone airtime. Prior to the Highlights, it was unclear to what extent these products were subject to the RTR. The Highlights confirm that the CFPB will take the position that these products fall within the scope of the rule and has taken supervisory action against at least one institution for that institution’s failure to treat international mobile top-ups in excess of $15 as remittance transfers subject to the RTR.
This edition of the Highlights helps to clear up prior confusion around the industry regarding international mobile top-ups and bill pay products, as discussed in a recent article.
- Jeffrey P. Naimon to discuss “Section 1071: Small business data collection & fair lending” at the American Bar Association Consumer Financial Services Winter Meeting 2022
- Jonice Gray Tucker to discuss “Getting your company ready: Managing fair lending for IMBs” at the Mortgage Bankers Association Independent Mortgage Bankers Conference
- Jonice Gray Tucker to discuss “Be Your Compliance Best in 2022” at the California Mortgage Bankers Association webinar
- Lauren R. Randell to discuss “Significant legal developments in the Northeast” at the 37th Annual National Institute on White Collar Crime
- Jonice Gray Tucker to discuss “Small business & regulation: How fair lending has evolved & where it is heading?” at the Consumer Bankers Association Live program