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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.
Agencies instruct servicers to pause foreclosures while HAF assistance is available
On May 6, the Secretaries of HUD, Department of Veterans Affairs, Department of Agriculture, and Treasury announced that servicers of federally-backed mortgages should pause pending foreclosure proceedings while assistance is available under the Homeowner Assistance Fund (HAF). President Biden’s American Rescue Plan established HAF to provide approximately $10 billion in financial support for families affected by the Covid-19 pandemic. According to the announcement, pausing pending proceedings is considered “a vital step towards keeping families in their homes as they receive assistance through the HAF program and is consistent with Congress’s intent in putting in place the HAF program to protect vulnerable homeowners.” The Secretaries encourage homeowners and servicers to continue collaborating on loss mitigation options so that homeowners eligible for assistance can choose “the best path to staying in their homes and fully utilize available resources.” They also “strongly encourage servicers to offer these loss mitigation options to borrowers who are struggling to make their mortgage payments, including those who are eligible for HAF funding.” The announcement further noted that, among other things, Treasury is urging HAF program administrators to ensure that their programs expedite handling of applications from homeowners with pending foreclosure proceedings, and to develop expedited procedures for handling homeowners with immediate threats to housing stability, in addition to supporting homeowners who may benefit from the agencies’ loss mitigation options.
CFPB fines bank $10 million over garnishment practices
On May 4, the CFPB announced a consent order against a national bank for allegedly engaging in unfair and deceptive acts or practices in violation of the CFPA by processing out-of-state garnishment orders against its customers’ bank accounts. According to the consent order, since August 2011, the respondent allegedly garnished approximately 3,700 out-of-state accounts. Customers whose accounts were garnished paid at least $592,000 in garnishment fees, the CFPB contended. The respondent allegedly, among other things, misrepresented to customers that their rights to have certain funds exempted from garnishment were governed by the law of the issuing court’s state when, actually, in most states, customers’ own state laws applied. The respondent also allegedly unfairly required customers to “direct” it not to contest garnishment orders and to waive the bank’s liability for its actions regarding the out-of-state garnishment orders, which prevented customers from pursuing legal claims against the respondent for improperly handling garnishment notices. Additionally, the respondent allegedly deceptively represented to customers that since they signed a deposit agreement that included broad language directing respondent not to contest the legal process, customers waived their right to hold the respondent liable for improperly responding to garnishment notices. Under the terms of the consent order, the respondent must, among other things: (i) refund $592,000 in garnishment-related fees to harmed customers; (ii) establish a compliance plan designed to ensure that its garnishment-related conduct pertaining to out-of-state garnishment notices and state exemptions complies with all applicable federal consumer financial laws; (iii) cease communicating to customers that they have purportedly waived any rights regarding garnishment notices as a result of entering into respondent’s deposit agreement; and (iv) pay a $10 million civil penalty to the Bureau.
Agencies overhaul CRA requirements
On May 5, the Federal Reserve Board, FDIC, and OCC (collectively, “agencies”) issued a joint notice of proposed rulemaking (NPRM) on new regulations implementing the Community Reinvestment Act (CRA) to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. According to the NPRM, the “CRA encourages banks to help meet the credit needs of the local communities in which they are chartered, consistent with a bank’s safe and sound operations, by requiring the Federal banking regulatory agencies to examine banks’ records of meeting the credit needs of their entire community, including low- and moderate-income neighborhoods.” The agencies are, among other things, proposing to:
- Expand access to credit, investment, and banking services in low- and moderate-income (LMI) communities to promote community engagement and financial inclusion. The proposal would also evaluate bank lending to small businesses and farms with gross annual revenues of $250,000 or less to maintain focus on the borrowers with the greatest need;
- Adapt changes to update CRA assessment areas to include activities associated with online and mobile banking, branchless banking, and hybrid models;
- Use a retail lending volume screen and metric-based performance ranges to evaluate a bank’s retail lending volumes. CRA evaluations of retail lending and community development financing will include public benchmarks for greater clarity and consistency. The proposal would also clarify eligible CRA activities, such as affordable housing, that are focused on LMI, underserved, and rural communities;
- Tailor CRA evaluations and data collection to recognize differences in bank size and business models. Smaller banks would continue to be evaluated under the existing CRA framework with the option of being evaluated under aspects of the proposed framework; and
- Maintain a unified approach across agencies and incorporate stakeholder feedback.
The agencies also released a Fact Sheet describing key elements of the proposal. Acting Comptroller of the Currency, Michael J. Hsu, called the issuance of the joint NPRM an “important milestone” in bringing the three federal banking agencies back together to develop a uniform approach for addressing inequalities in credit access and other financial services. Fed Governor Lael Brainard pointed out that “[t]he last major revisions to the CRA regulations were made in 1995.” “The CRA is one of our most important tools to improve financial inclusion in communities across America, so it is critical to get reform right,” she stressed. CFPB Director Rohit Chopra, who voted in favor of the NPRM as an FDIC board member, said the proposal “better effectuates Congressional directives intended to ensure that the needs of historically underserved individuals and communities are adequately met,” but reminded policymakers that it is also important “to consider whether nonbank mortgage lenders should also be required to better meet the needs of the communities they serve.” Treasury Secretary Janet Yellen similarly applauded the release of the NPRM. Comments on the NPRM are due August 5.
A Buckley Special Alert is forthcoming.
Washington Court of Appeals affirms dismissal of suit accusing bank of collecting debt under a different name
On May 3, the Washington Court of Appeals, Division Three, affirmed the dismissal of an action accusing a defendant bank of violating the FDCPA by attempting to collect a debt in a name that differed from its own. The plaintiff obtained a credit card from the bank in 2006. Following a merger between the bank holding company (a separate legal entity at the time) and a card services company, the defendant bank merged with and under the charter of the card services company and notified credit card customers that the new issuer and administrator of their accounts would be the card services company. In 2014, the card services company merged into and under the charter of the national bank of the same name, who subsequently became issuer and administrator of the credit card portfolio and the named creditor of the plaintiff’s account. By 2012, the plaintiff had stopped making payments on his credit card and was sued by the card services company. While this action was pending, the 2014 merger occurred but the collection action was not updated to reflect this development. Eventually, the collection action was dismissed without prejudice, and the plaintiff sued the defendant in Washington state court, claiming the defendant violated the FDCPA because it continued its collection suit under the name of the card services company after the merger had taken place. The state court dismissed the case, and the plaintiff appealed. At issue was whether the national bank “falls under the FDCPA despite its status as a creditor because it used a name other than its own ‘which would indicate that a third person is collecting or attempting to collect’ the debt owed by” the plaintiff.
The Court of Appeals disagreed and held that even a least sophisticated consumer would not be confused and think that the debt had been transferred to a third-party collection agency. “Instead, a least sophisticated consumer (and even average-level consumer) might be led to believe that nothing had changed and [the card services company] was still collecting its credit card debt in its own right,” the Court of Appeals wrote. “There is no reason to think a least sophisticated consumer would be led to believe that [the bank] had acquired [the card services company’s] debt and then contracted with [it] to collect the debt.”
Remittance provider denies CFPB allegations
On May 2, a global payments provider recently sued by the New York attorney general and the CFPB responded to allegations claiming the “repeat offender” violated numerous federal and state consumer financial protection laws in its handling of remittance transfers. As previously covered by InfoBytes, the complaint claimed the defendant, among other things, (i) violated the Remittance Rule requirements by repeatedly failing “to provide fund availability dates that were accurate, when the Rule required such accuracy”; (ii) “repeatedly ignored the Rule’s error-resolution requirements when addressing notices of error from consumers in New York, including in this district, and elsewhere;” and (iii) failed to establish policies and procedures designed to ensure compliance with money-transferring laws, in violation of Regulation E. The complaint further asserted that the defendant violated the CFPA “by failing to make remittance transfers timely available to designated recipients or to make refunds timely available to senders,” and that the defendant failed to adopt and implement a comprehensive fraud prevention program mandated by a 2009 FTC order for permanent injunction (covered by InfoBytes here).
The defendant refuted the charges, calling the allegations “false, inflammatory and misleading.” According to the defendant, “before the CFPB filed its lawsuit against the Company on April 21, 2022, [it] had never before been subject to any enforcement action by the CFPB, nor had [it] ever been publicly accused of violating any of the laws or regulations under the CFPB’s purview.” The defendant also took issue with the Bureau’s suggestion that it had “uncovered widespread and systemic issues involving ‘substantial’ consumer harm,” contending that “data from the CFPB’s own consumer complaint portal strongly suggest otherwise. For example, a search of the CFPB’s Consumer Complaint Database shows that in the nine years that the Remittance Rule has been in place, only 351 complaints were made to the CFPB against [the defendant] for failing to deliver money when promised. These complaints represent 0.0001% of the over 325 million transactions subject to the Remittance Rule that [the defendant] processed during that time period. In New York, the total number of complaints in the CFPB Database for that time period was 28, approximately three per year. There have simply never been widespread or systemic violations by [the defendant] of the Remittance Rule.”
FHFA: SCIF mandatory for loans sold to GSEs
On May 3, FHFA announced that Fannie Mae and Freddie Mac (GSEs) are requiring lenders to use the Supplemental Consumer Information Form (SCIF) as part of the application process for loans that will be sold to the GSEs. According to the announcement, the SCIF is intended to collect information on the borrower’s language preference, and on any homebuyer education or housing counseling that the borrower received, so that lenders can increase their understanding of borrowers’ needs throughout the home buying process. The changes will require lenders to present the SCIF questions to borrowers and to report any data collected from the SCIF to the GSEs purchasing the loan. Lenders will be required to adopt these changes and reporting requirements for loans with application dates on or after March 1, 2023. The announcement also noted that response by borrowers on the preferred language question in the SCIF will be voluntary. The SCIF will be available via Mortgage Translations later this summer.
CFPB examines servicers’ handling of auto lending add-on products
On May 2, the CFPB published a blog post examining how servicers handle overcharging for add-on products on auto loans. The post describes, among other things, that auto dealers and financial companies “often charge consumers all payments for any add-on products as a lump sum at origination of the auto loan, and they generally include the lump sum cost as part of the total vehicle financing agreement.” Bureau examiners have focused on how servicers manage these add-on product charges when the loan ends prior to when the add-on product’s potential benefits end. As previously covered by InfoBytes, the Bureau published a Supervisory Report, finding that servicers engaged in unfair practices by failing to request refunds from the third-party administrators for “unearned” fees associated with the add-on product guaranteed asset protection, among other things. As a response to these findings, the servicers remediated impacted consumers and implemented more controls, which are intended to ensure that add-on product refunds are processed after repossession, according to the post. The Bureau also cited servicers for engaging in unfair acts or practices for miscalculating ancillary auto product refunds after repossession and attempting to collect miscalculated deficiency balances (covered by InfoBytes here). The miscalculated refunds have decreased the refunds available to certain borrowers and led to deficiency balances that were higher by hundreds of dollars. The servicers attempted to collect the deficiency balances. In response to these findings, the servicers conducted reviews to identify and remediate affected borrowers. According to the post, the Bureau “will continue to scrutinize servicer practices to make sure that borrowers aren’t overcharged when their loans end early.”
CFPB issues spring supervisory highlights
On May 2, the CFPB released its spring 2022 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, prepaid accounts, remittances, and student loan servicing. The report’s findings cover examinations completed between July and December 2021. Highlights of the examination findings include:
- Auto Servicing. Bureau examiners identified instances of servicers engaging in unfair, deceptive, or abusive acts or practices connected to wrongful repossessions, misleading final loan payment amounts, and overcharges for add-on products.
- Consumer Reporting. The Bureau found deficiencies in credit reporting companies’ (CRCs) compliance with FCRA dispute investigation requirements and furnishers’ compliance with FCRA and Regulation V accuracy and dispute investigation requirements. Examples include (i) both CRCs and furnishers failed to provide written notice to consumers providing the results of reinvestigations and direct dispute investigations; (ii) furnishers failed to send updated information to CRCs following a determination that the information reported was not complete or accurate; and (iii) furnishers’ policies and procedures contained deficiencies related to the accuracy and integrity of furnished information.
- 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 consumers after determining a billing error had occurred; (iii) conduct reasonable investigations into billing error notices due to human errors and system weaknesses; and (iv) provide consumers with the evidence relied upon to determine a billing error had not occurred. Examiners also identified Regulation Z violations connected to creditors’ acquisitions of pre-existing credit card accounts from other creditors, and identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA and CFPA violations where debt collectors used false or misleading representations in connection with identity theft debt collection. Report findings also discussed instances where debt collectors engaged in unfair practices by failing to timely refund overpayments or credit balances.
- Deposits. The Bureau discussed violations related to Regulation E, which implements the EFTA, including occurrences where institutions (i) placed duplicate holds on certain mobile check deposits that were deemed suspicious instead of a single hold as intended; (ii) failed to honor a timely stop payment request; (iii) failed to complete error investigations following a consumer’s notice of error because the consumer did not submit an affidavit; and (iv) failed to provide consumers with notices of revocation of provisional credit connected with error investigations regarding check deposits at ATMs.
- Mortgage Origination. Bureau examiners identified Regulation Z violations concerning occurrences where loan originators were compensated differently based on the terms of the transaction. Under the Bureau’s 2013 Loan Originator Final Rule, “it is not permissible to differentiate compensation based on credit product type, since products are simply a bundle of particular terms.” Examiners also found that certain lenders failed to retain sufficient documentation to establish the validity for revisions made to credit terms.
- Prepaid Accounts. The Bureau found violations of Regulation E and EFTA related to institutions’ failure to submit prepaid account agreements to the Bureau within the required time frame. Examiners also identified instances where institutions failed to honor oral stop payment requests related to payments originating through certain bill pay systems. The report cited additional findings where institutions failed to properly conduct error investigations.
- Remittances. Bureau examiners identified violations of the EFTA, Regulation E, and deceptive acts and practices. Remittance transfer providers allegedly made false and misleading representations concerning the speed of transfers, and in multiple instances, entered into service agreements with consumers that violated the “prohibition on waivers of rights conferred or causes of action created by EFTA.” Examiners also identified several issues related to the Remittance Rule’s disclosure, timing, and recordkeeping requirements.
- Student Loan Servicing. Bureau examiners identified several unfair acts or practices connected to private student loan servicing, including that servicers failed to make advertised incentive payments (which caused consumers to not receive payments to which they were entitled), and failed to issue timely refund payments in accordance with loan modification payment schedules.
The report also highlights recent supervisory program developments and enforcement actions, including the Bureau’s recent decision to invoke a dormant authority to examine nonbanks (covered by InfoBytes here).
CFPB provides Spanish translations
On April 29, the CFPB released Spanish translations for certain model and sample forms included in the Prepaid Rule in Regulation E and for certain adverse action model and sample notices included in Regulation B. According to the Bureau, the release is part of its continuing effort to ensure fair access to competitive and transparent markets for all consumers. The Bureau also reminded financial institutions of their obligation to serve the communities where they conduct business, which includes communities with limited English proficiency, in addition to encouraging the use of the translations as they work with Spanish-speakers.