CFPB Supervisory Report Outlines Violations

The CFPB recently released its latest Supervisory Highlights, Issue 13, Fall 2016 addressing issues uncovered from supervisory examinations generally completed between May and August 2016. The report shares recent supervisory observations in the areas of automobile loan origination, automobile loan servicing, debt collection, mortgage origination, mortgage servicing, student loan servicing and fair lending. The findings reported reflect information obtained from supervisory activities completed during the period under review. As in past editions, this report includes information about recent public enforcement actions that were a result, at least in part, of CFPB’s supervisory work. The report also includes information on recently released examination procedures and Bureau guidance.

The CFPB’s report identifies the following examination findings:

• Automobile Origination: While examiners determined that the overall CMS of many participants in the auto loan market was strong, some entities examined had a weak CMS, including: failure to create and implement consumer compliance-related policies and procedures; develop and implement compliance training; perform adequate root cause analysis of consumer complaints to address underlying issues identified through complaints; adequately oversee service providers; and failure of management to demonstrate clear expectations about compliance; have an adequate compliance audit program; adopt clear policy statements regarding consumer compliance; and ensure that compliance-related issues are raised to the entity’s board of directors or other principals.
• Automobile Loan Servicing: In some recent auto servicing examinations, examiners have identified unfair practices relating to repossession fees; more specifically, some companies engaged in holding borrowers’ personal belongings that were contained in repossessed vehicles and refused to return the property to borrowers until after the borrowers paid a fee for storing the property. If borrowers did not pay the fee before the company was no longer obligated to hold on to the property under state law (often 30-45 days), the companies would dispose of the property instead of returning it to the borrowers and add the fee to the borrowers’ balance.
• Debt Collection: Examiners identified several violations of the Fair Debt Collection Practices Act (“FDCPA”), including charging consumers unlawful convenience fees, making several false representations to consumers and unlawfully communicating with third parties in connection with the collection of a debt. Additionally, examiners have identified several violations of the FCRA, including failing to investigate indirect disputes and having inadequate furnishing policies and procedures. Examiners also observed a beneficial practice that involved using collections scripts and guides to improve compliance when communicating with consumers.
• Mortgage Origination: Despite identifying strengths at one or more institutions, examiners concluded that the overall mortgage origination CMS at one or more other institutions was weak because it allowed violations of Regulations G, N, X and Z to occur. For example, one or more institutions did not conduct compliance audits of mortgage origination activities, had weak oversight of service providers and had not implemented procedures for establishing clear expectations to adequately mitigate the risk of harm arising from third-party relationships. More specifically, issues were identified relating to timeliness of disclosure, ensuring loan originators are properly licensed or registered, and failure to verify monthly income in determining ability to repay.
• Student Loan Servicing: In recent student loan servicing examinations, examiners identified a number of unfair or deceptive acts or practices, including income-driven repayment plan applications, borrower choice for payment allocation, communications relating to paid-ahead status and systems errors.
• Fair Lending: Examiners observed situations in which financial institutions’ treatment of limited English proficiency (“LEP”) and non-English speaking consumers posed fair lending risk. For example, examiners observed one or more institutions marketing only some of their available credit card products to Spanish speaking consumers, while marketing several additional credit card products to English speaking consumers.
• HMDA: Beginning with data collected in 2017, filers will submit their HMDA data using a web interface referred to as the “HMDA Platform.”  Also identified are submission methods that will NOT be permitted for data collected in or after 2017. Also beginning with data collected in 2017, HMDA data loan/application registers (“LAR”) will be submitted in a pipe (also referred to as vertical bar) delimited text file format (.txt). 
• Redlining: The Office of Fair Lending has identified redlining as a priority area in the CFPB’s supervisory work. Redlining is a form of unlawful lending discrimination under ECOA. The report contains an in-depth discussion of CFPB examination considerations in assessing redlining risk.

The report discusses supervision program developments, including reverse mortgage servicing, student loan servicing and Military Lending Act examination procedures, and also discusses CFPB’s amendment to the service provider bulletin.