CFPB Supervisory Highlights – January 2016 to April 2016
On June 30, 2016, the Consumer Financial Protection Bureau (“CFPB”) released the twelfth edition of its Supervisory Highlights report (“Report”), which focused on supervision work completed between January and April 2016. The Report noted that recent supervisory actions have resulted in restitution of approximately $24.5 million to more than 257,000 consumers. The CFPB noted in particular that its supervisory activities have led to a recent public enforcement action against Citibank, N.A. for illegal debt sales practices, which required nearly $5 million in consumer remediation and $3 million in civil monetary penalties. According to the Report, the CFPB has also continued to pursue non-public supervisory actions in which it directs entities in violation of a statute or regulation to implement appropriate corrective measures. More specifically, the Report discussed some of the CFPB’s recent examination observations in the areas of automobile origination, debt collection, mortgage origination, small-dollar lending, and fair lending.
The automobile finance market includes loans made through both direct (e.g., from a bank or other lender) or indirect (from a lender through a dealership) channels. CFPB examiners determined that certain auto lenders engaged in deceptive advertising regarding the benefits of their “gap coverage” products, which misled consumers that these products would fully cover auto loans in the case of vehicle loss. The CFPB also found that some auto lenders failed to properly disclose payment deferral terms.
With respect to debt collection, the CFPB identified various unfair practices and violations of the Fair Debt Collection Practices Act (“FDCPA”). For example, the Report observed that CFPB examiners frequently miscoded accounts, resulting in the sale of debts: (1) for accounts that were in bankruptcy; (2) that were the products of fraud; or (3) for accounts that had been settled in full. The CFPB also determined that certain debt collectors made false representations to consumers regarding the repayment process.
In some good news for mortgage originators, the Report noted that the CFPB’s mortgage origination examinations “found general compliance with the reviewed Federal consumer financial laws, though many entities continue to have [compliance management system] deficiencies.” Moreover, examiners found that one or more institutions had violated Regulation Z by incorrectly calculating the amount financed on loans with discount credits. The CFPB also found that some institutions had failed to comply with RESPA Section 8, which prohibits the acceptance of any fee, kickback or other thing of value in exchange for a referral. Finally, the Report observed that certain mortgage origination institutions had weak compliance management systems that allowed violations of various regulations.
Under the Dodd-Frank Act, the CFPB has supervisory and enforcement authority over payday lenders, who generally provide small-dollar loans to consumers. During the current review period, the CFPB evaluated small-dollar lenders’ compliance with Regulation E, which implements the Electronic Fund Transfer Act. The CFPB was particularly interested in assessing compliance with the requirements for “preauthorized electronic fund transfers,” or EFTs. Examiners found that installment loan agreements of certain small-dollar lenders failed to clearly set out an acceptable range of amounts to be debited by EFTs.
The Report also focused on fair lending, in particular, compliance with (1) the Home Mortgage Disclosure Act (HMDA) and Regulation C, which, among other things, requires covered institutions to report the data they collect and record pursuant to that regulation. CFPB examiners found that some institutions did not accurately report action taken on loans or applications after issuing a conditional approval subject to underwriting conditions.
Finally, the Report briefly discussed developments in the CFPB’s supervision program. Specifically, the Report noted the CFPB’s coordination with state and federal regulators on supervisory matters, including: (1) entering into a Memorandum of Understanding with state regulatory agencies; (2) establishing a “Framework” for cooperation and coordination on state bank and nonbank examinations; and (3) coordinating with federal regulators, including the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve Banks and the Board of Governors of the Federal Reserve System (“Federal Reserve”), the National Credit Union Administration (“NCUA”), and the Federal Deposit Insurance Corporation (“FDIC”), regarding various supervisory matters.