October 3, 2018

Summer 2018 Supervisory Highlights

4 min

The Bureau of Consumer Financial Protection ("Bureau") published its most recent issue of the agency's Supervisory Highlights on September 11, 2018 (Summer 2018). This edition of Supervisory Highlights is the first publication since the change in the Bureau's leadership, and comes out nearly a year after the last edition. As the first edition under Acting Director Mulvaney and new Bureau leadership, it provides insight into the Bureau's approach to such guidance moving forward.

This issuance also comes after interagency guidance from the Bureau and other financial regulators clarified that supervisory guidance does not have the force of law, and is intended only to be instructive to industry participants. The introduction of this edition of the Supervisory Highlights differs from previous issuances in that it expressly notes that "[t]his document does not impose any new or different legal requirements" And it does not summarize the dollar amounts of restitution payments resulting from supervisory resolutions.

The Supervisory Highlights focused in large part on the Bureau's authority to prohibit unfair, deceptive, or abusive acts or practices (UDAAP). UDAAP guidance in the Supervisory Highlights discusses acts or practices that may not represent a clear black-and-white violation of applicable laws or regulations, but nonetheless are potentially harmful or confusing to consumers and disapproved of by the Bureau.

Specific financial services industries discussed in the Supervisory Highlights include automobile loan servicing, credit cards, debt collection, mortgage servicing, payday lending, and small business lending.

Automobile loan servicing / UDAAP: The Bureau notes that recent auto loan servicing examinations identified unfair and acts or practices related to billing statements and wrongful repossessions. Bureau examiners found that after a vehicle loss and insurance payout, "paid-ahead" billing statements mislead consumers to think they did not need to make the next monthly payment, when, in fact, they did—resulting in otherwise avoidable fees, delinquencies, and adverse credit reporting. The Bureau also notes that repossessions after the borrower had entered into forbearance or payment extension agreements predicated on cancelling the repossession constitutes an unfair practice.

Credit cards / Regulation Z: The Bureau indicates that some credit card issuers violated Regulation Z and the Credit Card Accountability Responsibility and Disclosure (CARD) Act requirement to periodically reevaluate consumer credit card accounts subjected to certain rate increases.

Debt collection / FDCPA: The Bureau states that some debt collectors subject to the Fair Debt Collection Practices Act (FDCPA) violated a requirement to cease collection of the debt until the collector obtains verification of the debt and mails it to the consumer, upon the receipt of a written debt validation request.

Mortgage servicing / UDAAP: The Bureau addresses several unfair or deceptive practices in the mortgage servicing industry. Identified issues include the failure to timely convert a trial loan modification to a permanent one, once consumers had successfully completed the trial period; overcharges related to data errors; and the initiation of foreclosure processes on non-primary residences after consumers had accepted a loss mitigation offer. Interestingly, for unfair practices attributed to system or data errors, the Bureau explains that there are no benefits to competition from the errors, and the systems corrections were "unlikely to be substantial enough to affect institutional operations or pricing." Thus, the Bureau guidance seems to indicate that the "unfairness" prong of UDAAP will be treated more like a balancing test, rather than a bright-line rule triggered by consumer harm. This leaves open the possibility that some errors resulting in consumer harm could have countervailing benefits, or otherwise be too expensive to address in relation to the injury to consumers.

Payday lending / UDAAP / Regulation E: The Bureau notes that some companies sent misleading collection letters and other communications in the context of payday loans. These letters threaten to repossess vehicles, when in fact the companies did not have a business practice or history of engaging in repossession. The Bureau also indicates that some companies violated Regulation E when they sought to use bank account or debit card information to debit consumers' accounts for repayments without specific authorization.

Small business lending / ECOA: The Bureau concludes that some companies effectively managed risks under the Equal Credit Opportunities' Act (ECOA) with regard to small business lending. Notably, the Bureau explained that "statistical analysis is only one factor taken into account by examination teams that review small business lending for ECOA compliance." The Bureau states that fair lending/ECOA reviews also include policy and procedure reviews, interviews with management and staff, and reviews of individual loan files.

The restarted Supervisory Highlights address instances of unfair or deceptive practices and legal/regulatory violations, but also provide descriptions of the Bureau's interpretation and application of UDAAP and other requirements, such as ECOA/fair lending reviews.