December 28, 2021

CFPB Fall 2021 Supervisory Highlights Compliance Violations

7 min

The CFPB recently released its Fall 2021 Supervisory Highlights of compliance violations in the areas of credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts, and remittance transfers. Here are some of the highlights excerpted from the CFPB's report:

Credit Card Billing Error Resolution (Regulation Z, 12 C.F.R. pt. 1026)

Examiners found that creditors violated the following provisions of Regulation Z:

  • Failing to resolve a dispute within two complete billing cycles (12 C.F.R. § 1026.13(c)(2));
  • Failing to reimburse a consumer for a late fee after the creditor determined a missing payment had not been credited to the consumer's account, as the consumer had asserted (12 C.F.R. § 1026.13(e)(1)); and
  • Failing to conduct reasonable investigations after receiving billing error notices related to a missing payment and unauthorized transactions (12 C.F.R. § 1026.13(f)).
Deceptive Credit Card Bonus Offers (Consumer Financial Protection Act, 12 U.S.C. §§ 5531, 5536)

Examiners found that credit card issuers engaged in deceptive acts or practices by advertising to certain existing customers that they would receive bonus offers if they opened a new credit card account and met certain spending requirements. According to the CFPB, issuers misled consumers because they failed to provide the advertised bonuses to customers who satisfied these requirements and failed to disclose an online account opening eligibility requirement for a bonus offer.

Debt Collection (Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692–1692p)

Examiners identified risks of violations of the Fair Debt Collection Practices Act (FDCPA), including risk of false representation or deceptive means to collect or attempt to collect a debt. Examiners found that debt collectors discussed restarting a payment plan with consumers and represented that improvements to the consumers' creditworthiness would occur upon final payment under the plan and deletion of the tradeline. According to the CFPB, numerous factors influence an individual consumer's creditworthiness, including potential tradelines previously furnished by prior owners of the same debt. As a result, the CFPB determined claims that payments may improve the credit score of the consumers to whom the representation is made could be false.

Deposits / Misdirected Payments Using P2P Digital Payment Network Services (Electronic Fund Transfer Act, 15 U.S.C. § 1693 et seq., Regulation E, 12 C.F.R. § 1005 et seq., Truth-in-Lending Act, 12 U.S.C. § 4301 et seq., Regulation DD, 12 C.F.R. § 1030 et seq., Consumer Financial Protection Act, 12 U.S.C. §§ 5531, 5536)

Regulation E defines the term "error" to include, among other things, "[a]n incorrect electronic fund transfer to or from the consumer's account." Regulation E requires institutions to investigate promptly and determine whether an error occurred. Examiners found that, in certain cases, because of inaccurate or outdated information in the digital payment network directory, consumers' electronic fund transfers (EFTs) were misdirected to unintended recipients, even though the consumer provided the correct identifying token information for the recipient, i.e., the recipient's current and accurate phone number or email address, aka "token errors." Examiners found that institutions violated Regulation E by failing to determine that token errors constituted "incorrect" EFTs under Regulation E. In addition, examiners found that institutions failed to conduct reasonable error investigations when the institutions received error notices from consumers that alleged that the consumers had sent funds via a person-to-person payment network, but that the intended recipients had not received the funds.

Fair Lending (ECOA, 15 U.S.C. 1691 et seq., Regulation B, 12 C.F.R. pt. 1002, HMDA, 12 U.S.C. §§ 2801-2810, Regulation C, 12 C.F.R. pt. 1003)

Examiners found lenders violated ECOA and Regulation B in the following areas:

  • Pricing Discrimination - Examiners observed that mortgage lenders violated ECOA and Regulation B by discriminating against African American and female borrowers in the granting of pricing exceptions based upon competitive offers from other institutions.
  • Religious Discrimination - Examiners found that lenders violated ECOA and Regulation B by improperly inquiring about small business applicants' religion and by considering an applicant's religion in the credit decision. For religious institutions applying for small business loans, lenders utilized a questionnaire that contained explicit inquiries about the applicant's religion. Examiners determined that lenders also denied credit to an applicant identified as a religious institution because the applicant did not respond to the questionnaire.
Mortgage Servicing (Regulation Z, 12 C.F.R. pt. 1026, Regulation X, 12 C.F.R. pt 2014, CFPA)

The Bureau is prioritizing mortgage servicing supervision work in light of the increase in borrowers needing loss mitigation assistance in 2021. Recent mortgage servicing examinations have identified various Regulation Z and Regulation X violations, as well as unfair and deceptive acts or practices prohibited by the CFPA. In particular, one focus was Coronavirus Aid, Relief, and Economic Security (CARES) Act forbearances.

Payday Lending, Erroneous Debiting, and Misrepresentations Surrounding Failure to Honor Loan Extensions (Regulation E, 12 C.F.R. pt. 1005, CFPA, 12 U.S.C. §§ 5531, 5536)

Examiners found that lenders engaged in unfair acts or practices when they debited or attempted to debit from consumers' accounts the remaining balance of their loans on the original due date after the consumers (1) applied for a loan extension, and (2) received a confirmation email stating that only an extension fee would be charged on the due date; and sending loan extension emails to consumers. Examiners also found that lenders engaged in unfair acts or practices when they debited or attempted one or more additional, identical, unauthorized debits from consumers' bank accounts after consumers called to authorize a loan payment by debit card and lenders' systems erroneously indicated the transactions did not process.

Prepaid Account Stop Payment Waiver Violations in Terms of Use; Error Investigations (Electronic Fund Transfer Act, 15 U.S.C. § 1693 et seq., Regulation E, 12 C.F.R. pt. 1005, Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., Regulation Z, 12 C.F.R. pt. 1026, Consumer Financial Protection Act, 12 U.S.C. §§ 5531, 5536)

Examiners found that financial institutions included language in their terms of use agreements that waived a consumer's rights under both EFTA and Regulation E. The terms of use required consumers to first notify the merchants in order to exercise, through the financial institutions, the consumers' right to stop a pre-authorized payment. This is inconsistent with the consumers' rights set forth under both EFTA and Regulation E and a violation of EFTA. Examiners also found that financial institutions enforced the provisions of the terms of use and failed to honor stop-payment requests that they received either orally or in writing at least three business days before the scheduled date of the transfer, as required by Regulation E. In particular, the institution's service providers improperly required consumers to first contact the merchant before they would process any stop-payment requests. And, in certain cases, their service providers also subsequently failed to process stop-payment requests because of system limitations, even after a consumer had contacted the merchant. The Bureau also noted it observed prepaid account notice of error investigation violations involving point-of-sale debit transactions.

Remittance Transfers (Remittance Rule, 12 C.F.R. §§ 1005.30 through 1005.36, CFPA, 12 C.F.R. § 1005.33(c)(2)(ii)(B))

Examiners found that remittance transfer providers violated section 1005.33(c) of the Remittance Rule. These providers received notices of errors alleging that remitted funds had not been made available to the designated recipient by the disclosed date of availability. The providers 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.

In response to the above findings, the CFPB reported that the relevant supervised entities updated their policies and practices, and engaged in remediation and lookbacks. The findings included in the report cover examinations completed between January 2021 and June 2021.

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CFPB Examination Playbook

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Court Vacates Two Provisions of the Prepaid Rule

Online Lending Legal and Policy Issues Resources (Lend360 Winter 2020)

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