The Consumer Financial Protection Bureau recently issued its Winter 2015 Supervisory Highlights report which provides an overview of the supervision work completed by the CFPB from July through December 2014. Matters resolved by the CFPB’s Supervision side are non-public in nature and are resolved, not generally through the payment of large fines and penalties, but through a company’s implementation of appropriate corrective measures, including providing remediation to consumers if circumstances warrant.
However, the CFPB’s Supervisory Highlights report provides an overview of points of emphasis in its examination and supervisory activities. In short, any entity within the CFPB’s jurisdiction needs to understand that the areas highlighted by this report are areas that the CFPB will be examining when it comes to visit, so that the report may arguably be viewed as a compliance roadmap for consumer financial services companies.
The following are some important observations of the CFPB based on its reviews of companies in these industries:
- Consumer reporting agencies (CRAs) are failing to meet dispute handling obligations, including a failure to consistently forward all relevant information found in letters and supporting documents supplied by consumers with their disputes.
- Deficiencies by CRAs in updating public record information have led to errors in the updating of files after a reinvestigation and in the reporting of dispute results to consumers.
- In the area of debt collection, collectors, when informing consumers about the option of recurring ACH payments, promoted consumers’ ability to adjust or cancel a recurring ACH payment with 24 hours’ notice; however, such representation created a risk of deception, given that it contradicted both an express representation in monthly statements provided to consumers and internal policies and procedures, which required a minimum of 72 hours’ notice.
- At one or more financial institutions, the CFPB observed that changes to the balance calculation method used by the institution (ledger balance versus available balance method) were either not disclosed or sufficiently disclosed, resulting in consumers being misled as to the circumstances when overdraft fees would be assessed.
Mortgage Origination and Servicing:
- In the area of mortgage loan origination, the CFPB found violations of Regulation Z, prohibiting loan originators from receiving compensation based, either directly or indirectly, on the terms of a consumer credit transaction secured by a dwelling.
- Examiners also identified issues related to good faith estimates (GFEs) provided by financial institutions as part of the mortgage origination process. In some cases, the GFE was not provided in accordance with the timeframes required by Regulations X and Z, which required the GFE to be provided not later than three business days after receiving an application. In other cases, the CFPB found problems with the accuracy of the amounts disclosed on the GFEs, which resulted in settlement charges listed on the HUD-1 to exceed those previously provided on the GFE.
Advertising of Financial Services Products:
- Instances of noncompliant social media advertising by financial institutions were also found where certain triggering terms, such as the length of payment, amount of payments, number of payments, and finance charges, were included without providing the disclosures required by Regulation Z.
Consumer Credit Denials:
- Deficiencies related to adverse action notices, including failure to provide such notices as required by the Equal Credit Opportunity Act (ECOA) and Regulation B, were also observed. In particular, CFPB examiners found that supervised entities failed to provide the requisite information in denial notices as required by Regulation B and failed to notify applicants of actions taken within 30 days after receiving a completed application.
Compliance Management Systems:
- With regard to Compliance Management Systems (CMS), the CFPB reemphasized previous guidance that having a sound and robust CMS is an essential element of ensuring compliance with consumer financial services laws and preventing risks of harm to consumers. With regard to its recent supervisory examinations, the CFPB observed instances where a financial institution’s board members had not received any training, the training provided to employees was not comprehensive or accurate, and the training content was neither kept current nor directed towards the appropriate employees.
- Finally, the CFPB stressed its continuing efforts to examine institutions for compliance with the Equal Credit Opportunity Act at both bank and nonbank entities. In particular, the CFPB noted that during recent examinations, its staff found violations of ECOA and Regulation B related to the treatment of protected forms of income, where applicants were automatically declined if they relied on non-employment sources of income.