Compliance Blog

Bureau’s Latest Supervisory Highlights Report; HMDA Webinar

Written by Shari R. Pogach, Regulatory Paralegal, NAFCU

Exams, Exams Everywhere Meme

The Bureau of Consumer Financial Protection released Issue 17, Summer 2018 issue of its Supervisory Highlights earlier this month.  The report covers examinations in the areas of automobile loan servicing, credit cards, debt collection, mortgage servicing, payday lending and small business lending with examinations generally completed between December 2017 and May 2018.  Here are some of the highlights.

Credit Cards.   Under the revisions to Regulation Z to comply with the CARD Act requirements, card issuers must periodically re-evaluate consumer credit card accounts subjected to certain increases in the applicable APR(s) to determine whether it’s appropriate to reduce the APR(s).  The reviews must occur no later than six months after the rate increase and at least every six months after.  As part of the re-evaluation, the issuer is to apply either 1) the factors on which the rate increase was originally based or 2) the factors the issuer currently considers when deciding the APR for similar new consumer credit accounts. In its examinations, the bureau found that supervised entities generally are complying with the applicable federal consumer financial laws.  However, there were some notable exceptions. 

One or more of the bureau’s examinations between January and July 2018 found that entities failed to: 1) re-evaluate all the eligible accounts, 2) consider appropriate factors when re-evaluating eligible accounts or 3) appropriately reduce the rates for those accounts eligible for such a reduction.  The bureau found some card issuers didn’t re-evaluate all eligible accounts because they had inadvertently excluded some of these accounts from the pool of accounts they re-evaluated.  In some cases, issuers didn’t consider the appropriate factors because, among other reasons, they combined re-evaluation factors.  Examinations also found some card issuers failed to reduce the rates for eligible accounts due to imposing additional criteria for a rate reduction. 

In June, the bureau announced an enforcement action against Citibank, N.A., for “failing to reevaluate and reduce the annual percentage rates (APRs) for certain consumer credit card accounts consistent with the requirements of section 1026.59 of Regulation Z, and for failing to have reasonable written policies and procedures in place to conduct the APR reevaluations in violation of the Truth in Lending Act (TILA)...”  The bank was ordered to refund $11 million to consumers.

Mortgage Servicing.   The bureau’s report indicates its examinations continue to focus on the loss mitigation process and how servicers handle trial modifications where consumers are paying as agreed.  Several examinations revealed unfair acts or practices concerning converting trial modifications to permanent status and foreclosures occurring after consumers had accepted loss mitigation offers.  Unfair acts or practices were also found where institutions charged consumers amounts that weren’t authorized by modification agreements or by mortgage notes.

The bureau reviewed the practices of services with policies that provided for permanent modifications of loans if consumers made four timely trial modification payments.  Yet for nearly 300 consumers who made these trial payments, servicers delayed processing the permanent modification for more than 30 days so these consumers accrued interest and fees and didn’t get any remediation.  The servicers indicated the modification delays were due to insufficient staffing but didn’t have policies or procedures for remediating consumers in such cases.

The bureau examinations identified this as an unfair act or practice.  The affected consumers experienced substantial injury that couldn’t be reasonably avoided. The accrued fees and interest the servicers failed to fully remediate were likely significant because the delays were more than 30 days. Consumers couldn’t control the processing of their loan modifications or compel remediation from the servicers.  The harm to consumers outweighs the cost to consumers or to competition in that the servicers acknowledged the delay was in error or indicate the remediation costs were burdensome.  

The report states the information in the Supervisory Highlights is provided to help institutions better understand how the bureau examines institutions for compliance with those requirements. The document doesn’t impose any new or different legal requirements; the legal violations described in these reports are based on the particular facts and circumstances reviewed by the bureau as part of its examinations. So, a conclusion that a legal violation exists on the facts and circumstances described in any of the bureau’s reports might not lead to a finding under different facts and circumstances.

NAFCU members may wish to refer to this Compliance Monitor article, “2016 Mortgage Servicing Rules Part IV: Loss Mitigation” for more on compliance and loss mitigation programs.

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About the Author

Shari Pogach, NCCO, NCBSO, Regulatory Paralegal, NAFCU

 Shari Pogach, NCCO, NCBSO, Regulatory Paralegal

Shari R. Pogach, NCCONCBSO, has served as Regulatory Paralegal for NAFCU's Regulatory Compliance and Regulatory Affairs divisions since 2007.

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