Compliance Blog

Hello, Compliance Friends. We are counting down the days to San Diego. The NAFCU Compliance Team will be hosting our Regulatory Compliance School and Regulatory Compliance Seminar the week of October 9^th.

On September 12, 2017, the CFPB issued its latest supervisory report sharing a plethora of observations from recent examinations and other supervisory activities. The report covers issues observed by the Bureau in the areas of automobile loan servicing, credit card account management, debt collection, deposits, and fair lending. Other topics, such as small-dollar lending, collection, mortgage origination, and mortgage servicing were also addressed. Today's blog will provide some of the highlights of the Bureau's findings.

Automobile Loan Servicing. In recent examinations, CFPB examiners reviewed how servicers are overseeing repossession agents and how repossessions are conducted. The Bureau's report alleges that some servicers are repossessing vehicles after the repossession was cancelled due to a formal extension agreement or the borrower has made a payment.

In these instances, the servicers wrongfully coded the account as remaining delinquent, customer service representatives did not timely cancel the repossession order after borrowers made sufficient payments or entered agreement with the servicer to avoid repossession, or repossession agents had not checked the documentation before repossessing and thus did not learn that repossession had been cancelled.

As a result of the examiner's findings, the servicers implemented a system that requires repossession agents to verify that the repossession order is still active immediately prior to repossessing the vehicle, for example, through a specially designed mobile application for that purpose.

Credit Card Account Management. The Bureau examiners noted that generally their supervised entities are complying with Federal consumer financial laws.

However, CFPB examiners observed that one or more credit card issuers violated Regulation Z by failing to provide the requisite tabular disclosures with the account opening materials provided to numerous cardholders. The entities in question acknowledged the violations with examiners and initiated a review to ensure that the errors were limited, the root causes were identified, and corrective actions were developed.

CFPB Supervision also reviewed the calls between customer service representatives and consumers. The review revealed customer service representatives routinely veering from or abandoning their scripts, which resulted in misrepresentation and higher fees for consumers. To mitigate the deceptive practice, entities established more effective controls over communications to consumers, ensured representatives informed consumers of free payment options prior to authorization of an expedited phone payment and reimbursed fees to consumers impacted by the deceptive representations about the costs and availability of pay-by-phone options.

Debt Collection. The CFPB examiners noted that some entities made false representations to consumers about the effect on their credit score of paying a debt in full rather than settling the debt for less than the full amount. As the CFPB explained in a 2013 bulletin, representations about the impact of paying a debt on a consumer's credit score may be deceptive. The bulletin states that "in light of numerous factors that influence an individual consumer's credit score, such payments may not improve the credit score of the consumer to whom the representation is being made. Consequently, debt owners or third-party debt collectors may well deceive consumers if they make representations that paying debts in collection will improve a consumer's credit score." As a result of these findings, the entities in violation amended training materials to reflect this Bureau's guidance.

Deposits. The CFPB continues to examine financial institutions for compliance with Regulation E as well as review for any unfair, deceptive, or abusive acts or practices (UDAAPs) in connection with deposit accounts.

The CFPB examiners noted that several institutions are engaged in unfair acts or practices by placing hard holds on customer accounts to stop all activity when the institutions observed suspicious activity. These holds resulted in the consumers' accounts being locked, resulting in payments not being honored, deposits being rejected, and the consumer lacking access to his or her funds for as long as two weeks. The examination also found that some institutions also failed to clearly, consistently, and promptly communicate the nature and status of these holds.

As a result, the CFPB directed the institutions to cease unnecessarily placing hard holds on consumer deposit accounts and to develop and implement policies and procedures to clearly, consistently, and promptly communicate with consumers with respect to hard holds place on their accounts.

In addition, the CFPB's Supervisory Highlights also addressed deceptive statements about overdraft protection products. Examiners identified institutions engaged in a deceptive act or practice by misrepresenting their opt-in deposit overdraft protection products when answering inbound telephone calls from consumers, including that:

• The overdraft protection product applied to check, automated clearing house (ACH), and recurring bill payment transactions;
• The overdraft protection product allowed a consumer to withdraw more money than the daily ATM cash withdrawal limit and be subjected to only one overdraft fee; and
• The overdraft protection product would take effect on the same day as enrollment.

Supervision directed the depository institutions in violation to cease misrepresenting features of their overdraft protections products.

Fair Lending. In general, the CFPB examiners found deficiencies in oversight by board and senior management, monitoring and corrective action processes, compliance audits, and oversight of third-party service providers.

The Bureau's review also revealed data quality issues, which were related to a lack of complete and accurate loan servicing records, made certain fair lending analyses difficult or impossible to perform. The examiners attributed these data quality issues to significant weaknesses in compliance management system related policies, procedures, and service provider oversight.

These are just some of the highlights from the CFPB's report. The full report is available here.

More HMDA Guidance

On September 28^th, the CFPB released HMDA implementation materials to support the recently issued 2017 HMDA rule. The Bureau has updated the 2018 Institutional Coverage Chart, the 2018 Transactional Coverage Chart and the Key Dates Timeline.

You can find the materials here on the CFPB's HMDA implementation webpage.