Fall 2022 Supervisory Highlights: Part II - Deposits, Mortgages, and Payday Lending
Happy December, compliance companions! This year seems to have flown by in warp speed, and so much has happened, both personally and professionally – we moved into our new house, had to replace the furnace a month later (in the middle of a chilly Midwest winter), I continued working on an ABA Business Law subcommittee and the State Bar of Michigan’s Professional Ethics Committee, I joined the board of the Women’s Bar Association of Oakland County, I was promoted to senior regulatory compliance counsel, my husband and I (finally) celebrated our marriage with a backyard reception, I travelled to the DC area a few times and Louisville for work events, and we decorated our house for our first holiday season! Here’s a little peek at my favorite room all decked out:
On top of all that, we were all kept on our toes by the regulators, but especially the Consumer Financial Protection Bureau (CFPB). Justin blogged about the first half of the CFPB’s most recent Supervisory Highlights last week, so I’m here to wrap it up with a summary of the remaining topics covered: deposits, mortgage origination, mortgage servicing, and payday lending. Let’s dig in.
The CFPB focused on assessing how financial institutions “handled pandemic relief benefits deposited into consumer accounts.” The bureau found instances of “unfairness risks” where some financial institutions’ policies and procedures could have resulted in one or more unfair practices, including:
- Using protected unemployment insurance or economic impact payments funds to set off a negative balance in the account into which the benefits were deposited or to set off a balance owed to the financial institution on a separate account, when such practices were prohibited by applicable state or territorial protections;
- Garnishing protected economic impact payments funds in violation of the Consolidated Appropriations Act of 2021;
- Garnishing protected unemployment insurance or economic impact payments funds in violation of applicable state or territorial protections.
The CFPB noted that “the failure to comply with applicable state and territorial protections may, under certain circumstances, give rise to unfair acts or practices in violation of the CFPA." In response to the cited issues, the bureau directed the financial institutions to remediate the issues, including by refunding protected funds to customers; refunding garnishment-related fees assessed; reviewing, updating, and implementing policies and procedures to ensure compliance with all applicable state and territorial rules and regulations on garnishment practices; and reviewing, updating, and implementing policies and procedures to ensure compliance with all applicable state and territorial rules and regulations on setoff practices, “including in connection with the setoff of unemployment insurance funds and federal benefits.”
The CFPB cited violations of Regulation Z, when it was identified that some mortgage loan originators (MLOs) compensation was decreased for foreseeable increases in settlement costs. However, the bureau notes that “the rule… permits decreasing a loan originator’s compensation due to unforeseen increases in settlement costs. An increase is unforeseen if it occurs even though the estimate provided to the consumer is consistent with the best information reasonably available to the disclosing person at the time of the estimate.” The bureau determined that the loan originators knew the correct fee amounts at the time of the initial disclosures, and that the incorrect fee information was entered into the disclosures due to a clerical error. Thus, the information entered was not “consistent with the best information reasonably available,” and the unforeseen increase exception would not apply. The CFPB cited this issue as a violation of Regulation Z’s prohibition against basing MLO compensation on a term (or terms) of a transaction.
The CFPB also found an instance of a deceptive waiver of borrowers’ rights in loan security agreements. The bureau found a signed loan security agreement that included misleading language that purported to waive the consumer’s right to initiate or participate in a class action. The language did not specify whether the waiver applied to only state law or federal law, and thus could be construed to mean that the waiver applied to the right to bring a class action on any claim, including federal claims in federal court. However, Regulation Z prohibits a “contract or other agreement relating to a consumer credit transaction secured by a dwelling . . [that may be] applied or interpreted to bar a consumer from bringing a claim in court pursuant to any provision of law for damages or other relief in connection the any alleged violation of Federal law.”
The bureau cited several mortgage servicing issues, including charging “sizable” phone payment fees without disclosing them, charging illegal fees during Coronavirus Aid, Relief, and Economic Security Act (CARES) Act forbearances, failing to process CARES Act forbearance requests, misrepresenting sufficient payment amounts for accepting deferrals, and failing to evaluate consumers for all loss mitigation options and to provide accurate information.
Examiners cited the abusive act of charging consumers $15 for making phone payments, where the existence or cost of the phone payment fee was not disclosed to the consumer but was nonetheless charged. The bureau explains that “an act or practice is abusive if it ‘takes unreasonable advantage of. . . a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service.’ Consumer lacked understanding of the material costs of the phone pay fee because servicer representatives failed to inform consumers of the fees during the phone call.” As a result of the findings, reimbursements to consumers who paid the undisclosed phone pay fees have been made.
The bureau found that some services violated Section 4022 of the CARES Act by charging consumers fees during CARES Act forbearance plans, as well as by failing to process CARES Act forbearance requests. As a result of these findings, the servicer(s) have developed remediation plans “to compensate injured consumers.”
In keeping with the bureau’s focus on “repeat offenders,” the CFPB cited payday lenders for failing to “maintain records of call recordings necessary to demonstrate full compliance with conduct provisions in consent orders generally prohibiting certain misrepresentations.” In response to the findings, the payday lenders have been directed to implement policies and procedures that ensure that “records sufficient to capture relevant telephonic communications” are created and maintained, pursuant to the terms of the consent order provisions.
For more information on these findings and other developments, you can find Issue 28 of the CFPB’s Supervisory Highlights here.
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