[Federal Register Volume 81, Number 94 (Monday, May 16, 2016)]
[Notices]
[Pages 30257-30264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11423]


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BUREAU OF CONSUMER FINANCIAL PROTECTION


Supervisory Highlights: Winter 2016

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Supervisory Highlights; notice.

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SUMMARY: The Bureau of Consumer Financial Protection (CFPB) is issuing 
its tenth edition of its Supervisory Highlights. In this issue, the 
CFPB shares findings from recent examinations in the areas of student 
loan servicing, remittances, mortgage origination, debt collection, and 
consumer reporting. This issue also shares important updates to past 
fair lending settlements reached by the CFPB. As in past editions, this 
report includes information about recent public enforcement actions 
that resulted, at least in part, from our supervisory work. Finally, 
the report recaps recent developments to the CFPB's supervision 
program, such as the release of updated fair lending examination 
procedures and guidance documents in the areas of credit reporting, in-
person debt collection, and preauthorized electronic fund transfers.

DATES: The Bureau released this edition of the Supervisory Highlights 
on its Web site on March 8, 2016.

FOR FURTHER INFORMATION CONTACT: Christopher J. Young, Managing Senior 
Counsel and Chief of Staff, Office of Supervision Policy, 1700 G Street 
NW., 20552, (202) 435-7408.

SUPPLEMENTARY INFORMATION: 

1. Introduction

    The Consumer Financial Protection Bureau (CFPB or Bureau) is 
committed to a consumer financial marketplace that is fair, 
transparent, and competitive, and that works for all consumers. One of 
the tools the CFPB uses to further this goal is the supervision of bank 
and nonbank institutions that offer consumer financial products and 
services. In this tenth edition of Supervisory Highlights, the CFPB 
shares recent supervisory observations in the areas of consumer 
reporting, debt collection, mortgage origination, remittances, student 
loan servicing, and fair lending. One of the Bureau's goals is to 
provide information that enables industry participants to ensure their 
operations remain in compliance with Federal consumer financial law. 
The findings reported here reflect information obtained from 
supervisory activities completed during the period under review as 
captured in examination reports or supervisory letters. In some 
instances, not all corrective actions, including through enforcement, 
have been completed at the time of this report's publication.
    The CFPB's supervisory activities have either led to or supported 
three recent public enforcement actions, resulting in $52.75 million in 
consumer remediation and other payments and an additional $8.5 million 
in civil money penalties. The Bureau also imposed other corrective 
actions at these institutions, including requiring improved compliance 
management systems (CMS). In addition to these public enforcement 
actions, Supervision continues to resolve violations using non-public 
supervisory actions. When Supervision examinations determine that a 
supervised entity has violated a statute or regulation, Supervision 
directs the entity to implement appropriate corrective measures, 
including remediation of consumer harm when appropriate. Recent 
supervisory resolutions have resulted in restitution of approximately 
$14.3 million to more than 228,000 consumers. Other corrective actions 
have included, for example, furnishing corrected information to 
consumer reporting agencies, improving training for employees to 
prevent various law violations, and establishing and maintaining 
required policies and procedures.
    This report highlights supervision work generally completed between 
September 2015 and December 2015, though some completion dates may 
vary. Any questions or comments from supervised entities can be 
directed to [email protected].

2. Supervisory Observations

    Summarized below are some recent examination observations in 
consumer reporting, debt collection, mortgage origination, remittances, 
student loan servicing, and fair lending. As the CFPB's Supervision 
program progresses, we will continue to share positive practices found 
in the course of examinations (see sections 2.2.1, 2.4.4, and 2.5.1), 
as well as common opportunities for improvement.
    One such common area for improvement is the accuracy of information 
about consumers that is supplied to consumer reporting agencies. As 
discussed in previous issues, credit reports are vital to a consumer's 
access to credit; they can be used to determine eligibility for credit, 
and how much consumers will pay for that credit. Given this, the 
accuracy of information furnished by financial institutions to consumer 
reporting agencies is of the utmost importance. As in the last issue of 
Supervisory Highlights, this issue shares observations regarding the 
furnishing of consumer information across a number of product areas 
(see sections 2.1.1, 2.1.2, 2.1.4, 2.2.1 and 2.5.5).

2.1 Consumer Reporting

    CFPB examiners conducted one or more reviews of compliance with 
furnisher obligations under the Fair Credit Reporting Act (FCRA) and 
its implementing regulation, Regulation V, at depository institutions. 
The reviews focused on (i) entities furnishing information (furnishers) 
to nationwide specialty consumer reporting agencies (NSCRAs) that 
specialize in reporting in connection with deposit accounts and (ii) 
NSCRAs themselves.
2.1.1 Furnisher Failure To Have Reasonable Policies and Procedures 
Regarding Information Furnished to NSCRAs
    Regulation V requires companies that furnish information to 
consumer reporting companies to establish and implement reasonable 
written policies and procedures regarding the accuracy and integrity of 
the information they furnish. Whether policies and procedures are 
reasonable depends on the nature, size, complexity, and scope of each 
furnisher's activities. Examiners found that while one or more 
furnishers had policies and procedures generally pertaining to FCRA 
furnishing obligations, they failed to have policies and procedures 
addressing the furnishing of information related to deposit accounts. 
One or more furnishers also lacked processes or policies to verify data 
furnished through automated internal systems. For example, one or more 
furnishers established automated systems to

[[Page 30258]]

inform NSCRAs when an account was paid-in-full and when the account 
balance reached zero. But the furnishers did not have controls to check 
whether such information was actually furnished. To correct this 
deficiency, Supervision directed one or more furnishers to establish 
and implement policies and procedures to monitor the automated 
functions of its deposit furnishing processes.
2.1.2 Furnisher Failure To Promptly Update Outdated Information
    The FCRA requires furnishers that regularly and in the ordinary 
course of business furnish information to consumer reporting agencies 
to promptly update information they determine is incomplete or 
inaccurate. Examiners found that one or more such furnishers of deposit 
account information failed to correct and update the account 
information they had furnished to NSCRAs and/or did not institute 
reasonable policies and procedures regarding accuracy, including prompt 
updating of outdated information. When consumers paid charged-off 
accounts in full, one or more furnishers would update their systems of 
records to reflect the payment, but would not update the change in 
status from ``charged-off'' to ``paid-in-full'' and send the update to 
the NSCRAs. One or more furnishers also required consumers to call the 
entity to request updated furnishing information when they made final 
payments on settlement accounts. If a consumer did not call, furnishing 
on accounts settled-in-full were not updated to the NSCRAs. Not 
updating an account to paid-in-full or settled-in-full status could 
adversely affect consumers' attempts to establish new deposit or 
checking accounts. Supervision directed one or more furnishers to 
update the furnishing for all impacted accounts.
2.1.3 NSCRAs Ensuring Data Quality
    Supervision conducted examinations of one or more NSCRAs to assess 
their efforts to ensure data quality in their consumer reports. 
Examiners noted that one or more NSCRAs had internal inconsistencies in 
linking certain identifying information (e.g., Social Security numbers 
and last names) to consumer records associated with negative 
involuntary account closures, such as checking account closures for 
fraud or account abuse. These inconsistencies in some cases resulted in 
incorrect information being placed in consumers' files. Based on the 
weaknesses identified, Supervision directed one or more NSCRAs to 
develop and implement internal processes to monitor, detect, and 
prevent the association of account closures to incorrect consumer 
profiles, and to notify affected consumers.
2.1.4 NSCRA Oversight of Furnishers
    Examiners reviewed one or more NSCRAs, focusing on their various 
systems and processes used to oversee and approve furnishers. They 
found that one or more NSCRAs had weaknesses in their systems and 
processes for credentialing of furnishers before the furnishers were 
allowed to supply consumer information to an NSCRA. Specifically, 
examiners found that one or more NSCRAs did not always follow their own 
policies and procedures for issuing credentials to furnishers and did 
not implement a timeframe for furnishers to submit NSCRA-required 
documentation during the credentialing process. In addition, one or 
more NSCRAs failed to maintain documentation adequate under their 
policies and procedures to demonstrate the steps that were taken to 
approve a furnisher after the initial credentialing process. 
Supervision directed one or more NSCRAs to strengthen their oversight 
and establish documented policies and procedures for the timely 
tracking of credentialing and re-credentialing of furnishers.

2.2 Debt Collection

    The Supervision program covers certain bank and nonbank creditors 
who originate and collect their own debt, as well as the larger nonbank 
third-party debt collectors. During recent examinations, examiners 
observed a beneficial practice that involved using exception reports 
provided by consumer reporting agencies (CRAs) to improve the accuracy 
and integrity of information furnished to CRAs. However, examiners also 
identified several violations of the Fair Debt Collection Practices Act 
(FDCPA), including failing to honor consumers' requests to cease 
communication, and using false, deceptive or misleading representations 
or means regarding garnishment.
2.2.1 Use of Exception Reports by Furnishers To Reduce Errors in 
Furnished Information
    Banks and nonbanks that engage in collections activity and that 
furnish information about consumers' debts to CRAs must comply with the 
FCRA and Regulation V. As noted above, furnishers must establish and 
implement reasonable written policies and procedures regarding the 
accuracy and integrity of the information that they furnish to a CRA. 
CRAs routinely provide or make available exception reports to 
furnishers. These exception reports identify for furnishers the 
specific information a CRA has rejected from the furnisher's data 
submission to the CRA, and thus has not been included in a consumer's 
credit file. The reports also provide information that a furnisher can 
use to understand why the furnished information was rejected. In some 
circumstances, these rejections may help identify mechanical problems 
in transmitting data or potential inaccuracies of the information the 
furnisher attempted to furnish.
    In responding to a matter requiring attention requiring one or more 
entities engaging in collections activities to enhance policies and 
procedures to ensure proper and timely identification of information 
rejected by the CRAs, one or more entities enhanced its policies and 
procedures regarding the utilization of exception reports to resolve 
rejected information. Examiners found that the one or more entities 
reviewed and corrected rejections related to errors in consumer names, 
updated name and address information through customer outreach, and met 
regularly with the CRAs to discuss the exception reports and to 
identify patterns in rejections. As a result of these efforts, one or 
more entities had a significant reduction in errors and exceptions, 
which led to greater accuracy in the information furnished to CRAs.
2.2.2 Cease-Communication Requests
    Under section 805(c) of the FDCPA, when consumers notify a debt 
collector in writing that they refuse to pay a debt or that they wish 
the debt collector to cease further communication with them, the debt 
collector must, with certain exceptions, cease communication with the 
consumer with respect to the debt. Examiners determined that one or 
more debt collectors failed to honor some consumers' written requests 
to cease communication. The failures resulted from system data 
migration errors and from mistakes during manual data entry. In some 
instances, the debt collectors had not properly coded the accounts to 
prevent further calls. In other instances, debt collectors changed the 
accounts back to ``active'' status, allowing further communications to 
be made. Supervision directed one or more debt collectors to improve 
training for their employees on how to identify and properly handle 
cease-communication requests.
2.2.3 False, Deceptive or Misleading Representations Regarding 
Garnishment
    Under section 807 of the FDCPA, a debt collector may not use any 
false,

[[Page 30259]]

deceptive, or misleading representation or means in connection with the 
collection of any debt. Examiners determined that one or more debt 
collectors used false, deceptive, or misleading representations or 
means regarding administrative wage garnishment when performing 
collection services of defaulted student loans for the Department of 
Education. The debt collectors threatened garnishment against certain 
borrowers who were not eligible for garnishment under the Department of 
Education's guidelines. The debt collectors also gave borrowers 
inaccurate information about when garnishment would begin, creating a 
false sense of urgency. Supervision directed one or more debt 
collectors to conduct a root-cause analysis of what led their employees 
to make these statements and to improve training to prevent such 
statements in the future.

2.3 Mortgage Origination

    During the period covered by this report, the Title XIV rules were 
the focus of mortgage origination examinations. In addition, these 
examinations evaluated compliance for other applicable Federal consumer 
financial laws as well as evaluating entities' compliance management 
systems. Findings from examinations within this period demonstrate, 
with some exceptions, general compliance with the Title XIV rules. 
Exceptions include, for example, the absence of written policies and 
procedures at depository institutions required under the loan 
originator rule. Examiners also found certain deficiencies in 
compliance management systems, as discussed below.
2.3.1 Failure To Maintain Written Policies and Procedures Required by 
the Loan Originator Rule
    The loan originator rule under Regulation Z requires depository 
institutions to establish and maintain written policies and procedures 
for loan originator activities, which specifically cover prohibited 
payments, steering, qualification requirements, and identification 
requirements. In one or more examinations, depository institutions 
violated this provision by failing to maintain such written policies 
and procedures. In most of these cases, examiners found violations of 
one or more related substantive provisions of the rule. For example, 
one or more institutions did not provide written policies and 
procedures--a violation itself--and violated the rule by failing to 
comply with the requirement to include the loan originator's name and 
Nationwide Multistate Licensing System and Registry identification on 
loan documents. In these instances, examiners determined that the 
failure to have written policies and procedures covering identification 
requirements was a violation of the rule and Supervision directed one 
or more institutions to establish and maintain the required written 
policies and procedures.
2.3.2 Deficiencies in Compliance Management Systems
    At one or more institutions, examiners concluded that a weak 
compliance management system allowed violations of Regulations X and Z 
to occur. For example, one or more supervised entities failed to 
allocate sufficient resources to ensure compliance with Federal 
consumer financial law. As a result, these entities were unable to 
institute timely corrective-action measures, failed to maintain 
adequate systems, and had insufficient preventive controls to ensure 
compliance and the correct implementation of established policies and 
procedures. Supervision notified the entities' management of these 
findings, and corrective action was taken to improve the entities' 
compliance management systems.

2.4 Remittances

    The CFPB's amendments to Regulation E governing international money 
transfers (or remittances) became effective on October 28, 2013. 
Regulation E, Subpart B (or the Remittance Rule) provides new 
protections, including disclosure requirements, and error resolution 
and cancellation rights to consumers who send remittance transfers to 
other consumers or businesses in a foreign country. The amendments 
implement statutory requirements set forth in the Dodd-Frank Act.
    The CFPB began examining large banks for compliance with the 
Remittance Rule after the effective date, and, in December 2014, the 
Bureau gained supervisory authority over certain nonbank remittance 
transfer providers pursuant to one of its larger participant rules. The 
CFPB's examination program for both bank and nonbank remittance 
providers assesses the adequacy of each entity's CMS for remittance 
transfers. These reviews also check for providers' compliance with the 
Remittance Rule and other applicable Federal consumer financial laws. 
Below are some recent findings from Supervision's remittance transfer 
examination program.
    In all cases where examiners found violations of the Remittance 
Rule, Supervision directed entities to make appropriate changes to 
compliance management systems to prevent future violations and, where 
appropriate, to remediate consumers for harm they experienced.
2.4.1 Compliance Management Systems
    Overall, remittance transfer providers examined by Supervision have 
implemented changes to their CMS to address compliance with the 
Remittance Rule. But for some providers, CMS is in the early stages of 
development and weaknesses were noted. At both bank and nonbank 
remittance transfer providers, boards of directors and management have 
dedicated some resources to comply with the Remittance Rule, and have 
updated policies and procedures, complaint management and training 
programs to cover this area. But some providers did not implement these 
changes until sometime after the effective date of the Remittance Rule. 
Moreover, examiners found implementation gaps or systems issues, some 
of which were not addressed by pre-implementation testing and post-
implementation monitoring and audit. For example, examiners found that 
failure by one or more remittance transfer providers to conduct 
adequate testing of their systems led to consumers receiving inaccurate 
disclosures or, in some instances, no disclosures at all. At some 
nonbank remittance transfer providers, Supervision found weaknesses in 
the oversight of agents/service providers, consumer complaint response, 
and compliance audit.
2.4.2 Violations of the Remittance Rule
    The Remittance Rule requires that providers of remittance transfers 
give their customers certain disclosures before (i.e., a prepayment 
disclosure) and after (i.e., a receipt) the customer pays for the 
remittance transfer. The prepayment disclosure must include, among 
other things, the amount to be transferred; front-end fees and taxes; 
the applicable exchange rate; covered third-party fees (if applicable); 
the total amount to be received by the designated recipient; and a 
disclaimer that the total amount received by the designated recipient 
may be less than disclosed due to recipient bank fees and foreign 
taxes. The receipt includes all the information on the prepayment 
disclosure and additional information, including the date the funds 
will be available, disclosures on cancellation, refund and error 
resolution rights, and whom to

[[Page 30260]]

contact with issues related to the transfer. In lieu of separate 
disclosures, a provider can provide a combined disclosure when it would 
otherwise provide a prepayment disclosure and a proof of payment when 
it would otherwise provide a receipt.
    Examiners noted the following violations at one or more providers:

 Providing incomplete, and in some instances, inaccurate 
disclosures
 Failing to adhere to the regulatory timeframes (typically 
three business days) for refunding cancelled transactions
 Failing to communicate the results of error investigations at 
all or within the required timeframes, or communicating the results to 
an unauthorized party instead of the sender; and
 Failing to promptly credit consumers' accounts (for amounts 
transferred and fees) when errors occurred.

    The Remittance Rule requires that certain disclosures be given to 
consumers orally in transactions conducted orally and entirely by 
telephone. Examiners have also cited various violations of the rule 
related to oral disclosures. The Remittance Rule further requires 
disclosures in each of the foreign languages that providers principally 
use to advertise, solicit, or market remittance transfer services, or 
in the language primarily used by the sender to conduct the 
transaction, provided that the sender uses the language that is 
principally used by the remittance transfer provider to advertise, 
solicit, or market remittance transfer services. Compliance with the 
Remittance Rule's foreign language requirements has generally been 
adequate, though Supervision has cited one or more providers for 
failing to give oral disclosures and/or written results of 
investigations in the appropriate language.
2.4.3 Deceptive Representations
    One or more remittance providers made deceptive statements leaving 
consumers with a false impression regarding the conditions placed on 
designated recipients in order to access transmitted funds. Supervision 
directed one or more entities to review their marketing materials and 
make the necessary changes to cease these deceptive representations.
2.4.4 Zero-Money-Received Transactions
    At one or more remittance transfer providers, examiners observed 
transactions in which the provider disclosed to consumers that the 
recipients would receive zero dollars after fees were deducted. In some 
cases, consumers completed these transactions after receiving 
disclosures indicating that no funds would be received. When examiners 
informed providers of these transactions, multiple providers took 
voluntary proactive steps to alter their systems to either provide 
consumers with an added warning to ensure they understood the possible 
result of the transaction, or simply prevent these transactions from 
being completed. While not a violation of the Remittance Rule, the CFPB 
is continuing to gather information about transactions with this 
possible outcome.

2.5 Student Loan Servicing

    In September of last year, the Bureau released joint principles of 
student loan servicing together with the Departments of Education and 
Treasury as a framework to improve student loan servicing practices, 
promote borrower success and minimize defaults. We are committed to 
ensuring that student loan servicing is consistent, accurate and 
actionable, accountable, and transparent. The Bureau has made it a 
priority to take action against companies that are engaging in illegal 
servicing practices. To that end, supervising the student loan 
servicing market has therefore been a priority for the Supervision 
program. Our ongoing supervisory program has already touched a 
significant portion of the student loan servicing market, and industry 
members who service student loans would be well served by carefully 
reviewing the findings described below.
    The CFPB continues to examine entities servicing both Federal and 
private student loans, primarily assessing whether entities have 
engaged in unfair, deceptive, or abusive acts or practices prohibited 
by the Dodd-Frank Act. As in all applicable markets, Supervision also 
reviews student loan servicers' practices related to furnishing of 
consumer information to CRAs for compliance with the FCRA and its 
implementing regulation, Regulation V. In the Bureau's student loan 
servicing examinations, examiners have identified a number of positive 
practices, as well as several unfair acts or practices, and Regulation 
V violations.
2.5.1 Improved Student Loan Payment Allocation and Loan Modification 
Practices at Some Servicers
    As described in previous editions of Supervisory Highlights, 
examiners have found UDAAPs relating to payment allocation among 
multiple student loans in a borrower's account. However, examiners have 
also found that one or more servicers have adopted payment allocation 
policies for overpayments designed to be more beneficial to consumers 
by minimizing interest expense. For example, one or more servicers 
allocated payments exceeding the total monthly payment on the account 
by allocating the excess funds to the loan with the highest interest 
rate. These servicers also clearly explained the allocation methodology 
to consumers, communicated that consumers can provide instructions on 
allocating overpayments, and provided mechanisms for providing these 
instructions, so that borrowers could choose to allocate excess funds 
in a different manner if they'd like.
    Several reports of the CFPB Student Loan Ombudsman have noted that 
some private student loan borrowers have complained that they were not 
being offered repayment plans or loan modifications to assist them when 
they were struggling to make payments. In light of that, Supervision 
notes that it has observed reasonable borrower work-out plans at some 
private student loan servicers, suggesting that providing this kind of 
assistance is feasible.
2.5.2 Auto-Default
    Some private student loan promissory notes contain ``whole loan 
due'' clauses. In general, these clauses provide that if certain events 
occur, such as a consumer's bankruptcy or death, the loan will be 
accelerated and become immediately due. If the consumer does not 
satisfy the accelerated loan, the servicer will place the loan in 
default. This practice is sometimes referred to as an ``auto-default.''
    Examiners determined that one or more servicers engaged in an 
unfair practice in violation of the Dodd-Frank Act relating to auto-
default. When a private student loan had a borrower and a cosigner, one 
or more servicers would auto-default both borrower and cosigner if 
either filed for bankruptcy. These auto-defaults were unfair where the 
whole loan due clause was ambiguous on this point because reasonable 
consumers would not likely interpret the promissory notes to allow 
their own default based on a co-debtor's bankruptcy. Further, one or 
more servicers did not notify either co-debtor that the loan was placed 
in default. Some consumers only learned that a servicer placed the loan 
in a default status when they identified adverse information on their 
consumer reports, the servicer stopped accepting loan payments, or they 
were contacted by a debt collector.
    Supervision directed one or more servicers to immediately cease 
this

[[Page 30261]]

practice. Additionally, since the CFPB's April 2014 report first 
highlighted auto-defaults as a concern, some companies have voluntarily 
ceased the practice.
2.5.3 Failure To Disclose Impact of Forbearance on Cosigner Release 
Eligibility
    In one or more examinations, examiners determined that servicers 
committed unfair practices by failing to disclose a significant adverse 
consequence of forbearance. For some private student loans, a 
borrower's use of forbearance can delay, or permanently foreclose, the 
cosigner release option agreed to in the contract. Examiners found that 
one or more servicers committed an unfair practice by not disclosing 
this potential consequence when borrowers applied for forbearance. 
Consumers are at risk of substantial injury when, as a result of 
forbearance, the ability to release a cosigner is delayed or 
foreclosed. As a result of these findings, examiners directed one or 
more servicers to improve the content of its communications regarding 
the impact that forbearance use has on the availability of cosigner 
release.
2.5.4 Servicing Conversion Errors Costing Borrowers Money
    Multiple loan owners have their loans serviced by student loan 
servicers. When ownership of student loans changes but the servicer 
continues to service the account, a servicer may need to ``convert'' 
the account to reflect the new loan owner. Similar conversions might be 
necessary when other major changes are made to the account (like the 
identity of the primary borrower). At one or more servicers, examiners 
found unfair practices connected to these conversions. Examiners found 
that, during a loan conversion process, one or more servicers used 
inaccurate interest rates that exceeded the rate for which the consumer 
was liable under the promissory note instead of using the correct 
interest rate information to update the relevant loan records. 
Examiners found this to be an unfair practice, and Supervision directed 
one or more servicers that committed this unfair practice to implement 
a plan to reimburse all affected consumers.
2.5.5 Furnishing and Regulation V
    Compliance with the FCRA and Regulation V remains a top priority in 
the CFPB's student loan servicing examinations. Regulation V requires 
companies that furnish information on consumers to CRAs to establish 
and implement reasonable written policies and procedures regarding the 
accuracy and integrity of the information they furnish. Whether 
policies and procedures are reasonable depends on the nature, size, 
complexity, and scope of the entity's furnishing activities. Servicers 
and other furnishers must consider the guidelines in Appendix E to 12 
CFR 1022 in developing their policies and procedures and incorporate 
those guidelines that are appropriate.
    Many student loan servicers have extensive furnishing operations, 
sending information on millions of consumers to CRAs every month. 
During one or more student loan servicing examinations, examiners found 
one or more servicers that did not have any written policies and 
procedures regarding the accuracy and integrity of information 
furnished to the CRAs. Examiners also found policies and procedures 
that were insufficient to meet the obligations imposed by Regulation V. 
For example, examiners found:
     Policies and procedures that do not reference one another 
so that it is difficult to determine which policy or procedure applies;
     Policies and procedures that do not contemplate record 
retention, internal controls, audits, testing, third party vendor 
oversight, or the technology used to furnish information to CRAs; and
     Policies and procedures that lack sufficient detail on 
employee training.
    In light of the extensive nature, size, complexity, and scope of 
the furnishing activities, examiners found that these policies and 
procedures were not reasonable according to Regulation V. Supervision 
directed one or more servicers to enhance their policies and procedures 
regarding the accuracy and integrity of information furnished to CRAs, 
including by addressing the conduct described in the bullets listed 
above.

2.6 Fair Lending

2.6.1 Updates: Fair Lending Enforcement Settlement Administration
Ally Financial Inc. and Ally Bank

    On December 19, 2013, working in close coordination with the DOJ, 
the CFPB ordered Ally Financial Inc. and Ally Bank (Ally) to pay $80 
million in damages to harmed African-American, Hispanic, and Asian and/
or Pacific Islander borrowers. This public enforcement action 
represented the Federal Government's largest auto loan discrimination 
settlement in history.
    On January 29, 2016, harmed borrowers participating in the 
settlement were mailed checks by the Ally settlement administrator, 
totaling $80 million, plus interest. The Bureau found that Ally had a 
policy of allowing dealers to increase or ``mark up'' consumers' risk-
based interest rates, and paying dealers from those markups, and that 
the policy lacked adequate controls or monitoring. As a result, the 
Bureau found that between April 2011 and December 2013, this markup 
policy resulted in African-American, Hispanic, Asian and Pacific 
Islander borrowers paying more for auto loans than similarly situated 
non-Hispanic white borrowers.
    In the summer and fall of 2015, the Ally settlement administrator 
contacted potentially eligible borrowers to confirm their eligibility 
and participation in the settlement. To be eligible for a payment, a 
borrower must have:
     Obtained an auto loan from Ally between April 2011 and 
December 2013;
     Had at least one borrower on the loan who was African-
American, Hispanic, Asian or Pacific Islander; and
     Been overcharged.
    Through that process, the settlement administrator identified 
approximately 301,000 eligible, participating borrowers and co-
borrowers who were overcharged as a result of Ally's discriminatory 
markup policy during the relevant time period, representing 
approximately 235,000 loans.
    In addition to the $80 million in settlement payments for consumers 
who were overcharged between April 2011 and December 2013, and pursuant 
to its continuing obligations under the terms of the orders, Ally 
recently paid approximately $38.9 million to consumers that Ally 
determined were both eligible and overcharged on auto loans issued 
during 2014.
    Additional information regarding this public enforcement action can 
be found in the Summer 2014 edition of Supervisory Highlights.
Synchrony Bank, formerly known as GE Capital Retail Bank

    On June 19, 2014, the CFPB, as part of a joint enforcement action 
with the DOJ, ordered Synchrony Bank, formerly known as GE Capital, to 
provide $169 million in relief to about 108,000 borrowers excluded from 
debt relief offers because of their national origin, in violation of 
ECOA. This public enforcement action represented the Federal 
Government's largest credit card discrimination settlement in history.
    In the course of administering the settlement, Synchrony Bank 
identified additional consumers who have a mailing address in Puerto 
Rico or who indicated a preference to communicate in Spanish and were 
excluded from these offers. Synchrony Bank provided a total of 
approximately $201 million in

[[Page 30262]]

redress including payments, credits, interest, and debt forgiveness to 
approximately 133,463 eligible consumers. This amount includes 
approximately $4 million of additional redress based on the bank's 
identification of additional eligible consumers. Redress to consumers 
in the Synchrony matter was completed as of August 8, 2015. Additional 
information regarding this enforcement action can be found in the Fall 
2014 edition of Supervisory Highlights.

3. Remedial Actions

3.1 Public Enforcement Actions

    The Bureau's supervisory activities resulted in or supported the 
following public enforcement actions.
3.1.1 EZCORP, Inc.
    On December 16, 2015, the CFPB announced a consent order with 
EZCORP, Inc., a short-term, small-dollar lender, for illegal debt 
collection practices, some of which were initially discovered during 
the course of a Bureau examination. These practices related to in-
person collection visits at consumers' homes or workplaces, risking 
disclosing the existence of consumers' debt to unauthorized third 
parties, falsely threatening consumers with litigation for non-payment 
of debts, misrepresenting consumers' rights, and unfairly making 
multiple electronic withdrawal attempts from consumer accounts which 
caused mounting bank fees. EZCORP violated the Electronic Fund Transfer 
Act and the Dodd-Frank Act's prohibition against unfair or deceptive 
acts or practices.
    EZCORP will refund $7.5 million to 93,000 consumers, pay a $3 
million civil money penalty, and stop collection of remaining payday 
and installment loan debts owed by roughly 130,000 consumers. The 
consent order also bars EZCORP from future in-person debt collection. 
In addition, the CFPB issued an industry-wide warning about potentially 
unlawful conduct during in-person collections at homes or workplaces.
3.1.2 Fifth Third Bank
    On September 28, 2015, the CFPB resolved an action with Fifth Third 
Bank (Fifth Third) that requires Fifth Third to change its pricing and 
compensation system by substantially reducing or eliminating 
discretionary markups to minimize the risks of discrimination. On that 
same date, the DOJ filed a complaint and proposed consent order in the 
U.S. District Court for the Southern District of Ohio addressing the 
same conduct. That consent order was entered by the court on October 1, 
2015. The CFPB found and the DOJ alleged that Fifth Third's past 
practices resulted in thousands of African-American and Hispanic 
borrowers paying higher interest rates than similarly-situated non-
Hispanic white borrowers for their auto loans. The consent orders 
require Fifth Third to pay $18 million in restitution to affected 
borrowers.
    As of the second quarter of 2015, Fifth Third was the ninth largest 
depository auto loan lender in the United States and the seventeenth 
largest auto loan lender overall. As an indirect auto lender, Fifth 
Third sets a risk-based interest rate, or ``buy rate,'' that it conveys 
to auto dealers. Fifth Third then allows auto dealers to charge a 
higher interest rate when they finalize the transaction with the 
consumer. This is typically called ``discretionary markup.'' Markups 
can generate compensation for dealers while giving them the discretion 
to charge similarly-situated consumers different rates. Fifth Third's 
policy permitted dealers to mark up consumers' interest rates as much 
as 2.5% during the period under review.
    From January 2013 through May 2013, the Bureau conducted an 
examination that reviewed Fifth Third's indirect auto lending business 
for compliance with ECOA and Regulation B. On March 6, 2015, the Bureau 
referred the matter to the DOJ. The CFPB found and the DOJ alleged that 
Fifth Third's indirect lending policies resulted in minority borrowers 
paying higher discretionary markups, and that Fifth Third violated ECOA 
by charging African-American and Hispanic borrowers higher 
discretionary markups for their auto loans than non-Hispanic white 
borrowers without regard to the creditworthiness of the borrowers. The 
CFPB found and the DOJ alleged that Fifth Third's discriminatory 
pricing and compensation structure resulted in thousands of minority 
borrowers from January 2010 through September 2015 paying, on average, 
over $200 more for their auto loans.
    The CFPB's administrative consent order and the DOJ's consent order 
require Fifth Third to reduce dealer discretion to mark up the interest 
rate to a maximum of 1.25% for auto loans with terms of five years or 
less, and 1% for auto loans with longer terms, or move to non-
discretionary dealer compensation. Fifth Third is also required to pay 
$18 million to affected African-American and Hispanic borrowers whose 
auto loans were financed by Fifth Third between January 2010 and 
September 2015. The Bureau did not assess penalties against Fifth Third 
because of the bank's responsible conduct, namely the proactive steps 
the bank is taking that directly address the fair lending risk of 
discretionary pricing and compensation systems by substantially 
reducing or eliminating that discretion altogether. In addition, Fifth 
Third Bank must hire a settlement administrator who will contact 
consumers, distribute the funds, and ensure that affected borrowers 
receive compensation. The CFPB will release a consumer advisory with 
contact information for the settlement administrator once a settlement 
administrator is named.
3.1.3 M&T Bank, as Successor to Hudson City Savings Bank
    On September 24, 2015, the CFPB and the DOJ filed a joint complaint 
against Hudson City Savings Bank (Hudson City) alleging discriminatory 
redlining practices in mortgage lending and a proposed consent order to 
resolve the complaint. The complaint alleges that from at least 2009 to 
2013, Hudson City illegally redlined in violation of the Equal Credit 
Opportunity Act (ECOA) by providing unequal access to credit to 
neighborhoods in New York, New Jersey, Connecticut, and Pennsylvania. 
The DOJ also alleged that Hudson City violated the Fair Housing Act, 
which also prohibits discrimination in residential mortgage lending. 
Specifically, the complaint alleges that Hudson City structured its 
business to avoid and thereby discourage prospective borrowers in 
majority-Black-and-Hispanic neighborhoods from accessing mortgages. The 
consent order requires Hudson City to pay $25 million in direct loan 
subsidies to qualified borrowers in the affected communities, $2.25 
million in community programs and outreach, and a $5.5 million penalty. 
This represents the largest redlining settlement in history as measured 
by such direct subsidies. On November 1, 2015, Hudson City was acquired 
by M&T Bank Corporation, and Hudson City was merged into Manufacturers 
Banking and Trust Company (M&T Bank), with M&T Bank as the surviving 
institution. As the successor to Hudson City, M&T Bank is responsible 
for carrying out the terms of the Consent Order.
    Hudson City was a federally-chartered savings association with 135 
branches and assets of $35.4 billion and focused its lending on the 
origination and purchase of mortgage loans secured by single-family 
properties. According to the complaint, Hudson City illegally avoided 
and thereby discouraged consumers in majority-Black-and-

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Hispanic neighborhoods from applying for credit by:
     Placing branches and loan officers principally outside of 
majority-Black-and-Hispanic communities;
     Selecting mortgage brokers that were mostly located 
outside of, and did not effectively serve, majority-Black-and-Hispanic 
communities;
     Focusing its limited marketing in neighborhoods with 
relatively few Black and Hispanic residents; and
     Excluding majority-Black-and-Hispanic neighborhoods from 
its credit assessment areas.
    The consent order which was entered by the court on November 4, 
2015, requires Hudson City to pay $25 million to a loan subsidy program 
that will offer residents in majority-Black-and-Hispanic neighborhoods 
in New Jersey, New York, Connecticut, and Pennsylvania mortgage loans 
on a more affordable basis than otherwise available from Hudson City; 
spend $1 million on targeted advertising and outreach to generate 
applications for mortgage loans from qualified residents in the 
affected majority-Black-and-Hispanic neighborhoods; spend $750,000 on 
local partnerships with community-based or governmental organizations 
that provide assistance to residents in majority-Black-and-Hispanic 
neighborhoods; and spend $500,000 on consumer education, including 
credit counseling and financial literacy. In addition to the monetary 
requirements, the decree orders Hudson City to open two full-service 
branches in majority-Black-and-Hispanic neighborhoods, expand its 
assessment areas to include majority-Black-and-Hispanic communities, 
assess the credit needs of majority-Black-and-Hispanic communities, and 
develop a fair lending compliance and training program.

3.2 Non-Public Supervisory Actions

    In addition to the public enforcement actions above, recent 
supervisory activities have resulted in approximately $14.3 million in 
restitution to more than 228,000 consumers. These non-public 
supervisory actions generally have been the product of CFPB ongoing 
supervision and/or targeted examinations, often involving either 
examiner findings or self-reported violations of Federal consumer 
financial law. Recent non-public resolutions were reached in the areas 
of deposits, debt collection, and mortgage origination.

4. Supervision Program Developments

4.1 Examination Procedures

4.1.1 Updated ECOA Baseline Review Modules
    On October 30, 2015, the CFPB published an update to the ECOA 
baseline review modules, which are part of the CFPB Supervision and 
Examination Manual. Examination teams use the ECOA baseline review 
modules to evaluate how institutions' compliance management systems 
identify and manage fair lending risks under ECOA. The procedures have 
been reorganized into five modules: Fair Lending supervisory history; 
Fair Lending compliance management system; and modules on Fair Lending 
risks related to origination, servicing, and underwriting models. 
Examination teams will use the second module, ``Fair Lending compliance 
management system,'' to evaluate compliance management as part of in-
depth ECOA targeted reviews. The fifth module, ``Fair Lending risks 
related to models,'' is a new addition that examiners will use to 
review models that supervised financial institutions may use. The ECOA 
baseline review modules are consistent with and cross-reference the 
FFIEC interagency Fair Lending examination procedures. They can be 
utilized to evaluate fair lending risk at any supervised institution 
and in any product line.
    When using the modules to conduct an ECOA baseline review, CFPB 
examination teams review an institution's fair lending supervisory 
history, including any history of fair lending risks or violations 
previously identified by the CFPB or any other Federal or state 
regulator. Examination teams collect and evaluate information about an 
entity's fair lending compliance program, including board of director 
and management participation, policies and procedures, training 
materials, internal controls and monitoring and corrective action. In 
addition to responses obtained pursuant to information requests, 
examination teams may also review other sources of information, 
including any publicly available information about the entity as well 
as information obtained through interviews with institution staff or 
supervisory meetings with an institution.

4.2 Recent CFPB Guidance

    The CFPB is committed to providing guidance on its supervisory 
priorities to industry and members of the public.
4.2.1 Bulletin on Furnisher Fair Credit Reporting Act (FCRA) Obligation 
To Have Reasonable Written Policies and Procedures
    On February 3, 2016, the CFPB issued a bulletin \1\ to emphasize 
the obligation of furnishers under the FCRA and its implementing 
Regulation V to establish and implement reasonable written policies and 
procedures regarding the accuracy and integrity of information relating 
to consumers that they furnish to CRAs. The supervisory experience of 
the Bureau suggests that some financial institutions are not compliant 
with their obligations under Regulation V with regard to furnishing to 
specialty CRAs. This obligation, which has been required under 
Regulation V since July 2010, applies to furnishing to all CRAs, 
including furnishing to specialty CRAs, such as the furnishing of 
deposit account information to CRAs. The bulletin emphasizes that 
furnishers must have policies and procedures that meet this requirement 
with respect to all CRAs to which they furnish.
---------------------------------------------------------------------------

    \1\ Published in the Federal Register on February 4, 2016 (81 FR 
5992).
---------------------------------------------------------------------------

4.2.2 Bulletin on In-Person Collection of Consumer Debt
    Bulletin 2015-07, released on December 16, 2015, notes that both 
first-party and third-party debt collectors may run a heightened risk 
of committing unfair acts or practices in violation of the Dodd-Frank 
Act when they conduct in-person debt collection visits, including to a 
consumer's workplace or home. An act or practice is unfair under the 
Dodd-Frank Act when it causes or is likely to cause substantial injury 
to consumers which is not reasonably avoidable by consumers and is not 
outweighed by countervailing benefits to consumers or to competition. 
With respect to substantial injury, the bulletin explains that 
depending on the facts and circumstances, these visits may cause or be 
likely to cause substantial injury to consumers. For example, in-person 
collection visits may result in third parties such as consumers' co-
workers, supervisors, roommates, landlords, or neighbors learning that 
the consumers have debts in collection, which could harm the consumer's 
reputation and, with respect to in-person collection at a consumer's 
workplace, result in negative employment consequences.
    In addition, depending on the facts and circumstances, in-person 
collection visits may result in substantial injury to consumers even 
when there is no risk that the existence of the debt in collections 
will be disclosed to third

[[Page 30264]]

parties. For example, a consumer who is not allowed to have visitors at 
work may suffer adverse employment consequences as a result of these 
visits, regardless of whether there is a risk of disclosure to third 
parties. Further, if the likely or actual consequence of the visits is 
to harass the consumer, an in-person collection visit may also be 
likely to cause substantial injury to the consumer.
    Finally, the bulletin also notes that third-party debt collectors 
and others subject to the FDCPA engaging in in-person collection visits 
risk violating certain provisions of the FDCPA, such as section 805(b) 
of the FDCPA's prohibition on communicating with third parties in 
connection with the collection of any debt (subject to certain 
exceptions).
4.2.3 Bulletin on Requirements for Consumer Authorizations for 
Preauthorized Electronic Fund Transfers
    On November 23, 2015, the CFPB released bulletin 2015-06, which 
reminds entities of their obligations under the Electronic Fund 
Transfer Act (EFTA) and its implementing regulation, Regulation E, when 
obtaining consumer authorizations for preauthorized electronic fund 
transfers (EFTs) from a consumer's account. The bulletin explains that 
oral recordings obtained over the phone may authorize preauthorized 
EFTs under Regulation E provided that these recordings also comply with 
the E-Sign Act. Further, the bulletin outlines entities' obligations to 
provide a copy of the terms of preauthorized EFT authorizations to 
consumers, summarizes the current law, highlights relevant supervisory 
findings, and articulates the CFPB's expectations for entities 
obtaining consumer authorizations for preauthorized EFTs to help them 
ensure their compliance with Federal consumer financial law.

5. Conclusion

    The CFPB recognizes the value of communicating program findings to 
CFPB-supervised entities to aid them in their efforts to comply with 
Federal consumer financial law, and to other stakeholders to foster 
better understanding of the CFPB's work.
    To this end, the Bureau remains committed to publishing its 
Supervisory Highlights report periodically in order to share 
information regarding general supervisory and examination findings 
(without identifying specific institutions, except in the case of 
public enforcement actions), to communicate operational changes to the 
program, and to provide a convenient and easily accessible resource for 
information on the CFPB's guidance documents.

6. Regulatory Requirements

    This Supervisory Highlights summarizes existing requirements under 
the law, summarizes findings made in the course of exercising the 
Bureau's supervisory and enforcement authority, and is a non-binding 
general statement of policy articulating considerations relevant to the 
Bureau's exercise of its supervisory and enforcement authority. It is 
therefore exempt from notice and comment rulemaking requirements under 
the Administrative Procedure Act pursuant to 5 U.S.C. 553(b). Because 
no notice of proposed rulemaking is required, the Regulatory 
Flexibility Act does not require an initial or final regulatory 
flexibility analysis. 5 U.S.C. 603(a), 604(a). The Bureau has 
determined that this Supervisory Highlights does not impose any new or 
revise any existing recordkeeping, reporting, or disclosure 
requirements on covered entities or members of the public that would be 
collections of information requiring OMB approval under the Paperwork 
Reduction Act, 44 U.S.C. 3501, et seq.

    Dated: May 10, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-11423 Filed 5-13-16; 8:45 am]
 BILLING CODE 4810-AM-P