[Federal Register Volume 85, Number 176 (Thursday, September 10, 2020)]
[Notices]
[Pages 55828-55840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19978]


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BUREAU OF CONSUMER FINANCIAL PROTECTION


Supervisory Highlights, Issue 22 (Summer 2020)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Supervisory Highlights.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
issuing its twenty second edition of Supervisory Highlights. In this 
issue of Supervisory Highlights, we report examination findings in the 
areas of consumer reporting, debt collection, deposits, fair lending, 
and mortgage servicing that were completed between September 2019 and 
December 2019. The report does not impose any new or different

[[Page 55829]]

legal requirements, and all violations described in the report are 
based only on those specific facts and circumstances noted during those 
examinations.

DATES: The Bureau released this edition of the Supervisory Highlights 
on its website on September 4, 2020.

FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Counsel, at (202) 435-
7449. If you require this document in an alternative electronic format, 
please contact [email protected].

SUPPLEMENTARY INFORMATION:

1. Introduction

    The Consumer Financial Protection Bureau (Bureau) is committed to a 
consumer financial marketplace that is free, innovative, competitive, 
and transparent, where the rights of all parties are protected by the 
rule of law, and where consumers are free to choose the products and 
services that best fit their individual needs. To effectively 
accomplish this, the Bureau remains committed to sharing with the 
public key findings from its supervisory work to help industry limit 
risks to consumers and comply with Federal consumer financial law.
    The findings included in this report cover examinations in the 
areas of consumer reporting, debt collection, deposits, fair lending, 
and mortgage servicing that were completed between September 2019 and 
December 2019.\1\
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    \1\ This time frame refers to the Supervisory Observations 
section only.
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    It is important to keep in mind that institutions are subject only 
to the requirements of relevant laws and regulations. The information 
contained in Supervisory Highlights is disseminated to help 
institutions better understand how the Bureau examines institutions for 
compliance with those requirements. This document does not impose any 
new or different legal requirements. In addition, the legal violations 
described in this and previous issues of Supervisory Highlights are 
based on the particular facts and circumstances reviewed by the Bureau 
as part of its examinations. A conclusion that a legal violation exists 
on the facts and circumstances described here may not lead to such a 
finding under different facts and circumstances.
    We invite readers with questions or comments about the findings and 
legal analysis reported in Supervisory Highlights to contact us at 
[email protected].

2. Supervisory Observations

    Recent supervisory observations are reported in the areas of 
consumer reporting, debt collection, deposits, fair lending, and 
mortgage servicing.

2.1 Consumer Reporting

    Entities that obtain or use consumer reports from consumer 
reporting companies (CRCs),\2\ or that furnish information to CRCs for 
inclusion in consumer reports, play a vital role in the consumer 
reporting process. They are subject to several requirements under the 
Fair Credit Reporting Act (FCRA) \3\ and its implementing regulation, 
Regulation V,\4\ including the requirement to only obtain or use 
reports for a permissible purpose, and to furnish data subject to the 
relevant accuracy and dispute handling requirements. In one or more 
recent furnishing reviews, examiners found deficiencies in user and 
furnisher compliance with FCRA permissible purpose, accuracy, and 
dispute investigation requirements.
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    \2\ The term ``consumer reporting company'' means the same as 
``consumer reporting agency,'' as defined in the Fair Credit 
Reporting Act, 15 U.S.C. 1681a(f), including nationwide consumer 
reporting agencies as defined in 15 U.S.C. 1681a(p) and nationwide 
specialty consumer reporting agencies as defined in 15 U.S.C. 
1681a(x).
    \3\ 15 U.S.C. 1681 et seq.
    \4\ 12 CFR part 1022.
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2.1.1 Prohibition Against Using or Obtaining Consumer Reports Without a 
Permissible Purpose
    The FCRA prohibits a person from using or obtaining a consumer 
report unless the consumer report is obtained for a purpose authorized 
by the FCRA.\5\ This prohibition protects the privacy of consumers and 
prevents the potential negative impact of certain inquiries. Examiners 
found that one or more lenders obtained consumers' credit reports 
without a permissible purpose. In reviewing files for compliance with 
permissible purpose requirements, examiners found that the lenders' 
employees obtained consumers' credit reports from a CRC without first 
establishing that the lenders had a permissible purpose to obtain the 
report under the FCRA. After identification of these issues, one or 
more lenders revised permissible purpose policies, procedures, and 
training materials. While consumer consent is not required by the FCRA 
when a lender has another permissible purpose to obtain the consumer's 
report, one or more mortgage lenders decided to require that the 
lender's employees document consumer consent prior to obtaining the 
consumers' credit reports, as an additional precaution to ensure that 
the lender had a permissible purpose to obtain the consumers' reports.
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    \5\ 15 U.S.C. 1681b(f).
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2.1.2 Furnisher Duty To Provide Notice of Delinquency of Accounts
    The FCRA requires furnishers of information regarding delinquent 
accounts to report the date of delinquency to the CRC within 90 
days.\6\ The FCRA specifies that the date of first delinquency reported 
by the furnisher ``shall be the month and year of the commencement of 
the delinquency on the account that immediately preceded the action.'' 
\7\
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    \6\ 15 U.S.C. 1681s-2(a)(5)(A). This provision applies to 
accounts being placed for collection, charged to profit or loss, or 
subjected to similar action.
    \7\ Id.
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    In one or more examinations of third-party debt collection 
furnishers, examiners found that the furnishers failed to establish and 
follow reasonable procedures to obtain the actual date of first 
delinquency from their clients. Instead, they furnished a date they 
knew or had reason to believe was an incorrect date of first 
delinquency. The third-party debt collection furnishers were furnishing 
information about cable, satellite, and telecommunications accounts. 
The furnishers reported, as the date of first delinquency, the date 
that the consumer's service was disconnected, despite 
telecommunications companies routinely disconnecting service several 
months after the first missed payment that commenced the delinquency. 
In addition, in one or more examinations of third-party debt collection 
furnishers, examiners found the furnisher provided the charge-off date 
as the date of first delinquency, which is often several months after 
the commencement of delinquency. Subsequent to these findings, one or 
more furnishers ceased operations.
2.1.3 Duty To Conduct Reasonable Investigation of Disputes
    For disputes filed directly with furnishers, Regulation V requires 
furnishers to conduct a reasonable investigation with respect to the 
disputed information and review all relevant information provided by 
the consumer with the dispute notice.\8\ Similarly, for indirect 
disputes filed with CRCs, the FCRA requires that, upon receiving notice 
of the dispute from the CRC, the furnisher must conduct an 
investigation with respect to the disputed information and review all 
relevant information provided by the

[[Page 55830]]

CRC.\9\ In one or more examinations, examiners found that, for both 
direct and indirect disputes, the furnishers failed to review 
underlying account information and documentation, account history 
notes, or dispute-related correspondence provided by the consumer to 
assess what reasonable investigative steps would be necessary. 
Inadequate staffing and high daily dispute resolution requirements 
contributed to the furnishers' failure to conduct reasonable 
investigations. As with the findings described above in section 2.1.2, 
subsequent to these findings, one or more furnishers ceased operations.
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    \8\ 12 CFR 1022.43(e)(1-2).
    \9\ 15 U.S.C. 1681s-2(b)(1)(A)-(B).
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2.2 Debt Collection

    The Bureau has the supervisory authority to examine certain 
entities that engage in consumer debt collection activities, including 
nonbanks that are larger participants in the consumer debt collection 
market.\10\ Recent examinations of larger participant debt collectors 
identified one or more violations of the Fair Debt Collection Practices 
Act (FDCPA).
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    \10\ 12 CFR 1090.
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2.2.1 False Litigation Threats and Misrepresentations Regarding 
Litigation
    Section 807(5) of the FDCPA prohibits ``[t]he threat to take any 
action that cannot legally be taken or that is not intended to be 
taken.'' \11\ Section 807(10) prohibits ``[t]he use of any false 
representation or deceptive means to collect or attempt to collect any 
debt . . . .'' \12\ Examiners found that one or more debt collectors 
falsely threatened consumers with lawsuits that the collectors could 
not legally file or did not intend to file, in violation of section 
807(5). Examiners also determined that one or more debt collectors made 
false representations regarding the litigation process and a consumer's 
obligations in the event of litigation, in violation of section 
807(10). In response to these findings, the debt collectors are making 
changes to their training, scripts, monitoring, and other compliance 
processes.
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    \11\ 15 U.S.C. 1692e(5).
    \12\ 15 U.S.C. 1692e(10).
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2.2.2 False Implication That Debt Could Be Reported to CRCs
    Section 807(10) of the FDCPA prohibits ``[t]he use of any false 
representation or deceptive means to collect or attempt to collect any 
debt . . . .'' \13\ Examiners observed that one or more debt collectors 
made implied representations to consumers that they would report their 
debts to CRCs \14\ if they were not paid by a certain date. The debt 
collectors did not report debts to CRCs for the relevant clients. 
Examiners concluded that the debt collectors' statements were false 
representations that violated section 807(10). In response to these 
findings, the debt collectors are making changes to their training and 
monitoring.
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    \13\ Id.
    \14\ As noted above in Footnote 2, the term ``consumer reporting 
company'' means the same as ``consumer reporting agency,'' as 
defined in the FCRA, 15 U.S.C. 1681a(f).
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2.2.3 False Representation That Debt Collector Is a CRC
    Section 807(16) of the FDCPA prohibits ``[t]he false representation 
or implication that a debt collector operates or is employed by a 
consumer reporting agency . . . .'' \15\ Examiners observed that one or 
more debt collectors falsely represented or implied to consumers that 
they operated or were employed by CRCs in violation of section 807(16). 
In response to these findings, the debt collectors are making changes 
to their training and monitoring.
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    \15\ 15 U.S.C. 1692e(16).
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2.3 Deposits

    The CFPB continues to examine banks for compliance with Regulation 
E,\16\ which implements the Electronic Fund Transfer Act (EFTA). EFTA 
establishes a legal framework for the offering and use of electronic 
fund transfer services and remittance transfer services.\17\ The CFPB 
also continues to review the deposits operations of the entities under 
its supervisory authority for compliance with relevant statutes and 
regulations, including Regulation DD,\18\ which implements the Truth in 
Savings Act.\19\
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    \16\ 12 CFR 1005.
    \17\ 12 U.S.C. 1693.
    \18\ 12 CFR 1030.
    \19\ Id.
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2.3.1 Waivers of Consumers' Error Resolution and Stop Payment Rights 
and Financial Institutions' Liability
    EFTA states that ``no writing or other agreement between a consumer 
and any other person may contain any provision which constitutes a 
waiver of any right conferred or cause of action created by this 
subchapter.'' \20\ EFTA and Regulation E state that consumers have a 
right to have their claims of error investigated if their notice of 
error meets certain criteria.\21\ As described below, the criteria does 
not include agreeing to ``cooperate'' with the financial institution's 
error investigation. EFTA and Regulation E together establish that 
consumers have a right to have a financial institution investigate 
their error subject only to the requirements set forth in EFTA and 
Regulation E.
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    \20\ 15 U.S.C. 1693l.
    \21\ 15 U.S.C. 1693f and 12 CFR 1005.11(b)(1).
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    Examiners found that one or more financial institutions required 
consumers to sign deposit account agreements that stated that the 
consumers would ``cooperate'' with the institution's investigation of 
any errors filed by the consumer. The ``cooperation'' included 
providing affidavits and notifying law enforcement authorities. By 
requiring consumers to ``cooperate'' with Regulation E error 
investigations and provide information beyond that which is required in 
EFTA and Regulation E, the financial institutions' agreements contained 
provisions that waived consumers' rights in violation of EFTA.
    EFTA and Regulation E also provide consumers with rights to stop 
preauthorized payments.\22\ Under EFTA, consumers have the right to 
stop payment, subject only to those limitations set forth in EFTA and 
Regulation E.\23\ Regulation E contains a comprehensive list of actions 
consumers must take in order to make an effective request to stop 
payment.\24\ The list does not include agreeing to indemnify and hold 
the financial institution harmless for costs that may arise from 
honoring the valid stop payment request or agreeing not to hold the 
institution liable if it is unable to stop payment due to inadvertence, 
accident, or oversight.
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    \22\ 15 U.S.C. 1693e and 12 CFR 1005.10(c).
    \23\ 15 U.S.C. 1693e and 1693l and 12 CFR 1005.10(c)(1).
    \24\ 12 CFR 1005.10(c)(1).
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    Examiners found that one or more financial institutions required 
consumers to sign stop payment request forms and deposit agreements in 
which the consumers agreed to indemnify and hold the institutions 
harmless for various claims and expenses arising from the institutions 
honoring stop payment requests. This included not holding the financial 
institutions liable if they were unable to stop the payment due to 
inadvertence, accident, or oversight. As this language requires more of 
consumers than EFTA and Regulation E allow, the stop payment forms and 
deposit agreements impermissibly waived consumers' rights in violation 
of, and waived the institutions' liability under, EFTA and Regulation E 
for certain failures to stop payment.\25\
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    \25\ 15 U.S.C. 1693h and 1693l.
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    In response to the examiners' findings, the financial institutions

[[Page 55831]]

revised their deposit agreements and stop payment forms to ensure they 
do not contain any waivers of rights in violation of EFTA.
2.3.2 Reliance on Incorrect Date To Assess Timeliness of EFT Error 
Notice
    Regulation E requires that financial institutions comply with 
specific requirements with respect to qualifying oral or written 
notices of an EFT error. With respect to timing, EFTA and Regulation E 
require that the oral or written notice must be received by the 
institution ``no later than 60 days after the institution sends the 
periodic statement . . . on which the alleged error is first 
reflected.'' \26\
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    \26\ 12 CFR 1005.11(b)(1)(i).
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    Examiners found that one or more financial institutions required 
that EFT notice errors relating to ACH transactions be received within 
60 days of the date of the transactions. For claims received after 60 
days from the date of the transaction, the institutions treated the 
error notice as late, and would request permission from the merchant's 
bank to reverse the charges.
    The financial institutions revised their policies on EFT error 
notice processing to comply with the Regulation E timing requirements.
2.3.3 Violation of Error Results Notice Requirements
    Both section 908(a) of EFTA and Regulation E require a financial 
institution investigating an alleged EFT error to communicate to 
consumers, among other elements, (1) the investigation determination; 
and (2) an explanation of the determination when it determines that no 
error or a different error occurred within its report of results.\27\
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    \27\ 12 U.S.C. 1693f(a) and 1693f(d) and 12 CFR 1005.11(d)(1).
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    To give purpose to both obligations, the meaning of an 
``explanation'' is not synonymous with that of a ``determination.'' 
Financial institutions must go beyond just providing the findings to 
actually explain or give the reasons for or cause of those findings.
    Examiners found that one or more financial institutions violated 
Regulation E by failing to provide an explanation of its findings 
within the report of results. In addition, examiners found that one or 
more financial institutions violated Regulation E by providing an 
inaccurate or irrelevant response to the consumer when it determined 
that no error or a different error occurred.\28\
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    \28\ Id.
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    Regulation E also requires financial institutions to note, in the 
report of results, the consumer's right to request the documents that 
the institution relied on in making its determination when the 
institution determines no error or a different error occurred.\29\ 
Examiners found that one or more financial institutions' reports of 
results letters sent to consumers after determining that no error or a 
different error occurred, were missing the required notice of the 
consumer's right to request the documents that the institution relied 
on in making its determination, as required by Regulation E.\30\
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    \29\ Id.
    \30\ Id.
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    In response to the examiners' findings, the financial institutions 
undertook a revision of its report of results templates used when the 
financial institutions determine no error or different error occurred 
to ensure that the letter provides: (a) The determination; (b) an 
explanation of the financial institution's findings; and, (c) a 
statement noting the consumer's right to request the documents that the 
financial institutions relied on in making its determination, as 
required by Regulation E.\31\
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    \31\ Id.
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2.3.4 Failure To Fulfill Advertised Bonus Offer
    Regulation DD requires that advertisements of deposit accounts not 
mislead, be inaccurate, or misrepresent the financial institution's 
deposit contract.\32\
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    \32\ 12 CFR 1030.8(a)(1).
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    Examiners found that one or more financial institutions advertised 
bonuses for consumers who opened an account at the financial 
institutions and met certain requirements that the advertisement 
specified. These financial institutions failed to provide the promised 
bonuses in instances where consumers met the requirements. The 
financial institutions did not have appropriate quality control and 
monitoring procedures to ensure all eligible consumers received the 
bonus. Therefore, the advertisement of bonus offer was misleading and 
inaccurate in violation of Regulation DD.
    In response to the examiners' findings, the financial institutions 
enhanced their account opening training, as well as monitoring and 
quality control procedures, to ensure that consumer accounts were 
correctly coded as bonus-eligible and that all consumers eligible for 
the advertised bonuses received them.

2.4 Fair Lending

    The Bureau's fair lending supervision program assesses compliance 
with the Equal Credit Opportunity Act (ECOA) \33\ and its implementing 
regulation, Regulation B,\34\ as well as the Home Mortgage Disclosure 
Act (HMDA) \35\ and its implementing regulation, Regulation C,\36\ at 
banks and nonbanks over which the Bureau has supervisory authority. 
Examiners found one or more lenders engaged in violations of ECOA and 
Regulation B.
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    \33\ 12 U.S.C. 1691.
    \34\ 12 CFR 1002.
    \35\ 12 U.S.C. 2801.
    \36\ 12 CFR 1003.
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2.4.1 Redlining
    Regulation B prohibits discouragement of ``applicants or 
prospective applicants'' and it also states: ``A creditor shall not 
make any oral or written statement, in advertising or otherwise, to 
applicants or prospective applicants that would discourage on a 
prohibited basis a reasonable person from making or pursuing an 
application.'' \37\ The Official Interpretations of Regulation B also 
explains that Regulation B ``covers acts or practices directed at 
prospective applicants that could discourage a reasonable person, on a 
prohibited basis, from applying for credit.'' \38\
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    \37\ 12 CFR 1002.4(b).
    \38\ 12 CFR part 1002, supp. I, para. 4(b)-1.
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    In the course of conducting supervisory activity of bank and 
nonbank mortgage lenders, examiners have observed that one or more 
lenders violated ECOA and Regulation B, intentionally redlining 
majority-minority neighborhoods in two Metropolitan Statistical Areas 
(MSAs) by engaging in acts or practices directed at prospective 
applicants that may have discouraged reasonable people from applying 
for credit.
    Examiners determined that the lenders used marketing that would 
discourage reasonable persons on a prohibited basis from applying to 
the lenders for a mortgage loan. First, the lenders advertised in a 
publication with a wide circulation in the MSAs, on a weekly basis, for 
two years. These ads prominently featured a white model. Second, the 
lenders' marketing materials, which were intended to be distributed to 
consumers by the lenders' retail loan originators, featured almost 
exclusively white models. Third, the lenders included headshots of the 
lenders' mortgage professionals in nearly all its open house marketing 
materials, and in almost all these

[[Page 55832]]

materials, the headshots showed professionals who appeared to be white.
    The statistical analysis of the HMDA data and U.S. Census data 
provided evidence regarding the lenders' intent to discourage 
prospective applicants from majority-minority neighborhoods. General 
and refined peer analyses showed that the lenders received 
significantly fewer applications from majority-minority and high-
minority neighborhoods \39\ relative to other peer lenders in the MSAs. 
Also, the lenders' direct marketing campaign that focused on majority-
white areas in the MSAs provided additional evidence of the lenders' 
intent to discourage prospective applicants on a prohibited basis.
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    \39\ Examination teams defined majority-minority areas as >50% 
minority and high-minority areas as >80% minority.
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    In response to the examination findings, lenders implemented 
outreach and marketing programs focused on increasing their visibility 
among consumers living in or seeking credit in majority-minority census 
tracts in the MSAs. One or more lenders also are improving compliance 
management systems, including board and management oversight, 
monitoring and/or audit programs, and handling of consumer complaints.
2.4.2 Failure To Consider Public Assistance Income
    The ECOA states that it is ``unlawful for any creditor to 
discriminate against any applicant, with respect to any aspect of a 
credit transaction . . . because all or part of the applicant's income 
derives from any public assistance program.'' \40\ The Official 
Interpretation of Regulation B defines ``public assistance program'' as 
follows: ``Any Federal, State, or local governmental assistance program 
that provides a continuing, periodic income supplement, whether 
premised on entitlement or need, is `public assistance' for purposes of 
the regulation. The term includes (but is not limited to) Temporary Aid 
to Needy Families, food stamps, rent and mortgage supplement or 
assistance programs, social security and supplemental security income, 
and unemployment compensation.'' \41\ Regulation B allows a creditor to 
``consider the amount and probable continuance of any income in 
evaluating an applicant's creditworthiness.'' \42\ However, the 
Official Interpretation further provides that ``[i]n considering the 
separate components of an applicant's income, the creditor may not 
automatically discount or exclude from consideration any protected 
income. Any discounting or exclusion must be based on the applicant's 
actual circumstances.'' \43\
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    \40\ 15 U.S.C. 1691(a)(2).
    \41\ 12 CFR part 1002, supp. I, para. 2(z)-(3).
    \42\ 12 CFR 1002.6(b)(5).
    \43\ 12 CFR part 1002, supp. 1, para. 6(b)(5)-(3)(ii); see also 
id. at 6(b)(5)-(1) (``A creditor must evaluate income derived from . 
. . public assistance on an individual basis. . . .'').
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    Examiners found that one or more lenders violated ECOA and 
Regulation B by maintaining a policy and practice that excluded certain 
forms of public assistance income, without considering the applicant's 
actual circumstances including unemployment compensation and SNAP 
benefits, commonly known as food stamps, from consideration in 
determining a borrower's eligibility for mortgage modification 
programs. One or more lenders acknowledged that they excluded certain 
types of public assistance income from income calculations when 
evaluating loss mitigation applications, even though the lenders did 
not have written policies directing the practice. Examiners identified 
several instances whereby the applicant listed certain forms of public 
assistance income in the loss mitigation application. In each instance, 
the lenders excluded the public assistance income from their income 
calculations and, in certain instances, the applicant was denied a loss 
mitigation option due to insufficient income.
    In response to the examination findings, the lenders updated 
policies and procedures and enhanced training to ensure that their 
practices concerning public assistance income comply with ECOA and 
Regulation B. In addition, lenders identified borrowers who, due to 
their reliance on certain forms of public assistance income, were 
denied mortgage modifications or otherwise harmed. The lenders provided 
such borrowers with financial remuneration and an appropriate mortgage 
modification.

2.5 Mortgage Servicing

    Recent mortgage servicing examinations have identified various 
Regulation Z and Regulation X violations. These include violations of 
Regulation Z requirements to provide consumers in bankruptcy with 
periodic statements and violations of Regulation X provisions related 
to force-placed insurance and escrow accounts. In the context of loan 
transfers, examiners identified violations of Regulation X requirements 
to provide servicing transfer notices and exercise reasonable diligence 
to complete a loss mitigation application; violations of FDCPA 
requirements to provide debt validation notices; and violations of 
Regulation Z requirements to credit payments as of the date of receipt 
and provide mortgage loan ownership transfer disclosures. Additionally, 
examiners identified one or more ECOA violations for failure to 
consider certain forms of public assistance income when considering 
borrowers for mortgage modification programs (that violation is 
summarized in the fair lending section of this issue).
2.5.1 Failure To Provide Consumers in Bankruptcy With Periodic 
Statements
    In general, Regulation Z requires servicers to provide consumers 
with closed-end mortgage loans with periodic statements that meet 
certain requirements.\44\ Prior to April 2018, servicers were not 
required to provide periodic statements to consumers in bankruptcy. 
After April 2018, servicers are required to provide periodic statements 
when any consumer on the mortgage loan is in bankruptcy, unless an 
exemption is met.\45\
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    \44\ 12 CFR 1026.41(a).
    \45\ See 12 CFR 1026.41(e)(5); 81 FR 72160 (Oct. 19, 2016), 
available at: https://www.govinfo.gov/content/pkg/FR-2016-10-19/pdf/2016-18901.pdf.
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    Examiners found that one or more servicers violated Regulation Z by 
failing to provide periodic statements when a consumer on the loan was 
in Chapter 12 or Chapter 13 Bankruptcy. Examiners found that causes 
included system limitations and failure to reconcile accounting 
records. The servicers contracted with third parties to maintain 
records regarding costs related to bankruptcy. However, these records 
were not reconciled with the servicers' systems of record, so the 
servicers were unable to provide accurate information about the total 
amount due, payment history, costs, and fees associated with the 
account. Instead of reconciling the amounts to enable them to send 
accurate statements, for a period of time servicers did not send 
statements when a consumer was in in Chapter 12 or Chapter 13 
Bankruptcy. In response to these findings, the servicers developed a 
process to reconcile accounting records and began sending periodic 
statements to consumers in Chapter 12 or Chapter 13 Bankruptcy in 
accordance with the regulation.
2.5.2 Failure To Have a Reasonable Basis for Charging Borrowers for 
Force-Placed Insurance
    Under Regulation X, a servicer may not assess a borrower a premium 
charge or fee for force-placed insurance unless the servicer has a 
``reasonable basis'' to believe that the borrower failed to maintain 
required hazard insurance.\46\
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    \46\ 12 CFR 1024.37(b).

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[[Page 55833]]

    Examiners found that one or more servicers violated Regulation X by 
charging borrowers for force-placed insurance without a reasonable 
basis for believing that the consumer had not maintained required 
hazard insurance. Examiners found that in some instances borrowers had 
provided their servicers with proof of required hazard insurance 
policies, either directly or through their insurance companies. 
However, the servicers failed to update their systems of record to 
reflect receipt of this information and subsequently charged borrowers 
for force-placed insurance. Examiners observed that this violation was 
caused by inadequate procedures and lack of adequate staffing. In other 
instances, the servicers received a bill for the borrowers' hazard 
insurance but did not assign it to the proper account. The servicers 
later charged borrowers for force-placed insurance, despite not having 
a reasonable basis to believe that the borrowers lacked hazard 
insurance. Examiners attributed this violation to a weakness in service 
provider oversight. In response to these findings, the servicers are 
improving service provider oversight or hiring new service providers to 
manage force-placed insurance charges.
2.5.3 Failure To Timely Refund All Force-Placed Insurance Charges for 
Overlapping Coverage
    Regulation X generally requires a servicer to cancel force-placed 
insurance and refund force-placed insurance premium charges for any 
period where a consumer provides evidence of overlapping insurance 
coverage within 15 days of receiving the evidence of coverage.\47\
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    \47\ 12 CFR 1024.37(g)(1) & (2).
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    Examiners found that one or more servicers violated Regulation X by 
failing to cancel force-placed insurance and refund charges within 15 
days of receiving evidence of overlapping insurance coverage. Examiners 
observed that this was caused by failure to process proof of insurance 
and insufficient staffing. In response to these findings, the servicers 
are improving management of force-placed insurance programs to ensure 
timely cancellation of force-placed insurance and timely refunds to 
borrowers.
2.5.4 Permitted Repayment Options in Annual Escrow Statements
    Under Regulation X, servicers generally must annually complete an 
escrow analysis and determine the ``target balance'' in an escrow 
account for the next escrow computation year.\48\ If the escrow account 
balance is below the ``target balance,'' there is a ``shortage;'' if 
the consumer's escrow account balance is negative, then there is a 
``deficiency.'' \49\ Regulation X provides specific permitted options 
for servicers as to the treatment of shortages and deficiencies. Which 
options are available depends in part on the extent of the shortage or 
deficiency.\50\ For example, for shortages equal to or greater than one 
month's escrow account payment, the servicer must either (1) allow the 
shortage to exist and do nothing to change it; or (2) require repayment 
of the shortage in equal monthly payments over at least a 12-month 
period.\51\ For deficiencies equal to or greater than one month's 
escrow account payment, the servicer must either (1) allow the 
deficiency to exist and do nothing to change it; or (2) require 
repayment of the deficiency in equal monthly payments over a period of 
2 months or more.\52\ Regulation X also requires servicers to send 
borrowers annual escrow account statements which must include ``[a]n 
explanation of how any shortage or deficiency is to be paid by the 
borrower.'' \53\
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    \48\ 12 CFR 1024.17(c)(3).
    \49\ 12 CFR 1024.17(b).
    \50\ 12 CFR 1024.17(f)(3) & (4).
    \51\ 12 CFR 1024.17(f)(3)(ii).
    \52\ 12 CFR 1024.17(f)(4)(ii).
    \53\ 12 CFR 1024.17(i)(1)(vii).
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    Examiners found that one or more servicers sent consumers annual 
escrow account statements which included options for repayment of 
shortages and deficiencies that are not enumerated in Regulation X. 
Specifically, for borrowers with either shortages or deficiencies equal 
to or greater than one month's escrow account payment, servicers listed 
two options borrowers could choose for repayment: (1) Equal monthly 
payments over a 12-month period or (2) a lump sum payment. The first 
option is a permitted repayment option under Regulation X, while the 
second option is not.\54\ Regulation X requires that annual escrow 
account statements include an explanation of how shortages or 
deficiencies are to be paid by borrowers.\55\ Because the enumerated 
repayment options are exclusive, the servicers violated the regulatory 
requirements by sending disclosures that provided borrowers with 
repayment options that they cannot require under Regulation X.\56\
---------------------------------------------------------------------------

    \54\ See 12 CFR 1024.17(f)(3) & (4).
    \55\ 12 CFR 1024.17(i)(1)(vii).
    \56\ See 12 CFR 1024.17(i)(1)(vii).
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    In response to these findings, the servicers are amending their 
annual escrow disclosures to only include repayment options they are 
permitted to require under Regulation X.
2.5.5 Violations After Servicing Transfers
    Examiners have identified various violations after servicing 
transfers, including: Failure to provide an accurate effective date for 
the transfer of servicing in the required notice of servicing transfer; 
\57\ failure to exercise reasonable diligence to obtain documents and 
information necessary to complete a loss mitigation application; \58\ 
failure to credit a periodic payment as of the date of receipt; \59\ 
and, when a servicer is acting as a debt collector, failure to provide 
a validation notice within 5 days of the initial communication with the 
borrower when such notice is required.\60\
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    \57\ 12 CFR 1024.33(b)(4)(i).
    \58\ 12 CFR 1024.41(b)(1).
    \59\ 12 CFR 1026.36(c)(1)(i).
    \60\ 15 U.S.C. 1692g(a). The notice is required unless the 
information is contained in the initial communication or the 
consumer has paid the debt.
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    For example, in the context of loans with loss mitigation 
applications in process at the time of the transfer, certain 
applications were virtually complete, but some transferee servicers 
asked borrowers to submit new applications, leading examiners to 
conclude that servicers had failed to exercise reasonable diligence to 
obtain the information necessary to complete these loss mitigation 
applications as the regulation requires. Examiners found that these 
violations were caused by errors during the onboarding process as well 
as inadequate policies and procedures. In response to these findings, 
the servicers increased attention to due diligence during servicing 
transfers and improved relevant policies and procedures to prevent 
violations in future servicing transfers.
2.5.6 Failure To Provide Loan Ownership Transfer Disclosures
    Regulation Z generally requires that when ownership of a loan 
transfers, the new owner must send a disclosure with required content 
to consumers.\61\
---------------------------------------------------------------------------

    \61\ 12 CFR 1026.39(b).
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    Examiners found that one or more servicers failed to send consumers 
the mortgage transfer disclosure after acquiring the loans, in 
violation of Regulation Z. In response to these findings, the servicers 
are reviewing the contracts that assign responsibilities between 
transferees and transferors and reinforcing the regulatory requirements 
internally; servicers who violated the rule will send mortgage transfer

[[Page 55834]]

disclosures after future transfers in accordance with Regulation Z.

2.6 Payday Lending

    The Bureau's Supervision program covers entities that offer or 
provide payday loans. Examinations of these lenders identified 
deceptive acts or practices and violations of Regulation Z.
2.6.1 Misleading Representations About the Ability To Apply for a Loan 
Online
    Sections 1031 and 1036(a)(1)(b) of the Consumer Financial 
Protection Act (CFPA) prohibit a covered person such as a payday lender 
from engaging in any unfair, deceptive, or abusive act or practice.\62\ 
A representation, omission, or practice is deceptive if: (1) The 
representation, omission, or practice misleads or is likely to mislead 
the consumer; (2) the consumer's interpretation of the representation, 
omission, or practice is reasonable under the circumstances; and (3) 
the misleading representation, omission, or practice is material.\63\
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    \62\ 12 U.S.C. 5531, 5536(a)(1)(B).
    \63\ See FTC Policy Statement on Deception, appended to In re 
Cliffdale Assoc., Inc., 103 F.T.C. 110, 174 (1984).
---------------------------------------------------------------------------

    Examiners found that one or more lenders engaged in deceptive acts 
or practices in violation of the CFPA when they represented on websites 
and in mailed advertising that consumers could apply for payday loans 
online. Examiners found the representations misled or were likely to 
mislead consumers. Although consumers could enter limited information 
online, the lenders required them to visit physical storefront 
locations to re-enter information and complete the loan application 
process. A consumer could reasonably interpret the express and indirect 
representations to mean they could complete the application process 
online. The representations were material because they were likely to 
affect consumer decisioning. For example, a consumer could have chosen 
to apply with a different lender who had a faster or otherwise more 
convenient process. In response to examination findings, the entity or 
entities ceased misleading advertising on websites and in mailed 
advertising, and implemented enhanced advertising policies and 
procedures and oversight.
2.6.2 False Representation That No Credit Check Will Be Conducted
    Examiners observed one or more lenders engaged in deceptive acts or 
practices in violation of the CFPA when they falsely represented on 
proprietary websites, social media, and other advertising that they 
would not conduct a credit check. In fact, the lenders used consumer 
reports from at least one CRC in determining whether to extend credit. 
It was reasonable for a consumer to interpret the representations as 
meaning that the lenders would not check a consumer's credit history 
when deciding whether to extend credit, and the representations were 
material because they were likely to affect consumers' conduct with 
respect to loans. Prospective customers may have had credit history 
concerns and made a different choice. In response to the examination 
findings, one or more lenders ceased making misleading representations 
online and elsewhere, and implemented enhanced advertising policies and 
procedures and oversight.
2.6.3 False Threats of Lien Placement or Asset Seizure
    Examiners found one or more lenders engaged in deceptive acts or 
practices by sending collection letters that falsely threatened lien 
placement or asset seizure if consumers did not make payments, although 
the entities did not take those measures. Moreover, certain consumer 
assets may have been exempt from lien or seizure under State law. It 
was reasonable for consumers to interpret the representations to mean 
that the entities could and would take such measures, and the 
statements were material because consumers may have made different 
payment choices had they known the representations were false. In 
response to the examination findings, one or more entities ceased 
including the erroneous information in collection letters.
2.6.4 False Threats of Being Subject to Late Payment Fee
    Examiners found one or more lenders engaged in deceptive acts or 
practices by sending collection letters that falsely threatened to 
charge late fees if consumers did not make payments, even though the 
entities did not charge late fees. A consumer could reasonably 
interpret the representations as meaning that the entities would charge 
late fees absent payment. Such threats were material, because they were 
likely to affect consumers' payment choices. In response to the 
findings, one or more lenders ceased including the false statements in 
collection letters.
2.6.5 Failure To Make Triggering Disclosures in Payday Loan 
Advertisements
    Regulation Z requires advertisements for closed-end credit that 
contain certain triggering terms, such as the amount of any finance 
charge, to disclose additional terms.\64\ Required additional 
advertising disclosures include the annual percentage rate (APR) and 
terms of repayment.\65\
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    \64\ 12 CFR 1026.24(d)(1).
    \65\ 12 CFR 1026.24(d)(2)(ii) and (iii).
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    Examiners observed that one or more lenders failed to provide 
required additional disclosures in advertisements offering ``free'' 
loans to new customers. An advertisement of the total cost of consumer 
credit is an advertisement of the dollar amount of a finance 
charge,\66\ a triggering term.\67\ Accordingly, the entities were 
obligated to provide additional advertising disclosures under 
Regulation Z. In response to the findings, one or more entities 
implemented enhanced advertising policies and procedures and oversight, 
and ensured that all applicable advertisements that contain triggering 
terms include required Regulation Z disclosures.
---------------------------------------------------------------------------

    \66\ See 12 CFR 1026.4(a).
    \67\ 12 CFR 1026.24(d)(1)(iv).
---------------------------------------------------------------------------

2.6.6 Not Actually Prepared To Offer Advertised Loan Term
    Regulation Z also requires an advertisement for credit that states 
specific credit terms to state only those terms that actually are or 
will be arranged or offered by the creditor.\68\ Examiners concluded 
that one or more entities violated Regulation Z when they advertised 
that a new customer's first payday loan would be free, even though the 
lenders were not actually prepared to offer the advertised term. 
Instead, the entities offered consumers one free week for loans lasting 
longer than one week, that featured considerable APRs. In response to 
the findings, one or more entities implemented enhanced advertising 
policies and procedures and oversight, and, ceased advertising loan 
terms that lenders were not actually prepared to offer, including that 
a consumer's first loan would be free.
---------------------------------------------------------------------------

    \68\ 12 CFR 1026.24(a).
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3. Supervision Program Developments

3.1 COVID-19 Related Information and Guidance

3.1.1 Interagency Statement on Pandemic Planning
    On March 6, 2020, the Federal Financial Institutions Examination 
Council (FFIEC) on behalf of its member agencies published updated 
guidance \69\ identifying actions that financial institutions should 
take to minimize the potential adverse effects of a pandemic. The 
statement noted that financial

[[Page 55835]]

institutions should periodically review related risk management plans, 
including business continuity plans, to ensure that they are able to 
continue to deliver products and services in a wide range of scenarios 
with minimal disruption.
---------------------------------------------------------------------------

    \69\ The statement can be found at: https://www.federalreserve.gov/supervisionreg/srletters/SR2003a1.pdf.
---------------------------------------------------------------------------

3.1.2 Joint Statement Encouraging Responsible Small-Dollar Lending in 
Response to COVID-19
    On March 26, 2020, the Bureau along with the Board of Governors of 
the Federal Reserve Bank, the Federal Deposit Insurance Corporation, 
the National Credit Union Administration and the Office of the 
Comptroller of Currency (collective the Agencies) issued a joint 
statement \70\ that encouraged banks, savings associations, and credit 
unions to offer responsible small-dollar loans to consumers and small 
businesses in response to COVID-19. The statement noted that loans 
should be offered in a manner that provides fair treatment of 
consumers, complies with applicable laws and regulations, and is 
consistent with safe and sound practices. The joint statement also 
encouraged lenders to work with borrowers who may experience unexpected 
circumstances and cannot repay a loan as structured.
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    \70\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_small-dollar-lending-covid-19_2020-03.pdf.
---------------------------------------------------------------------------

3.1.3 CFPB Provides Flexibility During COVID-19 Pandemic
    On March 26, 2020, the Bureau published three separate statements 
\71\ noting its flexible approach during the pandemic. The Bureau 
announced that as of March 26, 2020, and until further notice the 
Bureau does not intend to cite in an examination or initiate an 
enforcement action against an entity for failure to submit to the 
Bureau:
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    \71\ The three statements are: (1) Statement on Supervisory and 
Enforcement Practices Regarding Quarterly Reporting Under the Home 
Mortgage Disclosure Act; (2) Statement on Supervisory and 
Enforcement Practices Regarding Bureau Information Collections for 
Credit Card and Prepaid Account Issuers; and (3) Statement on Bureau 
Supervisory and Enforcement Response to COVID-19 Pandemic. The 
statements can be found at: https://files.consumerfinance.gov/f/documents/cfpb_hmda-statement_covid-19_2020-03.pdf, https://files.consumerfinance.gov/f/documents/cfpb_data-collection-statement_covid-19_2020-03.pdf, https://files.consumerfinance.gov/f/documents/cfpb_supervisory-enforcement-statement_covid-19_2020-03.pdf.
---------------------------------------------------------------------------

    [ssquf] Quarterly submissions of HMDA data;
    [ssquf] annual submissions concerning agreements between credit 
card issuers and institutions of higher education;
    [ssquf] quarterly submission of consumer credit card agreements;
    [ssquf] collection of certain credit card price and availability 
information; and
    [ssquf] submission of prepaid account agreements and related 
information.
    Entities should maintain records sufficient to allow them to make 
delayed submissions pursuant to future Bureau guidance.
    The Bureau also announced that it will work with affected financial 
institutions in scheduling examinations and other supervisory 
activities to minimize disruption and burden. When conducting 
examinations and other supervisory activities and in determining 
whether to take enforcement action, the Bureau will consider the 
circumstances that entities may face as a result of the COVID-19 
pandemic and will be sensitive to good-faith efforts demonstrably 
designed to assist consumers.
3.1.4 Statement on Supervisory and Enforcement Practices Regarding the 
Fair Credit Reporting Act and Regulation V in Light of the CARES Act
    On April 1, 2020, the Bureau released a statement,\72\ which 
outlined the responsibilities of CRCs and furnishers during the COVID-
19 pandemic. The statement noted that the CARES Act requires lenders to 
report to CRCs that a consumer is current on their loans if the lender 
has provided the consumer with payment relief in certain circumstances. 
In addition, the Bureau noted temporary and targeted flexibility in its 
supervisory and enforcement approach for lenders and CRCs facing 
challenges as a result of the COVID-19 pandemic in the time they take 
to investigate disputes. The Bureau stated that it will consider a 
furnisher's or CRC's individual circumstances and does not intend to 
cite in an examination or bring an enforcement action against firms 
impacted by the pandemic who exceed the deadlines to investigate such 
disputes as long as they make good faith efforts during the pandemic to 
do so as quickly as possible. The Bureau also released FAQs on June 16, 
2020, to help ensure that consumers receive the credit reporting 
protections required by the CARES Act.\73\
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    \72\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_credit-reporting-policy-statement_cares-act_2020-04.pdf.
    \73\ The FAQs can be found at: https://files.consumerfinance.gov/f/documents/cfpb_fcra_consumer-reporting-faqs-covid-19_2020-06.pdf.
---------------------------------------------------------------------------

3.1.5 Joint Statement on Supervisory and Enforcement Practices 
Regarding the Mortgage Servicing Rules in Response to COVID-19 and the 
CARES Act
    On April 3, 2020, the Agencies and the State financial regulators 
issued a joint policy statement \74\ providing regulatory flexibility 
to enable mortgage servicers to work with struggling consumers affected 
by the COVID-19 emergency.\75\ The statement informs servicers of the 
Agencies' flexible supervisory and enforcement approach during the 
COVID-19 emergency regarding certain communications to consumers 
required by the mortgage servicing rules.
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    \74\ The statement can be found at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200403a1.pdf.
    \75\ In conjunction with this statement, the Bureau published, 
``Mortgage Servicing Rules FAQs Related to the COVID-19 Emergency.'' 
The FAQs can be found at: https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rules-covid-19_faqs.pdf.
---------------------------------------------------------------------------

    The policy statement clarified that the agencies do not intend to 
take supervisory or enforcement action against mortgage servicers for:
    [ssquf] Delays in sending certain early intervention and loss 
mitigation notices and taking certain related actions required by the 
mortgage servicing rules, provided that servicers are making good faith 
efforts to provide these notices and take these actions within a 
reasonable time;
    [ssquf] failing to provide an acknowledgement notice within five 
days of receipt of an incomplete application, where the borrower enters 
certain short-term payment forbearance programs or short-term repayment 
plans, provided the servicer sends the acknowledgment notice before the 
end of the forbearance or repayment period; and
    [ssquf] delays in sending annual escrow statements, provided that 
servicers are making good faith efforts to provide these statements 
within a reasonable time.
3.1.6 Interagency Statement on Loan Modifications by Financial 
Institutions Working With Customers Affected by the Coronavirus
    On April 7, 2020, the Agencies, in consultation with State 
financial regulators, issued an interagency statement \76\ encouraging 
financial institutions to work constructively with borrowers affected 
by COVID-19 and providing additional information

[[Page 55836]]

regarding accounting and reporting considerations for loan 
modifications.\77\ The statement encouraged financial institutions to 
work with borrowers impacted by the coronavirus and promised not to 
criticize institutions for doing so in a safe-and-sound manner. It also 
highlighted that when working with borrowers, lenders and servicers 
should adhere to consumer protection requirements, including fair 
lending laws, to provide the opportunity for all borrowers to benefit 
from these arrangements. It stated that Agencies will consider various 
facts and circumstances when conducting supervisory work evaluating 
compliance during the relevant time period. Additionally, it stated 
that the Agencies do not expect to take a consumer compliance public 
enforcement action against an institution, provided that the 
circumstances were related to the national emergency and that the 
institution made good faith efforts to support borrowers and comply 
with the consumer protection requirements, as well as respond to any 
needed corrective action.
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    \76\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_loan-modifications-reporting-covid-19_2020-04.pdf.
    \77\ This statement replaces one previously issued by the 
Agencies on March 22, 2020. The revised statement clarifies the 
interaction between the interagency statement issued on March 22, 
2020, and the temporary relief provided by section 4013 of the CARES 
Act.
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3.1.7 Treatment of Pandemic Relief Payments Under Regulation E and 
Application of the Compulsory Use Prohibition
    On April 13, 2020, the Bureau issued an interpretive rule \78\ to 
provide guidance to government agencies distributing aid to consumers 
in response to the COVID-19 pandemic.
---------------------------------------------------------------------------

    \78\ The interpretative rule can be found at: https://files.consumerfinance.gov/f/documents/cfpb_interpretive-rule_pandemic-relief-payments-reg-e.pdf and at: https://www.federalregister.gov/documents/2020/04/27/2020-08084/treatment-of-pandemic-relief-payments-under-regulation-e-and-application-of-the-compulsory-use.
---------------------------------------------------------------------------

    The Bureau concluded that certain pandemic-relief payments are not 
``government benefits'' for purposes of Regulation E and EFTA and are 
therefore not subject to the compulsory use prohibition in EFTA, if 
certain conditions are met.
    Specifically, the Bureau interprets the term ``government benefit'' 
to exclude payments from Federal, State, or local governments if those 
payments are made:
    1. To provide assistance to consumers in response to the COVID-19 
pandemic or its economic impacts;
    2. Outside of an already-established government benefit program;
    3. On a one-time or otherwise limited basis; and
    4. Without a general requirement that consumers apply to the agency 
to receive funds.
3.1.8 Interagency Statement on Appraisals and Evaluations for Real 
Estate Related Transactions Affected by the Coronavirus
    On April 14, 2020, the Bureau, together with the Agencies, issued 
an interagency statement outlining flexibilities in industry appraisal 
standards and in appraisal regulations and described temporary changes 
to Fannie Mae and Freddie Mac appraisal standards.
3.1.9 Compliance Bulletin and Policy Guidance: Handling of Information 
and Documents During Mortgage Servicing Transfers (CFPB Bulletin 2020-
02)
    On April 24, 2020, the Bureau published a Bulletin \79\ to provide 
mortgage servicers clarity, facilitate compliance, and prevent harm to 
consumers during the transfer of residential mortgages.
---------------------------------------------------------------------------

    \79\ The bulletin can be found at: https://files.consumerfinance.gov/f/documents/cfpb_policy-guidance_mortgage-servicing-transfers_2020-04.pdf. The bulletin is also available in 
the Federal Register at 85 FR 25281 (May 1, 2020).
---------------------------------------------------------------------------

    Regulation X imposes specific requirements on transferors and 
transferees to prevent harm to consumers resulting from servicing 
transfers, including requiring transferee servicers to maintain 
policies and procedures that are reasonably designed to ensure that the 
servicer can identify necessary documents or information that may not 
have been transferred by a transferor servicer and obtain such 
documents from the transferor servicer. The Bulletin listed some 
examples of servicer practices that the Bureau may consider as 
contributing to policies and procedures that are reasonably designed to 
achieve the objectives of these transfer requirements, including:
    [ssquf] Developing a servicing transfer plan that includes a 
communications plan, testing plan (for system conversion), a timeline 
with key milestones and an escalation plan for potential problems;
    [ssquf] Engaging in quality control work after a transfer of 
preliminary data to validate that the data on the transferee's system 
matches the data submitted by the transferor;
    [ssquf] Conducting a post-transfer review or debrief to determine 
effectiveness of the transfer plan and whether any gaps have arisen 
that require resolution;
    [ssquf] Monitoring consumer complaints and loss mitigation 
performance metrics; and
    [ssquf] Identifying any loans in default, active foreclosure and 
bankruptcy or any forbearance or other loss mitigation agreements 
entered in with the borrower.
    The Bulletin also highlights the importance of data quality. To 
that end, it encourages servicers to adopt an industry data standard 
for mortgage records, called Mortgage Industry Standards Maintenance 
Organization standards.
    The Bureau noted that it began developing the Bulletin well before 
the coronavirus pandemic, in consultation with interagency and 
intergovernmental partners. In light of the national emergency declared 
on March 13, 2020, the Bulletin sets forth that, if a servicing 
transfer is requested or required by a Federal regulator or by the 
security issuer of ``Government Loans'' (as defined in the CARES Act) 
during a specified time frame, the Bureau will take into consideration 
the challenges facing mortgage servicers due to COVID-19 and will focus 
any supervisory feedback for institutions on identifying issues, 
correcting deficiencies, and ensuring appropriate remediation for 
consumers.
3.1.10 CFPB Paves Way for Consumers Facing Financial Emergencies To 
Obtain Access to Mortgage Credit More Quickly
    On April 29, 2020, the Bureau issued an interpretive rule 
clarifying that consumers can exercise their rights to modify or waive 
certain required waiting periods under the TILA-RESPA Integrated 
Disclosure Rule and Regulation Z rescission rules.\80\ The Bureau also 
issued an FAQ document \81\ that addresses when creditors must provide 
appraisals or other written valuations to mortgage applicants in order 
to expedite access to credit for consumers affected by the COVID-19 
pandemic.
---------------------------------------------------------------------------

    \80\ The interpretative rule can be found at: https://files.consumerfinance.gov/f/documents/cfpb_tila-respa-integrated-disclosure_rescission-pandemic-interpretive-rule.pdf.
    \81\ The FAQs can be found at: https://files.consumerfinance.gov/f/documents/cfpb_mortgage-origination-rules_faqs-covid-19.pdf.
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3.1.11 Amendments to the Remittance Rule and Statement on Supervisory 
and Enforcement Practices Regarding the Remittance Rule in Light of the 
COVID-19 Pandemic
    On May 11, 2020, the Bureau issued a final rule amending the 
remittance rule.\82\ Among its requirements, the remittance rule 
mandates that remittance transfer providers generally must disclose the 
exact exchange rate,

[[Page 55837]]

the amount of certain fees, and the amount expected to be delivered to 
the recipient. The remittance rule also allows for insured institutions 
to estimate certain fees and exchange rate information under certain 
circumstances, but by statute, this provision expires in July 2020.
---------------------------------------------------------------------------

    \82\ 12 CFR 1005.30 et seq.
---------------------------------------------------------------------------

    The amendments in the May 2020 rule, which will become effective in 
July of 2020, allow certain banks and credit unions to continue to 
provide estimates of the exchange rate and certain fees under certain 
conditions. The amendments also increase the safe harbor threshold that 
determines whether an entity makes remittance transfers in the normal 
course of its business and is subject to the rule. Under the 
amendments, entities making 500 or fewer transfers annually in the 
current and prior calendar years are not subject to the rule.
    In April, the Bureau announced that it would take a flexible 
enforcement and supervisory approach in light of the expiration of the 
statutory temporary exception and the challenges the COVID-19 pandemic 
may cause insured institutions as they prepare to commence providing 
actual third-party fee and exchange rate information as of July 21, 
2020.\83\
---------------------------------------------------------------------------

    \83\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_policy-statement_remittances-covid-19_2020-04.pdf.
---------------------------------------------------------------------------

    For international remittance transfers that occur on or after July 
21, 2020 and before January 1, 2021, the Bureau will neither cite 
supervisory violations nor initiate enforcement actions against insured 
institutions for continuing to provide estimates to consumers under the 
temporary exception, instead of actual amounts.
3.1.12 Statement on Supervisory and Enforcement Practices Regarding 
Regulation Z Billing Error Resolution Timeframes in Light of the COVID-
19 Pandemic
    On May 13, 2020, the Bureau issued a statement informing creditors 
of the Bureau's flexible supervisory and enforcement approach during 
the pandemic regarding the timeframe within which creditors complete 
their investigations of consumers' billing error notices.\84\ 
Specifically, in evaluating a creditor's compliance with the maximum 
timeframe for billing error resolution set forth in Regulation Z, the 
Bureau intends to consider the creditor's circumstances. The Bureau 
does not intend to cite a violation in an examination or bring an 
enforcement action against a creditor that takes longer than required 
by the regulation to resolve a billing error notice, so long as the 
creditor has made good faith efforts to obtain the necessary 
information and make a determination as quickly as possible, and 
complies with all other requirements pending resolution of the error.
---------------------------------------------------------------------------

    \84\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_statement_regulation-z-error-resolution-covid-19_2020-05.pdf.
---------------------------------------------------------------------------

3.1.13 CFPB, CSBS Issue Consumer Guide on Mortgage Relief Options
    On May 15, 2020, the Bureau and the Conference of State Bank 
Supervisory (CSBS) issued a guide to assist homeowners with federally 
backed loans through the process of obtaining mortgage relief. The 
guide details borrowers' rights to mortgage payment forbearance and 
foreclosure protection under the CARES Act.\85\
---------------------------------------------------------------------------

    \85\ The guide can be found at: https://files.consumerfinance.gov/f/documents/cfpb_csbs_consumers-forbearance-guide_2020-05.pdf.
---------------------------------------------------------------------------

3.1.14 Complaint Bulletin
    On May 21, 2020, the Bureau issued a consumer complaint 
Bulletin.\86\ The bulletin shows that mortgage and credit card 
complaints top the list of complaints the Bureau has received that 
mention coronavirus or related terms. In April and May, the Bureau 
received historically higher complaints, however, complaints mentioning 
COVID-related terms amounted to a total of 4,500 complaints during 
those two months.
---------------------------------------------------------------------------

    \86\ The complaint bulletin can be found at: https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin_coronavirus-complaints.pdf.
---------------------------------------------------------------------------

    Mortgage and credit card complaints top the list for complaints 
that mention coronavirus terms, with 22 percent and 19 percent of 
complaints, respectively. Among mortgage complaints that mention 
coronavirus keywords, 59 percent of consumers identified struggling to 
pay the mortgage as the issue. For credit card complaints, 19 percent 
of consumers identified a problem with purchase shown or statement as 
the issue.
    The Bureau also received its highest complaint volumes in its 
history in March and April at 36,700 and 42,500, respectively. In 2019, 
the monthly average for complaints was 29,000. The bulletin attributes 
the higher numbers to factors such as market conditions and more public 
awareness of the complaint system.
3.1.15 Prioritized Assessments
    The COVID-19 pandemic has significantly impacted the financial 
marketplace and has resulted in a temporary shift in the Bureau's 
supervisory work. In late May, the Bureau rescheduled some of its 
planned examination work and instead began conducting Prioritized 
Assessments (PAs). PAs are higher-level inquiries than traditional 
examinations, designed to obtain real-time information from entities 
that operate in markets posing elevated risk of consumer harm due to 
pandemic-related issues. In July of 2020, the Bureau released 
Prioritized Assessments FAQs.\87\
---------------------------------------------------------------------------

    \87\ The FAQs can be found at: https://files.consumerfinance.gov/f/documents/cfpb_prioritized-assessment_frequently-asked-questions.pdf.
---------------------------------------------------------------------------

3.1.16 Statement on Supervisory and Enforcement Practices Regarding 
Electronic Credit Card Disclosures in Light of COVID-19 Pandemic
    On June 3, 2020, the Bureau issued a statement \88\ indicating that 
it will take a flexible supervisory and enforcement approach during the 
pandemic regarding card issuers' electronic provision of disclosures 
required to be in writing for account-opening disclosures and temporary 
rate or fee reduction disclosures mandated under the provisions 
governing non-home secured, open-end credit in Regulation Z. 
Specifically, this statement pertains to oral telephone interactions 
where a card issuer may seek to open a new credit card account for a 
consumer, to provide certain temporary reductions in APRs or fees 
applicable to an existing account, or to offer a low-rate balance 
transfer. In these instances, the Bureau does not intend to cite a 
violation in an examination or bring an enforcement action against an 
issuer that during a phone call does not obtain a consumer's E-Sign 
consent to electronic provision of the written disclosures required by 
Regulation Z, so long as the issuer during the phone call obtains both 
the consumer's oral consent to electronic delivery of the written 
disclosures and oral affirmation of his or her ability to access and 
review the electronic written disclosures.
---------------------------------------------------------------------------

    \88\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_e-sign-credit-card_statement_2020-06.pdf.
---------------------------------------------------------------------------

3.1.17 CFPB and State Regulators Provide Additional Guidance To Assist 
Borrowers Impacted by the COVID-19 Pandemic
    On June 4, 2020, the Bureau and CSBS issued joint guidance to 
mortgage servicers to assist in complying with the CARES Act.\89\ 
Servicers of federally-backed mortgages, such as Fannie Mae or Freddie 
Mac, Department of Housing

[[Page 55838]]

and Urban Development, Department of Veterans Affairs, or Department of 
Agriculture loans, must grant forbearance to borrowers with pandemic-
related hardships that may last as long as two consecutive 180-day 
periods. Furthermore, additional interest, fees, or penalties beyond 
the amounts scheduled or calculated should be waived with no negative 
impact to the borrower's mortgage contract during the forbearance.
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    \89\ The guidance can be found at: https://files.consumerfinance.gov/f/documents/cfpb_csbs_industry-forbearance-guide_2020-06.pdf.
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    Mortgage servicers could violate the CARES Act or other applicable 
law and potentially cause consumer harm if they were to require 
documentation from borrowers to prove financial hardship, if they did 
not grant the forbearance once properly requested, or if they steered 
borrowers away from forbearance or misled them.
3.1.18 CFPB Issues Interim Final Rule on Loss Mitigation Options for 
Homeowners Recovering From Pandemic-Related Financial Hardships
    On June 23, 2020, the Bureau issued an interim final rule (IFR) 
\90\ that will make it easier for consumers to transition out of 
financial hardship caused by the COVID-19 pandemic and easier for 
mortgage servicers to assist those consumers.
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    \90\ The IFR can be found at: https://files.consumerfinance.gov/f/documents/cfpb_interim-final-rule_respa_covid-19-related-loss-mitigation-options.pdf.
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    The CARES Act provides forbearance relief for consumers with 
federally-backed mortgage loans. The mortgage industry has developed 
different options for borrowers to repay the payments that were 
forborne under the CARES Act. For example, the Federal Housing Finance 
Agency, Fannie Mae and Freddie Mac may permit some borrowers to defer 
repayment of the forborne amounts until the end of the mortgage loan. 
The Federal Housing Administration (FHA) has a similar program. These 
programs require the servicer to collect only minimal information from 
the borrower before offering the option.
    The IFR makes it clear that servicers do not violate Regulation X 
by offering certain COVID-19-related loss mitigation options based on 
an evaluation of limited application information collected from the 
borrower. Normally, with certain exceptions, Regulation X would require 
servicers to collect a complete loss mitigation application before 
making an offer. The IFR specifies that the loss mitigation option must 
meet certain criteria to qualify for an exception from the typical 
requirement to collect a complete application. Among other things, the 
option must allow the borrower to delay paying all principal and 
interest payments that were forborne or became delinquent as a result 
of a financial hardship due, directly or indirectly, to the COVID-19 
emergency. Servicers may not charge any fees to borrowers in connection 
with the option, and the borrower's acceptance ends any preexisting 
delinquency. The exception is not limited to payments forborne under 
the CARES Act.
    The IFR also provides servicers relief from certain requirements 
under Regulation X that normally would apply after a borrower submits 
an incomplete loss mitigation application. Once the borrower accepts an 
offer for an eligible program under the IFR, the servicer need not 
exercise reasonable diligence to obtain a complete application and need 
not provide the acknowledgment notice that is generally required under 
Regulation X when a borrower submits a loss mitigation application.
    Servicers still must comply with Regulation X's other requirements 
after a borrower accepts a loss mitigation offer. For example, if the 
borrower becomes delinquent again after accepting the offer, the 
servicer would have to satisfy Regulation X's early intervention 
requirements. Similarly, if the servicer receives a new loss mitigation 
application from the borrower, the servicer would have to comply with 
Regulation X's loss mitigation procedures.

3.2 Non-COVID Related Guidance

3.2.1 Statement of Policy Regarding Prohibition on Abusive Acts or 
Practices
    On January 24, 2020, the Bureau issued a policy statement \91\ 
providing a framework on how it intends to apply the ``abusiveness'' 
standard in supervision and enforcement matters. Through this policy 
statement, the Bureau provided clarification on how it intends to apply 
abusiveness in order to promote compliance and certainty. In its 
supervision and enforcement work, the Bureau intends to:
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    \91\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_abusiveness-enforcement-policy_statement.pdf.
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    [ssquf] Focus on citing or challenging conduct as abusive in 
supervision and enforcement matters only when the harm to consumers 
outweighs the benefit.
    [ssquf] Generally, avoid ``dual pleading'' of abusiveness and 
unfairness or deception violations arising from all or nearly all the 
same facts, and allege ``stand alone'' abusiveness violations that 
demonstrate clearly the nexus between cited facts and the Bureau's 
legal analysis.
    [ssquf] Seek monetary relief for abusiveness only when there has 
been a lack of a good-faith effort to comply with the law, except the 
Bureau will continue to seek legal or equitable remedies, such as 
damages and restitution for injured consumers regardless of whether a 
company acted in good faith or bad faith.
3.2.2 Responsible Business Conduct: Self-Assessing, Self-Reporting, 
Remediating, and Cooperation (CFPB Bulletin 2020-01)
    In 2013, the Bureau issued a Bulletin that identified several 
activities that businesses may engage in that could prevent and 
minimize harm to consumers, referring to these activities as 
``responsible conduct.'' On March 6, 2020, the Bureau issued an updated 
Bulletin \92\ to clarify its approach to responsible conduct and to 
reiterate the importance of such conduct. The Bulletin noted that the 
Bureau principally considers four categories of conduct when evaluating 
whether some form of credit is warranted in an enforcement 
investigation or supervisory matter: Self-assessing, self-reporting, 
remediating, and cooperating. However, if an entity engages in another 
type of activity particular to its situation that is both substantial 
and meaningful, the Bureau may take that activity into consideration as 
well.
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    \92\ The Bulletin can be found at: https://files.consumerfinance.gov/f/documents/cfpb_bulletin-2020-01_responsible-business-conduct.pdf.
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3.2.3 Innovation Updates
    On May 22, 2020, the Bureau announced that it issued two No-Action 
Letter (NAL) Templates under its innovation policies. To encourage 
innovation, last year the Bureau introduced an improved NAL Policy that 
includes, among other things, a more streamlined review process 
focusing on the consumer benefits and risks of the applicant's product 
or service. NALs provide increased regulatory certainty through a 
statement that the Bureau will not bring a supervisory or enforcement 
action against a company for providing a product or service under 
certain facts and circumstances. The improved Policy also includes an 
innovative provision concerning NAL templates, which permits entities 
such as service providers and trade associations to secure a template 
that can serve as the foundation for NAL applications from companies 
that provide consumer financial products and services.

[[Page 55839]]

Specifically, NAL templates include (among other things) a non-binding 
statement of the Bureau's intent to grant NAL applications based on it.
    Using the first NAL Template, requested by Brace Software, Inc. 
(Brace), mortgage servicers seeking to assist struggling borrowers 
would be able to apply for NALs in connection with the use of Brace's 
online platform to implement loss-mitigation efforts for those 
borrowers.\93\ As described in Brace's application, the platform is an 
online version of the Fannie Mae Form 710, which is the loss mitigation 
application used by most mortgage servicers. While the Bureau does not 
endorse particular products or providers, the Bureau observes that 
digitizing the loss mitigation application process has the potential to 
improve a process that is experiencing an increase in loss mitigation 
requests from consumers due to the COVID-19 pandemic.
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    \93\ Brace's application can be found at: https://files.consumerfinance.gov/f/documents/cfpb_brace_no-action-letter-request.pdf. The Brace NAL Template can be found at: https://files.consumerfinance.gov/f/documents/cfpb_brace_no-action-letter.pdf.
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    The Bureau also approved a NAL template that insured depository 
institutions intending to offer the standardized, small-dollar credit 
product described therein can use to support applications for the 
issuance of individual NALs.\94\ The NAL template contemplates that 
NALs based on it will include certain important protections for 
consumers who seek the covered small-dollar loan products.
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    \94\ The Bank Policy Institute (the BPI) application can be 
found at: https://files.consumerfinance.gov/f/documents/cfpb_bpi_no-action-letter-request.pdf. The BPI NAL Template can be found at: 
https://files.consumerfinance.gov/f/documents/cfpb_bpi_no-action-letter.pdf.
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3.2.4 Bureau Launches Pilot Advisory Opinion Program To Provide 
Regulated Entities Clear Guidance and Improve Compliance
    On June 18, 2020, the Bureau launched a pilot advisory opinion (AO) 
program \95\ to publicly address regulatory uncertainty in the Bureau's 
existing regulations. The pilot AO program will allow entities seeking 
to comply with regulatory requirements to submit a request where 
uncertainty exists. The Bureau will then select topics based on the 
program's priorities and make the responses available to the public.
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    \95\ More information about the AO program can be found at: 
https://files.consumerfinance.gov/f/documents/cfpb_advisory-opinions-pilot_fr-notice.pdf, https://files.consumerfinance.gov/f/documents/cfpb_advisory-opinions-proposal_fr-notice.pdf.
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    The pilot program will focus on four key priorities:
    [ssquf] Consumers are provided with timely and understandable 
information to make responsible decisions.
    [ssquf] Identify outdated, unnecessary or unduly burdensome 
regulations in order to reduce regulatory burdens.
    [ssquf] Consistency in enforcement of Federal consumer financial 
law in order to promote fair competition.
    [ssquf] Ensuring markets for consumer financial products and 
services operate transparently and efficiently to facilitate access and 
innovation.
    Additionally, initial factors weighing for the appropriateness of 
an AO include: That the interpretive issue has been noted during prior 
Bureau examinations as one that might benefit from additional 
regulatory clarity; that the issue is one of substantive importance or 
impact or one whose clarification would provide significant benefit; 
and/or that the issue concerns an ambiguity that the Bureau has not 
previously addressed through an interpretive rule or other 
authoritative source. There will be a strong presumption against 
appropriateness of an AO for issues that are the subject of an ongoing 
investigation or enforcement action or the subject of an ongoing or 
planned rulemaking.
    If deemed appropriate, the Bureau will issue an advisory opinion 
based on its summary of the facts presented that would be applicable to 
other entities in situations with similar facts and circumstances. The 
advisory opinions would be posted on the Bureau's website and published 
in the Federal Register.
    In addition to the pilot, the Bureau also announced that the public 
can comment on the proposed AO program. Following the conclusion of the 
pilot, the proposed AO program will be fully implemented after the 
Bureau's review of comments received.
3.2.5 CFPB Issues Interpretative Rule on Method for Determining 
Underserved Areas
    On June 23, 2020, the Bureau issued an interpretive rule \96\ with 
respect to how the Bureau determines which counties qualify as 
``underserved'' for a given calendar year under Regulation Z.
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    \96\ The interpretative rule can be found at: https://files.consumerfinance.gov/f/documents/cfpb_interpretive-rule_determining-underserved-areas-using-hmda-data.pdf.
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    The Bureau's annual list of rural and underserved counties and 
areas is used in applying various provisions under Regulation Z, which 
implements the Truth in Lending Act (TILA). These provisions include 
the exemption from the requirement to establish an escrow account for a 
higher-priced mortgage loan and the ability to originate balloon-
payment qualified mortgages and balloon-payment high cost mortgages.
    Regulation Z states that an area is ``underserved'' during a 
calendar year if, according to HMDA data for the preceding calendar 
year, it is a county in which no more than two creditors extended 
covered transactions secured by first liens on properties in the county 
five or more times. The Bureau previously interpreted how HMDA data 
would be used to determine which areas meet this standard using a 
method set forth in the commentary to Regulation Z. However, portions 
of this method have become obsolete because they rely on data elements 
that were modified or eliminated by certain 2015 amendments to the 
Bureau's HMDA regulations, which became effective in 2018.
    The interpretive rule describes the HMDA data that will instead be 
used in determining that an area is ``underserved'' for purposes of the 
standard described in Regulation Z. This interpretation supersedes the 
outdated methodology set forth in the commentary to Regulation Z.

4. Remedial Actions

4.1 Public Enforcement Actions

    The Bureau's supervisory activities resulted in or supported the 
following public enforcement actions.
4.1.1 Citizens Bank, N.A.
    On January 30, 2020, the Bureau filed suit against Citizens Bank, 
N.A. (Citizens), a national banking association headquartered in 
Providence, Rhode Island. The Bureau's complaint \97\ alleges 
violations of TILA and TILA's implementing Regulation Z, including 
violations of amendments to TILA contained in the Fair Credit Billing 
Act (FCBA) and the Credit Card Accountability Responsibility and 
Disclosure Act (CARD Act).
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    \97\ The complaint can be found at: https://files.consumerfinance.gov/f/documents/cfpb_citizens-bank_complaint_2020-01.pdf.
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    As described in the complaint, the Bureau alleges that for several 
years Citizens violated TILA, as amended by the FCBA, and Regulation Z 
by failing to properly manage and respond to credit card disputes. The 
complaint alleges that Citizens automatically denied consumers' billing 
error notices and claims of unauthorized use in certain circumstances. 
The complaint further alleges that Citizens failed to

[[Page 55840]]

fully refund finance charges and fees when consumers asserted 
meritorious disputes or fraud claims and failed to send consumers 
required acknowledgement letters and denial notices in response to 
billing error notices.
    The Bureau further alleges that for several years Citizens violated 
TILA by violating provisions passed under the CARD Act. The Bureau 
alleges that Citizens violated TILA and Regulation Z by failing to 
provide credit counseling referrals to consumers who called Citizens' 
toll-free number designated for that purpose. These alleged violations 
of TILA--including those under the FCBA and the CARD Act--and 
Regulation Z also constitute violations of the Consumer Financial 
Protection Act.
    The Bureau's complaint seeks, among other remedies, an injunction 
against defendants and the imposition of civil money penalties.

5. Signing Authority

    The Director of the Bureau, having reviewed and approved this 
document, is delegating the authority to electronically sign this 
document to Laura Galban, a Bureau Federal Register Liaison, for 
purposes of publication in the Federal Register.

    Dated: September 4, 2020.
Laura Galban,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2020-19978 Filed 9-9-20; 8:45 am]
BILLING CODE 4810-AM-P