[Federal Register Volume 86, Number 128 (Thursday, July 8, 2021)]
[Notices]
[Pages 36108-36123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-14525]


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BUREAU OF CONSUMER FINANCIAL PROTECTION


Supervisory Highlights, Issue 24, Summer 2021

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Supervisory highlights.

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SUMMARY: The Bureau of Consumer Financial Protection (CFPB or Bureau) 
is issuing its twenty fourth edition of Supervisory Highlights.

DATES: The Bureau released this edition of the Supervisory Highlights 
on its website on June 29, 2021. The findings included in this report 
cover examinations in the areas of auto servicing, consumer reporting, 
debt collection, deposits, fair lending, mortgage origination, mortgage 
servicing, private education loan origination, payday lending, and 
student loan servicing that were completed from January 1, 2020 to 
December 31, 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 marketplace saw significant impacts from the 
COVID-19 pandemic beginning around March 2020. The Bureau of Consumer 
Financial Protection (CFPB or Bureau) adapted its work by, among other 
things, focusing approximately half of its supervisory activities on 
prioritized assessments (PAs) starting in May 2020. PAs were designed 
to obtain real-time information from a broad group of supervised 
entities that operate in markets posing elevated risk of consumer harm 
due to pandemic-related issues. The Bureau analyzed pandemic-related 
market developments to determine which markets were most likely to pose 
risk to consumers. Observations from the Bureau's PA work were detailed 
in a special edition of Supervisory Highlights, Issue 23.\1\
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    \1\ A copy of Issue 23, Jan. 2021, is available at https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-23_2021-01.pdf.
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    This issue of Supervisory Highlights covers findings from the other 
supervisory work the Bureau has engaged in since its last regular 
edition, Issue 22.\2\ The findings included in this report cover 
examinations in the areas of auto servicing, consumer reporting, debt 
collection, deposits, fair lending, mortgage origination, mortgage 
servicing, private education loan origination, payday lending, and 
student loan servicing that were completed from January 1, 2020 to 
December 31, 2020. To maintain the anonymity of the supervised 
institutions discussed in this edition of Supervisory Highlights, 
references to institutions generally are in the plural and the related 
findings pertain to one or more institutions unless otherwise noted.
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    \2\ A copy of Issue 22, Sept. 2020, is available at https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf.
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    The information contained in Supervisory Highlights is disseminated 
to help institutions and the general public better understand how the 
Bureau examines institutions for compliance with Federal consumer 
financial law. Supervisory Highlights summarizes existing requirements 
under the law and summarizes findings made in the course of exercising 
the Bureau's supervisory and enforcement authority.\3\
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    \3\ If a supervisory matter is referred to the Office of 
Enforcement, Enforcement may cite additional violations based on 
these facts or uncover additional information that could impact the 
conclusion as to what violations may exist.
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2. Supervisory Observations

2.1 Auto Servicing

    The Bureau continues to examine auto loan servicing activities, 
primarily to assess whether entities have engaged in any unfair, 
deceptive or abusive acts or practices prohibited by the Consumer 
Financial Protection Act (CFPA). Examiners identified two unfair acts 
or practices related to lender-placed collateral protection insurance. 
Examiners also found unfair or deceptive acts or practices related to 
payment application. And examiners identified an unfair act or practice 
related to payoff amounts where consumers had ancillary product rebates 
due.
2.1.1 Collateral Protection Insurance
    Auto finance contracts generally require consumers to maintain 
comprehensive and collision insurance that covers physical damage to 
the vehicle in order to protect the value of the collateral. If the 
consumer fails to maintain appropriate coverage, some contracts provide 
that servicers can purchase insurance for the vehicle, often called 
collateral protection insurance (CPI). CPI policies only cover damage 
to the vehicle. Charges for CPI policies are added to consumers' 
accounts and paid on a monthly basis. Servicers generally use 
electronic databases to monitor whether consumers are maintaining 
adequate insurance coverage. If the database suggests that a consumer 
is not maintaining adequate coverage, the servicer will send a notice 
requesting proof of insurance and stating that if the borrower does not 
provide proof of insurance, then a CPI policy will be purchased at the 
consumer's expense. When the CPI policy is purchased, the servicer 
sends the consumer another notice with information about the policy. If 
the consumer later proves that they had adequate insurance during any 
portion of the CPI policy period, the servicer will generally remove 
any CPI charges for that period. Examiners identified unfair and 
deceptive acts or practices related to placement and removal of CPI 
policies and charges.

[[Page 36109]]

2.1.2 Charging for Unnecessary CPI
    Under the prohibition on unfair acts or practices in sections 1031 
and 1036 of the CFPA, an act or practice is unfair when: (1) It causes 
or is likely to cause substantial injury; (2) the injury is not 
reasonably avoidable by consumers; and (3) the substantial injury is 
not outweighed by countervailing benefits to consumers or to 
competition.
    Examiners found that servicers engaged in an unfair act or practice 
by charging consumers for unnecessary CPI.
    Servicers caused consumers substantial injury by adding and 
maintaining charges for CPI premiums as a result of deficient processes 
when consumers had adequate insurance in place under their contracts. 
If a consumer has an adequate insurance policy that covers the vehicle, 
the CPI policy provides no benefit to the servicer or consumer. Placing 
or maintaining charges for CPI when consumers have adequate insurance 
causes consumers injury because consumers must either pay for the 
duplicative insurance or incur late fees or other consequences of 
delinquency. Additionally, some servicers caused additional injury 
because they applied any refunds of paid CPI charges to principal 
instead of returning those amounts directly to the consumer. Consumers 
could not reasonably avoid the injury for at least three reasons. 
First, in many instances, servicers sent notices regarding CPI charges 
to inaccurate addresses, so consumers had no notice that servicers 
planned to place CPI. Second, servicers did not have adequate 
procedures for processing insurance cards submitted by consumers as 
proof of insurance. Third, in many instances, servicers failed to 
process insurance documentation from consumers. The substantial injury 
to consumers was not outweighed by any countervailing benefits to 
consumers or competition, such as the cost of improving notices and 
improving document processing. Servicers have ceased issuing CPI 
policies.
2.1.3 Charging for CPI After Repossession
    Examiners found that servicers engaged in unfair acts or practices 
by collecting or attempting to collect CPI premiums after repossession 
even though no actual insurance protection was provided for those 
periods.
    CPI automatically terminates on the date of repossession, per the 
terms of the contract, and consumers should not be charged after this 
date. Despite this, servicers charged consumers for CPI after 
repossession in four different circumstances. First, servicers failed 
to communicate the date of repossession to the CPI service provider due 
to system errors. Second, servicers used an incorrect formula to 
calculate the CPI charges that needed to be removed due to the 
repossession. Third, servicers' employees entered the wrong 
repossession date into their system of record, resulting in improper 
termination dates. Fourth, servicers charged consumers--who had a 
vehicle repossessed and subsequently reinstated the loan--for the days 
the vehicle was in the servicer's possession, despite the automatic 
termination of the policy on the date of repossession.
    These errors caused consumers substantial injury because they paid 
amounts they did not owe or were subject to collection attempts for 
amounts they did not owe. This injury was not reasonably avoidable 
because consumers did not control the servicers' cancellation processes 
and did not have a reasonable way to determine that the charges were 
inaccurate. The substantial injury to consumers was not outweighed by 
any countervailing benefits to consumers or competition. Servicers have 
ceased issuing CPI policies.
2.1.4 Inaccurate Payment Posting
    Examiners found that servicers engaged in unfair acts or practices 
by posting payments to the wrong account or by posting certain payments 
as principal-only payments instead of periodic installment payments, 
resulting in late fees and additional interest charges. Servicers 
engaged in two types of errors.\4\ First, some payments were applied to 
the wrong loan account, despite the consumer providing their account 
information. Second, for some payment types, servicer employees applied 
the payment as a principal-only payment instead of a periodic payment. 
In both instances, consumers' accounts were marked as delinquent for 
the month they made the payment, resulting in late fees and additional 
interest. Servicers did not have a reliable method to detect the 
errors, and primarily relied on consumer complaints to identify 
misapplied payments. In some instances, even when consumers complained, 
the servicers did not provide refunds.
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    \4\ 12 U.S.C. 5531, 5536.
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    This conduct caused or was likely to cause substantial injury to 
consumers because the servicers misapplied payments, resulting in late 
fees and additional interest. Consumers could not reasonably avoid the 
injury because they had no control over the servicers' misapplication 
of their payments. Even if consumers contacted the servicers regarding 
the errors, late fees and interest had accrued. The injury was not 
outweighed by countervailing benefits to consumers or competition. For 
example, servicers could improve their procedures to reduce the error 
rate. In response to examiner findings, servicers remediated affected 
consumers and implemented new automated systems.
2.1.5 Failure To Follow Disclosed Payment Application Order
    Under the prohibition against deceptive acts or practices in 
sections 1031 and 1036 of the CFPA, an act or practice is deceptive 
when: (1) It misleads or is likely to mislead the consumer; (2) the 
consumer's interpretation is reasonable under the circumstances; and 
(3) the misleading act or practice is material.
    Examiners found that servicers engaged in deceptive acts or 
practices by representing on their websites a specific payment 
application order, and subsequently applying payments in a different 
order. Specifically, servicers represented on their websites that 
payments would be applied to interest, then principal, then past due 
payments, before being applied to other charges, such as late fees. 
Instead, the servicers applied partial payments to late fees first, in 
contravention of the methodology disclosed on the website. As the 
result of applying payments to late fees first, servicers repossessed 
some consumers' vehicles.
    The representation that payments would be applied to interest, then 
principal, then past due payments, and then other charges was likely to 
mislead consumers because the servicers actually applied payments to 
late fees first. It was reasonable for consumers under the 
circumstances to believe that the servicers' websites provided accurate 
information about payment allocation order. In some instances, the 
underlying contract provides the servicer the right to apply payments 
in any order. But consumers reasonably relied on the representations on 
servicers' websites regarding payment application. And the 
representation was material because it was likely to affect consumers' 
decisions about how much to pay. Servicers remediated impacted 
consumers and now use the disclosed payment application hierarchy.
2.1.6 Inaccurate Payoff Amounts
    Examiners found that servicers engaged in unfair acts or practices 
by accepting loan payoff amounts that included overcharges for optional 
products after incorrectly telling

[[Page 36110]]

consumers that they owed this larger amount.\5\
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    \5\ Id.
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    Consumers financed the purchase of the optional product by adding 
it to the loan amount of a vehicle purchase. The contracts provided 
that consumers or servicers could cancel the product at any time and 
receive a ``pro-rata'' refund less a cancellation fee. Servicers 
prepared payoff statements in response to consumers' requests that 
included a line listing credits for refunds from optional products and 
a total ``payoff amount.'' Servicers calculated this refund based on 
the actuarial value of the policies, instead of using the pro-rata 
calculation specified in the contract. In some instances, this resulted 
in payoff statements that listed a total amount due that was larger 
than the amount the consumer owed.
    The conduct caused or was likely to cause substantial injury to 
consumers because servicers accepted money from consumers that the 
consumers did not actually owe. Consumers could not reasonably avoid 
the injury because they paid the servicers the amount they told them 
they owed. Consumers are not required to independently verify that 
servicers correctly calculated optional product refund amounts and 
therefore the injury could not be reasonably avoided. The injury is not 
outweighed by countervailing benefits to consumers or competition. 
Servicers can update their systems to perform appropriate calculations 
without significant cost. Servicers have refunded overpayments to 
consumers and updated their systems to perform calculations that are 
consistent with the contract terms.

2.2 Consumer Reporting

    Entities that obtain or use consumer reports from consumer 
reporting companies (CRCs),\6\ or that furnish information relating to 
consumers 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) \7\ and its implementing 
regulation, Regulation V.\8\ These include the requirement to furnish 
data subject to the relevant accuracy and dispute handling 
requirements. In recent reviews, examiners found deficiencies in, among 
other things, CRCs' compliance with FCRA: (i) Accuracy requirements, 
(ii) security freeze requirements applicable only for nationwide CRCs 
as defined in FCRA section 603(p),\9\ and (iii) requirements regarding 
ID theft block requests. Examiners also found deficiencies in furnisher 
compliance with FCRA and Regulation V accuracy and dispute 
investigation requirements.
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    \6\ 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).
    \7\ 15 U.S.C. 1681 et seq.
    \8\ 12 CFR part 1022.
    \9\ 15 U.S.C. 1681a(p).
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2.2.1 CRC Duty To Follow Reasonable Procedures To Assure Maximum 
Possible Accuracy
    The FCRA requires that, whenever a CRC ``prepares a consumer report 
it shall follow reasonable procedures to assure maximum possible 
accuracy of the information concerning the individual about whom the 
report relates.'' \10\ In reviews of CRCs, examiners found that CRCs' 
accuracy procedures failed to comply with this obligation because the 
CRC continued to include information in consumer reports that was 
provided by unreliable furnishers. Specifically, the furnishers had 
responded to disputes in ways that suggested that the furnishers were 
no longer sources of reliable, verifiable information about consumers. 
For example, CRCs received furnisher dispute responses indicating that, 
for several months, furnishers failed to respond to all or nearly all 
disputes, deleted all or nearly all tradelines disputed by consumers, 
or verified as accurate all or nearly all tradelines disputed by 
consumers. Despite observing this dispute response behavior by these 
furnishers, CRCs continued to include information from these 
furnishers. After identification of these issues, CRCs were directed to 
revise their accuracy procedures to identify and take corrective action 
regarding data from furnishers whose dispute response behavior 
indicates the furnisher is not a source of reliable, verifiable 
information about consumers.
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    \10\ 15 U.S.C. 1681e(b).
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2.2.2 CRC Duty To Timely Place Security Freezes on Consumer Reports 
Upon Consumer Request
    The FCRA requires that nationwide CRCs must, free of charge, place 
a security freeze on a consumer's report ``upon receiving a direct 
request from a consumer'' and upon ``receiving proper identification 
from the consumer. . . .'' \11\ The security freeze must be placed not 
later than ``(ii) in the case of a request that is by mail, 3 business 
days after receiving the request directly from the consumer.'' \12\ In 
reviews of nationwide CRCs, examiners found that CRCs failed to place 
security freezes within three business days after receiving the request 
by mail. One root cause was determined to be inadequate training, and 
to address that root cause, targeted training to appropriate staff 
regarding the requirements and timing of placing security freezes was 
provided.
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    \11\ 15 U.S.C. 1681c-1(i)(2)(A).
    \12\ 15 U.S.C. 1681c-1(i)(2)(A)(ii).
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2.2.3 CRC Duty To Block Reporting of Information Identified as 
Resulting From Identity Theft
    The FCRA requires that CRCs must ``block the reporting of any 
information in the file of a consumer that the consumer identifies as 
information that resulted from an alleged identity theft. . . .'' \13\ 
The block must be made ``not later than 4 business days after the date 
of receipt'' of a qualifying block request.\14\ In reviews of CRCs, 
examiners found that CRCs failed to place ID theft blocks within four 
business days of receipt of qualifying block requests. The block 
requests were delayed due to a backlog that the CRCs subsequently 
resolved. In response to these issues, the CRCs updated policies and 
procedures to ensure the timely processing and blocking of information 
identified in ID theft block requests.
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    \13\ 15 U.S.C. 1681c-2(a).
    \14\ Id.
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2.2.4 Furnisher Duty To Update and Correct Information
    The FCRA requires that persons who regularly and in the ordinary 
course of business furnish information to CRCs about that person's 
transactions or experiences with consumers must, upon determining that 
information furnished to CRCs is not complete or accurate, ``promptly 
notify the consumer reporting agency of that determination.'' The 
furnisher must then provide to the agency any corrections to that 
information, or any additional information, that is necessary to make 
the information provided by the person to the agency complete and 
accurate, and shall not thereafter furnish to the agency any of the 
information that remains not complete or accurate.'' \15\
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    \15\ 15 U.S.C. 1681s-2(a)(2)(B).
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    In a review of auto loan furnishers, examiners found that 
furnishers failed to send updating or correcting information to CRCs 
after making a determination that information furnishers had reported 
was no longer accurate. For example, examiners found that after 
consumers had applied for an auto loan but later communicated they

[[Page 36111]]

no longer wanted to proceed with the loan, and the furnisher had 
removed the loan from its system of record, the furnisher continued to 
furnish information to CRCs as though the loans had been issued rather 
than cancelled. Furnishers attributed the errors to failures by a 
service provider to follow furnisher's procedures. Following 
identification of these issues furnishers implemented a new process 
that reconciles loan cancellations and removals of loans from the 
system of record with responsive corrections to CRCs.
2.2.5 Furnisher Duty To Conduct Reasonable Investigation of Direct 
Disputes
    Regulation V requires that, after receiving a direct dispute notice 
from a consumer, a furnisher must ``[c]onduct a reasonable 
investigation with respect to the disputed information. . . .\16\ 
Further, Regulation V provides that a ``furnisher is not required to 
investigate a direct dispute if the furnisher has reasonably determined 
that the dispute is frivolous or irrelevant.'' \17\ However, if a 
furnisher determines that a dispute is frivolous or irrelevant, the 
furnisher must ``notify the consumer of the determination not later 
than five business days after making the determination, by mail or, if 
authorized by the consumer for that purpose, by any other means 
available to the furnisher.'' \18\ The notice must ``include the 
reasons for such determination and identify any information required to 
investigate the disputed information, which notice may consist of a 
standardized form describing the general nature of such information.'' 
\19\
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    \16\ 12 CFR 1022.43(e)(1).
    \17\ 12 CFR 1022.43(f)(1).
    \18\ 12 CFR 1022.43(f)(2).
    \19\ 12 CFR 1022.43(f)(3).
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    In reviews of mortgage furnishers, examiners found that furnishers 
failed to conduct reasonable investigations of direct disputes. 
Furnishers' dispute procedures instructed their direct dispute 
investigating agents to verify that consumers' signatures matched the 
signature on file and, if they did not match, send a letter to the 
borrower stating that the information provided in the dispute did not 
match the furnishers' records. Examiners found that furnishers' agents 
had sent such letters to consumers whose dispute letters included only 
a typed name or electronic image of a signature. Furnishers' agents did 
so without: Conducting an investigation of such disputes, otherwise 
reasonably determining that such disputes were frivolous or irrelevant, 
or providing any qualifying frivolous or irrelevant notices to 
consumers. After identification of these issues, furnishers updated 
their policies and procedures to define circumstances when disputes 
should reasonably be deemed frivolous because they appear to have 
originated from credit repair organizations; furnishers also created 
templates to send to consumers whose disputes they deemed frivolous. 
Further, furnishers provided training to agents on the new policies and 
procedures and the new letter templates.

2.3 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 and nonbanks that are service providers to certain covered 
persons. Recent examinations of larger participant debt collectors 
identified violations of the Fair Debt Collection Practices Act 
(FDCPA).
2.3.1 Prohibited Calls to Consumer's Workplace
    Section 805(a)(3) of the FDCPA prohibits a debt collector from 
communicating with a consumer in connection with the collection of a 
debt at the consumer's workplace if the debt collector knows or has 
reason to know that the consumer's employer prohibits such 
communications.\20\ Examiners determined that debt collectors 
communicated with consumers at their workplaces after they knew or 
should have known that the consumers' employers prohibit such 
communications, in violation of section 805(a)(3). In response to these 
findings, the collectors are improving their training and monitoring.
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    \20\ 15 U.S.C. 1692c(a)(3).
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    In addition, section 805(a) of the FDCPA restricts the 
circumstances under which a debt collector may contact a consumer.\21\ 
Specifically, section 805(a)(1) prohibits a debt collector from 
communicating with a consumer in connection with the collection of any 
debt at a time or place that the collector knows or should know is 
inconvenient to the consumer.\22\ Examiners found that debt collectors 
communicated with consumers at their places of employment during work 
hours when the debt collectors knew or should have known that calls 
during work hours were inconvenient to the consumers, in violation of 
section 805(a)(1). For example, one debt collector called a consumer 
during work hours at a time the consumer had previously specified as 
inconvenient. Another debt collector called a consumer on a workplace 
phone number after being informed by the consumer that calls to the 
workplace number were inconvenient. In response to these findings, the 
collectors are improving their training and monitoring.
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    \21\ 15 U.S.C. 1692c(a).
    \22\ 15 U.S.C. 1692c(a)(1).
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2.3.2 Communication With Third Parties
    Section 805(b) of the FDCPA prohibits a debt collector from 
communicating in connection with the collection of a debt with any 
person other than the consumer and certain other parties.\23\ 
Exceptions to this prohibition are set out in sections 804 and 
805(b).\24\
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    \23\ 15 U.S.C. 1692c(b).
    \24\ 15 U.S.C. 1692b, c(b).
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    Examiners found that debt collectors communicated with third 
parties in violation of section 805(b). The communications were not 
within an exception listed in sections 804 or 805(b). This violation of 
the FDCPA resulted from inadequate compliance controls to verify right-
party contact during efforts to locate the consumer. In several 
instances, the third party had a name similar to the consumer's name. 
In response to this finding, the collectors are improving various 
aspects of their compliance management systems (CMS).
    In addition, section 804(1) of the FDCPA states that, when 
communicating with third parties for the purpose of acquiring location 
information for the consumer, a debt collector may only disclose the 
name of their employer if expressly requested.\25\ Examiners observed 
that debt collectors identified their employers when communicating with 
third parties who had not expressly requested it, in violation of 
section 804(1). In response to these findings, the collectors are 
improving their training and monitoring.
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    \25\ 15 U.S.C. 1692b(1).
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2.3.3 Failure To Cease Communication Upon Written Request or Refusal To 
Pay
    Section 805(c) of the FDCPA provides that if a consumer notifies a 
debt collector in writing that the consumer wishes the collector to 
cease further communication or that the consumer refuses to pay the 
debt, the collector must cease further communication with the consumer, 
with certain exceptions.\26\ Examiners found that a

[[Page 36112]]

consumer used a model form to mail a written statement to a debt 
collector stating that the debt was the result of identity theft, 
requesting that the collector cease further communication, and 
requesting that the collector provide confirmation along with 
information concerning the disputed account. After receiving this form, 
the collector continued attempts to collect the debt from the consumer 
in violation of FDCPA section 805(c). These attempts were not efforts 
to respond to the consumer's request for information about the identity 
theft claim. In response to these findings, the collector is improving 
board and management oversight and monitoring.
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    \26\ 15 U.S.C. 1692c(c).
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2.3.4 Harassment Regarding Inability To Pay
    Section 806 of the FDCPA prohibits a debt collector from engaging 
in any conduct the natural consequence of which is to harass, oppress, 
or abuse any person in connection with the collection of a debt.\27\ 
Examiners found when consumers stated they were unable to make or 
complete payment arrangements, debt collectors emphasized two or more 
times to each of the consumers that the collector would place a note in 
the account system stating that the consumer was refusing to make a 
payment. The natural consequence of these inaccurate statements was to 
harass or oppress the consumers, in violation of section 806. In 
response to these finding, the collectors are improving their training 
and monitoring.
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    \27\ 15 U.S.C. 1692d.
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2.3.5 Communicating, and Threatening To Communicate, False Credit 
Information
    Section 807 of the FDCPA prohibits a debt collector from using any 
false, deceptive, or misleading representation or means in connection 
with the collection of any debt.\28\ Section 807(8) specifically 
prohibits communicating or threatening to communicate credit 
information which is known or which should be known to be false, 
including the failure to communicate that a disputed debt is 
disputed.\29\ Examiners found that debt collectors knew or should have 
known that debts were disputed, resulted from identity theft, and were 
not owed by the relevant consumers. Nonetheless, in these 
circumstances, the collectors threatened to report to CRCs that the 
consumer owed the debt if it was not paid. The collectors then reported 
the debt to CRCs and failed to report that the consumer disputed the 
debt. This course of action violated section 807(8) of the FDCPA. In 
response to these finding, the collectors are improving their training.
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    \28\ 15 U.S.C. 1692e.
    \29\ 15 U.S.C. 1692e(8).
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2.3.6 False Representations or Deceptive Means of Collection
    Section 807(10) of the FDCPA prohibits a debt collector from using 
any false, deceptive, or misleading representation or means in 
connection with the collection of any debt or obtain information 
concerning a consumer.\30\
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    \30\ 15 U.S.C. 1692e.
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    Examiners found that several debt collectors falsely represented to 
consumers the impact that paying off their debts would have on their 
credit profiles, in violation of section 807(10).\31\ For example, one 
debt collector told a consumer the debt would no longer ``impact'' her 
credit profile once paid, which was false. Another debt collector told 
a consumer that making a payment would help to ``fix'' the consumer's 
credit. In response to this finding, the collectors are improving 
various aspects of their CMS.
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    \31\ See CFPB Bulletin 2013-08, ``Representations Regarding 
Effect of Debt Payments on Credit Reports and Scores'' (July 10, 
2013).
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2.3.7 Incorrect Systemic Implementation of State Interest Rate Cap
    Section 808 of the FDCPA states that a debt collector may not use 
unfair or unconscionable means to collect or attempt to collect any 
debt.\32\ Section 808(1) specifically designates ``the collection of 
any amount . . . unless such amount is expressly authorized by the 
agreement creating the debt or permitted by law'' as an unfair 
practice.\33\ Examiners found that debt collectors entered inaccurate 
information regarding State interest rate caps into an automated 
system, resulting in some consumers being overcharged, in violation of 
section 808(1). In response to these findings, the collectors 
remediated impacted consumers and are improving their training and 
monitoring.
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    \32\ 15 U.S.C. 1692f.
    \33\ 15 U.S.C. 1692f(1).
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2.3.8 Unlawful Initiation of Administrative Wage Garnishment During 
Consolidation Process
    Section 808 of the FDCPA states that a debt collector may not use 
unfair or unconscionable means to collect or attempt to collect any 
debt.\34\ Examiners found that debt collectors sent administrative wage 
garnishment orders to consumers' employers by mistake despite having 
received completed applications from the consumers to consolidate the 
debt, which should have stopped the wage garnishment process based on 
standard procedures, in violation of section 808. In response to these 
findings, the collectors are improving their training and monitoring.
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    \34\ 15 U.S.C. 1692f.
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2.3.9 Failure To Send Complete Validation Notices
    Section 809(a) of the FDCPA requires a debt collector to send a 
notice containing certain information (commonly called a ``validation 
notice'') to the consumer within five days after the initial 
communication with the consumer, with certain exceptions.\35\ Examiners 
found that debt collectors violated section 809(a) by sending 
validation notices that lacked some of the required information. 
Examiners found that the issue resulted from template changes that had 
not been reviewed by compliance personnel. In response to these 
findings, the collectors are improving their board and management 
oversight of new letter templates.
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    \35\ 15 U.S.C. 1692g(a).
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2.4 Deposits

    The CFPB continues its examinations of financial institutions for 
compliance with Regulation E,\36\ which implements the Electronic Fund 
Transfer Act (EFTA).\37\ The CFPB also examines for compliance with 
other relevant statutes and regulations, including Regulation DD,\38\ 
which implements the Truth in Savings Act,\39\ and the Dodd-Frank Act's 
prohibition on unfair, deceptive, or abusive acts or practices 
(UDAAPs).\40\
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    \36\ 12 CFR part 1005 et seq.
    \37\ 15 U.S.C. 1693 et seq.
    \38\ 12 CFR part 1030 et seq.
    \39\ 12 U.S.C. 4301 et seq.
    \40\ 12 U.S.C. 5531, 5536.
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2.4.1 Regulation E Error Resolution Violations
    EFTA establishes a legal framework for the offering and use of 
electronic fund transfer (EFT) services. One of the primary objectives 
of the EFTA and its implementing regulation, Regulation E, is to 
protect consumers engaging in EFTs.
    Supervision continues to find violations of EFTA and Regulation E 
that it previously discussed in the Fall 2014, Summer 2017, and Summer 
2020 editions of Supervisory Highlights, respectively. These violations 
include:
     Requiring written confirmation of an oral notice of error 
before investigating;

[[Page 36113]]

     Requiring consumers to contact merchants about alleged 
unauthorized transactions before investigating;
     Relying on incorrect dates to assess the timeliness of an 
EFT error notice;
     Failing to provide an explanation or an accurate 
explanation of investigation results when determining no error or a 
different error occurred; and
     Failing to include in the error investigation report a 
statement regarding a consumer's right to obtain the documentation that 
an institution relied on in its error investigation.
    An effective compliance strategy for institutions includes 
evaluation of their practices, including through transaction testing, 
monitoring, and review of their policies and procedures. This will help 
ensure compliance with applicable Federal consumer financial laws and 
stop any practices that were previously identified as violations. 
Examples of other violations found by examiners are described below.
2.4.2 Issues With Provisional Credits
    Under Regulation E, a financial institution generally must complete 
its investigation and determine whether an error occurred within 10 
business days of receiving a notice of error.\41\ But an institution 
may take up to 45 days \42\ to complete its investigation if it, among 
other things, provisionally credits the alleged error amount (including 
interest where applicable) to the consumer's account within 10 business 
days of receiving the error notice.\43\ The institution need not issue 
a provisional credit if it requires, but does not receive, written 
confirmation of an oral notice of error within 10 business days.\44\ 
When institutions issue provisional credits, they must inform the 
consumer of the amount and date the credit was applied to the account 
within two business days after provisionally crediting the account.\45\ 
Within three business days of completing an error investigation, the 
financial institution must report the results to the consumer, 
including, if applicable, notice that a provisional credit has been 
made final.\46\
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    \41\ 12 CFR 1005.11(c)(1). Note that this 10-day period may be 
extended to 20 days for certain new accounts. 12 CFR 
1005.11(c)(3)(i).
    \42\ This time period may be extended to 90 days for certain 
transactions, such as transactions outside the U.S., point of sale 
transactions, or transactions that occurred within 30 days of the 
first deposit to the account. 12 CFR 1005.11(c)(3)(ii).
    \43\ 12 CFR 1005.11(c)(2)(i).
    \44\ 12 CFR 1005.11(c)(2)(i)(A). Note that even though a 
financial institution may request written confirmation within 10 
days of receipt of an oral notice, it must begin its investigation 
promptly upon receipt of an oral notice.
    12 CFR 1005, supp. I, comment 11(b)(1).
    \45\ 12 CFR 1005.11(c)(2)(ii).
    \46\ 12 CFR 1005.11(c)(2)(iv).
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    If an institution debits a provisional credit from a consumer's 
account because it determines that no error occurred or that an error 
occurred in a manner or amount different from that described by the 
consumer, it must, among other things, notify consumers of the 
debiting.\47\ The notice must State the date and amount of the debit 
and that the financial institution will honor checks, drafts, or 
similar instruments payable to third parties and preauthorized EFTs 
from the consumer's account for five business days after the 
notification.\48\ As an alternative to this notice, which is specified 
in the text of Regulation E, the associated Staff Commentary provides 
that a financial institution may notify the consumer that the 
consumer's account will be debited five business days from the 
transmittal of the notification and specify the calendar date on which 
the debiting will occur.\49\
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    \47\ 12 CFR 1005.11(d)(2)(i).
    \48\ 12 CFR 1005.11(d)(2)(ii).
    \49\ 12 CFR part 1005, supp. I, comment 11(d)(2)-1.
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    Examiners found that numerous institutions violated Regulation E's 
provisional credit requirements, including as follows:
     Failing to provide provisional credits, despite not 
completing error investigations within 10 business days of notice of an 
error;
     Failing to provide provisional credits to consumers who 
timely provided required written confirmation of oral error notices;
     Posting the provisional credit to the wrong account, by 
failing to ensure that the ownership of the credited account matched 
the account that should have received the credit;
     Excluding interest from the provisional credit;
     Using notification templates that either had a timeframe 
to disclose when a provisional credit would be applied instead of a 
specific date or lacked any date information;
     Failing to provide notice that a provisional credit had 
been made final due to process weakness, including: (i) An unsuccessful 
attempt to combine the letter informing consumers of a provisional 
credit with the letter notifying them the credit would be final, and 
(ii) a process deficiency in which both the financial institution and 
the merchant of the disputed charge issued a simultaneous credit; and
     Sending consumers notices that provisional credits would 
be reversed, but excluding either the exact date a credit was or would 
be debited or notice that it would honor checks, drafts, or similar 
instruments payable to third parties and preauthorized transfers from 
the customer's account for five business days after the notification, 
or excluding both.
    The institutions took a variety of corrective actions to remedy 
these violations, including making improvements to compliance 
management systems and providing remediation to consumers.
2.4.3 Failure To Timely Investigate Errors
    If a financial institution is unable to complete its investigation 
within 10 business days, 12 CFR 1005.11(c)(2) provides that an 
institution may take up to 45 days from receipt of the notice of error 
to investigate and determine whether an error occurred provided it, 
among other things, provisionally credits the consumer's account as 
discussed above. If the alleged error involves an EFT that was not 
initiated within a state, resulted from a point-of-sale debit card 
transaction, or occurred within 30 days after the first deposit to the 
account was made, the institution may take up to 90 days to investigate 
and determine whether an error occurred, provided it otherwise complied 
with the requirements of 12 CFR 1005.11(c)(2).\50\
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    \50\ See also 12 CFR 1005.2(l) (defining ``state'').
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    Examiners found that financial institutions violated Regulation E 
by failing to complete investigations and make a determination within 
45 days from receipt of the notice of error and within 90 days from 
receipt of the notice of error for point-of-sale debit transactions, 
respectively, after providing provisional credit within 10 business 
days of the error notice. In each instance, the financial institutions 
exceeded the applicable timelines.
    In response to examiners' findings, the financial institutions 
updated their training to ensure that employees were properly trained 
on the applicable Regulation E timelines and modified certain policies 
and procedures.\51\
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    \51\ While certain payment network rules may impose alternative 
timing requirements or limitations, network rules do not excuse 
institutions from complying with the applicable Regulation E 
timelines to complete the error investigation and make a 
determination. 12 CFR 1005.11(c)(2) and (3).
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2.4.4 Failure To Conduct Reasonable Investigations
    All error investigations ``must be reasonable.'' \52\ When it 
applies, Regulation E, 12 CFR 1005.11(c)(4), requires that a financial 
institution in

[[Page 36114]]

investigating an error must conduct, at a minimum, a ``review of its 
own records regarding [the] alleged error.'' \53\ This review must 
include at least ``any relevant information within the institution's 
own records.'' \54\
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    \52\ 71 FR 1638, 1654 (Jan. 10, 2006). See also USAA Federal 
Savings Bank Consent Order, File No. 2019-BCFP-0001.
    \53\ 12 CFR 1005.11(c)(4). Section 1005.11(c)(4) applies when 
the conditions in Sec.  1005.11(c)(4)(i) and (ii) are satisfied.
    \54\ 12 CFR part 1005, supp. I, comment 11(c)(4)-5.
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    Examiners found that some financial institutions violated 
Regulation E by failing to conduct a reasonable investigation and 
instead denied claims solely because the consumers had previously 
conducted business with a merchant. One institution, upon seeing that a 
consumer was challenging a charge from a merchant with whom the 
consumer had prior transactions, closed error investigations without 
completing them, and instead instructed consumers to first direct the 
claim to the merchant that made the charge.
    In response to examiners' findings, the financial institutions 
updated their training to ensure that employees were properly trained 
on the applicable Regulation E investigation requirements and enhanced 
certain policies and procedures and monitoring to ensure investigations 
are completed properly. In addition, the financial institutions 
identified and remediated all consumers whose Regulation E error claims 
were wrongly denied based upon pre-existing relationships with the 
merchant and whose error resolution claims were not investigated as 
required.
2.4.5 Failure To Properly Remediate Errors
    When a financial institution determines an alleged error did occur, 
commentary to Regulation E highlights ``it must correct the error . . . 
including, where applicable, the crediting of interest and the 
refunding of any fees imposed by the institution.'' \55\
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    \55\ 12 CFR part 1005, supp. I, somment 11(c)-6.
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    Examiners determined that some financial institutions failed to 
refund associated fees and credit interest when correcting an error. 
One such institution implemented automated processes, as well as policy 
updates and enhanced training to address the issue. At another 
institution, employees failed to provide proper credits and refunds 
although it was required by the institution's procedures. This failure 
indicated a lack of proper training, which the institution was asked to 
enhance. Both institutions stated that they would or had remediated 
impacted consumers.
    For another institution, this violation occurred because the 
institution's ACH teams reviewed issues on a transaction-by-transaction 
basis, which did not allow it to evaluate the impact of the issue at 
the account or claim level. This institution reorganized its staff to 
evaluate consumer accounts on an individual or account level, conducted 
a lookback to remediate impacted consumers, and updated policies to 
ensure that fees were credited to the accounts.
    Similarly, an organizational issue caused the problem at another 
institution. This institution used multiple divisions to investigate 
and correct errors, depending on the type of error alleged. Differing 
policies and procedures between divisions created various levels of 
authority for error resolution. Because of these differences, the 
institution failed to refund the fees as is required by the Regulation 
E commentary, despite determining the alleged error occurred. The 
institution rectified this situation by reviewing and consolidating the 
role of error investigation into one division to ensure all Regulation 
E errors were consistently processed and committed to remediate harmed 
consumers.
2.4.6 Overdraft Opt-In and Disclosure Violations
    The CFPB continues to examine financial institutions' overdraft 
opt-in and disclosure practices for compliance with relevant statutes 
and regulations, including Regulation E,\56\ Regulation DD,\57\ which 
implements the Truth in Savings Act,\58\ and the Dodd-Frank Act's 
prohibition on unfair, deceptive, or abusive acts or practices.\59\
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    \56\ 12 CFR 1005, et seq.
    \57\ 12 CFR 1030, et seq.
    \58\ 12 U.S.C. 4301, et seq.
    \59\ 12 U.S.C. 5531, 5536.
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    Many institutions provide various overdraft products that charge 
fees for transactions that overdraw accounts. Regulation E prohibits 
financial institutions from charging overdraft fees on ATM and one-time 
debit card transactions unless consumers affirmatively opt in to 
overdraft service.\60\ Among other things, Regulation E requires that 
institutions provide consumers ``a reasonable opportunity for the 
consumer to affirmatively consent, or opt in, to the service for ATM 
and one-time debit card transactions.'' \61\ Moreover, institutions 
must provide consumers ``with confirmation of the consumer's consent in 
writing, or if the consumer agrees, electronically, which includes a 
statement informing the consumer of the right to revoke such consent.'' 
\62\ Regulation E requires institutions to maintain evidence of 
compliance for a period of not less than two years from the date action 
is required to be taken or disclosures are required to be given.\63\
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    \60\ 12 CFR 1005.17.
    \61\ 12 CFR 1005.17(b)(1)(ii).
    \62\ 12 CFR 1005.17(b)(iv).
    \63\ 12 CFR 1005.13(b)(1).
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    Examiners identified a number of violations in connection with 
these overdraft opt-in requirements, including the following:
     Failing to obtain affirmative consent from consumers 
before charging them overdraft fees for ATM and one-time debit card 
transactions, due to coding errors, systems mergers, or inadequate 
phone-based opt-in procedures. These institutions provided remediation 
to consumers assessed these overdraft fees without their authorization 
and ceased charging overdraft fees to consumers who did not opt in.
     Failing to advise consumers who opted-in to overdraft 
online of their right to revoke their opt-in to ATM and one-time debit 
overdraft services as part of the opt-in confirmation notice. 
Supervision issued a Matter Requiring Attention (MRA) regarding the 
need for a notice that included the right to revoke and also 
remediation for consumers impacted by the previous deficient notice.
     Failing to retain evidence of having obtained affirmative 
consent from consumers to opt into overdraft services for ATM and one-
time debit card transactions, including due to process deficiencies for 
in-branch opt-in and general document retention failures. The 
institutions were directed to rectify their procedures.
     Failing to provide consumers overdraft opt-in notices that 
were substantially similar to the Model Form A-9 disclosure, in 
violation of Regulation E.\64\ Institutions corrected their notices.
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    \64\ 12 CFR 1005.17(d).
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    Supervision identified violations of Regulation DD requirements 
related to overdraft services as well, including:
     Disclosing to consumers, through automated systems, 
available account balance amounts that included discretionary overdraft 
credit that the bank potentially could provide; \65\ and
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    \65\ 12 CFR 1030.11(c).
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     Failing to correctly disclose on periodic statements the 
amount of overdraft fees incurred by consumers during a statement 
cycle.\66\
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    \66\ See 12 CFR part 1030(6)(a)(3).
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    The institutions implemented or proposed policy and procedure 
changes to address the violations.

[[Page 36115]]

2.5 Fair Lending

    The Bureau's fair lending supervision program assesses compliance 
with the Equal Credit Opportunity Act (ECOA) \67\ and its implementing 
regulation, Regulation B,\68\ as well as the Home Mortgage Disclosure 
Act (HMDA) \69\ and its implementing regulation, Regulation C,\70\ at 
banks and nonbanks over which the Bureau has supervisory authority. 
Examiners found that supervised institutions engaged in violations of 
HMDA and Regulation C, and ECOA and Regulation B.
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    \67\ 15 U.S.C. 1691-1691f.
    \68\ 12 CFR part 1002.
    \69\ 12 U.S.C. 2801-2810.
    \70\ 12 CFR part 1003.
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2.5.1 HMDA Examination Findings--2018 & 2019 Data
    The Bureau continues to examine mortgage originators, including 
bank and nonbank financial institutions, for compliance with HMDA and 
its implementing regulation, Regulation C. Regulation C requires 
financial institutions to collect and report data regarding 
applications for covered loans that they receive, covered loans that 
they originate, and covered loans that they purchase each calendar 
year.\71\ Recent examinations identified HMDA violations due to 
inaccuracy of HMDA data submitted by financial institutions, including 
fields newly added to the HMDA loan application register (LAR) 
beginning in 2018. In October 2015, the CFPB issued a final rule (2015 
HMDA Rule) that included changes to the types of institutions that are 
subject to Regulation C; the types of transactions subject to 
Regulation C; the specific information that covered institutions are 
required to collect, record, and report; and processes for reporting 
and disclosing data.\72\ For HMDA data collected on or after January 1, 
2018, certain covered institutions were required to collect, record, 
and report data points newly added or modified by the 2015 HMDA Rule.
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    \71\ 12 CFR 1003.4(a).
    \72\ 80 FR 66128 (Oct. 28, 2015).
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    Specifically, the 2015 HMDA Rule added new data points for 
Applicant or Borrower Age, Credit Score, Automated Underwriting System 
information, Unique Loan Identifier, Property Value, Application 
Channel, Points and Fees, Borrower-paid Origination Charges, Discount 
Points, Lender Credits, Loan Term, Prepayment Penalty, Non-amortizing 
Loan Features, Interest Rate, and Loan Originator Identifier as well as 
other data points. The 2015 HMDA Rule also modified several existing 
data points.\73\ Most of the additions and modifications to the HMDA 
LAR fields within the 2015 HMDA rule became effective January 1, 2018. 
Examinations evaluating data reported in 2018 and 2019 were the first 
examinations in which the Bureau reviewed the accuracy of the data in 
HMDA LAR fields added by the 2015 HMDA Rule.
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    \73\ See the CFPB HMDA Summary of Reportable Data chart (2015), 
https://files.consumerfinance.gov/f/201510_cfpb_hmda-summary-of-reportable-data.pdf.
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    The CFPB's HMDA examinations include transaction testing of a 
sample of the institution's HMDA LAR and review of its CMS as it 
relates to HMDA. Transaction testing consists of comparing a sample of 
the institution's HMDA LAR to source documents from the loan files 
corresponding to each LAR entry (LAR line or row of the data) and 
assessing whether or not the LAR entry is accurate. When errors are 
identified, examiners evaluate the number of errors relative to the 
resubmission threshold, which is the data accuracy standard used in the 
CFPB's examinations. Specifically, the HMDA interagency resubmission 
thresholds provide that in a LAR of more than 500 entries, when the 
total number of errors in any data field exceeds four, examiners should 
direct the institution to correct any such data field in the full HMDA 
LAR and resubmit its HMDA LARs with the corrected field(s).\74\ These 
resubmission thresholds are included in the CFPB's HMDA examination 
procedures.\75\
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    \74\ LARs of 500 entries or fewer have a resubmission threshold 
of three errors. CFPB Examination Procedures, updated April 1, 2019, 
available at https://files.consumerfinance.gov/f/documents/cfpb_supervision-and-examination-manual_hmda-exam-procedures_2019-04.pdf.
    \75\ For more information about CFPB HMDA LAR transaction 
testing and samples, refer to the CFPB HMDA Examination Procedures, 
updated April 1, 2019, available at https://files.consumerfinance.gov/f/documents/cfpb_supervision-and-examination-manual_hmda-exam-procedures_2019-04.pdf.
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2.5.2 2018 & 2019 HMDA LAR Errors
    Examiners identified widespread errors within 2018 HMDA LARs of 
several covered financial institutions. To date, examiners have not 
identified widespread LAR errors within institutions' 2019 LARs. In 
several examinations, examiners identified errors that exceed the HMDA 
resubmission thresholds. In general, examiners identified more errors 
in data fields collected beginning in 2018 pursuant to the 2015 HMDA 
rule than for other fields. For example, the fields with the highest 
number of identified errors across several institutions were the newly 
required ``Initially Payable to Your Institution'' field and the 
``Debt-to-Income Ratio'' field.
2.5.3 Root Causes of HMDA Data Errors
    In several examinations in which examiners identified numerous 
errors, the root causes of the HMDA violations were deficiencies in the 
institutions' CMS. The CMS deficiencies included the institutions' 
board and management oversight, policies and procedures, training, 
monitoring and audit, and the institutions' service provider oversight.
    Many of the widespread or systemic errors related to problems 
within the institutions' data mapping--the data transfers from 
operations-based systems, such as loan origination systems, to data 
storage systems that populate the HMDA LARs. For example:
     Examiners determined that numerous errors within the 
Credit Scoring model fields were caused by data transfer deficiencies 
in which institutions extracted data from credit scoring models then 
transferred them to systems that reported inaccurate codes and 
descriptions of the credit scores.
     Examiners identified errors within the Rate Spread field 
and observed that these errors occurred due to data mapping or data 
transfer deficiencies. Institutions allowed erroneous software updates 
within their loan processing systems to result in inaccurate Rate 
Spread values reported on their HMDA LARs. Examiners determined that 
service provider oversight deficiencies resulted in institutions' 
failure to correct the erroneous data transfers.
     Examiners identified inaccurate values for the debt-to-
income ratio. The institutions acknowledged the errors and stated the 
fields reported incorrectly were the result of a change made to the 
programming of their loan origination system.
    Many of the widespread or systemic errors were caused by 
misinterpretation of Regulation C requirements or the institution's 
specific policy. For example:
     Examiners determined that employees at one institution 
misinterpreted the institution's policies and procedures for 
calculating the ages of applicants and co-applicants. Examiners 
determined that these errors were caused by deficiencies in the 
institution's monitoring and audit function.
     Examiners determined that an institution's senior 
management misinterpreted HMDA and Regulation C, concluding erroneously 
that the Origination Charges, Discount Points, and/or Lender Credits 
fields should be reported as ``Not applicable.'' For

[[Page 36116]]

example, examiners observed Origination Charges, displayed as ``zero'' 
within source documentation, inaccurately reported as ``Not 
applicable.'' The Origination Charges field should be entered, in 
dollars for the total of all itemized amounts that are designated 
borrower-paid at or before closing. If the total is zero, enter 0. 
Enter ``NA'' if the requirement to report origination charges does not 
apply to the covered loan or application that the institution is 
reporting.
2.5.4 HMDA Supervisory Actions
    In response to widespread HMDA LAR inaccuracies identified during 
examinations, institutions will review, correct, and resubmit their 
HMDA LAR.\76\ Some institutions have already resubmitted their HMDA 
LARs.
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    \76\ On December 21, 2017, the Bureau issued a Statement with 
respect to HMDA compliance announcing among other things that the 
Bureau does not intend to assess penalties for errors in data 
collected in 2018 and that the Bureau does not intend to require 
data resubmission unless errors are material. See Consumer Fin. 
Prot. Bureau, CFPB Issues Public Statement On Home Mortgage 
Disclosure Act Compliance (Dec. 21, 2017), available at https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-public-statement-home-mortgage-disclosure-act-compliance/. During 
examinations of 2018 data in which CFPB Supervision required 
financial institutions to resubmit data, Supervision concluded that 
the errors identified were material.
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    In addition, institutions will enhance monitoring practices to 
ensure they are completed timely and appropriately identify and measure 
HMDA risk. Some institutions will develop and implement an effective 
HMDA monitoring program that prevents, detects, and corrects violations 
of HMDA and Regulation C, and ensures appropriate corrective actions 
are taken.
    Some institutions will make improvements to CMS components that 
were the cause of errors, including through (1) implementation of 
policies, procedures and/or a plan that ensures that fields that had 
errors are reported accurately; (2) improvements to board and 
management oversight to ensure that the board and management promptly 
responds to CMS deficiencies and violations of Regulation C; and (3) 
improvements to their HMDA training program regarding collecting and 
recording data for the HMDA LAR, including ensuring it is specifically 
tailored to staff with responsibilities relating to HMDA.
2.5.5 Redlining
    Regulation B prohibits discouragement of ``applicants or 
prospective applicants''. Specifically, it 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.'' \77\ The Official Interpretations of Regulation B also 
explain that this prohibition ``covers acts or practices directed at 
prospective applicants that could discourage a reasonable person, on a 
prohibited basis, from applying for credit.'' \78\
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    \77\ 12 CFR 1002.4(b).
    \78\ 12 CFR part 1002, supp. I, para. 4(b)-1.
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    In the course of conducting supervisory activity, examiners 
observed that a lender violated ECOA and Regulation B by engaging in 
acts or practices directed at prospective applicants that would have 
discouraged reasonable people in minority neighborhoods in Metropolitan 
Statistical Areas (MSAs) from applying for credit.
    Initial statistical analysis of the HMDA data and U.S. census data 
showed that the lender received significantly fewer applications from 
majority-minority and high-minority neighborhoods relative to other 
peer lenders in the MSA, which resulted in the prioritization of the 
institution for a redlining examination. The examination teams' 
subsequent, in-depth analyses, including general and refined peer 
analyses, confirmed these differences relative to its peer lenders in 
the MSA.\79\ Examiners identified evidence of communications directed 
at prospective applicants that would discourage reasonable persons on a 
prohibited basis from applying to the lender for a mortgage loan. 
First, the lender conducted a number of direct mail marketing campaigns 
that featured models, all of whom appeared to be non-Hispanic white. 
Second, the lender included headshots of its mortgage professionals in 
its open house marketing materials, and in almost all of these 
materials, the headshots showed only professionals who appeared to be 
non-Hispanic white. Third, the lender's office locations were nearly 
all concentrated in majority non-Hispanic white areas, as confirmed by 
the lender's website communicating where the offices are located. Each 
of these acts or practices is a form of communication directed at 
prospective applicants.
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    \79\ Examination teams defined majority-minority areas as >50% 
minority and high-minority areas as >80% minority.
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    Also, the lender's direct marketing campaign and Multiple Listing 
Service (MLS) advertising was focused on majority-white areas in the 
MSA, which provided additional evidence of its intent to discourage on 
a prohibited basis. In addition, the examination team determined that 
the lender employed mostly non-Hispanic white mortgage loan officers 
and identified emails among mortgage loan officers containing racist 
and derogatory content. The lender plans to undertake remedial and 
corrective actions regarding this violation, which are under review by 
the Bureau.

2.6 Mortgage Origination

    Supervision assessed the mortgage origination operations of several 
supervised entities for compliance with applicable Federal consumer 
financial laws. Examinations of these entities identified violations of 
Regulation Z and deceptive acts or practices prohibited by the CFPA.
2.6.1 Compensating Loan Originators Differently Based on Product Type
    Regulation Z generally prohibits compensating mortgage loan 
originators in an amount that is based on the terms of a 
transaction.\80\ Compensation is based on the term of a transaction if 
the objective facts and circumstances indicate that the compensation 
would have been different if a transaction term had been different.\81\ 
In the preamble to the Bureau's 2013 Loan Originator Final Rule, the 
Bureau responded to questions from commenters about whether it was 
permissible to compensate differently based on product types, such as 
credit extended pursuant to government programs for low-to moderate-
income borrowers.\82\ As part of its response to these questions, the 
Bureau explained that it is not permissible to differentiate 
compensation based on credit product type, since products are simply a 
bundle of particular terms.\83\
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    \80\ 12 CFR 1026.36(d)(1)(i).
    \81\ 12 CFR part 1026, supp. I, comment 36(d)(1)-1.i.
    \82\ 2013 Loan Originator Compensation Rule, 78 FR 11279, 11326 
(Feb. 15, 2013). The Bureau noted that the meaning of loan 
``product'' is ``not firmly established and varies with the person 
using the term, but it generally refers to various combinations of 
features such as the type of interest rate and the form of 
amortization.'' Id. at 11284.
    \83\ Id. at 11326-27, note 82. The Bureau further noted in the 
preamble that permitting different compensation based on different 
product types would create ``precisely the type of risk of 
steering'' that the statutory provisions implemented through the 
2013 Loan Originator Final Rule sought to avoid. Id. at 11328. The 
Bureau also declined to exclude State housing finance authority 
loans from the scope of the rule. Id. at 11332-33.
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    Examiners found that lenders' compensation policies specified lower 
compensation for originating a bond loan subject to requirements set 
forth by a State Housing Finance Agency (HFA), and that the lenders 
followed these policies. Examiners also found that

[[Page 36117]]

lenders compensated loan originators by paying them more for 
originating construction loans than for other types of loans. Examiners 
determined that by compensating loan originators differently based on 
whether the loan was an HFA loan or construction loan, the lenders 
compensated loan originators based on the terms of the transaction 
because the compensation would have been different if the terms of the 
transaction had been different. As a result, each lender involved 
agreed to no longer compensate loan originators differently based on 
product type.
2.6.2 Disclosure of Simultaneously Purchased Lender and Owner Title 
Insurance
    Where there is simultaneous purchase of lender and owner title 
insurance policies, Regulation Z requires creditors to disclose the 
lender's title insurance based on the amount of the premium, without 
any discount that might be available for the simultaneous purchase of 
an owner's title insurance policy.\84\ Creditors are required to 
disclose the premium for the owner's policy showing the impact of the 
simultaneous purchase discount.\85\ The intent of this rule is to 
provide consumers with information on the incremental additional cost 
associated with obtaining an owner's title insurance policy, and the 
cost they would be required to pay for the lender's policy if they did 
not purchase an owner's policy. Examiners found that some creditors 
violated Regulation Z by disclosing the lender's title insurance 
premium at the discounted rate and the owner's title insurance at the 
full premium on the Loan Estimate. Supervision requested that the 
creditors revise their policies and procedures to ensure correct 
disclosure of title insurance premiums where there is a simultaneous 
issuance rate for lender's and owner's title policies.
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    \84\ 12 CFR 1026.37(f)(2); 12 CFR part 1026, supp. I, comment 
37(f)(2)-4.
    \85\ 12 CFR 1026.37(g)(4); 12 CFR part 1026, supp. I, comment 
37(g)(4)-2.
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2.6.3 Deceptive Waivers of Borrowers' Rights in Security Deed Riders 
and Loan Security Agreements
    Regulation Z states that a ``contract or other agreement relating 
to a consumer credit transaction secured by a dwelling . . . may not be 
applied or interpreted to bar a consumer from bringing a claim in court 
pursuant to any provision of law for damages or other relief in 
connection with any alleged violation of Federal law.'' \86\ In light 
of this provision, examiners previously concluded that certain waiver 
provisions are deceptive where reasonable consumers could construe the 
waivers to bar them from bringing Federal claims in court related to 
their mortgages. For example, examiners previously identified waiver 
provisions in home equity installment loan agreements that provided 
that consumers who signed the agreements waived all other notices or 
demands in connection with the delivery, acceptance, performance, 
default or enforcement of the agreement and concluded that those 
provisions violated the CFPA's prohibition on deceptive acts or 
practices.\87\ Similarly, in the mortgage servicing context, examiners 
previously identified broad waiver of rights clauses in forbearance, 
loan modification, and other loss mitigation options and concluded that 
they violated the CFPA's prohibition against unfair or deceptive acts 
or practices.\88\
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    \86\ 12 CFR 1026.36(h)(2).
    \87\ Supervisory Highlights, Summer 2015, at 15.
    \88\ Supervisory Highlights, Summer 2017, at 22.
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    Examiners identified a waiver provision in a rider to a security 
deed that is in use in one state.\89\ The waiver provided that 
borrowers who signed the agreement waived all of their rights to notice 
or to judicial hearing before the lender exercises its right to 
nonjudicially foreclose on the property. Examiners concluded that the 
use of this provision by mortgage lenders violated the CFPA's 
prohibition on deceptive acts or practices. Regulation X, 12 CFR 
1024.41, implementing the Real Estate Settlement Procedures Act 
(RESPA), requires mortgage servicers to provide borrowers with certain 
notices in the loss mitigation context and borrowers may bring suit to 
enforce those provisions. A reasonable consumer could understand the 
provision to waive the consumer's right to sue over a loss mitigation 
notice violation in the nonjudicial foreclosure context. This 
misrepresentation is material because it could dissuade consumers from 
consulting a lawyer or otherwise bringing Federal claims in court 
related to the transaction. Thus, examiners concluded that the waiver 
provision was deceptive. In response to the examination findings, the 
entities committed to discontinuing use of the form containing the 
waiver.
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    \89\ This examination work was completed after the review period 
for this report.
---------------------------------------------------------------------------

    Examiners also found that entities required borrowers in another 
State to agree to a waiver, in the event of default, of any equity or 
right of redemption in the loan security agreement for cooperative 
units. Specifically, the waiver stated that in the event of default, 
lenders may sell the security at public or private sale and thereafter 
hold the security free from any claim or right whatsoever of the 
borrower, who waives all rights of redemption, stay or appraisal which 
the borrower has or may have under any rule or statute. Examiners 
determined that the waiver language would likely mislead a consumer 
into believing that by signing the agreement they waived their right to 
bring any claim in court, including Federal claims.\90\ This 
interpretation could appear reasonable to a consumer. The 
misrepresentation was material because it was likely to affect whether 
a consumer would choose to retain counsel or pursue claims against the 
entity in the future. As a result, the entities implemented an 
agreement resolving the issue and committed to providing clarification 
to all affected borrowers.
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    \90\ 15 U.S.C. 602(dd)(5), (w).
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2.7 Mortgage Servicing

    Bureau examinations continue to review for violations of mortgage 
servicing requirements. Examiners determined that servicers violated 
Regulation X by making the first notice or filing for foreclosure when 
it was prohibited.\91\ Examiners also determined that servicers engaged 
in a deceptive act or practice when they represented to borrowers that 
they would not initiate a foreclosure action until a specified date, 
but nevertheless initiated foreclosures prior to that date. Examiners 
also found that servicers failed to maintain policies and procedures, 
as required by Regulation X, reasonably designed to achieve specific 
objectives described in Regulation X.\92\
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    \91\ 12 CFR 1024.41(f)(2)(i).
    \92\ 12 CFR 1024.38(a), (b).
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    Additionally, examiners found that servicers violated Regulation X 
by conducting an annual escrow analysis that assumed that private 
mortgage insurance (PMI) payments would continue for the entire escrow 
analysis period, despite the servicers' knowledge that PMI would be 
automatically terminated before the end of the escrow analysis 
period.\93\
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    \93\ 12 CFR 1024.17(c)(7).
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2.7.1 Dual Tracking Violations
    Regulation X generally prohibits a servicer from making the first 
notice or filing required for foreclosure if the consumer submits a 
complete loss mitigation application unless the servicer has completed 
the review of the application, considered any appeals, the borrower 
rejects all loss mitigation

[[Page 36118]]

options offered by the servicer, or the borrower fails to perform under 
an agreement on a loss mitigation option. If a consumer submits all of 
the documents requested by the servicer in response to the notice in 12 
CFR 1024.41(b)(2)(i)(B), then the application is ``facially complete'' 
and the servicer must treat the application as complete for the 
purposes of the foreclosure referral protections of 12 CFR 
1024.41(f)(2) until the borrower is given a reasonable opportunity to 
complete the application.
    Examiners found that servicers violated Regulation X by making the 
first filing for foreclosure after the loan application was facially 
complete but before meeting the requirements of 12 CFR 1024.41(f)(2). 
The servicers received all the information requested in the 12 CFR 
1024.41(b)(2)(i)(B) notice and therefore the application was facially 
complete. However, the servicers did not place a foreclosure hold on 
the account when the documents were received. Instead, the servicers 
waited until they had completed internal analysis that the application 
was facially complete, which took more than a day, during which time a 
foreclosure filing occurred in spite of the facially complete 
application having been received.
    As a result of this finding, servicers remediated foreclosure fees 
that were charged to consumers who had submitted facially complete 
applications prior to the first foreclosure filing. They also enhanced 
their procedures, employee training, and monitoring controls.
    Regulation X also prohibits a servicer from making the first notice 
or filing for foreclosure before making a decision on a borrower's 
timely appeal of a denied loss mitigation application.\94\
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    \94\ 12 CFR 1024.41(f)(2)(i).
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    Institutions violated Regulation X by making the first notice or 
filing for foreclosure before they had evaluated borrowers' appeals. 
The servicers denied the borrowers' loss mitigation applications and 
provided the borrowers with information about appealing the 
determination as required under Regulation X. The borrowers submitted 
the appeal within the 14-day period under 12 CFR 1024.41(h)(2). Prior 
to making a determination regarding the appeal, the servicers made a 
first notice or filing for foreclosure, violating Regulation X.\95\ In 
response to this finding, servicers enhanced policies and procedures, 
training, and monitoring controls.
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    \95\ 12 CFR 1024.41(f)(2)(i).
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    Regulation X requires servicers to maintain policies and procedures 
reasonably designed to achieve specific objectives described in the 
regulation.\96\ It provides that servicers' policies and procedures 
shall be reasonably designed to facilitate the sharing of accurate and 
current information regarding the status of any evaluation of a 
borrower's loss mitigation application and the status of any 
foreclosure proceeding among appropriate servicer personnel, including 
service provider personnel responsible for handling foreclosure 
proceedings.\97\
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    \96\ 12 CFR 1024.38(a), (b).
    \97\ 12 CFR 1024.38(b)(3)(iii).
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    Some servicers had policies and procedures to notify foreclosure 
counsel to stop all legal fillings only after the servicer had sent 
borrowers the notice acknowledging receipt of a complete loss 
mitigation application, which may be sent to a consumer up to five days 
after receipt of their application. This represents a failure to 
facilitate the sharing with its service providers of accurate and 
current information regarding the status of borrowers' loss mitigation 
applications. Because the servicers did not inform foreclosure counsel 
that a complete loss mitigation application had been submitted until it 
sent the loss mitigation acknowledgement notice, they failed to 
maintain policies and procedures reasonably designed to achieve the 
objective of 12 CFR 1024.38(b)(3)(iii). In response to these findings, 
servicers updated their policies and procedures.
2.7.2 Misrepresentations Regarding Foreclosure Timelines
    Regulation X's requirements related to loss mitigation applications 
do not apply to consumers submitting additional loss mitigation 
applications under certain circumstances. Specifically, they do not 
apply where a servicer has previously complied with the regulation's 
loss mitigation requirements for a complete loss mitigation application 
and the borrower has been delinquent at all times since submitting the 
prior complete application.\98\
---------------------------------------------------------------------------

    \98\ 12 CFR 1024.41(i).
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    Some servicers failed to adopt appropriate policies and procedures 
for responding accurately to such repeat loss mitigation applications. 
Examiners identified a deceptive practice when servicers represented to 
borrowers that they would not initiate a foreclosure action until a 
specified date, but nevertheless initiated a foreclosure prior to that 
date. These servicers maintained a policy of using model communications 
for all borrowers that included language reflecting Regulation X 
protections for borrowers submitting loss mitigation applications 
regardless of whether Regulation X protections actually applied to 
those borrowers. Examiners identified loss mitigation files where the 
servicers specifically indicated in letters that they would not 
initiate a foreclosure action until a specific date. Examiners noted 
that the date was consistent with the timeline that Regulation X would 
require if the application were protected by those provisions. 
Nevertheless, the servicers did initiate foreclosure actions prior to 
that date.
    The inaccurate representations regarding the day foreclosure action 
would be initiated were likely to mislead borrowers into believing that 
they had more time until foreclosure than they actually did. It was 
reasonable for consumers to believe these representations since the 
information was provided on multiple loss mitigation related 
disclosures sent in response to the application. The representations 
were material because borrowers plan how they will obtain and when they 
will send necessary documents, and what actions they will take 
regarding their delinquent mortgages, based on the information 
provided--including the timeline for foreclosure. In response to these 
findings, servicers updated the information contained in letters sent 
to consumers.
2.7.3 Failure To Consider PMI Termination Date During Annual Escrow 
Analysis
    Regulation X requires servicers to conduct an annual escrow 
analysis, in which they estimate the disbursement amounts of escrow 
account items.\99\ If the servicer ``knows the charge'' for an item 
``in the next computation year,'' then it ``shall use that amount'' in 
its estimate.\100\ Servicers violated the requirements of 12 CFR 
1024.17(c)(7) by including in the annual escrow analysis a full year of 
PMI disbursements, despite knowing that PMI would be charged for only 
part of the year.
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    \99\ 12 CFR 1024.17(c)(3).
    \100\ 12 CFR 1024.17(c)(7).
---------------------------------------------------------------------------

    PMI, when required, is automatically terminated when the principal 
balance of the mortgage loan reaches 78 percent of the original value 
of the property based on the amortization schedule, as long as the 
borrower is current. Examiners found that one or more servicers' 
systems maintain all relevant information to determine the termination 
date. Therefore, these

[[Page 36119]]

servicers ``know'' that the charges for PMI will not last a full twelve 
months and will terminate before the end of the escrow year. Because 
the servicers know the charges for PMI will terminate for certain 
mortgages, including PMI charges after the termination date in the 
annual escrow analysis violates 12 CFR 1024.17(c)(7). In response to 
these findings, the servicers began considering the PMI termination 
information in their systems while conducting the annual escrow 
analysis.

2.8 Payday Lending

    The Bureau's Supervision program covers entities that offer or 
provide payday loans. Examinations of these lenders identified 
deceptive acts or practices.
2.8.1 Misrepresentations Regarding an Intent To Sue
    Examiners found that lenders engaged in deceptive acts or practices 
in violation of the CFPA when they sent delinquent borrowers collection 
letters stating an ``intent to sue'' if the consumer did not pay the 
loan.\101\ Examiners found the representations misled or were likely to 
mislead consumers, and that consumers' interpretations were reasonable. 
A reasonable borrower could understand the letters to mean that the 
lender had decided it would sue if a borrower did not make payments as 
required by the letter. In fact, the lenders had not decided prior to 
sending the letters that they would sue if borrowers did not pay, and 
in most cases did not sue borrowers who did not pay. The 
representations were material because they could induce delinquent 
borrowers to change their conduct regarding their loans. For example, 
consumers may have made payments they otherwise would not have, in 
order to avoid the possibility of suit. In response to examination 
findings, the entities ceased issuing letters stating an intent to sue 
where such a determination had not already been made, and enhanced 
collections communication-related policies and procedures, training, 
and monitoring.
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    \101\ 12 U.S.C. 5531, 5536(a)(1)(B).
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2.8.2 Misrepresentations That No Credit Check Will Be Conducted
    Examiners observed that lenders engaged in a deceptive act or 
practice in violation of the CFPA when they falsely represented on 
storefronts and in photos on proprietary websites that they would not 
check a consumer's credit history. In fact, the lenders used consumer 
reports from at least one consumer reporting agency 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 applying for loans. Prospective 
customers may have had concerns about their credit histories and 
ability to obtain credit, and consequently made a different choice. 
Moreover, storefront advertising claims were express and presumed 
material. In response to these findings, the lenders ceased making 
misleading representations on signage at branch locations and websites, 
and implemented enhanced advertising oversight.
2.8.3 Deceptive Presentation of Repayment Options to Borrowers 
Contractually Eligible for No-Cost Repayment Plans
    When consumers indicated an inability to repay their payday loans, 
lenders engaged in a deceptive act or practice by presenting payment 
options to consumers in a manner that misled or was likely to mislead 
them. Examiners found that, as a result of the institutions' process of 
presenting fee-based refinance options to struggling borrowers while 
withholding information about contractually available no-cost repayment 
plan options, many consumers entered into fee-based refinances despite 
being eligible for a no-cost repayment option.
    The presentation of payment options misled, or was likely to 
mislead, consumers into believing that there was not a no-cost 
installment repayment option despite the loan agreements providing for 
one. Consumers may have also been misled into believing that a no-cost 
option was only available if the consumers first rejected or were found 
ineligible for other options, such as a fee-based refinance. A 
consumer's misunderstanding of their repayment options would be 
reasonable in light of the fact that the consumers who elected these 
other options were not told about the no-cost repayment plan option by 
the institution at the time that the consumers expressed difficulty 
repaying their loans. The institutions' misleading practice was 
material because it caused consumers to incur fees, such as for 
refinances, that could have been avoided had they been aware of their 
contractual right to a no-cost repayment option.

2.9 Private Education Loan Origination

    The Bureau has supervisory authority over entities that offer or 
provide private education loans.\102\ The Bureau examines private 
education loan origination activities for compliance with applicable 
Federal consumer financial laws, including assessing whether entities 
have engaged in any unfair, deceptive, or abusive acts or practices 
prohibited by the CFPA. Examinations of these entities identified at 
least one deceptive act or practice.
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    \102\ 12 U.S.C. 5514(a)(1)(D).
---------------------------------------------------------------------------

2.9.1 Deceptive Marketing Regarding Private Education Loan Rates
    Examiners found that entities engaged in a deceptive act or 
practice \103\ by (1) advertising rates ``as low as'' X%, (2) 
disclosing certain conditions to obtain that rate (e.g., the borrower 
must make automatic payments and the rate was available only for 
applications filed by a date certain), and (3) omitting that a 
borrower's rate would depend on their creditworthiness. Examiners 
determined that the net impression of the marketing materials misled or 
was likely to mislead consumers to believe the ``as low as'' rate was 
available regardless of creditworthiness. The consumers' interpretation 
of such representations was reasonable under the circumstances and the 
entities' misleading representations were material to consumers' 
decisions to apply for a private education loan because it could impact 
the consumer's decision to apply for or take the loan. As a result, the 
entities have removed the phrase ``as low as'' from its marketing 
materials and, rather, advertises the entire range of rates (e.g., 
``X.XX%-YY.YY%''). Also, each entity involved now discloses that the 
lowest rates are only available for the most creditworthy applicants, 
in addition to other disclosures.
---------------------------------------------------------------------------

    \103\ 12 U.S.C. 5531 and 5536(a)(1)(B).
---------------------------------------------------------------------------

2.10 Student Loan Servicing

    The Bureau continues to examine student loan servicing activities, 
primarily to assess whether entities have engaged in any unfair, 
deceptive or abusive acts or practices prohibited by the CFPA. 
Examiners identified three types of misrepresentations servicers made 
regarding consumer eligibility for the Public Service Loan Forgiveness 
(PSLF) program. Examiners also identified two unfair acts or practices 
related to failure to reverse negative consequences of automatic 
natural disaster forbearances and an unfair act or practice related to 
failing to honor consumer payment allocation

[[Page 36120]]

instructions. Additionally, examiners continued to find that servicers 
engaged in unfair acts or practices related to providing inaccurate 
monthly payment amounts to consumers after a loan transfer, as 
previously discussed in Supervisory Highlights.\104\
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    \104\ Supervisory Highlights, Issue 21, Winter 2020.
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2.10.1 Public Service Loan Forgiveness
    PSLF may provide significant relief for consumers that work at 
501(c)(3) nonprofits; government organizations; or other types of non-
profit organizations that provide certain types of qualifying public 
services. Under the program, consumers that make 120 qualifying 
payments on their Direct Loans while working for an eligible employer 
and repaying under an eligible repayment plan may have the balance of 
their loans forgiven. There is significant confusion about eligibility 
for PSLF, which is further complicated by the relative complexity of 
student loan types and terms. Consequently, examiners observed 
borrowers with Federal Family Education Loan Program (FFELP) loans 
requesting information from servicers about their eligibility for PSLF 
or inquiring about terms of the program.
    While FFELP loans are not initially eligible for PSLF, FFELP 
borrowers can consolidate into a Direct Consolidation Loan, which is 
eligible. Once consolidated, the consumer can start making eligible 
payments toward the 120 needed for forgiveness. Direct Consolidation 
Loan borrowers are also eligible for other benefits like improved 
income-driven repayment options, while their FFELP loan counterparts 
are not.
    Examiners observed that servicers regularly provide FFELP borrowers 
information about PSLF. Examiners found that servicers regularly 
provided inaccurate information about eligibility for PSLF or Direct 
Consolidation Loans, resulting in deceptive acts or practices described 
below.
2.10.2 Misrepresenting the Effect of Employer Certification Forms
    In examinations of student loan servicers, examiners identified a 
deceptive act or practice where servicer employees represented to FFELP 
loan borrowers that they could submit their employer certification 
forms (ECF) to receive a determination on whether their employers are 
eligible employers for PSLF. Yet under PSLF program guidelines, FFELP 
borrowers who submit an ECF prior to consolidation into a Direct Loan 
will be rejected, without any determination about employer eligibility.
    The servicers' representations are likely to mislead borrowers into 
believing that they should submit an ECF prior to consolidation to 
receive confirmation that their employers are eligible. Consumers' 
interpretation was reasonable under the circumstances and they were 
likely to be misled by the servicers' representations, given the 
specificity of agents' statements and the fact that agents routinely 
provided information about the PSLF program. FFELP borrowers were 
likely interested in entering the PSLF program as soon as possible, so 
that they could begin making the 120 payments required for forgiveness. 
The agents' information was material because it was likely to affect 
FFELP borrowers' conduct in taking the steps necessary to enter PSLF--
most notably, consolidating their loans--and could delay these 
borrowers' entry into the program by the time it takes to go through 
the ECF process.
2.10.3 Misrepresenting Eligibility of FFELP Loans for PSLF
    Examiners found that servicers engaged in a deceptive act or 
practice by advising borrowers with FFELP loans that the loans could 
not become eligible for PSLF.
    Consumers with FFELP loans can consolidate their loans into a 
Direct Consolidation Loan and become eligible for PSLF. Examiners found 
that during calls servicers represented to consumers with FFELP loans 
that they had no potential course of action to become eligible for 
PSLF. This representation was likely to mislead consumers because, in 
fact, their loans could become eligible through consolidation. 
Consumers' interpretation was reasonable under the circumstances 
because they reasonably believed that they had made their interest in 
eligibility for PSLF clear, and reasonably interpreted the servicers' 
representations to mean that they could not take steps to qualify for 
PSLF. The representations were material because consumers called to 
inquire about loan forgiveness and if they had received accurate 
information may have taken steps to convert their FFELP loans to Direct 
Loans.
2.10.4 Misrepresenting Employer Types Eligible for PSLF
    Examiners found that servicers risked engaging in a deceptive act 
or practice by informing borrowers interested in the PSLF program that 
they are only eligible if their employer is a nonprofit. The PSLF 
program provides loan forgiveness for eligible Federal student loans 
after ten years of payments by consumers who meet certain requirements, 
including that they work for a qualifying employer. Qualifying 
employers include local, State, Federal or tribal government entities; 
501(c)(3) nonprofits; and or other types of non-profit organizations 
that provide certain types of qualifying public services. Servicers 
stated in calls that consumers could be eligible for PSLF if they 
worked for nonprofits but did not mention that government employees and 
other types of employees are also eligible. This statement created the 
net impression that only employees of nonprofits were eligible. This 
was likely to mislead consumers, because other employment types are 
also eligible. This was a reasonable interpretation under the 
circumstances because servicers routinely provide consumers with 
information about eligibility for various programs. Finally, the 
representation was material to eligible consumers' decision regarding 
whether to pursue PSLF. As a result of examiner findings, the servicers 
implemented a new training program for agents.
2.10.5 Failure To Reverse the Consequences of Automatic Natural 
Disaster Forbearances
    Examiners identified unfair practices related to enrollment in 
natural disaster forbearances at entities servicing private student 
loans. Generally, student loan borrowers become eligible for a natural 
disaster forbearance when they, or their cosigners, reside in a zip 
code impacted by a declared natural disaster. In most situations this 
forbearance is opt-in, allowing consumers to contact their servicer and 
request the payment relief. However, at some servicers, examiners 
identified that certain populations of loans were automatically 
enrolled in the forbearance without a specific request from the 
consumer--even if they were otherwise current on their loans. Within 
this subset of consumers whose accounts were automatically placed into 
a natural disaster forbearance, examiners identified two unfair 
practices.
    First, examiners noted that despite the natural disaster 
declaration, some consumers did not want to be enrolled in the 
forbearance and requested to return to repayment. Often consumers 
identified negative consequences of forbearance and complained to their 
servicer about enrollment. For example, forbearance resulted in certain 
consumers losing payment incentives such as interest rate reductions 
for making on-time payments. It also resulted in consumers accruing 
unpaid interest during the period. And

[[Page 36121]]

following a consumer complaint, one servicer failed to reverse the 
consequences of these unwanted automatic forbearances.
    Second, at one servicer, enrollment in the automatic forbearance 
resulted in unenrollment of borrowers in the auto-debit program 
completely. In other words, auto-debit did not resume when these 
forbearances ended following cancelation of the forbearance or the 
regular termination of the forbearance period. This resulted in 
consumers becoming past due on the loan when they believed that their 
payments had been automatically debited.
    Consumers could not reasonably avoid the injury from either 
practice because the natural disaster forbearance was placed on their 
accounts automatically. Even where consumers recognized the forbearance 
was placed and contacted their servicer to opt-out, the servicers 
failed to fully reverse the consequences of the action. For consumers 
who explicitly do not want a natural disaster forbearance, the injuries 
were not outweighed by countervailing benefits to consumers or 
competition. The servicers have ceased automatically enrolling 
consumers in natural disaster forbearances.
2.10.6 Inaccurate Monthly Payment Amounts After Servicing Transfer
    Examiners found that servicers engaged in an unfair act or practice 
by failing to waive or refund overcharges they assessed after loan 
transfers. In previous editions of Supervisory Highlights, the Bureau 
has discussed other findings related to inaccurately billed amounts 
after loan transfers.
    More specifically, consumers had enrolled in Income-Based Repayment 
(IBR) plans that lowered their student loan payment to a percentage of 
their discretionary income. When the loans were transferred to new 
servicers, they did not honor the terms of the IBR plan and sent 
consumers periodic statements listing inaccurate payment amounts, and 
in some instances, initiated automatic electronic debits in the 
incorrect amount. The servicers notified consumers of the error but did 
not refund or offer to refund any overpayments.
    The conduct caused or was likely to cause substantial injury to 
consumers because the servicers required payments in excess of the 
amount required under the terms of the consumers' IBR plans. Consumers 
could not reasonably avoid the injury because they relied on the 
servicers' calculations and representations in the periodic statements. 
Further, the servicers did not provide refunds to consumers if they 
requested refunds of the overpayments. The injury from this activity is 
not outweighed by the countervailing benefits to consumers or 
competition. For example, the benefits to consumers or competition from 
avoiding the cost of better monitoring of servicing transfers between 
entities would not outweigh the substantial injury to consumers. In 
response to the examination findings, these servicers added additional 
controls to their loan onboarding process.
2.10.7 Failure To Honor Payment Allocation Instructions
    Most servicers handle multiple student loans for one borrower in 
combined student loan accounts. Servicers bill borrowers for the sum of 
the minimum monthly payments for each loan.
    Examiners found that servicers engaged in an unfair practice by 
failing to follow borrowers' explicit standing instructions regarding 
payment allocation.\105\
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    \105\ The Bureau has previously discussed payment allocation 
practices in Supervisory Highlights, Issue 9, Fall 2015 and Issue 
10, Winter 2016.
---------------------------------------------------------------------------

    Examiners found that certain accounts contained at least one 
incorrectly applied payment. The failure to follow payment instructions 
resulted in borrowers paying more over the life of their loans or 
experiencing lost or delayed borrower benefits, such as co-signer 
release. Consumers were unable to reasonably avoid the injury because 
they relied on the servicers' representation that they would allocate 
payments in accordance with the instructions provided. Finally, the 
injury from these errors is not outweighed by the countervailing 
benefits to consumers or competition. In response to these findings, 
services implemented new training and additional monitoring of payment 
allocation instructions.

3. Supervisory Program Developments

3.1.1 CFPB and NCUA Enter Into a MOU
    The CFPB and the National Credit Union Administration (NCUA) 
announced a Memorandum of Understanding (MOU) agreement to improve 
coordination between the agencies related to the consumer protection 
supervision of credit unions with over $10 billion in assets.\106\
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    \106\ The MOU is available at: https://files.consumerfinance.gov/f/documents/cfpb_ncua-memorandum-of-understanding_2021-01.pdf.
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    The MOU better facilitates coordinated examinations to reduce 
redundancy and unnecessary overlap. CFPB and NCUA will also share 
information on training activities and content. Finally, the MOU will 
permit both agencies to share information related to supervisory 
activities and potential enforcement actions.
3.1.2 CFPB Issues Final Rule on the Role of Supervisory Guidance
    On January 19, 2021, the CFPB issued a final rule regarding the 
Bureau's use of supervisory guidance for its supervised 
institutions.\107\ The rule codifies the statement, with amendments, 
that the Bureau and other Federal financial regulatory agencies issued 
in September 2018, which clarified the differences between regulations 
and supervisory guidance. The final rule states that unlike a law or 
regulation, supervisory guidance does not have the force and effect of 
law and the Bureau does not take enforcement actions or issue 
supervisory criticisms based on non-compliance with supervisory 
guidance. Rather, supervisory guidance outlines supervisory 
expectations and priorities, or articulates views regarding appropriate 
practices for a given subject area.
---------------------------------------------------------------------------

    \107\ The final rule is available at: https://files.consumerfinance.gov/f/documents/cfpb_role-of-supervisory-guidance_final-rule_2021-01.pdf.
---------------------------------------------------------------------------

    The Bureau collaborated closely with other Federal financial 
regulatory agencies in this rulemaking, including by issuing a joint 
proposal for public comment.
3.1.3 CFPB Issues Interpretive Rule
    On March 9, 2021, the Bureau issued an interpretive rule clarifying 
that the prohibition against sex discrimination under ECOA and 
Regulation B includes sexual orientation discrimination and gender 
identity discrimination.\108\ This prohibition also covers 
discrimination based on actual or perceived nonconformity with 
traditional sex- or gender-based stereotypes, and discrimination based 
on an applicant's social or other associations.
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    \108\ The interpretive rule is available at: https://files.consumerfinance.gov/f/documents/cfpb_ecoa-interpretive-rule_2021-03.pdf.
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3.1.4 CFPB Rescinds Its Statement of Policy on Abusive Acts or 
Practices
    On March 11, 2021, the Bureau announced that it has rescinded its 
January 24, 2020 policy statement, ``Statement of Policy Regarding 
Prohibition on Abusive Acts or Practices.'' \109\
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    \109\ The Rescission of the Policy Statement is available at: 
https://files.consumerfinance.gov/f/documents/cfpb_abusiveness-policy-statement-consolidated_2021-03.pdf.

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[[Page 36122]]

    The Bureau intends to exercise its supervisory and enforcement 
authority consistent with the full scope of its statutory authority 
under the Dodd-Frank Act as established by Congress.
3.1.5 CFPB Rescinds Series of Policy Statements
    On March 31, 2021, the Bureau announced it is rescinding seven 
policy statements issued last year that provided temporary 
flexibilities to financial institutions in consumer financial markets, 
including mortgages, credit reporting, credit cards and prepaid 
cards.\110\ The seven rescissions, effective April 1, provide guidance 
to financial institutions on complying with their legal and regulatory 
obligations. With the rescissions, the CFPB provided notice that it 
intends to exercise the full scope of the supervisory and enforcement 
authority provided under the Dodd-Frank Act.\111\
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    \110\ The rescinded policies include: Statement on Bureau 
Supervisory and Enforcement Response to COVID-19 Pandemic (March 26, 
2020); Statement on Supervisory and Enforcement Practices Regarding 
Quarterly Reporting Under the Home Mortgage Disclosure Act (March 
26, 2020); Statement on Supervisory and Enforcement Practices 
Regarding CFPB Information Collections for Credit Card and Prepaid 
Account Issuers (March 26, 2020); Statement on Supervisory and 
Enforcement Practices Regarding the Fair Credit Reporting Act and 
Regulation V in Light of the CARES Act (April 1, 2020); Statement on 
Supervisory and Enforcement Practices Regarding Certain Filing 
Requirements Under the Interstate Land Sales Full Disclosure Act 
(ILSA) and Regulation J (April 27, 2020); Statement on Supervisory 
and Enforcement Practices Regarding Regulation Z Billing Error 
Resolution Timeframes in Light of the COVID-19 Pandemic (May 13, 
2020); Statement on Supervisory and Enforcement Practices Regarding 
Electronic Credit Card Disclosures in Light of the COVID-19 Pandemic 
(June 3, 2020).
    \111\ The rescission also announces that the Bureau does not 
intend to continue to provide any flexibilities afforded entities in 
specific sections of certain interagency statements. More 
information is available at: https://www.consumerfinance.gov/about-us/newsroom/cfpb-rescinds-series-of-policy-statements-to-ensure-industry-complies-with-consumer-protection-laws/.
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3.1.6 Bureau Issues Bulletin Regarding Changes to Supervisory 
Communications
    On March 31, 2021, the Bureau issued a bulletin to announce changes 
to how its examiners articulate supervisory expectations to supervised 
entities in connection with supervisory events.\112\ The bulletin 
states that the CFPB will continue to issue Matters Requiring Attention 
(MRAs), explains the circumstances under which it will do so, and 
announces that the CFPB will discontinue use of Supervisory 
Recommendations. This new bulletin rescinds and replaces CFPB Bulletin 
2018-01 (September 25, 2018).
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    \112\ CFPB Bulletin 2021-01 is available at: https://files.consumerfinance.gov/f/documents/cfpb_bulletin_2021-01_changes-to-types-of-supervisory-communications_2021-03.pdf.
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3.1.7 CFPB Compliance Bulletin Warns Mortgage Servicers: Unprepared Is 
Unacceptable
    On April 1, 2021, the Bureau warned mortgage servicers to take all 
necessary steps to prevent a wave of avoidable foreclosures this 
fall.\113\ Millions of homeowners currently in forbearance will need 
help from their servicers when the pandemic-related Federal emergency 
mortgage protections expire this summer and fall. Servicers should 
dedicate sufficient resources and staff to ensure they are prepared for 
a surge in borrowers needing help. The CFPB will closely monitor how 
servicers engage with borrowers, respond to borrower requests, and 
process applications for loss mitigation. The CFPB will consider a 
servicer's overall effectiveness in helping consumers when using its 
discretion to address compliance issues that arise.
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    \113\ The Compliance Bulletin is available at: https://files.consumerfinance.gov/f/documents/cfpb_bulletin-2021-02_supervision-and-enforcement-priorities-regarding-housing_WHcae8E.pdf.
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3.1.8 Bureau Issues Interim Final Rule on FDCPA
    On April 19, 2021, the Bureau issued an interim final rule in 
support of the Centers for Disease Control and Prevention (CDC)'s 
eviction moratorium.\114\ The CFPB's rule requires debt collectors to 
provide written notice to tenants of their rights under the eviction 
moratorium and prohibits debt collectors from misrepresenting tenants' 
eligibility for protection from eviction under the moratorium. The CDC 
established the eviction moratorium to protect the public health and 
reduce the spread of the Coronavirus. Debt collectors who evict tenants 
who may have rights under the moratorium without providing notice of 
the moratorium, or who misrepresent tenants' rights under the 
moratorium, can be prosecuted by Federal agencies and State attorneys 
general for violations of the FDCPA and are also subject to private 
lawsuits by tenants.
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    \114\ The interim final rule is available at: https://files.consumerfinance.gov/f/documents/cfpb_debt_collection-practices-global-covid-19-pandemic_interim-final-rule_2021-04.pdf. 
Information about the CDC's eviction moratorium is available at: 
https://www.cdc.gov/coronavirus/2019-ncov/more/pdf/CDC-Eviction-Moratorium-03292021.pdf.
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4. Remedial Actions

4.1 Public Enforcement Actions

    The Bureau's supervisory activities resulted in and supported the 
following public enforcement actions.
4.1.1 TD Bank, N.A.
    On August 20, 2020, the Bureau announced a settlement with TD Bank, 
N.A. (TD Bank) regarding its marketing and sale of its optional 
overdraft service: Debit Card Advance (DCA).\115\
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    \115\ The consent order can be found at: https://files.consumerfinance.gov/f/documents/cfpb_td-bank-na_consent-order_2020-08.pdf.
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    TD Bank is headquartered in Cherry Hill, New Jersey, and operates 
about 1,250 locations throughout much of the eastern part of the 
country. The Bureau found that TD Bank's overdraft enrollment practices 
violated EFTA and Regulation E by charging consumers overdraft fees for 
ATM and one-time debit card transactions without obtaining their 
affirmative consent, and that TD Bank engaged in deceptive and abusive 
acts or practices in violation of the CFPA.
    The Bureau specifically found that TD Bank charged consumers 
overdraft fees for ATM and one-time debit card transactions without 
obtaining their affirmative consent in violation of EFTA and Regulation 
E, both after new customers opened checking accounts at TD Bank 
branches and after new customers opened checking accounts at events 
held outside of bank branches.
    The Bureau further found that when describing DCA to new customers, 
TD Bank deceptively claimed DCA was a ``free'' service or benefit or 
that it was a ``feature'' or ``package'' that ``comes with'' new 
consumer-checking accounts. In fact, TD Bank charges customers $35 for 
each overdraft transaction paid through DCA and DCA is an optional 
service that does not come with a consumer-checking account. When TD 
Bank enrolled some consumers in DCA over the phone, TD Bank deceptively 
described DCA as covering transactions unlikely to be covered by DCA. 
In some instances, TD Bank engaged in abusive acts or practices by 
materially interfering with consumers' ability to understand DCA's 
terms and conditions. In some cases, TD Bank required new customers to 
sign its overdraft notice with the ``enrolled'' option pre-checked, 
without mentioning the DCA service to the consumer at all; enrolled new 
customers in DCA without requesting the customer's oral enrollment 
decision; and deliberately obscured, or attempted to obscure, the 
overdraft notice to prevent a new

[[Page 36123]]

customer's review of their pre-marked ``enrolled'' status in DCA.
    To provide relief for consumers affected by TD Bank's unlawful 
overdraft enrollment practices, the Bureau's consent order requires TD 
Bank to provide an estimated $97 million in restitution to about 1.42 
million consumers. TD Bank must also pay a civil money penalty of $25 
million. The consent order also requires TD Bank to correct its DCA 
enrollment practices, stop using pre-marked overdraft notices to obtain 
a consumer's affirmative consent to enroll in DCA, and adopt policies 
and procedures designed to ensure that TD Bank's furnishing practices 
concerning nationwide specialty consumer reporting agencies comply with 
all applicable Federal consumer financial laws.
4.1.2 Sigue Corporation
    On August 31, 2020, the Bureau entered into a consent order with 
Sigue Corporation and its subsidiaries, SGS Corporation and GroupEx 
Corporation.\116\ Sigue and its subsidiaries, which are all 
headquartered in Sylmar, California, provide consumers with 
international money-transfer services, including remittance-transfer 
services.
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    \116\ A copy of the consent order is available at: https://files.consumerfinance.gov/f/documents/cfpb_sigue-corporation_consent-order_2020-08.pdf.
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    The Bureau's investigation of Sigue and its subsidiaries found that 
between 2013 and 2019, they violated EFTA and the Remittance Transfer 
Rule. Specifically, the Bureau found that Sigue and its subsidiaries 
failed to refund transaction fees when they did not make funds 
available by the disclosed date of availability, and they failed to 
inform consumers of the remedies available for remittance errors. When 
Sigue and its subsidiaries investigated remittance errors, they failed 
to report to consumers in writing the results of their investigations 
into transaction errors or consumers' rights as required by the 
Remittance Transfer Rule. Sigue and its subsidiaries also failed to 
develop and maintain adequate written policies and procedures designed 
to ensure compliance with certain Remittance Transfer Rule error-
resolution requirements and failed to comply with several Remittance 
Transfer Rule disclosure requirements.
    The consent order against Sigue and its subsidiaries requires them 
to pay about $100,000 in consumer redress and a $300,000 civil money 
penalty. They must also implement and maintain written policies and 
procedures designed to ensure compliance with the Remittance Transfer 
Rule and maintain a compliance-management system that is designed to 
ensure that their operations comply with the Remittance Transfer Rule, 
including conducting training and oversight of all agents, employees, 
and service providers, and not violating the Remittance Transfer Rule 
in the future.
4.1.3 Lobel Financial Corporation
    On September 21, 2020, the Bureau issued a consent order against 
Lobel Financial Corporation (Lobel), an auto-loan servicer based in 
Anaheim, California.\117\
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    \117\ A copy of the consent order is available at: https://files.consumerfinance.gov/f/documents/cfpb_lobel-financial-corporation_consent-order_2020-09.pdf.
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    The Bureau found that Lobel engaged in unfair practices with 
respect to its Loss Damage Waiver (LDW) product, in violation of the 
CFPA. When a borrower has insufficient insurance, rather than force-
placing CPI, Lobel places the LDW product, which is not itself 
insurance, on borrower accounts and charges a monthly premium. The LDW 
product provides that Lobel will pay for the cost of covered repairs 
and, in the event of a total vehicle loss, cancel the borrower's debt. 
The Bureau's investigation found that, since 2012, Lobel charged 
customers LDW premiums after they had become ten-days delinquent on 
their auto loans but did not provide them with LDW coverage. The Bureau 
also found that Lobel charged some customers LDW-related fees that 
Lobel had not disclosed in its LDW contract.
    The Order requires Lobel to pay $1,345,224 in consumer redress to 
approximately 4,000 harmed consumers and a $100,000 civil money 
penalty. The consent order also prohibits Lobel from failing to provide 
consumers with LDW coverage or similar products or services for which 
it has charged consumers or from charging consumers fees that are not 
authorized by its LDW contracts.
4.1.4 Envios de Valores La Nacional Corp.
    On December 21, 2020, the Bureau announced a consent order with 
Envios de Valores La Nacional Corp. (La Nacional) based on the Bureau's 
finding that La Nacional violated EFTA and the Remittance Transfer 
Rule.\118\ La Nacional is a large remittance transfer provider 
incorporated in New York and licensed in 15 states and the District of 
Columbia. La Nacional sent $2.2 billion in remittance transfers between 
November 2016 and April 2018 from the United States to recipients in 
several countries in Central America, South America, the Caribbean, and 
Africa.
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    \118\ The consent order is available at: https://files.consumerfinance.gov/f/documents/cfpb_envios-de-valores-la-nacional-corp_consent-order_2020-12.pdf.
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    The Bureau found that, since the 2013 effective date of the 
Remittance Transfer Rule, La Nacional has engaged in thousands of 
violations of the Remittance Transfer Rule. Specifically, the Bureau's 
investigation found that La Nacional violated EFTA and the Remittance 
Transfer Rule by failing to honor cancellation requests and failing to 
refund certain fees and taxes when funds were not available on time. 
The Bureau also found that La Nacional has failed to maintain 
appropriate error resolution policies and procedures, to adhere to 
error resolution requirements, and to provide consumers with reports of 
investigation findings. The Bureau further found that La Nacional has 
failed to treat international bill pay services as remittance transfers 
and to make proper disclosures in numerous instances.
    The consent order requires La Nacional to pay a $750,000 civil 
money penalty and imposes requirements to prevent future violations. 
Under the terms of the consent order, in addition to paying a penalty, 
La Nacional must adopt a compliance plan to ensure that its remittance 
transfer acts and practices comply with all applicable Federal consumer 
financial laws and the consent order.

5. Signing Authority

    The Acting Director of the Bureau, David Uejio, having reviewed and 
approved this document, is delegating the authority to electronically 
sign this document to Grace Feola, a Bureau Federal Register Liaison, 
for purposes of publication in the Federal Register.

    Dated: July 2, 2021.
Grace Feola,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2021-14525 Filed 7-7-21; 8:45 am]
BILLING CODE 4810-AM-P