[Federal Register Volume 86, Number 237 (Tuesday, December 14, 2021)]
[Notices]
[Pages 71047-71054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-26949]


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BUREAU OF CONSUMER FINANCIAL PROTECTION


Supervisory Highlights, Issue 25, Fall 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 fifth edition of Supervisory Highlights.

DATES: The Bureau released this edition of the Supervisory Highlights 
on its website on December 8, 2021. The findings included in this 
report cover examinations completed between January 2021 and June 2021 
in the areas of credit card account management, debt collection, 
deposits, fair lending, mortgage servicing, payday lending, prepaid 
accounts, and remittance transfers.

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

    A key function of the CFPB is to supervise the institutions subject 
to its supervisory authority.\1\ The CFPB helps consumers take control 
over their economic lives through its supervision program by making 
consumer financial markets more transparent and competitive. To 
accomplish this, the CFPB examines institutions to assess compliance 
with Federal consumer financial law, obtain information about 
compliance management systems (CMS), and detect and assess risks to 
consumers and markets for consumer financial products and services.\2\ 
The CFPB's supervision program is focused on preventing violations of 
law and consumer harm before they occur.
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    \1\ 12 U.S.C. 5511(c)(4).
    \2\ 12 U.S.C. 5514(b) and 5515(b).
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    The findings included in this report cover examinations completed 
between January 2021 and June 2021 in the areas of credit card account 
management, debt collection, deposits, fair lending, mortgage 
servicing, payday lending, prepaid accounts, and remittance transfers. 
To maintain the anonymity of the supervised institutions discussed in 
Supervisory Highlights, references to institutions generally are in the 
plural and the related findings may pertain to one or more 
institutions. This edition of Supervisory Highlights also summarizes 
recent developments in the Bureau's supervision program and remedial 
actions.
    The CFPB publishes Supervisory Highlights to help institutions and 
the

[[Page 71048]]

general public better understand how we examine institutions for 
compliance with Federal consumer financial laws. Supervisory Highlights 
summarizes existing legal requirements and violations identified in the 
course of the Bureau's exercise of 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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    We invite readers with questions or comments about Supervisory 
Highlights to contact us at [email protected].

2. Supervisory Observations

2.1 Credit Card Account Management

    The Bureau assessed the credit card account management operations 
of supervised institutions for compliance with applicable Federal 
consumer financial laws. Examinations of these institutions identified 
violations of Regulation Z and deceptive acts or practices prohibited 
by the Consumer Financial Protection Act (CFPA).
2.1.1 Billing Error Resolution Violations
    Regulation Z contains billing error resolution provisions with 
which a creditor must comply following receipt of a billing error 
notice from a consumer. Examiners found that creditors violated the 
following provisions of Regulation Z:
     12 CFR 1026.13(c)(2) by failing to resolve a dispute 
within two complete billing cycles after receiving a billing error 
notice regarding the failure to credit a payment that the consumer 
made;
     12 CFR 1026.13(e)(1) by failing to reimburse a consumer 
for a late fee after the creditor determined a missing payment had not 
been credited to the consumer's account, as the consumer had asserted; 
and
     12 CFR 1026.13(f) by failing to conduct reasonable 
investigations after receiving billing error notices related to a 
missing payment and unauthorized transactions.
    In response to these findings, the creditors are implementing plans 
to identify and remediate affected consumers. They are also developing 
and providing training to employees on Regulation Z's billing error 
resolution requirements and relevant policies and procedures.
2.1.2 Deceptive marketing of credit card bonus offers
    Sections 1031 and 1036 of the CFPA prohibit deceptive acts or 
practices.\4\ 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.
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    \4\ 12 U.S.C. 5531 and 5536(a)(1)(B).
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    Examiners found that credit card issuers engaged in deceptive acts 
or practices by advertising to certain existing customers that they 
would receive bonus offers if they opened a new credit card account and 
met certain spending requirements. A consumer could reasonably conclude 
that an issuer would perform according to the plain terms of its 
advertisement. The bonus offers were material because they were central 
characteristics of the credit card advertisements. In fact, the issuers 
misled consumers because they failed to provide the advertised bonuses 
to customers who satisfied these requirements. And the issuers failed 
to ensure that their employees followed procedures for making correct 
system entries when enrolling existing consumers.
    Examiners also found that the credit card issuers engaged in 
deceptive acts or practices by advertising to other consumers that they 
would receive certain bonuses if they opened new credit card accounts 
in response to the advertisements and met certain spending 
requirements. The issuers, however, failed to disclose or adequately 
disclose that consumers must apply online for the new credit card to 
receive the bonus. In fact, if the consumers otherwise satisfied the 
requirements but applied through a different channel, the credit card 
issuers failed to provide the bonus, as promised. The advertising's 
overall net impression misled or was likely to mislead consumers who 
could reasonably conclude that they needed only to satisfy the 
specified spending requirements, as the application channel was not 
disclosed or was inadequately disclosed. The representation regarding 
the bonus offer terms was material because it related to a core feature 
of the product. Thus, the credit card issuers' failure to adequately 
disclose the online limitation in light of the representation 
constituted a deceptive act or practice.
    In response to these findings, the issuers are modifying applicable 
advertisements and undertaking remedial and corrective actions.

2.2 Debt Collection

    The Bureau has supervisory authority to examine certain 
institutions 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.\5\ Recent examinations of larger participant debt 
collectors identified risks of violations of the Fair Debt Collection 
Practices Act (FDCPA).
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    \5\ 12 U.S.C. 5514(e).
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2.2.1 Risk of a False Representation or Deceptive Means To Collect or 
Attempt To Collect a Debt
    Section 807(10) of the FDCPA prohibits the use of any false 
representation or deceptive means to collect or attempt to collect any 
debt.\6\ Examiners found that debt collectors discussed restarting a 
payment plan with consumers and represented that improvements to the 
consumers' creditworthiness would occur upon final payment under the 
plan and deletion of the tradeline. However, numerous factors influence 
an individual consumer's creditworthiness, including potential 
tradelines previously furnished by prior owners of the same debt. As a 
result, such payment may not improve the credit score of the consumers 
to whom the representation is made. Examiners found that such 
representations could lead the least sophisticated consumer to conclude 
that deleting derogatory information would result in improved 
creditworthiness, thereby creating the risk of a false representation 
or deceptive means to collect or attempt to collect a debt in violation 
of section 807(10). In response to these findings, the collectors 
revised their FDCPA policies and procedures. They also enhanced 
training and monitoring systems to prevent, identify, and address risks 
to consumers that may arise from deceptive statements by collection 
agents and third-party service providers about the effects of payment 
or non-payment on consumer credit, credit reporting, or credit scoring.
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    \6\ 15 U.S.C. 1692e(10).
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2.3 Deposits

    The CFPB examines institutions for compliance with Regulation E,\7\ 
which implements the Electronic Fund Transfer Act (EFTA).\8\ The CFPB 
also examines for compliance with other relevant statutes and 
regulations, including Regulation DD,\9\ which implements the Truth in 
Savings Act,\10\ and the CFPA's prohibition on unfair, deceptive, and 
abusive acts or practices (UDAAPs).\11\ Examiners found that 
institutions violated Regulation E.
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    \7\ 12 CFR 1005 et seq.
    \8\ 15 U.S.C. 1693 et seq.
    \9\ 12 CFR 1030 et seq.
    \10\ 12 U.S.C. 4301 et seq.
    \11\ 12 U.S.C. 5531, 5536.

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[[Page 71049]]

2.3.1 Regulation E Error Resolution for Misdirected Payments
    Supervision conducted examinations of institutions in connection 
with the provision of person-to-person digital payment network 
services. Regulation E defines the term ``error'' to include, among 
other things, ``[a]n incorrect electronic fund transfer to or from the 
consumer's account.'' \12\ Regulation E requires institutions to 
investigate promptly and determine whether an error occurred.\13\ 
Examiners found that, in certain cases, due to inaccurate or outdated 
information in the digital payment network directory, consumers' 
electronic fund transfers (EFTs) were misdirected to unintended 
recipients, even though the consumer provided the correct identifying 
token information for the recipient, i.e., the recipient's current and 
accurate phone number or email address. These misdirected transfers are 
referred to as ``token errors.'' Token errors are incorrect EFTs 
because the funds are not transferred to the correct account.\14\ 
Examiners found that institutions violated Regulation E by failing to 
determine that token errors constituted ``incorrect'' EFTs under 
Regulation E.
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    \12\ 12 CFR 1005.11(a)(1)(iii).
    \13\ 12 CFR 1005.11(c).
    \14\ 12 CFR 1005.11(a)(1)(ii).
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    Additionally, institutions violated Regulation E by failing to 
conduct reasonable error investigations when the institutions received 
error notices from consumers that alleged that the consumers had sent 
funds via a person-to-person payment network, but that the intended 
recipients had not received the funds.\15\ The institutions reviewed 
only whether they processed the transactions in accordance with the 
sender's payment instructions and not whether the transfer went to an 
unintended recipient due to a token error. The institutions did not 
consider relevant information in their own records, or information that 
they reasonably could obtain during their investigation, to consider 
whether the consumer's error notice constituted an error under 
Regulation E.
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    \15\ 12 CFR 1005.11(c)(1).
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    These violations caused monetary harm to consumers. As a result of 
these findings, the institutions are revising their policies and 
procedures, are conducting lookbacks, and will provide remediation to 
injured consumers.

2.4 Fair Lending

    The Bureau's fair lending supervision program assesses compliance 
with the Equal Credit Opportunity Act (ECOA) \16\ and its implementing 
regulation, Regulation B,\17\ as well as the Home Mortgage Disclosure 
Act (HMDA) \18\ and its implementing regulation, Regulation C,\19\ at 
institutions subject to the Bureau's supervisory authority. Examiners 
found lenders violated ECOA and Regulation B.
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    \16\ 15 U.S.C. 1691-1691f.
    \17\ 12 CFR pt. 1002.
    \18\ 12 U.S.C. 2801-2810.
    \19\ 12 CFR pt. 1003.
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2.4.1 Pricing Discrimination
    ECOA prohibits a creditor from discriminating against any 
applicant, with respect to any aspect of a credit transaction, on the 
basis of race or sex.\20\
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    \20\ 15 U.S.C. 1691(a)(1). ECOA also prohibits a creditor from 
discriminating against any applicant, with respect to any aspect of 
a credit transaction, on the basis of color, religion, national 
origin, marital status, or age (provided the applicant has the 
capacity to contract), because all or part of the applicant's income 
derives from any public assistance program, or because the applicant 
has in good faith exercised any right under the Consumer Credit 
Protection Act, 15 U.S.C. 1691(a).
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    Examiners observed that mortgage lenders violated ECOA and 
Regulation B by discriminating against African American and female 
borrowers in the granting of pricing exceptions based upon competitive 
offers from other institutions. The failure of the lenders' mortgage 
loan officers to follow the lenders' policies and procedures with 
respect to pricing exceptions for competitive offers, the lenders' lack 
of oversight and control over their mortgage loan officers' use of such 
exceptions, and managements' failure to take appropriate corrective 
action surrounding self-identified risks all contributed to the 
observed pricing disparities.
    The examination team observed that lenders maintained policies and 
procedures that permitted mortgage loan officers to provide pricing 
exceptions for consumers, including pricing exceptions for competitive 
offers, but did not specifically address the circumstances when a loan 
officer could provide pricing exceptions in response to competitive 
offers. Rather, the lenders relied on managers to promulgate a verbal 
policy that a consumer must initiate or request a competitor price 
match exception.
    The examination team identified lenders with statistically 
significant disparities for the incidence of pricing exceptions for 
African American and female applications compared to similarly situated 
non-Hispanic white and male borrowers. Examiners did not identify 
evidence that explained the disparities observed in the statistical 
analysis. Instead, examiners identified instances where lenders 
provided pricing exceptions for a competitive offer to non-Hispanic 
white and male borrowers with no evidence of customer initiation. 
Furthermore, examiners noted that lenders failed to retain 
documentation to support pricing exceptions. Also, lenders' fair 
lending monitoring reports and business line personnel raised fair 
lending concerns regarding the lack of documentation to support pricing 
exception decisions. Despite such concerns, lenders did not improve the 
processes or document customer requests to match competitor pricing 
during the review period. In response to these findings, lenders plan 
to undertake remedial and corrective actions regarding these 
violations, which are under review by the Bureau.
2.4.2 Religious Discrimination
    ECOA prohibits discrimination on the basis of religion \21\ and its 
implementing Regulation B states: ``A creditor shall not inquire about 
the race, color, religion, national origin, or sex of an applicant or 
any person in connection with a credit transaction.'' \22\ Regulation B 
also states that ``a creditor shall not take a prohibited basis 
[including religion] into account in any system of evaluating 
creditworthiness of applicants.'' \23\
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    \21\ 15 U.S.C. 1691(a)(1). ECOA also prohibits a creditor from 
discriminating against any applicant, with respect to any aspect of 
a credit transaction, on the basis of race, color, sex, national 
origin, marital status, or age (provided the applicant has the 
capacity to contract), because all or part of the applicant's income 
derives from any public assistance program, or because the applicant 
has in good faith exercised any right under the Consumer Credit 
Protection Act, 15 U.S.C. 1601, et seq. 15 U.S.C. 1691(a).
    \22\ 12 CFR pt. 1002.5(b).
    \23\ 12 CFR pt. 1002.6(b)(1).
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    Examiners found that lenders violated ECOA and Regulation B by 
improperly inquiring about small business applicants' religion and by 
considering an applicant's religion in the credit decision. For 
religious institutions applying for small business loans, lenders 
utilized a questionnaire which contained explicit inquiries about the 
applicant's religion. Examiners determined that lenders also denied 
credit to an applicant identified as a religious institution because 
the applicant did not respond to the questionnaire.
    In response to these findings, lenders updated the questionnaire to 
ensure compliance with ECOA and Regulation B. In addition, lenders also 
identified affected applicants and provided an offer for each 
identified applicant to reapply for a small business loan.

[[Page 71050]]

2.5 Mortgage Servicing

    The Bureau is prioritizing mortgage servicing supervision work in 
light of the increase in borrowers needing loss mitigation assistance 
this year.\24\ Recent mortgage servicing examinations have identified 
various Regulation Z and Regulation X violations, as well as unfair and 
deceptive acts or practices prohibited by the CFPA. Under 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.
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    \24\ See CFPB Bulletin 2021-02, ``Supervision and Enforcement 
Priorities Regarding Housing Insecurity'' (Mar. 31, 2021).
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    Examiners found that mortgage servicers engaged in the following 
unfair acts or practices:
     Charging delinquency-related fees to borrowers in 
Coronavirus Aid, Relief, and Economic Security (CARES) Act 
forbearances;
     failing to terminate EFTs after receiving notice that the 
consumer's bank account had been closed and an insufficient fund (NSF) 
fee had been assessed; and
     assessing fees for services that exceeded the actual cost 
of the services performed.
    Additionally, examiners found that mortgage servicers engaged in 
deceptive acts or practices by incorrectly disclosing transaction and 
payment information in borrowers' online mortgage loan accounts.
    Examiners also found violations of Regulation X requirements to 
evaluate borrowers' complete loss mitigation applications within 30 
days of receipt, Regulation Z requirements relating to overpayments to 
borrowers' escrow accounts, and Homeowners Protection Act (HPA) 
requirements to automatically terminate private mortgage insurance 
(PMI) pursuant to the applicable deadline.
2.5.1 Charging Delinquency-Related Fees to Borrowers in CARES Act 
Forbearances
    Examiners found that mortgage servicers engaged in unfair acts or 
practices by charging late fees and default-related fees to borrowers 
in CARES Act forbearances. Section 4022(b)(3) of the CARES Act 
prohibits a mortgage servicer from imposing ``fees, penalties, or 
interest beyond the amounts scheduled or calculated as if the borrower 
made all contractual payments on time and in full under the terms of 
the mortgage contract'' in connection with a CARES Act forbearance.\25\ 
Examiners found that, due to human and system errors, mortgage 
servicers charged late fees and default-related fees to borrowers in 
violation of this provision of the CARES Act. Borrowers experienced 
substantial injury in the form of illegal fees, which were significant, 
especially for consumers experiencing economic hardship from the COVID-
19 pandemic. The mortgage servicers failed to refund some of the fees 
until almost a year later. Borrowers likely suffered further harm if 
they could not pay other expenses because of the fees. The injury was 
also widespread and impacted a large number of borrowers. Borrowers 
could not reasonably avoid the injury because they could not anticipate 
that the mortgage servicers would assess unlawful fees and borrowers 
had no reasonable means to avoid imposition of the fees. Charging the 
illegal fees did not provide any countervailing benefit to consumers or 
competition. In response to these findings, the mortgage servicers 
remediated impacted borrowers and corrected credit reporting to 
accurately reflect the current balance and amount past due. The 
mortgage servicers also corrected the underlying system errors.
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    \25\ 15 U.S.C. 9056(b)(3).
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2.5.2 Failing To Terminate Preauthorized EFTs
    Examiners found that mortgage servicers engaged in unfair acts or 
practices by failing to terminate preauthorized EFTs resulting in 
repeated NSF fees for failed preauthorized EFTs where the consumer's 
account was closed. Examiners found that mortgage servicers, despite 
receiving notice of account closures, continued to initiate EFTs from 
the closed accounts each month after the initial NSF until the consumer 
affirmatively canceled the preauthorized EFT arrangement. Borrowers 
experienced substantial injury because the mortgage servicers' 
practices resulted in repeated NSF fees. Borrowers could not reasonably 
avoid the injury because they could not anticipate that the mortgage 
servicers would continue to attempt the EFTs, particularly where, in 
some cases, the EFT agreement disclosed that the EFTs would terminate 
when the relevant account closes. The continued attempts to withdraw 
payment from closed accounts and fees associated with the subsequent 
NSF transactions did not provide any countervailing benefit to 
consumers or competition. In response to these findings, the mortgage 
servicers remediated impacted borrowers and are changing their 
practices so that they cancel preauthorized EFTs upon receiving notice 
of a failed draw attempt tied to a closed account.
2.5.3 Charging Consumers Unauthorized Amounts
    Examiners found that mortgage servicers engaged in unfair acts or 
practices by overcharging consumers for services rendered by a service 
provider. Examiners found that the mortgage servicers overcharged 
borrowers between $3 and $15 more than the actual cost of home 
inspection and Broker Price Opinion fees. The mortgage servicers caused 
substantial injury to consumers by collecting or attempting to collect 
fees in excess of the expenses actually incurred. In some instances, 
borrowers paid money they were not obligated to pay under the loan 
notes. Consumers could not reasonably avoid the injury because the fees 
were not disclosed to consumers. The injury resulting from the 
overcharges was not outweighed by countervailing benefits to consumers 
or competition. Examiners found that the lack of Board and management 
oversight, training, and monitoring and audit helped enable this unfair 
practice. In response to these findings, the mortgage servicers are 
providing remediation to affected borrowers and have changed their 
practices.
2.5.4 Misrepresenting Mortgage Loan Transaction and Payment History in 
Online Accounts
    Examiners found that mortgage servicers engaged in deceptive acts 
or practices by providing inaccurate descriptions of payment and 
transaction information in borrowers' online mortgage loan accounts. 
The inaccurate description and information were likely to mislead 
borrowers because the information was false. It was reasonable for 
borrowers to rely on their mortgage servicers to report accurate 
mortgage payments and account transaction histories. The inaccurate 
descriptions and information were material because they were likely to 
affect borrowers' conduct regarding their mortgage payments. In 
response to these findings, the mortgage servicers are implementing 
corrective actions to ensure the accuracy of account information. The 
mortgage servicers will also communicate website changes to borrowers 
and provide access to customer service representatives. Finally, the 
mortgage servicers are providing remediation to affected borrowers.

[[Page 71051]]

2.5.5 Failing To Evaluate Complete Loss Mitigation Applications Within 
30 Days
    Regulation X generally requires servicers to provide consumers with 
a written notice within 30 days of receiving the complete loss 
mitigation application that states the servicers' determination of 
which loss mitigation options, if any, they will offer the 
consumer.\26\ Examiners found that mortgage servicers violated 
Regulation X because the servicers did not evaluate the borrowers' 
complete loss mitigation applications and provide a written notice 
stating the servicers' determination of available loss mitigation 
options within 30 days of receiving the complete loss mitigation 
applications. The mortgage servicers indicated that the delays were 
partly attributable to increased borrower assistance requests, lack of 
availability of key vendors, and a slowdown in economic activity due to 
shelter-in-place requirements. Examiners found that the mortgage 
servicers had not engaged in good faith efforts to comply with the 30-
day timeline. In response to these findings, the mortgage servicers 
implemented additional controls and increased staffing to help ensure 
timely evaluation of complete loss mitigation applications.
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    \26\ 12 CFR 1024.41(c)(1). This notice is only required if the 
servicer receives a loss mitigation application more than 37 days 
before a foreclosure sale.
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2.5.6 Incorrect Handling of Partial Payments
    Regulation Z contains certain requirements for treatment of partial 
payments. Servicers can take any of the following actions when 
receiving a partial payment: (i) Credit the partial payment upon 
receipt, (ii) return the partial payment to the consumer, or (iii) hold 
the payment in a suspense or unapplied funds account.\27\ Regulation Z 
requires servicers that retain partial payments in a suspense or 
unapplied funds account to: (i) Disclose to the consumer the total 
amount of funds being held on periodic statements (if periodic 
statements are required) and (ii) on accumulation of sufficient funds 
to cover a periodic payment treat such funds as a periodic payment 
received.\28\
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    \27\ 12 CFR 1026.36(c)(1)(ii), supp. I, comment 36(c)(1)(ii)-1.
    \28\ 12 CFR 1026.36(c)(1)(ii).
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    Examiners found that mortgage servicers violated Regulation Z by 
applying payments in excess of the amount due to the borrowers' escrow 
accounts, rather than handling them in accordance with the requirements 
in 12 CFR 1026.36(c)(1)(ii). In situations where the excess payments 
were less than $100, the mortgage servicers attempted to refund the 
excess payment by applying them to the borrowers' escrow accounts. 
However, these amounts remained in the escrow accounts and the mortgage 
servicers failed to either return them to the borrowers or 
alternatively credit the payment to the borrowers' next regularly 
scheduled monthly payment. In response to these findings, the mortgage 
servicers have changed their practices to apply excess payments as 
specified in the underlying loan note in compliance with Regulation Z.
2.5.7 Failing to Automatically Terminate PMI Timely
    The HPA requires that servicers automatically terminate PMI when 
the principal balance of the mortgage loan is first scheduled to reach 
78 percent of the original value of the property based on the 
applicable amortization schedule, as long as the borrower is 
current.\29\ Examiners found that mortgage servicers violated the HPA 
when they failed to terminate PMI on the date the principal balance of 
the mortgage was first scheduled to reach 78 percent loan-to-value on a 
mortgage loan that was current. The root cause of the issue was human 
error, which resulted in inaccurate data in the mortgage servicers' PMI 
termination report. In response to these findings, the mortgage 
servicers have corrected their PMI termination reports and implemented 
a quality control process to help ensure timely PMI terminations in the 
future.
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    \29\ 12 U.S.C. 4902(b)(1).
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2.6. Payday Lending

    The Bureau's Supervision program covers institutions that offer or 
provide payday loans. Examinations of these lenders identified unfair 
and deceptive acts or practices and violations of Regulation E under 
EFTA.
2.6.1 Erroneous Debiting and Misrepresentations Surrounding Failure To 
Honor Loan Extensions
    Examiners found that lenders engaged in unfair acts or practices 
when they debited or attempted to debit from consumer's accounts the 
remaining balance of their loans on the original due date after the 
consumers (1) applied for a loan extension, and (2) received a 
confirmation email stating that only an extension fee would be charged 
on the due date. The practice caused or was likely to cause substantial 
injury in the form of unexpected debits of the full loan balance, as 
well as possible bank fees. The injury was not reasonably avoidable 
because consumers were not informed in advance that remitting a payment 
or otherwise having their account balance altered would result in 
cancellation of a loan extension, and received communications 
indicating that the loan extension had been granted and that only an 
extension fee would be charged on the original due date. The 
substantial injury was not outweighed by countervailing benefits to 
consumers or to competition.
    Based on similar facts, examiners found that lenders engaged in 
deceptive acts or practices when they misrepresented in loan extension 
confirmation emails to consumers that consumers would pay only 
extension fees on the original due dates of their loans. The 
misrepresentations were likely to mislead a reasonable consumer into 
believing that the extensions were consummated and only the extension 
fees would be debited on the due date. The misrepresentations were 
material because the possibility of debiting the full loan amount was 
likely to affect a consumer's payment decisions. In response to these 
findings, lenders plan to undertake remedial and corrective actions 
regarding these violations, which are under review by the Bureau.
2.6.2 Unauthorized, Duplicate Debits and Failure To Retain Records
    Examiners found that lenders engaged in unfair acts or practices 
when they debited or attempted one or more additional, identical, 
unauthorized debits from consumers' bank accounts after consumers 
called to authorize a loan payment by debit card and lenders' systems 
erroneously indicated the transactions did not process. In other 
instances, lenders debited or attempted one or more duplicate, 
unauthorized debits on consumer accounts due to a coding error. Both 
types of acts or practices caused or were likely to cause substantial 
injury because they deprived consumers of access to their funds and 
created significant risks that consumers would be charged bank fees. 
Consumers could not reasonably avoid the resulting substantial injury 
because they had no reason to anticipate debits or attempted debits 
they had not authorized and could not prevent them from occurring. The 
substantial injury was not outweighed by countervailing benefits to 
consumers or to competition. The lenders' cost to fix the problem would 
not outweigh the injury to consumers.

[[Page 71052]]

    Based on the same facts, lenders violated Regulation E,\30\ when 
they failed to retain, for a period of not less than two years, 
evidence of compliance with the requirements imposed by EFTA.\31\ In 
response to these findings, lenders plan to undertake remedial and 
corrective actions regarding these violations, which are under review 
by the Bureau.
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    \30\ 12 CFR 1005.13(b)(1).
    \31\ 12 CFR 1005.10(b).
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2.7 Prepaid Accounts

    The Bureau now examines financial institutions who issue prepaid 
accounts and their service providers, such as program managers, for 
compliance with Regulation E,\32\ which implements EFTA,\33\ in 
connection with prepaid accounts. The Bureau also examines for 
compliance with other relevant statutes and regulations, including 
Regulation Z,\34\ which implements the Truth in Lending Act,\35\ and 
the CFPA's prohibition on UDAAPs \36\ related to prepaid accounts. 
Examiners identified violations of Regulation E and EFTA.
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    \32\ 12 CFR pt. 1005.
    \33\ 15 U.S.C. 1693 et seq.
    \34\ 12 CFR pt. 1026.
    \35\ 15 U.S.C. 1601 et seq.
    \36\ 12 U.S.C. 5531, 5536.
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2.7.1 Prepaid Account Stop Payment and Waiver Violations
    Examiners found violations related to stop-payment waivers at 
financial institutions. EFTA and Regulation E provide that a consumer 
``may stop payment of a preauthorized electronic fund transfer from the 
consumer's account by notifying the financial institution orally or in 
writing at least three business days before the scheduled date of the 
transfer.'' \37\ Under EFTA, the right to stop such payments cannot be 
waived in writing or through any other agreement.\38\ Examiners found 
that financial institutions included language in their Terms of Use 
agreements that waived a consumer's rights under both EFTA and 
Regulation E. The Terms of Use required consumers to first notify the 
merchants in order to exercise, through the financial institutions, the 
consumers' right to stop a pre-authorized payment. This is inconsistent 
with the consumers' rights set forth under both EFTA and Regulation E 
and a violation of EFTA.\39\
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    \37\ 12 CFR 1005.10(c)(1); see also 15 U.S.C. 1693e(a).
    \38\ 15 U.S.C. 1693l.
    \39\ 15 U.S.C. 1693l.
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    Relatedly, examiners found that financial institutions enforced the 
provisions of the Terms of Use and failed to honor stop-payment 
requests that they received either orally or in writing at least three 
business days before the scheduled date of the transfer, as required by 
Regulation E.\40\ Their service providers improperly required consumers 
to first contact the merchant before they would process any stop-
payment requests. And, in certain cases, their service providers also 
subsequently failed to process stop-payment requests due to system 
limitations, even after a consumer had contacted the merchant. 
Therefore, examiners concluded that the financial institutions had 
violated Regulation E.\41\
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    \40\ 12 CFR 1005.10(c).
    \41\ 12 CFR 1005.10(c).
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    In response to these findings, the financial institutions are 
developing and implementing comprehensive CMS for their service 
providers and ceasing and desisting from violating EFTA and Regulation 
E.
2.7.2 Prepaid Account Notice of Error Investigation Violations
    As noted in the Summer 2020 edition of Supervisory Highlights,\42\ 
both EFTA section 908(a) and Regulation E require a financial 
institution investigating an alleged EFT error, when it determines that 
no error or a different error occurred, to communicate certain 
information to consumers. This information includes the investigation 
determination and an explanation of the determination.\43\ To give 
purpose to both obligations, the meaning of an ``explanation'' is not 
synonymous with that of a ``determination.'' Financial institutions 
must go beyond just providing their findings and actually explain those 
findings. Examiners found that financial institutions failed to explain 
their determinations within the report of results, in violation of 
Regulation E.
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    \42\ Supervisory Highlights, Issue 22 (Summer 2020), available 
at: https://www.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf.
    \43\ 12 U.S.C. 1693f(a) and 1693f(d) and 12 CFR 1005.11(d)(1).
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    In response to these findings, financial institutions are 
developing and implementing comprehensive CMS programs capable of 
ensuring compliance with all of EFTA and Regulation E's 
requirements.\44\
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    \44\ 12 CFR 1005.11(d)(1).
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    Similarly, and as discussed in the deposits section of the Summer 
2021 edition of Supervisory Highlights,\45\ if a financial institution 
is unable to complete its investigation within 10 business days of 
receiving a notice of error, Regulation E provides that a financial 
institution may take up to 45 days from receipt of the error notice to 
investigate and determine if an error occurred, as long as the 
financial institution, among other things, provisionally credits the 
consumer's account in the amount of the alleged error (including 
interest where applicable) within 10 business days of receiving the 
error notice.\46\
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    \45\ Supervisory Highlights, Issue 24 (Summer 2021), available 
at: https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-24-summer-2021/.
    \46\ 12 CFR 1005.11(c)(2).
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    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 applicable time for provisional credit is 20 business days 
instead of 10 business days and the financial institution may take up 
to 90 days, instead of 45 days, to investigate and determine whether an 
error occurred, provided the institution otherwise complies with the 
requirements of Regulation E.\47\
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    \47\ 12 CFR 1005.11(c)(3). See also 12 CFR 1005.2(l).
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    Examiners found that financial institutions violated Regulation E 
by failing to: (i) Promptly begin their investigations upon receipt of 
an oral error notice, (ii) complete investigations of disputed point-
of-sale debit transactions within 90 days of the initial error notice, 
after issuing provisional credit where required, and (iii) report the 
investigation results in the determination letter sent to 
consumers.\48\
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    \48\ 12 CFR 1005.11(c)(1)-(3).
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    In response to these findings, the financial institutions are 
enhancing their CMS to ensure compliance with the requirements of EFTA 
and Regulation E applicable to prepaid accounts.\49\
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    \49\ 12 CFR 1005.11(c)(1)-(3).
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2.8 Remittance Transfers

    The Bureau continues to examine institutions under its supervisory 
authority for compliance with Regulation E, Subpart B (Remittance 
Rule).\50\ The Bureau also reviews for any UDAAPs in connection with 
remittance transfers. Examiners identified violations of Regulation E.
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    \50\ See 78 FR 30662 (May 22, 2013), as amended (codified at 12 
CFR 1005.30 through 1005.36).
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2.8.1 Failure To Investigate Notice of Errors
    Section 1005.33(c)(1) of the Remittance Rule states that ``a 
remittance transfer provider shall investigate promptly and determine 
whether an error occurred within 90

[[Page 71053]]

days of receiving a notice of error.'' The investigation required under 
12 CFR 1005.33(c)(1) must also include an effort to determine the 
amount of any required monetary remediation. Among other things, 
section 1005.33(c)(2)(ii)(B) of the Remittance Rule requires that, in 
the event of an error for failure to make funds available by the 
disclosed date of availability, a remittance transfer provider must 
``[r]efund[] to the sender any fees imposed and, to the extent not 
prohibited by law, taxes collected on the remittance transfer.'' A 
remittance transfer provider must refund any fees charged in connection 
with the remittance transfer unless the provider investigates and 
determines that fees were not ``imposed . . . on the remittance 
transfer.'' \51\ A deduction imposed by a foreign recipient bank may 
constitute a fee that must be refunded to the sender subject to the 
requirements of the Remittance Rule. Comment 33(c)-10 of the Official 
Interpretation of Regulation E, however, provides that ``[a] remittance 
transfer provider may correct an error, without investigation, in the 
amount or manner alleged by the sender, or otherwise determined, to be 
in error, but must comply with all other applicable requirements of 
Sec.  1005.33.''
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    \51\ 12 CFR 1005.33(c)(2)(ii)(B).
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    Examiners found that providers violated section 1005.33(c) of the 
Remittance Rule. These providers received notices of errors alleging 
that remitted funds had not been made available to the designated 
recipient by the disclosed date of availability. The providers then 
failed to investigate whether a deduction imposed by a foreign 
recipient bank constituted a fee that the institutions were required to 
refund to the sender, and subsequently did not refund that fee to the 
sender. These violations deprived consumers of their rights under the 
Remittance Rule. In response to these findings, the providers are 
revising their policies and procedures to comply with the fee-refund 
provisions of the Remittance Rule and are conducting lookbacks. The 
providers also will remediate consumers who did not receive fee refunds 
that were due to them.

3. Supervisory Program Developments

3.1.1 Joint Statement on Supervisory and Enforcement Practices 
Regarding the Mortgage Servicing Rules in Response to the Continuing 
COVID-19 Pandemic and CARES Act

    On November 10, 2021, the Board of Governors of the Federal 
Reserve, the CFPB, the Federal Deposit Insurance Corporation, the 
National Credit Union Administration, the Office of the Comptroller of 
the Currency, and the State financial regulators (collectively, 
agencies) issued a joint statement to communicate to mortgage servicers 
the agencies' supervisory and enforcement approach as risks associated 
with the Coronavirus Disease (COVID-19) pandemic continue to 
change.\52\
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    \52\ The joint statement on Supervisory and Enforcement 
Practices Regarding the Mortgage Servicing Rules in Response to the 
Continuing Covid-19 Pandemic and CARES Act is available at: https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rules_joint-statement_2021-11.pdf.
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    On April 3, 2020, the agencies issued the ``Joint Statement on 
Supervisory and Enforcement Practices Regarding the Mortgage Servicing 
Rules in Response to the COVID-19 Emergency and the CARES Act'' (April 
2020 Joint Statement) to clarify the application of the Regulation X 
mortgage servicing rules and explain the agencies' approach to 
supervision and enforcement of the rules in response to the COVID-19 
pandemic. In the April 2020 Joint Statement, the agencies announced 
that until further notice, they would not take supervisory or 
enforcement action against mortgage servicers for failing to meet 
certain timing requirements under the mortgage servicing rules as long 
as the servicers made good faith efforts to provide those required 
notices or disclosures and took the related actions within a reasonable 
period of time.
    While the COVID-19 pandemic continues to affect consumers and 
mortgage servicers, the agencies determined that the temporary 
flexibility described in the April 2020 Joint Statement is no longer 
necessary because servicers have had sufficient time to adjust their 
operations by, among other things, taking steps to work with consumers 
affected by the COVID-19 pandemic and developing more robust business 
continuity and remote work capabilities. Accordingly, the temporary 
supervisory and enforcement flexibility announced in the April 2020 
Joint Statement no longer applies and the agencies will apply their 
respective supervisory and enforcement authorities, where appropriate, 
to address any noncompliance or violations of the Regulation X mortgage 
servicing rules, as described in the statement.\53\
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    \53\ This includes the Protections for Borrowers Affected by the 
COVID-19 Emergency Under the Real Estate Settlement Procedures Act 
(RESPA), Regulation X (86 FR 34848), which became effective on 
August 31, 2021. Though the temporary supervisory and enforcement 
flexibility announced in the April 2020 Joint Statement no longer 
applies, guidance in the April 2020 Joint Statement generally 
explaining the application of the CARES Act and interaction with the 
Regulation X mortgage servicing rules in effect at that time remain 
in place.
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3.1.2 CFPB Publishes CMS-IT Procedures

    On September 21, 2021, the Bureau published examination procedures 
for Compliance Management System--Information Technology (CMS-IT).\54\ 
The CMS-IT procedures are designed to assess supervised institutions' 
use of IT and associated IT controls that support consumer financial 
products and services. Deficiencies in IT and IT systems can pose a 
risk to consumers and may be the root cause of Federal consumer 
financial law violations. The procedures utilize the fundamental 
elements of CMS to review the controls implemented by institutions to 
manage IT and IT systems that are supporting consumer financial 
operations. The new procedures are expected to help examiners 
understand the controls for institutions to manage risks and comply 
with Federal consumer financial laws.
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    \54\ The CMS-IT procedures are available at: https://files.consumerfinance.gov/f/documents/cfpb_compliance-management-review-information-technology_examination-procedures.pdf.
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3.1.3 CFPB Issues Rules To Facilitate a Smooth Transition as Federal 
Foreclosure Protections Expire

    On June 28, 2021, the CFPB finalized amendments to the Federal 
mortgage servicing regulations to reinforce the ongoing economic 
recovery as the Federal foreclosure moratoria are phased out.\55\ The 
rules will help protect mortgage borrowers from unwelcome surprises as 
they exit forbearance. The amendments will support the housing market's 
smooth and orderly transition to post-pandemic operation. The rules 
establish temporary special safeguards to help ensure that borrowers 
have time before foreclosure to explore their options, including loan 
modifications and selling their homes. The rules cover loans on 
principal residences, generally exclude small servicers, and took 
effect on August 31, 2021.
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    \55\ The rule is available at: https://files.consumerfinance.gov/f/documents/cfpb_covid-mortgage-servicing_final-rule_2021-06.pdf.
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4. Remedial Actions

4.1.1 CFPB Sues LendUp Loans for Violating a 2016 Consent Order and 
Deceiving Borrowers

    On September 8, 2021, the CFPB filed a lawsuit in Federal district 
court accusing LendUp Loans, LLC (LendUp) of violating a 2016 consent 
order and deceiving tens of thousands of

[[Page 71054]]

borrowers.\56\ In 2016, the Bureau had ordered LendUp to pay $1.83 
million in consumer redress and a $1.8 million civil penalty, and to 
stop misleading consumers with false claims about the cost of loans and 
the benefits of repeated borrowing. In the complaint, the CFPB alleges 
that, in violation of the 2016 order, LendUp has continued with much of 
the same illegal and deceptive marketing. The CFPB also alleges that 
LendUp illegally failed to provide timely and accurate notices to 
consumers whose loan applications were denied.
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    \56\ A copy of the complaint is available at:
     https://files.consumerfinance.gov/f/documents/cfpb_lendup-loans-llc_complaint_2021-09.pdf.
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    LendUp, headquartered in Oakland, California, offers single-payment 
and installment loans to consumers and presents itself as an 
alternative to payday lenders. A central component of LendUp's 
marketing and brand identity is the ``LendUp Ladder.'' LendUp told 
consumers that by repaying loans on time and taking free courses 
offered through its website, consumers would move up the ``LendUp 
Ladder'' and, in turn, receive lower interest rates on future loans and 
access to larger loan amounts.
    According to the CFPB's complaint, LendUp was not telling consumers 
the truth. The CFPB's investigation found that 140,000 repeat borrowers 
were charged the same or higher interest rates for loans after moving 
up to a higher level on the LendUp Ladder. The investigation also found 
that many borrowers had their maximum loan size reduced, even after 
reaching the highest level on the ladder.
    The CFPB alleges that LendUp violated the CFPB's 2016 consent 
order, the CFPA, ECOA, and ECOA's implementing regulation, Regulation 
B. Specifically, the CFPB alleges that LendUp:
     Deceived consumers about the benefits of repeat borrowing: 
LendUp misrepresented the benefits of repeatedly borrowing from the 
company by advertising that borrowers who climbed the LendUp Ladder 
would gain access to larger loans at lower rates when, in fact, that 
was not true for tens of thousands of consumers.
     Violated the CFPB's 2016 consent order: The CFPB's 2016 
consent order prohibits LendUp from misrepresenting the benefits of 
borrowing from the company. LendUp's continued misrepresentations about 
the LendUp Ladder violate this order.
     Failed to provide timely and accurate adverse action 
notices: Adverse action notices inform consumers why they were denied 
credit, and timely and accurate notices are vital to maintaining a 
transparent underwriting process and protect consumers against credit 
discrimination. LendUp failed to provide adverse-action notices within 
the 30 days required by ECOA for over 7,400 loan applicants. LendUp 
also issued over 71,800 adverse-action notices that failed to 
accurately describe the main reasons why LendUp denied the application 
as required by ECOA and Regulation B.
    The CFPB is seeking an injunction, damages or restitution to 
consumers, disgorgement of ill-gotten gains, and the imposition of a 
civil money penalty.
    LendUp is also subject to a 2021 stipulated final judgment that 
resolved the CFPB's claims that LendUp violated the Military Lending 
Act in connection with its extensions of credit.\57\
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    \57\ The stipulated final judgment can be found at: https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-settles-with-lendup-loans-llc-for-military-lending-act-violations/.

Rohit Chopra,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2021-26949 Filed 12-13-21; 8:45 am]
BILLING CODE 4810-AM-P