[Federal Register Volume 87, Number 87 (Thursday, May 5, 2022)]
[Notices]
[Pages 26727-26738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-09690]


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BUREAU OF CONSUMER FINANCIAL PROTECTION


Supervisory Highlights, Issue 26, Spring 2022

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Supervisory highlights.

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

DATES: The Bureau released this edition of the Supervisory Highlights 
on its website on May 2, 2022. The findings included in this report 
cover examinations completed between July 2021 and December 2021 in the 
areas of auto servicing, consumer reporting, credit card account 
management, debt collection, deposits, mortgage origination, prepaid 
accounts, remittances, and student loan servicing.

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

SUPPLEMENTARY INFORMATION:

1. Introduction

    The Consumer Financial Protection Bureau's (CFPB or Bureau) 
supervision program examines large banks and certain nonbanks for 
compliance with Federal consumer financial law. A key focus of the 
program is detecting and assessing risks to consumers and to markets 
for consumer financial products and services. Through its supervisory 
work, the Bureau promotes the development of markets for consumer 
financial products and services that are fair, transparent, and 
competitive. One important goal of this work is to foster financial 
inclusion and racial equity. The Bureau supervises and applies the law 
to entities subject to its authority in a consistent manner, regardless 
of charter type (bank or nonbank), market, or geographical location.
    The findings included in this report cover examinations completed 
between July 2021 and December 2021 in the areas of auto servicing, 
consumer reporting, credit card account management, debt collection, 
deposits, mortgage origination, prepaid accounts, remittances, and 
student loan servicing. 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 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

[[Page 26728]]

enforcement authority.\1\ We invite readers with questions or comments 
about Supervisory Highlights to contact us at 
[email protected].
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    \1\ 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 (UDAAPs) prohibited by the 
Consumer Financial Protection Act of 2010 (CFPA).\2\
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    \2\ 12 U.S.C. 5531, 5536.
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2.1.1 Wrongful Repossession

    Examiners have continued to identify wrongful repossessions at auto 
servicers.\3\ Recent examinations found that servicers engaged in 
unfair acts or practices when they repossessed vehicles after consumers 
took action that should have prevented the repossession. This caused 
substantial injury by depriving borrowers of the use of their vehicles, 
and many consumers also experienced consequences such as missed work, 
expenses for alternative transportation, repossession-related fees, 
detrimental credit reporting, and vehicle damage during the 
repossession process. Such injury was not reasonably avoidable because 
consumers had taken action they believed would halt repossession and 
there was no additional action the consumer could take to prevent the 
repossession. Finally, the injury was not outweighed by countervailing 
benefits to the consumer or to competition. In response to these 
findings, servicers are enhancing their procedures, including enhancing 
timely communications with repossession agents, and remediating 
consumers.
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    \3\ This unfair act or practice was previously described in 
Supervisory Highlights, Issue 16, Summer 2017; Supervisory 
Highlights, Issue 17, Summer 2018; and CFPB Bulletin 2022-04: 
Mitigating Harm from Repossession of Vehicles. These editions of 
Supervisory Highlights are available at: Supervisory Highlights 
[verbar] Consumer Financial Protection Bureau (consumerfinance.gov). 
The CFPB Bulletin 2022-04 is available at: cfpb_bulletin-2022-
04_mitigating-harm-from-repossession-of-automobiles.pdf 
(consumerfinance.gov).
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2.1.2 Misleading Consumer About the Final Loan Payment Amount After 
Deferral

    Examiners found that servicers engaged in deceptive acts or 
practices when they misled consumers about the final loan payment 
amount after a deferral.\4\ Servicers may let consumers defer payments 
for many months when they experience financial difficulties, and the 
deferrals frequently increase the consumer's final payment amount. 
Servicers sent consumers notices about their final payment amounts that 
included only imprecise conditional statements, such as stating that 
the final payment ``may be larger.'' These conditional statements, 
without additional information about the magnitude of the final 
payment, likely misled consumers to believe the payment would only 
increase somewhat, when in fact the final payment likely would 
dramatically increase, by amounts multiple times larger than a normal 
payment. The consumers' interpretation of the representation was 
reasonable under the circumstances and was material because it likely 
impacted consumers' financial planning.
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    \4\ Supervision examiners first identified this practice as a 
consumer risk in Supervisory Highlights, Issue 23--Winter 2021.
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2.1.3 Overcharging for Add-on Products

    When consumers purchase an automobile, auto dealers and finance 
companies offer optional, add-on products that consumers can purchase. 
Some of the add-on products provide specific types of potential 
benefits, such as guaranteed asset protection (GAP) products that offer 
to help pay off an auto loan if the car is totaled or stolen and the 
consumer owes more than the car's depreciated value. The add-on 
products' potential benefits apply only for specific time periods, such 
as four years after purchase or for the term of the loan, and only 
under certain circumstances.
    Auto dealers and finance companies often charge consumers all 
payments for any add-on products as a lump sum at origination of the 
auto loan or purchase of the vehicle. Dealers and finance companies 
generally include the lump sum cost of the add-on product as part of 
the total vehicle financing agreement, and consumers typically make 
payments on these products throughout the loan term, even if the 
product expires years earlier.
    Examiners found that servicers engaged in unfair practices by 
failing to request refunds from the third-party administrators for 
``unearned'' fees related to GAP products and failing to apply the 
applicable refunds to the accounts after repossession and cancellation 
of the contracts. At that point, the consumers did not have the vehicle 
that had been subject to the GAP product, and the product no longer 
offered any possible benefit to consumers.
    Examiners found that while servicers did maintain policies to 
obtain applicable refunds, they frequently failed to apply for these 
refunds from third-party administrators. When consumers' vehicles were 
repossessed and sold and there was a deficiency balance (that is, the 
money unpaid on the sale price of the vehicle after repossession), the 
servicers' failure to apply for the GAP product refunds from the third-
party administrators resulted in inaccurate deficiency balances. The 
partial refunds from the third-party administrators would have paid for 
at least some of the GAP product fees that were financed, but instead, 
servicers included charges for the unused portions of the financed GAP 
products in the deficiency balances.
    Examiners found that servicers sent deficiency notices to consumers 
and reported balances to third-party debt buyers that included these 
inaccurate amounts as the deficiency balance owed by consumers. 
Including these amounts in the deficiency balances resulted in 
substantial injury to consumers because the amounts to be collected 
were higher than the true amount owed, and the deficiency balances were 
likely to be collected by the third-party debt buyers when the products 
provided no possible benefit, after the vehicles were repossessed and 
the accounts were charged off. Consumers could not reasonably avoid the 
injury because they had no control over the servicers' refund 
processing actions. And they generally could not apply for such refunds 
themselves because they were unaware that the contract provided they 
could do so. The injury was not outweighed by any countervailing 
benefit to consumers or competition.
    In response to these findings, servicers updated disclosure 
language and practices. Some servicers included estimated final payment 
amounts on deferral notices while other servicers provided consumers 
with access to online calculator tools to track their final payment 
amounts. Additionally, some servicers conducted affirmative outreach 
when the final payment date approached to offer workout options that 
allowed borrowers to pay the large final payments in more than one 
installment.

2.2 Consumer Reporting

    Companies in the business of regularly assembling or evaluating 
information about consumers for the purpose of providing consumer 
reports to third parties are ``consumer reporting

[[Page 26729]]

companies '' (CRCs).\5\ These companies, along with the entities--such 
as banks, loan servicers, and others--that furnish information to the 
CRCs for inclusion in consumer reports, play a vital role in 
availability of credit and have a significant role to play in the fair 
and accurate reporting of credit information. They are subject to 
several requirements under the Fair Credit Reporting Act (FCRA) \6\ and 
its implementing regulation, Regulation V,\7\ including the requirement 
to reasonably investigate disputes and to furnish data subject to the 
relevant accuracy requirements. In recent reviews, examiners found 
deficiencies in CRCs' compliance with FCRA dispute investigation 
requirements and furnisher compliance with FCRA and Regulation V 
accuracy and dispute investigation requirements.
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    \5\ 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).
    \6\ 15 U.S.C. 1681 et seq.
    \7\ 12 CFR, part 1022.
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2.2.1 CRC Duty To Conduct Reasonable Reinvestigation of Disputed 
Information

    The FCRA requires that a CRC must conduct a reasonable 
reinvestigation of disputed information to determine if the disputed 
information is inaccurate whenever the completeness or accuracy of any 
item of information contained in a consumer's file is disputed by the 
consumer and the consumer notifies the CRC directly, or indirectly 
through a reseller, of such dispute.\8\ In several reviews of CRCs, 
examiners found that CRCs failed to conduct reasonable investigations 
of disputes in multiple ways. Examiners also found that rather than 
resolving disputes consistent with the investigation conducted by the 
furnisher, which in many instances would have required correcting 
inaccurate derogatory information and replacing it with accurate 
positive information, CRCs simply deleted thousands of disputed 
tradelines. Examiners also found that CRCs failed to conduct reasonable 
dispute investigations when they failed to review and consider all 
relevant information submitted by the consumer in support of their 
disputes. After identification of these issues, CRCs were directed to 
cease violating the FCRA's dispute investigation requirements.
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    \8\ 15 U.S.C. 1681i(a)(1)(A).
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2.2.2 CRC Duty To Provide Prompt Notice of Dispute to Furnisher

    The FCRA requires that when a CRC receives notice of a dispute from 
a consumer or reseller, the CRC must provide notification of the 
dispute to any person who provided any item of information in dispute 
before the expiration of the five-business-day period beginning on the 
date that the CRC received the notice of dispute.\9\ In several reviews 
of CRCs, examiners found that CRCs failed to send notifications of 
dispute to furnishers within five business days of receiving the 
dispute. After identification of these issues, CRCs were directed to 
cease violating the FCRA's dispute notification timeliness 
requirements.
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    \9\ 15 U.S.C. 1681i(a)(2).
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2.2.3 CRC Duty To Provide Written Notice to the Consumer of the Results 
of Reinvestigation

    The FCRA requires that a CRC must provide written notice of the 
results of a dispute reinvestigation not later than five business days 
after the completion of the reinvestigation.\10\ In several reviews of 
CRCs, examiners found disputes where an FCRA compliant statement of 
results was not sent within the required five business days of 
completing the dispute investigation. Moreover, examiners found that 
CRCs' statements of results omitted material information necessary to 
understand the results of the investigation. Examiners also found that 
in some cases the statement of results was incorrect--stating, for 
example, that disputed information had been corrected when, in fact, 
the disputed information was verified as accurate by the furnisher and 
not materially changed by the CRC. After identification of these 
issues, CRCs were directed to cease violating the FCRA's dispute 
results notice requirements.
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    \10\ 15 U.S.C. 1681i(a)(6).
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2.2.4 Furnisher Duty To Conduct Reasonable Investigation of Indirect 
Disputes

    After receiving notice of a dispute of the completeness or accuracy 
of any information from a CRC, furnishers are required to conduct an 
investigation with respect to the disputed information.\11\ Such 
investigations must include a review of all relevant information 
provided by the CRC, and the furnisher must complete the investigation 
and report the results to the CRC before the expiration of the time 
period required for the CRC to complete its investigation and provide 
notice of the results to the consumer.\12\ When disputes are forwarded 
to furnishers by CRCs, the FCRA does not provide the furnisher with 
discretion to deem such disputes frivolous; for indirect disputes, only 
the CRC has discretion to determine that disputes are frivolous or 
irrelevant.\13\ Examples of failures to conduct reasonable 
investigations of indirect disputes from recent Bureau exams include:
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    \11\ 15 U.S.C. 1681s-2(b)(1)(A).
    \12\ 15 U.S.C. 1681s-2(b)(1)(B)-(C); 15 U.S.C. 1681s-2(b)(2).
    \13\ 15 U.S.C. 1681i(a)(3).
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     Credit card furnishers failed to conduct any 
investigations of disputes received from CRCs or send results of 
dispute investigations to the CRCs due to furnishing system 
implementation issues. Credit card furnishers also failed to conduct 
reasonable investigation of disputes due to erroneously deeming 
thousands of indirect disputes as frivolous. Credit card furnishers 
also sent incorrect results of disputes to CRCs. For example, after 
completing the dispute investigation, furnishers included incorrect 
special comment codes on the automated credit dispute verification 
forms (ACDV) used to communicate the results to the CRCs. After 
identifying that incorrect results were sent to the CRCs, the 
furnishers sent updates to the CRCs reporting the correct special 
comment codes.
     Deposit furnishers failed to conduct any investigations of 
disputes received from specialty CRCs or send results of dispute 
investigations to specialty CRCs. The furnishers stated the dispute 
investigations were not conducted because they were not aware that any 
disputes had been received from specialty CRCs, as a result of the 
furnishers' insufficient dispute intake procedures. The specialty CRCs 
deleted the disputed information from the consumers' files because the 
furnishers failed to timely investigate and respond to the disputes. In 
response to these findings, the furnishers developed revised dispute 
handling policies and procedures and compliance monitoring procedures 
to ensure all disputes are tracked and resolved completely within the 
time periods required by the FCRA.
     Auto furnishers failed to conduct reasonable 
investigations of disputes received by CRCs. Specifically, furnishers 
incorrectly calculated consumers' payment histories while processing 
dispute investigations, resulting in the furnishers including incorrect 
payment histories in the dispute results reported to the CRCs.
    In response to these findings, furnishers revised their training 
programs to ensure that dispute agents

[[Page 26730]]

conduct reasonable investigations of disputes received from CRCs. 
Furnishers are also conducting reviews to identify and remediate all 
impacted accounts for which payment histories were reported 
inaccurately.

2.2.5 Furnisher Duty To Report the Results of Direct Dispute 
Investigations to Consumers

    The FCRA and Regulation V require furnishers to complete their 
investigations of direct disputes received from consumers and to report 
the results to the consumer before the expiration of the time period 
that would have been required for the CRC to complete its investigation 
had the consumer sent the dispute to the CRC rather than the 
furnisher.\14\
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    \14\ 15 U.S.C. 1681s-2(a)(8)(E)(iii); 12 CFR 1022.43(e)(3).
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    In reviews of credit card furnishers, examiners found that the 
furnishers conducted investigations of direct disputes and sent the 
consumers response letters, but the letters failed to communicate the 
results of the investigations. Specifically, for disputes that resulted 
in corrections to disputed information, the furnishers used template 
response letters that included confusing language, which created 
ambiguity about whether changes had been made in response to the 
dispute investigations. These letters failed to provide consumers with 
the results of the dispute investigations because they did not 
affirmatively inform the consumers that changes were made in response 
to their disputes. In response to these findings, the furnishers 
implemented revised template response letters, which do not contain 
ambiguous language and clearly communicate that changes were made in 
response to the dispute investigations.

2.2.6 Furnisher Duty To Correct and Update Information

    The FCRA requires that when a furnisher determines that information 
furnished to CRCs is not complete or accurate, the furnisher must 
``promptly'' notify the CRC of that determination and provide the CRC 
with any corrections to that information, or any additional 
information, that is necessary to make the information provided by the 
furnisher to the CRC complete and accurate.\15\ After determining that 
information furnished to CRCs is not complete or accurate, furnishers 
must also stop furnishing to CRCs information that remains not complete 
or accurate.\16\
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    \15\ 15 U.S.C. 1681s-(a)(2).
    \16\ Id.
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    In reviews of credit card furnishers, examiners found that 
furnishers failed to send updating or correcting information to CRCs 
after making a determination that information the furnishers had 
reported was not complete or accurate. For example, examiners found 
that after determining that accounts that had been given new account 
numbers were erroneously being furnished twice to the CRCs, once under 
the old account number and once under the new account number, the 
furnishers continued to furnish the duplicate accounts to the CRCs. 
Examiners also found that credit card furnishers violated this 
provision by failing to promptly update account statuses to settled-in-
full, paid-in-full, voluntarily closed, or discharged in bankruptcy 
upon recognizing that the account statuses furnished did not match the 
account statuses in the furnishers' systems of record.
    Supervision directed the furnishers to update their systems to 
allow for prompt updates to, and to prevent the continued furnishing of 
information determined to be incomplete or inaccurate.

2.2.7 Furnisher Duty To Establish and Implement Reasonable Policies and 
Procedures Concerning the Accuracy and Integrity of Furnished 
Information

    Regulation V requires that furnishers establish and implement 
reasonable written policies and procedures regarding the accuracy and 
integrity of the information relating to consumers that it furnishes to 
a CRC.\17\ The policies and procedures must be appropriate to the 
nature, size, complexity, and scope of each furnisher's activities.'' 
\18\ Furnishers must consider and incorporate, as appropriate, the 
guidelines of Appendix E to Regulation V when developing their policies 
and procedures.\19\ These guidelines address key business functions, 
such as record retention, training, third-party oversight, and receipt 
of feedback from CRCs and others that contribute to a furnisher's 
ability to ensure the accuracy and integrity of the data furnished to 
CRCs.
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    \17\ 12 CFR 1022.42(a).
    \18\ Id.
    \19\ 12 CFR 1022.42(b).
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    In previous issues of Supervisory Highlights, we described 
supervisory findings of furnishers that violated these 
requirements.\20\ In recent supervisory reviews, we have identified 
further violations of the Regulation V requirement for reasonable 
written policies and procedures.
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    \20\ CFPB, Supervisory Highlights: Consumer Reporting Special 
Edition, at 4-7 (Dec. 2019); CFPB, Supervisory Highlights, Winter 
2017, at 13-17 (March 2017). These editions are available at: 
Supervisory Highlights [verbar] Consumer Financial Protection Bureau 
(consumerfinance.gov).
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     In reviews of credit card furnishers, examiners found 
furnishers' policies and procedures had failed to specify how 
particular data fields, such as the date of first delinquency, should 
be populated when furnishing information about credit card accounts.
     Credit card furnishers' policies and procedures also had 
failed to provide for the retention of records for a reasonable period 
of time to substantiate the accuracy of consumer information furnished 
to CRCs. For example, examiners identified multiple instances where 
furnishers failed to retain records relating to direct disputes for the 
time period required by their own policies due to automated system 
purges of dormant accounts occurring on a shorter cycle than the 
applicable retention period.
     Examiners also found that had failed to perform account 
level analyses to determine which accounts should be reported in 
bankruptcy status after a consumer informs the furnisher of a 
bankruptcy filing. The furnishers' processes resulted in the reporting 
of bankruptcy status codes for accounts that had already been paid and/
or closed prior to the bankruptcy filing.
     In reviews of auto loan furnishers, examiners found that 
furnishers had failed to incorporate content relating to the specific 
activities in which the furnishers engaged. For example, furnishers 
lacked procedures for furnishing accurate information in connection 
with leased automobiles returned to dealerships.
     In reviews of deposit furnishers, examiners found that 
furnishers had no written policies or procedures for furnishing deposit 
account information to specialty CRCs. Examiners also found that 
furnishers, in developing their policies and procedures, did not 
consider and incorporate the guidelines in Appendix E to Regulation V 
with respect to conducting reasonable investigations of consumer 
disputes relating to furnished deposit account information. For 
example, examiners identified furnishers that claimed to handle 
disputes through their existing complaints procedures despite those 
procedures failing to address the specific requirements under the FCRA 
for investigating and resolving consumer disputes.
    After identification of these issues, furnishers are taking 
corrective actions including developing written policies and procedures 
regarding the accuracy and integrity of information furnished to

[[Page 26731]]

CRCs and the proper handling of consumer disputes.

2.3 Credit Card Account Management

    The Bureau assessed the credit card account management operations 
of 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.

2.3.1 Billing Error Resolution Violations

    Regulation Z contains billing error resolution provisions that a 
creditor must comply with following receipt of a billing error notice 
from a consumer. Examiners found violations of the following provisions 
of Regulation Z:
     12 CFR 1026.13(c)(1) by failing to mail or deliver written 
acknowledgments to consumers within 30 days of receiving a billing 
error notice;
     12 CFR 1026.13(c)(2) by failing to resolve disputes within 
two complete billing cycles after receiving a billing error notice, due 
to human and system intake errors;
     12 CFR 1026.13(e)(1) by failing to reimburse consumers 
after billing errors were determined to have occurred as consumers 
asserted;
     12 CFR 1026.13(e)(2) by failing to mail or deliver 
correction notices to consumers resolving billing errors in their 
favor;
     12 CFR 1026.13(f) by failing to conduct reasonable 
investigations after receiving billing error notices due to human 
errors and system weaknesses;
     12 CFR 1026.13(f)(1) by providing inaccurate explanations 
to consumers as to why the creditor denied the consumers' billing error 
claims in whole or part or, in some instances, providing no explanation 
at all; and
     12 CFR 1026.13(f)(2) by failing to provide consumers with 
the evidence the creditor relied upon to determine no billing error 
occurred, after the consumers requested the evidence to understand the 
creditor's determination.
    In response to these findings, the relevant entities are 
implementing plans to improve compliance with Regulation Z's billing 
error resolution requirements, which include enhanced training, system 
improvements, enhanced monitoring, additional controls for consumer 
complaints, and revisions to applicable policies and procedures.

2.3.2 Rate Re-Evaluation Violations

    Under Regulation Z, as revised to implement the Card Accountability 
Responsibility and Disclosure (CARD) Act, after increasing a consumer's 
Annual Percentage Rate (APR or rate), credit card issuers have to 
periodically assess whether it is appropriate to reduce the account's 
APR(s).\21\ Issuers must first re-evaluate each such account no later 
than six months after the rate increase and at least every six months 
thereafter.\22\ In re-evaluating each account, the issuer must review 
(a) the factors on which the rate increase was originally based or (b) 
the factors the issuer currently considers when determining the APR 
applicable to similar, new consumer credit card accounts.\23\
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    \21\ 12 CFR 1026.59(a).
    \22\ 12 CFR 1026.59(c).
    \23\ 12 CFR 1026.59(d)(1).
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    Examiners found violations of these provisions of Regulation Z in 
connection with creditors' acquisitions of pre-existing credit card 
accounts from other creditors. In one set of violations, the creditors 
conducted rate re-evaluations on the acquired accounts but failed to 
reduce APRs to the appropriate level. Specifically, the creditors were 
unable to identify the lowest rate applicable to the acquired accounts 
because they failed to gather this data from the sellers during the 
acquisition. This rate data was necessary to the creditors' rate 
reevaluation analysis and, as a result, the creditors did not properly 
re-evaluate accounts as required by Regulation Z, causing monetary harm 
to consumers who did not receive APR rate reductions. In response to 
these findings, the creditors will provide remediation to impacted 
consumers and will enhance monitoring to ensure accurate rate 
information.
    In a separate set of violations, the creditors failed to conduct 
re-evaluations of rate increases once every six months after certain 
APR increases on acquired accounts. For those accounts, the creditors 
failed to accurately record a review date in their system of record for 
rate re-evaluation and, as a result, their rate re-evaluation system 
did not identify these accounts for inclusion in the rate re-evaluation 
process. This resulted in monetary harm to consumers who were not 
included in the creditors' rate re-evaluation process and did not 
receive potential rate reductions. As a result, the creditors will 
remediate all affected consumers, develop new rate re-evaluation 
controls, and enhance exception reporting and monitoring activities.
    Finally, examiners found violations of these provisions of 
Regulation Z in connection with a failure to consider appropriate 
factors when performing rate re-evaluations. Specifically, when 
evaluating rate reductions, based on the factors considered when 
determining the APRs applicable to similar new accounts, the creditors 
considered certain minimum rates that formerly applied to their credit 
card accounts; however, at the time of their rate re-evaluation 
analyses, because these minimum rates no longer applied to the relevant 
credit card accounts, using them in the creditors' rate re-evaluation 
analyses violated Regulation Z. In response to these findings, the 
creditors will remove the inappropriate factors when determining the 
applicable APR following the re-evaluation of a rate increase and 
revise their relevant policies and procedures.

2.3.3 Deceptive Advertising of Interest-free Financing and Failure To 
Process Refunds in Accordance With Account Disclosures

    Sections 1031 and 1036 of the CFPA prohibit deceptive acts or 
practices.\24\ Examiners found that certain entities engaged in 
deceptive acts or practices by advertising the interest-free financing 
feature of their credit card without adequately disclosing the 
preconditions for obtaining the financing. To receive the interest-free 
financing, consumers needed to satisfy two preconditions, including 
purchasing the products at a business partner's store or website and 
agreeing, at checkout, to pay for the product in monthly installments. 
Based on the net impression of the advertisements, consumers were 
misled about the preconditions necessary to receive the interest-free 
financing promotion, which were material to the consumers' decision to 
purchase the products with the credit card. As a result of these 
findings, the entities will undertake remedial and corrective actions.
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    \24\ 12 U.S.C. 5531 and 5536(a)(1)(B).
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    Examiners also found that certain entities engaged in deceptive 
acts or practices by failing to process refunds in accordance with 
their credit card account holder agreements. The entities issued 
certain credit card accounts to customers which had both a revolving 
balance that accrued interest and a monthly installment balance that 
was interest-free for its duration. The account holder agreements 
provided that refunds and credits would be applied to the revolving 
balance on the customer's account, and did not contain any provision 
stating that, if the purchase refunds on the revolving balance resulted 
in a negative revolving balance, the refund would instead be

[[Page 26732]]

applied to the monthly installment balance. Nonetheless, when the 
refund would result in a negative revolving balance, the entities (1) 
applied revolving purchase refunds to the monthly installment balance, 
or (2) applied such refunds to the revolving balance temporarily, but 
then applied the negative revolving balance to the monthly installment 
balance when the monthly installment balance payment became due. These 
practices caused the interest-free installment balances to be paid 
prematurely, resulting in consumers losing the interest-free benefit 
they expected to receive and having fewer funds available to pay future 
interest-accruing revolving balances.
    This practice was deceptive because the credit card account holder 
agreements misled consumers with regard to how refunds and credits 
would be applied to their account balances. In response to these 
findings, the entities will undertake remedial and corrective actions.

2.4 Debt Collection

    The Bureau has supervisory authority to examine certain 
institutions that engage in consumer debt collection activities, 
including very large depository institutions,\25\ nonbanks that are 
larger participants in the consumer debt collection market,\26\ and 
nonbanks that are service providers to certain covered persons.\27\ 
Recent examinations of larger participant debt collectors identified 
risks of violations of the Fair Debt Collection Practices Act (FDCPA) 
and the CFPA.
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    \25\ 12 U.S.C. 5515(a)-(b).
    \26\ 12 U.S.C. 5514(a)(1)(B), (b) and 12 CFR 1090.105.
    \27\ 12 U.S.C. 5514(e), 5515(d), 5516(e).
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2.4.1 Using a False or Misleading Representation in Connection With the 
Collection of a Debt Cause by Identify Theft

    FDCPA section 807(2)(A) \28\ states that a debt collector may not 
falsely represent the character, amount, or legal status of any debt in 
connection with the collection of any debt. Examiners found instances 
in which debt collectors violated this section by misrepresenting or 
implying to consumers that they were responsible for paying charges on 
their accounts that were incurred as the result of fraudulent activity.
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    \28\ 15 U.S.C. 1692e(2)(A).
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    Examiners found instances in which consumers had informed 
collectors that the establishment of the account was the result of 
identity theft. For example, consumers informed collectors that they 
had police reports related to the fraud. Notwithstanding the consumers' 
proffer of evidence supporting the identify theft, the debt collectors 
continued to represent that the consumers owed the debt by offering to 
allow the consumers to pay a reduced amount to settle the alleged debt, 
and then continuing to attempt to collect the debt. Examiners 
determined that, by continuing attempts to collect the debt and 
offering settlement, even after being informed of the fraud, the debt 
collectors misrepresented that the consumers were legally obligated to 
pay a debt created through fraud. In these instances, the debt 
collectors' agents deviated from the collectors' established policies 
and procedures, and the debt collectors issued refunds of consumer 
payments made after the misrepresentations.

2.4.2 Engaging in an Unfair Practice in Connection With the Collection 
of a Debt by Failing to Timely Refund Overpayments or Credit Balances

    The CFPA prohibits covered entities from engaging in unfair, 
deceptive, or abusive acts or practices in their interactions with 
consumers.\29\ Examiners found multiple instances in which debt 
collectors may have engaged in an unfair act or practice in connection 
with the collection of a debt by failing to timely refund overpayments 
and credit balances to consumers. These practices caused or were likely 
to cause substantial injury to affected borrowers as consumers lost the 
ability to use funds for an extended period of time. Consumers could 
not reasonably avoid the injury as they were unlikely to know about the 
credit balances, and even if they became aware, the consumers had no 
way to expedite the refund process. The injury was not outweighed by 
countervailing benefits to consumers or competition. In response to 
these findings, the entities will report to the CFPB on remedial 
measures, including issuing full refunds to consumers, revising their 
policies and procedures, and strengthening their monitoring to ensure 
credit balances are timely refunded.
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    \29\ 12 U.S.C. 5531 and 5536.
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2.5 Deposits

    The CFPB continues its examinations of financial institutions for 
compliance with Regulation E,\30\ which implements the Electronic Fund 
Transfer Act (EFTA).\31\ The CFPB also examines for compliance with 
other relevant statutes and regulations, including Regulation DD,\32\ 
which implements the Truth in Savings Act,\33\ and the CFPA's 
prohibitions regarding UDAAPs.\34\
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    \30\ 12 CFR 1005 et seq.
    \31\ 15 U.S.C. 1693 et seq.
    \32\ 12 CFR 1030 et seq.
    \33\ 12 U.S.C. 4301 et seq.
    \34\ 12 U.S.C. 5531, 5536.
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2.5.1 Failure To Remove a Duplicative Hold on an Account

    Examiners found that institutions engaged in unfair acts or 
practices by erroneously placing multiple holds on certain mobile check 
deposits that were deemed suspicious rather than placing the single 
holds that were intended. Through transaction testing, examiners 
identified accounts where the institutions had charged a consumer 
overdraft fees because the institutions failed to lift the initial 
automatic holds on the amounts of mobile check deposits after an 
additional suspicious deposit hold was placed on the account. This 
practice caused, or was likely to cause, substantial injury due to 
consumers incurring fees and losing access to funds that were unrelated 
to the suspicious mobile check deposit. Consumers could not reasonably 
avoid the injury, given that they could not have prevented the 
institutions from failing to comply with their own internal procedures. 
And the injury was not outweighed by countervailing benefits to 
consumers or to competition.
    The institutions' failures to implement policies and procedures 
that address these technical limitations led to the unfair practices. 
The institutions revised their policies and procedures governing holds 
and developed controls to monitor for and detect instances of duplicate 
holds. The institutions refunded the fees caused by these duplicate 
holds.

2.5.2 Failure To Honor a Timely Stop Payment Request

    Institutions violated the stop payment requirements of 12 CFR 
1005.10(c) by failing to honor stop payment requests for preauthorized 
transfers tied to debit cards. Examiners found that the institutions' 
systems did not enable stopping a payment tied to a debit card. The 
institutions clarified the policies for this area and revised trainings 
to address this issue in the future.

2.5.3 Failure To Investigate and Determine Whether an Error Occurred

    Examiners continued to find issues with financial institutions 
failing to follow Regulation E error resolution procedures. 
Institutions violated Regulation E by failing to complete error 
investigations following consumers' notices of error because the 
consumers

[[Page 26733]]

did not submit an affidavit.\35\ Where consumers did not submit an 
affidavit, the institutions denied the error claims without 
investigating the merits of the error claims. A financial institution 
cannot require a consumer to file a police report or other 
documentation as a condition of initiating or completing an error 
investigation. The institutions updated policies and procedures and 
implemented remediation programs for affected consumers.
---------------------------------------------------------------------------

    \35\ 12 CFR 1005.11(c)(1).
---------------------------------------------------------------------------

    The Bureau has discussed this issue in FAQs on Electronic Funds 
Transfers and in Supervisory Highlights, Issue 24, Summer 2021.\36\
---------------------------------------------------------------------------

    \36\ The Electronic Fund Transfers FAQ (last updated Dec. 13, 
2021) are available at: https://files.consumerfinance.gov/f/documents/cfbp_electronic-fund-transfers-faqs.pdf; Supervisory 
Highlights, Issue 24, Summer 2021 (June 29, 2021), is available at: 
https://www.consumerfinance.gov/documents/9840/cfpb_supervisory-highlights_issue-24_2021-06.pdf.
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2.5.4 Failure To Provide Consumers With Notice of Revocation of 
Provisional Credit

    Institutions violated 12 CFR 1005.11(d)(2) by failing to provide 
notices of revocation of provisional credit to consumers in connection 
with error investigations regarding check deposits at ATMs.
    Consumers filed error claims stating that checks deposited at ATMs 
in specific amounts were not properly credited to their accounts. The 
institutions provided the consumers with provisional credits in the 
amounts claimed by the consumers; however, when the institutions 
retrieved the checks, they determined the check amounts were for lesser 
amounts than the consumers alleged in the error claims. The 
institutions debited the differences and sent the consumers written 
letters indicating the investigations were complete and the provisional 
credits of the lesser amounts were final, not addressing the fact that 
the institutions debited the difference between the amounts of the 
original provisional credits and the face values of the checks.\37\
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    \37\ Pursuant to the Official Staff Interpretations to 
Regulation E, Comment 1005.3(b)(1)-1, the term ``electronic funds 
transfer'' includes ``[a] deposit made at an ATM . . . (including a 
deposit in cash or by check).''
---------------------------------------------------------------------------

    The institutions violated Regulation E by failing to state that 
they would be debiting the excess amounts originally provisionally 
credited from the consumers' accounts, the dates the institutions would 
be debiting the excess provisional credits, or that the institutions 
would (as required by the regulation) honor certain transactions for 
five days after the notification.
    In response to these findings, the institutions provided additional 
Regulation E compliance training to applicable staff, transitioned 
certain monitoring and oversight functions to an independent quality 
assurance/quality control team, and have identified opportunities to 
enhance error resolution letter templates.

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.

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.\38\ 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-
and moderate-income borrowers.\39\ As explained by the Bureau there, it 
is not permissible to differentiate compensation based on credit 
product type, since products are simply a bundle of particular 
terms.\40\
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    \38\ 12 CFR 1026.36(d)(1)(i).
    \39\ 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.
    \40\ Id. at 11326-27, n.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.
---------------------------------------------------------------------------

    Examiners found that certain lenders' loan originator compensation 
agreements provided for higher loan originator compensation where 
Federal National Mortgage Association (Fannie Mae) conforming fixed 
rate loans surpassed a designated threshold percentage of the total 
loans closed by the loan originator. This compensation was higher than 
the compensation paid when such loans did not surpass the designated 
threshold percentage. Paying higher commissions under these 
circumstances constitutes paying compensation based on credit product 
type, which, in turn, violates the Loan Originator Rule as compensation 
based on the term of a transaction, since products are simply a bundle 
of particular terms. As a result of these findings, the lenders have 
agreed to change their compensation plans to bring them into compliance 
with the Loan Originator Rule. The Bureau previously discussed this 
issue in Supervisory Highlights, Issue 24, Summer 2021.\41\
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    \41\ Supervisory Highlights, Issue 24, Summer 2021, is available 
at: cfpb_report_template_logo_092820.docx (consumerfinance.gov).
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2.6.2 Insufficient Documentation for Changed Circumstance

    Regulation Z requires a creditor to provide the consumer with good 
faith estimates on the Loan Estimate for certain transactions. The 
closing cost estimates are generally considered to be in good faith if 
the amount paid by or imposed on the consumer does not exceed the 
amount originally disclosed.\42\ A creditor is permitted to use a 
revised estimate of a charge instead of the estimate of the charge 
originally disclosed to reset tolerances when there is a valid changed 
circumstance permitted by Regulation Z that resulted in the increased 
costs.\43\ One such valid changed circumstance is where the consumer 
requests revisions to the credit terms.\44\ For a creditor to 
successfully reset tolerances as permitted by Regulation Z, it must, 
among other things, maintain documentation explaining the reason for 
revision.\45\
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    \42\ 12 CFR 1026.19(e)(3)(i).
    \43\ 12 CFR 1026.19(e)(3)(iv).
    \44\ 12 CFR 1026.19(e)(3)(iv)(C).
    \45\ 12 CFR pt. 1026, supp. I, comment 19(e)(3)(iv)-3.
---------------------------------------------------------------------------

    Examiners found that certain lenders failed to retain sufficient 
documentation to establish the changed circumstance's validity. 
Specifically, the lenders disclosed an appraisal fee on initial Loan 
Estimates and subsequently disclosed appraisal rush fees, in a higher 
amount, on revised Loan Estimates. The lenders claimed the rush 
appraisals, which led to the appraisal rush fees, were requested by 
consumers. However, in each instance, the lender failed to maintain 
sufficient documentation evidencing the consumer's request of the rush 
appraisals; in fact, the documentation maintained reflected that either 
the appraisal management company notified the lenders that a rush 
appraisal would be needed or the lenders' loan officers requested the 
rush appraisal. In certain instances, the lenders' documentation 
included only a checked box indicating the consumer requested the rush 
appraisal, but there was no other evidence retained reflecting this

[[Page 26734]]

occurred. In response to these findings, the lenders agreed to 
remediate affected consumers, revise their policies and procedures to 
ensure relevant documentation is obtained and maintained, and 
strengthen relevant quality control audit functions.

2.6.3 Disclosures Failed To Reflect the Terms of Legal Obligation

    Regulation Z provides that closed-end disclosures, including the 
mortgage Closing Disclosure, must reflect the terms of the legal 
obligation between the parties.\46\
---------------------------------------------------------------------------

    \46\ 12 CFR 1026.17(c)(1).
---------------------------------------------------------------------------

    Examiners found violations of this provision relating to items on 
Closing Disclosures that did not reflect the legal obligation between 
the parties. Specifically, examiners identified instances where 
lenders' Closing Disclosures failed to reflect the fully-indexed-rate 
as required by the promissory note because the lenders' software 
miscalculated the disclosed rates. The software used a rounding method 
that is different from the method used in the corresponding promissory 
notes. The software automatically rounded up to the nearest one-eighth 
percent, despite the promissory note's instruction to round to the 
nearest one-eighth percent--up or down. This practice resulted in 
Closing Disclosures that do not reflect the terms of the legal 
obligation between the parties, and likely affected files and loans 
transferred to other loan servicers. As a result of these findings, the 
relevant lenders committed to update the rounding methodology and 
enhance monitoring and testing procedures to ensure that disclosures to 
consumers reflect the terms of the legal obligation between the 
parties.

2.7 Prepaid Accounts

    The Bureau's Supervision program covers both institutions that 
issue prepaid accounts and prepaid account service providers. Recent 
examinations identified various violations of EFTA and Regulation E.

2.7.1 Prepaid Account Agreement Submissions

    Examiners found violations related to the requirement that 
financial institutions submit prepaid account agreements to the Bureau 
as set forth in Regulation E. Section 1005.19(b)(1) requires that 
prepaid account issuers make submissions of prepaid account agreements 
on a rolling basis no later than 30 days after an issuer ``offers, 
amends, or ceases to offer any prepaid account agreement.'' \47\
---------------------------------------------------------------------------

    \47\ 12 CFR 1005.19(b)(1).
---------------------------------------------------------------------------

    Examiners determined that institutions failed to submit prepaid 
account agreements to the Bureau within 30 days of the effective date 
after they amend certain prepaid account agreements.
    In addition, 12 CFR 1005.19(b)(1)(i) requires that each submission 
by a financial institution must contain, among other things, ``the name 
of the program manager, if any, and the list of names of other relevant 
parties, if applicable (such as the employer for a payroll card program 
or the agency for a government benefit program.)'' Examiners determined 
that institutions failed to submit, as part of their prepaid account 
agreement submissions, the names of the program managers, if any, and 
the lists of names of other relevant parties.
    In response to these findings, institutions amended their 
compliance management systems, submitted, or resubmitted the amended 
prepaid account agreements to the Bureau with the additional required 
information, as applicable, and instituted increased monitoring of 
prepaid account agreements.

2.7.2 Stop Payment Requests

    Examiners found violations related to the receipt of valid stop 
payment requests from prepaid account users. Regulation E states 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.\48\
---------------------------------------------------------------------------

    \48\ 12 CFR 1005.10(c)(1).
---------------------------------------------------------------------------

    Examiners determined that institutions failed to honor oral stop 
payment requests with respect to payments originating through certain 
bill pay systems, including both those initiated with the merchant, as 
well as within the bill pay system housed at the prepaid account 
program manager.
    In response to these findings, institutions corrected their 
processes to allow for stop payment requests received orally or in 
writing, regardless of where the payment was originated, and remediated 
impacted consumers.

2.7.3 Error Resolution Documentation Notice

    Examiners found violations related to the notice provided to 
consumers after an institution determined no error or a different error 
than alleged by the consumer had occurred upon the completion of a 
Regulation E error investigation. Section 1005.11(d)(1) requires a 
financial institution to report the results of its investigation, 
including a written explanation of the institution's findings and the 
consumer's right to request the documents that the institution relied 
on in making its determination. Upon request, the institution must 
promptly provide copies of these documents.
    Examiners determined that institutions violated 12 CFR 
1005.11(d)(1) by failing to include a statement noting the consumer's 
right to request the documents that the institution relied on in making 
its determination after determining no error or a different error 
occurred as part of the report of the results. Examiners also found 
that institutions failed to fulfill consumers' subsequent requests to 
provide the documentation relied upon to make the determinations that 
no error occurred.
    In response to these findings, institutions updated their report of 
results letter templates to explicitly state the consumers' right to 
request documents that the institutions relied on in making their error 
investigation determinations, and directed their service providers to 
institute compliance management system enhancements to ensure requests 
for documents were honored.

2.8 Remittances

    The Bureau continues to examine institutions under its supervisory 
authority for compliance with Regulation E, Subpart B (Remittance 
Rule).\49\ The Bureau also reviews for UDAAPs in connection with 
remittance transfers. Examiners identified violations of EFTA, 
Regulation E, and a deceptive act or practice.
---------------------------------------------------------------------------

    \49\ See 78 FR 30662 (May 22, 2013), as amended (codified at 12 
CFR 1005.30 through 1005.36).
---------------------------------------------------------------------------

2.8.1 Deceptive Claims on Transfer Speeds for Remittance Transfers

    Examiners found remittance transfer providers engaged in deceptive 
acts or practices by making false and misleading representations of 
``instant'' and ``30 second'' transfers, even though the transfers may 
not be completed in 30 seconds or they may be otherwise delayed. 
Certain transfers could be delayed up to an additional 48 hours past 
the disclosed date of availability. These express claims, which failed 
to disclose or disclose adequately any exceptions, were likely to 
mislead consumers acting reasonably. And information about transfer 
speed would have been material to a consumer's

[[Page 26735]]

decision as to which remittance transfer provider to use. In response 
to these findings, institutions implemented additional UDAAP training 
for their staff and ensured that their compliance departments review 
advertisements.

2.8.2 Remittance Transfer Account Agreement Waiver Violations

    Section 914 of EFTA, 15 U.S.C. 1693l, states that ``[n]o writing or 
other agreement between a consumer and any other person may contain any 
provision which constitutes a waiver of any right conferred or cause of 
action created by this subchapter.'' \50\
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 1693l.
---------------------------------------------------------------------------

    Examiners found multiple instances where remittance transfer 
service agreements with consumers violated EFTA's prohibition on 
waivers of rights conferred or causes of action created by EFTA. 
Institutions violated EFTA by:
     Including a hold harmless and indemnification requirement 
that purports to limit claims against the institution, thereby waiving 
rights conferred by EFTA section 916.\51\
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 1693m.
---------------------------------------------------------------------------

     Attempting to limit the consumer's right to recover costs 
and attorney's fees in a limited liability clause.\52\
---------------------------------------------------------------------------

    \52\ EFTA section 916, 15 U.S.C. 1693m(a) allows the consumer to 
seek redress comprised of actual damages, up to $1,000 in statutory 
damages, and in the case of a successful action the costs of the 
action together with reasonable attorney's fees as determined by the 
court.
---------------------------------------------------------------------------

     Stating that the entity makes ``no representations or 
warranties regarding the time required to complete processing because 
the Service is dependent on many factors beyond our control.'' \53\
---------------------------------------------------------------------------

    \53\ Under 12 CFR 1005.33(a)(1)(iv)(A) failure to make funds 
available to the designated recipient by the date of availability is 
generally an error unless a specific exception applies. The 
exceptions are listed in sec. 1005.33(a)(1)(iv)(A)-(D).
---------------------------------------------------------------------------

    In response to these findings, the entities undertook a number of 
corrective actions including updating their agreements to remove the 
offending language.

2.8.3 Disclosure and Timing Issues on Receipts for Remittance Transfers

    Examiners found multiple issues with remittance providers failing 
to comply with disclosure and timing requirements set forth in the 
Remittance Rule.
    Section 1005.31(b)(2)(ii) requires remittance transfer providers to 
disclose on receipts the date in the foreign country in which funds 
will be available to the designated recipient.\54\ Institutions 
violated this section by failing to disclose on the remittance transfer 
receipts the date the funds are available to the designated recipient. 
The institutions disclosed when the funds were delivered to the 
designated recipient's bank, but not the date on which the funds would 
be available to the recipient.
---------------------------------------------------------------------------

    \54\ 12 CFR 1005.31(b)(2)(ii).
---------------------------------------------------------------------------

    Section 1005.31(e)(2) requires the remittance transfer provider to 
provide the receipt required under Sec.  1005.31(b)(2) no later than 
one business day after the date on which payment is made for remittance 
transfers made via mobile applications.\55\ Institutions violated this 
section in instances where they failed to issue receipts until after 
the funds were successfully delivered to the intended recipients, 
outside the timeline required by Sec.  1005.31(b)(2).
---------------------------------------------------------------------------

    \55\ 12 CFR 1005.31(e)(2).
---------------------------------------------------------------------------

    In response to these findings, institutions updated their policies 
to meet the timing requirements of the Remittance Rule.

2.8.4 Failure To Develop and Maintain Written Policies and Procedures 
Designed To Ensure Compliance With the Remittance Transfer Rule, 
Include the Rule's Record Keeping Requirements

    Examiners found that institutions failed to develop and maintain 
written policies and procedures designed to ensure compliance with the 
error resolution requirements of the Remittance Transfer Rule as found 
in 12 CFR 1005.33(g). The absence of adequate written policies and 
procedures resulted in various violations of the substantive provisions 
of the error resolution requirements, including the erroneous exclusion 
of certain types of claims from the definition of an error under the 
Remittance Transfer Rule; improper delays in investigations, refunds 
and notices, and notices missing required information.
    Several institutions also failed to implement written policies and 
procedures regarding the retention of documentation related to error 
investigations under the Remittance Transfer Rule. In response to these 
findings, Supervision directed institutions to revise error resolution 
policies and procedures and provide additional training to relevant 
personnel.

2.8.5 Disclosure, Timing and Refund Issues Relating to Error 
Investigations

    Institutions failed to provide notice of the results of error 
investigations, including the notice of available remedies, as is 
required.\56\ The institutions had erroneously coded the error claims 
as paid and the cases resolved, but failed to contact the senders to 
report on the results of their investigations.
---------------------------------------------------------------------------

    \56\ 12 CFR 1005.33(c)(1).
---------------------------------------------------------------------------

    Examiners also found that institutions failed to provide refunds in 
the amounts needed to resolve the errors within one business day, or as 
soon as reasonably practicable, after receiving the sender's 
instructions regarding the appropriate remedy, as is required.\57\
---------------------------------------------------------------------------

    \57\ 12 CFR 1005.33(c)(2)(ii)(A)(1).
---------------------------------------------------------------------------

    Examiners also determined that institutions failed to refund fees 
imposed for remittance transfers when the funds were not delivered to 
the designated recipients by the disclosed dates of availability, 
consistent with 12 CFR1005.33(c)(2)(ii)(B), as a result of the 
institutions' inabilities to reach the senders by phone.
    Examiners found that institutions issued error claim denial letters 
that did not disclose to the sender that the sender has the right to 
request documentation used in the investigation.\58\
---------------------------------------------------------------------------

    \58\ 12 CFR 1005.33(d)(1).
---------------------------------------------------------------------------

    In response to these findings, institutions changed their policies 
and procedures.

2.9 Student Loan Servicing

    The Bureau continues to examine student loan servicing activity, 
including at private student loan servicers, primarily to assess 
whether entities have engaged in any UDAAPs. Examiners identified three 
unfair acts or practices related to private student loan servicing.

2.9.1 Failing To Make Incentive Payments

    Examiners found that servicers engaged in unfair acts or practices 
by failing to make incentive payments that they offered in 
advertisements and agreed to make in the relevant contracts with 
consumers.
    Examiners found that servicers were not making incentive payments 
described in advertisements or loan contracts in a variety of 
circumstances. Specifically, servicers failed to provide early 
repayment incentive payments, referral bonuses, and welcome bonuses due 
to system errors. Furthermore, in some instances servicers did not make 
early repayment incentive payments based on policies that made 
incentive payments contingent upon maintaining a deposit account with a 
specific financial institution, although they did not disclose this 
requirement in the loan contracts.

[[Page 26736]]

    The servicers' conduct caused or was likely to cause substantial 
injury because consumers complied with the promotional program or 
contract terms and did not receive payments to which they were 
entitled. Because consumers impacted by the system errors had complied 
with all required terms and the servicer was in control of the program 
administration, consumers could not reasonably avoid the injury. 
Similarly, consumers impacted by the requirement to maintain a deposit 
account could not reasonably avoid injury because they were not 
adequately informed that the rebate was contingent upon maintaining a 
deposit account with that financial institution. And the substantial 
injury to consumers was not outweighed by countervailing benefits to 
consumers or competition. In response to these findings, servicers 
remediated affected consumers and implemented monitoring systems 
consisting of new weekly reports to capture all accounts with refunds 
due so that the servicers could confirm that they had made appropriate 
refunds.

2.9.2 Failing To Issue Timely Refunds of Specified Payments After Loan 
Modification

    Examiners found that servicers engaged in unfair acts or practices 
by failing to issue timely refund payments in accordance with the 
payment schedules in loan modifications. In response to the COVID-19 
pandemic, some servicers offered student loan modifications. These 
modifications reduced the payments that a consumer owed for a set 
period of time and provided a specific repayment schedule. In some 
instances, the servicers entered into modification agreements that 
included effective dates that predated the date they were transmitted 
to consumers. Some consumers made payments that were not due under the 
repayment schedule provided for in the modification agreement and were 
therefore entitled to refunds of those payments. Examiners found that 
servicers failed to issue timely refunds to consumers.
    This practice caused or was likely to cause substantial injury to 
consumers because they lost the use of money that should have been 
refunded. The injury was not reasonably avoidable because consumers 
reasonably relied on the specific terms described in the modification 
agreement and the servicers were in charge of the refund process. And 
the injury was not outweighed by countervailing benefits to consumers 
or competition. In response to these findings, the servicers conducted 
outreach to determine if consumers wanted a refund.

3. Supervisory Program Developments

3.1.1 CFPB Invokes Dormant Authority To Examine Nonbank Companies 
Posing Risks to Consumers

    On April 25, 2022, the CFPB announced that it is invoking a largely 
unused legal provision to examine nonbank financial companies that pose 
risks to consumers.
    Before the CFPA was enacted only banks and credit unions were 
subject to Federal supervision. But after the 2008 financial crisis in 
which nonbank companies played a pivotal role, Congress tasked the CFPB 
with supervising certain nonbanks, in addition to large depository 
institutions with more than $10 billion in assets, and their service 
providers. Nonbanks do not have a bank, thrift, or credit union 
charter; many today operate nationally and brand themselves as 
``fintechs.''
    Congress authorized several categories of entities subject to 
CFPB's nonbank supervision program. First and foremost, all nonbank 
entities in the mortgage, private student loan, and payday loan 
industries, regardless of size. Another category of supervised entities 
includes what the law calls ``larger participants'' in other nonbank 
markets for consumer financial products and services. The CFPB 
conducted rulemakings to define thresholds for entities subject to 
supervision in the markets of consumer reporting, debt collection, 
student loan servicing, international remittances, and auto loan 
servicing.
    The third category of entities subject to CFPB nonbank supervision 
are nonbanks whose activities the CFPB has reasonable cause to 
determine pose risks to consumers. This authority is not specific to 
any particular consumer financial product or service. While the CFPB 
did implement the provision through a procedural rule in 2013,\59\ the 
agency has now begun to invoke this authority. This will allow the CFPB 
to be agile and supervise entities that may be fast-growing or are in 
markets outside the existing nonbank supervision program.
---------------------------------------------------------------------------

    \59\ The 2013 procedural rule is available at: https://files.consumerfinance.gov/f/201206_cfpb_final-rule_certain-nonbank-covered-persons-risk-determination.pdf.
---------------------------------------------------------------------------

    The CFPB also issued a procedural rule to increase the transparency 
of the risk-determination process.\60\ The company involved will have 
an opportunity to provide input to the CFPB on what information is 
released to the public.
---------------------------------------------------------------------------

    \60\ The procedural rule is available at: Supervisory Authority 
Over Certain Nonbank Covered Persons Based on Risk Determination; 
Public Release of Decisions and Orders (consumerfinance.gov).
---------------------------------------------------------------------------

3.1.2 CFPB Targets Unfair Discrimination in Consumer Finance

    On March 16, 2022, the CFPB published an updated exam manual for 
evaluating UDAAPs. These updates cover discriminatory practices that 
may also be ``unfair'' under the CFPA. The manual guides examiners in 
evaluating whether certain discriminatory practices meet the criteria 
for ``unfairness'' by causing substantial harm to consumers that they 
cannot reasonably avoid, where that harm is not outweighed by 
countervailing benefits to consumers or competition.\61\ Consumers can 
be harmed by discrimination regardless of whether it is intentional. 
Discrimination can be unfair in cases where the conduct may also be 
covered by Equal Credit Opportunity Act (ECOA), as well as in instances 
where ECOA does not apply. For example, denying access to a checking 
account because the individual is of a particular race could be an 
unfair practice even if ECOA may not cover the transaction.
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    \61\ The updated exam manual is available at: https://files.consumerfinance.gov/f/documents/cfpb_unfair-deceptive-abusive-acts-practices-udaaps_procedures.pdf.
---------------------------------------------------------------------------

3.1.3 CFPB Moves To Thwart Illegal Auto Repossessions

    On February 28, 2022, the Bureau released a bulletin describing 
instances, in examinations and enforcement actions, where servicers 
violated the CFPA's prohibition against unfair, abusive, or deceptive 
acts and practices.\62\ In particular, the Bureau intends to hold loan 
holders and servicers accountable for UDAAPs related to repossession of 
consumers' vehicles.
---------------------------------------------------------------------------

    \62\ The bulletin is available at: https://www.consumerfinance.gov/compliance/supervisory-guidance/cfpb-bulletin-2022-04-mitigating-harm-from-repossession-of-automobiles/.
---------------------------------------------------------------------------

3.1.4 CFPB Steps Up Scrutiny of Student Loan Servicers That Deceive 
Borrowers About Public Service Loan Forgiveness

    On February 18, 2022, the Bureau released a bulletin detailing 
student loan servicers' obligation to halt unlawful conduct regarding 
borrowers' eligibility and benefits under the limited waiver for the 
U.S. Department of Education's Public Service Loan Forgiveness (PSLF) 
Waiver.\63\ The

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bulletin recommends actions servicers should consider taking to ensure 
they do not misrepresent borrower eligibility or make deceptive 
statements to borrowers about the PSLF program and the waiver.
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    \63\ The bulletin is available at: https://www.consumerfinance.gov/compliance/supervisory-guidance/cfpb-bulletin-2022-03-servicer-responsibilities-in-public-service-loan-forgiveness-communications/.
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3.1.5 CFPB Issues Bulletin To Prevent Unlawful Medical Debt Collection 
and Credit Reporting

    On January 13, 2022, the Bureau released a bulletin reminding debt 
collectors and CRCs of their legal obligations in light of the No 
Surprises Act, which protects consumers from certain unexpected medical 
bills.\64\ Companies that try to collect on medical bills that are 
prohibited by the No Surprises Act, or who furnish information to CRCs 
about such invalid debts, may face significant legal liability under 
the FDCPA and FCRA. The bulletin advises CRCs that the accuracy and 
dispute obligations imposed by the FCRA apply with respect to debts 
stemming from charges that exceed the amount permitted by the No 
Surprises Act.
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    \64\ The bulletin is available at: https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-bulletin-to-prevent-unlawful-medical-debt-collection-and-credit-reporting/.
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4. Remedial Actions

4.1. Public Enforcement Actions

    The Bureau's supervisory activities resulted in and supported the 
following enforcement actions.

4.1.1 MoneyGram International, Inc. and MoneyGram Payment Systems, Inc

    On April 21, 2022, the CFPB and New York Attorney General Letitia 
James announced that they filed a lawsuit against MoneyGram 
International, Inc. and MoneyGram Payment Systems, Inc. (MoneyGram)--
one of the largest remittance providers in the U.S.--for repeatedly 
violating various consumer financial protection laws.\65\
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    \65\ A copy of the complaint is available at: 
cfpb_moneygram_complaint_2022-04.pdf (consumerfinance.gov).
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    CFPB examined MoneyGram between 2014 and 2016 and found multiple 
problems. Then in 2019, the CFPB did a subsequent exam to see if 
MoneyGram had fixed its problems. In short, for more than five years, 
the CFPB worked with MoneyGram to fully comply with the law, but 
MoneyGram continually failed to do so.
    Specifically, the CFPB and New York Attorney General James allege:
     MoneyGram failed to deliver remittance funds by a date 
promised to consumers and held up remittance transfers and refunds 
unnecessarily. Holding the money in limbo resulted in needless delays 
and harmed or risked harm to consumers.
     MoneyGram failed to adequately instruct or direct its 
employees on how to comply with certain laws on resolving disputes. The 
company also failed to report the results of its error investigations 
to consumers and failed to provide adequate written explanation of its 
findings to consumers.
     MoneyGram failed to put in place policies and procedures 
designed to ensure compliance with certain record retention 
requirements. MoneyGram also failed to retain evidence of its 
compliance with certain money-transferring requirements as required.
    The complaint seeks relief including damages and other monetary 
relief, an injunction to stop future violations, and imposition of 
civil money penalties. The complaint is not a final finding or ruling 
that the defendants have violated the law.

4.1.2 TransUnion Interactive, Inc. TransUnion, LLC, TransUnion, and 
John T. Danaher

    On April 12, 2022, the Bureau filed a complaint in Federal court in 
the Northern District of Illinois against TransUnion, two of its 
subsidiaries, and longtime executive John Danaher for violating a 2017 
law enforcement order, the CFPA's prohibition on deceptive acts and 
practices, EFTA and its implementing Regulation E, and Regulation 
V.\66\ Chicago-based TransUnion is the parent company of one of the 
nation's three largest credit reporting companies. TransUnion collects 
consumer credit information, including borrowers' payment histories, 
debt loads, maximum credit limits, names and address of current 
creditors, and other elements of their credit relationships. Through 
its subsidiary, TransUnion Interactive, the company also markets, 
sells, and provides credit-related products directly to the public, 
such as credit scores, credit reports, and credit monitoring.
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    \66\ The complaint is available at: https://files.consumerfinance.gov/f/documents/cfpb_transunion_complaint_2022-04.pdf.
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    The Bureau alleges that TransUnion, its subsidiaries, and former 
executive John Danaher violated a January 3, 2017, consent order which 
settled charges for deceptively marketing credit scores and credit-
related products, including credit monitoring services. As part of the 
2017 settlement, TransUnion agreed to pay $13.9 million in restitution 
to victims and $3 million in civil penalties. TransUnion and its 
subsidiaries also agreed to a formal law enforcement order that, among 
other things, required the credit reporting company to warn consumers 
that lenders are not likely to use the scores they are supplying, 
obtain the express informed consent of customers for recurring payments 
for subscription products or services, and provide an easy way for 
people to cancel subscriptions. The order was binding on the company, 
its board of directors, and its executive officers.
    In October 2018, the CFPB commenced an examination of TransUnion. 
In May 2019, CFPB examiners informed TransUnion that it was violating 
multiple requirements of the order. In these instances, companies 
typically work constructively with the CFPB to make quick fixes and 
come into compliance. However, in June 2020, CFPB informed TransUnion 
that it was still violating the order and engaged in additional 
violations of law.
    In the April 12, 2022, complaint, the Bureau alleges that 
TransUnion and John Danaher engaged in multiple violations of law, 
including that TransUnion and Danaher violated the 2017 consent order; 
that TransUnion deceived customers through an array of digital dark 
patterns to trick people into recurring payments and to make it 
difficult to cancel them; and that TransUnion misrepresented numerous 
aspects of its products, services, and subscription plans, including 
that its credit monitoring service was a standalone credit score or 
credit report.
    The CFPB is seeking monetary relief for consumers, such as 
restitution or return of funds, disgorgement of compensation for unjust 
gains, injunctive relief, and civil money penalties. The complaint is 
not a final finding or ruling that the defendants have violated the 
law.

4.1.3 Edfinancial Services, LLC

    On March 30, 2022, the Bureau sanctioned Edfinancial Services, LLC, 
a student-loan servicer, for making deceptive statements to student 
loan borrowers and misrepresenting their forgiveness and repayment 
options to them.\67\ Edfinancial deceived borrowers, with Federal 
Family Education Loan Program (FFELP) loans about their eligibility for 
PSLF. The Bureau is ordering the company to contact all affected 
borrowers, provide them with

[[Page 26738]]

accurate information, and pay a $1 million civil money penalty.
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    \67\ The Consent Order is available at: https://files.consumerfinance.gov/f/documents/cfpb_edfinancial-services_consent-order_2022-03.pdf.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-09690 Filed 5-4-22; 8:45 am]
BILLING CODE 4810-AM-P