[Federal Register Volume 87, Number 226 (Friday, November 25, 2022)]
[Notices]
[Pages 72449-72458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25733]


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BUREAU OF CONSUMER FINANCIAL PROTECTION


Supervisory Highlights, Issue 28, Fall 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-eighth edition of Supervisory Highlights.

DATES: The Bureau released this edition of the Supervisory Highlights 
on its website on November 16, 2022. The findings in this report cover 
examinations in the areas of auto servicing, consumer reporting, credit 
card account management, debt collection, deposits, mortgage 
origination, mortgage servicing and payday lending completed between 
January 1, 2022, and June 31, 2022.

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 CFPB's supervision program is focused on ensuring that 
financial institutions subject to its authority comply with Federal 
consumer financial laws. Where violations of law or compliance 
weaknesses are found, CFPB encourages compliance and deters misconduct 
and recidivism.\1\ Supervisory Highlights promotes transparency of the 
Bureau's supervisory work and provides the public with insight into 
supervisory findings.
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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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    In this issue of Supervisory Highlights several trends are evident. 
The first is that examiners continue to identify the same violations of 
law across multiple institutions of a certain type, even though past 
editions of Supervisory Highlights have publicized such violations at 
other institutions of that type. Another is findings related to 
entities that engaged in unfair, deceptive or abusive acts or practices 
(UDAAP) in violation of the Consumer Financial Protection Act 
(CFPA).\2\ In addition, there are findings on CARES Act-related or 
COVID-19-related issues. Finally, this issue contains certain types of 
novel supervisory findings that have not previously been reported in 
Supervisory Highlights involving unique factual or legal analysis.
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    \2\ 12 U.S.C. 5531, 5536.
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    The findings in this report cover examinations in the areas of auto 
servicing, consumer reporting, credit card account management, debt 
collection, deposits, mortgage origination, mortgage servicing and 
payday lending completed between January 1, 2022, and June 31, 2022. 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.
    Supervision is increasing its focus on repeat offenders, 
particularly those who violate agency or court orders. As part of that 
focus, Supervision has created a Repeat Offender Unit.
    The Repeat Offender Unit is focused on:
     Reviewing and monitoring the activities of repeat 
offenders;
     Identifying the root cause of recurring violations;
     Pursuing and recommending solutions and remedies that hold 
entities accountable for failing to consistently comply with Federal 
consumer financial law; and,
     Designing a model for order review and monitoring that 
reduces the occurrences of repeat offenders.
    The Repeat Offender Unit will focus on ways to enhance the 
detection of repeat offenses, develop a process for rapid review and 
response designed to address the root cause of violations, and 
recommend corrective actions designed to stop recidivist behavior. This 
will include closer scrutiny of corporate compliance with orders to 
ensure that requirements are being met and any issues are addressed in 
a timely manner.
    We invite readers with questions or comments about Supervisory 
Highlights to contact us at [email protected].

2. Supervisory Observations

2.1 Auto Servicing

    The Bureau continues to evaluate auto loan servicing activities, 
primarily to assess whether entities have engaged in any UDAAPs 
prohibited by the CFPA.\3\ Examiners identified unfair and deceptive 
acts or practices across many aspects of auto servicing, including 
violations related to add-on product charges, loan modifications, 
double billing, use of devices that interfered with driving, collection 
tactics, and payment allocation.
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    \3\ 12 U.S.C. 5531, 5536.
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2.1.1 Overcharging for Add-On Products at Early Payoff

    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, accident and 
health protection, or credit life protection. 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.

[[Page 72450]]

    An act or practice is unfair when: (1) it causes or is likely to 
cause substantial injury to consumers; (2) the injury is not reasonably 
avoidable by consumers; and (3) the injury is not outweighed by 
countervailing benefits to consumers or to competition.\4\
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    \4\ 12 U.S.C. 5531(c).
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    Examiners identified instances where consumers paid off their loans 
early, but servicers failed to ensure consumers received refunds for 
unearned fees related to add-on products.\5\ At that point, certain 
products no longer offered any possible benefit to consumers. In 
contrast to early payoff scenarios, after repossession, servicers did 
ensure that refunds for unearned fees were applied to consumers' 
accounts either by obtaining the refunds directly or by debiting 
reserve accounts servicers had established for dealers.
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    \5\ The Bureau previously discussed similar issues with add-on 
product refunds after repossession in Supervisory Highlights, Issue 
26, Spring 2022, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
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    Consumers suffered substantial injury because they were essentially 
required to pay for services they could no longer use, as the relevant 
products terminated when the loan contract terminated. Consumers could 
not reasonably avoid the injury because they had no control over the 
servicers' refund processing actions. When servicers present consumers 
with payoff amounts, consumers may have no reason to know that the 
amounts are inflated by add-on product premiums as consumers may be 
unaware that they paid unearned premiums, let alone that the amount 
could be refunded upon payoff. And reasonable consumers may not apply 
for refunds themselves because they may have been unaware that the 
contract provided that they could do so. Examiners concluded that the 
injury was not outweighed by any countervailing benefits to consumers 
or competition and that servicers engaged in unfair acts or practices 
by failing to ensure consumers received refunds for the specific unused 
add-on products.
    In response to these findings, servicers are remediating impacted 
consumers and implementing processes to obtain refunds for consumers 
for add-on products with no benefit after early payoff.

2.1.2 Misleading Consumers About Loan Modification Approval

    In calls where consumers who were delinquent on their loans 
requested payment assistance, servicers stated that the consumers were 
``preliminarily approved'' for loan modifications but had to make a 
payment equal to the standard monthly payment before the servicers 
would finalize the modifications. This created a net impression that if 
consumers made the payments, they had a high likelihood of having the 
modifications finalized. In fact, servicers denied most of the 
modification requests after consumers made the requested payments.
    Sections 1031 and 1036 of the CFPA prohibit deceptive acts or 
practices.\6\ A representation, omission act, or practice is deceptive 
when: (1) the representation, omission, act, or practice misleads or is 
likely to mislead the consumer; (2) the consumer's interpretation of 
the representation, omission act, or practice is reasonable under the 
circumstances; and (3) the misleading representation, omission, act, or 
practice is material.
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    \6\ 12 U.S.C. 5531 and 5536(a)(1)(B).
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    Examiners found that servicers engaged in deceptive acts or 
practices by representing to consumers that their modifications were 
preliminarily approved pending a ``good faith'' payment, when in fact 
they denied most of the modification requests. Consumers' understanding 
that they had a high likelihood of having the modifications finalized 
was reasonable under the circumstances. And the likelihood that a 
modification would be finalized was material to the consumer's decision 
regarding whether to make the good faith payment.
    In response to these findings, servicers ceased making these 
representations, developed policies and procedures to prevent company 
representatives from making these representations, implemented related 
training, and enhanced monitoring.

2.1.3 Double Billing Consumers for Collateral Protection Insurance

    When consumers enter auto finance agreements, they generally agree 
to maintain vehicle insurance that covers physical damage to the 
property in order to protect the lender's interest in the collateral. 
Some contracts allow servicers to purchase insurance, called Collateral 
Protection Insurance (CPI) or Force-Placed Insurance (FPI), if the 
consumer fails to maintain appropriate coverage; charges for CPI are 
generally passed along to consumers.
    Examiners found that servicers engaged in an unfair act or practice 
when they double billed consumers for CPI charges. Servicers purchased 
CPI and billed consumers for a certain amount. Servicers then charged 
consumers twice for the CPI in error; billing and collecting these 
charges caused, or was likely to cause, substantial injury to 
consumers. Consumers could not reasonably avoid the injury, and it was 
reasonable for consumers to rely on the billed amount. The injury 
associated with billing consumers for erroneous amounts is not 
outweighed by any countervailing benefits to consumers or competition.
    In response to these findings, servicers proposed implementing 
changes to address the violation.

2.1.4 Unfairly Engaging Devices That Interfered With Driving

    When consumers enter into auto finance agreements, lenders 
sometimes require consumers to have technologies that interfere with 
driving (sometimes called starter interrupt devices) installed in their 
vehicles. These devices, when activated by servicers, either beep or 
prevent a vehicle from starting.
    Examiners found that, in certain instances, servicers engaged in 
unfair acts or practices by activating these devices in consumers' 
vehicles when consumers were not past due on payment, contrary to 
relevant contracts and disclosures. Servicers inappropriately activated 
the devices due to errors with their internal systems. In these 
instances, servicers caused injury in one of two ways. First, in some 
instances they activated the devices and prevented consumers from 
starting their vehicles, causing substantial injury by unexpectedly 
depriving these consumers of their vehicles. Second, in some instances 
servicers caused the devices to sound late payment warning beeps 
despite consumers being current, often for several days. The devices 
sounded these beeps each time the consumer started the car. This 
caused, or was likely to cause, substantial injury to consumers because 
they may have ceased using the vehicle because they understood from the 
beeps that servicers might disable the vehicle. Additionally, the 
warning beeps were likely to harass consumers and risk harming 
consumers' reputations by communicating to others, the consumers' 
purported delinquencies. Consumers could not reasonably avoid these 
injuries because they had no control over servicers' activation of the 
devices. The harm outweighed any countervailing benefits to consumers 
or competition.
    In response to these findings, servicers proposed implementing 
changes to address the violations.

2.1.5 Making Deceptive Representations During Collection Calls

    Examiners found that certain servicers made deceptive 
representations during

[[Page 72451]]

collections calls. Specifically, servicers' representatives told 
delinquent consumers that their driver's licenses and tags would be or 
may be suspended if they did not make a prompt payment to the servicer. 
In fact, servicers do not have authority to suspend consumers' driver's 
licenses and tags. Additionally, examiners found that some 
representatives told consumers that their accounts had, or would be, 
transferred to the legal department. In fact, consumers' accounts were 
not at risk of imminent referral to the legal department. In these 
instances, servicers engaged in deceptive acts or practices. It was 
reasonable for consumers to believe that servicers had the authority to 
take the actions they threatened to take and would take those actions. 
And the representations were material because they were likely to 
impact consumers' choices regarding whether to pay their auto loans or 
other debts.
    In response to these findings, servicers remediated impacted 
consumers and enhanced training, procedures, and call monitoring 
related to collection activity.

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 companies'' 
(CRCs).\7\ 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) \8\ and its 
implementing regulation, Regulation V,\9\ including the requirement to 
reasonably investigate disputes and, for furnishers, 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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    \7\ 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).
    \8\ 15 U.S.C. 1681 et seq.
    \9\ 12 CFR part 1022.
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2.2.1 NCRC Duty To Review and Report Determinations and Actions Taken 
in Response to Applicable Complaints

    The FCRA requires that nationwide CRCs (NCRCs) must take certain 
actions in response to complaints received from consumers that the 
Bureau transmits to the NCRC if those complaints are about ``incomplete 
or inaccurate information'' that a consumer ``appears to have 
disputed'' with the NCRC.\10\ For this category of complaints, the FCRA 
requires that NCRCs: (1) review such complaints to determine if all 
legal obligations have been met; (2) provide regular reports to the 
Bureau regarding the determinations and actions taken in response to 
the reviews; and (3) maintain records regarding the disposition of such 
complaints for a reasonable amount of time to demonstrate compliance 
with the obligation to review and report on the complaints.
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    \10\ 15 U.S.C. 1681i(e).
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    In recent reviews of one or more NCRCs, examiners found that NCRCs 
failed to report the outcome of complaint reviews to the Bureau. 
Specifically, examiners found that NCRCs failed to report to the Bureau 
determinations about whether all legal obligations had been met and 
actions taken in response to complaints. Examiners also found that 
NCRCs failed to address applicable complaints based on the NCRCs' 
unsubstantiated suspicions that the complaints were submitted by 
unauthorized third parties (e.g., credit repair organizations). In 
response to these findings, NCRCs revised policies and procedures for 
identifying applicable complaints subject to these heightened 
obligations. NCRCs also revised processes for notifying consumers whose 
complaints are identified as being submitted by unauthorized third 
parties to allow consumers to confirm whether the complaints were 
authorized.

2.2.2 Furnisher Prohibition of Reporting Information With Actual 
Knowledge of Errors

    Examiners are continuing to find that furnishers are violating the 
FCRA by inaccurately reporting information despite actual knowledge of 
errors.\11\ In reviews of auto loan furnishers, examiners found that 
entities furnished information to CRCs while knowing or having 
reasonable cause to believe such information was inaccurate because the 
information furnished did not accurately reflect the information in the 
furnishers' account servicing systems. For example, examiners found 
that furnishers reported a consumer's account to CRCs as delinquent 
despite placing the account in deferment during the time periods for 
which delinquent status was furnished. Examiners also found that the 
prohibition on furnishing inaccurate information under this provision 
applied because the furnishers did not clearly and conspicuously 
specify to consumers an address for notices relating to inaccurately 
furnished information. For example, furnishers disclosed a general-
purpose corporate address on their websites and/or provided 
instructions on their websites for the submission of complaints or 
general concerns by consumers. However, examiners found that the 
furnishers did provide an address for consumers to send notices about 
inaccurate credit reporting information.
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    \11\ 15 U.S.C. 1681s-2(a)(1)(A).
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    In response to these findings, furnishers corrected the furnished 
information for affected consumers. Furnishers also revised website 
language to specify the address for the submission by consumers of 
notices relating to inaccurately furnished information.\12\
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    \12\ The Bureau previously reported similar violations in 
Supervisory Highlights, Issue 20, Fall 2019, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-20_122019.pdf.
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2.2.3 Furnisher Duty To Correct and Update Information

    Examiners are continuing to find that furnishers are violating the 
FCRA duty to correct and update furnished information after determining 
such information is not complete or accurate.\13\ In reviews of third-
party debt collection furnishers, examiners found that furnishers 
failed to send updated or corrected information to CRCs after making a 
determination that information the furnishers had reported was not 
complete or accurate. For example, examiners found that furnishers 
continued to report consumer accounts to CRCs with an indication that 
the dispute investigation was still open when, in fact, the furnisher 
had determined that the accounts were no longer being investigated 
after completing their dispute investigations. As a result, furnishers 
did not promptly notify CRCs of the determination that the accounts 
were no longer under active dispute investigation and provide CRCs with 
corrected information that the accounts had been corrected or had 
previously been disputed. In response to these findings, furnishers 
implemented automated processes to update and

[[Page 72452]]

provide corrections of account dispute statuses to CRCs upon the 
completion of dispute investigations.\14\
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    \13\ 15 U.S.C. 1681s-2(a)(2).
    \14\ The Bureau previously reported similar violations in 
Supervisory Highlights, Issue 26, Spring 2022, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
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    In addition, in reviews of auto loan furnishers, examiners found 
that furnishers did not promptly correct or update CRCs following the 
placement of consumer accounts into retroactive deferments. Upon 
placing consumer accounts into retroactively applicable deferments, 
furnishers updated their systems of record to reflect that the accounts 
did not have any payments due until a deferment began, and therefore 
had not been delinquent. However, examiners found that furnishers did 
not send corrections or updates to CRCs indicating that the previously 
reported delinquencies on such accounts were no longer accurate as a 
result of the accommodation. In response to these findings, furnishers 
are conducting lookbacks to identify and furnish corrections to the 
CRCs in connection with all affected consumer accounts and are 
implementing internal controls to ensure they promptly furnish such 
corrections going forward.

2.2.4 Furnisher Duty To Provide Notice of Delinquency of Accounts

    Examiners are continuing to find that furnishers are violating the 
FCRA duty to notify CRCs of the date of first delinquency (DOFD) on 
applicable accounts.\15\ In recent reviews of debt collection 
furnishers, examiners found that furnishers violated this provision by 
failing to establish and follow reasonable procedures to report the 
appropriate DOFD. Examiners found that furnishers were reporting on 
collections accounts that arose from unpaid utility accounts--accounts 
typically disconnected several months after the first missed payment 
causing delinquency before being sent to collections. Examiners found 
that reasonable procedures would prevent a furnisher from calculating a 
DOFD that preceded the account going to collections by only a brief 
window, such as less than 40 days. In response to these findings, the 
furnishers worked with the original creditors to ensure they received 
the DOFD from them directly and implemented written policies and 
procedures and enhanced monitoring and audit to ensure they obtain the 
correct DOFD and furnish it to CRCs consistent with FCRA 
requirements.\16\
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    \15\ 15 U.S.C. 1681s-2(a)(5).
    \16\ The Bureau previously reported similar violations in 
Supervisory Highlights, Issue 22, Summer 2020, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf.
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2.2.5 Furnisher Duty To Establish and Implement Reasonable Policies and 
Procedures Concerning the Accuracy and Integrity of Furnished 
Information

    Examiners are continuing to find that furnishers are violating the 
Regulation V duty to establish and implement reasonable written 
policies and procedures regarding the accuracy and integrity of the 
information furnished to a CRC and to consider and incorporate, as 
appropriate, the guidelines of Appendix E to Regulation V.\17\ Recent 
supervisory reviews identifying violations of the Regulation V 
requirement for reasonable written policies and procedures include:
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    \17\ 12 CFR 1022.42(a), (b).
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     In reviews of auto loan furnishers, examiners found 
furnishers' policies and procedures did not document the basis on which 
dispute agents should determine consumer direct disputes reasonably 
qualify as frivolous or irrelevant.
     Examiners found that furnishing policies and procedures at 
auto loan furnishers and debt collection furnishers did not provide for 
adequate document retention. Specifically, furnishers' procedures 
failed to provide for the maintenance of records for a reasonable 
period of time in order to substantiate the accuracy of the information 
furnished that was subject to dispute investigations.
     Examiners also found that furnishers lacked reasonable 
written policies and procedures establishing and implementing 
appropriate internal controls regarding the accuracy and integrity of 
furnished information, such as by implementing standard procedures and 
verifying random samples of furnished information.
    In response to these findings, furnishers are taking corrective 
actions including developing written policies and procedures regarding 
the accuracy and integrity of information furnished to CRCs and the 
proper handling and document retention of information related to 
consumer disputes.\18\
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    \18\ The Bureau previously reported similar violations in 
Supervisory Highlights, Issue 26, Spring 2022, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf.
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2.2.6 Furnisher Duty To Conduct Reasonable Investigations of Direct 
Disputes

    Examiners are continuing to find that furnishers are violating the 
Regulation V duty to conduct a reasonable investigation of direct 
disputes.\19\ Recent examples of failures to conduct reasonable 
investigations of direct disputes include:
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    \19\ 12 CFR 1022.43(e).
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     Debt collection furnishers failed to conduct reasonable 
investigations by neglecting to review relevant, underlying information 
and documentation. In response to these findings, the furnishers 
updated policies and procedures to ensure that furnishing dispute 
investigations are reasonable, complete, and reported within the time 
periods required by Regulation V.
     Auto furnishers neither conducted reasonable 
investigations nor sent notices that disputes were frivolous or 
irrelevant where direct dispute notices may have been prepared by a 
credit repair organization and such notices contained all of the 
information needed to conduct a reasonable investigation (e.g., name, 
address, partial account number, description of information disputed, 
and explanation of the basis for the dispute). In response to these 
findings, the furnishers are revising procedures regarding 
documentation standards and improving training.\20\
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    \20\ The Bureau previously reported similar violations in 
Supervisory Highlights, Issue 22, Summer 2020, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf.
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2.3 Credit Card Account Management

    The Bureau assessed the credit card account management operations 
of several supervised entities for compliance with applicable Federal 
consumer financial services laws. Examinations of these entities 
identified violations of Regulation Z and deceptive and unfair acts or 
practices prohibited by the CFPA.

2.3.1 Billing Error Resolution

    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 that certain entities violated 
Regulation Z's billing error resolution provisions by:
     Failing to mail or deliver written acknowledgements to 
consumers within 30 days of receiving a billing error notice; \21\
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    \21\ 12 CFR 1026.13(c)(1).
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     Failing to resolve disputes within two complete billing 
cycles, or no later

[[Page 72453]]

than 90 days after receiving a billing error notice; \22\
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    \22\ 12 CFR 1026.13(c)(2).
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     Failing to conduct reasonable investigations after 
receiving billing error notices; \23\
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    \23\ 12 CFR 1026.13(f).
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     Failing to provide explanations to consumers after 
determining that no billing error occurred or that a different billing 
error occurred from that asserted.\24\
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    \24\ 12 CFR1026.13(f)(1).
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    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 policies and 
procedures, monitoring and audit, and training. The entities also are 
remediating affected consumers.\25\
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    \25\ The Bureau previously reported similar violations in 
Supervisory Highlights, Issue 26, Spring 2022 and Issue 25, Fall 
2021. These issues are available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-25_2021-12.pdf and https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
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2.3.2 Rate Reevaluation 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 must 
periodically assess whether it is appropriate to reduce the account's 
APR.\26\ Issuers must first reevaluate each such account no later than 
six months after the rate increase and at least every six months 
thereafter until the APR is reduced to the rate applicable immediately 
prior to the increase, or, if the rate applicable immediately prior to 
the increase was a variable rate, to a variable rate determined by the 
same formula (index and margin) that was used to calculate the rate 
applicable immediately prior to the increase, or, to a rate that is 
lower than the rate applicable immediately prior to the increase.\27\ 
In reevaluating each account to determine whether it was appropriate to 
reduce the account's APR, the issuer must review: (a) the factors on 
which the rate increase was originally based (hereinafter, the original 
factors); or, (b) the factors the issuer currently considers when 
determining the APR applicable to similar, new consumer credit card 
accounts (hereinafter, the acquisition factors).\28\
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    \26\ 12 CFR 1026.59(a).
    \27\ 12 CFR 1026.59(c), (f).
    \28\ 12 CFR 1026.59(d)(1).
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    Examiners found a number of violations of these provisions of 
Regulation Z. In one set of violations, the creditors failed to 
consider appropriate factors when performing rate reevaluations. First, 
in reevaluating accounts subject to default pricing, the creditors used 
the original factors method, but also used the acquisition rate for new 
customers as one of the variables in reevaluating these accounts. As 
such, examiners determined that the creditors improperly mixed original 
factors and acquisition factors when reevaluating accounts subject to a 
rate increase. Additionally, if the creditors, after reevaluation, 
determined that a consumer's rate should be reduced, the rate would be 
reduced, but not below the higher of the consumer's pre-default 
interest rate or the lowest current acquisition rate. In response to 
these findings, the creditors will remediate affected consumers.
    Additionally, examiners found that the creditors violated these 
provisions by failing to evaluate the full rate increase for certain 
accounts converted from fixed to variable rate. Specifically, for 
consumer accounts that received a default rate increase and converted 
from fixed to variable rate, the creditors reevaluated the interest 
rates using original factors. However, if during the reevaluation 
period, the variable rate for those accounts increased due to an 
increase in the prime rate, the creditors did not consider that 
increase as part of the rate reduction reevaluation. In response to 
these findings, the creditors agreed to remediate affected consumers.
    In a separate set of violations, the creditors failed to reevaluate 
all credit card accounts subject to the rate reevaluation provisions at 
least once every six months. For certain accounts, the creditors failed 
to review the accounts until they reduced the rate to the rate 
applicable immediately prior to the increase or to a rate that was 
lower than the rate applicable immediately prior to the increase. For 
other accounts, the creditors inadvertently excluded recently added 
accounts from the master list file of accounts with an increased 
interest rate subject to the rate reevaluation process. Additionally, 
once the master list file of accounts reached its file size capacity, 
older accounts were automatically deleted each time new accounts were 
added to the file. This resulted in monetary harm to consumers who were 
not included in the creditors' rate reevaluation process and did not 
receive potential rate reductions. In response to these findings, the 
creditors will remediate affected consumers and design and implement 
policies and procedures to ensure compliance.
    Finally, examiners found creditors improperly removed accounts from 
the APR reevaluation process. Specifically, examiners found that the 
creditors improperly removed consumer accounts from the APR 
reevaluation process before the consumer had achieved either a 
comparable APR to what the consumer enjoyed at the time the rate was 
increased or the current rate offered to a new customer with similar 
credit characteristics. In response to these findings, the creditors 
will remediate affected consumers.\29\
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    \29\ The Bureau previously reported similar violations in 
Supervisory Highlights, Issue 26, Spring 2022, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
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2.3.3 Deceptive and Unfair Marketing, Sale, and Servicing of Add-On 
Products

    The CFPA prohibits unfair and deceptive acts or practices.\30\ 
Examiners found that certain entities engaged in deceptive acts or 
practices in the marketing, sale, and servicing of credit card add-on 
products to consumers.
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    \30\ 12 U.S.C. 5531 and 5536.
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    Examiners found that the entities engaged in deceptive acts or 
practices in relation to the marketing, sale, and servicing of credit 
card add-on products. Specifically, examiners found that the entities 
misled consumers when their service providers used sales scripts that 
claimed that self-employed consumers were eligible for the products 
when they were not; when, in marketing materials, service providers 
claimed that consumers could cancel the product coverage simply by 
calling a toll-free number when, instead, they were required to take 
additional steps to cancel; and when, in live sales calls, service 
providers claimed that consumers would not be required to pay product 
premiums for months in which they had a zero balance when, in fact, 
consumers were required to carry a zero average daily balance for the 
billing cycle to avoid paying the premium for that month. In each 
instance, examiners concluded it was reasonable for consumers, under 
the circumstances, to believe the misrepresentations because the 
entities' service providers expressly stated them. These acts or 
practices were material because they likely made consumers more willing 
to purchase the products than they otherwise would have been.
    Examiners also found that the entities engaged in unfair acts or 
practices in relation to the marketing, sale, and servicing of the 
credit card add-on products. Specifically, examiners found that the 
entities treated consumers unfairly when they omitted disclosure of the 
burdensome administrative requirements that consumers were

[[Page 72454]]

required to satisfy to submit benefits claims for the product. 
Examiners also found that the entities treated consumers unfairly when 
they failed to cancel the products on the date of the consumer's 
request and failed to issue pro rata refunds based on the date of the 
request as required by the insurance agreement. Examiners concluded 
that these acts or practices were unfair because they caused 
substantial injury to consumers by leading them to purchase a product 
that was likely of significantly less value than the consumer initially 
believed. The acts or practices were not reasonably avoidable by 
consumers since consumers were unaware of the coverage restrictions 
because the entities did not disclose those limitations to consumers at 
the time of purchase and were not outweighed by countervailing benefits 
to consumers or competition as the acts or practices were injurious in 
their net effects.\31\
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    \31\ The Bureau previously reported similar violations in 
Supervisory Highlights, Issue 16 Summer 2017, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-26_2022-04.pdf.
---------------------------------------------------------------------------

2.3.4 Deceptive Representations Regarding the Fixed Payment Option for 
Automatic Withdrawal of the Minimum Payment Due

    Examiners found that certain entities engaged in deceptive acts or 
practices by inaccurately representing to consumers enrolled in their 
fixed payment option that the entities would withdraw automatically, 
from the consumer's bank account, an amount equal to the minimum 
payment due on their credit card account whenever such payment exceeded 
the fixed amount designated by the consumer. The entities' inaccurate 
representations about the fixed payment option conveyed false messages 
to consumers that likely misled them to reasonably believe that the 
withdrawn payment amount would be increased to satisfy the minimum 
payment due when such amount was higher than the fixed amount 
designated by the consumer. These representations are material because 
they likely induced consumers to enroll in the fixed payment option and 
led them to believe they did not need to check that they made the 
minimum payment due. In certain instances, however, the entities failed 
to withdraw the minimum payment due, and only withdrew the fixed 
amount, resulting in the consumer failing to pay the minimum payment 
due. These failures resulted in consumers experiencing late charges, 
default pricing, and derogatory credit reporting.
    In response to these findings, the entities agreed to remediate 
affected consumers.

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,\32\ nonbanks that are 
larger participants in the consumer debt collection market,\33\ and 
nonbanks that are service providers to certain covered persons.\34\ 
Recent examinations of larger participant debt collectors identified 
violations of the Fair Debt Collection Practices Act (FDCPA).
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    \32\ 12 U.S.C. 5515 (a)-(b).
    \33\ 12 U.S.C. 5514(a)(1)(B) and 12 CFR 1090.105.
    \34\ 12 U.S.C. 5514(e), 5514(d), 5516(e).
---------------------------------------------------------------------------

2.4.1 Harassment Regarding Continued Call Conversations

    During calls with consumers, examiners found that debt collectors 
engaged in conduct the natural consequence of which was to harass, 
oppress, or abuse the person with whom they were communicating. In 
these calls, examiners found that the debt collectors continued to 
engage the consumers in telephone conversations after the consumers 
stated that the communication was causing them to feel annoyed, 
harassed, or abused.
    Examiners found that in at least one call, the debt collector 
continued to engage the consumer after the consumer stated multiple 
times they were driving and needed to discuss the account at another 
time. In another instance, examiners found that the debt collector used 
combative statements and continued the call after the consumer stated 
they were unemployed, affected by COVID-19, and unable to pay, and even 
after the consumer clearly stated that the call was ``making him 
agitated.'' By continuing the calls after the consumers expressed their 
desire to no longer engage with the collector, the debt collectors 
violated the FDCPA's prohibition against harassing and abusive 
conduct.\35\
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    \35\ 15 U.S.C. 1692d(5).
---------------------------------------------------------------------------

    In response to these findings, Supervision directed the debt 
collectors to enhance their training requirements to ensure compliance 
with Federal consumer financial law including the FDCPA.

2.4.2 Communication With Third Parties

    Examiners found multiple instances in which debt collectors 
violated the FDCPA by communicating with a person other than the 
consumer about the consumer's debt, when the person had a name similar 
or identical to the consumer.\36\
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    \36\ 15 U.S.C. 1692c(b).
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    In response to these findings, Supervision directed the debt 
collectors to update their identity authentication procedures to ensure 
that the person with whom the debt collector is communicating is the 
consumer obligated or allegedly obligated to pay the debt.\37\
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    \37\ The Bureau previously reported similar violations in 
Supervisory Highlights, Issue 24, Summer 2021, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf.
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2.5 Deposits

2.5.1 Pandemic Relief Benefits--Unfairness Risks

    The Bureau conducted prioritized assessments to evaluate how 
financial institutions handled pandemic relief benefits deposited into 
consumer accounts, as detailed in the COVID-19 Prioritized Assessments 
Special Edition of Supervisory Highlights, Issue 23.\38\ These pandemic 
relief benefits included enhanced unemployment insurance funds and 
three rounds of economic impact payments.\39\ The Bureau did a broad 
assessment centered on whether consumers may have lost access to 
pandemic relief benefits due to financial institutions' garnishment or 
setoff practices. Generally, requirements around garnishment practices 
derive from state-specific laws. For one economic impact payment round, 
Congress mandated nationwide protection from most garnishment orders. 
Various State and territorial laws may have protected economic impact 
payments and/or unemployment insurance funds from garnishment or setoff 
as well.
---------------------------------------------------------------------------

    \38\ This edition is available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-23_2021-01.pdf.
    \39\ Congress issued three rounds of economic impact payments to 
many consumers under the Coronavirus Aid, Relief, and Economic 
Security Act; the Consolidated Appropriations Act of 2021; and the 
American Rescue Plan Act.
---------------------------------------------------------------------------

    During the initial deposits prioritized assessments review, 
examiners identified indicators of risk at over two dozen depository 
institutions. Examiners then conducted follow-up assessments at these 
identified institutions. The follow-up prioritized assessments analyzed 
whether the institutions risked committing an unfair act or practice in 
violation of the Dodd-Frank Act, in connection with their treatment of 
pandemic relief benefits.\40\
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    \40\ 12 U.S.C. 5531, 5536.
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    Examiners identified unfairness risks at multiple institutions due 
to policies

[[Page 72455]]

and procedures that may have resulted in one or more of the following 
practices:
     Using protected unemployment insurance or economic impact 
payments funds to set off a negative balance in the account into which 
the benefits were deposited (a.k.a. same-account setoff) or to set off 
a balance owed to the financial institution on a separate account 
(a.k.a. cross-account setoff), when such practices were prohibited by 
applicable State or territorial protections;
     Garnishing protected economic impact payments funds in 
violation of the Consolidated Appropriations Act of 2021;
     Garnishing protected unemployment insurance or economic 
impact payments funds in violation of applicable State or territorial 
protections;
     In connection with out-of-state garnishment orders, 
processing garnishments in violation of applicable State prohibitions 
against out-of-state garnishment; \41\ and/or
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    \41\ A similar practice was recently the subject of a Bureau 
public enforcement action. This order is available at: https://
www.consumerfinance.gov/about-us/newsroom/cfpb-orders-bank-of-
america-to-pay-10-million-penalty-for-illegal-garnishments/
#:~:text=The%20CFPB's%20order%20requires%20Bank,a%20%2410%20million%2
0civil%20penalty.
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     Failing to apply the appropriate State exemptions to 
certain consumers' deposit accounts after receiving garnishment 
notices.\42\
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    \42\ Id.
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    In response to these findings, Supervision directed the 
institutions to: (i) refund any protected economic impact payments 
funds that were taken by the institution in connection with improper 
same-account or cross-account setoffs; (ii) refund any garnishment-
related fees assessed to account holders in connection with certain 
out-of-state garnishment orders; (iii) review, update, and implement 
policies and procedures to ensure the institution complies with 
applicable State and territorial protections regarding its garnishment 
practices, including in connection with the garnishment of unemployment 
insurance funds, Federal benefits, any funds protected by State law 
where the consumer resides, and in connection with out-of-state 
garnishment orders; and/or (iv) review, update, and implement policies 
and procedures to ensure the institution complies with applicable State 
and territorial protections regarding its setoff practices, including 
in connection with the setoff of unemployment insurance funds and 
Federal benefits.
    These prioritized assessment findings highlight the importance of 
State and territorial laws that protect consumer funds held in deposit 
accounts, including critical relief benefits. And it underscores that 
the failure to comply with applicable State and territorial protections 
may, under certain circumstances, give rise to unfair acts or practices 
in violation of the CFPA. One or more cited institutions raised 
arguments that guidance on preemption meant they need not comply with 
State or territorial actions. Although preemption of State and 
territorial laws may apply in certain situations, all depository 
institutions generally must comply with, among other consumer 
protections, applicable State and territorial laws that govern 
garnishment and certain setoff practices.

2.6 Mortgage Origination

    Supervision assessed the mortgage origination operations of several 
supervised entities for compliance with applicable Federal consumer 
financial laws. Examinations of these entities identified violations of 
Regulation Z and deceptive acts or practices prohibited by the CFPA.

2.6.1 Reducing Loan Originator Compensation To Cover Settlement Cost 
Increases That Were Not Unforeseen

    Regulation Z prohibits compensating mortgage loan originators in an 
amount that is based on the terms of a transaction or a proxy for the 
terms of a transaction.\43\ This means that a ``creditor and a loan 
originator may not agree to set the loan originator's compensation at a 
certain level and then subsequently lower it in selective cases.'' \44\ 
The rule, however, permits decreasing a loan originator's compensation 
due to unforeseen increases in settlement costs. An increase is 
unforeseen if it occurs even though the estimate provided to the 
consumer is consistent with the best information reasonably available 
to the disclosing person at the time of the estimate.\45\ Thus, a loan 
originator may decrease its compensation ``to defray the cost, in whole 
or part, of an unforeseen increase in an actual settlement cost over an 
estimated settlement cost disclosed to the consumer pursuant to section 
5(c) of RESPA or an unforeseen actual settlement cost not disclosed to 
the consumer pursuant to section 5(c) of RESPA.'' \46\
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    \43\ 12 CFR 1026.36(d)(1)(i).
    \44\ 12 CFR part 1026, supp. I, comment 36(d)(1)-5.
    \45\ 12 CFR part 1026, supp. I, comment 36(d)(1)-7.
    \46\ Id.
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    Examiners found that certain entities provided consumers loan 
estimates based on fee information provided by loan originators. At 
closing, the entities provided consumers a lender credit when the 
actual costs of certain fees exceeded the applicable tolerance 
thresholds. The entities then reduced the amount of compensation to the 
loan originator after loan consummation by the amount provided to cure 
the tolerance violation. Examiners determined, however, that the 
correct fee amounts were known to the loan originators at the time of 
the initial disclosures, and that the fee information was incorrect as 
a result of clerical error. Specifically, in each instance, the 
settlement service had been performed and the loan originator knew the 
actual costs of those services. The loan originators, however, entered 
a cost that was completely unrelated to the actual charges that the 
loan originator knew had been incurred, resulting in information being 
entered that was not consistent with the best information reasonably 
available. Accordingly, the unforeseen increase exception did not 
apply.
    As a result of these findings, the entities are revising their 
policies and procedures and providing training to ensure loan 
originator compensation is not reduced based on a term of a 
transaction.

2.6.2 Deceptive Waiver of Borrowers' Rights in Loan Security Agreements

    Regulation Z states that a ``contract or other agreement relating 
to a consumer credit transaction secured by a dwelling . . . may not be 
applied or interpreted to bar a consumer from bringing a claim in court 
pursuant to any provision of law for damages or other relief in 
connection with any alleged violation of Federal law.'' \47\ In light 
of this provision, examiners previously concluded that certain waiver 
provisions violate the CFPA's prohibition on deceptive acts or 
practices where reasonable consumers would construe the waivers to bar 
them from bringing Federal claims in court related to their 
mortgages.\48\
---------------------------------------------------------------------------

    \47\ 12 CFR 1026.36(h)(2).
    \48\ 12 U.S.C. 5531 and 5536.
---------------------------------------------------------------------------

    Examiners identified a waiver provision in a loan security 
agreement that was used by certain entities in one State. The waiver 
provided that borrowers who signed the agreement waived their right to 
initiate or participate in a class action. Examiners concluded the 
waiver language was misleading, and that a reasonable consumer could 
understand the provision to waive their right to bring a class action 
on any claim, including

[[Page 72456]]

Federal claims, in Federal court. The misrepresentation was material 
because it was likely to affect whether a consumer would consult with a 
lawyer or otherwise initiate or participate in a class action involving 
a Federal claim in relation to the loan transaction. Thus, examiners 
concluded that the waiver provision was deceptive.
    In response to these findings, the entities removed the waiver 
provision from the loan security agreements and sent a notice to 
affected consumers rescinding and voiding the waiver.\49\
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    \49\ The Bureau previously reported similar violations in 
Supervisory Highlights, Issue 24, Summer 2021, available at: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-24_2021-06.pdf.
---------------------------------------------------------------------------

2.7 Mortgage Servicing

    The Bureau conducted examinations focused on servicers' actions as 
consumers experienced financial distress related to the COVID-19 
pandemic. In reviewing customer service calls, examiners found that 
servicers engaged in abusive acts or practices by charging sizable fees 
for phone payments when consumers were unaware of those fees. Examiners 
identified unfair acts or practices and Regulation X policy and 
procedure violations regarding failure to provide consumers with CARES 
Act forbearances.\50\ Examiners also found that servicers unfairly 
charged some consumers fees while they were in CARES Act forbearances 
or failed to maintain policies and procedures reasonably designed to 
properly evaluate loss mitigation options.\51\ And servicers made 
deceptive misrepresentations regarding how to accept deferral offers 
after forbearance and how to enroll in automatic payment programs when 
entering a deferral.
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    \50\ 12 CFR 1024.38(b)(2)(i), (v).
    \51\ Id.
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2.7.1 Charging Sizable Phone Payment Fees When Consumers Were Unaware 
of the Fees

    Examiners found that servicers engaged in abusive acts or practices 
by charging sizable phone payment fees when consumers were unaware of 
the fees, thus taking unreasonable advantage of consumers' lack of 
understanding of the fees. Servicers charged consumers $15 fees for 
making payments by phone with customer service representatives. During 
calls with consumers, representatives did not disclose the phone pay 
fees' existence or cost but charged them anyway.
    An act or practice is abusive if it ``takes unreasonable advantage 
of . . . a lack of understanding on the part of the consumer of the 
material risks, costs, or conditions of the product or service.'' \52\ 
Consumers lacked understanding of the material costs of the phone pay 
fees because servicer representatives failed to inform consumers of the 
fees during the phone call. And general disclosures, provided prior to 
making the payment, indicating that consumers ``may'' incur a fee for 
phone payments did not sufficiently inform consumers of the material 
costs. Servicers took unreasonable advantage of this lack of 
understanding because the cost of the phone pay fee was materially 
greater than the cost of other payment options and servicers profited 
from collecting the fees.\53\ In response to these findings, servicers 
are reimbursing all consumers who paid phone payment fees when those 
fees were not disclosed while processing payments over the phone.
---------------------------------------------------------------------------

    \52\ 12 U.S.C. 5531(d)(2)(A).
    \53\ Additionally, failing to disclose the prices of all 
available phone pay fees when different phone pay options carry 
materially different fees may be unfair, and failing to disclose 
that a phone pay fee would be added to a consumer's payment could 
create the misimpression that there was no service fee and thus be 
deceptive. For more information, see CFPB Compliance Bulletin, 2017-
01 available at: https://files.consumerfinance.gov/f/documents/201707_cfpb_compliance-bulletin-phone-pay-fee.pdf.
---------------------------------------------------------------------------

2.7.2 Charging Illegal Fees During CARES Act Forbearances

    Examiners found that servicers engaged in unfair acts or practices 
when they charged consumers fees during forbearance plans pursuant to 
the CARES Act. Section 4022 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'' 
on consumers receiving a CARES Act forbearance.\54\ Here, the CARES Act 
establishes a consumer right that provides a baseline for measuring 
injury. Servicers caused, or were likely to cause, substantial injury 
to consumers when they imposed illegal fees on their accounts. 
Consumers could not reasonably avoid the injury because they had no 
reason to anticipate servicers would impose illegal fees. And charging 
illegal fees has no benefits to consumers or competition.
---------------------------------------------------------------------------

    \54\ Public Law 116-136, sec. 4022(b)(3), 134 Stat. 281, 490 
(Mar. 27, 2020).
---------------------------------------------------------------------------

    In response to these findings, servicers developed remediation 
plans to compensate injured consumers.

2.7.3 Failure To Process CARES Act Forbearance Requests

    Examiners found that servicers engaged in unfair acts or practices 
when they failed to timely honor requests for forbearance from 
consumers. Section 4022 of the CARES Act provides that if a servicer of 
a federally backed mortgage loan receives a borrower request for a 
forbearance, and the borrower attests to a financial hardship caused by 
the COVID-19 emergency, then the servicer ``shall'' provide that 
borrower a forbearance.\55\ During the forbearance servicers may not 
charge fees.\56\ Here, the CARES Act establishes a consumer right that 
provides a baseline for measuring injury. Consumers suffered 
substantial injury when servicers failed to process forbearances 
because they did not gain the benefits of forborne payments, and the 
failure also resulted in additional fees being added to their accounts. 
Consumers could not reasonably avoid the injury because they had no 
reason to anticipate that servicers would fail to process their 
requests for forbearance. And even when consumers realized servicers 
had failed to process the requests, the servicers sometimes did not 
correct the errors. The injury was not outweighed by countervailing 
benefits to consumers or competition.
---------------------------------------------------------------------------

    \55\ Public Law 116-136, sec. 4022(c)(1), 134 Stat. 281, 490 
(Mar. 27, 2020).
    \56\ Public Law 116-136, sec. 4022(b)(3), 134 Stat. 281, 490 
(Mar. 27, 2020).
---------------------------------------------------------------------------

    In response to these findings, servicers developed remediation 
plans to compensate injured consumers.

2.7.4 Misrepresenting That Payment Amounts Were Sufficient To Accept 
Deferrals

    Examiners found that servicers engaged in deceptive acts or 
practices by misrepresenting that certain payment amounts were 
sufficient for consumers to accept deferral offers at the end of their 
forbearance periods, when in fact, they were not. When consumers were 
exiting forbearances, servicers sent consumers paperwork allowing them 
to accept a deferral offer by making a payment. The specified payment 
amounts were often higher than the consumers' previous monthly payments 
because of updated escrow payments. When consumers contacted servicer 
representatives to confirm the payment amount, the representatives 
expressly represented that consumers' old monthly payment amounts 
(which were less than the amounts presented in the letters) were 
sufficient to accept the offer, when in fact, payment of these amounts 
would not constitute

[[Page 72457]]

acceptance. It was reasonable for consumers to conclude that servicer 
representatives would provide accurate information about the payment 
amount necessary to accept the deferrals. These misrepresentations were 
material because borrowers acted on them to accept the deferral offers, 
and they led to improper charges and other negative consequences, 
precisely the outcome borrowers acted to avoid when contacting servicer 
representatives.
    In response to these findings, servicers agreed to remediate 
consumers for late charges and improve their training for customer 
service representatives handling loss mitigation issues.

2.7.5 Failing To Evaluate Consumers for All Loss Mitigation Options and 
Provide Accurate Information

    Regulation X \57\ requires servicers to maintain policies and 
procedures that are reasonably designed to achieve the objectives in 12 
CFR 1024.38(b). Commentary to Regulation X clarifies that 
``procedures'' refers to the actual practices followed by the 
servicer.\58\ Under Regulation X,\59\ servicers are required to have 
certain policies and procedures concerning properly evaluating loss 
mitigation applications. Specifically, servicers' policies and 
procedures must be reasonably designed to ensure that servicers can 
provide borrowers with accurate information regarding available loss 
mitigation options and properly evaluate borrowers who submit 
applications for all available loss mitigation options that they may be 
eligible for.\60\
---------------------------------------------------------------------------

    \57\ 12 CFR 1024.38(a).
    \58\ 12 CFR 1024.38(a)-comment 2.
    \59\ 12 CFR 1024.38(b)(2).
    \60\ 12 CFR 1024.38(b)(2)(i), (v).
---------------------------------------------------------------------------

    Examiners found that some servicers violated Regulation X when they 
failed to maintain policies and procedures reasonably designed to 
achieve the objective of properly evaluating loss mitigation 
applications.\61\ For example, servicers' policies and procedures were 
not reasonably designed to inform consumers of all available loss 
mitigation options, which resulted in some consumers not receiving 
information about options, such as deferral, when exiting forbearances. 
Additionally, servicers' policies and procedures were not reasonably 
designed to properly evaluate consumers for all available loss 
mitigation options, resulting in improper denial of deferral options.
---------------------------------------------------------------------------

    \61\ 12 CFR 1024.38(b)(2)(i) & (v).
---------------------------------------------------------------------------

2.8 Payday Lending

2.8.1 Order Violations

    Examiners found lenders failed to maintain records of call 
recordings necessary to demonstrate full compliance with conduct 
provisions in consent orders generally prohibiting certain 
misrepresentations. Consent order provisions required creation and 
retention of all documents and records necessary to demonstrate full 
compliance with all provisions of the consent orders. Failure to 
maintain records of such call recordings violated the consent orders 
and Federal consumer financial law. To facilitate supervision for 
compliance with the consent orders, Supervision directed the lenders to 
create and retain records sufficient to capture relevant telephonic 
communications.

3. Supervisory Program Developments

3.1 Recent Bureau Supervision Program Developments

    Set forth below are statements, circulars, advisory opinions, and 
rules that have been issued since the last regular edition of 
Supervisory Highlights.

3.1.1 CFPB Issues Circular--Adverse Action Notification Requirements in 
Connection With Credit Decisions Based on Complex Algorithms

    On May 26, 2022, the CFPB confirmed in a circular \62\ that the 
Equal Credit Opportunity Act and Regulation B require companies to 
explain to applicants the specific reasons for denying an application 
for credit or taking other adverse actions, even if the creditor is 
relying on credit models using complex algorithms.
---------------------------------------------------------------------------

    \62\ The circular is available at: https://www.consumerfinance.gov/compliance/circulars/circular-2022-03-adverse-action-notification-requirements-in-connection-with-credit-decisions-based-on-complex-algorithms/.
---------------------------------------------------------------------------

3.1.2 Prohibition on Inclusion of Adverse Information in Consumer 
Reports for Victims of Human Trafficking

    On June 24, 2022, the CFPB amended Regulation V, which implements 
the FCRA, to address recent legislation that assists consumers who are 
victims of trafficking.\63\ This final rule establishes a method for a 
victim of trafficking to submit documentation to consumer reporting 
agencies, including information identifying any adverse item of 
information about the consumer that resulted from certain types of 
human trafficking, and prohibits the consumer reporting agencies from 
furnishing a consumer report containing the adverse item(s) of 
information. The Bureau is taking this action as mandated by the 
National Defense Authorization Act for Fiscal Year 2022 to assist 
consumers who are victims of trafficking in building or rebuilding 
financial stability and personal independence.
---------------------------------------------------------------------------

    \63\ The final rule is available at: https://files.consumerfinance.gov/f/documents/cfpb_fcra-trafficking_final-rule_2022-06.pdf.
---------------------------------------------------------------------------

3.1.3 Advisory Opinion on Debt Collectors' Collection of Pay-To-Pay 
Fees

    On June 29, 2022, CFPB issued an advisory opinion \64\ to affirm 
that the FDCPA and Regulation F prohibit debt collectors from charging 
consumers pay-to-pay fees (also known as convenience fees) for making 
payment a particular way, such as by telephone or online, unless those 
fees are expressly authorized by the underlying agreement or are 
affirmatively permitted by law.
---------------------------------------------------------------------------

    \64\ The advisory opinion is available at: https://www.consumerfinance.gov/rules-policy/final-rules/advisory-opinion-on-debt-collectors-collection-of-pay-to-pay-fees/.
---------------------------------------------------------------------------

3.1.4 CFPB Issues Advisory To Protect Privacy When Companies Compile 
Personal Data

    On July 7, 2022, the CFPB issued an advisory opinion \65\ to ensure 
that companies that use and share credit reports and background reports 
have a permissible purpose under the FCRA. The CFPB's new advisory 
opinion makes clear that credit reporting companies and users of credit 
reports have specific obligations to protect the public's data privacy 
and affirms that a consumer reporting agency may not provide a consumer 
report to a user under FCRA section 604(a)(3) unless it has reason to 
believe that all of the consumer report information it includes 
pertains to the consumer who is the subject of the user's request. The 
advisory also reminds covered entities of potential criminal liability 
for certain misconduct.
---------------------------------------------------------------------------

    \65\ The advisory opinion is available at: https://www.consumerfinance.gov/rules-policy/final-rules/fair-credit-reporting-permissible-purposes-for-furnishing-using-and-obtaining-consumer-reports/.
---------------------------------------------------------------------------

3.1.5 CFPB Issues Circular on Insufficient Data Protection or Security 
for Sensitive Consumer Information

    On August 11, 2022, the CFPB confirmed in a circular \66\ that 
financial companies may violate Federal

[[Page 72458]]

consumer financial protection law when they fail to safeguard consumer 
data.
---------------------------------------------------------------------------

    \66\ The circular is available at: https://www.consumerfinance.gov/compliance/circulars/circular-2022-04-insufficient-data-protection-or-security-for-sensitive-consumer-information/.
---------------------------------------------------------------------------

3.1.6 CFPB Issues Circular on Debt Collection Credit Reporting 
Practices Involving Invalid Nursing Home Debts

    On September 8, 2022, the CFPB issued a circular \67\ confirming 
that debt collection and consumer reporting practices related to 
nursing home debts that are invalid under the Nursing Home Reform Act, 
can violate the FDCPA and the FCRA.
---------------------------------------------------------------------------

    \67\ The circular is available at: https://www.consumerfinance.gov/compliance/circulars/circular-2022-05-debt-collection-and-consumer-reporting-practices-involving-invalid-nursing-home-debts/.
---------------------------------------------------------------------------

3.1.7 Advisory Opinion on Fair Credit Reporting; Facially False Data

    On October 20, 2022, the CFPB issued an advisory opinion \68\ to 
highlight that a consumer reporting agency that does not implement 
reasonable internal controls to prevent the inclusion of facially false 
data, including logically inconsistent information, in consumer reports 
it prepares is not using reasonable procedures to assure maximum 
possible accuracy under section 607(b) of the FCRA.
---------------------------------------------------------------------------

    \68\ The advisory opinion is available at: https://files.consumerfinance.gov/f/documents/cfpb_fair-credit-reporting-facially-false-data_advisory-opinion_2022-10.pdf.
---------------------------------------------------------------------------

3.1.8 CFPB Issues Circular on Overdraft Fee Assessment Practices

    On October 26, 2022, the CFPB issued a circular \69\ about 
overdraft-related fee practices that are likely unfair under existing 
law. The circular highlighted financial institution practices regarding 
unanticipated overdraft fees and provided some examples of those 
practices that might trigger liability. While not an exhaustive list, 
these examples concerned ``authorize positive, settle negative'' 
transactions.
---------------------------------------------------------------------------

    \69\ The circular is available at: https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2022-06-unanticipated-overdraft-fee-assessment-practices/.
---------------------------------------------------------------------------

3.1.9 CFPB Issues Bulletin Regarding Unfair Returned Deposited Item Fee 
Assessment Practices

    On October 26, 2022, the CFPB issued a bulletin \70\ stating that 
blanket policies of charging returned deposited item fees to consumers 
for all returned transactions irrespective of the circumstances or 
patterns of behavior on the account are likely unfair under the CFPA.
---------------------------------------------------------------------------

    \70\ The bulletin is available at: https://files.consumerfinance.gov/f/documents/cfpb_returned-deposited-item-fee-assessment-practice_compliance-bulletin_2022-10.pdf.
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3.1.10 CFPB Issues FCRA Dispute Resolution Circular

    On November 10, 2022, the CFPB issued a circular \71\ to affirm 
that neither consumer reporting companies nor information furnishers 
can skirt dispute investigation requirements under the FCRA. The 
circular affirms that consumer reporting companies and furnishers are 
not permitted under the FCRA to impose obstacles that deter submission 
of disputes and that consumer reporting companies must promptly provide 
to the furnisher all relevant information regarding the dispute that 
the consumer reporting agency receives from the consumer.
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    \71\ The circular is available at: https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2022-07-reasonable-investigation-of-consumer-reporting-disputes/.
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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 Regions Bank

    On September 28, 2022, the CFPB ordered Regions Bank to pay $50 
million into the CFPB's victims relief fund and to refund at least $141 
million to consumers harmed by its illegal surprise overdraft fees.\72\ 
Until July 2021, Regions charged customers surprise overdraft fees on 
certain ATM withdrawals and debit card purchases. The bank charged 
overdraft fees even after telling consumers they had sufficient funds 
at the time of the transactions. The CFPB also found that Regions Bank 
leadership knew about and could have discontinued its surprise 
overdraft fee practices years earlier, but they chose to wait while 
Regions pursued changes that would generate new fee revenue to make up 
for ending the illegal fees.
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    \72\ The consent order is available at: https://files.consumerfinance.gov/f/documents/cfpb_Regions_Bank-_Consent-Order_2022-09.pdf.
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    This is not the first time Regions Bank has been caught engaging in 
illegal overdraft abuses. In 2015, the CFPB found that Regions had 
charged $49 million in unlawful overdraft fees and ordered Regions to 
make sure that the fees had been fully refunded and pay a $7.5 million 
penalty for charging overdraft fees to consumers who had not opted into 
overdraft protection and to consumers who had been told they would not 
be charged overdraft fees.\73\
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    \73\ The consent order is available at: https://files.consumerfinance.gov/f/201504_cfpb_consent-order_regions-bank.pdf.
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4.1.2 Trident Mortgage Company, LP

    On July 27, 2022, the CFPB and U.S. Department of Justice (DOJ) 
took action to end Trident Mortgage Company's intentional 
discrimination against families living in majority-minority 
neighborhoods in the greater Philadelphia area. The CFPB and DOJ allege 
Trident redlined majority-minority neighborhoods through its marketing, 
sales, and hiring actions. Specifically, Trident's actions discouraged 
prospective applicants from applying for mortgage and refinance loans 
in the greater Philadelphia area's majority-minority neighborhoods. On 
September 14, 2022, the court entered the consent order \74\ that, 
among other things, requires Trident to pay a $4 million civil penalty 
to the CFPB to use for the CFPB's victims' relief fund. The Attorneys 
General of Pennsylvania, New Jersey, and Delaware also finalized 
concurrent actions.
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    \74\ The consent order is available at: https://files.consumerfinance.gov/f/documents/cfpb_trident-consent-order_2022-09.pdf.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-25733 Filed 11-23-22; 8:45 am]
BILLING CODE 4810-AM-P