CFPB’s Winter 2020 Supervisory Highlights Focus Includes Mortgage Servicing, Others

The Consumer Financial Protection Bureau recently released its Winter 2020 Supervisory Highlights.  The report covers examination findings relating to debt collection, mortgage servicing, payday lending, and student loan servicing exams completed between April 2019 and August 2019. The CFPB periodically releases these reports to share key examination findings, not to create any new legal requirements.   

Debt Collection

The CFPB focused on two violations of the Fair Debt Collection Practices Act.

·       In the first violation, one or more debt collectors failed to disclose that communications after initial written communications were also from a debt collector. 

·       In the second violation, the CFPB found that one or more debt collectors failed to send a written validation notice within five days after the initial communication with the consumer. 

In response to these findings, debt collectors revised their policies and procedures, monitoring and/or audit programs, and training programs.

Mortgage Servicing and Loss Mitigation

The Bureau identified issues with loss mitigation processes in mortgage servicers, particularly within those attempting to deal with a surge in loss mitigation applications that resulted from a natural disaster.

·       The Bureau found that servicers had violated Regulation X by failing to provide a written acknowledgement of whether a consumer’s loss mitigation application was complete or incomplete within the required five days.

·       Regulation X also requires servicers to notify consumers of the determination of loss mitigation options within 30 days of receiving a complete loss mitigation application.  The Bureau found that servicers failed to meet this requirement in one or more situations.

·       Finally, Regulation X distinguishes between short-term and long-term loss mitigation options.  If a loss mitigation application is incomplete, servicers may offer a short-term option (e.g., short-term forbearance or repayment plan) while continuing to exercise reasonable diligence in obtaining documents required for longer-term options that may be available.  In the interest of helping customers recover from disasters, servicers were granting short-term forbearance to consumers based on phone conversations.  However, these forbearances constituted short-term loss mitigation options and the servicers were required to follow-up and explore long-term options that might suit the customer. 

In all these examples, given that the alleged failures were a result of a natural disaster that created a surge in volume, and in the last instance because the servicer was trying to address borrower needs, the Bureau did not issue any ‘matters requiring attention’ but rather worked with servicers to develop plans to increase staffing in future disaster scenarios. 

Payday Lending

Examination findings included several violations of Regulation Z, Regulation B and unfair acts or practices.

·       One or more payday lenders allegedly violated the prohibition on unfair acts or practices by failing to apply borrower payments appropriately.  Examiners found that, under certain circumstances, borrower payments were being processed but not applied to the underlying loans, leading to excess interest charges.  

·       Regulation Z requires that a lender disclose the annual percentage rate accurately.  The Bureau found that one or more payday lenders employees incorrectly computed APR, and required additional employee training.

·       The CFPB also found that some payday lenders failed to include finance charges in the calculation of APR as required by Regulation Z.  Specifically, consumers who were refinancing delinquent loans were charged a loan renewal fee that was not properly included in the APR calculation and disclosed to consumers. These lenders were required to refund the fee and improve their policies, procedures and training.

·       Regulation Z also requires lenders to retain evidence of compliance for two years. One or more lenders were unable to provide such evidence to the Bureau.  In response, the lenders developed a record retention program.

·       Regulation B requires that adverse action notices be provided to consumers that state the principal reasons for the adverse action.  One or more payday lenders allegedly provided customers with adverse action notices that stated incorrect reasons for the adverse actions, in some cases due to coding errors.  Lenders remediated by sending accurate adverse action notices and making changes to underlying systems. 

·       Finally, the Bureau found that one or more lenders were charging fees to settle a delinquent loan. The fee was not authorized by lender’s loan contract and was often incorrectly described as a court cost.  The Bureau found these fees to constitute an unfair practice and required lenders to refund the fees and make changes to their compliance management system.

Student Loan Servicing

·       Examiners found that student loan servicers were sending out statements with incorrect monthly payment amounts and requiring borrowers to pay these amounts.  For consumers enrolled in automatic debit, these amounts were automatically deducted from their accounts.  The Bureau found this to be an unfair practice and required the servicers to remediate consumers and implement new processes

The entire report can be found here: https://files.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-21_2020-02.pdf.

Garris Horn frequently provides guidance on CFPB issues, including assisting with examinations and defending against enforcement actions.  For more information on the supervisory highlights or related matters, contact Troy Garris directly at 301-461-8952 or troy@garrishorn.com.