[Federal Register Volume 86, Number 16 (Wednesday, January 27, 2021)]
[Notices]
[Pages 7271-7280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01601]


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BUREAU OF CONSUMER FINANCIAL PROTECTION


Supervisory Highlights, Covid-19 Prioritized Assessments Special 
Edition, Issue 23 (Winter 2021)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Supervisory Highlights.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
issuing its twenty-third edition of Supervisory Highlights. This is a 
special edition of Supervisory Highlights that details the Bureau's 
Prioritized Assessment (PA) work. PA observations are described in the 
areas of mortgage, auto and student loan servicing, credit card account 
management, consumer reporting-furnishing, debt collection, deposits, 
prepaid cards, and small business lending. The report does not impose 
any new or different legal requirements, and all observations described 
in the report are based only on those specific facts and circumstances 
noted during those PAs.

DATES: The Bureau released this edition of the Supervisory Highlights 
on its website on January 19, 2021.

FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Counsel, at (202) 435-
7449. If you require this document in an alternative electronic format, 
please contact <a href="/cdn-cgi/l/email-protection#e6a5a0b6a4b9a785858395958f848f8a8f929fa685809684c8818990"><span class="__cf_email__" data-cfemail="23606573617c6240404650504a414a4f4a575a63404553410d444c55">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 

[[Page 7272]]

1. Introduction

    The Bureau is publishing this Special Edition of Supervisory 
Highlights to inform the public of observations in its prioritized 
assessment (PA) supervisory work conducted last year after the sudden 
onset of the COVID-19 pandemic. PAs focused on assessing risks to 
consumers resulting from the pandemic.

1.1 Background

    The COVID-19 pandemic had immediate and broad implications for 
Bureau-supervised entities. In a very short period of time, entities 
needed to adapt to a number of operational challenges, which included 
State stay-at-home orders, staffing shortages, transition to partial or 
total remote work, and business closures.
    COVID-19 also deeply impacted consumers. Within three months of the 
pandemic's start, the unemployment rate jumped to over 11 percent \1\ 
and a significant number of consumers sought unemployment benefits. 
With large income losses, many households struggled to meet their 
credit obligations. In the early days of the pandemic, consumer 
requests for accommodations skyrocketed.
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    \1\ U.S. Department of Labor. July 17, 2020. Economics News 
Release: Employment Situation Summary, available at: https://www.bls.gov/news.release/archives/laus_07172020.pdf.
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    On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and 
Economic Security Act (the CARES Act),\2\ which included a temporary 
small business lending program known as the Paycheck Protection Program 
(PPP). It also amended certain provisions of the Fair Credit Reporting 
Act (FCRA) and established protections for consumers including 
homeowners and student loan borrowers. Institutions had to quickly 
implement the applicable CARES Act provisions.
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    \2\ Coronavirus Aid, Relief, and Economic Security Act, Public 
Law 116-136, 134 stat. 281 (March 27, 2020).
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    The Bureau recognized the challenges posed by the pandemic and 
encouraged supervised entities to focus on assisting consumers. The 
Bureau issued a number of statements that provided entities with 
temporary regulatory relief. The Bureau also announced that, in certain 
instances, the Bureau would take a flexible supervisory and enforcement 
approach during the pandemic. For more information about these 
statements please visit the Bureau's website at https://www.consumerfinance.gov/compliance/supervisory-guidance/.

1.2 Prioritized Assessments

    In May of 2020, the Bureau rescheduled about half of its planned 
examination work and instead conducted PAs in response to the pandemic. 
PAs were higher-level inquiries than traditional examinations. They 
were designed to obtain real-time information from a broad group of 
supervised entities that operate in markets posing elevated risk of 
consumer harm due to pandemic-related issues.
    The Bureau, through its supervision program, analyzed pandemic-
related market developments to determine where issues were most likely 
to pose risk to consumers. The Bureau also prioritized markets where 
Congress provided special provisions in the CARES Act to help 
consumers.
    The Bureau sent targeted information requests to a significant 
number of entities to obtain information necessary to assess risk of 
consumer harm and violation of Federal consumer financial law. Each 
targeted information request was specific to the product market, that 
market's attendant risks to consumers, and the institution. The 
targeted information requests focused on a short period of time, 
generally from early May 2020 through September 2020.
    Typically, targeted information requests sought, as applicable:
    <bullet> Information on how the institution was assisting 
consumers;
    <bullet> challenges the institution was facing as a result of the 
COVID-19 pandemic;
    <bullet> changes the institution made to its compliance management 
system (CMS) in response to the pandemic;
    <bullet> information about the institution's relevant 
communications with consumers;
    <bullet> basic data regarding the institution's response to the 
COVID-19 pandemic; and
    <bullet> information about service providers.
    PAs were not designed to identify violations of Federal consumer 
financial law, but rather to spot and assess risks and communicate 
these risks to supervised entities so that they could be addressed to 
prevent consumer harm. The Bureau sent close-out letters to entities 
that detailed any observed risks and contained supervisory 
recommendations, if applicable. The Bureau will be following up on 
risks identified while conducting PAs in the normal course of the 
Bureau's supervisory work.

2. General Observations

    Many entities offered accommodations to consumers that experienced 
pandemic-related hardships. The CARES Act mandated forbearance options 
on federally backed mortgages and placed most student loans owned by 
the Department of Education into forbearance, and mandated zero 
interest accrual for all federally owned student loans. Even where not 
legally required, many entities also offered accommodations, including 
expanded payment assistance programs and fee waivers. For example, many 
auto servicers offered six-month payment deferrals to any consumer with 
a COVID-19 hardship, and many credit card issuers also offered 
deferrals that ranged from one to six months.
    Some Bureau-supervised entities struggled to adjust to the rapid 
changes brought on by the pandemic. Many institutions experienced 
increased call volumes from consumers requesting relief or disputing 
charges, with corresponding increases in hold times for many consumers. 
For some entities, the combination of rapid program implementation and 
operational challenges resulted in elevated risk of consumer harm. For 
example, several entities experienced a backlog of accommodation 
requests or provided inaccurate information to consumers about the 
accommodations they offered.
    Other risks observed by Bureau examiners ranged from inaccurate 
credit reporting to failure to send out timely disclosures. In many 
cases, staffing shortages or inaccurate training materials led to these 
issues.
    Many institutions created COVID-19 response teams to identify and 
address consumer and industry challenges caused by the pandemic. Many 
entities engaged in robust monitoring of key processes, leading them to 
self-identify issues and implement corrective actions where needed. 
Other entities made changes in response to risks that Bureau examiners 
observed. Commonly seen changes made by institutions included:
    <bullet> Providing consumer remediation;
    <bullet> reversing fees;
    <bullet> updating scripts to provide accurate information to 
consumers;
    <bullet> transitioning from manual to automated processes;
    <bullet> correcting inaccurate credit reporting; and
    <bullet> correcting account histories.
    Some entities also increased staffing to clear backlogs and to 
address increased demand for accommodations.

3. Supervisory Observations

    Specific PA observations are described in this report in the areas 
of mortgage, auto and student loan servicing, credit card account 
management, consumer reporting-

[[Page 7273]]

furnishing, debt collection, deposits, prepaid cards, and small 
business lending.\3\
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    \3\ This document does not impose any new or different legal 
requirements. In addition, the risks described in this issue of 
Supervisory Highlights are based on the particular facts and 
circumstances reviewed by the Bureau as part of its PA work. A 
conclusion that elevated risk to consumers exists is based on the 
facts and circumstances described here and may not lead to such a 
finding under different facts and circumstances.
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3.1 Mortgage Servicing

Market Response to Consumers & Industry Challenges
    The CARES Act established certain protections for homeowners. For 
example, for borrowers with federally backed mortgages, borrowers have 
the right to request and obtain forbearance for up to 180 days and to 
request and obtain an extension for another 180 days (for a total of 
360 days). Since March 2020, millions of borrowers have sought payment 
relief options and enrolled in CARES Act forbearances.\4\
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    \4\ According to the Mortgage Bankers Association, an estimated 
2.7 million borrowers were in forbearance plans as of December 2020. 
Mortgage Bankers Association. December 21, 2020. MBA: Share of 
Mortgage Loans in Forbearance Increases to 5.49 Percent, available 
at: https://www.mba.org/2020-press-releases/december/share-of-mortgage-loans-in-forbearance-increases-to-549-percent.
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    Servicers faced a number of significant challenges. Beginning in 
March 2020, they had to quickly implement the CARES Act and make other 
operational changes in light of evolving investor guidance. Servicers 
reported taking a variety of steps to address issues related to the 
pandemic and enroll borrowers into CARES Act forbearances. Many 
servicers reported operational constraints, resource burdens, and 
service interruptions. Many servicers also moved employees from other 
duties to respond to forbearance requests. Some servicers reported 
disruptions to normal CMS and monitoring processes.
Consumer Risk
    Examiners' review of mortgage servicers' PA responses indicated 
several issues that raise the risk of consumer harm. Some categories of 
issues are described below.
Providing Incomplete or Inaccurate Information to Consumers About 
Forbearance
    Several servicers provided incomplete or inaccurate information to 
consumers regarding CARES Act forbearances. These issues present a 
range of potential risks of consumer harm, such as dissuading borrowers 
from requesting a forbearance and causing borrowers to pursue other 
options that may be less favorable to them than forbearance. Examiners 
observed instances of the following:
    <bullet> Customer service representatives provided inaccurate 
information regarding forbearances, including the available period for 
CARES Act forbearances and the interest accrued or amounts owed. 
Servicers told some borrowers that ``lump sum'' payment of all missed 
monthly payments would be required at the end of the forbearance 
period, when in fact that was not correct.
    <bullet> Representatives indicated that only delinquent borrowers 
could qualify for a forbearance, contrary to the CARES Act.\5\ As a 
result, representatives instructed some current borrowers to call back 
to request forbearance only after they had failed to make an on-time 
monthly payment.
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    \5\ The CARES Act states that borrowers may request forbearance 
``regardless of delinquency status.'' See CARES Act, section 
4022(b)(1).
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    <bullet> Written materials, such as forbearance approval letters 
and customer service websites, included inaccurate or potentially 
misleading information regarding CARES Act forbearance. For example, 
one servicer suggested that consumers had to pay a fee to receive a 
forbearance and another provided incorrect due dates for the borrower's 
next payment.
    <bullet> A servicer sent borrowers requesting CARES Act 
forbearances written agreements purporting to require a signature as a 
condition of enrollment and stating that payments would be due later 
that month, when in fact they would not be due for 90 or 180 days. The 
CARES Act requires only that borrowers request a forbearance and attest 
to a financial hardship due to the pandemic to qualify.
Sending Collections and Default Notices, Assessing Late Fees, and 
Initiating Foreclosures for Borrowers Enrolled in Forbearance
    Several servicers took actions on borrowers' accounts that were 
erroneous or inconsistent with the fact that borrowers were enrolled in 
CARES Act forbearances. These issues present risks of direct financial 
harm and significant confusion for borrowers who were enrolled in 
forbearances. For example, some servicers sent automated collection 
notices to borrowers in CARES Act forbearances indicating that their 
accounts were past due, and that negative reporting and late fees could 
result. While collection notices may be required for FHA loans by 
regulation under some circumstances, they are not required for other 
loans and may result in confusion for consumers enrolled in CARES Act 
forbearances. In other cases, system issues resulted in erroneous late 
fees and default notices for borrowers enrolled in forbearances. 
Examiners also identified one servicer that erroneously initiated 
foreclosure actions in violation of the CARES Act's moratorium on 
foreclosures and assessed related fees on borrowers in the early weeks 
of the pandemic.\6\
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    \6\ The CARES Act placed a moratorium on certain foreclosures. 
See CARES Act, section 4022.
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Cancelling or Providing Inaccurate Information About Borrowers' 
Preauthorized Electronic Funds Transfers
    Several servicers provided inaccurate information or took actions 
concerning borrowers' preauthorized electronic funds transfers without 
their knowledge or consent. These issues can result in inadvertent 
missed payments and other negative consequences for consumers.
    Due to manual data entry errors, representatives at one servicer 
cancelled borrowers' preauthorized electronic funds transfers when they 
inquired about forbearance options over the phone. In addition, at 
other servicers, representatives provided inaccurate information to 
borrowers by stating that they did not need to take steps to cancel 
their preauthorized electronic fund transfers when they enrolled in 
forbearance, when in fact they did.
Failing To Timely Process Forbearance Requests
    Many servicers experienced delays in processing forbearance 
requests in the early months of the pandemic. These delays were 
generally brief. However, a few servicers experienced more serious 
delays or failed to process forbearance requests. As a result, this 
issue presents a risk to consumers who do not timely receive the 
benefit of a requested forbearance and experience negative 
consequences, such as missed payments and negative credit reporting. 
For example, representatives processing borrower requests for 
forbearance incorrectly used a code indicating only that the borrowers 
inquired about forbearance, and no forbearance was processed.
Enrolling Borrowers in Automatic or Unwanted Forbearances
    Many servicers enrolled borrowers in automatic or unwanted 
forbearances. Examiners observed the following:
    <bullet> Certain servicers did not effectively communicate to 
borrowers that they were applying for a forbearance. In some cases, 
borrowers believed that they were

[[Page 7274]]

simply reviewing information regarding forbearance on the servicers' 
website or discussing a financial hardship with representatives on the 
phone. Those borrowers did not understand that they had applied for, or 
that the servicer would process, a forbearance.
    <bullet> Certain representatives used incorrect system codes that 
placed borrowers' accounts into forbearances that they did not request.
    <bullet> Certain servicers automatically placed borrowers' accounts 
into forbearance without their knowledge or approval. When borrowers 
with multiple loan accounts applied for forbearance on one account, 
some servicers automatically applied the forbearance to some or all of 
the borrowers' other accounts. One servicer automatically converted in-
process loan modification applications into forbearances without 
borrowers' consent.\7\
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    \7\ One servicer informed examiners that automatic forbearances 
were intended to allow borrowers to avoid the need to separately 
request forbearance on other loan accounts. However, examiners 
observed that a significant number of consumers enrolled in 
automatic forbearances called or submitted complaints seeking 
removal from forbearance.
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    <bullet> Several servicers acknowledged that, when accounts were 
placed in forbearance without borrowers' request or approval, the 
servicers then furnished information to consumer reporting companies 
(CRCs) \8\ indicating that the accounts had been placed in forbearance.
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    \8\ 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).
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Loss Mitigation Process Deficiencies
    Some servicers did not take appropriate steps relating to loss 
mitigation for borrowers in CARES Act forbearances. The risks to 
consumers from these issues include missed opportunities to pursue and 
enroll in appropriate repayment options or plans. Issues observed 
include:
    <bullet> One servicer enrolled borrowers who submitted incomplete 
loss mitigation applications in CARES Act forbearances and 
appropriately sent acknowledgement letters to these borrowers but 
failed to include a statement that the consumer will be evaluated for 
all options upon submitting a completed loss mitigation application, as 
required by Regulation X.
    <bullet> One servicer had no process in place to evaluate whether 
borrowers who submitted complete loss mitigation applications qualified 
for CARES Act forbearances because they were experiencing a pandemic-
related hardship. Some borrowers were instead enrolled in forbearances 
that lacked CARES Act protections--such as a term up to 360 days and 
credit reporting protections. The servicer received complaints from 
borrowers who missed payments while in a loss mitigation process, when 
they likely could have been offered the protections of the CARES Act.

3.2 Auto Servicing

Market Response to Consumers & Industry Challenges
    Auto servicers reported large numbers of pandemic-related payment 
assistance requests beginning in early March 2020. Many servicers 
expanded existing payment assistance programs to help borrowers who 
were having trouble making payments. The changes included waiving late 
fees, permitting non-delinquent as well as delinquent borrower 
enrollments, and providing longer payment deferrals.
    The payment assistance programs generally offered loan payment 
deferment on a case-by-case basis, with most borrowers receiving a 
payment deferral period of three or more months. In the majority of 
cases, the payment deferments extended the loan term by the same number 
of months. Most servicers continued to charge interest during the 
deferral period.
    Servicers generally suspended repossessions between mid-March and 
early-May 2020, because State stay-at-home orders halted repossession 
efforts. While some states may have imposed repossession moratoria, 
there was no Federal moratorium.
Consumer Risk
    Examiners' review of auto loan servicers' PA responses indicated 
several issues that present risk of consumer harm, including the 
following:
    Many servicers provided information to consumers about the impact 
of interest accrual during deferment periods on the final loan payment 
amount that might not have been sufficiently precise for consumers to 
understand how much their payments would increase. For example, 
consumers who would face final payments that were more than double 
their regular payments may not have reasonably anticipated this result 
when servicers described the final payment as ``substantially larger 
than your regular monthly payment.'' More specific information about 
the final payment may allow consumers to budget and plan for future 
large payments and mitigate the risks that consumer could not make that 
payment. Servicers have various options to better disclose the long-
term payment obligations, such as estimating final payment amounts.
    Some servicers continued to withdraw funds for monthly payments 
after servicers had agreed to deferments. And some servicers failed to 
process certain payment assistance requests.
    One servicer sent borrowers notices warning them of possible 
repossession when, in fact, the servicers had suspended repossession 
operations during the relevant time period. This practice likely 
affected whether some borrowers, threatened by repossession, spent 
discretionary money on their car payments instead of other financial 
necessities during the pandemic.

3.3 Student Loan Servicing

Market Response to Consumers & Industry Challenges
    The CARES Act provided certain student loan borrowers with a range 
of protections. It temporarily reduced interest rates to zero for all 
federal loans owned by the U.S. Department of Education (ED) and 
suspended monthly payments for most of these loans. To facilitate the 
suspension, servicers placed most loans in repayment status into an 
administrative forbearance. In addition, the suspended monthly payments 
are considered eligible payments toward the total number of qualifying 
payments necessary for forgiveness under the Public Service Loan 
Forgiveness program and various income-driven repayment plans. 
Servicers reported that between March and May 2020 the number of 
delinquent accounts in the William D. Ford Federal Direct Loan Program 
(Direct loans) decreased from 1.9 million to fewer than 150 accounts.
    Many loan holders of commercial Federal Family Education Loan 
Program (FFELP) loans directed servicers to use the natural disaster 
forbearance provisions to provide payment relief for consumers impacted 
by the pandemic. These provisions did not provide the forgiveness or 
interest rate features of the CARES Act relief afforded to borrowers 
with Direct loans and ED-held FFELP loans.
    Private student loan holders and lenders managed the early response 
to the pandemic with a variety of different payment relief options. 
Certain private student loan holders relied on options provided in the 
terms of the original note like economic hardship or natural disaster 
forbearances. Still others

[[Page 7275]]

created new short-term payment relief options for consumers. Private 
loan forbearance options and implementation of FFELP disaster 
forbearance programs often evolved as the extent of the economic 
impacts from the pandemic became more apparent. In general, servicers 
did not require any documentation to enroll borrowers into COVID-19 
related forbearances. Between March and May 2020, servicers reported 
that the number of delinquent commercial FFELP and private student 
loans across all servicers reviewed fell from 270,000 to 146,000.
    Servicers faced a number of significant challenges. In March and 
April 2020, they quickly implemented the CARES Act for federally owned 
loans, identified and made available a variety of private and 
commercial FFELP payment relief options, and complied with local 
shelter-in-place or stay-at-home orders. Many servicers reported 
operational constraints and service interruptions, consistent with 
other servicing sectors. Finally, examiners observed that a large 
percentage of calls from commercial FFELP and private student loan 
borrowers related to the CARES Act even though they were not eligible 
for the benefits. For example, consumers often expressed confusion and 
frustration after receiving bills when they believed their loans should 
have been automatically placed into CARES Act forbearances. Other 
consumers inquired about how to enroll in the forbearances they heard 
about in the news.
Consumer Risk
    Examiners' review of student loan servicers' PA responses, which 
related to federal and private student loans, indicated several issues 
that raise the risk of consumer harm, described below.
    One servicer provided incorrect or incomplete information about 
available payment relief options in written communications to numerous 
consumers. For example, some borrowers received inaccurate notices 
indicating that interest would capitalize at the conclusion of the 
natural disaster forbearances when, in fact, it would not. In another 
instance, private student loan borrowers received notices suggesting 
that they were eligible for natural disaster forbearances with certain 
terms when, in fact, the borrowers receiving these notices were 
ineligible. In both of these situations the servicer sent written 
communications informing affected borrowers of the error.
    Multiple servicers failed to routinely discuss all available 
repayment options with borrowers requesting payment assistance. While 
borrowers were eligible to enroll in various forbearances in the wake 
of the COVID-19 pandemic, they have other options as well. For example, 
commercial FFELP borrowers are eligible for income-based repayment, 
which may be a better option for many borrowers. Additionally, private 
loan borrowers may also be eligible for non-standard repayment plans 
that can provide long-term payment relief. In these cases, consumers 
were never informed about alternative repayment options when they 
requested payment assistance.
    Operational challenges resulted in one servicer failing to maintain 
regular call center hours. While operational disruptions were common 
across the industry, during this period most call centers stayed open 
at least part of the time. The complete or partial closure of call 
centers created a range of problems for consumers who were unable to 
talk with representatives, particularly in connection with payment 
relief-specific guidance.
    One private loan holder was not responding to consumers' 
forbearance extension requests. Many loan holders authorize servicers 
to grant initial forbearances for consumers that call to request 
payment assistance. However, some loan holders require that servicers 
seek their approval for any forbearance extension. Examiners observed 
that thousands of extension requests were delayed and ultimately denied 
because the loan holder never responded. This challenge needlessly 
hinders consumers' abilities to make broader financial decisions and 
may cause certain consumers to believe the loan holder will evaluate 
the applications and that extensions are likely.
    One servicer provided inaccurate information related to the number 
of payments eligible for repayment, rehabilitation, or forgiveness 
programs. Unlike under most forbearances, months that federally owned 
loans are enrolled in the forbearance authorized by the CARES Act are 
considered eligible under a variety of programs. However, when 
providing information to consumers about the total number of eligible 
payments, one servicer failed to include these months in the count.
    Examiners observed some payment allocation errors when servicers 
applied voluntary payments to accounts enrolled in CARES Act 
forbearances. The servicers allow consumers to direct payments to 
individual loans within their accounts through individual instructions 
or standing orders. Many consumers use standing orders to establish a 
payment methodology that directs payments to loans with the highest 
interest rates. When consumers do not provide allocation instructions, 
servicers use their own default methodologies. Some servicers' default 
methodologies allocate payments based on the interest rates of the 
loans. The CARES Act stopped all interest accrual on loans owned by ED, 
and in these loans, some servicers failed to comply with allocation 
methodologies or instructions that relied on loan-level interest rates. 
In one situation, a servicer did not comply with consumers' standing 
payment instructions to allocate payments towards the highest interest 
rate loan first. Rather, representatives incorrectly used the CARES Act 
temporary interest rates and split payments evenly across the 
consumers' loans despite underlying differences in interest rates. 
While the error was not systematic in that case, if uncorrected, 
consumers' highest interest rate loans will not be paid down as much as 
they would be if servicers applied payments based on the permanent 
interest rate, so when payments and interest accrual resume, these 
borrowers would end up paying more over time.
    Some servicers failed to prevent preauthorized electronic funds 
transfers following forbearance approval for loans that are not 
federally owned. For example, due to manual errors, one servicer failed 
to timely enroll consumers in forbearances that they approved over 
phone calls and failed to cancel the relevant preauthorized fund 
transfers as well. In other examples, servicers failed to cancel 
preauthorized electronic funds transfers when consumers requested and 
were granted forbearances that halted all required payments.
    One servicer provided inaccurate information to consumers regarding 
the information required to evaluate forbearance applications for loans 
that are not federally owned. The servicer advised consumers that 
providing the date range related to the COVID-19 impact was acceptable. 
In fact, the servicer denied forbearance requests for consumers who 
provided date ranges rather than precise dates of COVID-19 impact.
    Certain servicers allow commercial FFELP consumers to enroll in 
natural disaster forbearances through their websites or automated phone 
systems. Examiners observed that one servicer failed to prevent certain 
ineligible borrowers in technical default (more than 270 days 
delinquent) from enrolling in forbearances. This resulted in the 
servicer confirming enrollment in forbearances that were not actually 
provided to consumers. Consumers may

[[Page 7276]]

have believed that they did not need to take any actions until the 
forbearance periods ended. However, these consumers in fact needed to 
make payments or, at a minimum, talk with representatives to resolve 
the issues.

3.4 Credit Card Account Management

Market Response to Consumers & Industry Challenges
    Credit card issuers generally provided some form of relief to 
consumers experiencing hardships as a result of the COVID-19 pandemic. 
The most common relief was allowing consumers to skip a payment or to 
defer payments for one to six months. While some issuers waived 
interest along with payment deferrals, interest continued to accrue on 
accounts at most issuers. Other relief options included lowered 
interest rates, waivers of annual and other fees, and extended deferred 
interest periods for credit card accounts that already had deferred 
interest on certain purchases. A few issuers made changes to manage 
credit risk. Some issuers tightened underwriting standards, stopped 
proactive score-based credit limit increases, reduced credit limits, or 
closed some accounts. Some issuers also halted marketing campaigns to 
acquire new accounts and paused direct marketing campaigns due to 
uncertainty in the market.
    Issuers generally experienced some operational challenges as a 
result of the COVID-19 pandemic, such as increased call volume. The 
compliance-related challenges included:
    <bullet> Difficulty in meeting written disclosure timing 
requirements; or obtaining necessary consumer consent for electronic 
disclosures (e.g., for change-in-terms letters and statement 
messaging);
    <bullet> Meeting regulatory requirements to address customer 
disputes, sometimes resulting from business partner and merchant 
closures; and
    <bullet> Adjustments in regular monitoring and testing schedules 
for credit card operations.
    In responding to challenges, some issuers deployed their existing 
disaster preparedness and business continuity management plans to 
address some of the operational challenges related to the COVID-19 
pandemic. However, several issuers had to modify existing programs and 
business line processes, and revise policies and procedures to respond 
to the unique operational challenges posed by the COVID-19 pandemic.
Consumer Risk
    Examiners' review of issuers' PA responses indicated several issues 
that raise the risk of consumer harm. These issues are described below.
Implementation and System Deficiencies
    Certain issuers reported problems implementing relief programs, and 
these problems may have caused consumer harm. These issuers relied on 
manual processes to handle high volumes of requests for relief and did 
not provide adequate employee training about relief programs.
    Some issuers that used manual processes to handle the high volumes 
of requests for relief reported significant backlogs in processing such 
requests. Due to these backlogs, accounts became delinquent between the 
time of consumers' requests for relief and the actual processing of 
requests, exposing consumers' accounts to potential negative credit 
reporting, charge-offs, or account closures.
    In some instances, consumers who requested relief were erroneously 
told that they would receive immediate relief as of the date of their 
request. In fact, these consumers would not receive relief until the 
consumer's request was manually entered into the issuer's system, which 
occurred days, or even weeks, later. In some cases, consumers were 
never manually enrolled in relief programs. Consequently, fees and 
interest that were supposed to be waived, along with the payment 
deferrals, were not waived.
    Some issuers also reported that employees provided inaccurate 
information to consumers in order to collect payments from them. For 
instance, representatives told consumers that they had to pay their 
past due amount to enroll in the payment deferment program when in 
fact, paying the past due amount was not a requirement for enrollment.
Auto Pay Process Deficiencies
    Several issuers advised consumers who requested to skip or defer 
credit card payments pursuant to a pandemic relief program that they 
must adjust or separately cancel any preauthorized credit card payments 
(including preauthorized transfers from an external financial 
institution) that were set up to make their periodic credit card 
payments. Examiners observed that the instructions given to consumers 
in certain cases, including going through additional steps to cancel or 
defer payments after completing the pandemic relief request process, 
posed a risk of consumer harm.
    Some issuers did not immediately suspend preauthorized transfers 
upon enrolling consumers in pandemic relief programs, despite making 
representations to consumers that payments would be suspended as of the 
date the consumer enrolled. Rather, the issuers' systems were 
programmed to suspend preauthorized transfers as of the date that the 
consumer's request for relief was manually processed by the issuer. 
Because of processing backlogs, suspension of transfers did not occur 
until several days or weeks after the consumer's oral request. Due to 
these processing backlogs, examiners observed that several consumers' 
accounts were debited in error.
Timing of Delivery of Disclosures
    At several issuers, some consumers who had not previously opted to 
receive electronic disclosures requested COVID-19 relief 
telephonically. For these consumers, the issuers had no practical way 
to provide written disclosures without delaying relief or obtaining the 
consumer's consent to electronic disclosure. Rather than delay relief, 
the issuers provided immediate relief to cardholders and delivered 
written disclosures by letter or statement notice.\9\
---------------------------------------------------------------------------

    \9\ CFPB. May 13, 2020. Open-End (not Home-Secured) Rules FAQs 
related to the Covid-19 Pandemic, available at: https://files.consumerfinance.gov/f/documents/cfpb_faqs_open-end-rules-covid-19_2020-05.pdf.
---------------------------------------------------------------------------

Billing Disputes
    Some issuers reported that they failed to resolve billing disputes 
by the regulatory deadline. This failure was attributed to the 
increased volume of error notices and merchant closures which increased 
the amount of time to investigate and resolve such errors.

3.5 Consumer Reporting and Furnishing

    Consumer reporting plays a critical role in consumers' financial 
lives. CRCs assemble or evaluate consumer information for the purpose 
of furnishing consumer reports to third parties. Such consumer reports 
can determine a consumer's eligibility for credit cards, car loans, and 
home mortgage loans--and they often affect how much a consumer is going 
to pay for that loan. Furnishers of information provide information to 
CRCs and thus play a crucial role in the accuracy and integrity of 
consumer reports. Inaccurate information on consumer reports can lead 
to market harm. For example, inaccurate information on a consumer 
report can impact a consumer's ability to obtain credit or open a new 
deposit or savings account. Moreover, furnishers have an important role 
when consumers dispute the accuracy of information in

[[Page 7277]]

their consumer reports. Consumers may dispute information that appears 
on their consumer report directly with furnishers (``direct disputes'') 
or indirectly through CRCs (``indirect disputes''). When CRCs and 
furnishers receive disputes, they are required to investigate the 
disputes to verify the accuracy of the information furnished.\10\ A 
timely and responsive reply to a consumer dispute may reduce the impact 
that inaccurate negative information in a consumer report may have on 
the consumer.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 1681i(a), 15 U.S.C. 1681s-2(a)(8), 15 U.S.C. 
1681s-2(b); 12 CFR 1022.43.
---------------------------------------------------------------------------

Market Response to Consumers & Industry Challenges
    The CARES Act amended Section 623(a)(1) of the FCRA (CARES Act FCRA 
amendment). This amendment applies if a furnisher makes an 
accommodation with respect to one or more payments on a credit 
obligation or account of a consumer, and the consumer makes the 
payments or is not required to make one or more payments pursuant to 
the accommodation. For accounts where the CARES Act FCRA amendment 
applies, if the credit obligation or account was current before the 
accommodation, during the accommodation the furnisher must continue to 
report the credit obligation or account as current. If the credit 
obligation or account was delinquent before the accommodation, during 
the accommodation the furnisher cannot advance the delinquent 
status.\11\ For more examples regarding the applicability of the CARES 
Act FCRA amendment, the Bureau has published detailed FAQs.\12\
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    \11\ CARES Act, Public Law 116-136, sec. 4201 (2020) (amending 
section 623(a)(1) of the FCRA subject to certain exceptions).
    \12\ CFPB. June 16, 2020. Consumer Reporting FAQs Related to the 
CARES Act and COVID-19 Pandemic, available at https://files.consumerfinance.gov/f/documents/cfpb_fcra_consumer-reporting-faqs-covid-19_2020-06.pdf.
---------------------------------------------------------------------------

    Furnishers and CRCs faced challenges in responding to the pandemic 
and the new requirements of the CARES Act FCRA amendment. Several 
furnishers and CRCs reported temporary staffing challenges that 
affected the entities' ability to complete reasonable dispute 
investigations within the time periods specified in the FCRA and 
Regulation V. Many furnishers also adapted to consumer need by offering 
new or expanded payment accommodations to consumers, which required 
changes in staffing to handle request volume. In light of the new 
statutory requirements for furnishing under the CARES Act FCRA 
amendment, these new or expanded accommodations also required that 
furnishers make changes in procedures to appropriately code accounts so 
that they would be furnished correctly according to the statute's new 
requirements. Notwithstanding these challenges, most CRCs and 
furnishers provided information indicating that they have adapted to 
meet their FCRA and Regulation V obligations. This is consistent with 
the findings of the CFPB's Office of Research that, in several credit 
markets including mortgage loans, auto loans, and student loans, the 
reported rate of new delinquencies, as well as the reported share of 
existing delinquencies that became more delinquent, decreased between 
March and June 2020.\13\
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    \13\ CFPB. August 31, 2020. The Early Effects of the COVID-19 
Pandemic on Consumer Credit, available at https://files.consumerfinance.gov/f/documents/cfpb_early-effects-covid-19-consumer-credit_issue-brief.pdf.
---------------------------------------------------------------------------

Consumer Risk
    Examiners' review of furnishers' and CRCs' PA responses indicated 
several issues that present risk of consumer harm.
Inaccurate Reporting of Accommodations
    Some entities furnished new and/or advancing delinquency 
information to CRCs after making an accommodation. As noted above, if a 
furnisher makes an accommodation, the furnisher must under certain 
conditions report the credit obligation or account as current, or if 
the credit obligation or account was delinquent before the 
accommodation, not advance the delinquent status during the period of 
the accommodation.\14\ Certain furnishers made accommodations, and 
communicated to the consumer that the accommodation had been made 
immediately after the consumer submitted the application. These 
furnishers then delayed processing accommodations due to backlogs 
created by the volume of accommodation requests. This resulted in: (i) 
Reporting some consumers who were current as delinquent, and then 
improperly advancing and reporting their incorrect delinquency status, 
or (ii) improperly advancing the delinquency status of other consumers 
who were delinquent at the time of the accommodation.
---------------------------------------------------------------------------

    \14\ CARES Act, Public Law 116-136, sec. 4201 (2020) (amending 
section 623(a)(1) of the FCRA).
---------------------------------------------------------------------------

Insufficient Furnishing Policies and Procedures
    Examiners observed that insufficient furnishing policies and 
procedures caused an entity to furnish inaccurate account information 
to CRCs related to the practice of home pickups of leased vehicles.
    Furnishers are required to ``establish and implement reasonable 
written policies and procedures regarding the accuracy and integrity of 
the information relating to consumers that it furnishes to a consumer 
reporting agency. The policies and procedures must be appropriate to 
the nature, size, complexity, and scope of each furnisher's 
activities.'' \15\
---------------------------------------------------------------------------

    \15\ Regulation V, 12 CFR 1022.42(a).
---------------------------------------------------------------------------

    An auto furnisher failed to update furnishing policies and 
procedures to address the furnisher's changed leased vehicle return 
practices. This caused the furnisher to erroneously report consumers as 
delinquent for leased vehicles that had, in fact, been returned. As a 
result of the pandemic, many auto dealerships were closed, so vehicles 
were picked up from consumers' homes. This created delays or errors in 
the processing of lease termination, causing auto furnishers to report 
accounts as delinquent even though consumers had returned their 
vehicles on time.
    After making changes to accommodation programs offered to consumers 
during the pandemic, a number of furnishers did not update their 
written policies and procedures regarding the accuracy and integrity of 
the information related to consumers that they furnish to CRCs. 
Accommodation programs offered by furnishers may affect how the 
furnishers report information about its accounts to CRCs. Accordingly, 
there is a risk of furnishing inconsistent with the CARES Act FCRA 
Amendment if furnishers have made changes to accommodation programs 
without updating related furnishing policies and procedures.
Untimely Dispute Investigations
    CRCs and furnishers are required to conduct an investigation with 
respect to the disputed information, review all relevant information 
provided by the consumers with the dispute, and respond with the 
results of the dispute investigation.\16\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 1681i(a), 15 U.S.C. 1681s-2(b)(1).
---------------------------------------------------------------------------

    In the second quarter of 2020, staffing challenges due to the 
pandemic impacted dispute investigation capacity at one or more 
furnishers and CRCs. As a result of these staffing challenges, some 
furnishers and CRCs were unable to timely conduct investigations of

[[Page 7278]]

disputed tradelines in the months of April and May. However, examiners 
observed data indicating that, by the end of June 2020, the average 
time to resolve disputes by furnishers had returned to the average time 
from prior years.
    Some CRCs and furnishers that experienced this problem in the 
Spring of 2020 took steps to reduce the risk of inaccurate consumer 
information caused by these staffing challenges. Specifically, these 
CRCs and furnishers continued to investigate the disputes and 
subsequently furnished updated or corrected information about such 
disputed items after completing their dispute investigations. CFPB 
Supervision is continuing to monitor dispute timeliness at CRCs and 
furnishers.

3.6 Debt Collection

Market Response to Consumers & Industry Challenges
    During the review period, some participants in the debt collection 
industry reported an increase in consumer contacts and payments, which 
several attributed to more consumers being at home, reduced spending, 
and the resources provided by pandemic assistance programs.
    Debt collectors altered their work practices in response to the 
pandemic to comply with State orders and reduce their employees' risk 
of infection. In general, collectors responding to the PAs indicated 
that they transitioned partially or entirely to remote work during the 
review period. Other workplace changes were reported, including the 
implementation of remote call-monitoring tools and modifications to 
telework policies.
    Some states instituted pandemic measures that impacted the debt 
collection industry and consumers. These measures include prohibitions 
on new wage garnishments or bank attachments, and a requirement that 
consumers be offered the option to defer scheduled payments.
Consumer Risk
    Examiners' review of debt collectors' PA responses indicated 
several issues that raise the risk of consumer harm, discussed below.
    In certain instances, there were delays in processing suspensions 
of administrative wage garnishments (AWG), followed by attempts by 
collectors to rectify the effects of those delays. Several servicers of 
commercially owned Federal student loans voluntarily suspended AWG 
collections. However, some employers did not promptly suspend 
garnishment of consumer wages. As a result, collectors made additional 
efforts to contact the employers and to provide refunds for wages 
garnished after the suspension.
    Examiners reviewed the potential for FDCPA compliance risks 
associated with new restrictions on wage garnishment and bank 
attachments. FDCPA violations can occur independent of whether State 
law has been violated. Nonetheless, when evaluating whether an action 
taken to enforce a judgment violates FDCPA section 808's prohibition of 
``unfair or unconscionable'' debt collection practices, one fact the 
Bureau may consider is whether applicable law permits resort to 
garnishment or attachment of a consumer's assets in a particular set of 
circumstances. Several State laws or regulations promulgated during the 
review period appear to prohibit debt collectors from imposing new 
attachments on bank accounts or new wage garnishments on employers. Of 
the examined debt collectors that engage in litigation and judgment 
enforcement activities, several voluntarily stopped imposing new bank 
attachments and/or wage garnishments during the review period. Due to 
significant complexities and a rapidly shifting landscape of State 
restrictions, continued litigation and judgment enforcement during the 
pandemic could still pose compliance risks and, as a result, risks to 
consumers.
    There were payment processing delays for some entities caused by 
the transition to remote work. Certain collectors experienced delays in 
processing payments that were sent by mail and received at a physical 
location which was temporarily inaccessible due to the pandemic. In 
those instances, examiners generally observed the entity retroactively 
posting payments effective on the date payment was delivered.

3.7 Deposits

Market Response to Consumers & Industry Challenges
    As part of the CARES Act, Congress authorized direct monetary 
payments, known as Economic Impact Payments (EIPs), to many consumers. 
The CARES Act also increased the amount of State unemployment insurance 
consumers might receive. Direct deposit was the primary method of 
distribution for EIPs. Direct deposit was and is a significant 
distribution method for State unemployment insurance benefits. Due to 
the economic hardship caused by the pandemic, consumers' ability to 
access these benefits was critical.
    Depository institutions responded to the challenges posed by the 
pandemic in several ways. Many institutions closed physical branch 
locations to protect the health of both their staff and customers. A 
number of institutions transitioned staff to remote work, increased 
call center staffing in order to deal with the influx of customer 
questions, and increased ATM deposit and withdrawal limits to maintain 
consumers' access to their funds.
    In response to the pandemic, a number of institutions activated 
their existing disaster relief programs. Numerous institutions made 
temporary changes to existing policies and procedures and documented 
those changes in informal documents, including job aids, playbooks, and 
FAQs issued to employees. A few institutions also made changes to 
formal policies and procedures. Whether through existing disaster 
relief programs, temporary changes, or formal policy and procedure 
updates, many institutions reported taking actions to reach out to 
consumers to offer assistance and provide resources in connection with 
pandemic-related hardships.
Consumer Risk
    Examiners' review of institutions' PA responses found several 
issues that elevate the risk of harm to consumers. The most commonly 
observed risks arose from the failure of institutions to fully 
implement the protections states put in place to protect consumers' 
access to the full amount of their government benefits, specifically 
EIPs and unemployment insurance benefits. Some states prohibited 
institutions from using EIPs or unemployment insurance benefits to 
cover charged-off loan obligations, fees owed to the institutions, or 
overdrawn account balances. Other states limited actions to garnish 
government benefits to satisfy judgments, attachments, or levies for 
third-party creditors.\17\ These State actions took a number of 
different forms, including executive orders, emergency legislation, 
court orders, and State attorney general guidance.
---------------------------------------------------------------------------

    \17\ The Coronavirus Response and Relief Supplemental 
Appropriation Act of 2021 provides many consumers with a second 
Economic Impact Payment. The legislation authorizing the payments 
directs financial institutions to treat these EIPs as exempt from 
garnishment orders.
---------------------------------------------------------------------------

    Many institutions sought to identify, analyze, and, as appropriate, 
ensure compliance with State measures that imposed legal obligations on 
the institutions. But based on the limited information obtained through 
the PAs, examiners could not determine that all the institutions 
identified and/or

[[Page 7279]]

analyzed compliance obligations under State laws with respect to 
exercising setoff rights and/or garnishing government benefits. Failure 
to properly identify, analyze, and, as applicable, comply with State 
actions poses a risk that consumers might be deprived of the full use 
of government benefits. Such a failure could, in turn, under certain 
circumstances, constitute an act or practice that violates Federal 
consumer financial law.
    For those institutions that did waive setoff rights in response to 
State actions discussed above or on their own initiative, other 
consumer risks were identified. Institutions used a variety of methods 
to waive setoff rights. These methods included refunding fees that 
contributed to a consumer's account being overdrawn, permanently 
forgiving overdrawn account balances, and issuing checks to consumers 
with overdrawn accounts for the full amount of their EIPs or protected 
unemployment insurance benefits. Institutions most frequently waived 
setoff rights through the issuance of provisional credits in the amount 
of the overdrawn account balances. These credits would then be revoked 
at a later date, potentially leaving some consumers with a negative 
account balance.
    Waiver of setoff rights allowed consumers access to the full amount 
of government benefits. At several institutions, examiners found risk 
when the institutions failed to clearly communicate to consumers how 
and when provisional credits would be revoked. This risk was 
exacerbated if the institutions lacked a clear policy preventing 
assessment of an overdraft fee when the revocation of provisional 
credit resulted in a negative account balance. Consumer complaints 
indicated confusion about the use and revocation of provisional 
credits. Examiners also observed a risk with respect to policies and 
procedures around the waiver or refund of account fees. In response to 
COVID-19, some institutions expanded existing account fee waiver or 
refund policies either through a blanket waiver or upon consumer 
request. These institutions informed consumers of the changes on their 
websites or via press releases. However, examiners observed a risk when 
the institutions failed to implement policies and procedures that 
clearly and consistently operationalized account fee waivers and 
refunds.

3.8 Prepaid Accounts

Market Response to Consumers & Industry Challenges
    Pandemic-related business closures led to millions of consumers 
receiving State unemployment insurance benefits. For a period of time, 
the CARES Act enhanced the amount of unemployment insurance benefits 
that consumers received. Many States issue prepaid cards as a method 
for disbursing unemployment insurance benefits. Aside from unemployment 
insurance benefits, some consumers received EIPs on prepaid cards. As a 
result, prepaid accounts experienced an unexpected spike in demand.
    This rapid growth caused issues related to transaction and 
maintenance fees, service availability, and continuity. The industry 
encountered difficulty in fully staffing call centers to quickly answer 
questions and resolve conflicts relating to the significant increase in 
volume and number of prepaid accounts. Although depository institutions 
issue prepaid accounts, they often contract with third-party service 
providers to assist in managing the accounts. The compliance 
infrastructure at these third parties is generally less mature, which 
exacerbates the potential for consumer harm caused by unforeseen 
changes in the prepaid marketplace.
Consumer Risk
    Prepaid account issuers generally made changes to address staffing 
challenges and operational difficulties caused by the COVID-19 pandemic 
and the significant rise in volume and number of accounts. Nonetheless, 
examiners highlighted a few key COVID-19 related risks with respect to 
issuers of unemployment insurance benefit prepaid accounts.
    Due to surge in demand, one institution lacked sufficient supply of 
the required disclosures and privacy notices and, rather than delay 
account access, mailed the prepaid account information to consumers 
without the required disclosures and privacy notices. To mitigate the 
lack of paper written disclosure, the institution included the address 
of a website where consumers could review the information online. The 
lack of paper disclosures presented a risk of harm as these consumers 
did not receive disclosures that included the terms of use and privacy 
notices as required by law.\18\ These required disclosures cover, among 
other things, the fee schedule and error resolution rights associated 
with the prepaid accounts. The institution addressed this issue by 
subsequently mailing the required disclosures and privacy notices to 
impacted consumers.
---------------------------------------------------------------------------

    \18\ Electronic Fund Transfer Act, 12 U.S.C. 1693 et seq.; 
Regulation E, 12 CFR 1005.15(c)(1); Regulation P, 12 CFR part 1016.
---------------------------------------------------------------------------

3.9 Small Business Lending

    The Bureau has supervisory authority over large insured depository 
institutions and insured credit unions, many of which have originated 
PPP loans. Consistent with its authority to ensure compliance with the 
Equal Credit Opportunity Act (ECOA), the Bureau conducted PAs to assess 
potential fair lending risks attendant to the institutions' 
participation in the program. Below are the supervisory observations 
resulting from these PAs.
Market Response to Consumers & Industry Challenges
    The COVID-19 pandemic had a swift and dramatic impact on small 
businesses. Many small businesses were forced to shut down temporarily 
or reduce operations in response to mandatory State and local stay-at-
home orders issued to reduce exposure to, and transmission of, COVID-
19. Small businesses also experienced a significant drop in demand for 
goods and services and disruptions in their supply chains. Because of 
these impacts, many small businesses experienced a sharp drop in 
revenue and increased economic stress.
    To address this problem, section 1102 of the CARES Act amended 
section 7(a) of the Small Business Act, 15 U.S.C. 636(a), to create a 
temporary small business lending program known as the PPP. Under the 
PPP, small businesses could receive loans from private lender to cover 
eligible payroll, costs, business mortgage payments and interest, rent, 
and utilities for either an 8- or 24-week period after disbursement. 
Each loan is fully guaranteed by the Small Business Administration 
(SBA), which administers the PPP; small business borrowers do not have 
to make any payments during the first six months of the loan term and 
may receive a deferral up to one year; and small businesses may receive 
complete or partial forgiveness of their loans if they use their loans 
to cover certain expenses and meet other requirements. A wide range of 
financial institutions were eligible to participate as lenders in the 
PPP, including institutions that normally do not participate in the 
SBA's

[[Page 7280]]

7(a) lending program.\19\ This includes federally insured depository 
institutions, credit unions, and nonbanks.\20\
---------------------------------------------------------------------------

    \19\ The 7(a) loan program is the SBA's primary program for 
providing financial assistance to small businesses. The program's 
name comes from section 7(a) of the Small Business Act, 15 U.S.C. 
636(a). The SBA offers several different types of loans through the 
program.
    \20\ Institutions that were not SBA-certified did have to apply 
to the SBA and receive delegated authority to process PPP loan 
applications.
---------------------------------------------------------------------------

    When the PPP opened on April 3, 2020, demand for PPP loans far 
exceeded the initial $349 billion of funding for PPP loans and those 
funds were exhausted in less than two weeks. Congress subsequently 
provided another $310 billion (including $60 billion specifically to be 
lent by smaller banks and credit unions), bringing the total funding 
for the PPP to $659 billion. The second round of funding became 
available on April 27, 2020 and was not exhausted. When the PPP closed 
on August 8, 2020, $133 billion remained available.
    While the PPP was active, Congress made additional funds available, 
changed the term for new PPP loans, and revised other program 
requirements. The SBA also issued numerous interim final rules related 
to the program and lenders. PPP lenders were responsible for ensuring 
that their participation in the PPP complied not only with the CARES 
Act and SBA rules, but also with other applicable laws, including ECOA.
Fair Lending Risk
    Examiners' review of small business lenders' PA responses 
identified certain issues that may pose fair lending risks.
    In implementing the PPP, multiple lenders adopted a policy that 
restricted access to PPP loans beyond the eligibility requirements of 
the CARES Act and rules and orders issued by the SBA (an ``overlay''). 
Specifically, several small business lenders restricted access by 
limiting eligibility for PPP loans to existing customers (an ``existing 
customer overlay''). The Bureau's PA work in this area revealed that 
the existing customer overlay fell into two general categories:
    (1) Restrictive policies that allowed only small businesses with a 
pre-existing relationship (or certain type of pre-existing 
relationship) with the institution the opportunity to apply for a PPP 
loan; and
    (2) less restrictive policies that required small businesses 
without a pre-existing relationship to first become customers of the 
financial institution (usually by opening a business deposit account) 
and then apply for a PPP loan.
    Examiners determined that an overlay restricting access to PPP 
loans for small businesses that do not have an existing relationship 
with the institution, while neutral on its face, may have a 
disproportionate negative impact on a prohibited basis and run a risk 
of violating the ECOA and Regulation B. The small business lenders 
provided business justifications for their use of existing customer 
overlays, with the majority of institutions noting that they adopted 
such overlays because of Know Your Customer legal requirements, the 
prevention of fraud, or both. Several institutions also offered other, 
operational reasons for adopting this overlay, including managing 
extreme demand and enabling the institution to process as many 
applications as possible before funds were depleted. Examiners noted 
the challenges faced by small business lenders in implementing the PPP 
during a nationwide emergency and found that the institutions' stated 
reasons for adopting their overlays reflected legitimate business needs 
during part or all of the review period. Examiners did not, however, 
conduct a full analysis of any institution's overlay, and did not make 
any determination about whether an institution's use of the overlay 
complies with ECOA or Regulation B. Examiners encouraged the small 
business lenders to consider the fair lending risks associated with 
participation in the PPP, in further implementation of the PPP, and in 
any new lending program and to evaluate and address any risks.

4. Conclusion

    The Bureau is committed to being as transparent as possible about 
its supervisory findings and will continue to publish Supervisory 
Highlights to aid Bureau-supervised entities in their efforts to comply 
with Federal consumer financial law. While the Bureau's PA reviews are 
substantially complete, in some instances, examiners identified issues 
that require follow up. The Bureau will follow-up on risks identified 
during PAs in the course of its regular supervisory work and findings 
may be shared in future editions of Supervisory Highlights.

5. Signing Authority

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

    Dated: January 19, 2021.
Grace Feola,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2021-01601 Filed 1-26-21; 8:45 am]
BILLING CODE 4810-AM-P


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