[Federal Register Volume 82, Number 201 (Thursday, October 19, 2017)]
[Notices]
[Pages 48703-48714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22700]


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BUREAU OF CONSUMER FINANCIAL PROTECTION


Supervisory Highlights: Summer 2017

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Supervisory Highlights; notice.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau or CFPB) 
is issuing its fifteenth edition of its Supervisory Highlights. In this 
issue of Supervisory Highlights, we report examination findings in the 
areas of auto finance lending; credit card account management; debt 
collection; deposits; mortgage servicing; mortgage origination; service 
providers; short-term, small-dollar lending; remittances; and fair 
lending. As in past editions, this report includes information on the 
Bureau's use of its supervisory and enforcement authority, recently 
released examination procedures, and Bureau guidance.

DATES: The Bureau released this edition of the Supervisory Highlights 
on its Web site on September 12, 2017.

FOR FURTHER INFORMATION CONTACT: Adetola Adenuga, Consumer Financial 
Protection Analyst, Office of Supervision Policy, 1700 G Street NW., 
20552, (202) 435-9373.

SUPPLEMENTARY INFORMATION: 

1. Introduction

    The Consumer Financial Protection Bureau is committed to a consumer 
financial marketplace that is fair, transparent, and competitive, and 
that works for all consumers. The Bureau supervises both bank and 
nonbank institutions to help meet this goal. The findings reported here 
reflect information obtained from supervisory activities that were 
generally completed between January 2017 and June 2017 (unless 
otherwise stated). In some instances, not all corrective actions, 
including through enforcement, have been completed at the time of this 
report's publication.
    CFPB supervisory reviews and examinations typically involve 
assessing a supervised entity's compliance management system and 
compliance with Federal consumer financial laws. When Supervision 
determines that a supervised entity has violated a statute or 
regulation, Supervision directs the entity to undertake appropriate 
corrective measures, such as implementing new policies, changing 
written communications, improving training or monitoring, or otherwise 
changing conduct to ensure the illegal practices cease. Supervision 
also directs the entity to send refunds to consumers, pay restitution, 
credit borrower accounts, or take other remedial actions as 
appropriate.
    Recent supervisory resolutions have resulted in total restitution 
payments of approximately $14 million to more than 104,000 consumers 
during the review period. In addition to these nonpublic supervisory 
activities, the Bureau also resolves violations using public 
enforcement actions.\1\ CFPB's recent supervisory activities have 
either led to or supported two recent public enforcement actions, 
resulting in about $1.15 million in consumer remediation and an 
additional $1.75 million in civil money penalties.
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    \1\ In 2016, about 70 percent of CFPB examinations did not raise 
issues that led the Bureau to consider opening an enforcement 
investigation. Instead, these matters were resolved with nonpublic 
agreements by the company to quickly fix any problems and provide 
appropriate relief to consumers. See infra pp. 37-39 (discussing 
these figures). See also https://www.consumerfinance.gov/about-us/blog/how-we-keep-you-safe-consumer-financial-marketplace/.
_____________________________________-

    Please submit any questions or comments to 
<a href="/cdn-cgi/l/email-protection#23606573617c7056534651554a504a4c4d63404553410d444c55"><span class="__cf_email__" data-cfemail="22616472607d7157524750544b514b4d4c62414452400c454d54">[email protected]</span></a>.

2. Supervisory Observations

    Recent supervisory observations are reported in the areas of 
automobile loan servicing, credit card account management, debt 
collection, deposits, mortgage origination, mortgage servicing, 
remittances, service provider program, short-term small-dollar lending, 
and fair lending.

2.1 Automobile Loan Servicing

    In the Bureau's recent auto servicing examinations, examiners 
reviewed how servicers are overseeing repossession agents and how 
repossessions are conducted. Through that work, examiners identified an 
unfair practice relating to repossession at one or more automobile 
servicers.

2.1.1 Repossessions of Borrower Vehicles After Borrowers Make Catch-Up 
Payments or Enter Agreements To Avoid Repossession

    To secure an auto loan, borrowers give creditors a security 
interest in their vehicles. When a borrower defaults, a creditor can 
exercise its rights under the contract and repossess the secured 
vehicle. Many auto servicers provide options to borrowers to avoid 
repossession once a loan is delinquent or in default. Servicers may 
have formal extension agreements that allow borrowers to forbear 
payments for a certain period of time or may cancel a repossession 
order once a borrower makes a payment.
    In one or more recent exams, examiners found that one or more 
entities were repossessing vehicles after the repossession was supposed 
to be cancelled. In these instances, the servicer(s) wrongfully coded 
the account as remaining delinquent, customer service representatives 
did not timely cancel the repossession order after borrowers made 
sufficient payments or entered an agreement with the servicer to avoid 
repossession, or repossession agents had not checked the documentation 
before repossessing and thus did not learn that the repossession had 
been cancelled.
    Bureau examiners concluded that it was an unfair practice to 
repossess vehicles where borrowers had brought the account current, 
entered an agreement with the servicer to avoid repossession, or made a 
payment sufficient to stop the repossession, where reasonably 
practicable given the timing of the borrower's action.
    Supervision directed the servicer(s) to stop the practice. In 
response to our examiners' findings, the servicer(s) informed 
Supervision that the affected consumers were refunded the

[[Page 48704]]

repossession fees. The servicer(s) also implemented a system that 
requires repossession agents to verify that the repossession order is 
still active immediately prior to repossessing the vehicle, for 
example, through a specially designed mobile application for that 
purpose.

2.2 Credit Card Account Management

    Supervision reviewed the credit card account management operations 
of one or more supervised entities over the past few months. Typically, 
examiners assess advertising and marketing, account origination, 
account servicing, payments and periodic statements, dispute 
resolution, and the marketing, sale and servicing of credit card add-on 
products. Bureau examiners found that supervised entities generally are 
complying with Federal consumer financial laws. However, in one or more 
recent examinations, examiners observed that one or more entities 
violated Regulation Z and committed the deceptive practices as 
described below.

2.2.1 Failure To Provide Required Tabular Account-Opening Disclosures

    Examiners observed that one or more credit card issuers violated 
Regulation Z by failing to provide the requisite tabular disclosures 
with the account opening materials provided to numerous cardholders.\2\ 
Specifically, the account-opening disclosures were missing the table 
set forth in Appendix G-17 of Regulation Z, resulting in consumers 
receiving incomplete disclosures.\3\ At one or more entities, 
management attributed this violation to an employee's incorrect entry 
of source code for printing disclosures, controls that were not 
appropriately structured to detect errors, and the entity's lack of an 
independent disclosure review. After acknowledging the violations with 
examiners, one or more entities initiated a review to ensure that the 
errors were limited, the root causes were further identified, and 
corrective actions were developed.
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    \2\ 12 CFR 1026.6(b)(1)-(2).
    \3\ Appendix G to 12 CFR part 1026, Form G-17(A)--Account-
Opening Model Form.
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2.2.2 Deceptive Misrepresentations to Consumers Regarding Costs and 
Availability of Pay-by-Phone Options

    During one or more examinations, credit card companies provided 
consumers with the opportunity to pay their credit card bills by mail, 
online, or in person free of charge or by using one of two pay-by-phone 
services. The first pay-by-phone service permitted consumers to make an 
expedited payment for a predetermined fee, credited the same day or the 
following business day. The second pay-by-phone service allowed 
consumers to arrange future payments options free of charge to be 
credited to the consumer's account as soon as two days after the call. 
Customer service representatives were given a call script to read to 
consumers describing both the fee-based expedited payment option and 
the free future payments option.
    A review of calls between customer service representatives and 
consumers revealed that in one or more examinations representatives did 
not follow the script in its entirety and often read the script for 
expedited payments only. Typically, customer service representatives 
did not inform consumers of any free payment options until after the 
consumer authorized the expedited phone payment and the customer 
service representatives did not inform consumers that the payment could 
be paid free of charge by phone by not expediting when the payment was 
credited. This practice resulted in consumers incurring fees for 
expedited payments that could have been avoided. Supervision found this 
practice was deceptive because these customer service representatives 
made an implied misrepresentation to consumers paying over the phone 
that all of the pay-by-phone services carried a fee.\4\
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    \4\ 12 U.S.C. 5536(a)(1)(B).
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    Supervision directed the entity(ies) to establish effective 
controls over communications to consumers, ensure representatives 
informed consumers of free payment options prior to authorization of an 
expedited phone payment, and reimburse fees to consumers impacted by 
the deceptive representations about the costs and availability of pay-
by-phone options.

2.2.3 Deceptive Misrepresentations to Consumers Concerning Benefits and 
Terms of Credit Card Add-On Products

    One or more entities provided its customer service representatives 
with call scripts that contained basic information about debt 
cancellation credit card add-on product(s). A review of calls by 
examiners indicated that customer service representatives often did not 
read the entire script, and in some instances, did not read the script 
at all. In one or more instances, the customer service representatives 
did not correct consumers' stated erroneous assumptions concerning the 
benefits of the product(s), misrepresented the potential fees, and 
assured consumer(s) that the product(s) would avoid the accrual of late 
fees or other penalties.
    Supervision found such practices constituted deceptive marketing 
and sales practices by misrepresenting product features, such as the 
cost and coverage of the optional debt cancellation add-on product.\5\ 
Supervision directed these entities to establish effective controls 
over marketing and sales practices for the debt cancellation credit 
card add-on products, ensure representatives make accurate disclosure 
of the add-on product's terms, conditions, and costs, and to reimburse 
the costs of the credit card add-on products to impacted consumers.
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    \5\ 12 U.S.C. 5536(a)(1)(B).
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2.2.4 Failure To Comply With Billing Error Resolution and Unauthorized 
Transactions

    Regulation Z requires credit card issuers to follow an error 
resolution process when a cardholder submits a billing error notice and 
provides that, during resolution, the cardholder may withhold payment 
for the disputed amount and the issuer shall not report the disputed 
amount as delinquent.\6\ In addition, Regulation Z also limits the 
amount a cardholder can be held liable for any unauthorized use.\7\
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    \6\ 12 CFR 1026.13.
    \7\ 12 CFR 1026.12(b).
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    During one or more examinations, examiners observed that entities: 
(1) Failed to provide consumers with a timely written acknowledgement 
of receipt of a billing error notice; \8\ (2) generally failed to 
timely comply with the billing error resolution procedures; \9\ (3) 
failed to limit the liability of cardholders for unauthorized use to 
the lesser of $50 or the amount of money, property, labor or services 
obtained by the unauthorized use before the card issuer is notified; 
\10\ (4) before a billing error was resolved, made or threatened to 
make an adverse credit report concerning the consumer's credit 
standing, or that the amount or account was delinquent, because the 
consumer failed to pay the disputed amount or applicable related 
finance or other charges; \11\ (5) failed to timely correct billing 
errors and credit consumers' accounts with disputed amounts or related 
finance or other charges, as applicable; \12\ (6) failed to send, or 
failed to timely send, consumers a correction notice where the issuer 
concluded that the billing error occurred as asserted; \13\ (7) failed 
to conduct, or failed to timely

[[Page 48705]]

conduct, a reasonable investigation before determining that no billing 
error occurred; \14\ or (8) failed to provide, or failed to timely 
provide, consumers with a written explanation for its determination as 
to why it concluded that a billing error did not occur.\15\
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    \8\ 12 CFR 1026.13(c)(1).
    \9\ 12 CFR 1026.13(c)(2).
    \10\ 12 CFR 1026.12(b)(1)(ii).
    \11\ 12 CFR 1026.13(d)(2).
    \12\ 12 CFR 1026.13(c)(2) & 1026.13(e)(1).
    \13\ 12 CFR 1026.13(c)(2) & (e)(2).
    \14\ 12 CFR 1026.13(c)(2) & (f).
    \15\ 12 CFR 1026.13(c)(2) & (f)(1).
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    The root cause of these regulatory violations can, among other 
things, be attributed to weak oversight of service providers that 
handle dispute resolution for the card issuers. At one or more 
entities, management failed to perform sufficient due diligence of a 
service provider hired to perform intake of incoming phone calls from 
customers who reported billing errors and other disputes, and ceased 
doing business with the service provider because of increasing 
complaints about the service provider's customer service. One or more 
entities failed to have sufficient documentation of its monitoring of 
service providers and did not audit its oversight of service providers.
    Supervision directed one or more entities to develop a plan that 
ensures the handling of billing error disputes is corrected, identifies 
all impacted consumers, and remediates harmed consumers. One or more 
entities were directed to revise their service provider program(s) to 
require document retention relating to service provider monitoring and 
risk assessment reviews.

2.3 Debt Collection

    The Bureau's Supervision program covers certain bank and nonbank 
creditors that originate and collect their own debt, as well as 
nonbanks that are larger participants in the debt collection market. 
These reviews, among other things, evaluate the adequacy of the 
relevant entities' compliance management systems and communications 
with consumers. At one or more entities, examiners' review of these 
systems and practices included activities conducted in a foreign 
country. During recent examinations of larger participants, examiners 
identified several violations of the Fair Debt Collection Practices Act 
(FDCPA),\16\ including unauthorized communications with third parties, 
false representations made to authorized credit card users regarding 
their liability for debts, false representations regarding credit 
reports, and communications with consumers at inconvenient times.
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    \16\ 15 U.S.C. 1692-1692p.
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    At one or more entities, examiners discovered that debt collectors 
followed client instructions that led to violations of the FDCPA. 
Entities can mitigate the risk of an FDCPA violation if they determine 
whether client instructions would violate the FDCPA before following 
them.

2.3.1 Impermissible Communications With Third Parties

    Under section 805(b) of the FDCPA, a debt collector generally may 
not communicate with a person other than the consumer in connection 
with the collection of a debt without permission from the consumer. 
Examiners determined that one or more entities did not confirm that the 
correct party had been contacted prior to beginning collection 
activities. As a result, one or more entities communicated with a third 
party in connection with the collection of a debt by discussing the 
debt with an authorized user of a credit card who was not financially 
responsible for the debt (and who was not otherwise a ``consumer'' 
under section 805(b)). In response to these findings, one or more 
entities enhanced consumer verification processes to include the 
verification of first and last names, and confirmation of date of birth 
or the last four digits of Social Security number, before disclosing 
the debt or the nature of the call to the consumer. Additionally, one 
or more entities revised their processes to discuss the debt with an 
authorized user only after explicit authorization from the cardholder. 
Lastly, the entities trained their collection agents on the enhanced 
policies and procedures.

2.3.2 Deceptively Implying That Authorized Users Are Responsible for a 
Debt

    Under section 807(10) of the FDCPA, a debt collector may not use 
false representations or deceptive means to collect or attempt to 
collect any debt. Examiners determined that one or more entities 
violated the FDCPA by attempting to collect a debt directly from the 
authorized user of a credit card even though the authorized user was 
not financially responsible for the debt. The practice of soliciting 
payment from a non-obligated user in a manner that implies that the 
authorized user is personally responsible for the debt constitutes a 
deceptive means to collect a debt in violation of the FDCPA. One or 
more entities have undertaken remedial and corrective actions regarding 
these violations, which are under review by Supervision.

2.3.3 False Representations Regarding the Effect on a Consumer's Credit 
Report of Paying a Debt in Full Rather Than Settling the Debt in Full

    As noted above, a debt collector may not use false representations 
or deceptive means to collect or attempt to collect any debt under 
section 807(10) of the FDCPA. Examiners found that one or more entities 
made false representations to consumers about the effect on their 
credit score of paying a debt in full rather than settling the debt for 
less than the full amount. As the CFPB explained in a 2013 bulletin, 
representations about the impact of paying a debt on a consumer's 
credit score may be deceptive. The bulletin states that ``in light of 
the numerous factors that influence an individual consumer's credit 
score, such payments may not improve the credit score of the consumer 
to whom the representation is being made. Consequently, debt owners or 
third-party debt collectors may well deceive consumers if they make 
representations that paying debts in collection will improve a 
consumer's credit score.'' \17\ In response to these findings, one or 
more entities amended training materials to remove references to how a 
consumer's credit score may be affected by either settling the debt in 
full or paying the debt in full.
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    \17\ CFPB Bulletin 2013-08, Representations Regarding Effect of 
Debt Payments on Credit Reports and Scores, available at: http://files.consumerfinance.gov/f/201307_cfpb_bulletin_collections-consumer-credit.pdf.
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2.3.4 Communicating With Consumers at a Time Known To Be Inconvenient

    Under section 805(a)(1) of the FDCPA, a debt collector may not 
communicate with a consumer in connection with the collection of any 
debt at any unusual time or place or a time or place known or which 
should be known to be inconvenient to the consumer. Examiners 
discovered that consumers were contacted by one or more entities 
outside of the hours of 8:00 a.m. to 9:00 p.m. (which, in the absence 
of knowledge to the contrary, may be assumed to be convenient) or at 
times consumers had previously informed the entities were inconvenient. 
These violations were caused by the failure to accurately update 
account notes and the use of auto dialers that based call parameters 
solely on the consumer's area code, rather than also considering the 
consumer's last known address. Supervision directed one or more 
entities to enhance compliance monitoring for dialer systems to ensure 
that they input system parameters accurately and to ensure that they

[[Page 48706]]

properly monitor collectors for inputting and adhering to account 
notations.

2.4 Deposits

    The CFPB continues to examine banks for compliance with Regulation 
E as well as review for any unfair, deceptive, or abusive acts or 
practices (UDAAPs) in connection with deposit accounts. As described in 
more detail below, CFPB examiners continue to find deceptive acts or 
practices related to deposit disclosures and representations that 
incorrectly inform consumers about fees, including conditions when 
certain fees will apply. Separately, Supervision concluded that one or 
more institutions were engaging in deceptive acts or practices by 
misrepresenting deposit overdraft protection products. Examiners also 
found unfair acts or practices related to conditions where one or more 
institutions froze deposit accounts. Finally, examiners continue to 
find issues associated with Regulation E error resolution 
investigations.
    In all cases where examiners found UDAAPs or violations of 
Regulation E, Supervision directed institutions to make appropriate 
changes to address the underlying issue(s), as well as enhance 
compliance management systems to prevent future violations and, where 
appropriate, to remediate consumers for harm they experienced.

2.4.1 Freezing of Deposit Accounts

    Examiners found that one or more institutions engaged in unfair 
acts or practices by placing hard holds on customer accounts to stop 
all activity when the institution(s) observed suspicious activity. 
These hard holds resulted in the consumers' accounts being locked, 
resulting in payments not being honored, deposits being rejected, and 
the consumer lacking access to his or her funds for as long as two 
weeks. Examiners also found that one or more institutions failed to 
clearly, consistently, and promptly communicate information about the 
nature and status of these hard holds to consumers. Examiners found 
that less drastic measures would have sufficiently addressed the 
suspicious activity concern in many instances. Even where the hard 
holds were appropriate, the failure to properly communicate with 
consumers prevented consumers from being able to take measures to 
mitigate the injury.
    Supervision directed the institution(s) to cease unnecessarily 
placing hard holds on consumer deposit accounts and to develop and 
implement policies and procedures to clearly, consistently, and 
promptly communicate with consumers with respect to hard holds placed 
on their accounts.

2.4.2 Misrepresentations About Monthly Service Fees

    Examiners found that one or more institutions engaged in deceptive 
acts or practices by representing in deposit account fee schedules that 
monthly account service fees would be waived under circumstances in 
which those fees, in fact, would be assessed. One or more institutions 
offered a deposit product that contained a monthly service fee. The 
service fee was waived if consumers met certain qualifications. One 
such qualification--as described in the fee schedules--was if the 
consumer made ten or more payments from the checking account during a 
statement cycle. In fact, only debit card purchases and debit card 
payments qualified toward the fee waiver threshold, and other payments 
from a consumer's checking account, such as ACH payments, did not 
qualify. Moreover, only payments that ``posted'' during the statement 
cycle qualified toward the waiver and payments that were initiated but 
not posted during the statement cycle did not qualify. The 
representations that the institution(s) made in the fee schedules could 
lead a reasonable consumer to believe that all checking-account 
payments initiated during the statement cycle would qualify toward the 
ten-payment fee waiver threshold, a material aspect of the product or 
service. As a result, Supervision cited the institution(s) for 
deceptive acts or practices. Supervision directed the institution(s) to 
ensure that all disclosures regarding the fee waivers include accurate 
and non-misleading information.

2.4.3 Violations of Error Resolution Requirements

    Supervision continues to find violations of Regulation E's error 
resolution requirements. As noted in the Fall 2014 edition of 
Supervisory Highlights, Regulation E, which implements the Electronic 
Fund Transfer Act, imposes specific requirements on financial 
institutions for how to resolve error allegations reported by consumers 
related to electronic fund transfers. Among other requirements, 
Regulation E requires financial institutions to promptly investigate 
error allegations, to provide timely provisional credit to consumers, 
to promptly provide consumers with notice of the findings of the 
financial institution's investigation, and to allow consumers to review 
the documentation the financial institution relied upon in the course 
of the investigation.\18\
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    \18\ 12 CFR 1005.11.
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    Examiners found that one or more institutions violated several of 
the error resolution provisions of Regulation E. Among other things, 
examiners observed that one or more entities prematurely closed 
investigations and denied claims when consumers failed to submit, or 
delayed in submitting, supplemental information beyond that which 
financial institutions may require under Regulation E.\19\ Examiners 
also found that the institution(s) failed to investigate claims and to 
provide provisional credit within 10 business days of receiving notice 
of the alleged error.\20\ Examiners further observed that one or more 
institutions refused consumers' requests to review material relied upon 
by the institution(s) in denying error claims, and incorrectly informed 
consumers that subpoenas would be required to review that material.\21\ 
With respect to these types of violations, Supervision directed the 
relevant entities to take measures to ensure compliance with the error 
resolution provisions of Regulation E.
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    \19\ See 12 CFR 1005.11(b).
    \20\ See 12 CFR 1005.11(c)(1) & (c)(2)(i).
    \21\ See 12 CFR 1005.11(d)(1).
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2.4.4 Deceptive Statements About Overdraft Protection Products

    In 2010, Federal rules took effect that prohibited banks and credit 
unions from charging overdraft fees on ATM and one-time debit card 
transactions unless consumers affirmatively opted in.\22\ Many 
depository institutions provide a variety of overdraft products that 
may cover consumer transactions that overdraw accounts.
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    \22\ 74 FR 59033 (Nov. 17, 2009) (codified at 12 CFR part 
1005.17), available at https://www.gpo.gov/fdsys/granule/FR-2009-11-17/E9-27474.
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    Supervision determined that one or more institutions engaged in a 
deceptive act or practice by misrepresenting their opt-in deposit 
overdraft protection products when answering inbound telephone calls 
from consumers, including that:
    [ssquf] The overdraft protection product applied to check, 
automated clearing house (ACH), and recurring bill payment 
transactions, when the overdraft protection product did not apply to 
those transactions;
    [ssquf] The overdraft protection product would allow a consumer to 
withdraw more than the daily ATM cash withdrawal limit and be subject 
to only one overdraft fee. In actuality, a consumer would not have been 
allowed to surpass the daily ATM cash

[[Page 48707]]

withdrawal limit, regardless of enrollment in the overdraft protection 
product, and it was not possible to do so while incurring only one 
overdraft fee; and
    [ssquf] The overdraft protection product would take effect on the 
same day as enrollment, when the product would not actually take effect 
until the next day.
    Supervision determined that these representations misled or were 
likely to mislead a reasonable consumer regarding a material aspect of 
the overdraft protection product and that account opening disclosures 
or subsequent enrollment disclosures did not cure the misleading 
representations. Supervision directed one or more depository 
institutions to cease misrepresenting features of their overdraft 
protection products.

2.5 Mortgage Origination

    Supervision assessed the mortgage origination operations of one or 
more supervised entities for compliance with applicable Federal 
consumer financial laws. Examiners identified instances of regulatory 
violations and one or more instances where supervised entities engaged 
in a deceptive practice, as described below.

2.5.1 Know Before You Owe Mortgage Disclosure Rule

    Supervision has completed its first round of mortgage origination 
examinations for compliance with the Know Before You Owe mortgage 
disclosure rule. The Bureau stated that it would be sensitive to the 
progress made by supervised entities focused on making good faith 
efforts to come into compliance with the rule upon the effective date 
of October 3, 2015. Initial examination findings and observations 
conclude that, for the most part, supervised entities, both banks and 
nonbanks, were able to effectively implement and comply with the Know 
Before You Owe mortgage disclosure rule changes. However, examiners did 
find some violations. Listed below are violations found by examiners 
relating to the content and timing of Loan Estimates and Closing 
Disclosures:
    [ssquf] Amounts paid by the consumer at closing exceeded the amount 
disclosed on the Loan Estimate beyond the applicable tolerance 
threshold; \23\
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    \23\ 12 CFR 1026.19(e)(3)(i), (ii).
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    [ssquf] The entity(ies) failed to retain evidence of compliance 
with the requirements associated with the Loan Estimate; \24\
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    \24\ 12 CFR 1026.25(c)(1).
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    [ssquf] The entity(ies) failed to obtain and/or document the 
consumer's intent to proceed with the transaction prior to imposing a 
fee in connection with the consumer's application; \25\
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    \25\ 12 CFR 1026.19(e)(2)(i)(A), 1026.25(c)(1).
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    [ssquf] Waivers of the three-day review period did not contain a 
bona fide personal financial emergency; \26\
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    \26\ 12 CFR 1026.19(f)(1)(iv).
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    [ssquf] The entity(ies) failed to provide consumers with a list 
identifying at least one available settlement service provider, if the 
creditor permits the consumer to shop for a settlement service; \27\
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    \27\ 12 CFR 1026.19(e)(1)(vi)(c).
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    [ssquf] The entity(ies) failed to disclose the amount payable into 
an escrow account on the Loan Estimate and Closing Disclosure when the 
consumer elected to escrow taxes and insurance; \28\
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    \28\ 12 CFR 1026.37(c)(2)(iii), .38(c)(1).
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    [ssquf] Loan Estimates did not include the date and time at which 
estimated closings cost expire; \29\ and
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    \29\ 12 CFR 1026.37(a)(13)(ii).
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    [ssquf] The entity(ies) failed to properly disclose on the Closing 
Disclosure fees the consumer paid prior to closing.\30\
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    \30\ 12 CFR 1026.38(f)(2), (f)(5), (h)(2), (i)(2)(ii).
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    Examiners worked in a collaborative manner with one or more 
entities to identify the root cause of these violations and determine 
appropriate corrective actions, including reimbursement to consumers 
where tolerance violations occurred.

2.5.2 Failure To Reimburse Unused Portions of a Required Service 
Deposit Where Certain Disclosure Language Was Used Constituted an 
Unfair Practice

    At one or more entities, pursuant to certain disclosure language a 
specified service deposit was collected from consumers but unused 
portions were not reimbursed when consumers withdrew their 
applications. This would constitute unfair acts or practices in those 
cases where the loans did not proceed to closing due to the entity's 
unreasonable actions or inactions. Supervision directed each entity to 
conduct a review to identify impacted consumers. Refunds were provided 
to consumers where the loan files could not support retention of the 
service deposit.

2.5.3 Deceptive Practice Involving an Arbitration Notice on Certain 
Residential Mortgage Loan Documents

    Under Regulation Z, a contract or other agreement for a consumer 
credit transaction secured by a dwelling (including a home equity line 
of credit secured by the consumer's principal dwelling) may not include 
terms that require arbitration or any other non-judicial procedure to 
resolve any controversy or settle any claims arising out of the 
transaction.\31\
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    \31\ 12 CFR 1026.36(h)(1).
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    Despite this prohibition, at one or more entities examiners 
identified template language for certain residential loan document(s) 
containing a notice that the note is subject to arbitration. 
Supervision concluded that use of the arbitration-related notice 
constitutes a deceptive act or practice since it is likely to mislead a 
reasonable consumer into believing that a claim arising under the 
residential loan document must be submitted to arbitration. After 
having viewed the notice, a consumer would have been more likely to 
agree to post-dispute arbitration or to fail to pursue judicial 
remedies under the mistaken belief that arbitration was required. 
Supervision directed one or more of the entities to cease further use 
of the template.

2.6 Mortgage Servicing

2.6.1 Requirements To Help Borrowers Complete Loss Mitigation 
Applications

    Regulation X provides important process protections for borrowers 
in financial distress who apply for a foreclosure alternative. 
Specifically, it requires mortgage servicers to exercise reasonable 
diligence in obtaining documents and information to complete a loss 
mitigation application.\32\ A complete loss mitigation application 
includes all the information that the servicer requires from a borrower 
in evaluating applications for the loss mitigation options available to 
the borrower.\33\
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    \32\ 12 CFR 1024.41(b)(1).
    \33\ 12 CFR 1024.41(b)(1).
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    While Regulation X permits a servicer to offer a loss mitigation 
option based on a borrower's incomplete application under certain 
circumstances,\34\ the servicer still must act with reasonable 
diligence to collect the information needed to complete the 
application.\35\ For example, in the context of a short-term payment 
forbearance program offered based on an incomplete loss mitigation 
application, reasonable diligence could include notifying the borrower 
that the borrower is being offered a payment forbearance program based 
on an evaluation of an incomplete application and that the borrower 
retains the option of completing the application to receive a full 
evaluation of all loss mitigation options available to

[[Page 48708]]

the borrower.\36\ Near the end of the program, and prior to the end of 
the forbearance period, it may also be necessary for the servicer to 
contact the borrower to determine if the borrower wishes to complete 
the application and proceed with a full loss mitigation evaluation.\37\ 
Generally, the reasonable diligence requirement helps address the 
concern that borrowers offered a short-term payment forbearance program 
or short-term repayment plan may be experiencing a hardship, for which 
other, longer-term loss mitigation solutions might be more appropriate 
given their individual circumstances.
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    \34\ 12 CFR 1024.41(c)(2)(ii) and (iii).
    \35\ 12 CFR 1024.41(b)(1) and Comments 41(b)(1)-4.iii and 
41(c)(2)(iii)-2.
    \36\ Comment 1024.41(b)(1)-4.iii.
    \37\ Comment 1024.41(b)(1)-4.iii.
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    In recent exams, examiners found that one or more servicers 
received oral incomplete loss mitigation applications and pre-approved 
borrowers for short-term payment forbearance programs based on those 
applications. However, the servicer(s) did not notify borrowers of 
their right to complete the application and did not separately request 
other information needed to evaluate for all the other loss mitigation 
options offered by the owner or assignee of the loan. And near the end 
of the program, and prior to the end of the short-term payment 
forbearance period, the servicer(s) failed to conduct outreach to 
determine whether borrowers wished to complete the application and 
proceed with a full loss mitigation evaluation.
    Supervision determined that the servicer(s) violated Regulation X 
by failing to exercise reasonable diligence in obtaining documents and 
information to complete a loss mitigation application.\38\ Supervision 
directed the servicer(s) to implement policies and procedures to ensure 
that the servicer(s) exercise reasonable diligence in obtaining 
documents and information to complete a loss mitigation application for 
borrowers entering into short term payment forbearance programs based 
on incomplete applications, including by contacting the borrowers near 
the end of the program, and prior to the end of the forbearance period.
---------------------------------------------------------------------------

    \38\ 12 CFR 1024.41(b)(1).
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2.6.2 Broad Waivers in Short Sale and Cash-for-Keys Agreements

    Supervision previously identified broad waiver of rights clauses in 
forbearance, loan modification and other loss mitigation options as 
violating the Dodd-Frank Act's prohibition against unfair or deceptive 
acts or practices.\39\ Supervision determined such waivers to be 
deceptive where reasonable consumers could construe the waivers as 
barring them from bringing claims in court--including Federal claims--
related to their mortgages. 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 any Federal 
law.'' \40\ Supervision also determined broad waivers to be unfair 
insofar as they are offered in a ``take it or leave it'' fashion in the 
ordinary course of offering loss mitigation agreements, rather than in 
the context of resolution of a contested claim or another 
individualized analysis of the servicer's risks and the consumer's 
potential claims.\41\
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    \39\ 12 U.S.C. 5536(a)(1).
    \40\ 12 CFR 1026.36(h)(2).
    \41\ See Supervisory Highlights: Winter 2013, at 6, available at 
http://files.consumerfinance.gov/f/201401_cfpb_supervision-highlights.pdf.
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    Supervision continues to find broad waivers of rights in loss 
mitigation agreements. For example, in exchange for a short sale 
agreement, one or more servicers required consumers to completely 
waive, release, and relinquish any claims of any nature against the 
servicer(s) arising out of or relating to the mortgage note and any 
obligations thereunder, and to agree that they had no defenses to 
payment in full under the note. Supervision determined the waiver to be 
deceptive and required the servicer(s) to remove it from the 
agreements.
    In one or more servicing exams, Supervision also identified blanket 
waivers in cash-for-keys agreements that gave borrowers the opportunity 
to receive a payment in exchange for their commitment to vacate the 
property by a date certain, thereby avoiding eviction proceedings. The 
servicer(s) presented the waivers as take-it-or-leave-it boilerplate 
and a reasonable borrower would have construed them to broadly waive 
all claims or defenses including any in connection with the original 
credit transaction that the borrower might have asserted against the 
servicer(s). Supervision determined the waiver to be deceptive and 
unfair, and directed the servicer(s) to remove all such waivers from 
the agreements.

2.7 Remittances

    The CFPB continues to examine both large banks and nonbanks for 
compliance with the CFPB's amendments to Regulation E governing 
international money transfers (or remittances).\42\ Regulation E, 
Subpart B (or the Remittance Rule) provides protections, including 
disclosure requirements, and error resolution and cancellation rights 
to consumers who send remittance transfers to other consumers or 
businesses in a foreign country.\43\ The amendments implement statutory 
requirements set forth in the Dodd-Frank Act.
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    \42\ See 78 FR 30662 (May 22, 2013) (codified at 12 CFR part 
1005), available at http://www.gpo.gov/fdsys/pkg/FR-2013-05-22/pdf/2013-10604.pdf.
    \43\ Regulation E implements the Electronic Fund Transfer Act 
(EFTA).
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    CFPB's examination program for both bank and nonbank remittance 
providers assesses the adequacy of each entity's CMS for remittance 
transfers. These reviews also check for providers' compliance with the 
Remittance Rule and other applicable Federal consumer financial laws. 
Supervision directed entities to make appropriate changes to compliance 
management systems to prevent future violations and, where appropriate, 
to remediate consumers for harm they experienced.

2.7.1 International Top-Up and Bill Pay Services

    Examiners found that one or more supervised entities violated 
section 919(a)(1) \44\ of EFTA and applicable provisions of Regulation 
E by failing to treat international mobile top-up services in excess of 
$15 as a remittance transfer. An international mobile top-up service 
converts funds from consumers in the United States to airtime on a 
phone account based on the usage and rate plan selected by the owner of 
the phone residing in a foreign country. The entirety of these 
transactions occurs exclusively in currencies up until the point funds 
are received by the international cellphone carrier. The entity(ies) 
failed to provide the disclosures, cancellation, or error resolution 
rights to international top-up consumers required by EFTA and 
Regulation E.
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    \44\ 15 U.S.C. 1693o-1(a)(1).
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    Similarly, one or more institutions violated section 919(a)(1) of 
EFTA and applicable provisions of Regulation E by failing to treat 
international bill payment services in excess of $15 as remittance 
transfers and, as a result, failed to comply with the required 
disclosure, error resolution, and cancellation requirements of the 
Remittance Rule. Supervision directed entities to make appropriate 
changes to their CMS in order to prevent future violations.

[[Page 48709]]

2.8 Service Provider Program

    The Spring 2017 edition of Supervisory Highlights described 
Supervision's service provider program, which involves the direct 
examination of service providers, particularly in the mortgage 
origination and mortgage servicing markets. Examiners are focusing on 
the structure, operations and compliance management systems of various 
service providers, as well as certain other targeted areas.

2.8.1 Deficient Mortgage Periodic Statements

    Examiners reviewed whether one or more service provider(s) 
adequately considered certain requirements of the Title XIV Final Rule 
in developing products for mortgage servicers.\45\ Examiners found that 
the service provider(s) developed a mortgage servicing information 
technology (IT) system functionality that failed to implement certain 
Regulation Z requirements for periodic statements. The service 
provider(s)' billing files failed to list the total sum of any fees or 
charges imposed, and the transaction activity that occurred since the 
last statement.\46\ Moreover, the service provider(s) did not 
adequately consider client concerns about the issue. Supervision 
concluded that these weaknesses contributed to the clients' violations 
of Regulation Z and directed the service provider(s) to implement 
policies and procedures that span systems design and application 
controls to ensure that the billing files made available through the 
mortgage servicing IT system functionality enable compliance with 
Regulation Z. In addition, Supervision directed the service provider(s) 
to ensure that when clients communicate potential regulatory issues, 
the service provider(s) analyze and implement changes as appropriate to 
enable users of the mortgage servicing IT system functionality to 
comply with Regulation Z.
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    \45\ Title XIV Final Rule updates effective January 10, 2014, 
with the exception of the appraisal requirements effective for 
applications received on or after January 18, 2014.
    \46\ 12 CFR 1026.41(d)(2)(ii); (d)(4).
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2.9 Short-Term, Small-Dollar Lending

    The Bureau's Supervision program covers entities that offer or 
provide payday loans. Such entities often offer other short-term, small 
dollar (STSD) products to consumers as well such as single payment, 
installment, or auto or vehicle title loans. During the examinations of 
STSD entities, examiners identified CMS weaknesses and violations of 
Federal consumer financial law, including the Dodd-Frank Act's 
prohibition on UDAAPs. Highlighted below are some of the UDAAP findings 
in recent examinations regarding collection practices, marketing 
representations, representations regarding use of references, and 
payment practices.

2.9.1 Short-Term, Small-Dollar Debt Collection

    As noted in the Spring 2014 Supervisory Highlights, a continued 
focus of the CFPB's short-term, small-dollar lending examination 
program is how lenders collect consumer debt. Since then, we have 
learned that 11 percent of consumers who indicated that they had been 
contacted about a debt in collection reported attempts to collect on a 
payday loan.\47\ Nearly ten percent of all debt collection complaints 
handled by the CFPB are related to payday loans.\48\ Examiners have 
identified a range of illegal collections practices by small-dollar 
lenders, some of which are highlighted below.
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    \47\ Consumer Experiences with Debt Collection (Jan. 2017) at 
19, available at http://files.consumerfinance.gov/f/documents/201701_cfpb_Debt-Collection-Survey-Report.pdf.
    \48\ Semi-annual report of the Consumer Financial Protection 
Bureaus (Fall 2016) at 31, available at https://www.consumerfinance.gov/documents/1977/122016_cfpb_SemiAnnualReport.pdf.
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Workplace Collection Calls
    Examiners found that one or more entities, in the course of 
collecting their own debt, called borrowers at their places of 
employment. The entity(ies) placed repeated calls to borrowers at work 
even after borrowers asked the lenders to stop calling them at work or 
told the lenders that the borrowers' employers did not allow such 
calls. Examiners determined that this collection activity constituted 
an unfair act or practice. The practice of continuing to call borrowers 
repeatedly at the workplace after requests to stop causes or is likely 
to cause substantial injury because continued contact may result in 
negative employment consequences to the borrower. Borrowers cannot 
avoid the injury when the lenders continue to make repeated calls after 
the borrowers requested that they stop. Where the lender has been 
expressly told to stop contacting the consumer at work or that the 
employer prohibits such calls, the harm to consumers from continued 
calling outweighs any countervailing benefits to consumers and 
competition. One or more lenders have undertaken remedial and 
corrective actions regarding these violations, which are under review 
by Supervision.
Repeated Collection Calls to Third Parties
    Examiners observed one or more entities routinely making repeated 
calls to third parties, including personal and work references that 
borrowers listed on their loan applications. In some instances, one or 
more entities repeatedly requested that the third parties relay 
messages to delinquent borrowers in a manner that disclosed or risk 
disclosing the debt. The loan applications required consumers to list 
the names and numbers of third parties and, in some instances, 
disclosures provided to consumers conveyed that the individuals listed 
would be contacted by the entity(ies) only as part of the origination 
and underwriting process. The collection calls to third parties were 
not made for the purpose of locating the borrowers.
    Supervision determined that these collection activities constituted 
unfair acts or practices. Through these calls, the entity(ies) caused 
or was likely to cause substantial injury because the entity(ies) 
either disclosed or risked disclosing borrowers' default or delinquency 
to third parties. The consumer injury associated with the calls could 
not be reasonably avoided because the borrowers were not aware that the 
lenders would contact references or other third parties for debt 
collection purposes, nor were they aware that one or more lenders would 
continue to call such references after requests to stop. The benefits 
to consumers and to competition did not outweigh the injury; the 
entities had the borrower's location information and therefore had 
other ways to reach consumers without disclosing or risking disclosure 
of the borrowers' default or delinquency to third parties. One or more 
entities have undertaken remedial and corrective actions regarding 
these violations, which are under review by Supervision.
Misrepresentations in Collections
    Examiners observed one or more entities in the course of collecting 
delinquent or defaulted loans making statements to borrowers that they 
must immediately contact the lenders to avoid additional collection 
activity, including being visited at home or work. In fact, the 
entity(ies) did not actually conduct such in-person collection visits. 
Supervision concluded these representations constituted deceptive acts 
or practices. Delinquent consumers could reasonably interpret the 
entity(ies)' statements to mean that in-

[[Page 48710]]

person visits to the consumers' place of employment or home would take 
place if the consumers did not immediately contact the entity(ies). The 
representations were material to consumers because they could cause 
consumers to change their behavior to avoid the promised visits. One or 
more entities agreed to modify their collection practices to comply 
with Federal consumer financial laws.

2.9.2 Marketing Misrepresentations About Small Dollar Loan Products

No Credit Check
    Examiners observed that one or more entities advertised that 
consumers could receive loans without undergoing credit checks. 
However, these entity(ies) obtained consumer reports from specialty 
consumer reporting companies during their underwriting processes and 
sometimes denied loans to consumers based on the information in the 
reports. Supervision concluded that this conduct constituted deceptive 
acts or practices. The advertisements were deceptive because they were 
likely to mislead reasonable consumers into believing that no credit 
inquiries would be conducted and thus, they could receive a loan 
without a credit check. These misrepresentations were likely to 
influence consumers' decisions to choose to apply for the loans. 
Supervision directed the one or more entities to cease advertising that 
consumers could receive loans without credit checks.
Availability of Products and Services
    Examiners observed that one or more entities advertised products 
and services in outdoor signage that the entity(ies) did not, in fact, 
offer. They consisted of products and services that the lenders had not 
offered for several years but would be of interest to payday loan 
customers. Supervision concluded that by advertising products and 
services the entity(ies) did not, in fact, offer, the lenders engaged 
in deceptive acts or practices. A reasonable consumer could interpret 
the outdoor advertising to mean that the consumers who wished to 
purchase the advertised services could do so inside the stores. The 
representations were material because they impacted a consumer's 
conduct in terms of whether to visit the stores. Supervision directed 
the one or more entities to cease advertising products and services 
that they did not offer.
Comparisons to Competitors
    Examiners observed one or more entities advertising that many of 
their products and services had substantially lower fees than their 
competitors' products and services. The entity(ies), however, did not 
have substantiation to support these claims. The entity(ies) relied on 
out-of-date internal analyses that only covered fees for a small number 
of products and services and did not reflect current rates, products, 
or services or those of their competitors. Supervision concluded that 
by making these misleading comparisons, the entity(ies) engaged in 
deceptive acts or practices. The representations were likely to mislead 
reasonable consumers into believing that the entity(ies) had a basis 
for claiming that consumers would pay lower fees for the products and 
services identified in the advertisement. This misrepresentation was 
material because it likely influenced consumers' decisions to obtain 
these products and services from the entity(s) over other short-term, 
small-dollar lenders. Supervision directed one or more entities to 
cease advertising that their fees were lower than their competitors, 
absent adequate substantiation.
Ability To Apply Online
    Examiners observed one or more entities representing on their Web 
sites that consumers may ``apply online'' by completing lengthy online 
forms. The forms solicited all or most of the information that a 
consumer would typically submit in order to apply for a short-term, 
small-dollar loan. The forms also permitted consumers to list most 
states as their home State, suggesting that an application for an 
online loan was available to consumers nationwide. In fact, consumers 
could not apply online because the entity(ies) only originate loans at 
their physical store front locations and do not originate loans based 
on the purported online loan applications. Consumers could only receive 
a loan from the lenders if they visited storefront locations. In 
addition, the entity(ies) only extends credit in a small number of 
States where they operate, not nationwide. Supervision determined that 
the entity(ies)' representations constituted deceptive acts or 
practices. Consumers acting reasonably were likely to view the ``apply 
online'' advertisements on the lenders' Web sites and comprehensive 
online applications as invitations to apply for, and receive, loans 
online. The representations were material because had consumers 
understood that they could not obtain a loan from the entity(ies) based 
on where they lived or that would be required to visit a storefront 
location to obtain a loan, many consumers would decide not to submit 
the purported application forms with detailed contact and financial 
information, and instead seek out other loan options. Supervision 
directed the one or more entities to revise their Web sites and other 
marketing materials.

2.9.3 Misrepresentations Regarding Use of References Provided by 
Borrowers in Small Dollar Loan Applications

    Examiners observed one or more entities making false 
representations regarding the use of information provided by consumers 
in loan applications. The entity(ies) required applicants to provide 
names of references, including work colleagues, neighbors, and family 
members, on the loan applications. On its loan applications, the 
entity(ies) represented, directly and by implication, that the 
references would only be contacted to verify information and evaluate 
creditworthiness in connection with the consumers' loans. However, the 
entity(ies) also contacted the applicants' references to market loan 
products to them. Supervision concluded that the entity(ies), by 
misleading consumers about how they would use the consumers' 
references, engaged in deceptive acts or practices. A consumer acting 
reasonably under the circumstances could interpret the loan 
applications to mean that the entity(ies) would only contact references 
in connection with the consumers' loans and that the entity(ies) would 
not market their services to the individuals identified by consumers as 
references. The representations were material because they were likely 
to impact consumer behavior. For example, if borrowers were aware that 
the entity(ies) makes marketing calls to the references listed on 
applications, borrowers may provide different references or not apply 
for the loan at all. Supervision directed one or more lenders to ensure 
that all disclosures regarding the collection and use of references do 
not include any false or misleading information.
    Examiners also observed one or more entities representing, directly 
or by implication, in loan applications that the reference information 
provided by borrowers would be used only to contact references 
regarding the borrowers' loan applications. The entity(ies) indicated 
that these references would be ``checked,'' implying that they would be 
contacted only at loan origination. Instead, the entity(ies) repeatedly 
contacted the references when the borrowers' loans became delinquent. 
Supervision concluded that these representations constituted deceptive 
acts or practices.

[[Page 48711]]

The entity(ies) applications were likely to mislead consumers acting 
reasonably under the circumstances by creating the net impression that 
references would be contacted only at origination. This representation 
was material because borrowers might have supplied other names of 
references or not applied for loans at all if they had known their 
references would be contacted for debt collection purposes. Supervision 
directed one or more entities to review all disclosures regarding the 
collection and use of references, including references listed by 
borrowers on loan applications, and to ensure that the disclosures do 
not include any false or misleading information.

2.9.4 Small Dollar Lending Unauthorized Debits and Overpayments

    Examiners observed that one or more entities debited the accounts 
of borrowers who had already paid their debts. Under the applicable 
loan agreements, the entity(ies) was permitted to initiate ACH debits 
from the accounts of borrowers whose loans were past due. However, one 
or more entities sought payment through the ACH system from the 
accounts of borrowers who had already paid their loans by making cash 
payments at branch locations. Supervision concluded that failing to 
implement adequate processes to reasonably avoid unauthorized charges 
of, debits to, and overpayments by borrowers constituted unfair acts or 
practices. The failure to prevent successful and unsuccessful payment 
attempts to the accounts of borrowers who paid their debts caused 
substantial injury in the form of overpayments and fees. Consumers 
could not avoid this injury because they were not aware, regardless of 
whether they were making payments in response to collection efforts, 
that ACH debits had been initiated. The injury to consumers from 
failing to have adequate processes to avoid the unauthorized charges, 
debits and overpayments outweighs the benefits to consumers or 
competition, given that implementing such processes would not involve 
excessive costs to the entity(ies). One or more entities have 
undertaken remedial and corrective actions regarding these violations, 
which are under review by Supervision.
    One or more entities also failed to implement adequate processes to 
accurately and promptly identify and refund borrowers who paid more 
than they owed, either in person at stores or via the ACH network. 
Several consumers did not receive refunds until examiners alerted the 
entity(ies) to the overpayments, which in some cases was almost a year 
after the borrowers made the overpayments. Supervision concluded that 
by failing to implement adequate processes to accurately and promptly 
monitor, identify, correct, and refund overpayments by consumers, the 
entity(ies) engaged in unfair acts or practices. The acts or practices 
caused injury to borrowers who have paid their debts because a number 
of consumers were deprived of their funds for extended periods of time. 
They could not avoid the injury because they were unaware that the 
entity(ies) would double debit their accounts and the consumers have no 
control over the lenders' refund process. The injury to borrowers from 
failing to have adequate processes to refund borrowers outweighs the 
benefits to them or to competition, given that implementing such 
processes would not involve excessive costs to the entity(ies). One or 
more entities have undertaken remedial and corrective actions regarding 
these violations, which are under review by Supervision.

2.10 Fair Lending

2.10.1 Mortgage Servicing

    As part of its fair lending work, the Bureau seeks to ensure that 
creditworthy consumers have access to the full array of appropriate 
options when they have trouble paying their mortgages, without regard 
to any prohibited basis. Mortgage servicing, and specifically default 
servicing, may introduce fair lending risks because of the complexity 
of certain processes, the range of default servicing options, and the 
discretion that can sometimes exist in evaluating and selecting among 
available default servicing options.
    In mortgage servicing, our supervisory work has included use of the 
Mortgage Servicing Exam Procedures and the ECOA Baseline Modules, both 
of which are part of the CFPB Supervision and Examination Manual. 
Examination teams use these procedures to conduct ECOA Baseline 
Reviews, which evaluate institutions' compliance management systems 
(CMS), or ECOA Targeted Reviews, which are more in-depth reviews of 
activities that may pose heightened fair lending risks to consumers. As 
discussed in the Mortgage Servicing Special Edition of Supervisory 
Highlights,\49\ published in June 2016, these exam procedures contain 
questions about, among other things, the fair lending training of 
servicing staff, fair lending monitoring of servicing, and servicing of 
consumers with limited English proficiency.
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    \49\ See Supervisory Highlights Mortgage Servicing Special 
Edition 2016, at 5, available at http://files.consumerfinance.gov/f/documents/Mortgage_Servicing_Supervisory_Highlights_11_Final_web_.pdf.
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    In one or more ECOA targeted reviews of mortgage servicers, CFPB 
examiners found weaknesses in fair lending CMS. In general, examiners 
found deficiencies in oversight by board and senior management, 
monitoring and corrective action processes, compliance audits, and 
oversight of third-party service providers.
    In one or more examinations, data quality issues, which were 
related to a lack of complete and accurate loan servicing records, made 
certain fair lending analyses difficult or impossible to perform. 
Examiners attributed these data quality issues to significant 
weaknesses in CMS-related policies, procedures, and service provider 
oversight.
    Separately, fair lending analysis at one or more mortgage servicers 
was affected by a lack of readily-accessible information concerning a 
borrower's ethnicity, race, and sex information that had been collected 
pursuant to Regulation B or Regulation C and transferred to the 
servicer. One or more mortgage servicers acknowledged the importance of 
retaining in readily-accessible format--for the express purpose of 
performing future fair lending analyses--ethnicity, race, and sex data 
that it had received in the borrower's origination file.

3. Remedial Actions

3.1 Public Enforcement Actions

3.1.1 Fay Servicing

    On June 7, 2017, the CFPB announced an enforcement action against 
Fay Servicing for failing to provide mortgage borrowers with certain 
protections against foreclosure that are required by law.\50\ The 
Bureau found that Fay violated the CFPB's servicing rules by keeping 
borrowers in the dark about critical information about the process of 
applying for foreclosure relief. As part of the requirements for 
keeping borrowers informed, servicers generally must send an 
acknowledgement notice when they receive an application for foreclosure 
relief. The notice must state whether and what additional documents or 
information are required from the borrower to complete the application. 
After a borrower completes the application, servicers must also 
generally send an evaluation notice spelling out what foreclosure 
relief options they are offering, the deadline to

[[Page 48712]]

accept or reject the offer, and the rights borrowers have to appeal a 
servicer's decision to deny certain types of relief.
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    \50\ See related Consent Order, available at http://www.consumerfinance.gov/documents/4820/062017_cfpb_Fay_Servicing-consent_order.pdf.
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    Fay Servicing failed to send or timely send both acknowledgment and 
evaluation notices with the relevant, correct information, putting the 
onus on borrowers to try to determine what else they had to do to 
attempt to save their homes or otherwise avoid foreclosure. The Bureau 
also found instances where the servicer illegally launched or moved 
forward with the foreclosure process while borrowers were actively 
seeking help to save their homes. The CFPB has ordered Fay Servicing to 
provide timely and accurate acknowledgment and evaluation notices, to 
solicit certain consumers for available loss mitigation options and pay 
up to $1.15 million to harmed borrowers.

3.1.2 Nationstar Mortgage LLC, d/b/a Mr. Cooper

    On March 15, 2017, the Bureau announced an enforcement action 
against Nationstar Mortgage LLC, d/b/a Mr. Cooper (Nationstar) for 
violating the Home Mortgage Disclosure Act (HMDA) by consistently 
failing to report accurate data from 2012 through 2014, under the 
version of the HMDA rule that predates the creation of the CFPB.
    Through its supervision process, the Bureau found that Nationstar's 
HMDA compliance systems were flawed and generated mortgage lending data 
with significant, preventable errors. Nationstar also failed to 
maintain detailed HMDA data collection and validation procedures, and 
failed to implement adequate compliance procedures. It also created 
reporting discrepancies by failing to maintain consistent data 
definitions among its various lines of business.
    Nationstar has a history of HMDA non-compliance. In 2011, the 
Commonwealth of Massachusetts Division of Banks reached a settlement 
with Nationstar to address HMDA compliance deficiencies. The loan file 
samples reviewed by the Bureau showed substantial error rates in three 
consecutive reporting years, even after the settlement with the 
Massachusetts Division of Banks. In the samples reviewed, the Bureau 
found error rates of 13 percent in 2012, 33 percent in 2013, and 21 
percent in 2014.
    The Bureau's consent order requires Nationstar to pay a $1.75 
million penalty to the Bureau's Civil Penalty Fund. Nationstar must 
also review, correct, and make available its corrected HMDA data from 
2012-14. In addition, Nationstar must assess and undertake any 
necessary improvements to its HMDA compliance management system to 
prevent future violations. The action includes the largest HMDA civil 
penalty imposed by the Bureau to date, which stems from Nationstar's 
market size, the substantial magnitude of its errors, and its history 
of previous violations.

3.2 Non-Public Supervisory Actions

    In addition to the public enforcement actions above, recent 
supervisory activities have resulted in approximately $14 million in 
restitution to more than 104,000 consumers. These nonpublic supervisory 
actions generally have been the product of CFPB supervision and 
examinations, often involving either examiner findings or self-reported 
violations of Federal consumer financial law during the course of an 
examination. Recent nonpublic resolutions were reached in auto finance 
origination matters.

4. Supervision Program Developments

4.1 Use of Enforcement and Supervisory Authority

    In the Summer 2015 edition of Supervisory Highlights, the Bureau 
provided information on its Potential Action and Request for Response 
(PARR) letter process and the Action Review Committee (ARC) process. 
The ARC process is used by senior executives in the Bureau's Division 
of Supervision, Enforcement, and Fair Lending to determine through a 
deliberative and rigorous process whether matters that originate from 
examinations will be resolved through confidential supervisory action 
or be further investigated for possible public enforcement action.\51\
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    \51\ See Supervisory Highlights: Summer 2015, at 27, available 
at http://files.consumerfinance.gov/f/201506_cfpb_supervisory-highlights.pdf.
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    In June 2017, the Bureau released a blog which noted that in fiscal 
year 2016, about one-third of those examinations that were considered 
through the ARC process were determined appropriate for further 
investigation for possible public enforcement action. This equated to 
approximately 10 percent of all examinations in fiscal year 2016.\52\
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    \52\ For more information regarding the evaluation factors, see 
CFPB blog titled ``How we keep you safe in the consumer financial 
market place'' available at https://www.consumerfinance.gov/about-us/blog/how-we-keep-you-safe-consumer-financial-marketplace/.
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    More detailed information on the number of ARC decisions is 
presented in Table 1 below. This table reflects the total number of ARC 
decisions and their outcomes for the fiscal years 2012 through 2016. 
The numbers in the table do not reflect all supervisory examinations or 
all enforcement investigations in any given year. Instead, they show 
the ARC decisions made on the subset of matters that go through the ARC 
process, which are generally those examinations in which the exam team 
found evidence of significant violations of Federal consumer financial 
law. These numbers are also reflective in part of the Bureau's risk-
based approach to supervision. Pursuant to that approach, the Bureau 
concentrates its efforts on institutions and product lines that it 
determines through its analytical prioritization process pose the 
greatest risk to consumers.
    As reflected in the table, since 2014, the number of matters 
raising issues that trigger the ARC process and the number of those 
matters that are determined appropriate for further investigation for 
possible public enforcement action moving to enforcement--in whole or 
in part--have remained somewhat consistent. Taken together, about a 
third of the ARC decisions in fiscal years 2014 to 2016 were determined 
appropriate for further investigation for possible public enforcement 
action. Any violations identified in the remaining matters were 
determined appropriate to be resolved through confidential supervisory 
action.

                                                         Table 1--ARC Decisions Through FY 2016
                                                                  [September 30, 2016]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                           Outcome                               FY 12 *       FY 13        FY 14        FY 15        FY 16        Total      % of total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Determined appropriate for further investigation for possible            7           10           11            9            8           45        24.59
 public enforcement action...................................
Determined appropriate for resolution through confidential               7            6           32           41           31          117        63.93
 supervisory action..........................................

[[Page 48713]]

 
Determined appropriate, in part for further investigation for            0            1            8            5            7           21        11.48
 possible public enforcement, and in part for resolution
 through confidential supervisory action **..................
                                                              ------------------------------------------------------------------------------------------
    Total....................................................           14           17           51           55           46          183       100.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Reflects part of the Fiscal Year; the ARC process was first implemented partway through FY 2012.
** With respect to some exams, some findings are referred to supervision and some findings are referred to enforcement. Either Enforcement or
  Supervision will exclusively consider each finding.

    The Bureau commits to publishing ARC data going forward at the 
conclusion of each fiscal year, beginning with the data for fiscal year 
2017 in the next edition of Supervisory

4.2 Fair Lending Developments

4.2.1 HMDA Data Collection and Reporting Reminders for 2017

    As reported in previous editions of Supervisory Highlights, 
beginning with Home Mortgage Disclosure Act (HMDA) data collected in 
2017 and submitted in 2018, responsibility to receive and process HMDA 
data will transfer from the Federal Reserve Board (FRB) to the 
CFPB.\53\ The HMDA agencies have agreed that a covered institution 
filing HMDA data collected in or after 2017 with the CFPB will be 
deemed to have submitted the HMDA data to the appropriate Federal 
agency.\54\
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    \53\ For additional information regarding HMDA data collection 
and reporting reminders for 2017, see Supervisory Highlights, Fall 
2016, available at http://files.consumerfinance.gov/f/documents/Supervisory_Highlights_Issue_13__Final_10.31.16.pdf.
    \54\ The ``HMDA agencies'' refers collectively to the CFPB, the 
Office of the Comptroller of the Currency (OCC), the Federal Deposit 
Insurance Corporation (FDIC), the FRB, the National Credit Union 
Administration (NCUA) and the Department of Housing and Urban 
Development (HUD).
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    The effective date of the change in the Federal agency that 
receives and processes the HMDA data does not coincide with the 
effective date for the new HMDA data to be collected and reported under 
the Final Rule amending Regulation C published in the Federal Register 
on October 28, 2015. The Final Rule's new data requirements will apply 
to data collected beginning on January 1, 2018. The data fields for 
data collected in 2017 have not changed.
    Additional information about HMDA, the HMDA Filing Instructions 
Guide (FIG) and other data submission resources are located at: http://www.consumerfinance.gov/data-research/hmda/.

4.2.2 HMDA Data Reviews and the Adequacy of HMDA Compliance Programs

    As part of its supervision of very large banks and nonbank mortgage 
lenders, the CFPB reviews the accuracy of HMDA data and the adequacy of 
HMDA compliance programs. In 2013, the CFPB issued a bulletin reminding 
mortgage lenders about the importance of submitting correct mortgage 
loan data. The CFPB has conducted HMDA reviews at dozens of bank and 
nonbank mortgage lenders, and has found that many lenders have adequate 
compliance systems and produce HMDA data with few errors. Moreover, 
while some lenders have been required to resubmit their HMDA data 
because their errors exceeded the relevant resubmission thresholds, 
most of those matters have been addressed through a supervisory 
resolution.
    As noted above, the 2015 Final Rule's new data requirements will 
apply to data collected beginning on January 1, 2018. Given the recent 
updates to the rule, the Bureau's current principal focus is on 
providing regulatory implementation support to financial institutions, 
to assist them in operationally implementing the recent changes to the 
HMDA requirements. After the rule takes effect, consistent with our 
approach to the implementation of other Bureau rules requiring 
significant systems and operational changes, our approach will 
generally be diagnostic and corrective, not punitive. In our initial 
examinations for compliance with the rule, we intend to consider 
whether companies have made good faith efforts to come into compliance 
with the rule in a timely manner. Specifically, we will be evaluating a 
company's overall efforts to come into compliance, including assessing 
the compliance management system and conducting transaction testing. If 
errors are identified, we will work with the institution to determine 
the root cause of the issue and determine what corrective actions, if 
any, are necessary.

4.2.3 FFIEC Releases Updates to HMDA Examiner Transaction Testing 
Guidelines

    In August 2017, the FFIEC, of which the Bureau is a member agency, 
released the FFIEC HMDA Examiner Transaction Testing Guidelines 
(Guidelines).\55\ For HMDA data collected by financial institutions in 
or after 2018, these new FFIEC Guidelines replace the Bureau's HMDA 
Resubmission Schedule and Guidelines which was released in October 
2013.
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    \55\ See the related Guidelines, available at https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201708_cfpb_ffiec-hmda-examiner-transaction-testing-guidelines.pdf.
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The Guidelines Will Help Ensure Accurate Data and Address Reporting 
Burden Concerns
    When examining financial institutions, federal supervisory agencies 
may check the accuracy of HMDA data within a sample of reported 
transactions. If examiners find that the number of errors in the sample 
exceeds certain thresholds, the lender is directed to correct and 
resubmit its HMDA data.
    In light of the new data fields that will be required beginning in 
2018, the new Guidelines:
    [ssquf] Eliminate the file error resubmission threshold under which 
a financial institution would be directed to correct and resubmit its 
entire Loan Application Register (LAR) if the total number of sample 
files with one or more errors equaled or exceeded a certain threshold.
    [ssquf] Establish, for the purpose of counting errors toward the 
field error resubmission threshold, allowable tolerances for certain 
data fields.
    [ssquf] Provide a more lenient 10 percent field error resubmission 
threshold for financial institutions with LAR counts of 100 or less, 
many of which are community banks and credit unions.

[[Page 48714]]

    At the same time, the Guidelines ensure HMDA data integrity by 
maintaining field error resubmission thresholds that safeguard the 
accuracy of each data field, and thus all data, reported under HMDA. 
Furthermore, under the Guidelines, examiners may direct financial 
institutions to change their policies, procedures, audit processes, or 
other aspects of its compliance management system to prevent the 
reoccurrence of errors.
All Federal HMDA Supervisory Agencies Will Use the Same Guidelines
    The Guidelines represent a joint effort by the Bureau, the FRB, the 
OCC, the FDIC, and the NCUA to provide--for the first time--uniform 
guidelines across all Federal HMDA supervisory agencies. This 
collaboration began with the Bureau issuing a Request for Information 
\56\ and holding outreach meetings in which the other supervisory 
agencies participated. The agencies then worked together to develop the 
Guidelines.
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    \56\ See the related Request for Information, available at 
http://files.consumerfinance.gov/f/201601_cfpb_request-for-information-regarding-home-mortgage-disclosure-act-resubmission.pdf.
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    Information about HMDA and other data submission resources are 
located at http://www.consumerfinance.gov/adata-research/hmda/.

4.3 Examination Procedures

4.3.1 Updates to the Compliance Management Review Examination 
Procedures

    On August 30, 2017, the CFPB released revised Compliance Management 
Review examination procedures. The procedures were updated in order to 
reflect changes to the FFIEC Interagency Consumer Compliance Ratings 
System (CC Ratings System), which became effective March 31, 2017. 
These procedures do not reflect any new or additional expectations of 
institutions regarding their CMS, nor do they change the examiner's 
assessment from that which examiners have been conducting in the past: 
They only reorganize the procedures to align with the CC Ratings System 
and formalize current CMS review processes.
    As revised, the CMS examination procedures are divided into five 
Modules:

[ssquf] Module 1: Board and Management Oversight
[ssquf] Module 2: Compliance Program
[ssquf] Module 3: Service Provider Oversight
[ssquf] Module 4: Violations of Law and Consumer Harm
[ssquf] Module 5: Examiner Conclusions and Wrap-Up

    In general, all CFPB reviews will include Modules 1, 2, 3, and 5. 
Module 4 will generally be included in targeted reviews of individual 
product lines, as well as examinations that will result in the 
institution receiving a consumer compliance rating. The CMS review for 
target reviews will generally be limited to reviewing aspects of CMS 
pertaining to the product line under review. To the extent that CMS for 
a particular product line or a specific institution has been previously 
reviewed, CFPB examiners may evaluate CMS by reviewing previous 
conclusions and assessing only the changes to the current CMS program.

4.4 Recent CFPB Guidance

    The CFPB is committed to providing guidance on its supervisory 
priorities to industry and members of the public.

4.4.1 Phone Pay Fees Bulletin

    On July 31, 2017, the Bureau released Bulletin 2017-01,\57\ which 
provides guidance to covered persons and service providers regarding 
fee assessments for pay-by-phone services. The bulletin provides 
examples of conduct observed during supervisory examinations and 
enforcement investigations that may violate the Dodd-Frank Act 
prohibition on engaging in UDAAPs, as well as the FDCPA. The bulletin 
clarifies that the Bureau is not mandating specific pay-by-phone 
disclosure requirements, but states that the Bureau expects supervised 
entities to review their practices on charging phone pay fees for 
potential risks of violating Federal consumer financial laws. To that 
end, the bulletin offers a number of suggestions for entities assessing 
whether their practices violate these laws and further recommends 
having in place a corrective action program to address any violations 
identified and reimburse consumers when appropriate.
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    \57\ See Compliance Bulletin 2017-01, available at https://www.consumerfinance.gov/policy-compliance/guidance/implementation-guidance/bulletin-phone-pay-fees/.
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5. Conclusion

    The Bureau recognizes the value of communicating its program 
findings to CFPB-supervised entities to help them comply with Federal 
consumer financial law, and to other stakeholders to foster a better 
understanding of the CFPB's work.
    To this end, the Bureau remains committed to publishing its 
Supervisory Highlights report periodically to share information about 
general supervisory and examination findings (without identifying 
specific institutions, except in the case of public enforcement 
actions), to communicate operational changes to the program, and to 
provide a convenient and easily accessible resource for information on 
the Bureau's guidance documents.

    Dated: September 7, 2017.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2017-22700 Filed 10-18-17; 8:45 am]
BILLING CODE 4810-AM-P


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