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CFPB Supervisory Highlights Report Emphasize UDAAP, Reg E Violations

on Friday, 19 December 2014 in Banking Update

The CFPB recently released its Fall 2014 Supervisory Highlights report, which details recent findings from CFPB exams of providers of consumer financial products and services.

One of most cited regulatory issues continues to be violations deemed unfair, abusive, or deceptive acts or practices (UDAAP). The report highlighted those found in the consumer reporting, debt collection, deposit, mortgage servicing, and student loan servicing industries. Some of the key takeaways include:

  • In its reviews of consumer reporting agencies (CRAs), the CFPB found that Fair Credit Reporting Act (FCRA) dispute-handling obligations were insufficient or inconsistently applied. Specifically, the report noted that certain CRAs failed to provide required information in connection with reinvestigations of consumer disputes that arose from complaints about the completeness and accuracy of information in CRA files. While the CFPB’s focus has been on the CRAs in recent months, we expect that the CFPB will soon shift its focus on consumer reporting compliance to financial institutions that provide information to CRAs. As such, we recommend that larger financial institutions review their FCRA compliance policies and procedures, particularly those that address dispute and error resolution requirements.
  • The CFPB continued to scrutinize debt collectors for potential Fair Debt Collection Practices Act (FDCPA) violations. The CFPB found that debt collectors had: (1) exceeded FDCPA limits on convenience fees, (2) threatened litigation without bona fide intent to pursue a claim, (3) due to inadequate training, permitted disclosure of an employer’s name before receiving a disclosure request, (4) overstated APRs in disclosure documents provided to debt buyers, and (5) delayed forwarding payments to debt buyers in a timely manner.
  • In the deposit space, the report noted several violations of Regulation E’s requirements for electronic funds transfers, including: (1) violations of error resolution requirements (e.g., denying an error claim on the basis of a consumer failing to provide additional information, or requiring the consumer to contact the merchant first to try to resolve a claim); (2) violations regarding liability for unauthorized transfers (e.g., denying claims for stolen cards that had the consumer’s PIN compromised); and (3) failure to comply with notice requirements by omitting statements regarding the consumer’s right to obtain documentation relied upon in an error investigation.
  • With respect to student lending, the report highlighted a number of UDAAPs, including (1) practices that maximized late fees, (2) misrepresentations regarding minimum payments on statements, (3) improper late fees, (4) inaccurate tax information, (5) misrepresentation of bankruptcy discharge rules, and (6) inappropriate telephone communications.

In addition, the report offered updated supervisory guidance with respect to recently implemented mortgage servicing and HMDA rules:

  • With respect to the CFPB’s new mortgage servicing rules, the report noted that those went into effect on January 10, 2014. The rules require mortgage servicers to maintain requisite oversight policies and procedures, which the CFPB in several instances found to be insufficient or lacking entirely.
  • In addition, the CFPB announced in January 2014 different standards for HMDA resubmissions by financial institutions reporting 1,000 or more loans on its HMDA Application Register. The CFPB indicated it is not applying the new standard to resubmissions of items that relate to transactions to which the old rules applied.

Jonathan J. Wegner

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