United States: Most Recent CFPB Supervisory Highlights Feature FCRA, LO Compensation And Debt Collection Issues

The Consumer Financial Protection Bureau's most recent supervisory highlights publication featured issues relating to the Fair Credit Reporting Act, loan originator compensation and in-person debt collection that should be on mortgage lenders' and debt collectors' radar.

The Fair Credit Reporting Act requires furnishers that regularly and in the ordinary course of business furnish information to consumer reporting agencies to promptly update information they determine is incomplete or accurate. CFPB examiners found that one or more such furnishers of deposit account information failed to correct and update the account information they had furnished to credit reporting agencies and/or did not institute reasonable policies and procedures regarding accuracy, including prompt updating of outdated information. When consumers would repay charged-off accounts in full, certain furnishers were found to have updated their systems of records to reflect the payment, but not to have notified the credit reporting agencies of the change in status from "charged-off" to "paid in full." Certain furnishers were also found to have notified the credit reporting agencies of the change in status only if they were asked to do so by the consumer. The CFPB pointed out that not updating an account to paid-in-full or settled-in-full status could adversely affect consumers' attempts to establish new deposit or checking accounts.

The CFPB's loan originator compensation rule requires creditors to establish and maintain written policies and procedures for loan originator activities, which specifically cover prohibited payments, steering, qualification requirements and identification requirements. The CFPB found during examinations that certain creditors violated this requirement by failing to maintain such written policies and procedures. In most of these cases, CFPB examiners found violations of one or more related substantive provisions of the rule. For example, certain creditors did not provide written policies and procedures to examiners, and also violated the rule by failing to comply with the requirement to include the loan originator's name and NMLS identification on loan documents.

At the end of 2015 the CFPB released Bulletin 2015-07. This Bulletin noted that both first-party and third-party debt collectors may run a heightened risk of committing unfair acts or practices in violation of the Dodd-Frank Act when they conduct in-person debt collection visits, including to a consumer's workplace or home. An act or practice is unfair under the Dodd-Frank Act when it causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and is not outweighed by countervailing benefits to consumers or to competition. With respect to substantial injury, the Bulletin explains that depending on the facts and circumstances, these visits may cause or be likely to cause substantial injury to consumers. For example, in-person collection visits may result in third parties such as consumers' co-workers, supervisors, roommates, landlords, or neighbors learning that the consumers have debts in collection, which could harm the consumer's reputation and, with respect to in-person collection at a consumer's workplace, result in negative employment consequences. The Bulletin also notes that third-party debt collectors and others subject to the Fair Debt Collection Practices Act engaging in in-person collection visits risk violating certain provisions of the FDCPA, such as Section 805(b), which prohibits communicating with third parties in connection with the collection of any debt (subject to certain exceptions).

On the same date that the Bulletin was published, the CFPB announced a consent order with EZCORP, Inc., a short-term, small-dollar lender, for illegal debt collection practices which included, among other things, in-person collection visits at consumers' homes or workplaces and risking disclosing the existence of consumers' debt to unauthorized third parties. EZCORP was required to refund $7.5 million to 93,000 consumers, pay a $3 million civil penalty, and stop collection of remaining payday and installment loan debts owed by approximately 130,000 consumers. The consent order also bars EZCORP from future in-person debt collection.

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