United States: BCFP's Latest Supervisory Highlights

The Summer 2018 edition of Supervisory Highlights –the first one the BCFP has issued under Mick Mulvaney's leadership – is much the same as previous editions. In it, the Bureau describes recent supervisory observations in various industries, and summarizes recent public enforcement actions as well as supervision program developments.

One aspect of the report that is notably different, however, is the introductory language. In prior regular editions of Supervisory Highlights, the report's introduction would emphasize the corrective action that the Bureau had required of supervised institutions. It would highlight the amount of total restitution to consumers and the number of consumers affected by supervisory activities, and would note the millions of dollars imposed in civil money penalties.

This new version eliminates all of that discussion from the introduction. Instead, the Bureau has added language emphasizing that "institutions are subject only to the requirements of relevant laws and regulations" and that the purpose of disseminating these Supervisory Highlights is to "help institutions better understand how the Bureau examines institutions" to help industry limit risks to consumers.

The first sentence of the report, which in previous iterations used to say that the Bureau is "committed to a consumer financial marketplace that is fair, transparent, and competitive, and that works for all consumers" now says the Bureau is committed to a marketplace that is "free, innovative, competitive, and transparent, where the rights of all parties are protected by the rule of law, and where consumers are free to choose the products and services that best fit their individual needs."

Ultimately, time will tell whether this is simply rhetoric or if the Bureau's supervisory and enforcement posture will be dramatically different from that under Mulvaney's predecessor.

Supervisory Observations

Through recent examination the Bureau identified illegal activities in five areas: automobile loan servicing, credit cards, debt collection, mortgage servicing, and payday lending.

  • Automobile Loan Servicing. According to Supervisory Highlights, Bureau examiners found that some automobile loan servicers engaged in a deceptive practice by sending billing statements indicating that consumers did not need to make a payment until a date months or years into the future when in fact the consumers needed to make a regular monthly payment. When consumers failed to pay by the next month, servicers treated their accounts as delinquent. In addition, examiners found that some servicers incorrectly repossessed vehicles due to errors in how the servicers coded the accounts or failures to cancel the repossessions after the consumers reached agreements with the servicers to avoid repossession.
  • Credit Cards. Bureau examinations revealed that the credit card account management operations of some supervised entities failed to comply with Regulation Z's requirements to re-evaluate consumer credit card accounts to assess whether it is appropriate to reduce the accounts' annual percentage rates.
  • Debt Collection. According to the report, some debt collectors regularly failed to comply with the Fair Debt Collection Practices Act requirement to mail debt validation notices before engaging in further collection activities after they received a written debt validation request from a consumer.
  • Mortgage Servicing. As in prior versions of Supervisory Highlights, the Bureau stated that some servicers engaged in an unfair practice by failing to timely convert consumers to permanent modifications once the consumers successfully completed trial modifications. Among other things, the report also stated that after borrowers submitted a complete loss mitigation application less than 37 days before a scheduled foreclosure sale, some servicers sent the borrowers a letter stating they would decision the application within 30 days. In some cases, the servicer then proceeded to conduct the scheduled foreclosure sale without decisioning the application. While this is not a violation of the mortgage servicing rules, the Bureau noted that it may be a deceptive practice because a borrower could reasonably read the letter to mean that the foreclosure sale would be postponed until the servicer made a decision on the borrower's application.
  • Payday Lending. The report stated that some entities deceptively represented that the entities would, or may have no choice but to, repossess the consumers' vehicles if the consumers failed to make payments or contact the entities. In addition, the Bureau found that some entities used debit card numbers or Automated Clearing House ("ACH") credentials to attempt to collect a payment when consumers had not validly authorized the entities to use those debit card numbers or ACH credentials in connection with the payments at issue. The Bureau explained that this is an unfair practices and, in some cases, a violation of Regulation E.
  • Notably, this installment of the Bureau's Supervisory Highlights marks the first time that the Bureau has included small business lending observations. The report addressed Equal Credit Opportunity Act ("ECOA") examinations the Bureau conducted. The examinations revealed that some financial institutions are effectively managing ECOA risks in the context of their small business lending programs by implementing robust policies and procedures that address ECOA risks; periodically reviewing their policies and procedures; conducting regular ECOA risk assessments, and having a board of directors or other managers that actively oversee the institution's compliance management system, among other things. However, the Bureau noted that, while it did not uncover a violation, some institutions failed to collect and maintain data in a form that would allow them to monitor and test for ECOA risks through statistical analysis.

Remedial Actions

The Bureau notes two public enforcement actions stemming from supervisory activity, and gives significant props to the institution that self identified and promptly self disclosed violations to the Bureau.

Somewhat out of the norm, this edition of Supervisory Highlights does not reference any non-public enforcement actions.

Supervision Program Developments

The Supervisory Highlights noted that in March 2018 the Bureau finalized amendments to its 2016 mortgage servicing rule to provide clearer standards for providing periodic statements to consumers entering and exiting bankruptcy and in May 2018 issued a final rule clarifying when a creditor may use a Closing Disclosure to establish good faith and reset tolerances under the 2017 TILA-RESPA Rule.

The Supervisory Highlights also addressed the Home Mortgage Disclosure Act ("HMDA"), small business lending, and the no-action letter issued to Upstart Network last year. Regarding HMDA, the Supervisory Highlights noted that in December 2017 the Bureau announced that it does not plan to require data resubmissions (absent material errors) or impose penalties for data collected in 2018 under the new, expanded Regulation C requirements that became effective this year. Further, in July, the Bureau issued a statement about the partial exemptions from HMDA reporting contained in the Economic Growth, Regulatory Relief, and Consumer Protection Act signed by President Trump on May 24. Although not discussed in the Supervisory Highlights, the Bureau issued an interpretive rule on August 31, 2018, explaining how depository institutions that originate fewer than 500 open- or closed-end home mortgage loans annually may take advantage of data collection and reporting relief. Our recent post about that rule can be found here. The Supervisory Highlights also noted that the new FFIEC HMDA Examiner Transaction Testing Guidelines will apply to data collected in 2018 and reported in 2019.

With regard to small business lending, the Supervisory Highlights stated that the Bureau has been conducting ECOA small business lending reviews, including statistical analyses of small business lending data and assessments of institutions' small business lending compliance management systems. Finally, the Supervisory Highlights noted that the Bureau is continuing to monitor Upstart Network's compliance with the no-action letter and, in July, announced the creation of an Office of Innovation.

The Bureau stated that it "expects that the publication of Supervisory Highlights will continue to aid Bureau-supervised entities in their efforts to comply with Federal consumer financial law."

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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