In response to the significant impacts of the COVID-19 pandemic, the US Consumer Financial Protection Bureau ("CFPB" or "Bureau") announced in July 2020 that it would shift its supervisory priorities and begin performing Prioritized Assessments ("PAs" or "assessments") instead of planned examinations. On January 19, 2021, the CFPB issued its findings in a COVID-19 Prioritized Assessments Special Edition of Supervisory Highlights (the "Report"). Supervised entities in the areas discussed should evaluate the Report findings, as these may become future supervisory and enforcement priorities.
The PAs are a new, targeted supervisory approach developed to evaluate the pandemic's effect on consumers and the consumer financial marketplace, and to obtain real-time information from regulated entities in markets with elevated risks of consumer harm because of the pandemic. PAs are focused on (i) areas where the CFPB believes the risks are highest to consumers who have lost jobs or income and have trouble making loan payments, and (ii) markets where Congress provided special consumer provisions under the CARES Act, such as residential mortgage servicing, student loan servicing, auto loan servicing and collections, among others.
The Bureau sent targeted information requests to relevant supervised entities seeking information about: (i) how the institution was assisting consumers; (ii) challenges the institution was facing as a result of the COVID-19 pandemic; (iii) changes the institution made to its compliance management system in response to the pandemic; (iv) the institution's relevant communications with consumers; (v) basic data regarding the institution's response to the COVID-19 pandemic; and (vi) information about service providers.
In the Report, the CFPB clarifies that these assessments are not meant to identify violations of law. Rather, the PAs are designed to identify and assess potential risks and to communicate these risks to supervised entities to prevent consumer harm. As part of this process, the Bureau indicates that it sent close-out letters to entities with the observed risks, containing supervisory recommendations, where applicable. In addition, the CFPB says it will be following up on the risks identified in the normal course of its supervisory work.
The Report provides some general observations, including that entities offered consumers accommodations for pandemic-related hardships, even when not required by the CARES Act. These efforts related to expanded payment assistance programs and fee waivers. However, the Report indicates that some supervised entities struggled to meet the challenges presented by the pandemic. Some entities, for example, experienced backlogs of accommodation requests or provided inaccurate information about the accommodations offered.
Importantly, the Report details common changes entities made in response to the risks examiners identified, such as:
- Providing consumer remediation;
- Reversing fees;
- Updating scripts to provide accurate information to consumers;
- Transitioning from manual to automated processes;
- Correcting inaccurate credit reporting;
- Correcting account histories; and
- Increasing staffing to clear backlogs and to address increased demand for accommodations.
The Report provides detailed examination observations related to risks in the areas of mortgage servicing, auto loan servicing, student loan servicing, credit card account management, consumer reporting and furnishing, debt collection, deposits, prepaid accounts and small business lending. We have highlighted some notable examples below.
- Provided incomplete or inaccurate information to consumers about forbearance, including inaccurate information about the obligation to make a "lump sum" payment of all missed monthly payments at the end of the forbearance period, when that was not required.
- Incorrectly told consumers that they needed to be delinquent on their loans to qualify for the forbearance.
- Sent collections and default notices, assessed late fees and initiated foreclosures for consumers enrolled in forbearance.
- Placed some borrowers in automatic or unwanted forbearances.
Auto Loan Servicing
- Servicers provided consumers imprecise information about the impact of interest accrual during deferment periods on the final loan payment amount; the CFPB noted that more specific information could have allowed consumers to budget and plan for future large payments.
- Some servicers withdrew monthly payments even after agreeing to deferments.
- One servicer sent notices warning borrowers of possible repossession when repossession operations had been suspended, likely affecting how some borrowers spent discretionary money during the pandemic.
Student Loan Servicing
- Multiple servicers failed to routinely discuss all available repayment options with borrowers requesting payment assistance.
- One private loan holder was not responding to forbearance extension requests, resulting in thousands of extension requests being delayed and ultimately denied because the loan holder never responded.
- Some servicers of non-federally owned loans failed to prevent preauthorized electronic funds transfers following forbearance approval.
Credit Card Account Management
- Some issuers using manual processes to handle the high volumes of relief requests noted significant backlogs in processing the requests, causing accounts to become delinquent between the time of the requests and their eventual processing, exposing the accounts to potential negative credit reporting, charge-offs or account closures.
- Some employees provided inaccurate information to consumers to collect payments from them, such as incorrectly telling consumers that they had to pay past-due amounts to enroll in the payment deferment program.
- Some issuers did not immediately suspend preauthorized transfers upon enrolling consumers in pandemic relief programs, despite making representations that payments would be suspended as of the date of enrollment.
Consumer Reporting and Furnishing
- Some entities furnished new delinquency information or advanced existing delinquency information after making an accommodation, when the furnisher was required to report the account or credit obligation as current (if current before the accommodation) or not advance the delinquent status (if delinquent before the accommodation).
- In April and May 2020, dispute investigation capacity was impacted because of staffing challenges related to the pandemic, resulting in some furnishers and consumer reporting agencies ("CRAs") being unable to conduct timely investigations of disputed tradelines. The Report notes that Supervision continues to monitor dispute timeliness. However, in April 2020, the CFPB issued guidance indicating that it did not intend to cite untimely dispute handling in an examination of, or bring an enforcement action against, CRAs or furnishers that make good faith efforts to investigate disputes as quickly as possible.
- The Report notes risks associated with various state laws or regulations prohibiting debt collectors from imposing new attachments on bank accounts or new wage garnishments, stating that continued litigation and judgment enforcement during the pandemic could pose compliance risks and risks to consumers.
- The most common risks related to the failure of institutions to implement certain state requirements to protect consumer access to the full amount of government benefits, specifically Economic Impact Payments and unemployment insurance benefits.
- One institution mailed prepaid account information without required disclosures and privacy notices, but mitigated the lack of paper disclosure by pointing consumers to its website with the information and subsequently mailing required disclosures and privacy notices.
Small Business Lending
- Several institutions limited eligibility for Paycheck Protection Program ("PPP") loans to existing customers, which, while neutral on its face, may have a disproportionate negative impact on a prohibited basis and runs a risk of violating the Equal Credit Opportunity Act ("ECOA") and Regulation B. However, examiners noted the challenges faced by lenders implementing the PPP during a nationwide emergency—including managing extreme demand—and found that the institutions' stated justifications for limiting PPP loans to existing customers (including Know Your Customer legal requirements and the prevention of fraud) reflected legitimate business needs. The Report indicates that examiners did not perform a full analysis of any institution's policy and did not make any determination about compliance with ECOA or Regulation B. Rather, examiners encouraged lenders to consider fair lending risks in participating in the PPP.
As indicated above, the Report was meant to detail risks the CFPB has observed in its high-level assessments to ensure other supervised entities are able to avoid consumer harm, rather than identifying violations of consumer financial law. But the CFPB has indicated that it will address these risks through its formal supervisory and enforcement channels. Accordingly, supervised entities operating in the noted areas should understand and mitigate the identified risks. Although early CFPB statements indicated that the Bureau would take a flexible approach to supervision and enforcement during the pandemic, it remains unclear what effect, if any, new leadership at the CFPB will have on its review of action taken during the pandemic.
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