Earlier this week, the Bureau released the Winter 2019 edition of Supervisory Highlights. This marks the first edition issued under the CFPB's new Director, Kathy Kraninger, who was confirmed to a five-year term in December. The report describes observations from examinations that were generally completed between June and November 2018 and summarizes recent publicly-released enforcement actions and guidance.
Like the sole edition of Supervisory Highlights issued under Acting Director Mick Mulvaney's tenure, this edition emphasizes that "it is important to keep in mind that institutions are subject only to the requirements of relevant laws and regulations," and that the purpose of disseminating Supervisory Highlights is to "help institutions better understand" how the Bureau examines them for compliance—statements that signal a shift in how the Bureau approaches its supervisory role.
Through recent examination the Bureau identified illegal activities in four areas: automobile loan servicing, deposits, mortgage servicing, and remittances.
Automobile Loan Servicing. According to Supervisory Highlights, Bureau examiners found that one or more automobile loan servicers engaged in unfair acts or practices by incorrectly calculating the rebate due to consumers from an extended warranty product after a total loss or repossession of the vehicle. The miscalculations resulted in lower rebates being available to consumers. In addition, examiners identified instances in which one or more servicers engaged in deceptive acts or practices by sending borrowers deficiency notices that created the net impression that the balances listed reflected setoffs of all eligible ancillary-product rebates, when in fact, the servicers had not sought certain rebates for which the consumers were eligible.
Deposits. Bureau examinations revealed that some institutions engaged in deceptive acts or practices by representing that payments made through online bill-pay services would be debited on the date selected by the consumer or a few days after the selected date, when in some instances, the debit could occur earlier than the date the consumer selected.
Mortgage Servicing. As in prior versions of Supervisory Highlights, the Bureau made numerous findings related to mortgage servicing. First, the Bureau stated that some servicers engaged in unfair acts or practices by charging consumers late fees greater than the amount permitted by their mortgage notes. The Bureau referenced certain FHA mortgage notes and West Virginia mortgage notes as examples, and attributed the overcharges to servicing platform programming errors and insufficient vendor oversight.
In addition, the Bureau explained that some servicers made deceptive representations when they informed borrowers who requested private mortgage insurance cancellation that they were declined because the principal balance of the mortgage had not reached 80% of the original value ("LTV") of the property, when in fact, the borrowers had reached 80% LTV. Although the servicers were permitted to deny the borrowers' cancellation requests because they did not satisfy other criteria necessary to trigger borrower-initiated cancellation rights, the servicers did not provide accurate reasons to the borrowers for denying the requests.
The report also states that an examination of 2016 servicing practices revealed that some servicers violated the servicing rule requirement to exercise "reasonable diligence" in obtaining documents and information to complete a loss mitigation application. When servicers offered borrowers short-term loss mitigation programs based on evaluations of incomplete loss mitigation applications, examiners found that the servicers did not reach out to the borrowers near the end of the short-term program to ask if they would like to complete their applications. Because this examination reviewed 2016 activity, it did not cover the new requirements related to completing incomplete applications that became effective in 2017. These new requirements provide much more specificity about what it means to exercise "reasonable diligence" to complete a loss mitigation application.
Finally, the Bureau explained that while certain practices with respect to successors-in-interest to Home Equity Conversion Mortgage loans did not amount to a legal violation, they posed a risk of deception. According to the Bureau, notices that some servicers sent to successors could create the net impression that a successor's submission of a statement of intent to purchase or sell the property was sufficient to cause the servicer to seek a foreclosure extension for the successor, when in fact the successor was also required to submit certain documents in order for the servicer to seek a foreclosure extension.
Remittances. According to the report, one or more supervised entities violated the error resolution provisions of the Remittance Rule—they did not make funds available to a designated recipient by the date stated in disclosures, the delay was not due to one of the exceptions specified in the rule, and they failed to refund fees and, as allowed by law, taxes.
Corrective Action. In each of these cases, the institutions undertook plans to remediate affected consumers and/or to make changes to processes, policies, or communications with consumers to address the issues identified by examiners.
The report describes the five public, previously-announced enforcement actions stemming from supervisory activity. The enforcement actions alleged unfair, deceptive, or abusive acts or practices as well as violations of the Gramm-Leach-Bliley Act, the Truth in Lending Act, and the Fair Credit Reporting Act.
Supervision Program Developments
Supervisory Highlights also discusses recent Bureau guidance. Consistent with the Bureau's introductory statement that "institutions are subject only to the requirements of relevant laws and regulations," many of these guidance documents emphasize the nonbinding nature of the Bureau's supervisory findings and guidance.
Supervisory Highlights notes that in September 2018, the Bureau issued a Bulletin discussing changes to how it articulates supervisory expectations in connection with examinations. Among other things, the Bulletin emphasized that supervisory findings are not legally enforceable.
The report also discusses the Interagency Statement on the Role of Supervisory Guidance, a joint statement issued in September 2018 in conjunction with other agencies, that clarified the role of supervisory guidance. The statement explained that "supervisory guidance does not have the force and effect of law, and the agencies do not take enforcement action based on supervisory guidance."
In addition, Supervisory Highlights references the Bureau's September 2018 guidance on the practices of supervised entities in the wake of major disasters which noted instances in which regulations give the entities flexibility to take action that could benefit affected consumers, but unlike past Bureau disaster guidance, it did not encourage supervised entities to use that flexibility or take other steps to benefit consumers.
The report also mentions the Bureau's October 30, 2018 update to the Home Mortgage Disclosure Act ("HMDA") Small Entity Compliance Guide to reflect changes to HMDA requirements made by the Economic Growth, Regulatory Relief, and Consumer Protection Act.
The Bureau stated that it publishes Supervisory Highlights "to aid Bureau-supervised entities in their efforts to comply with Federal consumer financial law."
See our prior coverage of these 2018 supervision program developments here.
This first publication of Supervisory Highlights under Director Kraninger appears consistent with Kraninger's recent testimony in which she said the Bureau will focus on "prevention of harm." Whereas publications under Director Cordray tended to emphasize the number of consumers who received restitution payments and the total amount of those payments as a result of supervisory activities, this issuance does not indicate how many consumers may have been affected by the identified practices or how much restitution was required. Instead, the Bureau describes in each case the steps that the institutions undertook to remediate consumers and to ensure that their practices are compliant going forward.
Visit us at mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2019. The Mayer Brown Practices. All rights reserved.
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.