[Federal Register Volume 85, Number 176 (Thursday, September 10, 2020)]
[Notices]
[Pages 55828-55840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19978]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights, Issue 22 (Summer 2020)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory Highlights.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
issuing its twenty second edition of Supervisory Highlights. In this
issue of Supervisory Highlights, we report examination findings in the
areas of consumer reporting, debt collection, deposits, fair lending,
and mortgage servicing that were completed between September 2019 and
December 2019. The report does not impose any new or different
[[Page 55829]]
legal requirements, and all violations described in the report are
based only on those specific facts and circumstances noted during those
examinations.
DATES: The Bureau released this edition of the Supervisory Highlights
on its website on September 4, 2020.
FOR FURTHER INFORMATION CONTACT: Jaclyn Sellers, Counsel, at (202) 435-
7449. If you require this document in an alternative electronic format,
please contact CFPB_Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
1. Introduction
The Consumer Financial Protection Bureau (Bureau) is committed to a
consumer financial 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. To effectively
accomplish this, the Bureau remains committed to sharing with the
public key findings from its supervisory work to help industry limit
risks to consumers and comply with Federal consumer financial law.
The findings included in this report cover examinations in the
areas of consumer reporting, debt collection, deposits, fair lending,
and mortgage servicing that were completed between September 2019 and
December 2019.\1\
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\1\ This time frame refers to the Supervisory Observations
section only.
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It is important to keep in mind that institutions are subject only
to the requirements of relevant laws and regulations. The information
contained in Supervisory Highlights is disseminated to help
institutions better understand how the Bureau examines institutions for
compliance with those requirements. This document does not impose any
new or different legal requirements. In addition, the legal violations
described in this and previous issues of Supervisory Highlights are
based on the particular facts and circumstances reviewed by the Bureau
as part of its examinations. A conclusion that a legal violation exists
on the facts and circumstances described here may not lead to such a
finding under different facts and circumstances.
We invite readers with questions or comments about the findings and
legal analysis reported in Supervisory Highlights to contact us at
CFPB_Supervision@cfpb.gov.
2. Supervisory Observations
Recent supervisory observations are reported in the areas of
consumer reporting, debt collection, deposits, fair lending, and
mortgage servicing.
2.1 Consumer Reporting
Entities that obtain or use consumer reports from consumer
reporting companies (CRCs),\2\ or that furnish information to CRCs for
inclusion in consumer reports, play a vital role in the consumer
reporting process. They are subject to several requirements under the
Fair Credit Reporting Act (FCRA) \3\ and its implementing regulation,
Regulation V,\4\ including the requirement to only obtain or use
reports for a permissible purpose, and to furnish data subject to the
relevant accuracy and dispute handling requirements. In one or more
recent furnishing reviews, examiners found deficiencies in user and
furnisher compliance with FCRA permissible purpose, accuracy, and
dispute investigation requirements.
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\2\ The term ``consumer reporting company'' means the same as
``consumer reporting agency,'' as defined in the Fair Credit
Reporting Act, 15 U.S.C. 1681a(f), including nationwide consumer
reporting agencies as defined in 15 U.S.C. 1681a(p) and nationwide
specialty consumer reporting agencies as defined in 15 U.S.C.
1681a(x).
\3\ 15 U.S.C. 1681 et seq.
\4\ 12 CFR part 1022.
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2.1.1 Prohibition Against Using or Obtaining Consumer Reports Without a
Permissible Purpose
The FCRA prohibits a person from using or obtaining a consumer
report unless the consumer report is obtained for a purpose authorized
by the FCRA.\5\ This prohibition protects the privacy of consumers and
prevents the potential negative impact of certain inquiries. Examiners
found that one or more lenders obtained consumers' credit reports
without a permissible purpose. In reviewing files for compliance with
permissible purpose requirements, examiners found that the lenders'
employees obtained consumers' credit reports from a CRC without first
establishing that the lenders had a permissible purpose to obtain the
report under the FCRA. After identification of these issues, one or
more lenders revised permissible purpose policies, procedures, and
training materials. While consumer consent is not required by the FCRA
when a lender has another permissible purpose to obtain the consumer's
report, one or more mortgage lenders decided to require that the
lender's employees document consumer consent prior to obtaining the
consumers' credit reports, as an additional precaution to ensure that
the lender had a permissible purpose to obtain the consumers' reports.
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\5\ 15 U.S.C. 1681b(f).
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2.1.2 Furnisher Duty To Provide Notice of Delinquency of Accounts
The FCRA requires furnishers of information regarding delinquent
accounts to report the date of delinquency to the CRC within 90
days.\6\ The FCRA specifies that the date of first delinquency reported
by the furnisher ``shall be the month and year of the commencement of
the delinquency on the account that immediately preceded the action.''
\7\
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\6\ 15 U.S.C. 1681s-2(a)(5)(A). This provision applies to
accounts being placed for collection, charged to profit or loss, or
subjected to similar action.
\7\ Id.
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In one or more examinations of third-party debt collection
furnishers, examiners found that the furnishers failed to establish and
follow reasonable procedures to obtain the actual date of first
delinquency from their clients. Instead, they furnished a date they
knew or had reason to believe was an incorrect date of first
delinquency. The third-party debt collection furnishers were furnishing
information about cable, satellite, and telecommunications accounts.
The furnishers reported, as the date of first delinquency, the date
that the consumer's service was disconnected, despite
telecommunications companies routinely disconnecting service several
months after the first missed payment that commenced the delinquency.
In addition, in one or more examinations of third-party debt collection
furnishers, examiners found the furnisher provided the charge-off date
as the date of first delinquency, which is often several months after
the commencement of delinquency. Subsequent to these findings, one or
more furnishers ceased operations.
2.1.3 Duty To Conduct Reasonable Investigation of Disputes
For disputes filed directly with furnishers, Regulation V requires
furnishers to conduct a reasonable investigation with respect to the
disputed information and review all relevant information provided by
the consumer with the dispute notice.\8\ Similarly, for indirect
disputes filed with CRCs, the FCRA requires that, upon receiving notice
of the dispute from the CRC, the furnisher must conduct an
investigation with respect to the disputed information and review all
relevant information provided by the
[[Page 55830]]
CRC.\9\ In one or more examinations, examiners found that, for both
direct and indirect disputes, the furnishers failed to review
underlying account information and documentation, account history
notes, or dispute-related correspondence provided by the consumer to
assess what reasonable investigative steps would be necessary.
Inadequate staffing and high daily dispute resolution requirements
contributed to the furnishers' failure to conduct reasonable
investigations. As with the findings described above in section 2.1.2,
subsequent to these findings, one or more furnishers ceased operations.
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\8\ 12 CFR 1022.43(e)(1-2).
\9\ 15 U.S.C. 1681s-2(b)(1)(A)-(B).
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2.2 Debt Collection
The Bureau has the supervisory authority to examine certain
entities that engage in consumer debt collection activities, including
nonbanks that are larger participants in the consumer debt collection
market.\10\ Recent examinations of larger participant debt collectors
identified one or more violations of the Fair Debt Collection Practices
Act (FDCPA).
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\10\ 12 CFR 1090.
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2.2.1 False Litigation Threats and Misrepresentations Regarding
Litigation
Section 807(5) of the FDCPA prohibits ``[t]he threat to take any
action that cannot legally be taken or that is not intended to be
taken.'' \11\ Section 807(10) prohibits ``[t]he use of any false
representation or deceptive means to collect or attempt to collect any
debt . . . .'' \12\ Examiners found that one or more debt collectors
falsely threatened consumers with lawsuits that the collectors could
not legally file or did not intend to file, in violation of section
807(5). Examiners also determined that one or more debt collectors made
false representations regarding the litigation process and a consumer's
obligations in the event of litigation, in violation of section
807(10). In response to these findings, the debt collectors are making
changes to their training, scripts, monitoring, and other compliance
processes.
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\11\ 15 U.S.C. 1692e(5).
\12\ 15 U.S.C. 1692e(10).
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2.2.2 False Implication That Debt Could Be Reported to CRCs
Section 807(10) of the FDCPA prohibits ``[t]he use of any false
representation or deceptive means to collect or attempt to collect any
debt . . . .'' \13\ Examiners observed that one or more debt collectors
made implied representations to consumers that they would report their
debts to CRCs \14\ if they were not paid by a certain date. The debt
collectors did not report debts to CRCs for the relevant clients.
Examiners concluded that the debt collectors' statements were false
representations that violated section 807(10). In response to these
findings, the debt collectors are making changes to their training and
monitoring.
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\13\ Id.
\14\ As noted above in Footnote 2, the term ``consumer reporting
company'' means the same as ``consumer reporting agency,'' as
defined in the FCRA, 15 U.S.C. 1681a(f).
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2.2.3 False Representation That Debt Collector Is a CRC
Section 807(16) of the FDCPA prohibits ``[t]he false representation
or implication that a debt collector operates or is employed by a
consumer reporting agency . . . .'' \15\ Examiners observed that one or
more debt collectors falsely represented or implied to consumers that
they operated or were employed by CRCs in violation of section 807(16).
In response to these findings, the debt collectors are making changes
to their training and monitoring.
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\15\ 15 U.S.C. 1692e(16).
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2.3 Deposits
The CFPB continues to examine banks for compliance with Regulation
E,\16\ which implements the Electronic Fund Transfer Act (EFTA). EFTA
establishes a legal framework for the offering and use of electronic
fund transfer services and remittance transfer services.\17\ The CFPB
also continues to review the deposits operations of the entities under
its supervisory authority for compliance with relevant statutes and
regulations, including Regulation DD,\18\ which implements the Truth in
Savings Act.\19\
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\16\ 12 CFR 1005.
\17\ 12 U.S.C. 1693.
\18\ 12 CFR 1030.
\19\ Id.
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2.3.1 Waivers of Consumers' Error Resolution and Stop Payment Rights
and Financial Institutions' Liability
EFTA states that ``no writing or other agreement between a consumer
and any other person may contain any provision which constitutes a
waiver of any right conferred or cause of action created by this
subchapter.'' \20\ EFTA and Regulation E state that consumers have a
right to have their claims of error investigated if their notice of
error meets certain criteria.\21\ As described below, the criteria does
not include agreeing to ``cooperate'' with the financial institution's
error investigation. EFTA and Regulation E together establish that
consumers have a right to have a financial institution investigate
their error subject only to the requirements set forth in EFTA and
Regulation E.
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\20\ 15 U.S.C. 1693l.
\21\ 15 U.S.C. 1693f and 12 CFR 1005.11(b)(1).
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Examiners found that one or more financial institutions required
consumers to sign deposit account agreements that stated that the
consumers would ``cooperate'' with the institution's investigation of
any errors filed by the consumer. The ``cooperation'' included
providing affidavits and notifying law enforcement authorities. By
requiring consumers to ``cooperate'' with Regulation E error
investigations and provide information beyond that which is required in
EFTA and Regulation E, the financial institutions' agreements contained
provisions that waived consumers' rights in violation of EFTA.
EFTA and Regulation E also provide consumers with rights to stop
preauthorized payments.\22\ Under EFTA, consumers have the right to
stop payment, subject only to those limitations set forth in EFTA and
Regulation E.\23\ Regulation E contains a comprehensive list of actions
consumers must take in order to make an effective request to stop
payment.\24\ The list does not include agreeing to indemnify and hold
the financial institution harmless for costs that may arise from
honoring the valid stop payment request or agreeing not to hold the
institution liable if it is unable to stop payment due to inadvertence,
accident, or oversight.
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\22\ 15 U.S.C. 1693e and 12 CFR 1005.10(c).
\23\ 15 U.S.C. 1693e and 1693l and 12 CFR 1005.10(c)(1).
\24\ 12 CFR 1005.10(c)(1).
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Examiners found that one or more financial institutions required
consumers to sign stop payment request forms and deposit agreements in
which the consumers agreed to indemnify and hold the institutions
harmless for various claims and expenses arising from the institutions
honoring stop payment requests. This included not holding the financial
institutions liable if they were unable to stop the payment due to
inadvertence, accident, or oversight. As this language requires more of
consumers than EFTA and Regulation E allow, the stop payment forms and
deposit agreements impermissibly waived consumers' rights in violation
of, and waived the institutions' liability under, EFTA and Regulation E
for certain failures to stop payment.\25\
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\25\ 15 U.S.C. 1693h and 1693l.
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In response to the examiners' findings, the financial institutions
[[Page 55831]]
revised their deposit agreements and stop payment forms to ensure they
do not contain any waivers of rights in violation of EFTA.
2.3.2 Reliance on Incorrect Date To Assess Timeliness of EFT Error
Notice
Regulation E requires that financial institutions comply with
specific requirements with respect to qualifying oral or written
notices of an EFT error. With respect to timing, EFTA and Regulation E
require that the oral or written notice must be received by the
institution ``no later than 60 days after the institution sends the
periodic statement . . . on which the alleged error is first
reflected.'' \26\
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\26\ 12 CFR 1005.11(b)(1)(i).
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Examiners found that one or more financial institutions required
that EFT notice errors relating to ACH transactions be received within
60 days of the date of the transactions. For claims received after 60
days from the date of the transaction, the institutions treated the
error notice as late, and would request permission from the merchant's
bank to reverse the charges.
The financial institutions revised their policies on EFT error
notice processing to comply with the Regulation E timing requirements.
2.3.3 Violation of Error Results Notice Requirements
Both section 908(a) of EFTA and Regulation E require a financial
institution investigating an alleged EFT error to communicate to
consumers, among other elements, (1) the investigation determination;
and (2) an explanation of the determination when it determines that no
error or a different error occurred within its report of results.\27\
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\27\ 12 U.S.C. 1693f(a) and 1693f(d) and 12 CFR 1005.11(d)(1).
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To give purpose to both obligations, the meaning of an
``explanation'' is not synonymous with that of a ``determination.''
Financial institutions must go beyond just providing the findings to
actually explain or give the reasons for or cause of those findings.
Examiners found that one or more financial institutions violated
Regulation E by failing to provide an explanation of its findings
within the report of results. In addition, examiners found that one or
more financial institutions violated Regulation E by providing an
inaccurate or irrelevant response to the consumer when it determined
that no error or a different error occurred.\28\
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\28\ Id.
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Regulation E also requires financial institutions to note, in the
report of results, the consumer's right to request the documents that
the institution relied on in making its determination when the
institution determines no error or a different error occurred.\29\
Examiners found that one or more financial institutions' reports of
results letters sent to consumers after determining that no error or a
different error occurred, were missing the required notice of the
consumer's right to request the documents that the institution relied
on in making its determination, as required by Regulation E.\30\
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\29\ Id.
\30\ Id.
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In response to the examiners' findings, the financial institutions
undertook a revision of its report of results templates used when the
financial institutions determine no error or different error occurred
to ensure that the letter provides: (a) The determination; (b) an
explanation of the financial institution's findings; and, (c) a
statement noting the consumer's right to request the documents that the
financial institutions relied on in making its determination, as
required by Regulation E.\31\
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\31\ Id.
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2.3.4 Failure To Fulfill Advertised Bonus Offer
Regulation DD requires that advertisements of deposit accounts not
mislead, be inaccurate, or misrepresent the financial institution's
deposit contract.\32\
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\32\ 12 CFR 1030.8(a)(1).
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Examiners found that one or more financial institutions advertised
bonuses for consumers who opened an account at the financial
institutions and met certain requirements that the advertisement
specified. These financial institutions failed to provide the promised
bonuses in instances where consumers met the requirements. The
financial institutions did not have appropriate quality control and
monitoring procedures to ensure all eligible consumers received the
bonus. Therefore, the advertisement of bonus offer was misleading and
inaccurate in violation of Regulation DD.
In response to the examiners' findings, the financial institutions
enhanced their account opening training, as well as monitoring and
quality control procedures, to ensure that consumer accounts were
correctly coded as bonus-eligible and that all consumers eligible for
the advertised bonuses received them.
2.4 Fair Lending
The Bureau's fair lending supervision program assesses compliance
with the Equal Credit Opportunity Act (ECOA) \33\ and its implementing
regulation, Regulation B,\34\ as well as the Home Mortgage Disclosure
Act (HMDA) \35\ and its implementing regulation, Regulation C,\36\ at
banks and nonbanks over which the Bureau has supervisory authority.
Examiners found one or more lenders engaged in violations of ECOA and
Regulation B.
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\33\ 12 U.S.C. 1691.
\34\ 12 CFR 1002.
\35\ 12 U.S.C. 2801.
\36\ 12 CFR 1003.
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2.4.1 Redlining
Regulation B prohibits discouragement of ``applicants or
prospective applicants'' and it also states: ``A creditor shall not
make any oral or written statement, in advertising or otherwise, to
applicants or prospective applicants that would discourage on a
prohibited basis a reasonable person from making or pursuing an
application.'' \37\ The Official Interpretations of Regulation B also
explains that Regulation B ``covers acts or practices directed at
prospective applicants that could discourage a reasonable person, on a
prohibited basis, from applying for credit.'' \38\
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\37\ 12 CFR 1002.4(b).
\38\ 12 CFR part 1002, supp. I, para. 4(b)-1.
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In the course of conducting supervisory activity of bank and
nonbank mortgage lenders, examiners have observed that one or more
lenders violated ECOA and Regulation B, intentionally redlining
majority-minority neighborhoods in two Metropolitan Statistical Areas
(MSAs) by engaging in acts or practices directed at prospective
applicants that may have discouraged reasonable people from applying
for credit.
Examiners determined that the lenders used marketing that would
discourage reasonable persons on a prohibited basis from applying to
the lenders for a mortgage loan. First, the lenders advertised in a
publication with a wide circulation in the MSAs, on a weekly basis, for
two years. These ads prominently featured a white model. Second, the
lenders' marketing materials, which were intended to be distributed to
consumers by the lenders' retail loan originators, featured almost
exclusively white models. Third, the lenders included headshots of the
lenders' mortgage professionals in nearly all its open house marketing
materials, and in almost all these
[[Page 55832]]
materials, the headshots showed professionals who appeared to be white.
The statistical analysis of the HMDA data and U.S. Census data
provided evidence regarding the lenders' intent to discourage
prospective applicants from majority-minority neighborhoods. General
and refined peer analyses showed that the lenders received
significantly fewer applications from majority-minority and high-
minority neighborhoods \39\ relative to other peer lenders in the MSAs.
Also, the lenders' direct marketing campaign that focused on majority-
white areas in the MSAs provided additional evidence of the lenders'
intent to discourage prospective applicants on a prohibited basis.
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\39\ Examination teams defined majority-minority areas as >50%
minority and high-minority areas as >80% minority.
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In response to the examination findings, lenders implemented
outreach and marketing programs focused on increasing their visibility
among consumers living in or seeking credit in majority-minority census
tracts in the MSAs. One or more lenders also are improving compliance
management systems, including board and management oversight,
monitoring and/or audit programs, and handling of consumer complaints.
2.4.2 Failure To Consider Public Assistance Income
The ECOA states that it is ``unlawful for any creditor to
discriminate against any applicant, with respect to any aspect of a
credit transaction . . . because all or part of the applicant's income
derives from any public assistance program.'' \40\ The Official
Interpretation of Regulation B defines ``public assistance program'' as
follows: ``Any Federal, State, or local governmental assistance program
that provides a continuing, periodic income supplement, whether
premised on entitlement or need, is `public assistance' for purposes of
the regulation. The term includes (but is not limited to) Temporary Aid
to Needy Families, food stamps, rent and mortgage supplement or
assistance programs, social security and supplemental security income,
and unemployment compensation.'' \41\ Regulation B allows a creditor to
``consider the amount and probable continuance of any income in
evaluating an applicant's creditworthiness.'' \42\ However, the
Official Interpretation further provides that ``[i]n considering the
separate components of an applicant's income, the creditor may not
automatically discount or exclude from consideration any protected
income. Any discounting or exclusion must be based on the applicant's
actual circumstances.'' \43\
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\40\ 15 U.S.C. 1691(a)(2).
\41\ 12 CFR part 1002, supp. I, para. 2(z)-(3).
\42\ 12 CFR 1002.6(b)(5).
\43\ 12 CFR part 1002, supp. 1, para. 6(b)(5)-(3)(ii); see also
id. at 6(b)(5)-(1) (``A creditor must evaluate income derived from .
. . public assistance on an individual basis. . . .'').
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Examiners found that one or more lenders violated ECOA and
Regulation B by maintaining a policy and practice that excluded certain
forms of public assistance income, without considering the applicant's
actual circumstances including unemployment compensation and SNAP
benefits, commonly known as food stamps, from consideration in
determining a borrower's eligibility for mortgage modification
programs. One or more lenders acknowledged that they excluded certain
types of public assistance income from income calculations when
evaluating loss mitigation applications, even though the lenders did
not have written policies directing the practice. Examiners identified
several instances whereby the applicant listed certain forms of public
assistance income in the loss mitigation application. In each instance,
the lenders excluded the public assistance income from their income
calculations and, in certain instances, the applicant was denied a loss
mitigation option due to insufficient income.
In response to the examination findings, the lenders updated
policies and procedures and enhanced training to ensure that their
practices concerning public assistance income comply with ECOA and
Regulation B. In addition, lenders identified borrowers who, due to
their reliance on certain forms of public assistance income, were
denied mortgage modifications or otherwise harmed. The lenders provided
such borrowers with financial remuneration and an appropriate mortgage
modification.
2.5 Mortgage Servicing
Recent mortgage servicing examinations have identified various
Regulation Z and Regulation X violations. These include violations of
Regulation Z requirements to provide consumers in bankruptcy with
periodic statements and violations of Regulation X provisions related
to force-placed insurance and escrow accounts. In the context of loan
transfers, examiners identified violations of Regulation X requirements
to provide servicing transfer notices and exercise reasonable diligence
to complete a loss mitigation application; violations of FDCPA
requirements to provide debt validation notices; and violations of
Regulation Z requirements to credit payments as of the date of receipt
and provide mortgage loan ownership transfer disclosures. Additionally,
examiners identified one or more ECOA violations for failure to
consider certain forms of public assistance income when considering
borrowers for mortgage modification programs (that violation is
summarized in the fair lending section of this issue).
2.5.1 Failure To Provide Consumers in Bankruptcy With Periodic
Statements
In general, Regulation Z requires servicers to provide consumers
with closed-end mortgage loans with periodic statements that meet
certain requirements.\44\ Prior to April 2018, servicers were not
required to provide periodic statements to consumers in bankruptcy.
After April 2018, servicers are required to provide periodic statements
when any consumer on the mortgage loan is in bankruptcy, unless an
exemption is met.\45\
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\44\ 12 CFR 1026.41(a).
\45\ See 12 CFR 1026.41(e)(5); 81 FR 72160 (Oct. 19, 2016),
available at: https://www.govinfo.gov/content/pkg/FR-2016-10-19/pdf/2016-18901.pdf.
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Examiners found that one or more servicers violated Regulation Z by
failing to provide periodic statements when a consumer on the loan was
in Chapter 12 or Chapter 13 Bankruptcy. Examiners found that causes
included system limitations and failure to reconcile accounting
records. The servicers contracted with third parties to maintain
records regarding costs related to bankruptcy. However, these records
were not reconciled with the servicers' systems of record, so the
servicers were unable to provide accurate information about the total
amount due, payment history, costs, and fees associated with the
account. Instead of reconciling the amounts to enable them to send
accurate statements, for a period of time servicers did not send
statements when a consumer was in in Chapter 12 or Chapter 13
Bankruptcy. In response to these findings, the servicers developed a
process to reconcile accounting records and began sending periodic
statements to consumers in Chapter 12 or Chapter 13 Bankruptcy in
accordance with the regulation.
2.5.2 Failure To Have a Reasonable Basis for Charging Borrowers for
Force-Placed Insurance
Under Regulation X, a servicer may not assess a borrower a premium
charge or fee for force-placed insurance unless the servicer has a
``reasonable basis'' to believe that the borrower failed to maintain
required hazard insurance.\46\
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\46\ 12 CFR 1024.37(b).
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[[Page 55833]]
Examiners found that one or more servicers violated Regulation X by
charging borrowers for force-placed insurance without a reasonable
basis for believing that the consumer had not maintained required
hazard insurance. Examiners found that in some instances borrowers had
provided their servicers with proof of required hazard insurance
policies, either directly or through their insurance companies.
However, the servicers failed to update their systems of record to
reflect receipt of this information and subsequently charged borrowers
for force-placed insurance. Examiners observed that this violation was
caused by inadequate procedures and lack of adequate staffing. In other
instances, the servicers received a bill for the borrowers' hazard
insurance but did not assign it to the proper account. The servicers
later charged borrowers for force-placed insurance, despite not having
a reasonable basis to believe that the borrowers lacked hazard
insurance. Examiners attributed this violation to a weakness in service
provider oversight. In response to these findings, the servicers are
improving service provider oversight or hiring new service providers to
manage force-placed insurance charges.
2.5.3 Failure To Timely Refund All Force-Placed Insurance Charges for
Overlapping Coverage
Regulation X generally requires a servicer to cancel force-placed
insurance and refund force-placed insurance premium charges for any
period where a consumer provides evidence of overlapping insurance
coverage within 15 days of receiving the evidence of coverage.\47\
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\47\ 12 CFR 1024.37(g)(1) & (2).
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Examiners found that one or more servicers violated Regulation X by
failing to cancel force-placed insurance and refund charges within 15
days of receiving evidence of overlapping insurance coverage. Examiners
observed that this was caused by failure to process proof of insurance
and insufficient staffing. In response to these findings, the servicers
are improving management of force-placed insurance programs to ensure
timely cancellation of force-placed insurance and timely refunds to
borrowers.
2.5.4 Permitted Repayment Options in Annual Escrow Statements
Under Regulation X, servicers generally must annually complete an
escrow analysis and determine the ``target balance'' in an escrow
account for the next escrow computation year.\48\ If the escrow account
balance is below the ``target balance,'' there is a ``shortage;'' if
the consumer's escrow account balance is negative, then there is a
``deficiency.'' \49\ Regulation X provides specific permitted options
for servicers as to the treatment of shortages and deficiencies. Which
options are available depends in part on the extent of the shortage or
deficiency.\50\ For example, for shortages equal to or greater than one
month's escrow account payment, the servicer must either (1) allow the
shortage to exist and do nothing to change it; or (2) require repayment
of the shortage in equal monthly payments over at least a 12-month
period.\51\ For deficiencies equal to or greater than one month's
escrow account payment, the servicer must either (1) allow the
deficiency to exist and do nothing to change it; or (2) require
repayment of the deficiency in equal monthly payments over a period of
2 months or more.\52\ Regulation X also requires servicers to send
borrowers annual escrow account statements which must include ``[a]n
explanation of how any shortage or deficiency is to be paid by the
borrower.'' \53\
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\48\ 12 CFR 1024.17(c)(3).
\49\ 12 CFR 1024.17(b).
\50\ 12 CFR 1024.17(f)(3) & (4).
\51\ 12 CFR 1024.17(f)(3)(ii).
\52\ 12 CFR 1024.17(f)(4)(ii).
\53\ 12 CFR 1024.17(i)(1)(vii).
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Examiners found that one or more servicers sent consumers annual
escrow account statements which included options for repayment of
shortages and deficiencies that are not enumerated in Regulation X.
Specifically, for borrowers with either shortages or deficiencies equal
to or greater than one month's escrow account payment, servicers listed
two options borrowers could choose for repayment: (1) Equal monthly
payments over a 12-month period or (2) a lump sum payment. The first
option is a permitted repayment option under Regulation X, while the
second option is not.\54\ Regulation X requires that annual escrow
account statements include an explanation of how shortages or
deficiencies are to be paid by borrowers.\55\ Because the enumerated
repayment options are exclusive, the servicers violated the regulatory
requirements by sending disclosures that provided borrowers with
repayment options that they cannot require under Regulation X.\56\
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\54\ See 12 CFR 1024.17(f)(3) & (4).
\55\ 12 CFR 1024.17(i)(1)(vii).
\56\ See 12 CFR 1024.17(i)(1)(vii).
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In response to these findings, the servicers are amending their
annual escrow disclosures to only include repayment options they are
permitted to require under Regulation X.
2.5.5 Violations After Servicing Transfers
Examiners have identified various violations after servicing
transfers, including: Failure to provide an accurate effective date for
the transfer of servicing in the required notice of servicing transfer;
\57\ failure to exercise reasonable diligence to obtain documents and
information necessary to complete a loss mitigation application; \58\
failure to credit a periodic payment as of the date of receipt; \59\
and, when a servicer is acting as a debt collector, failure to provide
a validation notice within 5 days of the initial communication with the
borrower when such notice is required.\60\
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\57\ 12 CFR 1024.33(b)(4)(i).
\58\ 12 CFR 1024.41(b)(1).
\59\ 12 CFR 1026.36(c)(1)(i).
\60\ 15 U.S.C. 1692g(a). The notice is required unless the
information is contained in the initial communication or the
consumer has paid the debt.
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For example, in the context of loans with loss mitigation
applications in process at the time of the transfer, certain
applications were virtually complete, but some transferee servicers
asked borrowers to submit new applications, leading examiners to
conclude that servicers had failed to exercise reasonable diligence to
obtain the information necessary to complete these loss mitigation
applications as the regulation requires. Examiners found that these
violations were caused by errors during the onboarding process as well
as inadequate policies and procedures. In response to these findings,
the servicers increased attention to due diligence during servicing
transfers and improved relevant policies and procedures to prevent
violations in future servicing transfers.
2.5.6 Failure To Provide Loan Ownership Transfer Disclosures
Regulation Z generally requires that when ownership of a loan
transfers, the new owner must send a disclosure with required content
to consumers.\61\
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\61\ 12 CFR 1026.39(b).
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Examiners found that one or more servicers failed to send consumers
the mortgage transfer disclosure after acquiring the loans, in
violation of Regulation Z. In response to these findings, the servicers
are reviewing the contracts that assign responsibilities between
transferees and transferors and reinforcing the regulatory requirements
internally; servicers who violated the rule will send mortgage transfer
[[Page 55834]]
disclosures after future transfers in accordance with Regulation Z.
2.6 Payday Lending
The Bureau's Supervision program covers entities that offer or
provide payday loans. Examinations of these lenders identified
deceptive acts or practices and violations of Regulation Z.
2.6.1 Misleading Representations About the Ability To Apply for a Loan
Online
Sections 1031 and 1036(a)(1)(b) of the Consumer Financial
Protection Act (CFPA) prohibit a covered person such as a payday lender
from engaging in any unfair, deceptive, or abusive act or practice.\62\
A representation, omission, or practice is deceptive if: (1) The
representation, omission, or practice misleads or is likely to mislead
the consumer; (2) the consumer's interpretation of the representation,
omission, or practice is reasonable under the circumstances; and (3)
the misleading representation, omission, or practice is material.\63\
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\62\ 12 U.S.C. 5531, 5536(a)(1)(B).
\63\ See FTC Policy Statement on Deception, appended to In re
Cliffdale Assoc., Inc., 103 F.T.C. 110, 174 (1984).
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Examiners found that one or more lenders engaged in deceptive acts
or practices in violation of the CFPA when they represented on websites
and in mailed advertising that consumers could apply for payday loans
online. Examiners found the representations misled or were likely to
mislead consumers. Although consumers could enter limited information
online, the lenders required them to visit physical storefront
locations to re-enter information and complete the loan application
process. A consumer could reasonably interpret the express and indirect
representations to mean they could complete the application process
online. The representations were material because they were likely to
affect consumer decisioning. For example, a consumer could have chosen
to apply with a different lender who had a faster or otherwise more
convenient process. In response to examination findings, the entity or
entities ceased misleading advertising on websites and in mailed
advertising, and implemented enhanced advertising policies and
procedures and oversight.
2.6.2 False Representation That No Credit Check Will Be Conducted
Examiners observed one or more lenders engaged in deceptive acts or
practices in violation of the CFPA when they falsely represented on
proprietary websites, social media, and other advertising that they
would not conduct a credit check. In fact, the lenders used consumer
reports from at least one CRC in determining whether to extend credit.
It was reasonable for a consumer to interpret the representations as
meaning that the lenders would not check a consumer's credit history
when deciding whether to extend credit, and the representations were
material because they were likely to affect consumers' conduct with
respect to loans. Prospective customers may have had credit history
concerns and made a different choice. In response to the examination
findings, one or more lenders ceased making misleading representations
online and elsewhere, and implemented enhanced advertising policies and
procedures and oversight.
2.6.3 False Threats of Lien Placement or Asset Seizure
Examiners found one or more lenders engaged in deceptive acts or
practices by sending collection letters that falsely threatened lien
placement or asset seizure if consumers did not make payments, although
the entities did not take those measures. Moreover, certain consumer
assets may have been exempt from lien or seizure under State law. It
was reasonable for consumers to interpret the representations to mean
that the entities could and would take such measures, and the
statements were material because consumers may have made different
payment choices had they known the representations were false. In
response to the examination findings, one or more entities ceased
including the erroneous information in collection letters.
2.6.4 False Threats of Being Subject to Late Payment Fee
Examiners found one or more lenders engaged in deceptive acts or
practices by sending collection letters that falsely threatened to
charge late fees if consumers did not make payments, even though the
entities did not charge late fees. A consumer could reasonably
interpret the representations as meaning that the entities would charge
late fees absent payment. Such threats were material, because they were
likely to affect consumers' payment choices. In response to the
findings, one or more lenders ceased including the false statements in
collection letters.
2.6.5 Failure To Make Triggering Disclosures in Payday Loan
Advertisements
Regulation Z requires advertisements for closed-end credit that
contain certain triggering terms, such as the amount of any finance
charge, to disclose additional terms.\64\ Required additional
advertising disclosures include the annual percentage rate (APR) and
terms of repayment.\65\
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\64\ 12 CFR 1026.24(d)(1).
\65\ 12 CFR 1026.24(d)(2)(ii) and (iii).
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Examiners observed that one or more lenders failed to provide
required additional disclosures in advertisements offering ``free''
loans to new customers. An advertisement of the total cost of consumer
credit is an advertisement of the dollar amount of a finance
charge,\66\ a triggering term.\67\ Accordingly, the entities were
obligated to provide additional advertising disclosures under
Regulation Z. In response to the findings, one or more entities
implemented enhanced advertising policies and procedures and oversight,
and ensured that all applicable advertisements that contain triggering
terms include required Regulation Z disclosures.
---------------------------------------------------------------------------
\66\ See 12 CFR 1026.4(a).
\67\ 12 CFR 1026.24(d)(1)(iv).
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2.6.6 Not Actually Prepared To Offer Advertised Loan Term
Regulation Z also requires an advertisement for credit that states
specific credit terms to state only those terms that actually are or
will be arranged or offered by the creditor.\68\ Examiners concluded
that one or more entities violated Regulation Z when they advertised
that a new customer's first payday loan would be free, even though the
lenders were not actually prepared to offer the advertised term.
Instead, the entities offered consumers one free week for loans lasting
longer than one week, that featured considerable APRs. In response to
the findings, one or more entities implemented enhanced advertising
policies and procedures and oversight, and, ceased advertising loan
terms that lenders were not actually prepared to offer, including that
a consumer's first loan would be free.
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\68\ 12 CFR 1026.24(a).
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3. Supervision Program Developments
3.1 COVID-19 Related Information and Guidance
3.1.1 Interagency Statement on Pandemic Planning
On March 6, 2020, the Federal Financial Institutions Examination
Council (FFIEC) on behalf of its member agencies published updated
guidance \69\ identifying actions that financial institutions should
take to minimize the potential adverse effects of a pandemic. The
statement noted that financial
[[Page 55835]]
institutions should periodically review related risk management plans,
including business continuity plans, to ensure that they are able to
continue to deliver products and services in a wide range of scenarios
with minimal disruption.
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\69\ The statement can be found at: https://www.federalreserve.gov/supervisionreg/srletters/SR2003a1.pdf.
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3.1.2 Joint Statement Encouraging Responsible Small-Dollar Lending in
Response to COVID-19
On March 26, 2020, the Bureau along with the Board of Governors of
the Federal Reserve Bank, the Federal Deposit Insurance Corporation,
the National Credit Union Administration and the Office of the
Comptroller of Currency (collective the Agencies) issued a joint
statement \70\ that encouraged banks, savings associations, and credit
unions to offer responsible small-dollar loans to consumers and small
businesses in response to COVID-19. The statement noted that loans
should be offered in a manner that provides fair treatment of
consumers, complies with applicable laws and regulations, and is
consistent with safe and sound practices. The joint statement also
encouraged lenders to work with borrowers who may experience unexpected
circumstances and cannot repay a loan as structured.
---------------------------------------------------------------------------
\70\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_small-dollar-lending-covid-19_2020-03.pdf.
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3.1.3 CFPB Provides Flexibility During COVID-19 Pandemic
On March 26, 2020, the Bureau published three separate statements
\71\ noting its flexible approach during the pandemic. The Bureau
announced that as of March 26, 2020, and until further notice the
Bureau does not intend to cite in an examination or initiate an
enforcement action against an entity for failure to submit to the
Bureau:
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\71\ The three statements are: (1) Statement on Supervisory and
Enforcement Practices Regarding Quarterly Reporting Under the Home
Mortgage Disclosure Act; (2) Statement on Supervisory and
Enforcement Practices Regarding Bureau Information Collections for
Credit Card and Prepaid Account Issuers; and (3) Statement on Bureau
Supervisory and Enforcement Response to COVID-19 Pandemic. The
statements can be found at: https://files.consumerfinance.gov/f/documents/cfpb_hmda-statement_covid-19_2020-03.pdf, https://files.consumerfinance.gov/f/documents/cfpb_data-collection-statement_covid-19_2020-03.pdf, https://files.consumerfinance.gov/f/documents/cfpb_supervisory-enforcement-statement_covid-19_2020-03.pdf.
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[ssquf] Quarterly submissions of HMDA data;
[ssquf] annual submissions concerning agreements between credit
card issuers and institutions of higher education;
[ssquf] quarterly submission of consumer credit card agreements;
[ssquf] collection of certain credit card price and availability
information; and
[ssquf] submission of prepaid account agreements and related
information.
Entities should maintain records sufficient to allow them to make
delayed submissions pursuant to future Bureau guidance.
The Bureau also announced that it will work with affected financial
institutions in scheduling examinations and other supervisory
activities to minimize disruption and burden. When conducting
examinations and other supervisory activities and in determining
whether to take enforcement action, the Bureau will consider the
circumstances that entities may face as a result of the COVID-19
pandemic and will be sensitive to good-faith efforts demonstrably
designed to assist consumers.
3.1.4 Statement on Supervisory and Enforcement Practices Regarding the
Fair Credit Reporting Act and Regulation V in Light of the CARES Act
On April 1, 2020, the Bureau released a statement,\72\ which
outlined the responsibilities of CRCs and furnishers during the COVID-
19 pandemic. The statement noted that the CARES Act requires lenders to
report to CRCs that a consumer is current on their loans if the lender
has provided the consumer with payment relief in certain circumstances.
In addition, the Bureau noted temporary and targeted flexibility in its
supervisory and enforcement approach for lenders and CRCs facing
challenges as a result of the COVID-19 pandemic in the time they take
to investigate disputes. The Bureau stated that it will consider a
furnisher's or CRC's individual circumstances and does not intend to
cite in an examination or bring an enforcement action against firms
impacted by the pandemic who exceed the deadlines to investigate such
disputes as long as they make good faith efforts during the pandemic to
do so as quickly as possible. The Bureau also released FAQs on June 16,
2020, to help ensure that consumers receive the credit reporting
protections required by the CARES Act.\73\
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\72\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_credit-reporting-policy-statement_cares-act_2020-04.pdf.
\73\ The FAQs can be found at: https://files.consumerfinance.gov/f/documents/cfpb_fcra_consumer-reporting-faqs-covid-19_2020-06.pdf.
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3.1.5 Joint Statement on Supervisory and Enforcement Practices
Regarding the Mortgage Servicing Rules in Response to COVID-19 and the
CARES Act
On April 3, 2020, the Agencies and the State financial regulators
issued a joint policy statement \74\ providing regulatory flexibility
to enable mortgage servicers to work with struggling consumers affected
by the COVID-19 emergency.\75\ The statement informs servicers of the
Agencies' flexible supervisory and enforcement approach during the
COVID-19 emergency regarding certain communications to consumers
required by the mortgage servicing rules.
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\74\ The statement can be found at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200403a1.pdf.
\75\ In conjunction with this statement, the Bureau published,
``Mortgage Servicing Rules FAQs Related to the COVID-19 Emergency.''
The FAQs can be found at: https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rules-covid-19_faqs.pdf.
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The policy statement clarified that the agencies do not intend to
take supervisory or enforcement action against mortgage servicers for:
[ssquf] Delays in sending certain early intervention and loss
mitigation notices and taking certain related actions required by the
mortgage servicing rules, provided that servicers are making good faith
efforts to provide these notices and take these actions within a
reasonable time;
[ssquf] failing to provide an acknowledgement notice within five
days of receipt of an incomplete application, where the borrower enters
certain short-term payment forbearance programs or short-term repayment
plans, provided the servicer sends the acknowledgment notice before the
end of the forbearance or repayment period; and
[ssquf] delays in sending annual escrow statements, provided that
servicers are making good faith efforts to provide these statements
within a reasonable time.
3.1.6 Interagency Statement on Loan Modifications by Financial
Institutions Working With Customers Affected by the Coronavirus
On April 7, 2020, the Agencies, in consultation with State
financial regulators, issued an interagency statement \76\ encouraging
financial institutions to work constructively with borrowers affected
by COVID-19 and providing additional information
[[Page 55836]]
regarding accounting and reporting considerations for loan
modifications.\77\ The statement encouraged financial institutions to
work with borrowers impacted by the coronavirus and promised not to
criticize institutions for doing so in a safe-and-sound manner. It also
highlighted that when working with borrowers, lenders and servicers
should adhere to consumer protection requirements, including fair
lending laws, to provide the opportunity for all borrowers to benefit
from these arrangements. It stated that Agencies will consider various
facts and circumstances when conducting supervisory work evaluating
compliance during the relevant time period. Additionally, it stated
that the Agencies do not expect to take a consumer compliance public
enforcement action against an institution, provided that the
circumstances were related to the national emergency and that the
institution made good faith efforts to support borrowers and comply
with the consumer protection requirements, as well as respond to any
needed corrective action.
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\76\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_loan-modifications-reporting-covid-19_2020-04.pdf.
\77\ This statement replaces one previously issued by the
Agencies on March 22, 2020. The revised statement clarifies the
interaction between the interagency statement issued on March 22,
2020, and the temporary relief provided by section 4013 of the CARES
Act.
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3.1.7 Treatment of Pandemic Relief Payments Under Regulation E and
Application of the Compulsory Use Prohibition
On April 13, 2020, the Bureau issued an interpretive rule \78\ to
provide guidance to government agencies distributing aid to consumers
in response to the COVID-19 pandemic.
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\78\ The interpretative rule can be found at: https://files.consumerfinance.gov/f/documents/cfpb_interpretive-rule_pandemic-relief-payments-reg-e.pdf and at: https://www.federalregister.gov/documents/2020/04/27/2020-08084/treatment-of-pandemic-relief-payments-under-regulation-e-and-application-of-the-compulsory-use.
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The Bureau concluded that certain pandemic-relief payments are not
``government benefits'' for purposes of Regulation E and EFTA and are
therefore not subject to the compulsory use prohibition in EFTA, if
certain conditions are met.
Specifically, the Bureau interprets the term ``government benefit''
to exclude payments from Federal, State, or local governments if those
payments are made:
1. To provide assistance to consumers in response to the COVID-19
pandemic or its economic impacts;
2. Outside of an already-established government benefit program;
3. On a one-time or otherwise limited basis; and
4. Without a general requirement that consumers apply to the agency
to receive funds.
3.1.8 Interagency Statement on Appraisals and Evaluations for Real
Estate Related Transactions Affected by the Coronavirus
On April 14, 2020, the Bureau, together with the Agencies, issued
an interagency statement outlining flexibilities in industry appraisal
standards and in appraisal regulations and described temporary changes
to Fannie Mae and Freddie Mac appraisal standards.
3.1.9 Compliance Bulletin and Policy Guidance: Handling of Information
and Documents During Mortgage Servicing Transfers (CFPB Bulletin 2020-
02)
On April 24, 2020, the Bureau published a Bulletin \79\ to provide
mortgage servicers clarity, facilitate compliance, and prevent harm to
consumers during the transfer of residential mortgages.
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\79\ The bulletin can be found at: https://files.consumerfinance.gov/f/documents/cfpb_policy-guidance_mortgage-servicing-transfers_2020-04.pdf. The bulletin is also available in
the Federal Register at 85 FR 25281 (May 1, 2020).
---------------------------------------------------------------------------
Regulation X imposes specific requirements on transferors and
transferees to prevent harm to consumers resulting from servicing
transfers, including requiring transferee servicers to maintain
policies and procedures that are reasonably designed to ensure that the
servicer can identify necessary documents or information that may not
have been transferred by a transferor servicer and obtain such
documents from the transferor servicer. The Bulletin listed some
examples of servicer practices that the Bureau may consider as
contributing to policies and procedures that are reasonably designed to
achieve the objectives of these transfer requirements, including:
[ssquf] Developing a servicing transfer plan that includes a
communications plan, testing plan (for system conversion), a timeline
with key milestones and an escalation plan for potential problems;
[ssquf] Engaging in quality control work after a transfer of
preliminary data to validate that the data on the transferee's system
matches the data submitted by the transferor;
[ssquf] Conducting a post-transfer review or debrief to determine
effectiveness of the transfer plan and whether any gaps have arisen
that require resolution;
[ssquf] Monitoring consumer complaints and loss mitigation
performance metrics; and
[ssquf] Identifying any loans in default, active foreclosure and
bankruptcy or any forbearance or other loss mitigation agreements
entered in with the borrower.
The Bulletin also highlights the importance of data quality. To
that end, it encourages servicers to adopt an industry data standard
for mortgage records, called Mortgage Industry Standards Maintenance
Organization standards.
The Bureau noted that it began developing the Bulletin well before
the coronavirus pandemic, in consultation with interagency and
intergovernmental partners. In light of the national emergency declared
on March 13, 2020, the Bulletin sets forth that, if a servicing
transfer is requested or required by a Federal regulator or by the
security issuer of ``Government Loans'' (as defined in the CARES Act)
during a specified time frame, the Bureau will take into consideration
the challenges facing mortgage servicers due to COVID-19 and will focus
any supervisory feedback for institutions on identifying issues,
correcting deficiencies, and ensuring appropriate remediation for
consumers.
3.1.10 CFPB Paves Way for Consumers Facing Financial Emergencies To
Obtain Access to Mortgage Credit More Quickly
On April 29, 2020, the Bureau issued an interpretive rule
clarifying that consumers can exercise their rights to modify or waive
certain required waiting periods under the TILA-RESPA Integrated
Disclosure Rule and Regulation Z rescission rules.\80\ The Bureau also
issued an FAQ document \81\ that addresses when creditors must provide
appraisals or other written valuations to mortgage applicants in order
to expedite access to credit for consumers affected by the COVID-19
pandemic.
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\80\ The interpretative rule can be found at: https://files.consumerfinance.gov/f/documents/cfpb_tila-respa-integrated-disclosure_rescission-pandemic-interpretive-rule.pdf.
\81\ The FAQs can be found at: https://files.consumerfinance.gov/f/documents/cfpb_mortgage-origination-rules_faqs-covid-19.pdf.
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3.1.11 Amendments to the Remittance Rule and Statement on Supervisory
and Enforcement Practices Regarding the Remittance Rule in Light of the
COVID-19 Pandemic
On May 11, 2020, the Bureau issued a final rule amending the
remittance rule.\82\ Among its requirements, the remittance rule
mandates that remittance transfer providers generally must disclose the
exact exchange rate,
[[Page 55837]]
the amount of certain fees, and the amount expected to be delivered to
the recipient. The remittance rule also allows for insured institutions
to estimate certain fees and exchange rate information under certain
circumstances, but by statute, this provision expires in July 2020.
---------------------------------------------------------------------------
\82\ 12 CFR 1005.30 et seq.
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The amendments in the May 2020 rule, which will become effective in
July of 2020, allow certain banks and credit unions to continue to
provide estimates of the exchange rate and certain fees under certain
conditions. The amendments also increase the safe harbor threshold that
determines whether an entity makes remittance transfers in the normal
course of its business and is subject to the rule. Under the
amendments, entities making 500 or fewer transfers annually in the
current and prior calendar years are not subject to the rule.
In April, the Bureau announced that it would take a flexible
enforcement and supervisory approach in light of the expiration of the
statutory temporary exception and the challenges the COVID-19 pandemic
may cause insured institutions as they prepare to commence providing
actual third-party fee and exchange rate information as of July 21,
2020.\83\
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\83\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_policy-statement_remittances-covid-19_2020-04.pdf.
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For international remittance transfers that occur on or after July
21, 2020 and before January 1, 2021, the Bureau will neither cite
supervisory violations nor initiate enforcement actions against insured
institutions for continuing to provide estimates to consumers under the
temporary exception, instead of actual amounts.
3.1.12 Statement on Supervisory and Enforcement Practices Regarding
Regulation Z Billing Error Resolution Timeframes in Light of the COVID-
19 Pandemic
On May 13, 2020, the Bureau issued a statement informing creditors
of the Bureau's flexible supervisory and enforcement approach during
the pandemic regarding the timeframe within which creditors complete
their investigations of consumers' billing error notices.\84\
Specifically, in evaluating a creditor's compliance with the maximum
timeframe for billing error resolution set forth in Regulation Z, the
Bureau intends to consider the creditor's circumstances. The Bureau
does not intend to cite a violation in an examination or bring an
enforcement action against a creditor that takes longer than required
by the regulation to resolve a billing error notice, so long as the
creditor has made good faith efforts to obtain the necessary
information and make a determination as quickly as possible, and
complies with all other requirements pending resolution of the error.
---------------------------------------------------------------------------
\84\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_statement_regulation-z-error-resolution-covid-19_2020-05.pdf.
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3.1.13 CFPB, CSBS Issue Consumer Guide on Mortgage Relief Options
On May 15, 2020, the Bureau and the Conference of State Bank
Supervisory (CSBS) issued a guide to assist homeowners with federally
backed loans through the process of obtaining mortgage relief. The
guide details borrowers' rights to mortgage payment forbearance and
foreclosure protection under the CARES Act.\85\
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\85\ The guide can be found at: https://files.consumerfinance.gov/f/documents/cfpb_csbs_consumers-forbearance-guide_2020-05.pdf.
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3.1.14 Complaint Bulletin
On May 21, 2020, the Bureau issued a consumer complaint
Bulletin.\86\ The bulletin shows that mortgage and credit card
complaints top the list of complaints the Bureau has received that
mention coronavirus or related terms. In April and May, the Bureau
received historically higher complaints, however, complaints mentioning
COVID-related terms amounted to a total of 4,500 complaints during
those two months.
---------------------------------------------------------------------------
\86\ The complaint bulletin can be found at: https://files.consumerfinance.gov/f/documents/cfpb_complaint-bulletin_coronavirus-complaints.pdf.
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Mortgage and credit card complaints top the list for complaints
that mention coronavirus terms, with 22 percent and 19 percent of
complaints, respectively. Among mortgage complaints that mention
coronavirus keywords, 59 percent of consumers identified struggling to
pay the mortgage as the issue. For credit card complaints, 19 percent
of consumers identified a problem with purchase shown or statement as
the issue.
The Bureau also received its highest complaint volumes in its
history in March and April at 36,700 and 42,500, respectively. In 2019,
the monthly average for complaints was 29,000. The bulletin attributes
the higher numbers to factors such as market conditions and more public
awareness of the complaint system.
3.1.15 Prioritized Assessments
The COVID-19 pandemic has significantly impacted the financial
marketplace and has resulted in a temporary shift in the Bureau's
supervisory work. In late May, the Bureau rescheduled some of its
planned examination work and instead began conducting Prioritized
Assessments (PAs). PAs are higher-level inquiries than traditional
examinations, designed to obtain real-time information from entities
that operate in markets posing elevated risk of consumer harm due to
pandemic-related issues. In July of 2020, the Bureau released
Prioritized Assessments FAQs.\87\
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\87\ The FAQs can be found at: https://files.consumerfinance.gov/f/documents/cfpb_prioritized-assessment_frequently-asked-questions.pdf.
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3.1.16 Statement on Supervisory and Enforcement Practices Regarding
Electronic Credit Card Disclosures in Light of COVID-19 Pandemic
On June 3, 2020, the Bureau issued a statement \88\ indicating that
it will take a flexible supervisory and enforcement approach during the
pandemic regarding card issuers' electronic provision of disclosures
required to be in writing for account-opening disclosures and temporary
rate or fee reduction disclosures mandated under the provisions
governing non-home secured, open-end credit in Regulation Z.
Specifically, this statement pertains to oral telephone interactions
where a card issuer may seek to open a new credit card account for a
consumer, to provide certain temporary reductions in APRs or fees
applicable to an existing account, or to offer a low-rate balance
transfer. In these instances, the Bureau does not intend to cite a
violation in an examination or bring an enforcement action against an
issuer that during a phone call does not obtain a consumer's E-Sign
consent to electronic provision of the written disclosures required by
Regulation Z, so long as the issuer during the phone call obtains both
the consumer's oral consent to electronic delivery of the written
disclosures and oral affirmation of his or her ability to access and
review the electronic written disclosures.
---------------------------------------------------------------------------
\88\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_e-sign-credit-card_statement_2020-06.pdf.
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3.1.17 CFPB and State Regulators Provide Additional Guidance To Assist
Borrowers Impacted by the COVID-19 Pandemic
On June 4, 2020, the Bureau and CSBS issued joint guidance to
mortgage servicers to assist in complying with the CARES Act.\89\
Servicers of federally-backed mortgages, such as Fannie Mae or Freddie
Mac, Department of Housing
[[Page 55838]]
and Urban Development, Department of Veterans Affairs, or Department of
Agriculture loans, must grant forbearance to borrowers with pandemic-
related hardships that may last as long as two consecutive 180-day
periods. Furthermore, additional interest, fees, or penalties beyond
the amounts scheduled or calculated should be waived with no negative
impact to the borrower's mortgage contract during the forbearance.
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\89\ The guidance can be found at: https://files.consumerfinance.gov/f/documents/cfpb_csbs_industry-forbearance-guide_2020-06.pdf.
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Mortgage servicers could violate the CARES Act or other applicable
law and potentially cause consumer harm if they were to require
documentation from borrowers to prove financial hardship, if they did
not grant the forbearance once properly requested, or if they steered
borrowers away from forbearance or misled them.
3.1.18 CFPB Issues Interim Final Rule on Loss Mitigation Options for
Homeowners Recovering From Pandemic-Related Financial Hardships
On June 23, 2020, the Bureau issued an interim final rule (IFR)
\90\ that will make it easier for consumers to transition out of
financial hardship caused by the COVID-19 pandemic and easier for
mortgage servicers to assist those consumers.
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\90\ The IFR can be found at: https://files.consumerfinance.gov/f/documents/cfpb_interim-final-rule_respa_covid-19-related-loss-mitigation-options.pdf.
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The CARES Act provides forbearance relief for consumers with
federally-backed mortgage loans. The mortgage industry has developed
different options for borrowers to repay the payments that were
forborne under the CARES Act. For example, the Federal Housing Finance
Agency, Fannie Mae and Freddie Mac may permit some borrowers to defer
repayment of the forborne amounts until the end of the mortgage loan.
The Federal Housing Administration (FHA) has a similar program. These
programs require the servicer to collect only minimal information from
the borrower before offering the option.
The IFR makes it clear that servicers do not violate Regulation X
by offering certain COVID-19-related loss mitigation options based on
an evaluation of limited application information collected from the
borrower. Normally, with certain exceptions, Regulation X would require
servicers to collect a complete loss mitigation application before
making an offer. The IFR specifies that the loss mitigation option must
meet certain criteria to qualify for an exception from the typical
requirement to collect a complete application. Among other things, the
option must allow the borrower to delay paying all principal and
interest payments that were forborne or became delinquent as a result
of a financial hardship due, directly or indirectly, to the COVID-19
emergency. Servicers may not charge any fees to borrowers in connection
with the option, and the borrower's acceptance ends any preexisting
delinquency. The exception is not limited to payments forborne under
the CARES Act.
The IFR also provides servicers relief from certain requirements
under Regulation X that normally would apply after a borrower submits
an incomplete loss mitigation application. Once the borrower accepts an
offer for an eligible program under the IFR, the servicer need not
exercise reasonable diligence to obtain a complete application and need
not provide the acknowledgment notice that is generally required under
Regulation X when a borrower submits a loss mitigation application.
Servicers still must comply with Regulation X's other requirements
after a borrower accepts a loss mitigation offer. For example, if the
borrower becomes delinquent again after accepting the offer, the
servicer would have to satisfy Regulation X's early intervention
requirements. Similarly, if the servicer receives a new loss mitigation
application from the borrower, the servicer would have to comply with
Regulation X's loss mitigation procedures.
3.2 Non-COVID Related Guidance
3.2.1 Statement of Policy Regarding Prohibition on Abusive Acts or
Practices
On January 24, 2020, the Bureau issued a policy statement \91\
providing a framework on how it intends to apply the ``abusiveness''
standard in supervision and enforcement matters. Through this policy
statement, the Bureau provided clarification on how it intends to apply
abusiveness in order to promote compliance and certainty. In its
supervision and enforcement work, the Bureau intends to:
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\91\ The statement can be found at: https://files.consumerfinance.gov/f/documents/cfpb_abusiveness-enforcement-policy_statement.pdf.
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[ssquf] Focus on citing or challenging conduct as abusive in
supervision and enforcement matters only when the harm to consumers
outweighs the benefit.
[ssquf] Generally, avoid ``dual pleading'' of abusiveness and
unfairness or deception violations arising from all or nearly all the
same facts, and allege ``stand alone'' abusiveness violations that
demonstrate clearly the nexus between cited facts and the Bureau's
legal analysis.
[ssquf] Seek monetary relief for abusiveness only when there has
been a lack of a good-faith effort to comply with the law, except the
Bureau will continue to seek legal or equitable remedies, such as
damages and restitution for injured consumers regardless of whether a
company acted in good faith or bad faith.
3.2.2 Responsible Business Conduct: Self-Assessing, Self-Reporting,
Remediating, and Cooperation (CFPB Bulletin 2020-01)
In 2013, the Bureau issued a Bulletin that identified several
activities that businesses may engage in that could prevent and
minimize harm to consumers, referring to these activities as
``responsible conduct.'' On March 6, 2020, the Bureau issued an updated
Bulletin \92\ to clarify its approach to responsible conduct and to
reiterate the importance of such conduct. The Bulletin noted that the
Bureau principally considers four categories of conduct when evaluating
whether some form of credit is warranted in an enforcement
investigation or supervisory matter: Self-assessing, self-reporting,
remediating, and cooperating. However, if an entity engages in another
type of activity particular to its situation that is both substantial
and meaningful, the Bureau may take that activity into consideration as
well.
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\92\ The Bulletin can be found at: https://files.consumerfinance.gov/f/documents/cfpb_bulletin-2020-01_responsible-business-conduct.pdf.
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3.2.3 Innovation Updates
On May 22, 2020, the Bureau announced that it issued two No-Action
Letter (NAL) Templates under its innovation policies. To encourage
innovation, last year the Bureau introduced an improved NAL Policy that
includes, among other things, a more streamlined review process
focusing on the consumer benefits and risks of the applicant's product
or service. NALs provide increased regulatory certainty through a
statement that the Bureau will not bring a supervisory or enforcement
action against a company for providing a product or service under
certain facts and circumstances. The improved Policy also includes an
innovative provision concerning NAL templates, which permits entities
such as service providers and trade associations to secure a template
that can serve as the foundation for NAL applications from companies
that provide consumer financial products and services.
[[Page 55839]]
Specifically, NAL templates include (among other things) a non-binding
statement of the Bureau's intent to grant NAL applications based on it.
Using the first NAL Template, requested by Brace Software, Inc.
(Brace), mortgage servicers seeking to assist struggling borrowers
would be able to apply for NALs in connection with the use of Brace's
online platform to implement loss-mitigation efforts for those
borrowers.\93\ As described in Brace's application, the platform is an
online version of the Fannie Mae Form 710, which is the loss mitigation
application used by most mortgage servicers. While the Bureau does not
endorse particular products or providers, the Bureau observes that
digitizing the loss mitigation application process has the potential to
improve a process that is experiencing an increase in loss mitigation
requests from consumers due to the COVID-19 pandemic.
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\93\ Brace's application can be found at: https://files.consumerfinance.gov/f/documents/cfpb_brace_no-action-letter-request.pdf. The Brace NAL Template can be found at: https://files.consumerfinance.gov/f/documents/cfpb_brace_no-action-letter.pdf.
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The Bureau also approved a NAL template that insured depository
institutions intending to offer the standardized, small-dollar credit
product described therein can use to support applications for the
issuance of individual NALs.\94\ The NAL template contemplates that
NALs based on it will include certain important protections for
consumers who seek the covered small-dollar loan products.
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\94\ The Bank Policy Institute (the BPI) application can be
found at: https://files.consumerfinance.gov/f/documents/cfpb_bpi_no-action-letter-request.pdf. The BPI NAL Template can be found at:
https://files.consumerfinance.gov/f/documents/cfpb_bpi_no-action-letter.pdf.
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3.2.4 Bureau Launches Pilot Advisory Opinion Program To Provide
Regulated Entities Clear Guidance and Improve Compliance
On June 18, 2020, the Bureau launched a pilot advisory opinion (AO)
program \95\ to publicly address regulatory uncertainty in the Bureau's
existing regulations. The pilot AO program will allow entities seeking
to comply with regulatory requirements to submit a request where
uncertainty exists. The Bureau will then select topics based on the
program's priorities and make the responses available to the public.
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\95\ More information about the AO program can be found at:
https://files.consumerfinance.gov/f/documents/cfpb_advisory-opinions-pilot_fr-notice.pdf, https://files.consumerfinance.gov/f/documents/cfpb_advisory-opinions-proposal_fr-notice.pdf.
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The pilot program will focus on four key priorities:
[ssquf] Consumers are provided with timely and understandable
information to make responsible decisions.
[ssquf] Identify outdated, unnecessary or unduly burdensome
regulations in order to reduce regulatory burdens.
[ssquf] Consistency in enforcement of Federal consumer financial
law in order to promote fair competition.
[ssquf] Ensuring markets for consumer financial products and
services operate transparently and efficiently to facilitate access and
innovation.
Additionally, initial factors weighing for the appropriateness of
an AO include: That the interpretive issue has been noted during prior
Bureau examinations as one that might benefit from additional
regulatory clarity; that the issue is one of substantive importance or
impact or one whose clarification would provide significant benefit;
and/or that the issue concerns an ambiguity that the Bureau has not
previously addressed through an interpretive rule or other
authoritative source. There will be a strong presumption against
appropriateness of an AO for issues that are the subject of an ongoing
investigation or enforcement action or the subject of an ongoing or
planned rulemaking.
If deemed appropriate, the Bureau will issue an advisory opinion
based on its summary of the facts presented that would be applicable to
other entities in situations with similar facts and circumstances. The
advisory opinions would be posted on the Bureau's website and published
in the Federal Register.
In addition to the pilot, the Bureau also announced that the public
can comment on the proposed AO program. Following the conclusion of the
pilot, the proposed AO program will be fully implemented after the
Bureau's review of comments received.
3.2.5 CFPB Issues Interpretative Rule on Method for Determining
Underserved Areas
On June 23, 2020, the Bureau issued an interpretive rule \96\ with
respect to how the Bureau determines which counties qualify as
``underserved'' for a given calendar year under Regulation Z.
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\96\ The interpretative rule can be found at: https://files.consumerfinance.gov/f/documents/cfpb_interpretive-rule_determining-underserved-areas-using-hmda-data.pdf.
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The Bureau's annual list of rural and underserved counties and
areas is used in applying various provisions under Regulation Z, which
implements the Truth in Lending Act (TILA). These provisions include
the exemption from the requirement to establish an escrow account for a
higher-priced mortgage loan and the ability to originate balloon-
payment qualified mortgages and balloon-payment high cost mortgages.
Regulation Z states that an area is ``underserved'' during a
calendar year if, according to HMDA data for the preceding calendar
year, it is a county in which no more than two creditors extended
covered transactions secured by first liens on properties in the county
five or more times. The Bureau previously interpreted how HMDA data
would be used to determine which areas meet this standard using a
method set forth in the commentary to Regulation Z. However, portions
of this method have become obsolete because they rely on data elements
that were modified or eliminated by certain 2015 amendments to the
Bureau's HMDA regulations, which became effective in 2018.
The interpretive rule describes the HMDA data that will instead be
used in determining that an area is ``underserved'' for purposes of the
standard described in Regulation Z. This interpretation supersedes the
outdated methodology set forth in the commentary to Regulation Z.
4. Remedial Actions
4.1 Public Enforcement Actions
The Bureau's supervisory activities resulted in or supported the
following public enforcement actions.
4.1.1 Citizens Bank, N.A.
On January 30, 2020, the Bureau filed suit against Citizens Bank,
N.A. (Citizens), a national banking association headquartered in
Providence, Rhode Island. The Bureau's complaint \97\ alleges
violations of TILA and TILA's implementing Regulation Z, including
violations of amendments to TILA contained in the Fair Credit Billing
Act (FCBA) and the Credit Card Accountability Responsibility and
Disclosure Act (CARD Act).
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\97\ The complaint can be found at: https://files.consumerfinance.gov/f/documents/cfpb_citizens-bank_complaint_2020-01.pdf.
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As described in the complaint, the Bureau alleges that for several
years Citizens violated TILA, as amended by the FCBA, and Regulation Z
by failing to properly manage and respond to credit card disputes. The
complaint alleges that Citizens automatically denied consumers' billing
error notices and claims of unauthorized use in certain circumstances.
The complaint further alleges that Citizens failed to
[[Page 55840]]
fully refund finance charges and fees when consumers asserted
meritorious disputes or fraud claims and failed to send consumers
required acknowledgement letters and denial notices in response to
billing error notices.
The Bureau further alleges that for several years Citizens violated
TILA by violating provisions passed under the CARD Act. The Bureau
alleges that Citizens violated TILA and Regulation Z by failing to
provide credit counseling referrals to consumers who called Citizens'
toll-free number designated for that purpose. These alleged violations
of TILA--including those under the FCBA and the CARD Act--and
Regulation Z also constitute violations of the Consumer Financial
Protection Act.
The Bureau's complaint seeks, among other remedies, an injunction
against defendants and the imposition of civil money penalties.
5. Signing Authority
The Director of the Bureau, having reviewed and approved this
document, is delegating the authority to electronically sign this
document to Laura Galban, a Bureau Federal Register Liaison, for
purposes of publication in the Federal Register.
Dated: September 4, 2020.
Laura Galban,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2020-19978 Filed 9-9-20; 8:45 am]
BILLING CODE 4810-AM-P