The CFPB published its Fall Supervisory Highlights this week, highlighting examinations across various financial products that were conducted between May 2015 and August 2015. The Report highlights key findings made by the CFPB and provides insight into the current focus of the examiners. The current edition of Highlights indicates that problems continue with the servicing of student loans.
Aside from the credit reporting issues we highlighted in a prior post, the Report highlighted specific concerns:
- Examiners continue to be concerned with the issue of partial payments. The Report notes that examined entities are “depriving consumers of an effective choice as to how to allocate” partial payments. Specifically examiners found that:
- Servicers were allocating partial payments over multiple loans, leaving all loans delinquent, and not communicating the ramifications of this to affected consumers; and
- Servicers failed to inform consumers that they could specifically direct how payments were to be applied.
- Examiners noted issues with the manner in which servicers’ systems were processing payments including malfunctions where automatically debit payments were being triggered prior to the due date
- Examiners also raised concerns with auto debited payments in instances where the due date fell on a date the bank was closed. In these instances where the payment is not processed until the next business day, additional interest accrues. The CFPB contends this gives rise to two unfair and deceptive practices by the servicer:
- first, the CFPB is imputing upon the servicer a duty to notify consumers that this may occur; and
- secondly, the CFPB is imputing a duty on the servicer if no notification is provided to the consumer, then the servicer must credit the payment back to the due date.
- Examiners also found that servicers in certain instances are making false representations to consumers in bankruptcy concerning whether or not their student loans will be discharged in bankruptcy. The CFPB continues to note that student loans may be discharged if the debtor can establish an undue hardship.
The Report serves as a continued reminder that that CFPB is imposing additional duties toward consumers by servicers under the “guise” of unfair and deceptive practices. The application of payments continues to be a focus for regulators and servicers should carefully examine their policies and procedures to ensure that a robust compliance management system is in place.