The CFPB recently issued its newest edition of Supervisory Highlights Mortgage Serving Special Edition, Issue 11 (June 2016).
From a litigator’s perspective, the Supervisory Highlights do more than summarize recent supervisory findings, they also shine a light on future examination and putative class action risks that are emerging. The CFPB is providing key insights into what it believes should be industry standards. Banks and mortgage servicers should read carefully both the specific findings summarized and slightly more subtle clues to evolving future CFPB requirements. Here are three takeaways on the Highlights from a financial services class action litigator’s perspective:
- ECOA & Special Servicing Populations Continue to be a Strong CFPB focus.
In section 2, “Our approach to mortgage servicing examinations,” the CFPB uses a fair amount of real estate to highlight ECOA requirements. In fact, the report states clearly “…Supervision will be conducting more comprehensive ECOA Targeted Reviews of mortgage servicers in 2016.” (See Supervisory Highlights, p.5). The report specifically indicates that the ECOA Baseline Modules in the CFPB Supervision and Examination Manual will be a tool used by CFPB examination teams. Banks and servicers would do well, if you are not already, to consider the modules and how your data may be viewed. The CFPB specifically flags Module IV fair lending risks related to servicing including staff training, monitoring and “servicing those customers with Limited English Proficiency.” (See Supervisory Highlights, p.5, and ECOA Examination Modules). Among the module’s areas of inquiry are: whether personnel who are available for limited English speaking customers receive the same training and have the same authority as do other personnel, and the level(s) of discretion that servicing personnel may have in making loss mitigation decisions and referrals for customers with limited English (including controls to monitor such discretion usage). The Highlights appear to signal that the CFPB will increase focus on these areas in the coming months. Banks and servicers may wish to re-evaluate their progress and operations capabilities in these areas. As always, the plaintiff’s consumer bar may be watching CFPB pronouncements and enforcement, and may initiate consumer class action(s) asserting such claims.
- Compliance, not competitive business strategy or continuous improvement, should drive technology projects according to the CFPB.
The Highlights also signal that the CFPB is going to be scrutinizing servicer technology capabilities more squarely. Historically, for most institutions, technology advancements are viewed as part of a business’ competitive advantage or continuous improvement cycle to gain efficiencies. The Highlights suggest that the CFPB may view technology as fundamental to compliance. certainly the Highlights state directly that technology limitations will no longer be a defense to examination findings. The final sentence of the conclusion reads: “A growing point of emphasis for Supervision in achieving needed improvements in servicer compliance will be to require servicers to submit specific and credible plans describing how changes in their information technology systems will offer assurance that they can systematically and effectively implement the changes made to resolve the issues identified by Supervision.” (See Highlights, p. 20). While Supervision is not Enforcement, the latter is a short stop away. Servicers who may already have had technology issues flagged by the CFPB likely should consider technology as an operations and financial priority.
- The “Horizontal Review” environment is thriving. Your peers will be setting industry standards according to the CFPB.
Finally, the Highlights make clear that servicers will continue to be judged by their standing among peers. Not so subtly, in its Conclusion, the CFPB emphasizes four different “best practices” undertakings that certain unidentified servicers have taken. (See Highlights, p. 19). While the CFPB does not specifically label them “best practices,” the innuendo is crystal clear at least in my view. Servicers likely should evaluate the several examples provided regarding regulatory customer complaint investigation and tracking as well as customer complaint process governance. From a litigator’s perspective paying special attention to consumer complaints also may enhance your ability to avoid consumer and class action litigation risk. Like the proverbial canary in a coal mine, a customer complaint may provide an indication of litigation risk. Addressing such claims thoughtfully and timely may reduce Supervision/Examination risk as well as litigation risk.