Summer may have come and gone, but the Consumer Financial Protection Bureau's (CFPB or "Bureau") most recent Supervisory Highlights reveal which consumer credit products the regulator considers to be evergreen examination priorities. The CFPB periodically releases these to help institutions better understand how the Bureau conducts compliance examinations. The latest issue focuses on automobile loan origination, credit card account management, debt collection, credit furnishing, and mortgage origination.
Defining "Abusive" – Auto Lending and GAP Insurance
The Bureau is continuing to define the term "abusive" in the context of auto lending. The Supervisory Highlights describe findings of lenders that knew certain consumers would not benefit from Guaranteed Asset Protection (GAP) products, and sold the consumers the products, while also allegedly knowing that the consumers did not know they would not likely accrue any benefit from the add-on products. Companies should keep in mind this straightforward application of "abusive" when upselling add-on products or other features that may have limited utility for some consumers.
Credit Card Account Management
The Bureau highlighted four problematic practices in the context of credit cards.
- Trigger Terms: Regulation Z requires that credit card issuers provide clear and conspicuous disclosures if credit card advertisements contain certain pricing terms. Examiners found that triggered disclosures in some online advertisements were inadequately displayed through hyperlinks. For example, hyperlinks were not labeled in a way that referred to the triggered disclosures, or consumers were forced to complete an online application and click through multiple hyperlinks in order to access the disclosure language. It is worth noting that these practices also run afoul of the Federal Trade Commission's "Dot com Disclosure Guide." In contrast to Regulation Z, which merely provides that certain disclosures in advertisements must be "clear and conspicuous," the FTC Guide provides specific guidelines on proximity, placement, and prominence for the purposes of clearly and conspicuously displaying hyperlinked disclosures in online advertisements.
- Credit Card Offsets and Security: The CFPB reminded lenders that credit card offsets are illegal, and that a security interest should not be a pro forma aspect of the credit card agreement. The consumer must specifically authorize the security interest as a condition of the extension of credit. Indicators of consumer awareness and intent include any of the following:
- Separate signature or initials on the agreement indicating that a security interest is being given;
- Placement of the security agreement on a separate page, or security interest provisions that are otherwise separate from other contract and disclosure provisions; or
- Reference to a specific amount of deposited funds or to a specific deposit account number.
Examiners also found instances where issuers enforced security interests when no authorization form had been signed or could be located. Thus, entities are reminded that adequate recordkeeping policies and procedures provide a critical evidentiary component in rebutting a regulator challenge.
- Deceptive Representations: Sending collection letters to consumers suggesting repossession or foreclosure as a consequence of nonpayment continues to be a deceptive practice if, in fact, the issuer does not repossess vehicles or foreclose on mortgages in connection with delinquent credit card accounts. These misrepresentations are material and misleading because they are likely to induce a cardholder to change their conduct with regard to their delinquent credit card accounts.
- Deceptive Marketing: Issuers are reminded that it is misleading to make inaccurate representations, oral or otherwise, regarding automatic upgrades for unsecured credit cards. Examiners found that consumers were led to believe their secured credit card account (or a credit card with an annual fee) would be automatically upgraded to an unsecured credit card within a specific time frame if the accounts were maintained in good standing, when, in fact, upgrades were conditioned on additional factors. Subsequent written disclosures did not adequately cure these misrepresentations.
The CFPB reminds collection agencies that it remains a deceptive practice (and a violation of the Fair Debt Collection Practices Act) for debt collectors to misrepresent the character, amount, or legal status of any debt by claiming and collecting from consumers interest not authorized by the underlying contracts.
The Bureau laid out five areas of focus under the Fair Credit Reporting Act (FCRA) with respect to furnishers of consumer information to consumer reporting companies (CRCs).
- Furnishers are required to complete dispute investigations within 30 days (or 45 days under certain circumstances) of receiving a dispute.
- Furnishers must report the results of dispute investigations to all applicable CRCs to which they provided information. This includes not just the CRC that sent the dispute, but all nationwide CRCs that received the information.
- Furnishers must promptly notify and provide corrected and updated information to all CRCs if previously furnished information is discovered to be incomplete or inaccurate.
- Furnishers must duly notify CRCs if any of the information furnished is subject to a completeness or accuracy dispute by a consumer.
- Furnishers are required to establish and implement reasonable, written policies and procedures regarding the accuracy and integrity of consumer information furnished to CRCs. Such policies and procedures should incorporate the guidelines in Regulation V and address, among other things, compliance with FCRA dispute requirements, training, monitoring, conducting internal audits, and fraud and abuse allegations.
Reverse mortgage disclosures required under Regulation Z continue to be an examination priority. Examiners found that creditors failed to abide by the explanations, equations, and instructions for determining the annual percentage rate (APR) set forth in Appendix J and the total annual loan cost (TALC) set forth in Appendix K of Regulation Z.
The Bureau also highlighted recent rules and developments in the following areas:
- The Payday Rule Small Entity Compliance Guide has been updated to incorporate changes that the Delay Final Rule made to the 2017 Payday Lending Rule. For more on the Payday Rule, see our previous discussions here, here, and here.
- The CFPB and FTC announced a new Memorandum of Understanding, which facilitates the joint cooperation, supervision coordination, enforcement, and consumer response activities between the two agencies.
- The CFPB published a final rule to implement a statutory amendment to the Gramm-Leach-Bliley Act, which provides an exception to the annual privacy notice requirement for financial institutions that meet certain conditions.