Why it matters

In the latest edition of The Bureau of Consumer Financial Protection (CFPB) Supervisory Highlights, the Bureau reported continuing violations in several markets. The Fall 2014 report, which covers supervisory work performed between March and June of this year, focused on two primary areas: student loan servicing and mortgage servicing. While the report doesn’t name names or provide exact numbers of violations, Bureau examiners found at least one instance of a loan modification violation, while one or more mortgage servicers lacked the required policies and procedures for oversight of service providers. Student loan servicers were found to have charged illegal late fees, misrepresented minimum payments, allocated payments to maximize late fees, and made illegal debt collection calls to consumers at inconvenient times. Other areas of examination also raised concerns for the CFPB, including debt collection, electronic fund transfers, and consumer reporting.

Detailed discussion

The sixth edition of the Bureau’s Supervisory Highlights focused primarily on student loan and mortgage servicing, but documented violations in other areas as well.

  • Student loan servicing. Examiners found that at least one servicer allocated a borrower’s payments proportionally to each of the multiple loans in a combined account. When the borrower made a payment less than the total amount due, the effect was late fees charged to each of the loans, a practice the CFPB said was unfair under the Dodd-Frank Act. In addition, one or more servicers inflated the minimum payment due to include amounts in deferment and not actually due (a deceptive practice, the Bureau said), charged illegal late fees during the grace period, and failed to provide accurate tax information for borrowers seeking to obtain a student loan interest payment deduction. The CFPB found that some servicers implied to borrowers that student loans are never dischargeable in bankruptcy (a deceptive communication because a borrower may assert undue hardship for a discharge) and one or more servicers “routinely” made debt collection calls to delinquent borrowers early in the morning or late at night.
  • Mortgage servicing. Three issues were highlighted by the Bureau in the mortgage servicing ecosystem. Despite new rules that took effect in January 2014 and two subsequent supervisory bulletins, examiners found servicers that failed to have policies and procedures in place to oversee service providers. At least one servicer delayed the conversion from a trial loan modification to a permanent loan modification. And at least one servicer deceived consumers about the status of a permanent loan modification, the Bureau said, by failing to execute an agreement signed by the borrowers and later sending new agreements with materially different terms.
  • Debt collectors. Examiners discovered that at least one debt collector imposed convenience fees on consumers in a state where such fees were prohibited by law or the law was silent on the legality of such fees and the agreement did not expressly authorize them. The Bureau also reported that “in at least one examination” a debt collector “routinely” threatened consumers with litigation that it did not intend to pursue and only initiated litigation on a “small fraction” of the accounts it collected.
  • Electronic fund transfers. Several Regulation E requirements were cited in the CFPB’s report, from error resolution failures after receiving oral notice of an error from a consumer to a violation of the limit on consumer liability for unauthorized transfers, where a company denied the claim of a consumer who said his PIN was compromised. One or more financial institutions did not include a statement about the consumer’s right to obtain documentation relied on by the institution investigating an error in the standard error resolution notice, the Bureau said.
  • Consumer reporting. Failure to comply with the Fair Credit Reporting Act (FCRA) by “one or more” consumer reporting agencies was found by the CFPB, specifically the statute’s mandate that certain information be provided to consumers in the reinvestigation notice. At least one consumer reporting agency did not address complaints received directly from consumers, according to the report, while a specialty consumer reporting agency provided inconsistent information to consumers about making telephone disputes and maintained what the Bureau characterized as a “weak” consumer complaint program.

To read the Fall 2014 Supervisory Highlights, click here.