The CFPB's Supervisory Report Provides Important Insight into the CFPB's Supervision and Enforcement Priorities and Desired Business Practices
- The Consumer Financial Protection Bureau (CFPB) issued "Supervisory Highlights," its annual supervisory report detailing the key findings of the CFPB's non-public supervisory efforts.
- The report placed a substantial emphasis on the need for financial institutions to have a formalized compliance management system (CMS) and consumer complaint management system in order to be in compliance with federal consumer protection law.
- For businesses seeking to avoid entanglement with the CFPB, having a robust compliance management system with written and updated policies and procedures, formalized training for employees and effective consumer complaint management is critical.
The Consumer Financial Protection Bureau (CFPB) issued "Supervisory Highlights," its annual supervisory report detailing the key findings of the CFPB's non-public supervisory efforts. Reporting on its supervisory activities between January and April 2015, the CFPB highlighted results from supervisory actions relating to:
- credit reporting
- student loan servicing
- mortgage origination and servicing
- fair lending
- debt collecting
Notably, the CFPB's report, released on June 23, 2015, placed a substantial emphasis on the need for financial institutions to have a formalized compliance management system (CMS) and consumer complaint management system in order to be in compliance with federal consumer protection law.
During its recent supervisory activities, the CFPB cited credit reporting agencies (CRAs) for failing to "follow reasonable procedures to assure maximum possible accuracy of information" in consumer credit reports as required by the Fair Credit Reporting Act (FCRA). The CFPB faulted CRAs for failing to oversee entities that provide information that CRAs place on consumer credit reports, and for failing to manage the data CRAs receive. The CFPB directed CRAs to establish quality control policies and procedures to test consumer credit reports for accuracy.
The CFPB also alleged that poor practices on the part of debt collectors contribute to the ongoing problem of inaccurate credit reporting. Specifically, the CFPB took issue with the practice of some debt collectors of simply deleting items reported on consumers' credit reports after receiving disputes from consumers. Under the FCRA, entities that provide information to CRAs have a duty to conduct an investigation of the trade line if challenged. The CFPB directed debt collectors to comply with the FCRA, and to create written policies for processing consumer information reported to CRAs.
The CFPB took issue with a number of student loan servicers that included language on statements suggesting that borrowers could not deduct interest paid on qualified student loans on their tax filings unless borrowers paid more than $600 in interest. The CFPB labeled this practice "deceptive" because there is no threshold amount borrowers must pay before being allowed a deduction. The possible FCRA violation involved the failure of some student loan servicers to provide sufficient adverse action notices in connection with the denial of a request to release a co-signer to private student loans.
The CFPB cited violations by lenders with respect to: (1) a lack of written internal compliance procedures; (2) disclosure requirements; and (3) deceptive representations made to borrowers, including misleading borrowers into thinking they waived their federal statutory rights in connection with lending agreements secured by a dwelling. The CFPB attributed these violations to weaknesses in training, monitoring and corrective action, and compliance audits.
The CFPB took issue with mortgage lenders' foreclosure and loss mitigation procedures. The CFPB noted that at least one mortgage servicer sent notices of intent to foreclose to borrowers approved for trial modifications, potentially misleading consumers into believing that the servicer had since abandoned the trial modification. With respect to loss mitigation, examiners found at least one servicer that failed to send the required notices in response to loss mitigation applications.
The CFPB noted instances of lenders denying mortgage applications from consumers who received public assistance income. According to the CFPB, the blanket practice of excluding or refusing to consider public assistance as a source of income violated the Equal Credit Opportunity Act. The CFPB directed these lenders to identify borrowers who were denied loans or discouraged from applying for that reason and instructed lenders to provide these consumers with financial remuneration or the opportunity to reapply.
Compliance Management Systems and Consumer Complaint Management
Having a CMS should go far in helping to address the issues highlighted above. The CFPB was clear in its view on the necessity of a CMS in its report on its supervision of debt collectors:
[T]he CFPB expects a financial institution under its supervision to maintain an adequate compliance management system (CMS) tailored to its operation. A robust and well-administered CMS is vital to preventing violations of Federal consumer financial law and the resulting harm to consumers.
The CFPB identified specific compliance practices it expects institutions to follow, including regular meetings by management to review ongoing compliance efforts, as well as periodic compliance audits. The CFPB also identified ongoing compliance training for employees as critical to ensuring compliant business practices.
Similarly, the CFPB stressed the importance of having robust complaint management procedures, declaring them to be "an important tool for detecting violations of Federal consumer financial law ... ." The CFPB reported that it directed institutions to establish procedures to ensure that consumer complaints are timely identified, categorized and resolved.
Report Provides Insight into CFPB's Priorities
The CFPB's supervisory report provides important insight into the agency's supervision and enforcement priorities, and desired business practices. For businesses seeking to avoid entanglement with the CFPB, having a robust compliance management system with written and updated policies and procedures, formalized training for employees and effective consumer complaint management is critical in helping to demonstrate compliance with federal consumer protection law.