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CFPB Supervisory Highlights: A Practical Summary

CFPB Supervisory Highlights: A Practical Summary

Posted by Andy Barksdale on Mar 17, 2015 10:16:00 AM
Andy Barksdale

The CFPB recently released their semi-annual Supervisory Highlights. The Winter 2015 edition highlights supervisory observations focused on fair lending, mortgage origination, consumer reporting, debt collections, and several other things. Below, we share our insights.

On March 11, the CFPB released their Supervisory Report highlighting observations from the Bureau’s examiners. As they summarized, “the Bureau found deceptive student loan debt collection practices, unfair and deceptive overdraft practices, mortgage origination violations, fair lending violations, and mishandled disputes by consumer reporting agencies.”

Regulatory-Compliance-Reminders-CFPB-Best-PracticesIn order to run an effective compliance management program, financial institutions must pay attention to changes in regulation as well as regulatory guidance, press releases, speeches and settlements. We view publications like this as road signs the regulators install for everyone to observe. In that spirit, this Supervisory Highlights report provides important guidelines for your compliance program. 

Below are some of the more interesting observations from the report that covered July 2014 through December 2014.

Fair Lending Violations

Regulatory Perspective: “Bureau examiners found that one or more institutions rejected mortgage applications from consumers because they relied on public assistance income, such as Social Security or retirement benefits, in order to repay the loan. Marketing materials contained written statements regarding the prohibition on non-employment sources of income, and discouraged applicants who received public assistance from applying for credit. This violates the Equal Credit Opportunity Act. CFPB examiners directed that remediation be made to harmed applicants.”

For reference, ECOA Act makes it unlawful for “any creditor to discriminate against any applicant with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant’s income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.”

TRUPOINT Viewpoint: Your marketing efforts and underwriting policies, procedures and practices should all be aligned. In addition, your internal training should reinforce your preferred approach.

Debt Collection Practices

Regulatory Perspective: “Bureau examiners found that some student loan debt collectors made deceptive statements to consumers with defaulted federal student loans. In collection calls and call scripts, examiners found that collectors over-promised the restoration of credit profiles if borrowers participated in a federal student loan rehabilitation program; and collectors misinformed consumers by telling them that they could not participate in the rehabilitation program unless they paid by credit card, debit card, or ACH payments, when, in fact, no such requirement existed.”

TRUPOINT Viewpoint: Debt collection is repeatedly listed as a regulatory priority. When managing collections, you must be clear and concise about the realities of your collections process. We recommend that you support your collections procedures by clearly outlining policies and procedures. The more discretion you grant to individuals, the more monitoring required.

UDAAP - Unfair and Deceptive Overdraft Practices

Regulatory Perspective: “Bureau examiners found that certain banks changed the way in which they assessed overdraft fees – and that the new approaches increased the likelihood that consumers would incur fees that they did not anticipate. The institutions did not explain the changes in a way that consumers could understand and use to avoid overdraft fees. Based on the specific situation at these institutions, examiners found that the banks had carried out unfair and deceptive practices.”

TRUPOINT Viewpoint: Recognizing the broad interpretation of UDAAP, there is a simple management philosophy that goes something like this: “You know it when you see it.”  A "common sense" filter must be applied to your sales, marketing and delivery of services. If the consumer cannot understand your products and services, you are entering sharky waters for many reasons.

Mortgage Origination Violation

Regulatory Perspective:  Bureau examiners found that some loan originators illegally received compensation based on the terms of the loan. Examiners also found that at some loan originators the amounts disclosed on the HUD-1 form improperly exceeded those disclosed on the Good Faith Estimate. Some loan originators advertised the length of payment, amount of payments, numbers of payments, and finance charges without providing the required disclosures. And, the Bureau found weaknesses in compliance management systems that played a significant role in the identified violations.

TRUPOINT Viewpoint: Compensation plans keep jumping onto the radar screen for the CFPB and others.  Are your compensation plans in writing?  Do you have an independent review to compare your written plans to actual compensation?

Seven Editions of Supervisory Highlights

Below we have provided all seven editions of the CFPB’s Supervisory Highlights. You will note that each edition has specifically focused on unique fair lending issues.  In recognition of the importance of fair lending to the regulators, each Supervisory Highlights report has a focus on fair lending. These guidelines should be shaping your fair lending program:

Final TRUPOINT Viewpoint: The CFPB has posted new road signs to help provide compliance guidance to all financial institutions. Take time to review the signs and translate how they apply to your institution.

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Topics: HMDA, Fair Lending, Lending Compliance, Nfairlending, Product Insight, Mortgage Lenders, CFPB

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