CFPB Winter 2016 Supervisory Highlights Identifies a "Beneficial" Practice

This week the Consumer Financial Protection Bureau (CFPB) released its latest supervision report. The bureau touted that its exams of banks and nonbanks resulted in the remediation of $14.3 million to approximately 228,000 consumers. In an unusual move, this report also highlights a positive practice, something they’ve avoided in the past. When asked why they focus only on negative practices and not positive ones that would be helpful to all, the response was that they didn’t feel it was appropriate to endorse any particular policy or procedure. In this case, the “beneficial practice” (as the CFPB refers to it) involved using exception reports provided by consumer reporting agencies (CRAs) to improve the accuracy and integrity of information furnished to CRAs. Although this finding was not highlighted in the press release, it is noted in Section 2.2.1 of the report.

You can read the full Highlights Report here.

The report, which is the 10th edition of Supervisory Highlights, generally covers supervisory activities completed between September 2015 and December 2015. Among the findings:

• Illegal automatic defaults of student loans: CFPB examiners found one or more student loan servicers engaged in an unfair practice by automatically defaulting on certain private student loans. As the Bureau highlighted last year, some private student loan promissory notes contain an “auto default” clause that lenders trigger to immediately demand payment on the entire loan amount if a co-borrower files for bankruptcy or dies. Examiners found that one or more student loan servicers made the entire loan due when a loan’s co-borrower filed for bankruptcy, regardless of whether the borrower was current on all payments. These auto defaults were unfair because a reasonable consumer would not likely interpret that clause in the contract to mean they would default based on their co-borrower’s bankruptcy. Further, one or more servicers did not notify the borrower that the loan was in default.
• Illegal garnishment threats by student loan debt collectors: Examiners determined that one or more debt collectors used false, deceptive, or misleading representations when performing collection services of defaulted federal student loans for the Department of Education. The debt collectors threatened garnishment against certain borrowers who were not eligible for garnishment under the Department of Education’s guidelines. The debt collectors also gave borrowers inaccurate information about when garnishment would begin, creating a false sense of urgency.
• Violations of the new remittance rule: This is the first Supervisory Highlights to report on exams of banks and nonbanks in the remittance market. The CFPB’s rule governing international money transfers became effective in October 2013. The new protections for consumers who send money abroad include disclosure requirements, error resolution requirements, and cancellation rights. Overall, CFPB examiners found that remittance transfer providers have implemented necessary changes to comply with the CFPB’s rule. But in some cases, at least one provider gave incomplete, and sometimes inaccurate, disclosures to consumers. At least one provider also failed to cancel transactions within the required timeframe. And at least one provider failed to promptly credit consumers’ accounts when errors occurred.
• Illegal inaccuracies with deposit account information provided to credit reporting companies: The CFPB examiners found that one or more banks or credit unions failed to update checking account information they had supplied to the checking account reporting companies. For example, when consumers paid charged-off accounts in full, one or more banks or credit unions would update their records but would not update the change in status and send that information to the credit reporting companies. Not updating an account to “paid in full” status could negatively affect a consumer’s attempt to open a new checking account. Federal law says that depository institutions must have systems in place regarding accuracy when they pass on information to checking account reporting or other credit reporting companies.
• Failure to honor written requests by consumers to cease debt collection communications: The CFPB found at least one debt collector that failed to comply with the Fair Debt Collection Practices Act requirement to stop contact. Federal law says that after a consumer notifies a debt collector in writing that he or she refuses to pay a debt or wants a debt collector to stop contacting them, the collector must, with few exceptions, stop. Bureau examiners found at least one debt collector failed to honor this requirement. The failures resulted from system errors, such as mistakes during manual data entry.

According to the CFPB, where examiners find violations of law or other significant problems or weaknesses, they alert the institutions to their concerns and outline necessary remedial measures. When appropriate, they open investigations for potential enforcement actions. The CFPB often finds problems during supervisory examinations that are resolved without an enforcement action.

Here is what the CFPB says about that “beneficial practice” it found:

Banks and nonbanks that engage in collections activity and that furnish information about consumers’ debts to CRAs must comply with the FCRA and Regulation V. As noted above, furnishers must establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information that they furnish to a CRA. CRAs routinely provide or make available exception reports to furnishers. These exception reports identify for furnishers the specific information a CRA has rejected from the furnisher’s data submission to the CRA, and thus has not been included in a consumer’s credit file. The reports also provide information that a furnisher can use to understand why the furnished information was rejected.

In some circumstances, these rejections may help identify mechanical problems in transmitting data or potential inaccuracies of the information the furnisher attempted to furnish. In responding to a matter requiring attention requiring one or more entities engaging in collections activities to enhance policies and procedures to ensure proper and timely identification of information rejected by the CRAs, one or more entities enhanced its policies and procedures regarding the utilization of exception reports to resolve rejected information. Examiners found that the one or more entities reviewed and corrected rejections related to errors in consumer names, updated name and address information through customer outreach, and met regularly with the CRAs to discuss the exception reports and to identify patterns in rejections. As a result of these efforts, one or more entities had a significant reduction in errors and exceptions, which led to greater accuracy in the information furnished to CRAs.

insideARM Perspective

Although the CFPB’s debt collection rulemaking process has now been going on for more than two years, officials have repeatedly suggested that their Supervisory and Enforcement activities should be closely watched for clues about their priorities and where future rules are likely to focus.

In the case of this latest report, collection agencies ought to take a hard look at their policies and procedures related to consumers requesting that they cease communications. The summary of this particular issue says “Bureau examiners found at least one debt collector failed to honor this requirement. The failures resulted from system errors, such as mistakes during manual data entry.” So you may want to step up those audits of this process, especially because these requests to cease communications can come through a variety of channels.