Sunday, March 15, 2015

FYI: CFPB's Supervisory Highlights (Winter 2015) Address LO Comp, ACH Payments, Social Media Advertising, Consideration of Public Assistance Benefits, More

The Consumer Financial Protection Bureau (CFPB) recently issued its Supervisory Highlights report for Winter 2015, relating to examinations generally completed between July 2014 and December 2014.


A copy of the Supervisory Highlights (Winter 2015) report is available at:


Some important excerpts from the report include:



Mortgage Loan Origination:


1.  Dodd-Frank Rules:  As to the Dodd-Frank Act Title XIV rules, most of which went into effect in January 2014, “[s]upervision’s examination findings for compliance with Title XIV rules will be discussed, for the most part, in a future issue of Supervisory Highlights.”


2.  Loan Originator Compensation:  “In one or more examinations, examiners found that branch managers were loan originators and owners of related marketing services entities. Supervision found instances of improperly allocated expenses on branch income statements which resulted in marketing services entities receiving income based on the profitability of retail loans originated by branch managers.  Consequently, branch managers, as owners of the marketing services entities, received compensation based on the terms of transactions originated by the branch managers themselves.” 


3.   Improper Lender Credits Without Changed Circumstances:  “[E]xaminers identified practices that caused the amounts disclosed on the HUD-1 to exceed those disclosed on the GFE. Due to inadequate training and compliance policies and procedures, a lender credit in one or more examinations was reduced on the HUD-1 to prevent the borrower, on a no-cost refinance, from receiving excess cash-back at closing. This reduction, however, in the absence of changed circumstances, impermissibly increased the final adjusted origination charge, a violation of Regulation X.”


4.  Timely Delivery of GFEs:  “During one or more examinations, examiners identified policies and procedures that did not define sufficiently when an application was received. As a result, the lender did not measure the three-business-day period accurately, and this caused the good faith estimates to be delayed beyond the three-business-day requirement, a violation of Regulations X and Z.”


5.  Social Media Advertising Without Required Disclosures:  “Examiners found in one or more institutions that social media advertising was not subject to monitoring or compliance audit, which are components of an effective compliance management system. Loan originators created their own advertisements and content. Loan originators advertised the length of payment, amount of payments, numbers of payments, and finance charges, without providing the required disclosures, a violation of Regulation Z.”


6.  Adverse Action Notice Deficiencies:  “CFPB examiners found one or more supervised entities failed to provide the requisite information in denial notices as set forth in Regulation B and failed to notify an applicant of action taken within 30 days after receiving the completed application.”


7.  Compliance Management System Issues:  “In one or more instances, an institution’s board members did not receive any training, the training provided to employees was not comprehensive or accurate, and training content was neither kept current nor directed towards the appropriate employees. At one or more institutions, Supervision found that compliance audits performed by third parties were limited in scope and failed to identify numerous regulatory violations found by examiners, and audit results were not reported to directors.”



Fair Lending:


Failure to Consider Public Assistance and Other Protected Income:


1.  “Applicants were automatically declined if they relied on income from a non-employment source, such as social security income or retirement benefits, in order to repay the loan.”


2.  “Marketing materials contained written statements regarding the prohibition and may have discouraged applicants who received public assistance or other protected sources of income from applying for credit.”


3.  “While the general rules governing the prohibition against consideration of protected forms of income include narrow exceptions (e.g., while a creditor may not consider the fact that an applicant receives public assistance income, the creditor can consider ‘[t]he length of time an applicant will likely remain eligible to receive such income’), for these exceptions to apply, an institution must analyze each applicant’s particular situation.  A blanket practice of denying any applicant who relies on public assistance income, or a specific form of public assistance income, without an assessment of an applicant’s particular situation, violates the ECOA and Regulation B.”


4.  “On November 18, 2014, the Bureau issued a bulletin providing guidance to help lenders avoid prohibited discrimination against consumers receiving Social Security disability income,” which “reminds lenders that requiring unnecessary documentation from consumers who receive Social Security disability income may raise fair lending risk, and calls attention to standards and guidelines that may help lenders comply with the law.”  A copy of the Social Security Disability Income Verification Bulletin 2014-03 is available at:



Debt Collection:


1.  Misstatements as to ACH Payment Cancellation or Adjustments:  The CFPB states that its examiners found that, “[w]hen attempting to collect on delinquent accounts, collectors offered consumers a recurring ACH payment option. When informing consumers about this payment option, collectors promoted the consumers’ ability to adjust or cancel a recurring ACH payment with only 24 hours’ notice. This representation, however, contradicted both an express representation in monthly periodic statements provided to consumers and internal policies and procedures, which stated that a minimum of 72 hours’ notice was required. The contradiction in oral and written disclosures of the timeframe required to cancel or adjust a recurring ACH created a risk of deception.”


2.  Threats of Legal Action Not Intended to Be Taken:  “Examiners also found that collectors threatened to take action against certain consumers, which created the impression that if they did not make a payment they would be sued. In fact, none of the collection agents knew whether legal action would be taken and did not intend to take legal action.”


3.  Misstatements as to Auto-Pay Requirements:  “[E]xaminers identified instances in which collection agents misrepresented to consumers that they could not participate in a federal

student loan rehabilitation program unless consumers made payments by credit card, debit card, or Automatic Clearing House (ACH) payment, when in fact no such program requirement existed.”



Overdraft Fees:


The CFPB reportedly found that “changes to the balance calculation method used were not disclosed at all, or were not sufficiently disclosed, resulting in customers being misled as to the circumstances under which overdraft fees would be assessed.  Because these misleading practices could be material to a reasonable consumer’s decision making and actions, they were found to be deceptive.”



Consumer Reporting:


1.  Consumer Reporting Agencies (CRAs) Not Forwarding All Relevant Info in Dispute from Consumers:  “[E]xaminers continued to find that one or more CRAs failed to consistently forward all relevant information found in letters and supporting documents supplied by consumers with their disputes.”


2.  Deficiencies in CRAs Updating Public Record Info:  “[E]xaminers found deficiencies in the updating of public record information, leading to errors in the updating of files after a reinvestigation and in the reporting of dispute results to consumers.”



Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874


Admitted to practice law in Illinois






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