Compliance Blog

Happy National Don’t Put All Your Eggs in One Omelet Day!  I must say, eggs are my favorite breakfast ingredient, and an omelet is a great way to include all sorts of goodness in one dish. 

However, you can’t make an omelet without breaking a few eggs, and the same may be said for compliance: you sometimes (inadvertently) break a few rules before you get it just right.  When that is the case, the CFPB provides a helpful resource, in the form of its Supervisory Highlights.

On June 29, the Consumer Financial Protection Bureau (CFPB) published its Summer 2021 Supervisory Highlights, which focused on legal violations identified by the Bureau’s examinations in 2020.  The relevant findings in this report cover auto servicing, consumer reporting, debt collection, deposits (focus on Regulation E violations), fair lending, mortgage origination and servicing, and private education loan origination.  Most of these topics are not new, and have been identified in previous issues, particularly credit/consumer reporting, which we have previously blogged about here, and here.  However, Regulation E has been somewhat of a hot topic lately, so this post will focus on the deposits section of the issue.

Examiners found repeated violations of the Electronic Fund Transfer Act (EFTA) and Regulation E, many of which have been discussed in previous Supervisory Highlights (Fall 2014, Summer 2017, and Summer 2020).  These repeat violations that were highlighted in the latest report include:

• Requiring written confirmation of an oral notice of error before investigating;
• Requiring consumers to contact merchants about alleged unauthorized transactions before investigating;
• Relying on incorrect dates to assess the timeliness of an EFT error notice;
• Failing to provide an explanation or an accurate explanation of investigation results when determining no error or a different error occurred; and
• Failing to include in the error investigation report a statement regarding a consumer’s right to obtain the documentation that an institution relied on in its error investigation. 

The Bureau also noted additional findings, as well, including issues with provisional credits, failure to timely investigate errors, failure to conduct reasonable investigation, failure to properly remediate errors, as well as overdraft opt-in and disclosure violations.

Provisional Credit

Some of the violations of Regulation E’s provisional credit requirements include not providing provision credits when the error investigation was not completed within 10 business days of a notice of error, failing to provide provisional credits to consumers who timely provided the required written confirmation of verbal error notices, and posting the provisional credit to the wrong account, among others.

Timely Investigations

Examiners found that financial institutions violated Regulation E by failing to complete investigations and make a determination within 45 days from receipt of the notice of error and within 90 days from receipt of the notice of error for point-of-sale debit transactions, respectively, after providing provisional credit within 10 business days of the error notice. In each instance, the financial institutions exceeded the applicable timelines under section 1005.11(c)(2). 

Reasonable Investigations

Section 1005.11(c)(4) requires that a financial institution in investigating an error must conduct, at a minimum, a “review of its own records regarding [the] alleged error.”  This review must include at least “any relevant information within the institution’s own records.”  Examiners found that some financial institutions violated Regulation E by failing to conduct a reasonable investigation and instead denied claims solely because the consumers had previously conducted business with a merchant.

Remediation of Errors

When a financial institution determines an alleged error did occur, commentary to Regulation E states: “it must correct the error…including, where applicable, the crediting of interest and the refunding of any fees imposed by the institution.”  Examiners found that some financial institutions failed to refund associated fees and credit interest when correcting an error.  At one institution, an organizational issue caused the problem; the institution used multiple divisions to investigate and correct errors, with different policies and procedures between divisions which resulted in the failure to refund the fees as required by the Regulation E commentary, despite determining that the alleged error occurred.

Overdraft Opt-Ins

Lastly, Regulation E prohibits financial institutions from charging overdraft fees on ATM and one-time debit card transactions unless consumers affirmatively opt into overdraft service.  The Bureau identified a number of violations in connection with the overdraft opt-in requirements, including, including, failing to obtain the required affirmative consent from consumers before charging them overdraft fees for ATM and one-time debit card transactions due to operational errors.  Violations also included failing to advise consumers who opted-in to overdraft online of their right to revoke their opt-in, failing to retain evidence of having obtained affirmative consent from consumers who opted-in to overdraft services due to various operational errors, and general document retention failures, among others.

This is a just a taste of some of the items identified by the CFPB’s examiners in 2020.  Check out the full report for more information.  You can also find all previous Supervisory Highlights Issues here.

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