Compliance Blog

Written By: Reginald Watson, Regulatory Compliance Counsel, NAFCU

Greetings Compliance Friends! We are excited to kick off our Spring Regulatory Compliance School this week! For those missing out, there is no need to fear as the NAFCU Compliance Team will also be hosting a Summer Regulatory Compliance School in Minneapolis, MN the week of August 12^th!

Recently, the CFPB issued its Winter 2019 supervisory report, which provides several observations from recent examinations and other supervisory activities. The report covers issues observed by the Bureau in the areas of automobile loan servicing, deposits, mortgage servicing, and remittances. The report also provides information on recent public enforcement actions, as well as a summary of recently issued supervisory “guidance.” Although Kathy Kraninger is the current CFPB head, it may be helpful to keep in mind that this report covers supervisory activities conducted under the leadership of former Acting Director Mick Mulvaney (June 2008 – November 2008). It remains to be seen if the new regime will continue this supervisory path or chart a new course altogether. Key findings include:

Automobile Loan Servicing. While the supervisory highlights in this area relate to captive auto finance companies, they can be instructive for credit unions involved in automobile loan servicing.

In recent examinations, CFPB reviewed whether servicers engaged in unfair, deceptive, or abusive acts or practices (UDAAPs) with respect to incorrectly calculated deficiency balances during the repossession of used cars. More specifically, examiners discovered that incorrect mileage was applied when requesting rebates for extended warranties and ancillary products. The servicers in question applied the total number of miles instead of the net miles driven since the purchase of the used car, which reduced the amount of available rebates and artificially inflated some deficiency balances when it came time for collections.

Examiners also found that deficiency notices were deceptive with regard to the availability of eligible ancillary product rebates. The notices in question created the net impression that the deficiency balance reflected a setoff of all eligible ancillary-product rebates, when in fact, the servicer’s system showed that it had not sought one or more eligible rebates. In response, the servicers conducted reviews to identify and remediate affected borrowers.

Deposits. In connection with deposit accounts, the CFPB found UDAAP violations with respect to online bill-pay services. Examiners found that some financial institutions represented that a customer could select the date to debit a payment from their account; however, the financial institution debited the customer’s account a few days prior to the selected date in situations where the payee accepted only paper checks. This sometimes resulted in overdraft fees. The Bureau found the failure to disclose this possibility to be a deceptive practice. In response to the examination findings, the institutions revised their bill-pay program disclosures and remediated consumers who were charged overdraft fees.

Mortgage Servicing. CFPB examiners identified UDAAP violations with respect to charging consumers unauthorized late fees that were greater than the amount permitted in mortgage notes. In some instances, the excessive fees were due to calculation errors, where a certain percentage was applied to the past due amount which incorrectly included principal, interest, taxes, and insurance, as opposed to simply the principal and interest. The Bureau also found deceptive practices where mortgage servicers misrepresented certain aspects of a consumer’s right to cancel private mortgage insurance, in addition to mortgage servicers who provided misleading statements to successors-in-interest on reverse mortgages.

Examiners also identified instances where the financial institution’s platform assessed late fees that exceeded late fee caps. Although not a federal requirement, late fee caps may be established either contractually in the mortgage note or under applicable state law. Thus, it may not be a bad idea to review your credit union’s servicing platform to ensure that it is properly integrating any state rules or contractual obligations that limit mortgage payment late fees.

Examiners also found that some mortgage servicers failed to exercise reasonable diligence in obtaining information to complete loss mitigation applications in violation of section 1024.41(b)(1) of Regulation X.

Remittances. The CFPB continues to examine for compliance with Regulation E’s remittance rule. Examiners found that financial institutions failed to refund fees and where allowed by law, taxes to consumers when remitted funds were delayed. When providing remittance transfer services, credit unions are required to make funds available by the date stated in disclosures unless the delay is a result of one of four exceptions described in section 1005.33(a)(1)(iv) of Regulation E. When a member notifies her credit union of an error in processing or a delay that does not fit one of the exceptions, the credit union is required to either refund the sender the amount of the funds provided, or make available the appropriate amount that would resolve the error. As a part of the error resolution process, section 1005.33(c)(2)(ii)(B) requires that the credit union also refund any fees or in certain cases taxes imposed.  In response to findings, affected financial institutions are refunding fees and taxes that were incorrectly imposed.

For additional information, check out the full report here.