Compliance Blog

This second installment of the blog series covering the Consumer Financial Protection Bureau’s (CFPB) recently released Supervisory Highlights will include examination issues regarding mortgage origination, prepaid accounts, remittances, and student loan servicing. Check out our recent blog reviewing auto servicing, consumer reporting, credit card account management, debt collection, and deposits. The Supervisory Highlights are a great tool for credit unions to understand examination trends.

Mortgage Origination

The CFPB found instances where loan originator’s compensation agreements provided for greater compensation where a Federal National Mortgage Association (Fannie Mae) conforming fixed rate loan was over a certain percentage of the total loans closed. Under the Loan Originator Rule, it is impermissible for an originator to receive a higher commission based on the term of a transaction. The CFPB states that payment compensation based on a credit product type is payment based on a term because credit products are “simply a bundle of particular terms.”

Another examination issue relates to insufficient documentation for changed circumstances. The CFPB found that lenders did not retain sufficient documentation to establish a valid changed circumstance under Regulation Z. Specifically, the lender did not retain documentation of a consumer’s request for a rush appraisal. The lender disclosed the appraisal fee on an initial loan estimate and an appraisal rush fee on a revised loan estimate. However, the only evidence that the consumer requested this was a checked box. Under Regulation Z, a creditor may use a revised loan estimate to disclose a charge not originally disclosed to reset a tolerance where there is a valid changed circumstance. A changed circumstance may include a consumer requested change, so long as the creditor maintains documentation evidencing the reason for the revision. The CFPB found that the documentation showed that the appraisal management company notified the lender of the rush appraisal, or the lender’s loan officers requested the rush appraisal. It appears that the CFPB does not think that the presence of a checked box, absent other evidence of a consumer’s request, is enough to pass muster.   

Lastly, the CFPB found examination issues pertaining to closing disclosures that failed to reflect the terms of the legal obligation. Closing disclosures failed to accurately reflect the fully-indexed-rate required by the promissory note due to software miscalculations. The software used a different rounding methodology than the promissory note. Due to this error, the closing disclosure did not accurately reflect the terms of the legal obligation between the parties.   

Prepaid Accounts

Examiners found issues related to the submissions of prepaid account agreements from issuers. Section 1005.19(b)(1) requires prepaid account issuers to submit account agreement on a rolling basis but no later than 30 days after an issuer offers, amends, or ceases to offer any prepaid account agreement. Specifically, account issuers failed to submit the agreements to the CFPB within the required 30-day timeframe after an amendment to the agreement. As a reminder, section 1005.19(a)(2) defines “amends” as any substantive change to the agreement, meaning the change alters the right or obligations of the issuer or the consumer under the agreement, or any change in fee information. In addition, examiners found that the submissions did not include the required information of the name of the program manager and other relevant parties.

Examination issues also included violations related to the receipt of valid stop payment requests from prepaid account users. The CFPB found instances where a financial institution failed to honor oral stop payment requests with respect to payments that originate in a bill pay system. These included payments initiated with the merchant and within bill pay systems housed with the prepaid account program manager.

The CFPB also found examination issues related to error resolution documentation notices once it was determined that there was no error or a different error than the consumer alleged, after the completion of an investigation. Specifically, the CFPB found that error resolution notices failed to include a statement regarding the consumer’s right to request the documents that were relied upon in making the determination of no error or a different error than alleged. The CFPB also found instances where financial institutions failed to provide the requested documentation where a consumer made subsequent requests.  

Remittances

There were several instances of noncompliance with the Remittance Rule. Examiners found instances of remittance transfer providers engaged in deceptive acts or practices where they made representations of “instant” and “30 second” transfers that they could not complete within the stated time frame, or they delayed the transfer. The CFPB noted that information provided to a consumer about the transfer speed is material to the consumer’s decision-making process.

In addition, the CFPB found instances of remittance transfer account agreements waiving a consumer’s rights under the Electronic Funds Transfer Act. These included agreements with a hold harmless and indemnification provision, agreements attempting to limit a consumer’s right to recover costs and attorney’s fees in a limited liability clause, and agreements where the entity makes “no representations or warranties regarding the time required to complete processing because the Service is dependent on many factors beyond our control.”

Examiners also found remittance providers failed to comply with the timing and disclosure requirements. Including the requirement that remittance transfer providers disclose on receipts the date in the foreign country in which the funds will be available to the recipient. Remittance transfer providers also failed to provide the required receipt no later than one business day after payment via a mobile application.

Lastly, examiners found instances of noncompliance with required error investigations. The CFPB highlights issues where institutions failed to provide notice of the results of error investigations, including available remedies. Institutions also failed to refund fees for remittance transfers that were not delivered and issued error claim denial letters that did not disclose the sender’s right to request copies of the documentation used in the investigation.

Student Loan Servicing

The CFPB highlighted various unfair acts of practices of student loan servicers, including the failure to make incentive payments offered in advertisements and agreed upon in contracts with the consumers. The CFPB found instances where a system error occurred and early repayment incentives, referral bonuses, and welcome bonuses were not provided. The CFPB also discovered instances where early repayment incentives were contingent on maintaining a deposit account with a particular financial institution but were not disclosed in the loan contracts. Lastly, examiners found that student loan servicers engaged in unfair acts or practices by failing to issue timely refund payments according to payments schedules in loan modifications.