CFPB Supervisory Highlights Report Covers FDCPA Violation Risks

The report from new bureau leadership provides ongoing compliance takeaways for the accounts receivable management industry.

12/14/2021 9:45 A.M.

5 minute read

The Consumer Financial Protection Bureau has released its latest Supervisory Highlights report, an anonymized overview of the agency’s findings from examinations of regulated entities conducted between January 2021 and June 2021. Notably—at least for the accounts receivable management (ARM) industry—the report features only one entry relating to a debt collector’s violation of the Fair Debt Collection Practices Act.

In addition to debt collection examinations, the report covers credit card account management; deposits; fair lending; mortgage servicing; payday lending; prepaid accounts; and remittance transfers. The report, released under the leadership of CFPB Director Rohit Chopra, covers the time that David Uejio served as acting director for the bureau prior to Chopra’s confirmation as director by the U.S. Senate in September.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the bureau has congressional authority to supervise large banks and credit unions with more than $10 billion in assets as well as certain nonbanks to ensure their compliance with federal consumer financial law.

The report shares information about the bureau’s examination findings, supervisory program developments, and remedial actions, but it does not impose new or different legal requirements beyond those in relevant laws and regulations. The bureau disseminates this information to help institutions better understand how it examines regulated entities and to help those entities better comply with federal law.

Bureau supervised nonbanks include mortgage companies, private student loan lenders, and payday lenders, as well as nonbank entities that the bureau defines through rulemaking as “larger participants” of other consumer financial markets.

ARM industry companies use the bureau’s semiannual supervisory highlights reports to gauge compliance standards with regard to the bureau’s enforcement of federal consumer financial laws and to help limit risks to consumers.

According to the report, at least one examination of larger participant debt collection agencies identified the risk of FDCPA violations related to Section 807(10) [15 U.S.C. Section 1692e(10)], the use of false representations or deceptive means to collect or attempt to collect a debt. Specifically, the bureau found that at least one debt collector had discussed restarting a payment plan with consumers and “represented that improvements to the consumers’ creditworthiness would occur upon final payment under the plan and deletion of the tradeline” despite the fact that, in the bureau’s words, “numerous factors influence an individual consumer’s creditworthiness, including potential tradelines previously furnished by prior owners of the same debt.”

In the bureau’s view, the variety of factors that may influence a consumer’s credit score means that debt resolution “may not improve the credit score of the consumers to whom the representation is made.” As a result, the bureau’s examiners found that such representations could cause the least sophisticated consumer to conclude that the deletion of negative credit information that accompanies resolution of a debt would necessarily result in improved creditworthiness, “thereby creating the risk of a false representation or deceptive means to collect or attempt to collect a debt in violation of Section 807(10)” of the FDCPA.

After the examination, the collectors revised their FDCPA policies and procedures and improved “training and monitoring systems to prevent, identify, and address risks to consumers that may arise from deceptive statements by collection agents and third-party service providers about the effects of payment or non-payment on consumer credit, credit reporting, or credit scoring,” according to the report.

Debt collectors should also be aware that the bureau’s report highlights mortgage servicing violations related to Coronavirus Aid, Relief, and Economic Security (CARES) Act forbearances. Specifically, the CARES Act prohibited mortgage servicers from imposing, upon granting a CARES Act forbearance, any “fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract.”

Where at least some mortgage servicers charged fees, penalties, or interest in violation of this provision, the bureau found those fees to be unlawful. In response, the regulated entities involved “remediated impacted borrowers,” “corrected credit reporting,” and “corrected underlying system errors.”

Debt collectors may want to be on the lookout for fees, interest, or penalties assessed on a mortgage or, indeed, on any line of credit open or in repayment during the CARES Act’s effective period and where either the creditor or the federal government may have had a forbearance policy in place.

Finally, the report noted that in September 2021, the bureau published examination procedures for Compliance Management System – Information Technology (CMS-IT).

The CMS-IT procedures are designed to assess supervised institutions’ use of IT and associated IT controls that support consumer financial products and services. Deficiencies in IT and IT systems can pose a risk to consumers and may be the root cause of [f]ederal consumer financial law violations. The procedures utilize the fundamental elements of CMS to review the controls implemented by institutions to manage IT and IT systems that are supporting consumer financial operations. The new procedures are expected to help examiners understand the controls for institutions to  manage risks and comply with [f]ederal consumer financial laws.

The ARM industry and ACA International members can learn more about company examinations during upcoming industry check-ins hosted by the Consumer Financial Protection Bureau’s Ombudsman Office and provide feedback on the bureau’s post-examination survey process, among other topics.

Each session will cover the same information, including details about the post-examination survey program as well as highlighting some of the process topics from the ombudsman’s annual report, ACA previously reported.

The Ombudsman’s Office invites trade groups it has connected with during past outreach to join the meetings and encourages groups to invite their member entities as well.

The first session was be held Tuesday, Dec. 14, and the second will be held from 2-2:45 p.m. EDT, Thursday, Jan. 14.

The role of the Ombudsman’s Office is to provide independent, impartial and confidential resources for consumers, banks and nonbanks in resolving issues with the bureau. In that role, it also makes recommendations to the bureau.

Read the CFPB’s Supervisory Highlights report here.

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