Lessons Learned from the CFPB’s Winter 2019 Supervisory Highlights

On March 12, 2019, the Consumer Financial Protection Bureau (CFPB) released its winter 2019 Supervisory Highlights report. The report focuses on supervision-related work generally completed between June and November 2018 related to automobile loan servicing, deposits, mortgage servicing and remittance transfers.

Automobile Loan Servicing

The CFPB has had supervisory authority on large auto loan servicing companies since August 2015. Examiners detected unfair, deceptive or abusive acts or practices (UDAAP) as they relate to reimbursements of certain ancillary products, e.g., an extended warranty, purchased during the car-buying process. If a borrower later experiences a total loss or repossession, the ancillary products may be canceled for a refund. The refund is generally payable to the servicer to cover any balance shortages, and the remainder goes to the borrower. The amount of the potential refund to the servicer and borrower is contingent on the number of miles driven. Examiners observed the following practices:

• Servicers used the incorrect mileage to compute the rebate for canceled ancillary products. For instance, for borrowers who purchased used vehicles, the servicers were applying the total number of miles on the vehicle rather than miles driven since the borrower purchased the used vehicle (net number of miles). This led to balance shortages. The servicer then attempted to collect the shortages from borrowers.
• Servicers failed to request rebates on ancillary products after repossession or total loss but sent borrowers balance shortage notices that claimed to net out available “total credits/rebates” when in fact the servicer never requested eligible refunds.

Deposits

The CFPB evaluates the deposit operations of institutions for compliance with relevant statutes and regulations, including the prohibition on UDAAPs. Examiners observed deceptive acts or practices relating to entities’ bill-pay practices. Institutions represented that payments made through the institution’s online bill-pay service would be debited on the date designated by the consumer or a few days after the designated date while failing to divulge fully or partially that, in occasions where a payee accepts only a paper check, the withdrawal may occur earlier than the date selected.

Mortgage Servicing

The CFPB continues to examine mortgage servicers for compliance with federal consumer financial laws. Examiners observed the following practices:

• Servicers charged consumers late fees greater than the amount allowed per the contract/note. One example is Federal Housing Authority loans, where it’s common for the mortgage note to allow servicers to collect late fees of 4 percent of the overdue principal and interest. Examiners found several instances where the servicer charged 4 percent of the overdue principal, interest, taxes and insurance. In another example, the contract/note allowed servicers to collect late fees of 5 percent of overdue principal and interest, but not more than $15. It was observed that servicers were collecting greater than $15.
• Servicers misrepresented private mortgage insurance (PMI) cancellation denial reasons. Under the Homeowners Protection Act, borrowers can cancel PMI by submitting a written request to their loan servicer once the loan is scheduled to reach 80 percent loan-to-value (LTV). In some instances, after verbal requests for PMI cancellation were made, borrowers were denied because the servicer claimed the borrower had not yet reached the required LTV. Examiners found borrowers had in fact reached 80 percent but the borrowers failed to satisfy the conditions for requesting cancellation such as confirming there are no subordinate liens and submitting the request in writing to the servicer. These should have been the denial reasons communicated to the borrowers requesting cancellation verbally.
• In examination(s) covering 2016 activity, servicers failed to practice reasonable diligence to complete loss mitigation applications. Borrowers were presented with short-term payment forbearance programs based on their incomplete applications for loss mitigation. At the end of the forbearance period, servicers failed to contact borrowers to inquire if they desired to complete the application to be considered for full loss mitigation benefits.
• Servicers failed to represent the requirements of foreclosure timeline extension in Home Equity Conversion Mortgages (HECM). After a borrower passed away, the servicers sent notices to successors-in-interest, asserting that the loan balance was due and payable but the successor could be eligible for an extension to postpone or circumvent foreclosure. The notice requested successors to advise the servicer of their intentions for the property within 30 days. The notice also listed several documents that could be applicable in the extension evaluation process. The notice failed to divulge any relevant deadlines for the documents to be returned to be eligible for extension. In some instances, the notice received by the successor did not include a comprehensive list of documents needed for extension evaluation. This resulted in successors not returning all the documents required for extension evaluation in a timely manner, or at all. In addition, servicers imposed fees for foreclosure and in some instances foreclosed on the property.

Remittances

The CFPB continues to examine banks and nonbanks under its supervisory authority for compliance with Regulation E, Subpart B (Remittance Rule). The CFPB also examines for any UDAAPs associated with remittance transfers. Examiners observed supervised entities failing to refund fees and, as permitted by law, taxes, when remitted funds were presented to the beneficiary later than the date of availability stated in the institution’s remittance disclosures. This practice is a violation of the error resolution provisions of the Remittance Rule, unless the delay was the result of one of the four exceptions outlined in 12 CFR 1005.33(a)(1)(iv) of Regulation E. Examiners observed the delay was on the part of a nonagent foreign payer institution and not the result of one of the allowable exceptions. Senders were entitled to refunds in these instances.

For information regarding supervisory observations, remedial actions and supervision program developments, read the winter 2019 Supervisory Highlights in its entirety.

Contact Jennifer or your trusted BKD advisor if you have questions.