On April 26, 2017, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) released its Supervisory Highlights, Spring 2017. The Supervisory Highlights state that supervisory resolutions in the September-December 2016 period led to approximately $6.1 million in restitution to over 16,000 consumers.
The Supervisory Highlights reflect a continued focus by the CFPB on the mortgage and student loan servicing industries. The CFPB also discusses the application of the mortgage ability-to-repay standards to asset-based lending, rather than income-based lending. Finally, the Supervisory Highlights contains the CFPB’s first public announcement of a new service provider examination program.
The Bureau reports that some servicers in both the student loan and mortgage servicing industries fail to give consumers the full borrower protections required by the law.
Student Loan Servicing
The Bureau’s observations on student loans focus on data errors related to in-school deferments.
- According to the CFPB, one or more student loan servicers regularly relied on faulty information about student loan borrowers from the National Student Clearing house, a company that reports student enrollment data. As a result of relying on this faulty enrollment information, these servicers routinely improperly denied in-school deferments for student loan payments.
- Furthermore, one or more student loan servicers regularly would not reverse charges—such as late fees and capitalization of unpaid interest—even after learning that the servicer had wrongly ended a deferment. The CFPB found that these mistakes were made as the result of data errors.
- These observations follow the CFPB’s complaint report from April 25, 2017, which also focused on student loan servicing.
The Bureau’s observations on mortgage servicers focus on the handling of the foreclosure process.
- The CFPB found that one or more mortgage servicers did not inform borrowers about certain document that needed to be included in a loss mitigation application, which can be a means to avoid foreclosure. These servicers would then deny the loss mitigation applications for not including these documents.
- The CFPB further found that one or more servicers failed to give the required foreclosure protections—such as waiting to issue a first notice of foreclosure until after a complete application for a loan modification has been resolved—to borrowers who had submitted loss mitigation applications.
- The Supervisory Highlights include a substantial discussion of how the Bureau approaches determining whether mortgage originators, particularly those underwriting based on assets, rather than income, are compliant with the Ability-to-Repay (“ATR”) Rule under the Truth in Lending Act, 12 C.F.R. 1026.43(c). For example, the Bureau notes that examiners assess whether lenders use records specific to the consumer to verify the consumer’s assets.
- The Supervisory Highlights state that the Bureau has “begun to develop and implement a program to supervise” service providers directly, based on authority in Sections 1024(e) and 1025(d) of the Dodd-Frank Act.
- The Supervisory Highlights note that the $6.1 million in restitution obtained through non-public resolutions came from the auto finance origination sector. It does not appear that the Bureau brought any non-public enforcement actions in this period.