On March 12, 2019, the CFPB released the 18th edition of its Supervisory Highlights report. The report covers supervision activities completed between June 2018 and November 2018 and discusses supervisory observations related to automobile loan servicing, mortgage servicing, remittances, and deposits. The report also summarizes the CFPB’s previously announced public enforcement actions and guidance during the covered period.
The 18th edition of Supervisory Highlights is the first report issued under Director Kathy Kraninger’s leadership and the second report to cover supervision activities completed under the direction of former Acting Director Mick Mulvaney. Like the prior Supervisory Highlights report issued under former Acting Director Mick Mulvaney, the report includes introductory language that “institutions are subject only to the requirements of relevant laws and regulations” and “[a] conclusion that a legal violation exists on the facts and circumstances described here may not lead to such a finding under different circumstances.” Also like the prior report, it does not specify the dollar amounts of civil money penalties and consumer remediation obtained during the covered period.
The Bureau’s supervisory observations related to automobile loan servicing, mortgage servicing, remittances, and deposits—all frequent areas of focus in Supervisory Highlights reports—are discussed below.
Automobile Loan Servicing
During the covered period, the Bureau examined the servicing of loans by captive auto finance companies—i.e., finance companies owned by automobile manufacturers that finance retail purchases of automobiles from that manufacturer—and found that one or more servicers engaged in unfair or deceptive acts or practices. First, the Bureau found that, in the event of a total loss or repossession, servicer(s) miscalculated rebates for ancillary extended warranty products when the servicer(s) calculated the total miles instead of the net miles driven since the borrower purchased the automobile. As a result of this practice, servicer(s) sent borrowers deficiency notices with balances inflated by hundreds of dollars, on which servicer(s) then attempted to collect. The Bureau found the servicer(s)’ miscalculation of rebates to be an unfair act or practice.
In addition, the Bureau found that servicer(s) engaged in deceptive acts or practices when they sent borrowers deficiency notices purporting to net out rebates for an eligible ancillary product after a repossession or total loss, but where the servicer(s) never requested such a rebate. The Bureau found that the average unclaimed rebate was roughly $1,700. Notably, the Bureau did not indicate that failing to request the rebate was unfair, just that the disclosures were deceptive. In its legal analysis, however, the Bureau noted that it was reasonable for borrowers to interpret the deficiency notice as including eligible rebates because servicer(s) were contractually entitled and financially incentivized to seek and apply eligible rebates to borrowers’ deficiency balances. This reasoning may apply more broadly to finance companies and banks that handle deficiency notices for auto loans with ancillary products.
In response to these examination findings, the servicer(s) identified and remediated affected customers, updated their policies and procedures to ensure proper verification of mileage calculations, and changed deficiency notices to clarify the status of ancillary product rebates.
The Bureau found that one or more mortgage servicers (i) unfairly charged consumers unauthorized amounts; (ii) deceptively misrepresented aspects of private mortgage insurance cancellation; (iii) violated Regulation X loss mitigation requirements; or (iv) provided potentially misleading statements to successors-in-interest on certain reverse mortgages.
- Charging Unauthorized Amounts: The CFPB found that one or more servicers unfairly charged consumers late fees greater than the amount permitted by mortgage notes. According to the Bureau, the overcharges were caused by programming errors in the servicer(s)’ servicing platforms and lapses in service provider oversight. In response to these findings, the servicer(s) identified and remediated affected borrowers and changed their policies and procedures to ensure that the late fee amount was authorized by the mortgage note.
- Misrepresenting Private Mortgage Insurance Cancellation: The Bureau found that one or more servicers provided misleading information about the conditions required for removing private mortgage insurance from consumers’ mortgages. The servicer(s) changed their templates and policies and procedures to ensure that their communications about private mortgage insurance cancellation included accurate denial reasons. The report did not mention any remediation to consumers.
- Violating Loss Mitigation Requirements: CFPB examiners also found that one or more servicers did not meet Regulation X “reasonable diligence” requirements for loss mitigation when the servicer(s) failed to contact borrowers who had enrolled in short-term payment forbearance programs to determine whether the borrower wished to complete their applications to receive a full loss mitigation evaluation. In response to these findings, servicer(s) enhanced their processes to track borrowers receiving short-term forbearance programs and to notify them of additional loss mitigation options. The Bureau did not note whether servicer(s) provided any remediation to consumers.
- Providing Potentially Misleading Statements Regarding Reverse Mortgages: The CFPB reviewed the servicing of Home Equity Conversion Mortgages and found that one or more servicers sent notices to successors-in-interest after a borrower’s death that instructed the successor to return a form regarding the successor’s intentions with the property within 30 days, but did not direct the successor to submit any documentation to be eligible for an extension to avoid foreclosure. As a result, successors did not include all required documentation, and servicer(s) did not seek an extension for the successors, assessed foreclosure fees, and, in some instances, foreclosed on the property. Notably, the Bureau did not find that these acts or practices amounted to a legal violation, but instead found that there was “a risk of a deceptive act or practice by giving the net impression that the statement of intent was all that was needed, until further notice, to delay foreclosure, when in fact that was insufficient to delay foreclosure.” The servicer(s) planned to improve their communications with successors, including by specifying the documents successors need for an extension and including all relevant deadlines. The report did not indicate whether servicer(s) provided any remediation to consumers.
The Bureau found that one or more supervised entities violated the error resolution provisions of Regulation E by failing to refund fees and taxes to consumers when remitted funds were made available later than the date of availability stated in remittance disclosures. The Bureau noted that the delay in the availability of funds was due to a mistake by a non-agent foreign payer institution. Nonetheless, the Bureau concluded that “[n]either the relationship between a remittance transfer provider and the institution disbursing the funds to the designated recipient, nor the particular entity that is at fault for the delayed receipt of funds, is relevant to whether the remittance transfer provider must refund fees and taxes to the consumer.” In response to these findings, the institution(s) are refunding any fees and, to the extent not prohibited by law, taxes collected on the transfer to the sender, where applicable.
The CFPB found that one or more institutions engaged in a deceptive act or practice by representing through an online bill-pay service that payments would be debited within a few days of the date selected by the consumer, when paper bill-pay checks were in fact sent and may have been cashed several days before the selected payment date. As a result of this practice, some consumers paid overdraft fees.
The institution(s) revised their online bill-pay service disclosures to make clear that paper checks would be mailed and may be cashed before the payment date selected by the consumer. The institution(s) also undertook a plan to remediate consumers charged an overdraft fee as a result of this practice.