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MoFo Reenforcement The Enforcement Blog

Fall 2014 Supervisory Haiku-lights

Posted in CFPB, Mortgage, Student Lending, Supervisory Highlights

A few times a year, CFPB Supervision publishes Supervisory Highlights, which provides general information about examination findings without identifying specific institutions. We know you readers are busy—and literary!—so below we present key takeaways from Supervision’s Fall 2014 report in one of our favorite poetic forms:  haiku.

student lenders must
allocate payments fairly
not to increase fees

Supervision included a number of observations related to student loan servicing in this issue of Supervisory Highlights. Most were one-off errors found at individual servicers, but one—the practice of allocating less-than-minimum payments pro rata among all of the loans in a borrower’s account—is more widespread. Because this practice often results in each loan on the account being charged a separate minimum late fee, and borrowers could not plausibly avoid the additional late fees, the CFPB cited the practice as unfair under the CFPA.

after debt is sold
report post-sale payments
promptly to buyer

The CFPB cited two unfair practices related to debt sale by a creditor. First, it observed that at least one financial institution had overstated the APRs in account documents provided to debt buyers—reporting APRs that exceeded the rate for which the consumer was actually liable. Second, Supervision observed that at least one financial institution had failed to timely forward post-sale payments it received from consumers to the debt buyer, with delays ranging from two months to two years. These observations make clear that the CFPB is focused not just on the collection activities of third-party debt buyers and collectors, but on how the debt sale practices of original creditors can affect consumers.

and mortgage servicing rules
just don’t screw it up

Echoing findings in the Enforcement world, Supervision noted that examiners found problems with delays in the mortgage loan modification process that, it found, had the potential to harm consumers. One servicer failed to timely convert a substantial number of successfully completed trial modifications to permanent modifications, causing interest to accrue at the higher pre-mod rate than it would have under a timely conversion. And at least one servicer sent some borrowers permanent modification agreements with the wrong terms. The borrowers would sign and return the agreement, but instead of executing the agreement, the servicer would send an updated modification agreement with substantially different terms. Supervision determined that this was a deceptive practice.

Supervision also observed that while several servicers had adopted policies and procedures designed to meet the objectives of the new mortgage servicing rules, others had not. Some servicers, for instance, lacked policies or procedures relating to the oversight of service providers, facilitating periodic review of service providers, or facilitating the sharing of information regarding a loss mitigation application between the servicer and the service provider.

reminder to all
promotional APRs
mind the grace period

Supervision reminded everyone that the Bureau recently released a bulletin to inform credit card issuers of the risk of deceptive and/or abusive practices in connection with solicitations offering a promotional APRs on particular transactions over a defined period of time. The Bureau observed that certain solicitations “do not clearly and prominently convey that a consumer who accepts the offer and continues to use the credit card to make purchases will lose the grace period on the new purchases” if he or she does not pay the entire statement balance, including the amount subject to the promotional APR, by the payment due date. 

For more on these key observations from recent CFPB supervisory exams and less traditional short-form Japanese poetry in English, check out the Fall 2014 edition of the CFPB’s Supervisory Highlights.