Yesterday the Consumer Financial Protection Bureau (CFPB) released its latest supervision report outlining practices uncovered by the Bureau’s examiners from May 2015 to August 2015. The 45 page report can be found here.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the CFPB has authority to supervise banks and credit unions with more than $10 billion in assets and certain nonbanks. Those nonbanks include mortgage companies, private student lenders, payday lenders, as well as nonbanks the Bureau defines through rulemaking as “larger participants.” The Bureau has previously issued rules to supervise the larger participants in the markets of consumer reporting, debt collection, student loan servicing, international money transfers, and auto finance.
One of the Bureau’s stated goals is to provide information that enables industry participants to ensure their operations remain in compliance with Federal consumer financial law. The “Supervisory Highlights” reports are a key part of the information flow.
Specific supervisory activity is not made public in the “Supervisory Highlights” reports. But, the findings reported reflect information obtained from supervisory activities completed during the period under review as captured in examination reports or supervisory letters.
Where CFPB examiners find violations of law or other significant problems or weaknesses during a supervisory examination, they alert the examined entity to their concerns and outline necessary remedial measures. When appropriate, the CFPB may also open investigations for potential enforcement actions. However, the CFPB often finds problems during supervisory examinations that are resolved without an enforcement action.
The latest report shows that the Bureau found violations in student loan servicing, mortgage origination and servicing, consumer reporting, and debt collection. The report also shows that CFPB supervisory actions during the prior quarter resulted in $107 million in relief to more than 238,000 consumers.
Findings in this supervision report regarding the debt collection industry included:
- Failure to state that a call is from a debt collector: The Fair Debt Collection Practices Act (FDCPA) requires debt collectors to make certain disclosures in their first communication with a consumer. In subsequent communications, among other things, they must state that the communication is from a debt collector. During the examination of one or more debt collectors, examiners determined that the collectors’ employees did not always state during subsequent phone calls that the calls were from debt collectors. Supervision directed the debt collectors to improve training with regard to the FDCPA’s requirement to provide these disclosures.
- Failure to implement consumer requests regarding communications: The FDCPA requires debt collectors to limit their communications with consumers in certain ways. Among other things, the law generally prohibits a debt collector from contacting a consumer the debt collector knows is represented by an attorney, and it prohibits a debt collector from contacting a consumer at his or her place of employment if the debt collector “knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication.”. During one or more examinations, examiners determined that debt collectors had inadequate systems in place to comply with these requirements, creating a risk of violating the FDCPA. Supervision directed the collectors to improve their training so that agents would annotate accounts and check for dialing restrictions in a consistent manner.
- Reasonable written policies and procedures under Regulation V: Regulation V requires furnishers to “establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information relating to consumers” that it furnishes to a CRA. Examiners determined that one or more debt collectors that furnish to CRAs had failed to meet this requirement. The policies and procedures reviewed lacked sufficient guidance with respect to how employees should handle consumer disputes made pursuant to Regulation V. Supervision directed the debt collectors to establish and implement reasonable written policies and procedures as required by Regulation V.
In this edition of Supervisory Highlights, the CFPB also announced that it has revised its exam appeals process. The revisions reflect experience gained in the appeals process so far, and are aimed at improving efficiency, consistency, transparency, and fairness to supervised institutions.
As the ARM industry awaits the next step in the CFPB Rulemaking process for debt collection, the best source of “direction” comes from the Public Enforcement Actions and these Supervisory Highlights reports.
Surprisingly, what appears to be a continuing challenge for the ARM industry is the 1) implementation of comprehensive compliance management systems (CMS), 2) ongoing training on the matters addressed in the CMS, and 3) ongoing monitoring of the policies and procedures contained in the CMS. Look again at the “direction” given to the debt collectors in the examples cited above.
insideARM encourages a thorough review of the latest Supervisory Highlights. Even though much of the report does not address “debt collectors” specifically, the issues covered are equally relevant for the ARM industry.