On Tuesday, the CFPB released it's Summer 2024 edition of Supervisory Highlights. The report summarizes violations the agency is seeing in its examinations. This edition focuses on auto and student loan servicing and debt collection. The findings highlighted in the report were from CFPB examinations conducted in the last three quarters of 2023.

While only a small number of credit unions are under the direct examination authority of the CFPB ($10 billion or more in total assets), reports like these are still a useful resource for all credit unions to see what large banks are being "dinged for" during their exams and adjusting our practices accordingly.

 

Here are some of the examiner findings highlighted in the report:

 

Auto Loan Servicing

Failing to auto-debit the final payment without adequate notification that the borrowers must make the final payment manually.

In this finding, servicers offered automatic monthly payments for car loans, but the systems did not debit the final payment when they were for a different dollar amount than the regular monthly payment. However, the servicers didn't tell their customers they had to make the last payment manually, and then charged late fees for failing to make the last payment on time. CFPB noted that consumers had no control over the autopay system, couldn’t reasonably anticipate that the system wouldn't make the final payment, and couldn't reasonably foresee incurring a late charge. All this added up to this being labeled an unfair practice.

Takeaway: How does your system handle the final loan payment? Do your members get notified if the autopay won't make the last payment? If autopay doesn’t make the last payment, be sure you are notifying your members that they have to make it manually. They may be used to just letting autopay cover the payment.

(Sidebar: Back in my credit union days, I remember shadowing a teller on the teller line. A member came in and was making his final mortgage payment. The teller handled the transaction, but at the end the member said "that's it?" He was hoping for some sort of congratulations or acknowledgement - he just paid off his house! Paying off loans is a great opportunity to celebrate with your members. It is so often a momentous achievement and a culmination of years of saving, budgeting, etc.)

 

Student Loan Servicing

Failing to notify consumers of larger preauthorized electronic funds transfers

In this finding, the CFPB noted that Regulation E, 12 CFR 1005.10(d)(1), requires the designated payee of a preauthorized electronic fund transfer from a consumer’s account to provide the consumer with written notice of the amount and date of the transfer at least 10 days before the scheduled transfer date if the amount will vary from the previous transfer under the same authorization or from the preauthorized amount. Examiners found that servicers violated this provision when they did not provide written notices to consumers before withdrawing an amount that exceeded the previous transfer under the same authorization.

Takeaway: Most credit unions are not student loan servicers, but this is another reminder of the complexities of Reg E and electronic funds transfers. Credit unions must ensure they are aware of and implementing all of the notice and disclosure requirements that apply to them. If you have questions about Reg E, please remember you can always reach out to myself or Stephen here at the League or to our regulatory compliance hotline, operated by Woods Rogers.

 

Debt Collection

Unfair, Deceptive, and Abusive Practices

The CFPB's findings on debt collection are about violations of Regulation F, which implements the FDCPA. The FDCPA applies to third-party debt collectors. Credit unions collecting their own debt are first party debt collectors, so these findings wouldn't directly apply to credit unions. That being said, it's useful to look at some of the practices being identified by the CFPB as unfair, deceptive, or abusive, and make sure we are not going down those same roads. Some of these practices highlighted in the report include:

• Using false company names
• Failing to provide required disclosures, like that they are attempting to collect a debt and any information obtained will be used for that purpose
• Communicating outside of the allowed time window (8am - 9pm in the consumer's time zone)
• Continuing collection efforts after the consumer told them it was a bad time, they were driving, at work, at church, etc.
• Being verbally abusive
• Not honoring requests that the collectors stop contacting them.

Takeaway: Evaluate your collection practices through the UDAAP lens. Could any of the practices be perceived as unfair, deceptive, or abusive?

 

Deposit and Prepaid Accounts

Consumer requests for information

In this section, the CFPB notes that "in reviewing bank practices in providing consumers access to account information, examiners have observed a number of changes in how supervised entities impose fees when customers seek to obtain basic account information." The Bureau recently issued an Advisory Opinion noting that a financial institution charging a fee for access to account information could unreasonably impede a consumer's ability to request and receive information, and could be a violation of Section 1034(c) of the Consumer Financial Protection Act of 2010 (CFPA). "Charging fees to consumers to request account information can impede consumers’ ability to exercise their rights under 1034(c)," the report states. It goes on to describe how many institutions have eliminated these fees.

Takeaway: Examine your fee schedules on "requests for information" type fees. Do you charge a fee for check copies, statements, etc.? Are these fees charged directly to members, or are they only charged when producing documents in response to subpoenas or court orders? It's no secret that the CFPB has "junk fees" in its crosshairs, and this is definitely an area they are targeting.

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I wish you all a wonderful 4th of July holiday! Here at the League we are closed on July 4th and 5th, but we'll be back with more compliance hot topics next week!