On June 28, the FDIC announced that it is conducting a survey to collect information on banks’ small business lending practices. Selected at random, approximately 2,000 FDIC-insured banks will participate in the web-based small dollar lending survey. Intended to provide insight into various aspects of small business lending, the survey will collect data related to: (i) the general characteristics of banks’ small business borrowers; (ii) the types of credit offered to small businesses; (iii) commercial lending and its relative importance for different-sized banks and business models; (iv) geographical location, collecting data for banks in urban and rural communities; and (v) market areas for small business lending and perceived competition. In addition, the survey contains questions related to consumer transaction accounts, responding to a Congressional mandate to “learn more about bank efforts to bring unbanked individuals into the conventional finance system.” Institutions selected to participate in the survey received a letter from the FDIC in late June with directions on how to proceed. The U.S. Census Bureau is administering the survey on behalf of the FDIC. It is unclear how this survey relates to the CFPB’s forthcoming rulemaking on small business lending.
On June 28, the CFPB released its monthly complaint report focusing on consumer loans, including vehicle loans and leases, installment loans, title loans, and pawn loans. According to the report, of the 906,400 consumer complaints across all products the CFPB has received as of June 1, 2016, approximately 38,500 were in the consumer loans category. Findings regarding consumer loan complaints highlighted in the report include: (i) just over half of consumer loan complaints pertain to vehicle loans, with installment loans following at 31 percent; (ii) consumers most often complain about issues related to servicing the loan, lease, or line of credit; and (iii) additional common consumer loan complaints include encountering problems when shopping for a loan, when taking out a loan, and when consumers are unable to repay a loan.
This month’s report includes a “sub product spotlight” to highlight complaints specific to auto lending, which make up 60 percent of the 38,500 consumer loan complaints the CFPB has received since July 21, 2011. Consumer loan complaints specific to auto lending include, but are not limited to: (i) payment processing issues, such as consumers not having their accounts debited timely and correctly; (ii) confusion over fees and interest rates; (iii) repossession of vehicles without notification; (iv) misleading advertising at “Buy Here Pay Here” dealerships; and (v) insufficient warranty coverage, with consumers alleging that they believed they were required to purchase warranties that did not end up covering basic repairs as they expected. Read more…
On June 22, the CFPB released its eleventh issue of Supervisory Highlights specifically to address recent supervisory examination observations of the mortgage servicing industry. According to the report, mortgage servicers continue to face compliance challenges, particularly in the areas of loss mitigation and servicing transfers. The report attributes compliance weaknesses to outdated and deficient servicing technology, as well as the lack of proper training, testing, and auditing of technology-driven processes. Notable findings outlined in the report include the following: (i) multiple violations related to servicing rules that require loss mitigation acknowledgment notices, observing deficiencies with timeliness and content of acknowledgement notices; (ii) violations regarding servicer loss mitigation offer letters and other related communications, including unreasonable delay in sending letters; (iii) failure to state the correct reason(s) in letters to borrowers for denying a trial or permanent loan modification option; (iv) failure to implement effective servicing policies, procedures, and requirements; and (v) heightened risks to consumers when transferring loans during the loss mitigation process. Although the report focuses largely on mortgage servicers’ continued violations, it acknowledged that certain servicers have significantly improved over the past several years by, in part, “enhancing and monitoring their servicing platforms, staff training, coding accuracy, auditing, and allowing for great flexibility in operations.”
In addition to outlining Supervision’s examination observations of the mortgage servicing industry, the report also notes that the CFPB’s Supervision and Examination Manual was recently updated to reflect regulatory changes, technical corrections, and updated examination priorities in the mortgage servicing chapter.
On June 17, the CFPB announced that it adjusted dollar threshold amounts for provisions in Regulation Z, which implements TILA, under the CARD Act, HOEPA, and the Dodd-Frank Act. The CFPB is required to make adjustments based on the annual percentage change reflected in the Consumer Price Index effective June 1, 2016. For 2017, the minimum interest charge will remain $27 for the first late payment and the subsequent violation penalty safe harbor fee for 2016 was amended to $38 for the remainder of 2016 and all of 2017. The CFPB is increasing the combined points and fees trigger-threshold for compliance with HOEPA to $1,029, and the amount threshold for high-cost mortgages in 2017 will be $20,579. To satisfy the underwriting requirements under the ATR/QM rule, a covered transaction will not be considered a QM unless the combined points and fees do not exceed 3% of the total loan amount for a loan greater than or equal to $102,894; $3,087 for a loan amount greater than or equal to $61,737 but less than $102,894; 5% of the total loan amount for a loan greater than or equal to $20,579 but less than $61,737; $1,029 for a loan amount greater than or equal to $12,862 but less than $20,579; and 8% of the total loan amount for a loan amount less than $12,862. The final rule is effective January 1, 2017, except that the amendment to the subsequent violation penalty safe harbor fee amount of $38 for the remainder of 2016 takes effect upon Federal Register publication.
CFPB Takes Action Against North Dakota Payment Processor for Alleged Unauthorized Withdrawal Practices
On June 6, the CFPB filed a complaint against a North Dakota-based third-party payment processor and two of its senior executives for alleged violations of the Dodd-Frank Act’s prohibition against unfair acts and practices. Acting on behalf of its clients, the payment processor transferred funds electronically through a network called the Automated Clearing House, and in the process, according to the CFPB, the payment processor “ignored numerous red flags about the transactions they were processing, including repeated consumer complaints, warnings about potential fraud or illegality raised by banks involved in the transactions, unusually high return rates, and state and federal law enforcement actions against their clients.” The CFPB contends that the defendants failed to: (i) heed warnings, including federal and state enforcement actions taken against the defendants’ clients, from banks and consumers regarding potential fraud or unauthorized debits; (ii) adequately monitor and respond to “enormously” high return rates; and (iii) investigate “red flags” throughout its clients’ application processes that “should have caused it to… perform enhanced due diligence prior to accepting a client for processing.” Regarding the individuals’ involvement in the allegedly unlawful activity, the CFPB’s complaint alleges that both engaged in unfair acts and practices by “actively ignoring” a number of red flags associated with the payment processor’s business activities. The CFPB’s complaint seeks monetary relief, injunctive relief, and penalties.