In a June 30, 2016, quarterly report on violations within the finance and
mortgage industry, the Consumer Financial Protection Bureau announced
that due to its supervisory actions, approximately quarter million consumers
would receive some form of monetary relief. The report said that its activities
during the first four months of the year led to about $24.5 million in
restitution being paid out to more than 257,000 consumers. The report
detailed that the actions were taken against businesses in debt collection,
small-dollar lending, mortgage origination, and auto loans.
In making the announcement CFPB Director Richard Cordray stated, “The
Bureau’s supervisors continue to perform more and better oversight
of these financial markets, and their report gives the industry an opportunity
to reflect on their practices before consumers are made to suffer harm.
This report highlights our ongoing work to address violations of the law
and slipshod practices that endanger consumers.”
The CFPB was given authority under the Dodd-Frank Act and Consumer Protection
Act to supervise some non-bank entities, including mortgage bankers, payday
lenders, student loan providers, and other non-bank entities the Bureau
deems to be “bigger players” in the financial marketplace.
The Bureau has already issued rules to supervise many of the larger participants
in the financial industry.
While the CFPB acknowledges that many supervisory actions are remedied
without any enforcement action, other supervisory work with regards to
oversight and enforcement of debt sales had returned almost $5 million
to consumers and imposed $3 million in civil fines.
The report covers the Bureau’s activities during the period between
January 2016 and April 2016. The agency’s examiners discovered issues
across all financial industries, including:
Wrongful Calculation of Loan Financing Costs
Agency regulators determined that miscalculated rates on loans caused consumers
to pay false finance charges. Some of the institutions miscalculated loans
with discount credits. These are loans where the borrower pays more in
interest in exchange for the lender covering closing costs.
Miscalculations in the rate can cause the consumer to pay much more over
the long term than they would otherwise have to if paying the costs out
of pocket. The errors showed that the amount financed exceeded the actual
loan amount when an adverse finance charge is included. Federal regulations
require a lender calculate the finance charge by taking the loan amount,
adding in other amounts funded by the lender, then deducting the prepaid
Auto Lender Deception About Loan Terms
Examiners looked into allegations of deceptive practices from auto lenders
and determined that one or more institutions led consumers to believe
that an optional financial product would cover the balance owed on a loan,
after an event that resulted in a total loss of the automobile. In truth,
the product covered less than the vehicle’s value and lenders deceived
consumers about how long the coverage would last. The Bureau also found
that lenders failed to disclose to consumers that subsequent payments
following deferral would be applied to cover interest earned on the unpaid amount.
The Bureau stated that these underhanded practices could result in a consumer
paying more in finance charges than the lender had originally disclosed.
This action was in clear violation of the law under deceptive acts and
Ineligible Debt Accounts Sold
Examiners investigated instances that debt accounts were sold, even though
those accounts were in bankruptcy, settled, or fraudulent. The illegal
transfers were deemed as caused by coding errors from one debt seller.
Adverse Action Notices Never Sent
Under the Fair Credit Reporting Act, notification of consumers is required
when any adverse credit action, such as a credit denial, is levied against
them. Agency examiners found that some institutions were taking adverse
action against consumers yet failing to send out notification disclosures.
The law requires that creditors provide information about a denial of
credit, and disclose the credit information used in making that determination.
The violations were due to a lack of proper training and implementation
Misleading Debt Payment Options
In some instances, debt collectors were misleading consumers into believing
that a down payment was required to begin paying down debt when no such
policy exists. Examiners also found that some collectors told customers
that repayment was required to be done through automatic payment transfers
from their checking accounts when in fact no such requirement was in force.
Requiring Consumers to Use Affiliated Businesses
Examiners found instances where lenders referred consumers to specifically
affiliated business partners to obtain flood insurance determination or
tax services. Although lenders are provided leeway in what settlement
agencies they utilize, it does not include tax preparation or flood insurance services.
The CFPB statement indicated that it issued the report to help industry
stakeholders better comply with federal consumer protection law. The report
showed that the CFPB ordered corrective actions to some institutions that
included additional training for employees, creating improved policies
and procedures, improving the way businesses respond to consumer inquiries
and complaints, and correcting monitoring systems to ensure companies
are complying with federal law. Though the report did not identify specific
institutions, further action may be taken by the agency against some companies.
For questions on this article please
contact Jaspreet Kaur, Esq. at Geraci Law Firm.