InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
FDIC Releases May List of CRA Compliance Examinations
On May 3, the FDIC published its monthly list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list reports CRA evaluation ratings assigned to institutions in February 2017. Monthly lists of all state nonmember banks and their evaluations that have been made publicly available can be accessed through the FDIC’s website. As noted by the FDIC, the CRA is “intended to encourage insured banks and thrifts to meet local credit needs, including those of low- and moderate-income neighborhoods, consistent with safe and sound operations.”
CFPB Releases Supervisory Highlights Focused on Student Lending and Mortgage Servicing
On April 26, the CFPB released its Supervisory Highlights for spring 2017, which outlines its supervisory and oversight actions in areas such as mortgage servicing and student loan servicing. According to the Supervisory Highlights, recent supervisory resolutions have “resulted in approximately $6.1 million in restitution to more than 16,000 consumers.”
Student loan servicing. Bureau examiners reported that student loan servicers (i) routinely acted on incorrect information about whether the borrower was enrolled in school, and (ii) failed to reverse certain charges, including improper late fees and capitalization of unpaid interest, even after they knew they had wrongly ended a deferment.
Mortgage servicing. According to the report, the Bureau continued to see “serious issues for consumers seeking alternatives to foreclosure, or loss mitigation, at certain servicers.” CFPB examiners found problems with premature foreclosure filings, mishandling of escrow accounts, and incomplete periodic statements. Furthermore, examiners found that one or more mortgage servicers:
- failed to identify the additional documents and information borrowers needed to submit to complete a loss mitigation application and then denied the applications for not including those documents;
- launched the foreclosure process prematurely after receiving loss mitigation applications from borrowers, thereby failing to give required foreclosure protections to qualified consumers;
- mishandled escrow accounts by using funds to pay insurance premiums on unrelated loans, creating shortages in the escrow accounts and higher monthly payments for consumers; and
- issued incomplete periodic statements that used vague language such as “Misc. Expenses” and “Charge for Service” when describing transaction activity.
The report also outlined the Bureau’s position on employee production incentives and presented guidance and examples of where “incentives contributed to substantial harm.”
CFPB Fines Servicemember Auto Lender for Violating Consent Order
On April 26, the CFPB issued a second consent order against an Ohio-based auto lender, specializing in extending credit to servicemembers, for violating an earlier 2015 consent order issued by the Bureau (see previous InfoBytes summary). The 2015 order required, among other things, that the lender to pay restitution of over $2 million to affected consumers in addition to a $1 million civil money penalty for allegedly engaging in unfair, abusive, and deceptive debt collection practices. The 2017 consent order claims the lender violated the earlier order by failing to provide the required consumer redress or the redress plan consistent with the 2015 consent order. The Bureau contends that the lender issued worthless account “credits” to settled-in full accounts and to consumers whose debts were discharged in bankruptcy, and failed to provide the appropriate redress to consumers making payments under settlement agreements. The consent order requires that the lender: (i) pay an additional $1.25 million civil money penalty; (ii) pay $718,900 to the Bureau, which will be sent as refunds to consumers; (iii) issue $372,157 in account credits to consumers who have account balances, in addition to properly crediting consumers making payments under settlement agreements; and (iv) pay $75,000 in redress-administration costs to the Bureau.
CFPB Monthly Complaint Snapshot Highlights Issues Related to Student Loans
On April 25, the CFPB released its monthly complaint report highlighting consumer complaints year-to-date April 1. The Bureau has handled approximately 1,163,200 consumer complaints across all categories since it began collecting complaints. Of the roughly 28,000 received in March, 2,033 focused on private and federal student loans. Common problems raised by student borrowers included:
- lost documentation, extended application processing time, and unclear guidance when enrolling in income-driven repayment plans;
- misapplied payments, such as overpayments being applied to all accounts instead of being applied to a specific account;
- confusion over Public Student Loan Forgiveness programs and other loan forgiveness programs, specifically regarding enrollment issues, payment problems, and issues due to inaccurately reported employment data; and
- credit reporting companies receiving incorrect data, resulting in negative scores or collection companies contacting consumers about accounts that were paid in full or for debts that were not owed.
Similar to past CFPB-issued complaint snapshots, the report identifies the top 10 most common complaint categories with respect to all financial products, as well as the top 10 companies for which they received the most student loan complaints. The report spotlighted Nevada, noting that (i) Nevada consumers have submitted 14,600 of the 1,163,200 complaints received; (ii) debt collection complaints accounted for 29 percent of complaints received from Nevada, exceeding the national average by 2 percent; and (iii) mortgage-related complaints accounted for 23 percent of all complaints submitted by Nevada consumers, a rate equal to the national rate of mortgage complaints.
CFPB’s Latest Fair Lending Report Focuses on Credit Discrimination
On April 14, the CFPB issued its fifth fair lending report to Congress, which outlines the Bureau’s efforts in 2016 as well as its plans for 2017. According to the report, in 2016, the CFPB (i) engaged in significant outreach to both consumers and lenders to better understand fair lending compliance and access to credit issues; (ii) worked with government regulators and agencies to protect and obtain reimbursement for harmed consumers; and (iii) assisted consumers with limited proficiency in English. For 2017, the report indicates that the Bureau intends to (i) evaluate whether lenders have “intentionally discouraged” potential applicants in minority neighborhoods from applying for credit; (ii) investigate whether mortgage or student loan borrowers who fall behind on payments face more difficulty in working out new payment plans because of their race, ethnicity, age, or gender; and (iii) further explore fair access to credit for woman- and minority-owned firms—all areas the Bureau characterizes as presenting “substantial risk of credit discrimination for consumers.”
Additional information on fair lending reports issued by the Bureau can also be found in BuckleySandler’s CFPB Resource Center.
California Department of Business Reaches $1.4 Million Settlement with Michigan-Based Mortgage Lender and Servicer
On April 10, the California Department of Business Oversight (DBO) announced a settlement with a California-licensed mortgage lender and servicer—whose principal place of business is based in Michigan—resolving allegations that the company violated California’s statutory restriction on per diem interest. California law prohibits lenders from “charging interest on mortgage loans prior to the business day that immediately precedes the day the loan proceeds are disbursed.” Pursuant to the consent order, the allegations against the company arose from two regulatory examinations conducted by DBO in 2011 and 2013, whereby the company—in order to avoid an enforcement action—agreed to cooperate fully with DBO’s request for audits, to refund per diem overcharges, and to consent to the issuance of the final order to pay refunds, penalties, and discontinue further violations. The terms of the consent order include $293,127 in refunds previously provided to approximately 3,400 borrowers for loans funded between August 2011 and May 2015, as well as future restitution to additional borrowers identified in required self audits of loans made between from June 2015 through February 2018. The order further requires the company to pay an additional $1.1 million in penalties for identified overcharges, as well as $125 for each additional violation discovered in the self audits.
Education Secretary Rolls Back Obama Administration Federal Student Loan Servicing Policies
On April 11, Education Secretary Betsy DeVos rolled back Obama administration policies designed to reform how student loan servicers collect debt. In a memo sent to Federal Student Aid Chief Operating Officer James Runcie, DeVos formally withdrew several policy memos issued last year by former Education Secretary John B. King Jr. and former Education Undersecretary Ted Mitchell, citing the need to promptly address “shortcomings” and “inconsistenc[ies]” in the student loan servicing procurement process. DeVos further emphasized the need for change because of “a myriad of moving deadlines, changing requirements and a lack of consistent objectives” as well as a need to move forward “with precision, timeliness and transparency.” The withdrawn memos, dated June 30, 2016 and July 20, 2016 (as well as the corresponding October 17 addendum), were developed to guide the way in which the federal government contracts with outside servicers to ensure that borrowers get the service and protection they deserve. The guidance was intended to strengthen student loan servicing by increasing consistency, transparency, and accountability in the student lending marketplace (see previous InfoBytes post). By rescinding these memos, DeVos also removed the requirement that the FSA consider servicers’ past behavior when awarding contracts, including whether the company misled borrowers or engaged in abusive consumer service.
FDIC Releases April List of CRA Compliance Examinations
On April 5, the FDIC published its monthly list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list reports CRA evaluation ratings assigned to institutions in January 2017. Monthly lists of all state nonmember banks whose evaluations have been made publicly available can be accessed through the FDIC’s website.
FHFA Releases Credit Risk Transfer Progress Report; Fannie Mae, Freddie Mac Transfer $49 Billion in Risk to Investors
On March 27, the Federal Housing Finance Agency (FHFA) released its Credit Risk Transfer Progress Report, presenting a comprehensive overview of the status and volume of credit risk transfer transactions to the private sector for Fannie Mae and Freddie Mac (the Enterprises) through year-end 2016 in both the single-family and multifamily market. As outlined in the progress report, since the beginning of the Enterprises’ Single-Family Credit Risk Transfer Programs in 2013 through December 2016, the Enterprises have transferred $49 billion in credit risk to private investors, amounting to about 3.4 percent of $1.4 trillion in unpaid principal balance. In 2016, the Enterprises transferred about $18 billion worth of credit risk. Transfers include “credit risk transfers via debt issuances, insurance/reinsurance transactions, senior‐subordinate securitizations, and a variety of lender collateralized recourse transactions.” The Multifamily Credit Risk Transfer Program also plays a role in the Freddie Mac business model where “virtually all credit risk is transferred to investors through subordinated bonds structured to absorb credit risk.” Freddie Mac issued bonds on $57 billion of multi-family production in 2016, and Fannie Mae transferred approximately $9.4 billion of loans to the reinsurance industry. The report also examines the role of primary mortgage insurance in credit risk transfer transactions and the Enterprises’ debt issuances.
Not-For-Profit Educational Organization Claims Department of Education Lacks Transparency over Number of Student Loan Failures
On March 20, a not-for-profit educational organization (Plaintiff), announced a FOIA lawsuit against the U.S. Department of Education (Defendant) in the U.S. District Court for the District of Columbia. Judicial Watch v. U.S. Department of Education, No. 1:17-CV-00501 (D.D.C. Mar. 20, 2017). The complaint alleges Defendant failed to respond to a request for access to all records in Defendant’s possession relating to a “coding error” that incorrectly computed College Scorecard repayment ranges, thus “masking [the fact] that most borrowers are failing to pay down their federally-subsidized student loans.” Defendant acknowledged in January of this year that an error in the coding did lead to the “undercounting of some borrowers who had not reduced their loan balances by at least one dollar, and therefore inflated repayment rates for most institutions.” Plaintiff claims to regularly request records from various federal agencies in order to analyze and disseminate findings of interest to the public in an effort to “promote transparency, accountability, and integrity in [the] government” and states it will be “irreparably harmed unless Defendant is compelled to comply with FOIA.”