CFPB Focuses on Junk Fees, Credit Reporting, and COVID-19 Relief Funds in Latest Supervisory Highlights

On November 16, 2023,  the Consumer Financial Protection Bureau (CFPB) released a new Supervisory Highlights report, focusing on the auto servicing industry, consumer reporting, mortgage servicing, and COVID-19 relief funds. The report highlights the CFPB’s continued focus on so-called junk fees and inaccurate credit reporting.

Among other findings from the report, the CFPB says that:

Examiners identified unfair and deceptive acts or practices across many aspects of auto servicing, including violations related to add-on product charges, loan modifications, double billing, use of devices that interfered with driving, collection tactics, and payment allocation.

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• Examiners identified instances where consumers paid off their loans early, but servicers failed to ensure consumers received refunds for unearned fees related to add-on products, such as GAP protection, that no longer offered any benefit to the customer.
  
  
• Examiners found that servicers engaged in deceptive acts or practices by representing to consumers that their modifications were preliminarily approved pending a “good faith” payment, when in fact, they denied most of the modification requests.
  
  
• When consumers enter into auto finance agreements, lenders sometimes require consumers to have technologies that interfere with driving (sometimes called starter interrupt devices) installed in their vehicles. These devices, when activated by servicers, either beep or prevent a vehicle from starting. Examiners found that, in certain instances, servicers engaged in unfair acts or practices by activating these devices in consumers’ vehicles when consumers were not past due on payment.

Examiners found deficiencies in national credit reporting agencies’ compliance with Fair Credit Reporting Act (FCRA) dispute investigation requirements and furnisher compliance with FCRA and Regulation V accuracy and dispute investigation requirements.

• CFPB examiners found that one or more of the nationwide consumer reporting companies failed to report to the CFPB the outcome of their reviews of complaints about inaccuracies on consumers’ credit reports.
  
  
• Examiners continued to find that furnishers, specifically auto loan furnishers, are violating FCRA by inaccurately reporting information despite actual knowledge of errors.
  
  
• In reviews of third-party debt collection furnishers, examiners found that furnishers failed to send updated or corrected information to credit reporting agencies after making a determination that information the furnishers had reported was not complete or accurate.

In its continued focus on so-called junk fees, CFPB examiners found that mortgage servicers violated federal law by charging sizable phone payment fees — even though consumers were not made aware of these pay-by-phone fees.

• During calls with borrowers, customer service representatives did not disclose the existence or cost of fees for paying over the phone, yet the borrowers were charged fees anyway.
  
  
• Following these findings, the CFPB required the servicers to reimburse all borrowers who paid phone payment fees when those fees were not properly disclosed.

CFPB examiners conducted assessments to evaluate how financial institutions handled pandemic relief benefits deposited into consumer accounts.

• They identified instances of institutions using protected unemployment insurance or economic impact payments funds to set off a negative balance in the account into which the benefits were deposited (a.k.a. same account setoff) or to set off a balance owed to the financial institution on a separate account (a.k.a. cross-account setoff) when such practices were prohibited by applicable state or territorial protections. They further identified instances of institutions garnishing protected economic impact payments funds in violation of the Consolidated Appropriations Act of 2021.
  
  In response to these findings, the CFPB directed the institutions to issue refunds and make process changes to ensure they comply with applicable state and territorial protections regarding garnishments and setoff practices.
  
  
• CFPB examiners identified violations regarding failure to timely provide homeowners with CARES Act forbearances. Examiners also found that servicers unfairly charged some individuals fees, while they were in CARES Act forbearances.

Beyond the series of findings described above, this edition of Supervisory Highlights was notable for the announcement that the CFPB had created a “Repeat Offender Unit” within supervision, the focus of which will be to “enhance the detection of repeat offenses, develop a process for rapid review and response designed to address the root cause of violations, and recommend corrective actions designed to stop recidivist behavior. This will include closer scrutiny of corporate compliance with orders to ensure that requirements are being met and any issues are addressed in a timely manner.” We presume that the “orders” referred to in this description are consent orders, and we note that in the past, monitoring for compliance with consent orders has occurred predominantly within the CFPB’s enforcement division. This announcement may signal that the CFPB intends to use supervisory exams to monitor for consent order compliance to a greater degree in the future.