The Consumer Financial Protection Bureau (CFPB) issued a Supervisory Highlights Report demonstrating illegal actions uncovered by the Bureau’s supervision of the payday, debt collection and consumer reporting markets. These markets are being federally supervised for the first time. The report also notes that recent non-public CFPB supervisory activities overall have resulted in more than $70 million in remediation to approximately 775,000 consumers.
“For the first time at the federal level, nonbank financial institutions are subject to supervisory oversight that holds them accountable for how they treat consumers,” said CFPB Director Richard Cordray. “The CFPB’s oversight of banks and nonbanks alike is exposing risky practices and getting results for consumers. We are pleased that our supervision program has been able to return more than $70 million to consumers in recent months.”
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the CFPB has authority to supervise certain nonbanks, including mortgage companies, private student lenders, and payday lenders, as well as nonbanks the Bureau defines through rulemaking as “larger participants.” To date, the Bureau has issued rules to supervise the larger participants in the debt collection, consumer reporting, and student loan servicing markets.
The CFPB often finds problems during supervisory examinations that are resolved without an enforcement action. Recent non-public supervisory actions and self-reported violations at banks and nonbanks resulted in more than $70 million in remediation to approximately 775,000 consumers. These non-public actions have occurred in areas such as deposits, consumer reporting, credit cards, mortgage origination, and mortgage servicing.
This report generally covers supervisory activities between November 2013 and February 2014. In the three non-bank markets highlighted in today’s report, examiners found that many companies had systemic flaws in their compliance management systems, such as consistently failing to have a system in place to track and resolve consumer complaints. The CFPB expects companies to respond to customer complaints and identify major issues and trends that may pose broader risks to their customers. Examiners also identified additional problem areas within each specific market.
Payday Lending
Payday loans are frequently described as a way for consumers to bridge a cash flow shortage between paychecks or the receipt of other income. Payday loans often have small-dollar amounts, require borrowers to repay quickly, and ask that a borrower give lenders access to repayment through a claim on the borrower’s deposit account. The problems that CFPB examiners found in the payday market include:
►Lenders deceiving consumers to collect debt: When payday lenders called borrowers to collect debt, they sometimes threatened to take legal actions they did not actually intend to pursue. Examiners cited these threats as unlawful deceptive practices. Other lenders threatened to impose additional fees or to debit borrowers’ accounts at any time, when this was not allowed by their contract. Examiners also found lenders lied about non-existent promotions to induce borrowers to call back about their debt.
►Lenders illegally harassing borrowers and visiting consumers at work: CFPB examiners found that payday lenders called borrowers multiple times per day. When lenders failed to accurately track how many times they had called a borrower, it increased the risk of a borrower receiving excessive calls. Examiners also found that employees of payday lenders would sometimes visit borrowers’ workplaces in attempts to collect debt. Such practices by lenders can violate the Dodd-Frank Act’s prohibition on unfair practices.
►Lenders hiring third-party collectors that illegally deceive and harass consumers: Many payday lenders hire third parties to collect their debts. The CFPB expects payday lenders – and all institutions subject to its supervision – to oversee their service providers to ensure they are complying with federal law. Examiners found that third-party debt collectors misled borrowers in a variety of ways, including falsely claiming to be an attorney and making false threats of criminal prosecution. Third-party collectors also harassed borrowers by calling at unusual times.
Debt Collection
Debt collection practices have long been a source of frustration for many consumers. The practices have generated a heavy volume of consumer complaints at all levels of government, including at the CFPB. It is estimated that there are more than 4,500 debt collection firms in the United States. The problems that CFPB examiners found in this market include:
►Debt collectors intentionally and illegally misleading consumers about litigation: Examiners found that debt collectors violated the Fair Debt Collection Practices Act (FDCPA) by filing lawsuits, which implied that they intended to prove their claims, when they had no such plans. The collectors typically dismissed the suits if consumers answered them because they were then unable to produce the documents to support their claims.
►Debt collectors making excessive, illegal calls to consumers: Examiners found that one debt collector had made approximately 17,000 calls to consumers outside of the appropriate times established by the FDCPA. That company further violated the law by repeatedly contacting more than 1,000 consumers as often as 20 times within two days.
►Debt collectors failing to investigate consumer credit report disputes: Debt collectors often furnish information to consumer reporting agencies, which use it when compiling consumers’ credit reports. Debt collectors generally must investigate when a consumer disputes information they have sent to a consumer reporting agency. Examiners found evidence that a debt collector was deleting disputed accounts rather than investigating such disputes, and examiners directed this collector to investigate disputes it receives regarding information it furnished.
Consumer Reporting Agencies
The Bureau also discovered problems at consumer reporting agencies. These agencies include companies that are popularly called credit bureaus or credit reporting companies. CFPB examiners found that certain agencies were not properly handling consumer credit report dispute documents. Consumer reporting agencies are generally required to forward relevant dispute documents to data furnishers. Examiners also found that some agencies were encouraging consumers to file disputes online or by telephone, but then refused to accept such disputes from some consumers.
