What CFPB Says Banks Get Wrong About Consumer Protection

WASHINGTON — Banks and other financial companies are engaging in disturbing new overdraft practices, violating fair lending laws related to mortgages and being too aggressive in how they collect student loan debt, the Consumer Financial Protection Bureau said Wednesday.

In a bulletin listing problems it has detected in examinations, the CFPB said it has reached an unspecified number of private supervisory resolutions with firms that totaled $19.4 million in remediation to more than 92,000 consumers during the last six months of 2014.

"We are sharing our latest supervisory highlights report with the public so that industry can see trends, examine their own practices, and be proactive to make needed changes before consumers are hurt," said CFPB Director Richard Cordray, in the release. "The CFPB will continue to monitor both bank and nonbank markets to ensure deception is rooted out, deficiencies are corrected, remediation is given to consumers, and violations are stopped in their tracks."

Most of the concerns raised in the supervisory highlights have long been areas of concern for agency officials. In particular, the bulletin flagged inappropriate debt collection tactics and problems in the credit reporting process. The CFPB has taken action against debt collectors for harassing consumers and is slated to propose new rules related to the issue later this year.

The bulletin said that examiners found that student loan debt collectors are still using deceptive statements targeted at defaulted borrowers despite the fact that the CFPB has publicly cited several companies on such a tactic.

"In collection calls and call scripts, examiners found that collectors overpromised the restoration of credit profiles if borrowers participated in a federal student loan rehabilitation program," the CFPB said. "And collectors misinformed consumers by telling them that they could not participate in the rehabilitation program unless they paid by credit card, debit card, or ACH payments, when, in fact, no such requirement existed."

The CFPB also said that "one or more" consumer reporting agencies "are still failing to consistently forward all relevant consumer information to furnishers" even though such agencies have been examined by the CFPB for several years now.

"Such inadequate processes can lead to errors in credit files and incorrect dispute investigation outcomes," the CFPB said.

Another practice highlighted by examiners related to overdraft programs. The CFPB is scheduled to roll out a proposal on overdraft regulations this summer even though consumers must now opt-in to overdraft programs, a change made in 2010.

But the CFPB said examiners found that some banks have created a new way to assess overdraft fees that can still catch consumers by surprise.

"The institutions did not explain the changes in a way that consumers could understand and use to avoid overdraft fees," the CFPB said. "Based on the specific situation at these institutions, examiners found that the banks had carried out unfair and deceptive practices."

The report also raised concerns on the mortgage origination side, including finding that "some loan originators" were receiving illegal compensation. Others were inappropriately raising costs on the HUD-1 form higher than on the Good Faith Estimate.

Overall, there were "weaknesses in compliance management systems that played a significant role in the identified violations," the CFPB said.

Examiners also found that "one or more institutions" were violating a fair lending law by using marketing materials that discouraged as well as outright rejected mortgage applicants who relied on public assistance income, such as Social Security, to repay the loan. In this instance, the CFPB examiners ordered remediation for affected consumers.

"In all cases where CFPB examiners find violations of law, they alert the institutions to their concerns and outline necessary remedial measures. When appropriate, the CFPB opens investigations for potential enforcement actions," the agency said. "The CFPB expects all entities under its supervision to respond to customer complaints and identify major issues and trends that may pose broader risks to their customers."

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