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CFPB Uncovers Unfair and Deceptive Practices Across Consumer Financial Products

The Consumer Financial Protection Bureau (CFPB) has released a new Supervisory Highlights report which found unfair, deceptive, and abusive acts or practices across many consumer financial products. The latest edition of the Supervisory Highlights report covers findings from CFPB supervisory examinations completed from July 2022 to March 2023.

“Today’s report furthers our efforts to highlight conduct that violates federal law, including the prohibition on abusive practices in consumer financial services,” said CFPB Director Rohit Chopra. “The CFPB is also inspecting more financial data brokers engaged in consumer reporting, as well as nonbank entities using authorities that previously went unused.”

In its report, the Bureau assessed the mortgage origination operations of several supervised institutions for compliance with applicable Federal consumer financial laws, including Regulation Z. Examiners determined that the institutions used a compensation plan that allowed a loan originator who originated both brokered-out and in-house loans to receive a different level of compensation for the brokered-out loans versus in-house loans. By compensating differently for loan product types that were not offered in-house, the entities violated Regulation Z by basing compensation on the terms of a transaction. In response to these findings, the entities have since revised their loan originator compensation plans to comply with Regulation Z.

Examiners also identified Unfair, Deceptive, or Abusive Acts or Practices (UDAAPs) and regulatory violations at mortgage servicers, including violations during the loss mitigation and servicing transfer processes, as well as payment posting violations.

CFPB examiners found that mortgage servicers engaged in an unfair act or practice when they delayed processing borrower requests to enroll in loss mitigation options, including COVID-19 pandemic-related forbearance extensions, based on incomplete applications. These delays varied in length, including delays of up to six months. Borrowers were substantially injured because they suffered one or more of the following harms: prolonged delinquency, late fees, default notices, and lost time and resources addressing servicer delays. Borrowers also experienced negative credit reporting because of the servicers’ delays, resulting in a risk of damage to their credit that may have materialized into financial injury. Borrowers could not reasonably avoid injury because servicers controlled the processing of applications, and borrowers reasonably expected servicers to enroll them in the options they applied for. And the injury to consumers was not outweighed by benefits to consumers or competition.

Under the Consumer Financial Protection Act, the CFPB has the authority to supervise large banks, thrifts, and credit unions with assets in excess of $10 billion and their affiliates, as well as certain nonbanks, including mortgage companies, private student lenders, and payday lenders. The CFPB’s supervisory authority also covers consumer reporting, student loan servicing, debt collection, auto finance, international money transfer, and other nonbank entities that pose risks to consumers.

Among the other findings, the CFPB observed a significant shift in the auto lending market recently. Car prices rose sharply during the recent pandemic, leading to larger loan amounts, higher monthly payments, and consequently, a higher rate of loan delinquencies. CFPB examiners found that consumers were misled in marketing materials by auto lenders about the quality of car they were eligible for under the terms of an auto loan offer. The pictured cars were often significantly larger, more expensive, and newer than the advertised loan offers were good for.

CFPB examiners also found unfair and abusive acts employed by payday lenders in their collection practices. Lenders would put language in loan agreements that prohibited consumers from revoking their consent for the lender to call, text, or e-mail the consumers about collection on the outstanding balance.

Lenders also made false collection threats that would often purport their authority to garnish wages of borrowers, when no such authority exists. In some cases, the lender would actually make an unauthorized wage deduction by sending demand notices to consumers’ employers that incorrectly conveyed that the employer was required to remit to the lenders from the consumer’s wages the full amount of the consumer’s loan balance.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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