CFPB Exposes Illegal Practices in Consumer Financial Services: Insights from Supervisory Highlights

The Consumer Financial Protection Bureau (CFPB) has released its latest Supervisory Highlights report, revealing a range of concerning and illegal practices in the consumer financial services industry. The report, covering the period from July 2022 to March 2023, exposes unfair, deceptive, and abusive practices across various financial products, raising the need for enhanced regulatory compliance.

The CFPB's Supervisory Highlights report provides a comprehensive overview of key areas within the consumer financial services industry, shedding light on issues in the following domains:

1. Auto Origination: The report uncovers instances where auto lenders misled consumers through deceptive marketing materials, causing confusion and dissatisfaction.
2. Auto Servicing: Abusive practices by loan servicers, such as charging fraudulent interest on inflated loan balances, led to consumers facing additional financial burdens.
3. Consumer Reporting: Deficiencies in Consumer Reporting Companies' procedures, especially in re-assessing end-users' permissible purposes, resulted in unauthorized disclosures of sensitive data.
4. Debt Collection: The CFPB found violations of the Fair Debt Collection Practices Act, with debt collectors attempting to collect work-related medical debt despite state worker's compensation laws.
5. Deposits: Certain financial institutions charged double fees for denied transactions, leading to harm for enrolled consumers while non-enrolled consumers incurred only a single fee.
6. Fair Lending: Weaknesses in lenders' policies and oversight led to statistically significant disparities in granting pricing exceptions, highlighting the need for improved policies and compliance training.
7. Information Technology: Inadequate information technology controls in certain institutions resulted in data breaches and cyberattacks, violating consumer financial protection laws.
8. Mortgage Origination: Violations of Regulation Z occurred when lenders compensated loan originators differently for brokered-out mortgage products, leading to policy adjustments.
9. Mortgage Servicing: Lenders violated Regulation X by delaying loss mitigation applications, leading to unfair collection practices and causing distress to borrowers.
10. Payday and Small Dollar Lending: Payday lenders engaged in unfair and abusive collection practices, using false threats and unauthorized wage deductions.
11. Remittances: Some institutions failed to develop dedicated policies to adhere to error resolution requirements for remittance transfers, leading to non-compliance with the Remittance Rule.

In addition to the Supervisory Highlights, the CFPB's enforcement efforts led to actions against financial institutions. For instance, Citizens Bank faced allegations related to the handling of credit card disputes and fraud claims, resulting in a $9 million civil money penalty as part of the settlement.

The CFPB's Supervisory Highlights report serves as a wake-up call for the consumer financial services industry, highlighting the need for robust compliance mechanisms to safeguard consumers' interests and protect sensitive data. It underscores the importance of:

1. Proactive Compliance: Institutions must take a proactive approach to comply with consumer financial protection laws, promptly addressing any violations or deficiencies identified during examinations.
2. Improved Technology Controls: Enhancing information technology controls is crucial to protect against cyber threats and data breaches, ensuring consumer data remains secure.
3. Transparent Policies: Lenders should establish transparent policies, especially in areas like loan originator compensation, to prevent discriminatory practices and ensure compliance with regulations.
4. Fair Debt Collection Practices: Debt collectors should strictly adhere to fair debt collection practices, refraining from false threats and unauthorized actions against borrowers.
5. Error Resolution Procedures: Institutions must establish dedicated and comprehensive error resolution procedures for remittance transfers to comply with the Remittance Rule.

As the CFPB continues to monitor and scrutinize the consumer financial services industry, firms must proactively strengthen their compliance mechanisms, embrace transparent practices, and prioritize the protection of consumer data. A robust commitment to regulatory compliance will not only protect consumers but also safeguard institutions from potential enforcement actions and reputational damage.