On October 31, 2012, the CFPB released its first
report highlighting its supervisory activity between July 2011 and
September 30, 2012. Pursuant to the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010, the CFPB is authorized to supervise depository
institutions with over $10 billion in assets, non-depository financial
institutions and "larger participants" in the credit reporting and debt collection
markets. Given Director Cordray's public
statements expressing a preference for the CFPB's exercise of its supervisory
authority as the primary means through which the Bureau will compel compliance
with federal consumer protection law, the Supervisory Highlights ("Highlights"
or "report") provide covered entities with a useful guide for understanding the
CFPB's supervisory expectations and for developing compliance management
systems to comply with federal consumer protection law.
The objective of the CFPB's supervisory
activities is to ensure the existence and operation of an effective compliance
management system. The report dedicates the bulk of its
analysis to deficiencies found in covered entities' compliance management
systems ("CMS"). According to the report, "assessing the quality of the
compliance management system employed by financial institutions under the
CFPB's jurisdiction" is "the most important responsibility[y] of the CFPB
supervisory program." CFPB CMS supervision requires that entities
demonstrate the application of the financial institutions' compliance
management program to each of its product lines, marketing practices and
third-party affiliates and/or service providers.
Fair lending compliance remains a top
priority for the CFPB. Reports of the CFPB's commitment
to enforcing the Equal Credit Opportunity Act ("ECOA") were confirmed in
the report as deficient fair lending compliance was a separate section in the
Highlights. The Highlights referenced covered entities "lack[ing] any
formal fair lending compliance system", and in some cases, establishing fair
lending compliance policies for some product lines and not other lending
products. Fortunately, the report includes eight (8) common features of
"well developed fair lending programs" that should inform the fair lending
dimensions of any lender's CMS.
CFPB supervision uncovered a number of CARD
Act violations. The Highlights also singled out CARD Act
violations concerning credit line increases to co-applicants under the age of
21 and failure to comply with the Act's rate reevaluation requirements under 12
C.F.R. § 1026.59. As with any product line or practice that
disproportionately impacts a potentially vulnerable segment of the consumer
market, credit card issuers should anticipate that CFPB supervision of credit
card products will include a special focus on products and practices that
target younger cardholders. In cases of violations concerning
co-applicant credit line increases, the Highlights recommend that financial
institutions obtain written authorization from co-applicants to accounts issued
to persons under the age of 21.
Entities furnishing credit information to
credit rating agencies should ensure that their practices comply with
Regulation V of the Fair Credit Reporting Act. Ensuring
the accuracy and integrity of financial information furnished to credit
reporting agencies ("CRAs") also was identified in the Highlights as a
recurring violation discovered during CFPB supervision. Regulation V of the
Fair Credit Reporting Act establishes the parameters for policies designed to
ensure that CRAs receive accurate information from financial institution
furnishers. According to the report, violating financial institutions lacked
sufficient training and familiarity with Regulation V's requirements.
Financial institutions should ensure that their CMS includes policies
confirming the accuracy of data reported to the CRAs and for resolving borrower
disputes and correcting errors reported directly to covered entities.
RESPA, TILA and HMDA compliance are the focus
of the CFPB's supervisory activities for mortgage lenders. Noting
significant mortgage lender non-compliance with RESPA, TILA's Regulation Z and
HMDA, the Highlights underscore two central themes of the CFPB's mortgage
lending activity to date - ensuring adequate disclosure of material mortgage
terms required under RESPA and TILA and providing the data necessary for the
CFPB's Office of Fair Lending and Equal Opportunity to determine if lenders are
complying with federal fair lending law. According to the report, a
robust CMS will ensure proper disclosure under RESPA and TILA, adequate data
collection and reporting to comply with HMDA and oversight of mortgage brokers
- particularly broker compensation practices in order to ensure compliance with
TILA's anti-steering provisions.
Read more at Consumer Financial Protection Bureau
Report by Troutman Sanders LLP.
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