CFPB Supervisory Report on Mortgage Servicing Offers Clues to Debt Collectors

The Consumer Financial Protection Burearu (CFPB) Wednesday released a fairly detailed report on its examination activities from November 2012 through June 2013. The report focuses on bank and non-bank mortgage servicers. While debt collection is not specifically covered, there are definitely useful hints of what examiners are looking for during their audits.

According to the report, nearly every examination or targeted review conducted by the CFPB contains an assessment of an entity’s Compliance Management System (CMS), whether it is an assessment of how the entity manages its compliance program enterprise-wide, or how the entity meets its consumer compliance responsibilities within a specific product line.

What the examiners say they found is that nonbanks are more likely to lack a robust CMS, concluding this is because their consumer compliance-related activities have not previously been subject to examinations at the federal level.

The following are some of the specific violations identified:

• Lack of a CMS structure altogether
• Lack of a separate compliance function (compliance is instead embedded in the business line)
• Inconsistent handling of similar consumer contacts within the same entity
• Lack of a separate consumer complaint response function
• Lack of a centralized method for tracking issues (that can be identified through complaints) across the entity
• Inconsistent quality assurance reviews (as a result of decentralized monitoring)
• Lack of roll-up reviews or trend analysis of findings across the entity as a whole among those with decentralized QA

(Read more about ARM industry vendor developments in the area of Compliance Management Systems.)

During reviews of mortgage servicing, the CFPB identified risks related to other processes that may be instructive to debt collectors. These related primarily to the handling of documents and payments.

For instance, according to the report, “examiners noted that one servicer conducted some due diligence on transferred servicing data but did not review any individual documents that the prior servicer had transferred…” Another example revealed that “documentation the servicer received in the transfer was not organized or labeled, and as a result, the servicer did not utilize existing applicable information.”

The CFPB identified these issues as creating a risk of engaging in unfair practices. Since the Bureau published its July 10, 2013 memo on the Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts, understanding where these opportunities lie has received greater attention by many debt collectors.