CFPB Details Non-Bank Supervision Activities in New Report

The Consumer Financial Protection Bureau (CFPB) Thursday released a report on its supervision activities in the non-bank markets it regulates, including debt collection. The report highlights illegal practices the Bureau says it uncovered in its supervision of the payday lending, debt collection, and consumer reporting markets.

“For the first time at the federal level, nonbank financial institutions are subject to supervisory oversight that holds them accountable for how they treat consumers,” said CFPB Director Richard Cordray. “The CFPB’s oversight of banks and nonbanks alike is exposing risky practices and getting results for consumers.”

Those results for consumers are much more tangible than just simple research results. The report — “Supervisory Highlights – Spring 2014” — contains the first official accounting of the CFPB’s non-public supervisory activities that have resulted in remuneration.

The CFPB said that in “recent months,” its supervisory program has resulted in more than $70 million in remediation to some 775,000 consumers from banks and non-banks. That amount came from non-public supervisory actions resulting from examiner findings and self-reported violations during an exam.

Most of the report is dedicated to enumerating various issues CFPB examiners have uncovered in its supervision of certain markets.

The Bureau began conducting supervisory examinations of larger collection agencies in January 2013. The primary focus of the exams in the early stages appears to be on the compliance management systems of the debt collectors. But examiners also evaluate a company’s compliance with federal laws that apply to debt collection, like the FDPCA and FCRA.

The report notes several areas in which it found issues in the exams:

• Failure of debt collectors (and others) who furnish information to CRAs to investigate disputes regarding that information;
• Failure to obtain appropriate authorization prior to initiating a recurring electronic transfer of funds from a consumer’s account; and
• Failure of debt collectors to comply with the Fair Debt Collection Practices Act’s limitations on the use of phone calls and its prohibition on false and misleading statements.

Debt collection also features prominently in the section dedicated to payday lending.

Examiners found issues with both lenders’ internal debt collection practices and at third party debt collection agencies that had been contracted to recover payday loan debt.

At several short-term, small-dollar lenders, CFPB examiners found inadequate compliance management systems for collection activity. Lenders did not adequately monitor collections calls, attempt to understand the root causes of complaints arising from collections practices, provide training for collectors, and properly oversee third-party service providers.

In several situations, examiners identified violations carried out by third-party debt collectors working for payday lenders.

The FDCPA prohibits debt collectors from using any false, deceptive, or misleading representation or means in connection with the collection of any debt, and the Dodd-Frank Act prohibition on UDAAPs also applies to certain activities uncovered, including:

• Claiming the account would be reported to a credit bureau when there was no such reporting
• Making false threats of litigation and referral for criminal prosecution
• Misrepresenting identity as an impartial mediator or attorney
• Failing to disclose the identity of the caller or the purpose of the communication
• Threatening to add unauthorized fees
• Making false claims that a borrower’s bank account would be closed

 Does your collection agency have questions about CFPB supervision and examinations? insideARM has a number of resources to help!

On Tuesday, June 3, we will be holding our second insideCompliance webinar on the topic: How to Survive a CFPB Audit – Debt Buyer Edition. Collection agencies can check out our audit compliance guide, drawn from a previous webinar on CFPB examinations – CFPB Examination Checklist: A Primer.