The CFPB has issued “Supervisory Highlights COVID-19 Prioritized Assessments Special Edition.”

The report indicates that in May 2020, the Bureau rescheduled about half of its planned examinations and instead conducted prioritized assessments (PAs) in response to the COVID-19 pandemic.  The Bureau describes PAs as “higher-level inquiries than traditional examinations [that are] designed to obtain real-time information from a broad group of supervised entities that operate in markets posing elevated risk of consumer harm due to pandemic-related issues.”  According to the Bureau, PAs are not intended to identify legal violations but rather to spot and assess risks and communicate such risks to supervised entities so they can be addressed to prevent consumer harm.

In conducting the PAs, the Bureau sent targeted information requests to “a significant number” of entities to obtain information necessary to assess risk of consumer harm and violations of federal consumer financial law.  Each targeted information request was specific to the product market, that market’s risks to consumers, and the institution, and focused generally on the time period from early May 2020 through September 2020.  After completing the PAs, the Bureau sent close-out letters to the entities involved in which it identified observed risks and made supervisory recommendations.

PA observations described in the report include the following:

• Mortgage servicing.  The Bureau describes the significant challenges faced by servicers stemming from the need to implement the CARES Act protections for homeowners and make other operational changes in response to investor guidance.  Issues observed by examiners raising the risk of consumer harm involved:
  • Providing incomplete or inaccurate information to consumers about forbearance
  • Taking actions that were erroneous or inconsistent with a borrower’s enrollment in a CARES Act forbearance, such as sending collections and default notices, assessing late fees, and initiating foreclosures
  • Cancelling or providing inaccurate information about borrowers’ preauthorized electronic funds transfers
  • Failing to timely process forbearance requests
  • Enrolling borrowers in automatic forbearances without the borrowers’ knowledge or approval or otherwise placing borrowers in unrequested forbearances
  • Inappropriate handling of loss mitigation applications
• Auto loan servicing.  The Bureau reports that many servicers expanded existing payment assistance programs to help borrowers who were having trouble making payments as a result of the pandemic and generally suspended repossessions between mid-March and early May 2020.  Issues observed by examiners raising the risk of consumer harm involved:
  • Providing inadequate information to consumers about how the accrual of interest during deferment periods would impact the final loan payment
  • Continuing to withdraw funds for monthly payments after agreeing to deferments
  • Failing to process payment assistance requests
  • Threatening repossession when, in fact, repossession had been suspended
• Student loan servicing.  The Bureau describes the significant challenges faced by servicers stemming from implementation of the CARES Act protections for federally-owned loans and making payment relief options available to borrowers with private student loans or commercially-held FFELP loans.  Issues observed by examiners raising the risk of consumer harm involved:
  • Providing incorrect or incomplete information about available payment relief options
  • Providing inaccurate information related to the number of payments eligible for repayment, rehabilitation, or forgiveness programs
  • Making payment allocation errors when applying voluntary payments to accounts enrolled in CARES Act forbearances
  • Failing to prevent preauthorized electronic fund transfers following forbearance approval for loans that are not federally-owned
  • Providing inaccurate information about the information needed to evaluate forbearance applications for loans that are not federally-owned
  • Confirming enrollment in forbearances of commercial FFELP borrowers who were, in fact, ineligible for forbearances
• Credit card account management.  The Bureau reports that card issuers generally provided some form of relief to consumers experiencing hardships as a result of the pandemic while experiencing operational challenges due to the pandemic.  Issues observed by examiners raising the risk of consumer harm involved:
  • Problems implementing relief program due to reliance on manual processes to handle high volumes of relief requests
  • Providing inaccurate information about the need to pay past due amounts to enroll in payment deferment programs when, in fact, this was not a requirement for enrollment
  • Delays in the suspension of preauthorized transfers upon enrolling consumers in relief programs
  • Failing to resolve billing disputes by the regulatory deadline due to increased volume in error notices and merchant closures
•  Consumer reporting and furnishing.  The Bureau describes the significant challenges faced by servicers stemming from the FCRA amendments made by the CARES Act regarding the treatment of payment accommodations.  Issues observed by examiners raising the risk of consumer harm involved:
  • Delayed processing of accommodations resulting in some consumers who were current being reported as delinquent or having their delinquency status improperly advanced
  • Insufficient furnishing policies and procedures causing the furnishing of inaccurate information related to home pickups of returned leased vehicles
  • Untimely dispute investigations resulting from staffing challenges
• Debt collection.  The Bureau discusses the pandemic measures implemented by some states that impacted debt collection, such as prohibitions on wage garnishments and bank attachments. The Bureau indicates that  its examiners reviewed the potential for FDCPA compliance risks associated with such state restrictions. Specifically, the Bureau stated that when evaluating whether an action taken to enforce a judgment violates the FDCPA prohibition of “unfair or unconscionable” debt collection practices, “one fact the Bureau may consider is whether applicable law permits resort to garnishment or attachment of a consumer’s assets in a particular set of circumstances.”  Other issues observed by examiners raising the risk of consumer harm involved:
  • Delays in processing suspensions of administrative wage garnishments prohibited by state laws or voluntarily imposed by certain student loan servicers
  • Delays in processing payments caused by the transition to remote work by collectors
• Deposits.  The Bureau discusses the use of direct deposit to distribute Economic Impact Payments (EIPs) authorized by the CARES Act and for the receipt of increased state unemployment insurance benefits.  Issues observed by examiners raising the risk of consumer harm involved:
  • Failing to fully implement state protections of EIPs and unemployment insurance benefits
  • Failing to clearly communicate to consumers how and when provisional credits used to waive setoff rights would be revoked
  • Failing to implement policies and procedures that clearly and consistently operationalized account fee waivers and refunds
• Prepaid accounts.  The Bureau discusses the use of prepaid cards by many states to disburse unemployment insurance benefits and the use of prepaid cards to distribute EIPs, which resulted in an unexpected spike in demand for prepaid accounts.  An issue observed by examiners raising the risk of consumer harm involved the mailing of prepaid account information to consumers without required disclosures and privacy notices.  This was attributed to insufficient supplies due to the surge in demand.
• Small business lending.  The Bureau looked at fair lending risks arising from participation in the Paycheck Protection Program (PPP) by large insured depository institutions and insured credit unions (over which the Bureau has supervisory authority).  Examiners found that in implementing the PPP, multiple lenders went beyond CARES Act requirements and SBA directives by restricting access to PPP loans to businesses that had a pre-existing relationship with the bank and, in some cases, to businesses that did not have a pre-existing relationship but became bank customers before applying for a PPP loan.  Examiners determined that an existing relationship restriction, while neutral on its face, could have a disparate impact on a prohibited basis and therefore violate the ECOA and Regulation B.  The Bureau indicates that lenders provided business justifications for such a restriction, such as “Know Your Customer” requirements and/or fraud prevention, as well as operational reasons such as managing extreme demand.  The Bureau states that examiners did not conduct a full analysis of any institution’s restriction or make any determination about whether an institution’s use of such a restriction complies with the ECOA or Regulation B.