Tuesday, May 9, 2017
Re-post of April 26, 2017 Media Release from the CFPB
CONSUMER FINANCIAL PROTECTION BUREAU SUPERVISION FINDS SOME STUDENT LOAN AND MORTGAGE SERVICERS ILLEGALLY FAIL TO PROVIDE PROTECTIONS TO BORROWERS
Bureau Recovered $6.1 Million for 16,000 Consumers Harmed By Auto Loan Originators
Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today announced that its recent supervisory work has found that some student loan and mortgage servicers are violating the law by failing to provide struggling borrowers with legal protections. CFPB examiners found that some student loan servicers failed to refund charges imposed on borrowers who had been wrongly denied the right to defer payments while enrolled in school. The report also found that some mortgage servicers did not deliver the required foreclosure protections to borrowers seeking to save their homes, mishandled escrow accounts, and sent incomplete bills. The report also announced that non-public supervisory activities have led to the recovery of about $6.1 million for 16,000 consumers harmed by auto loan originators.
“We found that some mortgage and student loan servicers are violating the law by failing to provide protections to borrowers,” said CFPB Director Richard Cordray. “Their slipshod practices are putting borrowers at risk of financial failure and we will hold them accountable."
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has authority to supervise banks and credit unions with more than $10 billion in assets and certain nonbanks. These include mortgage companies, private student lenders, payday lenders, and others defined as “larger participants.” Today’s report, the 15th edition of Supervisory Highlights, covers supervisory activities generally from September-December 2016, and shares observations in the areas of student loan servicing, mortgage servicing, mortgage origination, and fair lending.
Student Loan ServicingStudent loan servicers are the primary point of contact about loans for the more than 44 million Americans with student debt. It is a Bureau priority to end illegal practices in student loan servicing. Previously, the Bureau reported that borrowers encounter servicing problems driven by incomplete, inaccurate, or untimely reporting of student data. This can cost some borrowers hundreds of dollars or more. In February, the CFPB warned student loan borrowers to take steps to protect themselves from costly student enrollment status data errors. The Department of Education has also warned that these errors can lead to higher loan costs for borrowers and may contribute to student loan delinquency and defaults. In today’s report, Bureau examiners found that student loan servicers:
- Routinely acted on flawed information: Most student loan borrowers have a right to postpone payments, called a deferment, while they are enrolled in school. But CFPB examiners found that one or more student loan servicers routinely acted on incorrect information about whether the borrower was enrolled in school. This faulty information was in student data reports used to manage millions of borrowers’ accounts, and was provided by National Student Clearinghouse, an enrollment data reporting company.
- Failed to reverse charges wrongly imposed on borrowers in school: Because of data errors, one or more student loan servicers routinely failed to reverse certain charges even after it knew it had wrongly ended a deferment. These charges included improper late fees and capitalization of unpaid interest, which occurs when interest that accumulates on a student loan is added to the principal balance.
Mortgage ServicingMortgage servicers collect payments from the mortgage borrower and forward those payments to the owner of the loan. They typically handle customer service, collections, loan modifications, and foreclosures. Supervision continues to see serious issues for consumers seeking alternatives to foreclosure, or loss mitigation, at certain servicers. Issues identified during recent CFPB examinations include problems with foreclosure protections, premature foreclosure filings, mishandling of escrow accounts, and incomplete periodic statements. Bureau examiners found one or more servicers:
- Kept borrowers in the dark on foreclosure alternatives: One or more servicers failed to identify the additional documents and information borrowers needed to submit to complete a loss mitigation application to avoid foreclosure. They then denied the applications for not including those documents. Supervision directed these servicers to enhance policies, procedures, and monitoring to address the issue.
- Prematurely launched the foreclosure process: Servicers cannot take certain steps toward foreclosure once they receive a complete loss mitigation application from a borrower more than 37 days before a foreclosure sale. For instance, servicers cannot make first notice of a foreclosure if a borrower has submitted a complete application for a loan modification or other foreclosure alternative that is still pending review. Bureau examiners found that one or more servicers failed to properly classify applications as complete after receiving the information, and failed to give required foreclosure protections to those consumers.
- Mishandled escrow accounts: One or more servicers used funds from escrow accounts to pay insurance premiums on unrelated loans. This created shortages in the escrow account and forced higher monthly payments onto consumers. Supervision directed the servicer to give redress to affected consumers, and adopt policies and procedures to ensure that insurance payments are made properly from escrow accounts.
- Issued incomplete periodic statements: Servicers must provide regular statements that include the amount and due date of the next payment; a breakdown of payments by principal, interest, fees, and escrow; and recent transactions. Examiners found one or more servicers used vague language like “Misc. Expenses” and “Charge for Service” when describing certain costs. These insufficient descriptions failed to comply with the rule. Supervision directed the servicer to modify its descriptions to help consumers understand their fees and charges.
Other HighlightsIn the lead-up to the financial crisis, many consumers ended up in risky mortgages because lenders did not check to see if they could afford to pay back the loan. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, lenders must make a reasonable effort to figure out if a consumer can repay the mortgage before making the loan. Today’s report looks at how CFPB examiners assess compliance with the Ability-to-Repay rule, including requirements on how a lender verifies a consumer’s ability to repay a mortgage loan. This includes whether a creditor’s decision relies on verified assets and not income, and whether it can be based on the size of the down payment for a consumer who otherwise lacks verified income or assets.
Today’s report also notes that CFPB examiners alerted one or more companies to spikes in complaint volume, prompting the companies to develop remedies. It also discusses the CFPB’s continued development and implementation of a program to directly examine key service providers to help reduce risks to consumers when a company outsources certain activities to those providers. In today’s report, the CFPB also reminds companies that creating incentives for employees and service providers to meet sales and other business goals can lead to consumer harm if those incentives are not properly managed. In addition, the report includes details about updated and expanded publicly available surname data from the U.S. Census Bureau for use in models that may be combined with geography data in CFPB analysis of fair lending practices.
The report highlights that non-public supervisory activities have led to the recovery of about $6.1 million for 16,000 consumers harmed by illegal practices by auto loan originators. The CFPB’s recent supervisory activities led to or supported five recent public enforcement actions, resulting in over $39 million in consumer remediation and another $19 million in civil money penalties. Today’s report shares information industry can use to comply with federal consumer financial law. In cases where CFPB examiners find problems, they alert the company and outline necessary remedial measures. This may include paying refunds or restitution, or taking actions to stop illegal practices, such as new policies or improved training or monitoring. When appropriate, the CFPB opens investigations for potential enforcement actions.
Today’s edition of Supervisory Highlights is available at:http://files.consumerfinance.gov/f/documents/201704_cfpb_Supervisory-Highlights_Issue-15.pdf
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.
CFPB imposes additional fine on Servicemember Auto Lender for violating consent order (pres release re-post)
RELEASED: April 26, 2017 by CFPB Office of Communications
CONSUMER FINANCIAL PROTECTION BUREAU ISSUES $1.25 MILLION FINE TO SERVICEMEMBER AUTO LENDER FOR VIOLATING CONSENT ORDER
Auto Loan Company Failed to Provide Redress for Illegal Collection Tactics
Washington, D.C. — The Consumer Financial Protection Bureau (CFPB) today took action against Security National Automotive Acceptance Company (SNAAC), an auto lender specializing in loans to servicemembers, for violating a Bureau consent order. In 2015, the CFPB ordered SNAAC to pay both redress and a civil penalty for illegal debt collection tactics, including making threats to contact servicemembers’ commanding officers about debts and exaggerating the consequences of not paying. SNAAC violated the 2015 order by failing to provide more than $1 million in refunds and credits, affecting more than 1,000 consumers. Today’s consent order requires SNAAC to make good on the redress it owes to those consumers and pay an additional $1.25 million penalty.
"This company violated a Bureau order when it failed to get money back to servicemembers it had hounded with illegal debt collection tactics,” said CFPB Director Richard Cordray. "We are making sure this company finally rights its wrongs."
SNAAC, based in Mason, Ohio, is an auto-finance company that operates in more than two dozen states and specializes in loans to servicemembers, primarily to buy used vehicles. In June 2015, the CFPB sued SNAAC for aggressive collection tactics against consumers who fell behind on their loans. If servicemembers lagged behind on payments, SNAAC’s collectors would threaten to contact—and in many cases did contact—their chain of command about their debts. Also, the company exaggerated the consequences of not paying. For instance, they told some consumers that failure to pay could result in action under the Uniform Code of Military Justice, demotion, discharge, or loss of security clearance. But these consequences were extremely unlikely. The CFPB alleged that SNAAC’s aggressive tactics, which took advantage of servicemembers’ special obligations to remain current on debts, victimized thousands of borrowers.
In October 2015, a CFPB consent order found that SNAAC had indeed engaged in unfair, deceptive, and abusive acts and practices while collecting on these auto loans. The order required SNAAC to pay $2.275 million in consumer redress through credits and refunds, and a $1 million civil penalty. Consumers with an account balance were to receive credits to their accounts, and consumers with a zero balance were to receive cash refunds. While SNAAC submitted two plans that claimed to provide the full amount of redress ordered, both were designed to underpay such redress. Acting on a tip from a servicemember’s father, the CFPB discovered that SNAAC had issued worthless “credits” to hundreds of consumers and failed to provide proper redress to many more.
The CFPB is issuing today’s consent order against SNAAC for violating the terms of the 2015 consent order by failing to properly give refunds or credits to affected borrowers. In today’s order, the CFPB found that the company had failed to meet its obligation to pay redress to consumers by:
- Issuing worthless “credits” to settled-in-full accounts: In purporting to provide redress, SNAAC treated accounts that were settled-in-full as having a positive account balance. Instead of providing refunds to consumers with settled-in-full accounts, SNAAC issued worthless account “credits.” Those consumers received no benefit from such a “credit” because they no longer owed SNAAC money and could not use such a credit toward any new or existing loan.
- Issuing worthless “credits” to discharged accounts: SNAAC also issued worthless account “credits” to consumers whose debts had been discharged in bankruptcy, and who no longer owed SNAAC money on their auto loan. SNAAC had no legal claim to any unpaid balance, and these consumers received no benefit from the “credits.” SNAAC had, in fact, already stopped collections on these accounts.
- Failing to properly give redress to consumers making payments under settlement agreements: Some SNAAC consumers were making payments under settlement agreements. But SNAAC based redress on the original, higher account balance in place before it agreed on a settlement with the borrower. As a result, in many instances, SNAAC issued credits that exceeded consumers’ settlement balances, rather than refund any amount above what the consumers actually owed. And because their settlement balances were improperly credited, some consumers unwittingly overpaid SNAAC to settle their accounts.
Enforcement ActionUnder the Dodd-Frank Act, the CFPB is authorized to take action against institutions engaged in unfair, deceptive, or abusive acts or practices, or that otherwise violate federal consumer financial laws. Under today’s consent order:
- SNAAC must pay redress as promised to affected consumers: SNAAC must pay the Bureau roughly $720,000, which the Bureau will send as refunds to about 925 consumers. SNAAC must issue about $370,000 in new credits to over 1,000 consumers with remaining account balances as well as properly credit roughly 1,000 consumers making payments under settlement agreements. SNAAC must also pay $75,000 to the Bureau to cover the costs of distributing these payments.
- SNAAC must pay a $1.25 million penalty: SNAAC must pay a penalty of $1.25 million to the CFPB Civil Penalty Fund, in addition to the $1 million penalty it paid under the 2015 consent order.
The text of the consent order is found here:http://files.consumerfinance.gov/f/documents/201704_SNAAC-consent-order.pdf