Financial regulators and lawmakers have worked tirelessly for decades to even the lending playing field for all possible customers, regardless of age, gender, race, location, or a number of other factors. However, the fact remains that many rules on the books for servicers and banks were created in direct response to unfair, prejudiced, and unequal practices on the part of less-than-honest lenders. As long as a financial market exists with billions of dollars in cash and property at play, there will always be those looking to “game” the system, cut corners, and offer disparate treatment to certain clients. Unfortunately, 2021 was no different, as the worldwide confusion and uncertainty created by the COVID-19 pandemic appear to have been a golden opportunity for unscrupulous lenders to attempt to circumnavigate financial regulations, according to a recent report by the CFPB.
The Supervisory Highlights report, covering the first six months of 2021, contains numerous troubling instances of regulatory violations which the CFPB uncovered during their routine industry observations across a wide-ranging swath of lending-related fields, including auto loan services, debt collection, fair lending, payday lending, student loans, and more. These violations were brought to the offending lender/collector's attention to give them a chance to correct their aberrant policies before penalties were levied. As such, the identities of the violators were redacted, per policy, from the report to allow time for these corrections. That being said, the variety of discovered infractions during the first half of 2021 is a startling read.
Due to the pandemic, the CFPB prioritized mortgage supervision due to the recently implemented CARES Act, a facet of which allowed for a 180-day mortgage forbearance, among other homeowner protections. Although the CARES Act specifically disallows charging fees for mortgages in forbearance, the CFPB discovered that multiple servicers were still charging default and late fees on eligible mortgages in violation of the act. In their report, the CFPB did note that the servicers in question corrected their software and trained employees to ensure that these fees would not be erroneously added in the future, but it also added that some servicers had taken up to a year to refund these fees to their customers and that the error had caused “significant injury” and had “impacted a large number of borrowers.” The CFPB reiterated that, while these COVID-related issues are challenging for both the mortgager and mortgagee to keep abreast of, it is the responsibility for any servicer, lender, broker, or loan officer et al to continue to follow regulatory compliance to the letter. The Bureau’s mantra when it comes to handling evolving pandemic-related issues has been the same for some time: “Unprepared is Unacceptable.”
The age-old problem of industry discrimination remained regrettably strong during the first half of 2021, as CFPB examiners uncovered numerous ECOA offenses related to pricing exceptions, finding that African Americans and women were refused a disproportionate number of times compared to white men, even in identical situations. The CFPB also found several occurrences of religious discrimination, where lenders/services illegally asked pointed religious preference questions to representatives of religious institutions that had applied for loans.
The report also disclosed problematic practices on the part of many payday lenders across the country in regard to receiving and posting customer payments. The CFPB found multiple examples of payday lenders’ systems not posting payments correctly when customers called in to request debiting of their accounts. The customers then believed their payments had been processed when they had not. The payday lenders then levied false ‘late’ fees to the borrower’s accounts, negatively impacting their balances and credit through no fault of their own. Examiners even found evidence of payday lenders posting payments without borrower authorization or attempting to double-post payments without permission.
As stated, the Supervisory Highlights Report aims to educate lenders and servicers by calling attention to far-reaching abuses of financial regulations implemented, knowingly or not, by multiple banks or loan providers. Whenever possible, the CFPB aims to call attention to these red flags so that the offenders can correct these misbehaviors on their own. However, an inability or unwillingness to be fully in compliance can quickly lead to the Bureau enforcing its authority in the form of heavy fines, injunctions, or even prison time for egregious violators, depending on the situation. It is safe to say that bad actors attempting to undermine and escape the CFPB’s reach in the turmoil of the COVID-19 pandemic will not go unnoticed for long.
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