Yesterday, the Consumer Financial Protection Bureau (CFPB or Bureau) announced the release of its latest edition of Supervisory Highlights (which, according to the CFPB’s website, was published on February 28, 2019). The Highlights cover the Bureau’s activities between June and November 2018. While this Highlights edition contains no specific reference to debt collection agencies or law firms, there are several nuggets of information that present three lessons for debt collectors.
Lesson 1: Ensure Amounts in Collection Letters are Accurate
The Highlights discuss two separate issues where the Bureau observed incorrect calculations of the amount owed by the consumer.
The first occurred in relation to ancillary products in auto loan servicing. If consumers finance a vehicle through the auto manufacturer, they often have the ability to purchase ancillary products through the same loan, such as extended warranties. In the event of total loss or repossession of the vehicle, the servicer has the option to cancel ancillary products and obtain a pro-rated rebate for the unused portions. This rebate is first applied to the servicer for the deficiency, then the remainder goes to the borrower. Frequently, these rebates depend on the mileage of the vehicle. The CFPB observed instances where:
- The servicer either didn’t apply for the rebate at all, yet reflected in the deficiency letter to the consumer that the amount listed took into account rebates and credits to the account, and
- In the case of a used vehicle, servicers used the total mileage of the vehicle (rather than the mileage accumulated since the borrower purchased the vehicle) to apply for the rebate.
The CFPB found that borrowers in both situations were misled about the amounts that they owed on the deficiency.
The second observation related to unauthorized charges by mortgage servicers. Specifically, the CFPB observed that certain servicers charged late fees greater than those permitted by the mortgage notes. This was caused, according to the Highlights, by “programming errors” and “lapses in oversight.”
The Takeaway: These two observations show the importance of diligence and compliance oversight when it comes to calculating or determining the amount that a consumer owes. This is especially important where a debt collector is collecting on a balance that is subject to change due to interest, fees, or charges. Whether it be ensuring that whatever benefits the consumer may be eligible for are correctly applied to the account or ensuring that the debt collector's systems are correctly calculating amounts owed and are regularly monitored by compliance teams, the onus is on financial institutions to get this right.
Lesson 2: Do Your Due Diligence with Disclosures
In another mortgage servicing observation, the Bureau focused on incomplete information being provided to consumers. In this specific example, the Bureau notes that mortgage servicers failed to tell the consumers the full story of why their requests to cancel private mortgage insurance (PMI) were denied. PMI can be cancelled upon the consumer’s request (1) if the principal balance of the mortgage reaches 80% of the original value based on extra payments the consumers made on principal, or (2) after the date the amortization schedule reaches the 80% value marker.
The CFPB observed a service mortgager who denied consumers’ requests to cancel PMI stating that balance has not reached the 80% value marker. In these instances, the amortization schedule didn’t reach the 80% mark, but the consumer’s extra principal payments satisfied the first option listed above. Even though the consumers had not met other criteria for cancellation of PMI, the misrepresentation of conditions for removal of PMI would affect the borrower’s choice to re-request the cancellation.
The Takeaway: There is a lot of pressure from both regulators and the courts for debt collectors to adequately inform consumers about their rights. As we have seen through myriad court decisions, ensuring that disclosures made to consumers are accurate is paramount (even when courts don’t agree on what the correct disclosures are). While we may not have all of the answers on what disclosures to use yet (maybe we will in the forthcoming CFPB debt collection rules), it is important to be diligent about the information that debt collectors provide to consumers. For example, responses to requests for validation of debt or credit reporting disputes should accurately disclose the full picture to consumers.
Lesson 3: Pay Attention to Payment Debit Dates
The Bureau observed issues with bill pay debit dates that occurred earlier than the consumer was led to believe, causing overdraft fees. This occurred where an online bill pay portal disclosed that the payment would be debited on or a few days after the selected date, leading the consumer to believe that the payment would not be debited earlier than this date. However, payees who accept only a paper check failed to disclose that the check could be debited on an earlier date.
The Takeaway: There are many different forms of payment available and it is important to ensure the proper disclosures are provided for each so that consumers can plan for when the money will be taken out of their accounts.