Supervision and examination manual 2025 11
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September 2023 • Table of Contents Part I – Compliance Supervision and Examination A. Supervision and Examination Process • CFPB Humility in Supervisions Pledge • Overview • Examination Process Part II – Examination Procedures A. Compliance Management System • Compliance Management Review • Compliance Management Review – Information Technology B. Product-Based Procedures • Automobile Finance • Consumer Reporting, Larger Participants • Credit Card Account Management • Debt Collection • Education Loan • Mortgage Origination • Mortgage Servicing • Prepaid Account • Remittance Transfer • Reverse Mortgage Servicing • Short-Term, Small-Dollar Lending (Commonly Known as Payday Lending) C. Statutory- and Regulation-Based Procedures • Consumer Leasing Act (CLA) • Electronic Fund Transfer Act (EFTA) • Equal Credit Opportunity Act (ECOA) • Equal Credit Opportunity Act (ECOA) Baseline Review • Fair Credit Reporting Act (FCRA) • Fair Debt Collection Practices Act (FDCPA) • Home Mortgage Disclosure Act (HMDA) • Homeowners Protection Act (HPA or PMI Cancellation Act) • Privacy of Consumer Financial Information - Gramm-Leach-Bliley Act (GLBA) • Real Estate Settlement Procedures Act (RESPA) • Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act • Truth in Lending Act (TILA) • Truth in Savings Act (TISA) • Unfair, Deceptive, or Abusive Acts or Practices (UDAAPs) Preface
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September 2023 Part III – Examination Process Templates A. Templates • Entity Profile • Examination Report • Examination Scope Summary • Risk Assessment • Supervision Plan • Supervisory Letter Disclaimer Please note: This Supervision and Examination Manual provides internal guidance to our supervisory staff. It does not bind the CFPB and does not create any rights, benefits, or defenses, substantive or procedural, that are enforceable by any party in any manner. While every effort has been made to ensure accuracy, examination procedures should not be relied on as a legal reference.
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CFPB Pledge CFPB November 2025 Pledge 1 CFPB Humility in Supervisions Pledge Although supervisory information itself is confidential, how the CFPB approaches supervisions is not. The statement below will be provided to all examiners to be read to a supervised entity at the beginning of the examination.
The upcoming Supervision examination cycle is going to be fundamentally different from the prior ones under the former Director Chopra. For 2026 examinations, in line with the Memorandum on Supervision and Enforcement Priorities (April, 2025) the Bureau will focus its supervision resources on pressing threats to consumers, particularly service members and their families, and veterans, and in the areas that are clearly within the Bureau’s statutory authority. The Bureau will also avoid, where possible, duplication of supervision, where States or other regulators are already doing that job.
For this round of examinations, there will be greater transparency regarding the process and clarity regarding expectations. Bureau-supervised entities will receive advance notice of scheduled examinations providing them with the opportunity to plan. Requests related to exams will focus on Bureau priorities and hew to the defined scope of the exam and not venture into areas outside the scope. The scope of the exams will be on identified priority markets and the resulting findings will focus on pattern and practice violations of law where there is tangible and identifiable consumer harm. Likewise, Matters Requiring Attention will focus on pattern and practice violations of law where there is substantive and identifiable consumer harm or clear violations of the disclosure requirements.
No longer will the Bureau ask for expansive data sets or other information which may seem unrelated to the exam or include information inconsistent with Bureau priorities. Any follow-up requests by examiners will first be discussed with an entity and will be tailored to the scope of the exam and the information already received from the entity. Examination times, which used to be 8 weeks, will be reduced commensurate with the defined scope of exams. Examiners will be encouraged and incentivized to complete the work promptly and under budget. Supervised entities can expect timely responses from the Bureau and appropriate follow-up on outstanding and open matters such as exams and MRAs.
In sum, the Bureau’s goal is to work collaboratively with the entities to review entities’ processes for compliance and/or remedy existing problems. The Bureau is doing so by encouraging selfreporting and resolving issues in Supervision, where feasible, instead of via Enforcement. If your experience with this round of examination is inconsistent with these principles, we encourage you to reach out to Calvin R. Hagins, Principal Deputy Assistant Director for the Office of Supervision Examinations, [email protected] and/or Chief Legal Officer, Mark Paoletta, [email protected].
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CFPB Supervision and Examination Process Overview Background Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Act)1 established the Consumer Financial Protection Bureau (CFPB) and authorizes it to supervise certain consumer financial services companies and large depository institutions and their affiliates for consumer protection purposes.2 The Bureau’s purpose is set forth by Section 1021 of the Act: (a) PURPOSE.—The Bureau shall seek to implement and, where applicable, enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive.3 Federal consumer financial law Subject to the provisions of the Act, the CFPB has responsibility to implement, examine for compliance with, and enforce “Federal consumer financial law.”4 Those laws include, among other things, Title X itself, which prohibits unfair, deceptive, or abusive acts and practices in connection with consumer financial products and services,5 and the following “enumerated consumer laws”6 and the implementing regulations.7 1 The Act can be found here: http://www.gpo.gov/fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf. 2Sec. 1024 of the Act authorizes CFPB to supervise certain entities and individuals that engage in offering or providing a consumer financial product or service and their service providers that are not covered by Secs. 1025 or 1026 of the Act. Specifically, Sec. 1024 applies to those entities and individuals who offer or provide mortgage-related products or services and payday and private student loans as well as larger participants of other consumer financial service or product markets as defined by a CFPB rule, among others, plus their service providers. Sec. 1025 authorizes CFPB to supervise those entities that are large insured depository institutions and credit unions with more than $10 billion in total assets and all their affiliates (including subsidiaries), as well as service providers for such entities. Sec. 1026 provides the prudential regulators with consumer compliance examination authority for smaller depository institutions ($10 billion or less in total assets) not covered by Sec. 1025. The Bureau may, under Sec. 1026, include its examiners on a sampling basis at examinations of smaller insured depository institutions to assess compliance with the requirements of Federal consumer financial law. Under Sec. 1026, the Bureau has supervisory authority over a service provider to a substantial number of smaller depository institutions. “Insured depository institutions” include banks and savings associations. Under Sec. 1029, the Bureau may not exercise any authority over certain dealers predominantly engaged in the servicing and sale or leasing of motor vehicles. For ease of reference for purposes of this manual, entities and individuals within the scope of Sec. 1024 are referred to as “non-depository consumer financial service companies,” and those within the scope of Sec. 1025 are referred to as “large depository institutions and their affiliates.” The following are referred to as “supervised entities”: (1) non-depository consumer financial service companies and their service providers; (2) large insured depository institutions, large insured credit unions, and their affiliates, as well as service providers to these entities; and (3) service providers to a substantial number of small insured depository institutions or small insured credit unions.
3 Emphasis added. See also Sec. 1021(b)(4).
4See Sec. 1002(14) for the definition of “Federal consumer financial law.” 5See Sec. 1036; see also 1031.
6See Sec. 1002(12). Parts of Title XIV of the Act are also designated as enumerated consumer laws. See Sec. 1400(b). 7See Sec. 1002(12).
CFPB Manual V.2 (October 2012) Overview 1
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CFPB Supervision and Examination Process Overview • Alternative Mortgage Transaction Parity Act of 1982 (12 U.S.C. 3801 et seq.); • Consumer Leasing Act of 1976 (15 U.S.C. 1667 et seq.); • Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.), except with respect to Section 920 of that Act;
• Equal Credit Opportunity Act (15 U.S.C. 1691et seq.); • Fair Credit Billing Act (15 U.S.C. 1666 et seq.); • Fair Credit Reporting Act (15 U.S.C. 1681et seq.), except with respect to Sections 615(e) and 628 of that Act (15 U.S.C. 1681m(e), 1681w); • Home Owners Protection Act of 1998 (12 U.S.C. 4901 et seq.); • Fair Debt Collection Practices Act (15 U.S.C. 1692 et seq.); • Subsections (b) through (f) of Section 43 of the Federal Deposit Insurance Act (12 U.S.C. 1831t(b)–(f));
• Sections 502 through 509 of the Gramm-Leach-Bliley Act of 2009 [Privacy of Consumer Financial Information](15 U.S.C. 6802–6809) except for Section 505 as it applies to Section 501(b);
• Home Mortgage Disclosure Act of 1975 (12 U.S.C. 2801 et seq.); • Home Ownership and Equity Protection Act of 1994 (15 U.S.C. 1601 note); • Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2601 et seq.); • S.A.F.E. Mortgage Licensing Act of 2008 (12 U.S.C. 5101 et seq.); • Truth in Lending Act (15 U.S.C. 1601 et seq.); • Truth in Savings Act (12 U.S.C. 4301 et seq.); • Section 626 of the Omnibus Appropriations Act of 2009, Public Law 111–8; and • Interstate Land Sales Full Disclosure Act (15 U.S.C. 1701). CFPB Manual V.2 (October 2012) Overview 2
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CFPB Supervision and Examination Process Overview In addition, the CFPB may enforce the following r ules issued by the Federal Trade Commission: • Telemarketing Sales Rule (16 CFR Part 310);8 • Use of Prenotification Negative Option Plans (16 CFR Part 425); • Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations (16 CFR Part 429);
• Preservation of Consumers’ Claims and Defenses (16 CFR Part 433); • Credit Practices (16 CFR Part 444);
• Mail or Telephone Order Merchandise (16 CFR Part 435); • Disclosure Requirements and Prohibitions Concerning Franchising (16 CFR Part 436); • Disclosure Requirements and Prohibitions Concerning B usiness Opportunities (16 CFR Part 437).
Supervision and examination The statutory frameworks for supervision of large depository institutions and their affiliates and for non-depository consumer financial service companies are largely the same,9 although the supervision authority for each is found in separate sections of the Act. The frameworks include: • The purpose of supervision, including examination, to: o assess compliance with Federal consumer financial laws, o obtain information about activities and compliance systems or procedures, and o detect and assess risks to consumers and to markets for consumer financial products and services;
• The requirement to coordinate with other Federal and state regulators; and • The requirement to use where possible publicly available information and existing reports to Federal or state regulators pertaining to supervised entities. 8 The CFPB may enforce the Telemarketing and Consumer Fraud and Abuse Prevention Act. 9 Most of the differences in the grants of supervision and examination authority will not be relevant for examiners in their daily work; supervised entities will be examined consistent with the applicable statutory provision. CFPB Manual V.2 (October 2012) Overview 3
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CFPB Supervision and Examination Process Overview Supervision and Examination Principles Three main principles guide the CFPB supervision process.
Focus on consumers The CFPB will focus on risks to consumers when it evaluates the policies and practices of a financial institution. We expect that institutions will offer consumer financial products and services in accordance with Federal consumer financial laws and will maintain effective systems and controls to manage their compliance responsibilities. As we conduct our reviews, we will focus on an institution’s ability to detect, prevent, and correct practices that present a significant risk of violating the law and causing consumer harm.10 Data Driven Like all CFPB activities, the supervision function rests firmly on analysis of available data about the activities of entities it supervises, the markets in which they operate, and risks to consumers posed by activities in these markets. Supervision staff (examiners and analysts) will use data from a wide range of sources: data obtained from the entity and through direct observation during monitoring and examination; information provided by the CFPB’s Research, Markets and Regulations and Consumer Education and Engagement divisions, the Office of Fair Lending and Equal Opportunity, the Enforcement division, Consumer Response Center, and Offices addressing the special needs of students, Older Americans, Service members, and the underserved; and other state and Federal regulatory agencies. Consistency The CFPB will supervise both depository institutions that offer a wide variety of consumer financial products and services and non-depository consumer financial services companies that offer one or more such products. In order to fulfill its statutory mandate to consistently enforce Federal consumer financial law, the CFPB will apply consistent standards in its supervision of both types of entities, to the extent possible. To help accomplish this, the CFPB will use the same procedures to examine all supervised entities that offer the same types of consumer financial products or services, or conduct similar activities.
Such consistency, however, does not dictate uniformity in supervisory expectations. While all of the firms under our jurisdiction must follow the law, we understand that the means that they employ to achieve that goal will – and likely should – differ. We recognize that large, complex entities necessarily have different compliance oversight and management systems than smaller entities or those offering a more limited number of products or services. 10 The discussion of the Risk Assessment under Pre-examination Planning in this Manual describes more fully what the CFPB means by risks or potential risks of consumer harm.
CFPB Manual V.2 (October 2012) Overview 4
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CFPB Supervision and Examination Process Overview Examination Scheduling Non-depository consumer financial services companies will be identified for examination on the basis of risks to consumers, including consideration of the company’s asset size, volume of consumer financial transactions, extent of state oversight, and other factors determined relevant by CFPB. Examinations will be coordinated with State and prudential regulators as applicable.11 Regular examination schedules for large depository institutions and affiliates will depend on two considerations: (1) an assessment of risks to consumers and (2) ensuring consistency with statutory requirements that CFPB and prudential regulators coordinate the scheduling of examinations of large depository institutions and affiliates and conduct “simultaneous” examinations of depository institutions, as well as coordinating examinations with State regulators.12 Supervised entities will generally be notified in advance of an upcoming examination. General Description of Examinations Examiners will coordinate throughout the supervision and examination process with Supervision managers, and analysts, experts, and attorneys from Supervision, Research, Markets and Regulations, the Office of General Counsel, and other CFPB divisions at Headquarters. Supervision will work especially closely with the Office of Fair Lending and Equal Opportunity (OFLEO) and the Enforcement division when reviewing fair lending compliance and evaluating other potential violations of Federal consumer financial laws. In this Manual the coordination process will generally be referred to as “consulting internally.” Alternatively, “Headquarters” will be used to signify the involvement of multiple divisions or offices in addition to Supervision. Specific examination procedures will be similar to those of the prudential and, in some instances, State regulators.13As appropriate and in accordance with CFPB policy, examiners and Supervision managers will generally do the following in the course of an examination: • Collect and review available information (from within the CFPB, from other Federal and state agencies, and from public sources), consistent with statutory requirements; • Request and review supplementary documents and information from the entity to be examined;
• Develop and obtain internal approval for a preliminary risk focus and scope for the onsite portion of the examination;
• Go onsite to observe, conduct interviews, and review additional documents and information; 11See Sec. 1024(b)(3).
12See Sec. 1025(e).
13 Prudential regulators refer to the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Association, and Office of the Comptroller of the Currency. CFPB Manual V.2 (October 2012) Overview 5
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CFPB Supervision and Examination Process Overview • Consult internally if the examination indicates potential unfair, deceptive, or abusive acts or practices; discrimination; or other violations of law;
• Draw preliminary conclusions about the regulated entity’s compliance management and its statutory and regulatory compliance;
• Consult internally about follow-up corrective actions that the institution should take, whether through informal agreement or a formal enforcement action, if warranted by findings; • Draft the examination report;
• Obtain appropriate internal review and approval for the examination work and draft examination report;
• Share the draft report with the prudential regulator and obtain and consider any comments they may offer, consistent with statutory requirements; and • After final internal clearance, finalize and transmit the report to the supervised entity. During the examination, the Examiner in Charge will communicate with appropriate supervised entity personnel about preliminary findings and conclusions. CFPB will seek cooperation from the entity to correct any problems identified.
The CFPB considers all supervisory information, including examination reports and ratings, highly confidential. Requirements for the handling of supervisory information not only by CFPB employees, but also by supervised institutions are described in its regulation on the Disclosure of Records and Information.14 Detailed examination procedures are located in Part II of this Manual. Examination Follow-up How the CFPB addresses negative examination findings will depend, among other things, on the individual facts and circumstances at issue. Whether informal supervisory measures or formal enforcement action is necessary will depend on the type of problem(s) found and the severity of harm to consumers. Self-correction will be encouraged, but some circumstances may nevertheless be sufficiently serious to warrant a public enforcement action. With respect to large depository institutions and their affiliates, CFPB will share draft examination reports and consult with prudential regulators regarding supervisory action, consistent with statutory requirements.15 14 12 CFR Part 1070 (76 FR 45372) (July 28, 2011)).
15 See Sec.1025(e).
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CFPB Supervision and Examination Process Overview Target and Horizontal Reviews In addition to regularly scheduled examinations, CFPB expects to conduct Target and Horizontal Reviews. Target Reviews will generally involve a single entity and will focus on a particular situation such as significant volume of particular customer complaints or a specific concern that has come to CFPB’s attention. Horizontal Reviews will look across multiple entities to examine issues arising from particular products or practices and determine whether supervisory measures or enforcement actions are needed.
Enforcement Authority CFPB is authorized to conduct investigations to determine whether any person is, or has, engaged in conduct that violates Federal consumer financial law.16 Investigations may be conducted jointly with other regulators,17 and may include subpoenas or civil investigative demands for testimony, responses to written questions, documents, or other materials.18 CFPB may bring administrative enforcement proceedings19 or civil actions in Federal district court.20 The Bureau can obtain “any appropriate legal or equitable relief with respect to a violation of Federal consumer financial law,” including, but not limited to: • Rescission or reformation of contracts.
• Refund of money or return of real property.
• Restitution.
• Disgorgement or compensation for unjust enrichment.
• Payment of damages or other monetary relief.
• Public notification regarding the violation.
• Limits on the activities or functions of the person against whom the action is brought. • Civil monetary penalties (which can go either to victims or to financial education). CFPB has no criminal enforcement authority.
16 Sec. 1051 17 Sec. 1052(a) 18 Sec. 1052(b) and (c) 19 Sec. 1053 20 Sec. 1054 CFPB Manual V.2 (October 2012) Overview 7
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CFPB Supervision and Examination Process Overview Referral of Matters or Information to Other Agencies Criminal Activity In the course of their work, examiners may obtain evidence that a regulated entity or a customer has engaged in conduct that may constitute a violation of Federal criminal law. The CFPB is required by the Act21 to refer such findings to the Department of Justice (DOJ) for further review and action. Examiners who, during the course of conducting their examination duties, believe they have found evidence of criminal conduct should consult internally to discuss their findings and the appropriate next steps. Headquarters will handle referral of appropriate matters to DOJ. Some examples of fact scenarios that may necessitate a referral to the DOJ include, but are not limited to, the following:
• Based on documented information that the examiner has obtained, a regulated entity’s financial records are comprised of data that appear to be false. • A regulated entity’s records or files show that it has direct business relationships with individuals or businesses based in a country that is the target of one or more types of United States government sanctions. (See sanctioned country lists at www.treasury.gov and www.state.gov.) • A loan file or other type of file or record concerning a customer of a regulated entity contains one or more of the following documents that may indicate that the customer has engaged in potentially criminal conduct:
o Bank statements that show that the customer has one or more bank accounts in a country that is a target of United States government sanctions. (See sanctioned country lists at www.treasury.gov and www.state.gov.) o Based on documented information in a loan file, (1) a loan application appears to contain false information, (2) an appraisal for real property appears to contain false information, or (3) a document used to verify loan eligibility appears to contain false information. (Documents used to verify loan eligibility include but are not limited to bank statements, Forms 1099, Forms W-2, and/or federal income tax returns.) Tax Law Non-Compliance The CFPB is also required under the Act to refer information identifying possible tax law noncompliance to the Internal Revenue Service (IRS).22 Examiners who, during the course of conducting their examination duties, believe they have found evidence of tax law noncompliance should consult internally about the appropriate next steps. Headquarters will handle referral of matters to the IRS.
21 See Sec. 1056 22 See Secs. 1024(b)(6) and 1025(b)(5).
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CFPB Supervision and Examination Process Overview Some examples of fact scenarios that may necessitate a referral to the IRS include, but are not limited to, the following:
• Based on documented information that the examiner has obtained, a regulated entity’s tax returns are comprised of data that appear false.
• A loan file or other type of file or record concerning a customer of a regulated entity contains one or more of the following documents that may indicate that the customer has failed to comply with the tax laws:
o Documents used to verify loan eligibility that clearly document that the customer has substantially greater income than the income that the customer reported on Federal income tax returns. Documents used to verify loan eligibility include statements showing a customer’s investment portfolio, bank statements, and/or Forms 1099. ECOA/pattern or practice The Equal Credit Opportunity Act (ECOA) requires the CFPB to refer matters to DOJ whenever the CFPB “has reason to believe that one or more creditors has engaged in a pattern or practice of discouraging or denying applications for credit in violation of Section 1691(a)” of ECOA, which states ECOA’s basic prohibitions against discrimination.23 In matters that do not involve a pattern or practice of discouragement or denial, the CFPB may refer the matter to the DOJ whenever the agency has reason to believe that one or more creditors has violated Section 1691(a).24 Headquarters will handle referral of appropriate matters to DOJ. Matters not within the CFPB’s authority When examiners find information that may indicate violations of law that are not within the CFPB’s authority, the information will be passed on to the appropriate prudential, other Federal, or state regulator. These situations will generally be handled by the Examiner in Charge, after consulting internally.
2315 U.S.C. § 1691e(g).
24Id.
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CFPB Supervision
and Examination Process Overview CFPB March 2017 Overview 10
Supervision Examination Cycle As shown in the graphic and described in this section, CFPB supervision operates as a continuous cycle.
Review and analyze available information to identify risks, areas of inquiry, and focus.
Request and review documents and information needed to begin examination (e.g., internal policies, audit reports, training materials, recent data) Make initial plan for on-site testing and review Pre-Examination / Scoping Monitoring Communicate conclusions and required corrective action Examination (offsite and onsite)
Interview senior managers, loan officers, compliance officers, and account personnel as appropriate Observe operations (e.g., call center, branches) Compare policies and procedures to actual practices by reviewing a sample of transactions Compare conduct to legal requirements and policy guidance Communicate findings and expected corrective actions to management and Board of Directors Pursue appropriate supervisory agreement or formal enforcement action as needed Product / Market analysis Periodic checks on institution activities; calls and meetings Review reports and information Review status of corrective actions Scoping for the next exam
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and Examination Process Overview CFPB March 2017 Overview 11
Examination Prioritization: Given the large number, size, and complexity of entities falling under its supervisory authority, the CFPB uses a “prioritization” approach to examining. The CFPB’s prioritization approach focuses on risks to consumers rather than risks to institutions. The prioritization approach focuses on individual product lines at an institution rather than on a comprehensive focus of all products and services offered by an institution. This approach allows the CFPB to assess the likely risk to consumers across the consumer financial marketplace in all product lines at all stages of a product’s life cycle, including product development and implementation.
The prioritization process begins by analyzing an institution’s products and services and breaking the institution down into its distinct product lines that are offered to consumers. For example, a large depository institution might have several product lines – auto lending, credit cards, deposit accounts, international money transfers, mortgage origination, and mortgage servicing – while a nonbank mortgage company might have just two – mortgage origination and servicing. We refer to each distinct product line at a regulated entity as an “Institution Product Line.” These are the basic units of analysis for the CFPB’s prioritization approach.
Once broken down into institution product lines, the product lines are compared across entities, charters, or licenses. This approach promotes an evaluation of each product line not by the provider’s form of organization but by the product line activity within an organization. Each product line is evaluated on the potential consumer harm related to a particular market; the size of the product market; the regulated entity’s market share; and risks inherent to the regulated entity’s operations and offering of financial consumer products within that market.
The prioritization framework assesses risks to the consumer at two levels: the market level and the institution level. At the market-wide level, the CFPB assesses the risk to the consumer from the products and practices being offered in a particular market. In addition, the prioritization approach considers the relative product market size in the overall consumer finance marketplace.
At the institution level, the prioritization framework distinguishes that some institutions’ business models within a market pose greater risks of harm to consumers than do others. Accordingly, prioritization efforts assess the relative risks to consumers from each institution’s activity within any given market. This process takes into account a broad range of factors that bear upon the likelihood of consumer harm. The process starts with a regulated entity’s market share within an individual product line, which corresponds to the number of consumers affected. Relatively large entities with a more dominant presence have a greater ability to impact more consumers, thus are prioritized over relatively small entities.
The prioritization approach augments this size consideration significantly with “field and market intelligence.” Field and market intelligence includes both qualitative and quantitative factors for each institution product line, such as the strength of compliance management systems, findings from prior examinations, metrics gathered from public reports, and the number and severity of consumer complaints the CFPB receives. In addition, given the CFPB’s mandate to ensure fair, equitable, and nondiscriminatory access to credit for all consumers, fair-lending-focused
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and Examination Process Overview CFPB March 2017 Overview 12
information supplements general field and market intelligence in order to ensure that fair lending risks are identified and prioritized as well.
Taken together, the information about each institution product line, both at the market level and at the institutional level, allows the CFPB to focus on areas where consumers have the greatest potential to be harmed, specifically, on relatively higher risk institution product lines within relatively higher risk markets.
Central Point of Contact Duties: The CFPB may assign a staff member to perform central point of contact (CPC) duties at an institution to monitor the institution’s on-going compliance efforts and to serve as the primary communication conduit between the company and the CFPB. CPC duties may be assigned to a field manager, an examiner or an analyst. CPC duties will vary from institution to institution based upon the company’s risk profile and the examination schedule developed pursuant to the examination prioritization process described above.
Monitoring: The primary purpose of institution monitoring is to maintain current information about the institution’s activities in order to determine whether changes in risks to consumers or markets warrant a change in the CFPB’s prioritization strategy. Monitoring also allows the CFPB to assess institutional compliance with previously established corrective action and to evaluate on-going efforts by institution management to improve the company’s compliance program. The frequency and scope of monitoring will vary depending on the organization’s risk profile and will be established by CFPB management.
Examples of monitoring activities include:
• Reviewing supervisory and public information about the entity, such as: o Prudential and state regulator examination reports;
o Community Reinvestment Act performance evaluations;
o Current enforcement actions;
o Call report data;
o Complaint data;
o Home Mortgage Disclosure Act data;
o Home Affordable Modification Program Data;
o SEC filings;
o Licensing or registration information;
o Reports from the entity to prudential or state regulators, if any; o CFPB research analyst reports;
o Institution website; and o CFPB consumer complaints.
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• Contacting the appropriate officer of the institution to discuss new products or services, events that may impact compliance management, and any questions raised by information reviewed by the CPC.
• Contacting the federal prudential regulator and relevant state regulators to discuss any recent events and any questions raised by supervisory or public information about the institution.
• Consulting internally.
Information developed through monitoring will be used to regularly assess the institution’s risk profile and will be incorporated into the examination prioritization as described above.
Supervision Plan: A Supervision Plan is created and revised periodically for large depository institutions and certain nonbank institutions depending on the organization’s risk profile. The Supervision Plan summarizes the plan for monitoring and examining the institution and its affiliates. It describes the priorities for CFPB supervision activities to assist in allocating and scheduling examiner resources. The Plan should be updated at least annually and may be updated at any time as a result of changes in the risk profile of the entity.
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CFPB Supervision
Examinations and and Examination Process Targeted Reviews CFPB February 2019 Examinations and Targeted Reviews Pre-Review Planning The goal of a risk-focused review is to direct resources toward areas with higher degrees of risk. The Consumer Financial Protection Bureau’s (CFPB or Bureau) reviews focus on risks of harm to consumers, including the risk that a supervised entity will not comply with Federal consumer financial law. The overall objective of pre-review planning is to collect information necessary to determine the review’s scope, resource needs, and work plan. This information allows the Examiner in Charge (EIC) or designee and the examination team to plan and conduct its work both offsite and onsite during the review. The information available, timing, and order in which steps are performed may vary by the type of review or supervised entity. Pre-review planning consists of gathering available information and documents and preparing an Information Request. The Information Request is a tailored list of information and documents that the supervised entity is asked to forward to the Bureau for offsite review or make available when the examiners arrive onsite. It may include a request for an electronic data upload. The pre-review planning process will vary depending on the size, complexity, business strategy, products, systems, and risk profile of a particular supervised entity. This section provides a general overview of the process.
Gather Available Information The EIC and examination team members collect information about a supervised entity from both internal and external sources to aid in constructing the risk focus and scope of a review. Examiners should gather as much information as possible from within the Bureau, other regulatory agencies, and third-party public sources, because the Bureau is required by statute to use, to the fullest extent possible, information available from other agencies or reported publicly.1 The following key documents and information are relevant to understanding a supervised entity and its ability to manage its compliance responsibilities and risks to consumers. Not all documents will necessarily be available for a particular entity. From Bureau Internal Sources and Other Regulatory Agencies Monitoring information Any recent risk assessments Prior Scope Summary, Supervision Plan, or similar document produced by state or prudential regulators
1See Dodd-Frank Act, Secs. 1024(b)(4) and 1025(a)(3).
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CFPB Supervision
Examinations and and Examination Process Targeted Reviews CFPB February 2019 Prior Examination Reports/Supervisory Letters and supporting workpapers (internal and from prudential regulator(s), state regulator(s), or other agencies) Information about prior supervisory actions, consumer remediation, and responses to Examination Reports/Supervisory Letters Information on enforcement or other public actions (if applicable) Correspondence from prudential or state regulator(s) and Bureau correspondence files State licensing information for the entity The CFPB Consumer Complaint database FTC Consumer Sentinel database Uniform Bank Performance Report (UBPR) and Call Reports Previous years’ FFIEC Home Mortgage Disclosure Act Loan Application Registers (HMDA LARs) Home Affordable Modification Program data Fair lending analysis Office of the Comptroller of the Currency (OCC) Federal Housing Home Loan Data System (FHHLDS) report Mortgage Call Report (MCR) from the Nationwide Mortgage Licensing System (NMLS) Registration or licensing information for mortgage originators (Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) From Public Information or Third Parties Institution securities filings, its offered securitizations, and similar public records Industry publications showing credit ratings, product performance, and areas of profitability Newspaper articles, web postings, or blogs that raise examination related issues Neighborhood Watch: https://entp.hud.gov/sfnw/public/ Service provider programs
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CFPB Supervision
Examinations and and Examination Process Targeted Reviews CFPB February 2019 Content of the supervised entity’s website Before contacting the supervised entity to gather additional information, the EIC (or designee(s)) reviews the material gathered from these sources to help avoid duplicative requests. Of course, it may still be necessary to verify or update the information or documents with the supervised entity, but the burden of production will be reduced. Develop a Scope Summary Consistent with the Bureau’s risk-based prioritization process, the EIC prepares the Scope Summary, which provides all members of the examination team with a central point of reference throughout the examination. The initial Scope Summary is based on internal consultation and a review of available information and documents gathered prior to sending the Information Request to the supervised entity. The initial Scope Summary addresses the following: Key dates;
Composition of the examination team; Contact information for the entity and any applicable prudential and state regulators; Communication plan;
Activities to be undertaken to review: o The compliance management system (CMS); o Examination Procedures to be completed; o Areas selected for transaction testing, including estimated sampling sizes and methodology used to select the sample; o Areas where potential legal violations may exist, including those involving unfair, deceptive, or abusive acts or practices; o Fair lending compliance, if applicable. o Issues arising from complaints; and o Specific regulatory compliance issues. At the conclusion of the examination, the EIC updates the initial Scope Summary with the following: Description of changes to the scope during the course of the review, and reasons for such changes; and
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 Recommendations for the scope of subsequent reviews.
The initial Scope Summary, as well as any material changes to the scope during the review, should be approved in accordance with current Bureau requirements. The Scope Summary is maintained with the review records in the Supervision and Examination System. The customizable Scope Summary template is available in the Supervision and Examination System.
Contact the Entity For most reviews, the EIC, or designee, contacts the supervised entity’s management no later than 60 days prior to the scheduled onsite date for the examination to arrange either a telephone or in-person discussion of the Information Request. The principal purpose of the discussion is to gather current information to ensure that the request is tailored to what is necessary to properly conduct the review of that particular institution. The EIC or designee should also use the discussion to help determine whether certain information needed for the review should be sent to the examination team for review offsite or held for onsite review. The discussion should include the timing of production and the subsequent onsite review. The EIC should use the discussions to apprise management about who should be available to be interviewed during the onsite portion of the review. If not already known, the EIC should obtain information about the organization of the entity and where it maintains certain operations for the purpose of deciding which operation centers and/or branches the team will review.
Prepare and Send the Information Request After conducting the review and discussion outlined above, the EIC or designee will use the monitoring information and any other relevant information to customize an Information Request that includes only items that are pertinent to the review of a particular entity. Not all items will be relevant to every review. In addition, the Information Request must specify the review period when it requests information or documentation such as periodic reports, ledgers, policies and procedures, and administrative changes, to avoid receiving data not relevant to the review. The EIC or designee may provide the Information Request to entity management in either hard copy or electronic format, although electronic is preferred, indicating where the materials should be delivered and in what format. If at all possible, the requested materials should be delivered to the Bureau electronically. Examiners should consult with their field managers about what system should be used for secure requests and transmission of electronic examination files. The timing of the request and the response date must ensure that entity staff has sufficient time to assemble the requested information and the examination team has sufficient time to adequately review the materials.
Contacting the supervised entity at least 60 days prior to the onsite date, whenever feasible, and
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 sending the Information Request as soon as possible thereafter will generally ensure that staff of the supervised entity have sufficient time to properly gather and submit the response, and that the examination team has time to conduct its offsite review. To the extent possible and consistent with statutory requirements, examiners should coordinate the information request with the prudential and state regulator(s) and keep them abreast of monitoring efforts, correspondence with the supervised entity, and schedule planning.
The customizable Information Request templates are available in the Supervision and Examination System.
Conduct the Review After receiving and reviewing the information and documents requested from the entity, the EIC will determine how to deploy the examination team to complete the examination procedures identified in the Scope Summary, conduct interviews, make observations, conduct transaction testing, and oversee other processes. Available examination procedures are part of this Supervision and Examination Manual. Templates should be downloaded from the Supervision and Examination System and used to create workpapers.
Upon determining the onsite start date, the EIC should arrange an entrance meeting with the appropriate member(s) of the supervised entity’s management. At the meeting, the EIC can introduce the examination team, discuss generally the expected activities, clarify any questions about arrangements for being onsite at the entity (such as building security, work space, etc.), and set the tone for the examination.
Thereafter, the EIC should meet regularly with the entity point of contact to discuss interim findings and progress of the review. The EIC should also communicate regularly with his or her point of contact at the entity’s prudential or state regulator(s). Throughout the examination, the EIC should follow current Bureau procedures for providing updates to regional and headquarters stakeholders Close the Review Closing Meeting When all onsite activities and internal Bureau consultations are complete, the EIC should meet with the supervised entity’s management to discuss the preliminary examination findings; expected Matters Requiring Attention or Supervisory Recommendations; recommended rating (if applicable); and next steps, if any. Management should be reminded that supervisory information, including ratings, is confidential and should not be shared except as allowed by Bureau regulation. Depending on the severity of the findings, other Bureau representatives may attend this meeting as well. Management should be alerted if a meeting with the board of directors or principals of the supervised entity will be required.
Entity management must be informed that examination findings, including compliance ratings, are
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 not final until internal Bureau reviews are conducted and, in the case of an insured depository institution or affiliate, the prudential regulator has had the opportunity to review and comment on the draft report.
Determine the Compliance Rating When an Examination Report is issued, it will include a compliance rating that reflects the Bureau’s assessment of the effectiveness of the institution’s compliance management system to ensure compliance with consumer protection laws and regulations and reduce the risk of harm to consumers. The Bureau has adopted and uses the FFIEC Uniform Consumer Compliance Rating System (CC Rating System)2 to determine compliance ratings. The system is based upon a numeric scale of “1” through “5” in increasing order of supervisory concern. Thus, “1” represents the highest rating and consequently the lowest degree of supervisory concern, while “5” represents the lowest rating and the most critically deficient level of performance, and therefore, the highest degree of supervisory concern. Ratings of “1” or “2” represent satisfactory or better performance. Ratings of “3,” “4,” or “5” indicate performance that is less than satisfactory. The highest rating of “1” is assigned to a financial institution that maintains a strong compliance management system (CMS) and takes action to prevent violations of law and consumer harm.
A rating of “2” is assigned to a financial institution that maintains a CMS that is satisfactory at managing consumer compliance risk in the institution’s products and services and at substantially limiting violations of law and consumer harm.
A rating of “3” reflects a CMS deficient at managing consumer compliance risk in the institution’s products and services and at limiting violations of law and consumer harm. A rating of “4” reflects a CMS seriously deficient at managing consumer compliance risk in the institution’s products and services and/or at preventing violations of law and consumer harm. “Seriously deficient” indicates fundamental and persistent weaknesses in crucial CMS elements and severe inadequacies in core compliance areas necessary to operate within the scope of statutory and regulatory consumer protection requirements and to prevent consumer harm.
A rating of “5” reflects a CMS critically deficient at managing consumer compliance risk in the institution’s products and services and/or at preventing violations of law and consumer harm. “Critically deficient” indicates an absence of crucial CMS elements and a demonstrated lack of willingness or capability to take the appropriate steps
2 This description of the rating system is adapted for Bureau purposes from the revised Uniform Interagency Consumer Compliance Rating System (CC Rating System) effective March 31, 2017. See ffiec.gov/press/pr110716.htm. The revisions update the original CC Rating System adopted by the FFIEC in 1980.
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 necessary to operate within the scope of statutory and regulatory consumer protection requirements and to prevent consumer harm.
CC Rating System Categories and Assessment Factors CC Rating System – Categories The CC Rating System is organized under three broad categories: 1. Board and Management Oversight, 2. Compliance Program, and 3. Violations of Law and Consumer Harm.
The Consumer Compliance Rating Definitions below list the assessment factors considered within each category, along with narrative descriptions of performance. The first two categories, Board and Management Oversight and Compliance Program, are used to assess a financial institution’s CMS. As such, examiners should evaluate the assessment factors within these two categories commensurate with the institution’s size, complexity, and risk profile. All institutions, regardless of size, should maintain an effective CMS. The sophistication and formality of the CMS typically will increase commensurate with the size, complexity, and risk profile of the entity. Additionally, compliance expectations contained within the narrative descriptions of these two categories extend to third-party relationships3 into which the financial institution has entered. There can be certain benefits to financial institutions engaging in relationships with third parties, including gaining operational efficiencies or an ability to deliver additional products and services, but such arrangements also may expose financial institutions to risks if not managed effectively. As noted in the Consumer Compliance Rating Definitions, examiners should evaluate activities conducted through third-party relationships as though the activities were performed by the institution itself. Examiners should review a financial institution’s management of third-party relationships and servicers as part of its overall compliance program. The third category, Violations of Law and Consumer Harm, includes assessment factors that evaluate the dimensions of any identified violation or consumer harm. Examiners should weigh each of these four factors – root cause, severity, duration, and pervasiveness – in evaluating relevant violations of law and any resulting consumer harm.
3For the purposes of assessing compliance ratings, the FFIEC refers to these relationships as being with “third parties.” Because the Bureau has adopted the FFIEC’s CC Rating System, the Bureau is using that terminology in this section of the manual. However, the Bureau generally uses the term “service provider” in its supervisory documents. For more information, see Bureau Bulletin 2016-02.
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 Consumer Compliance Rating Definitions Board and Management Oversight – Assessment Factors Under Board and Management Oversight, the examiner should assess the financial institution’s board of directors and management, as appropriate for their respective roles and responsibilities, based on the following assessment factors: Oversight of and commitment to the institution’s CMS; Effectiveness of the institution’s change management processes, including responding timely and satisfactorily to any variety of change, internal or external, to the institution; Comprehension, identification, and management of risks arising from the institution’s products, services, or activities; and Self-identification of consumer compliance issues and corrective action undertaken as such issues are identified.
Compliance Program – Assessment Factors Under Compliance Program, the examiner should assess other elements of an effective CMS, based on the following assessment factors: Whether the institution’s policies and procedures are appropriate to the risk in the products, services, and activities of the institution; The degree to which compliance training is current and tailored to risk and staff responsibilities;
The sufficiency of the monitoring and audit to encompass compliance risks throughout the institution; and The responsiveness and effectiveness of the consumer complaint resolution process. Violations of Law and Consumer Harm – Assessment Factors Under Violations of Law and Consumer Harm, the examiner should analyze the following assessment factors:
The root cause, or causes, of any violations of law identified during the examination; The severity of any consumer harm resulting from violations; The duration of time over which the violations occurred; and The pervasiveness of the violations.
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 As a result of a violation of law, consumer harm may occur. While many instances of consumer harm can be quantified as a dollar amount associated with financial loss, such as charging higher fees for a product than was initially disclosed, consumer harm may also result from a denial of an opportunity. For example, a consumer could be harmed when a financial institution denies the consumer credit or discourages an application in violation of the Equal Credit Opportunity Act, whether or not there is resulting financial harm.
This next category of the Consumer Compliance Rating Definitions defines four factors by which examiners can assess violations of law and consumer harm. 1. Root Cause. The Root Cause assessment factor analyzes the degree to which weaknesses in the CMS gave rise to the violations. In many instances, the root cause of a violation is tied to a weakness in one or more elements of the CMS. Violations that result from critical deficiencies in the CMS evidence a critical absence of management oversight and are of the highest supervisory concern.
2. Severity. The Severity assessment factor of the Consumer Compliance Rating Definitions weighs the type of consumer harm, if any, that resulted from violations of law. More severe harm results in a higher level of supervisory concern under this factor. For example, some consumer protection violations may cause significant financial harm to a consumer, while other violations may cause negligible harm, based on the specific facts involved.
3. Duration. The Duration assessment factor considers the length of time over which the violations occurred. Violations that persist over an extended period of time will raise greater supervisory concerns than violations that occur for only a brief period of time. When violations are brought to the attention of an institution’s management and management allows those violations to remain unaddressed, such violations are of the highest supervisory concern.
4. Pervasiveness. The Pervasiveness assessment factor evaluates the extent of the violation(s) and resulting consumer harm, if any. Violations that affect a large number of consumers will raise greater supervisory concern than violations that impact a limited number of consumers. If violations become so pervasive that they are considered to be widespread or present in multiple products or services, the institution’s performance under this factor is of the highest supervisory concern. Self-Identification of Violations of Law and Consumer Harm Strong compliance programs are proactive. They promote consumer protection by preventing, self-identifying, and addressing compliance issues in a proactive manner. Accordingly, the CC Rating System provides incentives for such practices through the definitions associated with a 1 rating.
Self-identification and prompt correction of violations of law reflect strengths in an institution’s
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 CMS. A robust CMS appropriate for the size, complexity and risk profile of an institution’s business often will prevent violations or will facilitate early detection of potential violations. This early detection can limit the size and scope of consumer harm. Moreover, self-identification and prompt correction of serious violations represents concrete evidence of an institution’s commitment to responsibly address underlying risks. In addition, appropriate corrective action, including both correction of programmatic weaknesses and full redress for injured parties, limits consumer harm and prevents violations from recurring in the future. Thus, the CC Rating System recognizes institutions that consistently adopt these strategies as reflected in the Consumer Compliance Rating Definitions.
Evaluating Performance Using the Consumer Compliance Rating Definitions The consumer compliance rating is derived through an evaluation of the financial institution’s performance under each of the assessment factors described above. The consumer compliance rating reflects the effectiveness of an institution’s CMS to identify and manage compliance risk in the institution’s products and services and to prevent violations of law and consumer harm, as evidenced by the financial institution’s performance under each of the assessment factors. The consumer compliance rating reflects a comprehensive evaluation of the financial institution’s performance under the CC Rating System by considering the categories and assessment factors in the context of the size, complexity, and risk profile of an institution. It is not based on a numeric average or any other quantitative calculation. Specific numeric ratings will not be assigned to any of the 12 assessment factors. Thus, an institution need not achieve a satisfactory assessment in all categories in order to be assigned an overall satisfactory rating. Conversely, an institution may be assigned a less than satisfactory rating even if some of its assessments were satisfactory.
The relative importance of each category or assessment factor may differ based on the size, complexity, and risk profile of an individual institution. Accordingly, one or more category or assessment factor may be more or less relevant at one financial institution as compared to another institution. While the expectations for compliance with consumer protection laws and regulations are the same across institutions of varying sizes, the methods for accomplishing an effective CMS may differ across institutions.
The evaluation of an institution’s performance within the Violations of Law and Consumer Harm category of the Consumer Compliance Rating Definitions considers each of the four assessment factors: Root Cause, Severity, Duration, and Pervasiveness. At the levels of “4” and “5” in this category, the distinctions in the definitions are focused on the root cause assessment factor rather than Severity, Duration, and Pervasiveness. This approach is consistent with the other categories where the difference between a “4” and a “5” is driven by the institution’s capacity and willingness to maintain a sound consumer compliance system.
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 In arriving at the final rating, the examiner must balance potentially differing conclusions about the effectiveness of the financial institution’s CMS over the individual products, services, and activities of the organization. Depending on the relative materiality of a product line to the institution, an observed weakness in the management of that product line may or may not impact the conclusion about the institution’s overall performance in the associated assessment factor(s). For example, serious weaknesses in the policies and procedures or audit program of the mortgage department at a mortgage lender would be of greater supervisory concern than those same gaps at an institution that makes very few mortgage loans and strictly as an accommodation. Greater weight should apply to the financial institution’s management of material products with significant potential consumer compliance risk.
An institution may receive a less than satisfactory rating even when no violations were identified, based on deficiencies or weaknesses identified in the institution’s CMS. For example, examiners may identify weaknesses in elements of the CMS in a new loan product. Because the presence of those weaknesses left unaddressed could result in future violations of law and consumer harm, the CMS deficiencies could impact the overall consumer compliance rating, even if no violations were identified.
Similarly, an institution may receive a “1” or “2” rating even when violations were present, if the CMS is commensurate with the risk profile and complexity of the institution. For example, when violations involve limited impact on consumers, were self-identified, and resolved promptly, the evaluation may result in a “1” or “2” rating. After evaluating the institution’s performance in the two CMS categories, Board and Management Oversight and Compliance Program, and the dimensions of the violations in the third category, the examiner may conclude that the overall strength of the CMS and the nature of observed violations viewed together do not present significant supervisory concerns.
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 Consumer Compliance Rating Definitions ASSESSMENT FACTORS TO BE CONSIDERED
Board and Management Oversight Board and management oversight factors should be evaluated commensurate with the institution’s size, complexity, and risk profile. Compliance expectations below extend to third‐party relationships. Oversight and Commitment
Board and management demonstrate strong commitment and oversight to the financial institution’s compliance management system.
Substantial compliance resources are provided, including systems, capital, and human resources commensurate with the institution’s size, complexity, and risk profile. Staff is knowledgeable, empowered and held accountable for compliance with consumer laws and regulations.
Management conducts comprehensive and ongoing due diligence and oversight of third parties consistent with agency expectations to ensure that the financial institution complies with consumer protection laws, and exercises strong oversight of third parties’ policies, procedures, internal controls, and training to ensure consistent oversight of compliance responsibilities.
Board and management provide satisfactory oversight of the financial institution’s compliance management system.
Compliance resources are adequate and staff is generally able to ensure the financial institution is in compliance with consumer laws and regulations.
Management conducts adequate and ongoing due diligence and oversight of third parties to ensure that the financial institution complies with consumer protection laws, and adequately oversees third parties’ policies, procedures, internal controls, and training to ensure appropriate oversight of compliance responsibilities.
Board and management oversight of the financial institution’s compliance management system is deficient.
Compliance resources and staff are inadequate to ensure the financial institution is in compliance with consumer laws and regulations.
Management does not adequately conduct due diligence and oversight of third parties to ensure that the financial institution complies with consumer protection laws, nor does it adequately oversee third parties’ policies, procedures, internal controls, and training to ensure appropriate oversight of compliance responsibilities.
Board and management oversight, resources, and attention to the compliance management system are seriously deficient.
Compliance resources and staff are seriously deficient and are ineffective at ensuring the financial institution’s compliance with consumer laws and regulations.
Management oversight and due diligence over third‐party performance, as well as management’s ability to adequately identify, measure, monitor, or manage compliance risks, is seriously deficient.
Board and management oversight, resources, and attention to the compliance management system are critically deficient.
Compliance resources are critically deficient in supporting the financial institution’s compliance with consumer laws and regulations, and management and staff are unwilling or incapable of operating within the scope of consumer protection laws and regulations.
Management oversight and due diligence of third‐ party performance is critically deficient.
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ASSESSMENT FACTORS TO BE CONSIDERED
Change Management
Management anticipates and responds promptly to changes in applicable laws and regulations, market conditions and products and services offered by evaluating the change and implementing responses across impacted lines of business.
Management conducts due diligence in advance of product changes, considers the entire life cycle of a product or service in implementing change, and reviews the change after implementation to determine that actions taken have achieved planned results.
Management responds timely and adequately to changes in applicable laws and regulations, market conditions, products and services offered by evaluating the change and implementing responses across impacted lines of business.
Management evaluates product changes before and after implementing the change.
Management does not respond adequately and/or timely in adjusting to changes in applicable laws and regulations, market conditions, and products and services offered.
Management’s response to changes in applicable laws and regulations, market conditions, or products and services offered is seriously deficient.
Management fails to monitor and respond to changes in applicable laws and regulations, market conditions, or products and services offered.
Comprehension, Identification and Management of Risk
Management has a solid comprehension of and effectively identifies compliance risks, including emerging risks, in the financial institution’s products, services, and other activities.
Management actively engages in managing those risks, including through comprehensive self‐ assessments.
Management comprehends and adequately identifies compliance risks, including emerging risks, in the financial institution’s products, services, and other activities.
Management adequately manages those risks, including through self‐ assessments.
Management has an inadequate comprehension of and ability to identify compliance risks, including emerging risks, in the financial institution’s products, services, and other activities.
Management exhibits a seriously deficient comprehension of and ability to identify compliance risks, including emerging risks, in the financial institution.
Management does not comprehend nor identify compliance risks, including emerging risks, in the financial institution.
Corrective Action and Self‐ Identification
Management proactively identifies issues and promptly responds to compliance risk management deficiencies and any violations of laws or regulations, including remediation.
Management adequately responds to and corrects deficiencies and/or violations, including adequate remediation, in the normal course of business.
Management does not adequately respond to compliance deficiencies and violations including those related to remediation.
Management response to deficiencies, violations and examination findings is seriously deficient.
Management is incapable, unwilling and/or fails to respond to deficiencies, violations or examination findings.
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ASSESSMENT FACTORS TO BE CONSIDERED
Compliance Program Compliance Program factors should be evaluated commensurate with the institution’s size, complexity, and risk profile. Compliance expectations below extend to third‐party relationships. Policies and Procedures
Compliance policies and procedures and third‐party relationship management programs are strong, comprehensive and provide standards to effectively manage compliance risk in the products, services and activities of the financial institution.
Compliance policies and procedures and third‐party relationship management programs are adequate to manage the compliance risk in the products, services and activities of the financial institution.
Compliance policies and procedures and third‐party relationship management programs are inadequate at managing the compliance risk in the products, services and activities of the financial institution.
Compliance policies and procedures and third‐ party relationship management programs are seriously deficient at managing compliance risk in the products, services and activities of the financial institution.
Compliance policies and procedures and third‐party relationship management programs are critically absent.
Training
Compliance training is comprehensive, timely, and specifically tailored to the particular responsibilities of the staff receiving it, including those responsible for product development, marketing and customer service.
The compliance training program is updated proactively in advance of the introduction of new products or new consumer protection laws and regulations to ensure that all staff are aware of compliance responsibilities before rolled out.
Compliance training outlining staff responsibilities is adequate and provided timely to appropriate staff.
The compliance training program is updated to encompass new products and to comply with changes to consumer protection laws and regulations.
Compliance training is not adequately comprehensive, timely, updated, or appropriately tailored to the particular responsibilities of the staff.
Compliance training is seriously deficient in its comprehensiveness, timeliness, or relevance to staff with compliance responsibilities, or has numerous major inaccuracies.
Compliance training is critically absent.
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ASSESSMENT FACTORS TO BE CONSIDERED
Monitoring and/or Audit
Compliance monitoring practices, management information systems, reporting, compliance audit, and internal control systems are comprehensive, timely, and successful at identifying and measuring material compliance risk management throughout the financial institution.
Programs are monitored proactively to identify procedural or training weaknesses to preclude regulatory violations. Program modifications are made expeditiously to minimize compliance risk.
Compliance monitoring practices, management information systems, reporting, compliance audit, and internal control systems adequately address compliance risks throughout the financial institution.
Compliance monitoring practices, management information systems, reporting, compliance audit, and internal control systems do not adequately address risks involving products, services or other activities including timing and scope.
Compliance monitoring practices, management information systems, reporting, compliance audit, and internal controls are seriously deficient in addressing risks involving products, services or other activities.
Compliance monitoring practices, management information systems, reporting, compliance audit, or internal controls are critically absent.
Consumer Complaint Response
Processes and procedures for addressing consumer complaints are strong.
Consumer complaint investigations and responses are prompt and thorough.
Management monitors consumer complaints to identify risks of potential consumer harm, program deficiencies, and customer service issues and takes appropriate action.
Processes and procedures for addressing consumer complaints are adequate. Consumer complaint investigations and responses are generally prompt and thorough.
Management adequately monitors consumer complaints and responds to issues identified.
Processes and procedures for addressing consumer complaints are inadequate. Consumer complaint investigations and responses are not thorough or timely.
Management does not adequately monitor consumer complaints.
Processes and procedures for addressing consumer complaints and consumer complaint investigations are seriously deficient.
Management monitoring of consumer complaints is seriously deficient.
Processes and procedures for addressing consumer complaints are critically absent.
Meaningful investigations and responses are absent.
Management exhibits a disregard for complaints or preventing consumer harm.
Violations of Law and Consumer Harm Root Cause The violations are the result of minor weaknesses, if any, in the compliance risk management system.
Violations are the result of modest weaknesses in the compliance risk management system.
Violations are the result of material weaknesses in the compliance risk management system.
Violations are the result of serious deficiencies in the compliance risk management system.
Violations are the result of critical deficiencies in the compliance risk management system.
Severity The type of consumer harm, if any, resulting from the violations would have a minimal impact on consumers.
The type of consumer harm resulting from the violations would have a limited impact on consumers.
The type of consumer harm resulting from the violations would have a considerable impact on consumers.
The type of consumer harm resulting from the violations would have a serious impact on consumers.
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ASSESSMENT FACTORS TO BE CONSIDERED
Duration The violations and resulting consumer harm, if any, occurred over a brief period of time.
The violations and resulting consumer harm, if any, occurred over a limited period of time.
The violations and resulting consumer harm, if any, occurred over an extended period of time.
The violations and resulting consumer harm, if any, have been long standing or repeated.
Pervasiveness The violations and resulting consumer harm, if any, are isolated in number.
The violations and resulting consumer harm, if any, are limited in number.
The violations and resulting consumer harm, if any, are numerous.
The violations and resulting consumer harm, if any, are widespread or in multiple products or services.
Draft the Examination Report or Supervisory Letter Examinations that result in the assignment of a consumer compliance rating will be communicated to the entity through an Examination Report. Targeted reviews that do not result in a rating will be communicated through a Supervisory Letter. Examination Report and Supervisory Letter templates are provided in Part III.
The primary purpose of these reports and letters is to communicate findings to the board of directors or principals and senior executives of a supervised entity. The narratives should be concise, constructive, and direct. In general, the commentaries for stable entities with low consumer or compliance risk should be brief, while the commentaries for those with elevated or increasing risk should successively provide more support and detail. Comments should clearly cite statutory or regulatory violations and describe the basis for the findings. This will ensure that the supervised entity understands the basis for the conclusions and so that enforcement actions, if required, are well supported. For each specific area reviewed, the narrative sections of the report have two parts: 1. Conclusion: The Conclusion contains an overall conclusion followed by a concise summary of findings. The conclusion should match the tone and language of the rating definition. This section should include summary details or facts supporting the conclusion, including a summary of material deficiencies. Avoid an overly detailed conclusion section. Include details supporting the conclusion in the Comments and Supporting Analysis section. Do not include cross-references within the Conclusion section.
2. Comments and Supporting Analysis: Comments discuss major strengths and/or weaknesses to support the conclusions. Supporting Analysis is information that demonstrates conclusions.
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 Examination reports and Supervisory Letters may include two types of communication to convey supervisory expectations related to violations of Federal consumer financial law, consumer harm, or compliance management weaknesses:
1. Matters Requiring Attention (MRAs): MRAs are used by the Bureau to communicate to an institution’s Board of Directors, senior management, or both, specific goals to be accomplished in order to correct violations of Federal consumer financial law, remediate harmed consumers, and address related weaknesses in the CMS that the examiners found are directly related to violations of Federal consumer financial law. MRAs include timeframes for periodic reporting of efforts taken to address these matters, as well as expected timeframes for implementation.
2. Supervisory Recommendations (SRs): SRs are used by the Bureau to recommend actions for management to consider taking if it chooses to address the Bureau’s supervisory concerns related to CMS. SRs are used when the Bureau has not identified a violation of Federal consumer financial law, but has observed weaknesses in CMS. SRs do not include provisions for periodic reporting or expected timelines for implementation. However, the Bureau will review through monitoring the steps institutions have taken to address SRs, including any information that institutions may provide regarding actions taken. Neither MRAs nor SRs are legally enforceable. The Bureau will, however, consider an institution’s response in addressing identified violations of Federal consumer financial law, weaknesses in CMS, or other noted concerns when assessing an institution’s Compliance rating, or otherwise considering the risks that an institution poses to consumers and to markets. These risk considerations may be used by the Bureau when prioritizing future supervisory work or assessing the need for potential enforcement action.
Submit Examination Report or Supervisory Letter for Review After the Examination Report or Supervisory Letter draft is complete, the Region will obtain any reviews required by internal Bureau policy.
If an Examination Report concerns an insured depository institution, the draft must be shared with the institution’s prudential regulator.4 The regulator must be given a reasonable opportunity to review and comment (not less than 30 days after the date of receipt of the report by the prudential regulator). The Bureau must take into consideration any concerns raised by the prudential regulator prior to issuing a final Examination Report or taking supervisory action. The interagency comment process will be managed by the Bureau’s regional offices, with input from Bureau headquarters as appropriate. If a conflict arises between the Bureau and the prudential regulator regarding a proposed supervisory determination, regional and headquarters management will seek to resolve the issue as expeditiously as possible, with due regard for each agency’s supervisory responsibilities. If the Bureau’s review of an insured depository institution results in a Supervisory Letter, the final Supervisory Letter will be shared with the institution’s
4 Dodd-Frank Act, section 1025(e)(1)(C)
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 prudential regulator prior to issuance to the institution. If the Examination Report concerns other types of regulated entities, opportunities for comment by state regulators will depend on whether Bureau is conducting joint or coordinated examinations with the relevant state regulators. The comment process will also be handled by the regional offices. Board of Directors or Principal(s) Meeting The purpose of a meeting with a supervised entity’s board of directors or principal(s) is to convey the findings of a review directly to those individuals ultimately responsible for the policies and procedures of the institution. Board meetings should be conducted after the closing meeting with management, and should be attended by at least a quorum of directors or by the entity principal(s). The EIC and appropriate Bureau management should attend. The board or principals should be reminded that the Examination Report/Supervisory Letter and rating are confidential and should not be disclosed except as permitted by Bureau regulation.5 A board or principal(s) meeting is required when one or more of the following circumstances are present:
The proposed compliance rating is “3,” “4,” or “5”;
A supervisory agreement or enforcement action is recommended; or The supervised entity’s management, board, or principal(s) requests such a meeting. The meeting should be used to discuss examination findings, supervisory actions, and expected corrective actions; advise the board or principal(s) of the recommended compliance rating; and discuss any recommended enforcement actions.
The timing of a board or principal(s) meeting will depend on the specific situation, and the EIC should work this out with his or her Field Manager, who will ensure the necessary internal coordination. Meetings should be coordinated with prudential and state examiners, and planned for regularly scheduled meetings whenever possible. Send the Examination Report or Supervisory Letter The EIC signs the final Examination Report or Supervisory Letter. Regional office administrative staff will handle transmission to the supervised entity. Upload Final Examination Documents At the conclusion of the examination, the EIC must finalize the Scope Summary, ensure all workpapers are complete, and be certain that all required documents and information are uploaded or entered into the Supervision and Examination System.
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Examinations and and Examination Process Targeted Reviews CFPB February 2019 Workpapers During a review, examiners collect and review information from the supervised entity to reach conclusions about its practices, its compliance management system, and its compliance with Federal consumer financial law. The records documenting the review are called workpapers. Workpapers should contain sufficient information and supporting documents to explain to a knowledgeable reviewer the basis for the review’s conclusions. Purposes of Workpapers Examiners develop and maintain workpapers for three principal purposes: To provide a record of the work performed during the review that supports findings and conclusions;
To maintain the evidence necessary to support supervisory agreements or enforcement actions; and To facilitate internal quality control reviews.
All information collected and all records created during the review that are used to support findings and conclusions could potentially be included in the workpapers. For example, if an examiner interviews a Real Estate Lending Officer, the write-up of the interview notes becomes a workpaper if the information provided by the lending officer was used to support a particular finding or conclusion. If the examiner also scans pages of the supervised entity’s RESPA procedures manual to help illustrate deviations from policy, the scanned pages should be included in the workpapers. Other examples of workpapers include, but are not limited to: Scope Summary document Completed Bureau Examination Procedures (downloadable templates that allow the examiner to enter narrative findings as they follow the procedures); Completed Bureau Checklists;
Other documents created during the examination to record work, such as spreadsheets or completed job aids;
Documentation of staff and management interviews;
Meeting agendas, attendance lists, and notes or minutes; Documentation of compliance research performed, including consultations with Bureau stakeholders (e.g., legal opinions, regulation sections reviewed, regulatory alerts); and
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CFPB Supervision
Examinations and and Examination Process Targeted Reviews CFPB February 2019 Scanned copies of material obtained from the supervised entity, such as policies, procedures, rate sheets, internal memos and reports, external audit reports, and complaint letters, that are necessary to support a finding or conclusion. Generally, workpapers should document or support the: Proposed scope of the review and any changes to the scope during the course of the review;
Work performed during the review (what you did); Sampling process and methodology used (how you did it); Findings and violations noted during the review (what you found); Matters Requiring Attention issued; Decision to address issues through supervisory or enforcement action; Communications with management regarding findings; Management’s response (oral and written) to findings and violations; Commitments made by management regarding corrective action, remediation, and financial relief;
Changes to the Risk Assessment;
Consumer Compliance Rating; and Changes to the Supervision Plan (where applicable). The amount of supporting documentation from the entity’s records that is necessary to maintain in the workpapers will depend on the particular situation. Review and Signoff The EIC is responsible for the adequacy of the workpapers created during the review. Since large team examinations require the EIC to delegate numerous specific areas of review to other examiners, the EIC must track the:
Workpapers developed;
Responsible examination team member; and EIC’s review and approval of the workpapers.
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CFPB Supervision
Examinations and and Examination Process Targeted Reviews CFPB February 2019 Workpapers that require additional analysis or support should be discussed with and returned to the responsible examiner for further development. The Workpaper Checklist, found in the Supervision and Examination System, must be used to record the EIC’s review and sign off on all workpapers developed during the review.
After the EIC reviews and signs off on the workpapers, the Field Manager or Senior Examination Manager assigned to the review should also review and sign off on their adequacy. Electronic Format and Encryption All workpapers and related documentation for the review should be maintained in electronic form. If the supervised entity is only able to provide a document in hard copy form, the examiner should scan the document and return the original. Workpapers should be uploaded to the Supervision and Examination System with the completed examination to be preserved as part of the examination record and made available for future reference. All electronic documents received from the supervised entity should be transmitted and maintained on encrypted media. Examiners should be mindful at all times of the need to protect personally identifiable information (e.g., names, social security numbers, account numbers) and confidential supervisory information. Hard copies should not be left anywhere unattended (even onsite at the entity), should not be removed from the examination site, and if printed while working offsite, should be kept in a locked cabinet when not being used. Consult Bureau’s Privacy and FOIA regulations and guidance for further information.5 Quality Control Reviews Workpapers will also be reviewed through an internal quality control process to ensure they meet the Bureau’s standards related to their documentation and proper storage.
5See Disclosure of Records and Information, 12 CFR Part 1070 (76 Fed. Reg. 45372 (July 28, 2011)), and any subsequent related guidance that may be issued.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 1 General Principles and Introduction Institutions within the scope of the CFPB’s supervision and enforcement authority include both depository institutions and non-depository consumer financial services companies. These institutions operate in a dynamic environment influenced by challenges to profitability and survival, increased focus on outcomes to consumers, industry consolidation, advancing technology, market globalization, and changes in laws and regulations. To remain competitive and responsive to consumer needs in such an environment, institutions continuously assess their business strategies and modify product and service offerings and delivery channels. To maintain legal compliance, an institution must develop and maintain a sound compliance management system (CMS) that is integrated into the overall framework for product design, delivery, and administration across their entire product and service lifecycle. Ultimately, compliance should be part of the day-to-day responsibilities of management and the employees of a supervised entity; issues should be self-identified; and corrective action should be initiated by the entity. Institutions are also expected to manage relationships with service providers to ensure that service providers effectively manage compliance with Federal consumer financial laws applicable to the product or service being provided.1 A CMS is how an institution:
• Establishes its compliance responsibilities;
• Communicates those responsibilities to employees;
• Ensures that responsibilities for meeting legal requirements and internal policies and procedures are incorporated into business processes;
• Reviews operations to ensure responsibilities are carried out and legal requirements are met; and • Takes corrective action and updates tools, systems, and materials as necessary. An effective CMS commonly has two interdependent control components: • Board and Management Oversight; and • Compliance Program, which includes:
1 See CFPB Bulletin 2016-02, Service Providers (October 31, 2016), which describes the CFPB’s expectation that supervised banks and nonbanks oversee their business relationships with service providers in a manner that ensures compliance with Federal consumer financial law. Compliance Bulletin and Policy Guidance; 2016-02 Exam Date:
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 2 Policies and procedures;
Training;
Monitoring and/or audit; and Consumer complaint response.
When the two interdependent control components are strong and well-coordinated, an institution should be successful at managing its compliance responsibilities and risks. Additionally, an institution’s compliance expectations extend to service provider relationships into which the institution has entered. There can be certain benefits to institutions engaging in relationships with service providers, including gaining operational efficiencies or an ability to deliver additional products and services, but such arrangements also may expose institutions to risks if not managed properly. While an institution’s management may make the business decision to outsource some or all of the operational aspects of a product or service, the institution cannot outsource the responsibility for complying with Federal consumer financial laws or managing the risks associated with service provider relationships. Weaknesses in a CMS can result in violations of Federal consumer financial law and associated harm to consumers. Therefore, the CFPB expects every institution under its supervision and enforcement authority to have a CMS adapted to its business strategy and operations. The CFPB understands that compliance will likely be managed differently by large banking organizations with complex compliance profiles and a wide range of consumer financial products and services2 at one end of the spectrum, than by non-bank entities that may be owned by a single individual and feature a narrow range of financial products and services, at the other end of the spectrum. Compliance may be managed on an enterprise-wide basis, and institutions may engage outside firms to assist with compliance management. However compliance is managed, a provider of consumer financial products or services under CFPB’s supervisory purview is expected to comply with Federal consumer financial laws and appropriately address and limit violations of law and associated harms to consumers.
The CFPB also understands that institutions will organize its CMS to include compliance with consumer-related state and Federal laws that are outside the scope of the CFPB’s supervision responsibilities, in addition to the matters that are within the CFPB’s scope. The CFPB, therefore, expects that CMS will be organized within a firm, legal entity, division, or business unit in the way that is most effective for the institution, and that the manner of organization will vary from institution to institution.
This CMS examination manual is divided into five Modules:
2 For example, the Federal Reserve Board of Governors expects large banking organizations with complex compliance profiles to implement firm-wide compliance risk management programs and have a corporate compliance function. SR 08-8 / CA 08-11, October 16, 2008. The CFPB will expect no less.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 3 • Module 1: Board and Management Oversight • Module 2: Compliance Program • Module 3: Service Provider Oversight • Module 4: Violations of Law and Consumer Harm • Module 5: Examiner Conclusions and Wrap-Up In general, all CFPB reviews will include Modules 1, 2, 3, and 5. Module 4 will generally be included in targeted reviews of institution product lines, as well as examinations that will result in the institution receiving a consumer compliance rating. The CMS review for target reviews will generally be limited to reviewing aspects of CMS pertaining to the product line under review. To the extent that CMS for a particular product line or a specific institution has been previously reviewed, CFPB examiners may evaluate CMS by reviewing previous conclusions and assessing only the changes to the current CMS program. Module 1: Board and Management Oversight In a depository institution, the board of directors is ultimately responsible for developing and administering a CMS that ensures compliance with Federal consumer financial laws and addresses and minimizes associated risks of harm to consumers. In a non-depository consumer financial services company, that ultimate responsibility may rest with a board of directors in the case of a corporation or with a controlling person or some other arrangement. For the balance of this section of the Manual, references to the “board of directors” or “board” generally refer to the board of directors or other individual or group exercising similar oversight functions. In addition, some institutions may be governed by firm-wide standards, policies, and procedures developed by a holding company or other top-tier corporation for adoption, use, and modification, as necessary, by subsidiary entities.
In the absence of a board of directors and board committee structure, the examiner should determine that the person or group exercising similar oversight functions receives relevant information about compliance and consumer protection matters and takes steps to ensure that the key elements, resources, and individuals necessary for a CMS commensurate with the supervised entity’s risk profile are in place and functioning.
Under Board and Management Oversight, examiners should assess the institution’s board of directors and management, as appropriate, for their respective roles and responsibilities, based on the following factors:
• Oversight of and commitment to the institution’s CMS;
• Effectiveness of the institution’s change management processes, including responding timely and satisfactorily to any variety of change, internal or external, to the institution;
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 4 • Comprehension, identification, and management of risks arising from the institution’s products, services, or activities; and • Self-identification of consumer compliance issues and corrective action undertaken as such issues are identified.
Board and Management Oversight – Examination Objectives Because the effectiveness of a CMS is grounded in the actions taken by its board and senior management, Examiners should seek to determine whether the board and management meet the following objectives:
Oversight of and Commitment to the Institution’s CMS 1.
Demonstrate a strong commitment and oversight to the institution’s CMS. 2.
Provide compliance resources including systems, capital, and human resources commensurate with the institution’s size, complexity, and risk profile. 3.
Ensure that staff is knowledgeable, empowered and held accountable for compliance with Federal consumer financial laws.
4.
Conduct comprehensive and ongoing due diligence and oversight of service providers consistent with the CFPB’s expectations to ensure that the institution complies with Federal consumer financial laws.
5.
Exercise oversight of service providers’ policies, procedures, internal controls, and training to ensure consistent oversight of compliance responsibilities. Change Management 1. Respond promptly to changes in applicable Federal consumer financial laws, market conditions, and products and services offered by evaluating the change and implementing responses across impacted lines of business.
2. Conduct due diligence in advance of product changes, consider the entire life cycle of a product or service in implementing change, and review the change after implementation to determine that the actions taken achieved the planned results. Comprehension, Identification and Management of Risk 1. Comprehend and identify compliance risks, including emerging risks, in the institution’s products, services, and other activities.
2. Engage themselves in managing identified risks, which include using comprehensive selfassessments and independent audits, as applicable.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 5 3. Address consumer compliance issues and associated risks of harm to consumers throughout product development, marketing, and account administration, and through the entity’s handling of consumer complaints and inquiries.
Self-Identification and Corrective Action 1. Proactively identify issues.
2. Promptly respond to CMS deficiencies and any violations of laws or regulations, including remediation.
Board and Management Oversight – Examination Procedures 1.
Review board meeting minutes and supporting materials during the period under review for coverage of compliance matters.
2.
Determine board committee structures and delegated responsibility for compliance matters, such as to an audit committee or risk committee, and review the meeting minutes and supporting materials of those committees for coverage of compliance matters. 3.
Determine any management committees with delegated authority and accountability for compliance matters, and review their composition, functions, authority, and reporting to committees of the board or to the board.
4. Determine management’s oversight and review of heightened areas of risk, such as fair lending; sales practices and production incentives (including performance goals); and unfair, deceptive, or abusive practices; commensurate with the institution’s size, complexity, and risk profile. Such review should include a review of management oversight, delegations, authorities and input into substantive policies or procedures, audits, and monitoring related to heightened areas of risk.
5. Determine the authority and accountability for compliance matters of regional or business unit governance bodies, and review their composition, functions, and reporting. 6.
Review the formal compliance program adopted by the board of directors or an appropriate committee of the board, and determine whether commensurate resource allocation for compliance is part of the entity’s budget and planning process. 7.
Identify the chief compliance officer and other individuals responsible for compliance. 8.
Review the role of the chief compliance officer for authority to lead a compliance program and for independence from business units.
9.
Review board and board committee records for evidence of the chief compliance officer’s independent access to board members and governance bodies. 10. Review processes for the identification of new regulatory requirements, changes in requirements, and planning for implementation.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 6 11. Review processes for development and implementation of new consumer financial products or services and distribution channels or strategies, to determine degree of compliance function participation, including whether those processes allow for the compliance function to identify potential risks of consumer law violations up front and to put in place appropriate mechanisms for monitoring or mitigating those risks.
12. Review board meeting minutes and supporting materials for coverage of consumer compliance related to sales practices and performance goals, including quotas and incentive structures, both compensation based and non-compensation based. Determine if the board members direct compliance personnel to design and implement CMS elements related to sales practices and performance goals that address both intended and unintended outcomes, and provide adequate resources to do so.
13. Review board or committee consideration of compliance audit matters for coverage of key risks, independence from business functions, and resolution of identified issues. 14. Review reporting for the identification and resolution of issues and the timeliness and completeness of corrective actions.
15. Review policies and procedures for changes management committed to make following monitoring, audit, and examination findings and recommendations. 16. Draw preliminary conclusions as to whether board and senior management oversight is strong, satisfactory, deficient, seriously deficient, or critically deficient. Module 2: Compliance Program A sound Compliance Program is essential to the efficient and successful operation of the supervised entity. A Compliance Program includes the following components: • Policies and procedures;
• Training;
• Monitoring and/or audit; and • Consumer complaint response.
An institution should establish a formal, written Compliance Program, and that program generally should be administered by a chief compliance officer. In addition to being a planned and organized effort to guide the entity’s compliance activities, a written program represents an essential source document that may serve as a training and reference tool for employees. A well planned, implemented, and maintained Compliance Program may prevent or reduce regulatory violations, protect consumers from non-compliance and associated harms, and help align business strategies with outcomes. The examination objectives and procedures for the Compliance Program are divided in this module among the four components.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 7 Policies and Procedures – Examination Objectives Compliance policies and procedures should document and be sufficiently detailed to implement the board-approved policy documents. Examiners should seek to determine whether compliance policies and procedures:
1.
Are designed to effectively manage compliance risk in the products, services and activities of the institution.
2.
Are consistent with board-approved compliance policies. 3.
Address compliance with applicable Federal consumer financial laws in a manner designed to minimize violations and to detect and minimize associated risks of harm to consumers. 4.
Cover the full life-cycle of all products and/or services offered. 5.
Are maintained and modified to remain current and complete, and to serve as a reference for employees in their day-to-day activities.
Policies and Procedures – Examination Procedures 1.
Request and review policies and procedures related to consumer compliance, including, as applicable, fair lending, sales practices, performance goals, and incentive structures (both compensation and non-compensation based), and other Federal consumer financial laws, and policies and procedures related to offering consumer financial products and services. 2.
Review policies and procedures to determine whether and how they address new or amended Federal consumer financial laws implemented since the most recent consumer compliance examination.
3.
Request and review policies and procedures to determine whether they cover consumer financial products or services introduced since the most recent consumer compliance examination.
4.
Review policies and procedures relating to compliance with specific regulatory requirements (such as fair lending regulations, or the privacy of consumer financial information) and their implementing procedures.
5.
Review policies and procedures for outdated content, the names of unaffiliated entities, or other indicators that policies are overly general or not tailored to the needs and actual practices of the institution.
6.
Review policies and procedures for products with features that may inhibit consumer understanding or otherwise pose heightened risks of unfair, deceptive, or abusive practices, or fair lending.
7.
Review policies and procedures related to an entity’s incentive program, including sales quotas, performance goals, and incentive structures, both compensation and non-
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 8 compensation based. Determine whether policies and procedures provide fair and independent processes for investigating reported issues of suspected improper behavior related to sales practices and production incentives. 8.
Determine whether policies and procedures provide clear guidance for managing the inherent risk of sales practices and production incentives abuse in each state of the product life cycle (as applicable):
a.
Marketing and sales;
b. Account opening;
c.
Account upgrades or ancillary products;
d. Account servicing; and e.
Collections 9.
Review policies and procedures for products containing features that may pose heightened risk of unlawful discrimination. Such features may include: a.
Particular incentives created by employee compensation or performance goal structures, both compensation and non-compensation based; b. Discretion over product selection, underwriting, or pricing; or c.
Distinctions related to geography or prohibited bases (such as age or marital status). 10. Review policies and procedures maintained by different regional, business unit, or legal entities subject to the same corporate or board-level policies for reasonableness. Instances of inconsistency should be justified by business necessity or market condition. 11. Review policies and procedures for record retention and destruction timeframes to ensure compliance with legal requirements.
12. If compliance procedures are embedded in automated tools or business unit procedures, determine whether periodic reviews of these tools and procedures were performed prior to implementation, for compliance with policies and procedures and applicable Federal consumer laws. Also determine whether such tools were approved by the Board or a committee thereof, for the purpose for which they are used. 13. Draw preliminary conclusions as to whether policies and procedures are strong, satisfactory, deficient, seriously deficient, or critically deficient. Training – Examination Objectives Education of an entity’s board of directors, management, and staff is essential to maintaining an effective compliance program. Board members should receive sufficient information to enable them to understand the entity’s responsibilities and the commensurate resource requirements.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 9 Management and staff should receive specific, comprehensive training that reinforces and helps implement written policies and procedures. Requirements for compliance with Federal consumer financial laws, including prohibitions against unlawful discrimination and unfair, deceptive, and abusive acts and practices, should be incorporated into training for all relevant officers and employees, including audit personnel. Examiners should seek to determine whether: 1.
Compliance training is comprehensive, timely, and specifically tailored to the particular responsibilities of the staff receiving it, including those responsible for product development, marketing and customer service.
2.
The compliance training program is updated proactively in advance of the rollout of new or changed products or the effective date of new or changed consumer protection laws and regulations to ensure that all staff is aware of compliance responsibilities. 3.
Training is consistent with policies and procedures and designed to reinforce those policies and procedures.
4.
Compliance professionals have access to training that is necessary to administer a compliance program that is tailored to the supervised entity’s risk profile, business strategy, and operations.
Training – Examination Procedures 1.
Request and review the schedule, record of completion, and materials for recent compliance training of board members and senior management.
2.
Determine the involvement of compliance officer(s) in selecting, reviewing, or delivering training content.
3.
Request and review policies, schedules, and records of completion for compliance-specific training of compliance professionals, managers, and staff, and documents demonstrating that service providers who have consumer contact or compliance responsibilities are appropriately trained.
4.
Request and review samples of the content of training materials, including training related to fair lending, new or changed regulatory requirements, new or changed products or channels of distribution, and marketing (including scripts).
5.
Request and review training developed as a result of management commitments to address monitoring, audit, or examination findings and recommendations or issues raised in consumer complaints and inquiries.
6.
Determine whether the program is designed to provide training about the specific regulatory requirements relevant to the functions of particular positions. 7.
Determine if the institution has implemented comprehensive training that addresses expectations for sales practices and production incentives including:
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 10 a.
Standards of ethical behavior, including procedures for reporting suspected incidents of improper behavior;
b. Common risky behaviors for employees and service providers; c.
Requirements for accurately describing to consumers terms and conditions of products and services; and d. Regulatory and business requirements for obtaining and maintaining evidence of consumer consent related to product opening and upselling. 8.
Review records of follow-up, escalation, and enforcement for units with training completion rates that do not meet the supervised entity’s standards or deadlines. 9.
Request and review the institution’s plans for additions, deletions, or modifications to compliance training over the next 12 months and any plans for changes to the overall training resources and compare actual training activities to prior plans. 10. Draw preliminary conclusions as to whether the training program is strong, satisfactory, deficient, seriously deficient, or critically deficient. Monitoring and/or Audit – Examination Objectives Monitoring is a compliance program element that seeks to identify CMS weaknesses in an effort to provide for a high level of compliance by promptly identifying and correcting weaknesses. Monitoring is generally more frequent and less formal than audit, may be carried out by the business unit, and does not require the same level of independence from the business or compliance function that an audit program requires. Conversely, audit is generally less frequent and more formal than monitoring, may be carried out by an institution’s internal audit department or outside contracted party, and is generally independent of the business or compliance function that does the monitoring.
The audit function should review an institution’s compliance with Federal consumer financial laws and adherence to internal policies and procedures, and should be independent of both the compliance program and business functions that include customer sales or service. A compliance audit program provides the board of directors or its designated committees with a determination of whether policies and procedures adopted by the board to guide risk management are being implemented and followed to provide for the level of compliance and consumer protection established by the board.
Examiners should evaluate monitoring and audit programs to determine whether, considered together, they are commensurate with the institution’s size, complexity, and risk profile. In some instances, particularly in institutions that are small, are non-complex in their organizational or operational structure, and that engage in products and services that present low risk of consumer harm, it is possible that the institution’s CMS only has one of these functions. In instances where an institution does not have both functions, examiners should evaluate whether coverage is commensurate with the institution’s size, complexity, and risk profile.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 11 Examiners’ review of compliance monitoring and/or audit should determine whether: 1. Compliance monitoring practices, management information systems, reporting, compliance audit, and internal control systems are comprehensive, timely, and successful at identifying and measuring material compliance risk management throughout a specific product line and/or the institution.
2. Programs are monitored proactively to identify procedural or training weaknesses to mitigate regulatory violations. Program modifications are made timely to minimize compliance risk. 3. The institution is determining that transactions and other consumer contacts are handled according to the entity’s policies and procedures.
4. Monitoring considers the results of risk assessments or other guides for prioritizing reviews. 5. Findings as a result of monitoring reviews are escalated to management and to the board of directors, as appropriate.
6. The audit program is sufficiently independent and reports to the board or a committee of the board.
7. The audit program addresses compliance with all applicable Federal consumer financial laws. 8. The schedule and coverage of audit activities is appropriate for the institution’s size, complexity, risk profile; consumer financial product offerings; and manner of conducting its consumer financial products business.
9. All appropriate compliance and business unit managers receive copies of audit reports in a timely manner.
Monitoring and/or Audit – Examination Procedures 1.
Determine the chief compliance officer’s role in the monitoring element of the compliance program.
2.
Request and review the monitoring schedule for the review period and the next 12 months, and review the currency of reviews in process against the current schedule. 3.
Request and review all applicable risk assessments, including fair lending risk assessments, or other documents that led to the current monitoring plan. 4.
Discuss with the compliance officer and/or the monitoring manager the coverage of service providers that have contact with consumers.
5.
Determine whether and to what extent monitoring includes calculation tools, the content of consumer disclosures and notices, marketing materials, and scripts or guides for employee contacts with consumers.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 12 6.
Request and review all monitoring and corrective action reports completed during a specific period of time. Include reports related to fair lending compliance, such as fair lending “selftests.” Ensure that the entity notifies you of any documents that it claims are withheld on the basis of privilege or “self-tests” so that the applicability of the privilege or regulation can be properly assessed.
7.
If the institution has sales quotas and production incentive structures in place, including performance-based sales goals, determine whether and to what extent monitoring of these programs includes (but is not limited to):
a.
Overall product penetration rates by consumer and household; b. Specific penetration rates for products and services (such as overdraft, add-on products, and online banking) and penetration rates by consumer segment; c.
Employee turnover and employee satisfaction or complaint rates; d. Spikes and trends in sales (both completed and failed sales) by specific individuals and by units;
e.
Financial incentive payouts;
f.
Fair lending analysis;
g. Account opening/product enrollment, account upgrades (including ancillary products), and account closure/product cancellation statistics (trends), including by specific individuals and by units, taking into account the terms of the sales practices program;
h. Consumer complaints about unauthorized account opening/product enrollment, account upgrades (including ancillary products) and/or sales practices. 8.
Review reports for indications of weaknesses, repeat violations of law and resulting risks or harm to consumers, or other matters of significant concern such as potential discriminatory effects of policies or procedures or particular business units with continuing or high levels of non-compliance.
9.
Review a sample of reports and supporting documents covering potential unfair, deceptive, or discriminatory practices or related matters that pose heightened risks to consumers for thoroughness of review, accuracy of findings, and appropriateness of corrective action. 10. Request the institution’s audit plans and schedules for the review period and the next 12 months, and review the currency of audits in process against the current schedule. 11. If audit is performed by a third party, request and review the engagement letters or contracts covering the review period.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 13 12. Determine the basis for the audit plan and schedule and whether reporting is to the board of directors or to an audit committee or other committee of the board. 13. Request and review all audit reports for a specified period of time, including any fair lending audit reports.
14. Determine whether written audit reports identify the scope, sampling techniques, findings/deficiencies, recommendations for corrective action, and management responses with time frames for corrective action.
15. Determine whether audit scopes include previous audit and examination findings, new requirements, new products and channels, and self-identified higher risk areas of the supervised entity’s operations.
16. Request and review audit work papers for a sample of audits covering fair lending laws and regulations; potential unfair, deceptive, or abusive practices; or other areas that may pose heightened risks to consumers.
17. Request and review all audit reports related to unauthorized account openings, upgrades, and ancillary products; performance based sales goals and production incentives (both compensation-based and non-compensation based); and sales practices across all product lines.
18. Determine whether the supervised entity’s chief compliance officer and appropriate business unit head(s) receive copies of audit reports, so that adjustments can be made to compliance program elements in a timely manner.
19. Review audit function structure and policies and procedures to ensure that the audit function, whether internal or external, is independent of the business line and compliance management function.
20. Draw preliminary conclusions as to whether monitoring and/or audit is strong, satisfactory, deficient, seriously deficient, or critically deficient. Consumer Complaint Response – Examination Objectives An effective CMS should ensure that an institution is responsive and responsible in handling consumer complaints and inquiries. Intelligence gathered from consumer contacts should be organized, retained, and used as part of an institution’s CMS. The institution should be making a deliberate, good faith effort toward resolution of each consumer complaint. Examiners will consider consumer complaints to determine the responsiveness and effectiveness of the consumer complaint resolution process. Examiners will assess whether: 1. Processes and procedures for addressing consumer complaints are appropriate. 2. Consumer complaint investigations and responses are reasonable.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 14 3. Consumer complaints and inquiries, regardless of the channel through which they are submitted, are appropriately recorded and categorized. 4. Consumer complaints and inquiries, whether regarding the entity or its service providers, are addressed and resolved promptly.
5. Consumer complaints that raise legal issues involving potential consumer harm from unfair treatment or discrimination, unauthorized product enrollment, account openings or upgrades (including the addition of ancillary products), improper sales practices, imminent foreclosures, or other regulatory compliance issues, are appropriately categorized and escalated.
6. Management monitors consumer complaints to identify risks of potential consumer harm and CMS deficiencies, and takes appropriate prospective and retrospective corrective action. 7. Consumer complaints result in retrospective corrective action to correct the effects of the supervised entity’s actions when appropriate.
8. The nature or number of substantive complaints from consumers indicates that potential weaknesses in the CMS exist.
Consumer Complaint Response – Examination Procedures 1.
Obtain and review consumer complaints and inquiries received by CFPB about the entity and its service providers.
2.
Review industry or other benchmarking complaint data collected by CFPB. 3.
To the extent available, obtain and review consumer complaints and any whistleblower complaints against the institution from the prudential regulator, state regulators, state attorneys general offices or licensing and registration agencies, and private or other industry sources.
4.
Request and review the institution’s policies and procedures for receiving, escalating, and resolving consumer complaints and inquiries.
5.
Request and review the record of consumer complaints and inquiries received by the institution related to improper sales practices, unauthorized product enrollment, account openings or upgrades, including the addition of unauthorized ancillary products. 6.
Identify complaints, including any whistleblower complaints, that may indicate a risk of consumer financial law violation or management issues related to controls for those risks; for example, those alleging or creating a risk of deception, unfair treatment, unlawful discrimination, or other significant consumer injury. Determine whether the financial institution’s responses to complaints and inquiries are prompt and complete, and based on a thorough investigation of the facts.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 15 7.
Determine whether corrective action is offered or taken for any complaint resulting in a conclusion of violation of law or regulation.
8.
Determine whether complaints involving service providers or other third parties referring business to the institution receive appropriate handling and follow-up by the entity. 9.
If an institution maintains multiple consumer complaint response centers or units, determine whether it employs a common set of practices.
10. Determine whether evaluations of consumer complaints, including whistleblower complaints, include comprehensive root cause analysis to assess why a particular law violation or error occurred – for example, whether an information system coding error led to inaccuracies across a portfolio, or whether repeated data entry errors, in the absence of appropriate monitoring, resulted in significant inaccuracies.
11. Determine whether evaluations of consumer complaints and inquiries are shared within the institution and included in compliance reporting to the board and senior management. 12. Determine whether evaluations of root cause analysis are used in corrective action, such as modifying policies, procedures, training, monitoring, and/or other appropriate business adjustments.
13. Draw preliminary conclusions as to whether the supervised entity’s response to consumer issues and concerns is strong, satisfactory, deficient, seriously deficient, or critically deficient.
Module 3: Service Provider Oversight The CFPB recognizes that the use of service providers is often an appropriate business decision for institutions. Institutions may outsource certain functions to service providers due to resource constraints, use service providers to develop and market additional products or services, or rely on expertise from service providers that would not otherwise be available without significant investment.
However, the mere fact that an institution enters into a business relationship with a service provider does not absolve the institution of responsibility for complying with Federal consumer financial law to avoid consumer harm. A service provider that is unfamiliar with the legal requirements applicable to the products or services being offered, or that does not make efforts to implement those requirements carefully and effectively, or that exhibits weak internal controls, can harm consumers and create potential liabilities for both the service provider and the entity with which it has a business relationship. Depending on the circumstances, legal responsibility may lie with the institution as well as with the supervised service provider. Service Provider Oversight – Examination Objectives Examiners should determine whether institutions have met the following expectations regarding service provider oversight:
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 16 1. The institution has developed and implemented an appropriate risk management program for service providers based on the size, scope, complexity, importance, and potential for consumer harm of the service(s) being performed.
2. The institution’s service provider risk management program includes initial and ongoing due diligence reviews to verify that the service provider understands and is capable of complying with Federal consumer financial law.
3. The institution ensures that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities. 4. The institution has included in its contract with the service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities, including engaging in discrimination and unfair, deceptive, or abusive acts or practices.
5. The institution has established internal controls and ongoing monitoring to determine whether the service provider is complying with Federal consumer financial law. 6. The institution takes prompt action to fully address any problems identified through the monitoring process, including terminating the relationship where appropriate. Service Provider Oversight – Examination Procedures 1. Determine whether and to what extent the institution uses service providers to carry out functions that have consumer compliance responsibilities. 2. Request and review contracts between the institution and its service providers. Determine whether contracts contain clear expectations about compliance, as well as appropriate and enforceable consequences for violating Federal consumer financial law. 3. Request and review the institution’s service provider risk management program. 4. Determine whether the institution’s risk management program requires initial and ongoing due diligence reviews on service providers. Evaluate whether these reviews are sufficient to verify that the service provider understands its consumer compliance responsibilities, is capable of complying with Federal consumer financial law, and does not pose unwarranted risks to consumers.
5. Determine whether the risk management program provides for ongoing monitoring reviews sufficient to ensure that service providers are complying with Federal consumer financial laws.
6. Determine whether the institution has policies, procedures, and processes in place to take prompt corrective action to fully address any problems identified through the monitoring process, including termination of the service provider relationship, when appropriate.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 17 7. Draw preliminary conclusions as to whether the institution’s service provider oversight is strong, satisfactory, deficient, seriously deficient, or critically deficient. Consider the impact that this conclusion has on conclusions regarding Board and Management Oversight and components contained within the Compliance Program.
Module 4: Violations of Law and Consumer Harm As a result of a violation of law, consumer harm may occur. While many instances of consumer harm can be quantified as a dollar amount associated with financial loss, such as charging higher fees for a product than was initially disclosed, consumer harm may also result from a denial of an opportunity. For example, a consumer could be harmed when an institution denies the consumer credit or discourages an application in violation of the Equal Credit Opportunity Act. When violations and consumer harm are identified, it is important for examiners to consider whether or not the institution’s CMS identified the violation and implemented appropriate corrective action. Self-identification and correction of violations of law reflect strengths in an institution’s CMS. A CMS appropriate for the size, complexity and risk profile of an institution’s business often will minimize violations or will facilitate early detection of potential violations. This early detection can limit the size and scope of consumer harm. Moreover, self-identification and corrective action on serious violations represents evidence of an institution’s commitment to responsibly address underlying risks. Appropriate corrective action, including both correction of programmatic weaknesses and full redress for injured parties, limits consumer harm and prevents violations from recurring in the future.
Violations of Law and Consumer Harm – Examination Objectives In the event that examiners identify violations of Federal consumer financial law, they should consider the following factors:
1. The root cause of the violation: the degree to which weaknesses in the CMS contributed to the violation(s) of Federal consumer financial law. In many instances, the root cause of a violation may be tied to a weakness in one or more elements of the CMS. Violations that result from critical deficiencies in the CMS evidence a critical absence of management oversight and are of the highest supervisory concern.
2. The severity of consumer harm: the type of harm, if any, that resulted from the violation(s) of Federal consumer financial law. More severe harm results in a higher level of supervisory concern. For example, some violations may cause significant financial harm to a consumer, while other violations may cause negligible harm, based on the specific facts involved. 3. The duration of the violation: the length of time over which the violation(s) of Federal consumer financial law occurred. Violations that persist over an extended period of time will raise greater supervisory concerns than violations that occur for only a brief period of time. When violations are brought to the attention of an institution’s management and management allows those violations to remain unaddressed, such violations are of the highest supervisory concern.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 18 4. The pervasiveness of the violations: the extent of the violation(s) of Federal consumer financial law and resulting consumer harm, if any. Violations that affect a large number of consumers will raise greater supervisory concern than violations that impact a limited number of consumers. If violations become so pervasive that they are considered to be widespread or present in multiple products or services, the institution’s performance is of the highest supervisory concern.
Violations of Law and Consumer Harm – Examination Procedures The following examination procedures should be conducted in the event that Examiners note violations of Federal consumer financial law:
1. Determine the root cause of the violation(s) by identifying the weaknesses in the institution’s CMS that contributed to the noted violations(s). Review preliminary conclusions drawn from Modules 1, 2, and 3 on the component(s) identified as the root cause and revise those conclusions accordingly, keeping in mind that not all violations of law indicate weaknesses in CMS.
2. Determine whether the institution self-identified violation(s) and consumer harm, and assess the effectiveness of any corrective action implemented as a result. 3. Draw a conclusion as to whether the violations are a result of minor weaknesses, modest weaknesses, material weaknesses, serious deficiencies, or critical deficiencies in the CMS. 4. Assess the severity of the consumer harm that resulted from the violations(s) by determining the degree of impact that the violation has on consumers. Consider the degree of financial impact or impact of non-financial harm.
5. Draw a conclusion as to whether the type of harm resulting from the violation(s) would have a minimal, limited, considerable, or serious impact on consumers. 6. Assess the duration of the violation(s) and resulting consumer harm by determining the time period over which the violation occurred. Consider whether management was aware of the violation(s) and whether they took action to resolve the issue or allowed it to continue. 7. Determine the pervasiveness of the violation(s) and consumer harm by considering the number of affected consumers. Consider whether the violation(s) and consumer harm are limited or whether they are widespread or in multiple products or services. Module 5: Examiner Conclusions and Wrap-Up To conclude this supervisory activity, examiners must complete all the steps under this section, regardless of the entity’s risk profile:
1. Summarize the findings, supervisory concerns and conclusions for each Module completed. 2. Identify action needed to correct weaknesses in the institution’s CMS.
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CFPB Compliance Management Review CMR CFPB August 2017 CMR 19 3. Discuss findings with the institution’s management and, if necessary, obtain a commitment for corrective action.
4. Record findings according to Bureau policy in the Examination Report/Supervisory Letter. 5. Prepare a memorandum for inclusion in the work papers and CFPB’s official system of record that outlines planning and strategy considerations for the next examination and, if appropriate, interim follow-up.
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 1 Compliance Management Review – Information Technology (CMR-IT) General Principles and Introduction Institutions1 within the scope of the CFPB’s supervision and enforcement authority include both depository institutions and non-depository consumer financial services companies. These institutions operate in a dynamic environment influenced by challenges to profitability, increased focus on outcomes to consumers, industry consolidation, advancing technology, market globalization, and changes to laws and regulations.
To remain competitive and responsive to consumer needs in such an environment, institutions continuously assess their business strategies and modify product and service offerings and delivery channels. To maintain legal compliance, an institution should develop and maintain a sound compliance management system (CMS) that is integrated into the overall framework for product design, delivery, and administration across its entire product and service life cycle. Ultimately, compliance should be part of the day-to-day responsibilities of management and the employees of a supervised entity. Issues should be self-identified, and corrective action should be initiated by the entity. Institutions are also expected to manage relationships with service providers to ensure that service providers effectively manage compliance with Federal consumer financial laws applicable to the product or service being provided.2 Institutions often use information technology (IT) that could impact compliance with Federal consumer financial laws. As part of its overall CMS assessment, the CFPB may evaluate the technology controls of an institution and its service providers. The CFPB may also evaluate an institution’s IT as it relates to compliance with Federal consumer financial laws. The Compliance Management System – Information Technology (CMS-IT) examination procedures set forth below are used by examiners to assess IT and IT controls as part of a CMS review.
A CMS is how an institution:
• Establishes its compliance responsibilities;
• Communicates those responsibilities to employees;
• Ensures that responsibilities for meeting legal requirements and internal policies and procedures are incorporated into business processes;
1 The terms “institution” and “entity” are used interchangeably throughout this document. 2 See CFPB Bulletin 2016-02, Service Providers (October 31, 2016), which describes the CFPB’s expectation that supervised banks and nonbanks oversee their business relationships with service providers in a manner that ensures compliance with Federal consumer financial law. Compliance Bulletin and Policy Guidance; 2016-02 Exam Date:
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 2 • Reviews operations to ensure responsibilities are carried out and legal requirements are met; and • Takes corrective action and updates tools, systems, and materials as necessary. An effective CMS commonly has two interdependent control components: • Board and Management Oversight; and • Compliance Program, which includes:
Policies and procedures;
Training;
Monitoring and/or audit; and Consumer complaint response.
When the two interdependent control components are strong and well-coordinated, an institution typically is successful at managing its compliance responsibilities and risks. Additionally, the Bureau’s supervisory expectations with respect to an institution’s compliance program extend to service provider relationships into which the institution has entered. There can be certain benefits to institutions engaging in relationships with service providers, including gaining operational efficiencies or an ability to deliver additional products and services. However, such arrangements may also expose institutions to risks when not managed properly. While an institution’s management may make the business decision to outsource some or all of the operational aspects of a product or service, the institution cannot outsource the responsibility for complying with Federal consumer financial laws or managing the risks associated with service provider relationships.
Weaknesses in a CMS can result in violations of Federal consumer financial law and associated harm to consumers. Therefore, the CFPB expects every institution under its supervision and enforcement authority to have a CMS adapted to its business strategy and operations. The CFPB understands that compliance will likely be managed differently by large banking organizations with complex compliance profiles and a wide range of consumer financial products and services3 at one end of the spectrum, than by non-bank entities that may be owned by a single individual and feature a narrow range of financial products and services, at the other end of the spectrum. Compliance may be managed on an enterprise-wide basis, and institutions may engage outside firms to assist with compliance management. However compliance is managed, a provider of consumer financial products or services under CFPB’s supervisory purview is expected to comply with Federal consumer financial laws and appropriately address and limit violations of law and associated harms to consumers.
3 For example, the Federal Reserve Board of Governors expects large banking organizations with complex compliance profiles to implement firm-wide compliance risk management programs and have a corporate compliance function. SR 08-8 / CA 08-11, October 16, 2008. The CFPB will expect no less.
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 3 The CFPB also understands that institutions will organize their CMS to include compliance with consumer-related state and Federal laws that are outside the scope of the CFPB’s supervision responsibilities, in addition to the matters that are within the CFPB’s scope. The CFPB, therefore, expects that CMS be organized within a firm, legal entity, division, or business unit in the way that is most effective to the institution, and that the manner of organization will vary from institution to institution.
This CMS examination manual is divided into five Modules: • Module 1: Board and Management Oversight • Module 2: Compliance Program • Module 3: Service Provider Oversight • Module 4: Violations of Law and Consumer Harm • Module 5: Examiner Conclusions and Wrap-Up Module 1: Board and Management Oversight In a depository institution, the board of directors is ultimately responsible for developing and administering a CMS that ensures compliance with Federal consumer financial laws and addresses and minimizes associated risks of harm to consumers. In a non-depository consumer financial services company, that ultimate responsibility may rest with a board of directors in the case of a corporation or with a controlling person or some other arrangement. For the balance of this section of the Manual, references to the “board of directors” or “board” generally refer to the board of directors or other individual or group exercising similar oversight functions. In addition, some institutions may be governed by firm-wide standards, policies, and procedures developed by a holding company or other top-tier corporation for adoption, use, and modification, as necessary, by subsidiary entities.
In the absence of a board of directors and board committee structure, the examiner should determine that the person or group exercising similar oversight functions receives relevant information about compliance and consumer protection matters and takes steps to ensure that the key elements, resources, and individuals necessary for a CMS commensurate with the supervised entity’s risk profile are in place and functioning.
Under Board and Management Oversight, examiners should assess the institution’s board of directors and management, as appropriate, for their respective roles and responsibilities, based on the following factors:
• Oversight of and commitment to the institution’s CMS;
• Effectiveness of the institution’s change management processes, including responding in a timely manner and satisfactorily to any variety of change, internal or external, to the institution;
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 4 • Comprehension, identification, and management of risks arising from the institution’s products, services, or activities; and • Self-identification of consumer compliance issues and corrective action undertaken as such issues are identified.
Board and Management Oversight – Examination Objectives Since the effectiveness of a CMS is grounded in the actions taken by its board and senior management, examiners should seek to determine whether the board and management meet the following objectives:
Oversight of and Commitment to the Institution’s CMS 1. Demonstrate a strong commitment and oversight to the institution’s CMS. 2. Provide compliance resources including systems, capital, and human resources commensurate with the institution’s size, complexity, and risk profile. 3. Ensure that staff is knowledgeable, empowered and held accountable for compliance with Federal consumer financial laws.
4. Conduct comprehensive and ongoing due diligence and oversight of service providers consistent with the CFPB’s expectations to ensure that the institution complies with Federal consumer financial laws.
5. Exercise oversight of service providers’ policies, procedures, internal controls, and training to ensure consistent oversight of compliance responsibilities. Change Management 1. Respond promptly to changes in applicable Federal consumer financial laws, market conditions, and products and services offered by evaluating the change and implementing responses across impacted lines of business.
2. Conduct due diligence in advance of product changes, consider the entire life cycle of a product or service in implementing change and review the change after implementation to determine whether the actions taken achieved the planned results. Comprehension, Identification and Management of Risk 1. Comprehend and identify compliance risks, including emerging risks, in the institution’s products, services, and other activities.
2. Engage themselves in managing identified risks, which include using comprehensive selfassessments and independent audits, as applicable.
3. Address consumer compliance issues and associated risks of harm to consumers throughout product development, marketing, and account administration, and through the entity’s handling of consumer complaints and inquiries.
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 5 Self-Identification and Corrective Action 1. Proactively identify issues.
2. Promptly respond to CMS deficiencies and any violations of laws or regulations, including remediation.
Board and Management Oversight – IT Examination Procedures 1. Review board meeting minutes and supporting materials during the period under review for coverage of IT and IT controls that may impact compliance with Federal consumer financial law.
[Click&type] 2. Determine board and management’s oversight and review of the IT function (e.g., board meeting minutes, strategic plan, significant initiatives or changes). [Click&type] 3. Assess the compliance and IT organizational structures, including: a. Direct reporting line from IT management to senior level management; b. Appropriate separation of duties between business functions and IT functions; c. Appropriate separation of duties within the IT function; d. Coordination and reporting line between IT management and compliance management; and e. Board and management committee structures (responsibility and authority). [Click&type] 4. Determine the existence of a board approved, comprehensive information security program. [Click&type] 5. Determine whether the board or a sub-committee of the board reviews the IT risk management process, including risk identification, risk assessment, and risk mitigation. Further, determine whether management has developed adequate policies, standards, and procedures to manage technology risk and whether they are current, documented, and appropriately communicated. Determine whether compliance with Federal consumer financial laws is incorporated into the risk process and associated documentation. [Click&type]
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 6 6. Determine whether the board and management oversee changes or anticipated changes in technology enterprise-wide (e.g., service provider relationships, software applications, and/or service offerings).
[Click&type] 7. Determine if management has identified all information assets and systems, including cloudbased and virtualized systems as well as critical service providers that are related to consumer financial services and/or products.
[Click&type] 8. Determine whether the board and management evaluate whether written policies, control procedures, and standards are thorough, properly reflect the complexity of the IT environment, and incorporate compliance with Federal consumer financial laws. Also, evaluate whether these policies, control procedures, and standards have been formally adopted, communicated, and enforced.
[Click&type] 9. Determine if the board and management consider whether inherent risks related to IT have been evaluated, including impact to consumers; controls have been clearly identified; and residual risks are at acceptable levels.
[Click&type] 10. Determine whether the entity’s risk assessment program, including IT-related risk, has been formally approved by the board of directors.
[Click&type] 11. Determine whether a report of risk assessment findings, including IT-related risk, has been presented to the board of directors for review.
[Click&type] 12. Determine whether board and management evaluate the adequacy of short- and long-term IT strategic planning and resource allocation.
[Click&type] 13. Determine whether board and management oversee the controls around the system development life cycle (SDLC), including the integration of compliance with Federal consumer financial laws into the SDLC process, and whether that is appropriate for the size and complexity of the entity.
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 7 [Click&type] 14. Determine whether senior management oversees the IT change management process that aligns with the entity’s IT risk appetite. Further, determine whether management has developed adequate policies, standards, and procedures to address change management for applications or systems used to support compliance with Federal consumer financial laws. [Click&type] 15. Determine whether the board has established an ongoing, process-oriented approach to business continuity planning that is appropriate for the size and complexity of the entity. [Click&type] 16. Determine whether management implements and uses IT system reporting and whether it produces accurate and useful reports. Determine the effectiveness of the reports used by senior management or relevant management committees to supervise and monitor the IT functions.
[Click&type] 17. Draw preliminary conclusions as to whether board and senior management oversight related to IT is strong, satisfactory, deficient, seriously deficient, or critically deficient. Further, include how IT oversight impacts compliance with Federal consumer financial laws. [Click&type]
Module 2: Compliance Program A sound Compliance Program is essential to the efficient and successful operation of the supervised entity. A Compliance Program includes the following components: • Policies and procedures;
• Training;
• Monitoring and/or audit; and • Consumer complaint response.
An institution should establish a formal, written Compliance Program, and that program generally should be administered by a chief compliance officer. In addition to being a planned and organized effort to guide the entity’s compliance activities, a written program represents an essential source document that may serve as a training and reference tool for employees. A well-planned, implemented, and maintained Compliance Program may prevent or reduce regulatory violations,
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 8 protect consumers from non-compliance and associated harms, and help align business strategies with outcomes. The examination objectives and procedures for the Compliance Program are divided in this module among the four components.
Policies and Procedures – Examination Objectives Compliance policies and procedures should document and be sufficiently detailed to implement the board-approved policy documents. Examiners should seek to determine whether compliance policies and procedures:
1. Are designed to effectively manage IT controls and compliance risk in the products, services and activities of the institution.
2. Are consistent with board-approved compliance policies. 3. Address compliance with applicable Federal consumer financial laws in a manner designed to minimize violations and to detect and minimize associated risks of harm to consumers. 4. Cover the full life cycle of all IT products (e.g., software programs, systems, and components) and/or services offered.
5. Are maintained and modified to remain current and complete, and to serve as a reference for employees in their day-to-day activities.
Policies and Procedures – IT Examination Procedures 1. Review and understand how the consumer compliance program is structured and how it interacts with IT functions and controls to ensure compliance with Federal consumer financial laws.
[Click&type] 2. Review policies and procedures pertaining to the creation and maintenance of IT policies and procedures.
[Click&type] 3. Request and review IT policies and procedures that may impact compliance with Federal consumer financial laws.
[Click&type] 4. Review IT policies and procedures to determine whether and how they address new or amended Federal consumer financial laws.
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 9 5. Determine whether the entity follows IT policies and procedures, including a system development life cycle (SDLC) which integrates compliance with Federal consumer financial laws where applicable, when developing systems to support new products or services. [Click&type] 6. Determine if IT policies and procedures maintained by different regional, business unit, or legal entities are consistent with applicable corporate or board-level policies. If any inconsistencies are noted, determine if they are justified by business necessity or market condition.
[Click&type] 7. Review IT procedures related to record retention and destruction timeframes for compliance with related internal policies and legal requirements.
[Click&type] 8. Draw preliminary conclusions as to whether IT policies and procedures are strong, satisfactory, deficient, seriously deficient, or critically deficient. Further, include how IT policies and procedures may impact compliance with Federal consumer financial laws. [Click&type]
Training – Examination Objectives Education of an entity’s board of directors, management, and staff is essential to maintaining an effective compliance program. Board members should receive sufficient information to enable them to understand the entity’s responsibilities and the commensurate resource requirements. Management and staff should receive specific, comprehensive training that reinforces and helps support written policies and procedures. Requirements for compliance with Federal consumer financial laws, including prohibitions against unlawful discrimination and unfair, deceptive, and abusive acts and practices, should be incorporated into training for all relevant officers and employees, including audit and applicable IT personnel. Examiners should seek to determine whether:
1. Training is comprehensive, timely, and specifically tailored to the particular responsibilities of the staff receiving it.
2. The training program is updated proactively in advance of the rollout of new or changed products or the effective date of new or changed consumer protection laws and regulations to ensure that all staff is aware of compliance responsibilities. 3. Training is consistent with policies and procedures and designed to reinforce those policies and procedures.
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 10 4. Compliance and IT professionals have access to training that is necessary to administer programs that are tailored to the supervised entity’s risk profile, business strategy, and operations.
Training – IT Examination Procedures 1. Request and review the schedule, record of completion, and materials for recent security awareness training of all employees, including executive officers, contractors, and board members.
[Click&type] 2. Request and review policies, schedules, training content, and records of completion for IT role-based training of IT staff. In addition, request and review documents demonstrating that service providers with IT responsibilities are appropriately trained. [Click&type] 3. Determine the involvement of management in selecting, reviewing, or delivering IT training content. Review IT training developed as a result of management commitments to address monitoring, audit, or examination findings and recommendations or issues raised in consumer complaints and inquires.
[Click&type] 4. Review records of follow-up, escalation, and enforcement for IT staff training completion rates that do not meet the supervised entity’s standards or deadlines. [Click&type] 5. Request and review the entity’s plans for additions, deletions, or modifications to IT training over the next 12 months and compare actual training activities to prior plans. [Click&type] 6. Draw preliminary conclusions as to whether the IT training program is strong, satisfactory, deficient, seriously deficient, or critically deficient. [Click&type] Monitoring and/or Audit – Examination Objectives Monitoring is a compliance program element that seeks to identify CMS weaknesses by promptly identifying and correcting weaknesses. Monitoring is generally more frequent and less formal than audit, may be carried out by the business unit, and does not require the same level of independence from the business or compliance function that an audit program requires.
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 11 Conversely, audit is generally less frequent and more formal than monitoring, may be carried out by an institution’s internal audit department or outside contracted party, and is generally independent of the business or compliance function that does the monitoring. The audit function should review an institution’s compliance with Federal consumer financial laws and adherence to internal policies and procedures, and it should be independent of both the compliance program and business functions. IT and compliance audit programs provide the board of directors, or its designated committees, with a determination of whether policies and procedures adopted by the board to guide risk management are being implemented and followed to provide for the level of compliance and consumer protection established by the board. Examiners should evaluate monitoring and audit programs to determine whether they are commensurate with the institution’s size, complexity, and risk profile. In some instances, particularly in institutions that are small, are non-complex in their organizational or operational structure, and that engage in products and services that present low risk of consumer harm, it is possible that the institution’s CMS only has one of these functions. In instances where an institution does not have both functions, examiners should evaluate whether coverage is commensurate with the institution’s size, complexity, and risk profile. Examiners’ review of compliance monitoring and/or audit should determine whether: 1. Compliance monitoring practices, management information systems, reporting, compliance audit, and internal control systems, including IT controls, are comprehensive, timely, and successful at identifying and measuring material compliance risk management throughout a specific product line and/or the institution.
2. Programs are monitored proactively to identify procedural or training weaknesses to mitigate regulatory violations. Program modifications are made timely to minimize compliance risk. 3. The institution is determining that financial services, transactions, and other consumer engagements supported by IT systems are handled according to the entity’s policies and procedures.
4. Monitoring considers the results of risk assessments or other guides for prioritizing reviews. 5. Findings resulting from monitoring reviews are escalated to management and to the board of directors, as appropriate.
6. The audit program is sufficiently independent and reports to the board or a committee of the board.
7. The audit program addresses compliance with all applicable Federal consumer financial laws. 8. The schedule and coverage of audit activities is appropriate for the institution’s size, complexity, risk profile; consumer financial product offerings; and manner of conducting its consumer financial products business.
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 12 9. All appropriate compliance and business unit managers receive copies of audit reports in a timely manner.
Monitoring and/or Audit –IT Examination Procedures 1. Determine whether management has Quality Assurance (QA) and Quality Control (QC) procedures defined for significant IT activities and whether those procedures are performed internally or externally.
[Click&type] 2. Review policies and procedures pertaining to IT audit. [Click&type] 3. Evaluate the independence of the monitoring and/or audit function and the degree to which it identifies and reports weaknesses and risks to the board of directors or its audit committee. Determine whether auditor expertise and training is sufficient for the complexity of the IT function in relation to the technology and overall risk at the entity. [Click&type] 4. If IT monitoring and/or audit is performed by a third party, request and review the applicable policy, engagement letters, and contracts covering the review period. [Click&type] 5. Evaluate the quality of IT audit oversight and support provided by the board of directors and management. Include an evaluation of the board and management’s approved risk assessment process to ensure IT audit plans address all significant IT functions. [Click&type] 6. Determine whether monitoring and/or audit coverage includes assessment of IT system capabilities and compliance with Federal consumer financial laws and regulations, including information security controls related to consumer compliance. [Click&type] 7. Evaluate the entity’s audit coverage of user and system access. Ensure the audit covers access restrictions, unauthorized access, the number of employees requiring access, and the different types of access (i.e., logical or physical).
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 13 8. Determine if the entity adjusts risk assessments in response to IT audit and monitoring results.
[Click&type] 9. Evaluate the process for ensuring IT monitoring, audit, and/or related regulatory findings are fully remediated or mitigated.
[Click&type] 10. Draw preliminary conclusions as to whether the IT monitoring and/or audit function is strong, satisfactory, deficient, seriously deficient, or critically deficient. Further, include how the IT monitoring and/or audit function impacts compliance with Federal consumer financial laws.
[Click&type] Consumer Complaint Response – Examination Objectives An effective CMS should ensure that an institution is responsive and responsible in handling consumer complaints and inquiries. Intelligence gathered from consumer contacts should be organized, retained, and used as part of an institution’s CMS. The institution should be making a deliberate, good faith effort toward resolution of each consumer complaint. Examiners will consider consumer complaints to determine the responsiveness and effectiveness of the consumer complaint resolution process. Examiners will assess whether: 1. Processes and procedures for addressing consumer complaints are appropriate. 2. Consumer complaint investigations and responses are reasonable. 3. Consumer complaints and inquiries, regardless of the channel through which they are submitted, are appropriately recorded and categorized.
4. Consumer complaints and inquiries, whether regarding the entity or its service providers, are addressed and resolved promptly.
5. Consumer complaints that raise legal issues involving potential consumer harm from unfair treatment or discrimination, unauthorized product enrollment, account openings or upgrades (including the addition of ancillary products), improper sales practices, imminent foreclosures, or other regulatory compliance issues, are appropriately categorized and escalated.
6. Management monitors consumer complaints to identify risks of potential consumer harm and CMS deficiencies, including risks to consumers for which IT issues may be the root cause, and takes appropriate prospective and retrospective corrective action.
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 14 7. Consumer complaints result in retrospective corrective action to correct the effects of the supervised entity’s actions when appropriate.
8. The nature or number of substantive complaints from consumers indicates that potential weaknesses in the CMS exist.
Consumer Complaint Response – IT Examination Procedures 1. Obtain and review IT-related consumer complaints and inquiries about the entity and its service providers.
[Click&type] 2. Determine whether the entity’s policies and procedures for receiving, escalating, and resolving IT issues from consumer complaints and inquiries are adequate for the entity’s size, complexity, and risk profile.
[Click&type] 3. Evaluate the entity’s responses, corrective actions, analysis, and categorization of IT-related consumer complaints and inquiries.
[Click&type] 4. Determine whether corrective action is offered or taken for any IT-related complaint resulting in a conclusion of violation of law or regulation. [Click&type] 5. Draw preliminary conclusions as to whether the supervised entity’s response to IT-related consumer issues and concerns is strong, satisfactory, deficient, seriously deficient, or critically deficient.
[Click&type] Module 3: Service Provider Oversight The CFPB recognizes that the use of service providers is often an appropriate business decision for institutions. Institutions may outsource certain functions to service providers due to resource constraints, or expertise constraints.
The fact that an institution enters into a business relationship with a service provider, however, does not negate the institution’s responsibility in complying with Federal consumer financial law. A service provider that is unfamiliar with the legal requirements applicable to the products or services being offered, or that does not make efforts to implement those requirements carefully and effectively, or that exhibits weak internal controls, can harm consumers and create
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 15 potential liabilities for both the service provider and the entity with which it has a business relationship. Depending on the circumstances, legal responsibility may lie with the institution as well as with the supervised service provider.
Service Provider Oversight – Examination Objectives Examiners should determine whether institutions have met the following expectations regarding service provider oversight:
1. The institution has developed and implemented an appropriate risk management program for service providers based on the size, scope, complexity, importance, and potential for consumer harm.
2. The institution’s service provider risk management program includes initial and ongoing due diligence reviews to verify that the service provider understands and is capable of complying with Federal consumer financial law.
3. The institution ensures that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities. 4. The institution has included in its contract with the service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities, including engaging in discrimination and unfair, deceptive, or abusive acts or practices.
5. The institution has established internal controls and ongoing monitoring to determine whether the service provider is complying with Federal consumer financial law. 6. The institution takes prompt action to fully address any problems identified through the monitoring process, including terminating the relationship where appropriate. Service Provider Oversight –IT Examination Procedures 1. Determine whether and to what extent the entity uses service providers to support IT functions that could have implications for compliance with Federal consumer financial laws. [Click&type] 2. Request and review the entity’s risk management program for service providers that support IT functions that could have consumer compliance implications. [Click&type] 3. For critical service providers with access to sensitive customer information, evaluate the entity’s assessment of these service providers’ written information security programs. [Click&type]
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 16 4. Determine whether the entity maintains policies and procedures related to application or system acquisition activities where the application or system is used to support compliance with Federal consumer financial laws. This includes the project management standards, methodologies, and practices for application development. [Click&type] 5. Determine whether the entity has policies, procedures, and processes in place to take prompt corrective action to fully address changes or conversions to service provider information systems, as well as any problems identified through the monitoring process, including termination, when appropriate.
[Click&type] 6. Where indicated by the risk assessment, determine whether management reviews IT audit summaries, test results, and other equivalent evaluations of their service providers to confirm that they are fulfilling contractual obligations.
[Click&type] 7. Determine if the entity has formal service level agreements with all of its third-party providers and if the agreements include assurance of continued service. [Click&type] 8. Draw preliminary conclusions as to whether the institution’s service provider oversight is strong, satisfactory, deficient, seriously deficient, or critically deficient. Consider the impact that this conclusion has on conclusions regarding Board and Management Oversight and components contained within the Compliance Program.
[Click&type] Module 4: Violations of Law and Consumer Harm As a result of a violation of law, consumer harm may occur. While many instances of consumer harm can be quantified as a dollar amount associated with financial loss, such as charging higher fees for a product than was initially disclosed, consumer harm may also result from a denial of an opportunity. For example, a consumer could be harmed when an institution denies the consumer credit or discourages an application in violation of the Equal Credit Opportunity Act. When violations and consumer harm are identified, it is important for examiners to consider whether the institution’s CMS identified the violation and implemented appropriate corrective action. Self-identification and correction of violations of law reflect strengths in an institution’s CMS. A CMS appropriate for the size, complexity and risk profile of an institution’s business often will minimize violations or will facilitate early detection of potential violations. This early detection can limit the size and scope of consumer harm. Moreover, self-identification and
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 17 corrective action on serious violations represents evidence of an institution’s commitment to responsibly address underlying risks. Appropriate corrective action, including both correction of programmatic weaknesses and full redress for injured parties, limits consumer harm and prevents violations from recurring in the future.
Violations of Law and Consumer Harm – Examination Objectives In the event that examiners identify violations of Federal consumer financial law, they should consider the following factors:
1. The root cause of the violation: the degree to which weaknesses in the CMS contributed to the violation(s) of Federal consumer financial law. In many instances, the root cause of a violation may be tied to a weakness in one or more elements of the CMS. Violations that result from critical deficiencies in the CMS evidence a critical absence of management oversight and are of the highest supervisory concern.
2. The severity of consumer harm: the type of harm, if any, that resulted from the violation(s) of Federal consumer financial law. More severe harm results in a higher level of supervisory concern. For example, some violations may cause significant financial harm to a consumer, while other violations may cause negligible harm, based on the specific facts involved. 3. The duration of the violation: the length of time over which the violation(s) of Federal consumer financial law occurred. Violations that persist over an extended period of time will raise greater supervisory concerns than violations that occur for only a brief period of time. When violations are brought to the attention of an institution’s management and management allows those violations to remain unaddressed, such violations are of the highest supervisory concern.
4. The pervasiveness of the violations: the extent of the violation(s) of Federal consumer financial law and resulting consumer harm, if any. Violations that affect a large number of consumers will raise greater supervisory concern than violations that impact a limited number of consumers. If violations become so pervasive that they are considered to be widespread or present in multiple products or services, the institution’s performance is of the highest supervisory concern.
Violations of Law and Consumer Harm – Examination Procedures The following examination procedures should be conducted in the event that Examiners note violations of Federal consumer financial law:
1. Determine the root cause of the violation(s) by identifying the weaknesses in the institution’s CMS that contributed to the noted violations(s). Review preliminary conclusions drawn from Modules 1, 2, and 3 on the component(s) identified as the root cause and revise those conclusions accordingly, keeping in mind that not all violations of law indicate weaknesses in CMS.
[Click&type]
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 18 2. Determine whether the institution self-identified violation(s) and consumer harm and assess the effectiveness of any corrective action implemented as a result. [Click&type] 3. Draw a conclusion as to whether the violations are a result of minor weaknesses, modest weaknesses, material weaknesses, serious deficiencies, or critical deficiencies in the CMS. [Click&type] 4. Assess the severity of the consumer harm that resulted from the violations(s) by determining the degree of impact that the violation has on consumers. Consider the degree of financial impact or impact of non-financial harm.
[Click&type] 5. Draw a conclusion as to whether the type of harm resulting from the violation(s) would have a minimal, limited, considerable, or serious impact on consumers. [Click&type] 6. Assess the duration of the violation(s) and resulting consumer harm by determining the time period over which the violation occurred. Consider whether management was aware of the violation(s) and whether they took action to resolve the issue or allowed it to continue. [Click&type] 7. Determine the pervasiveness of the violation(s) and consumer harm by considering the number of affected consumers. Consider whether the violation(s) and consumer harm are limited or whether they are widespread or in multiple products or services. [Click&type] Module 5: Examiner Conclusions and Wrap-Up To conclude this supervisory activity, examiners must complete all the steps under this section, regardless of the entity’s risk profile:
1. Summarize the findings, supervisory concerns and conclusions for each Module completed. [Click&type] 2. Identify action needed to correct weaknesses in the institution’s CMS. [Click&type]
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CFPB Examination Procedures CMR-IT CFPB September 2021 CMR-IT 19 3. Discuss findings with the institution’s management and, if necessary, obtain a commitment for corrective action.
[Click&type] 4. Record findings according to Bureau policy in the Examination Report/Supervisory Letter. [Click&type] 5. Prepare a memorandum for inclusion in the work papers and CFPB’s official system of record that outlines planning and strategy considerations for the next examination and, if appropriate, interim follow-up.
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 1 Automobile Finance Examination Procedures After completing the examination risk assessment and scoping, examiners should use these procedures to conduct an automobile finance examination. Because the Consumer Financial Protection Bureau (CFPB or Bureau) expects regulated entities under its supervision and enforcement authority to have an effective compliance management system adapted to its business strategy and operations, examiners should also use the Compliance Management Review (CMR) procedures to review and test components of the supervised entity’s compliance management system.1 These procedures are organized into seven modules, which include guidance for examining all aspects of auto finance. As determined by the examination scope, and in conjunction with the CMR procedures, each examination will include parts of one or more of the following modules. Module 7 – Examiner Conclusions and Wrap-up is a required module and must be completed for all examinations.
Module 1 Company Business Model Module 2 Advertising and Marketing Module 3 Application and Origination Module 4 Payment Processing and Account Maintenance Module 5 Collections, Debt Restructuring, Repossession, and Accounts in Bankruptcy Module 6 Credit Reporting, Information Sharing, and Privacy Module 7 Examiner Conclusions and Wrap-up
1 A supervised entity must develop and maintain an effective compliance management system that is integrated into the overall framework for product design, delivery, and administration of the entire product and service lifecycle. Ultimately, compliance should be part of the day-to-day responsibilities of management and the employees of a supervised entity; issues should be selfidentified; and corrective actions should be initiated by the entity. Supervised entities are also expected to manage relationships with service providers to ensure that these providers effectively manage compliance with Federal consumer financial laws applicable to the product or service being provided. See CFPB Supervision and Examination Manual,https://www.consumerfinance.gov/policy-compliance/guidance/supervision-examinations/; see also CFPB Compliance Bulletin and Policy Guidance; 2016-02, Service Providers, https://www.consumerfinance.gov/policycompliance/guidance/supervisory-guidance/compliance-bulletin-and-policy-guidance-2016-02-service-providers/. Exam Date:
[Click&type] Prepared By:
[Click&type] Reviewer:
[Click&type] Docket #:
[Click&type] Entity Name:
[Click&type] Event No.:
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 2 Examination Objectives 1. To assess the supervised entity’s compliance management system, including internal controls, policies, and procedures for preventing violations of Federal consumer financial law.
2. To identify acts or practices that materially increase the risk of violations of Federal consumer financial law.
3. To gather facts that help determine whether a supervised entity engages in acts or practices that are likely to violate Federal consumer financial law. 4. To determine, in consultation with headquarters, whether a violation of a Federal consumer financial law has occurred, and whether further supervisory or enforcement action is appropriate.
Background Section 1024 of the Dodd-Frank Act (12 U.S.C. 5514(a)(1)(B)) gave the CFPB supervisory authority over “larger participants” of certain markets for consumer financial products or services, as the CFPB defines by rule.2 Under this authority, the Bureau issued its final rule defining larger participants of the automobile financing market, 12 CFR 1090.108, on June 30, 2015.3 The rule became effective on August 31, 2015.4 Per the rule, a nonbank covered person that engages in automobile financing is generally a larger participant if such person has at least 10,000 aggregate annual originations,5 which the Bureau defined to include the following transactions:
Credit granted for the purpose of purchasing an automobile; Automobile leases;
2 Pub. L. No. 111-203 (2010).
3 Defining Larger Participants of the Automobile Financing Market and Defining Certain Automobile Leasing Activity as a Financial Product or Service, 80 Fed. Reg. 37495 (June 30, 2015). 4 Id.
5 12 CFR 1090.108(b).
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 3 Refinancings of credit granted for the purpose of purchasing an automobile (and any subsequent refinancings thereof) that are secured by an automobile; and Purchases or acquisitions of any of the foregoing obligations.6 The rule also clarified that auto dealers, including Buy-Here, Pay-Here (BHPH) dealers, are not larger participants under the rule.7 Sources of Auto Financing Consumers often purchase or obtain a vehicle by acquiring credit or entering into a lease arrangement. When acquiring credit, consumers can go through an indirect or a direct channel. Indirect Lending Channel With indirect lending, or dealer arranged financing, the dealer, rather than the consumer, typically selects the lender that will provide financing. Upon completion of the vehicle selection process, the dealer collects the consumer’s credit application information and forwards that information to one or more lenders using a standardized platform, such as DealerTrack, RouteOne, or Credit Union Direct Lending (CUDL).
When selecting a lender to approve the loan, the dealer may have incentives to select a particular lender over another. For example, a franchised dealer, a dealer that sells vehicles for certain auto manufacturers, may have incentives, such as promotional discounts or limited-time financing offers, to use the manufacturer’s subsidiary finance company – typically called a captive finance company – over another lender. Regardless of which lender the dealer selects, the underwriting and approval process is typically the same. That is, after evaluating the applicant, the lender will provide the dealer with its credit decision, including purchase eligibility criteria and other stipulations, such as a risk-based “buy rate.”8 After receiving a credit decision, the dealer will then finalize a retail installment sales contract with the consumer and subsequently sell that contract to the lender that provided the dealer with
6 12 CFR § 1090.108(a)(i)(A).
7 Id. § 1090.108(c); Section 1029 of the Dodd-Frank Act, 12 USC 5519, limits the Bureau’s authority over auto dealers. The final larger participant rule references this exclusion. See 12 CFR 1090.108(c)(1). The larger participant rule also excludes motor vehicle dealers that are predominantly engaged in the sale (and/or leasing) and servicing of motor vehicles and operate a line of business that involves the extension of retail credit or retail leases directly to consumers without routinely assigning them to unaffiliated third party finance or leasing sources. See 12 CFR 1090.108(c)(2) (citing 12 USC 5519(b)(2) and (f)(2)); see also 80 Fed. Reg. at 37515-16 (explaining the exclusion for BHPH dealers in paragraph (c)(2)). 8 The “buy rate” establishes the minimum interest rate at which the finance company is willing to purchase the retail installment sales contract executed between the consumer and the dealer for the purchase of the vehicle.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 4 an approved credit decision. The lender will then own and service the loan, or transfer those rights and responsibilities to another company.
Direct Lending Channel In the direct lending context, consumers directly apply for financing with a finance company, bank, or credit union of their choosing. After receiving an approval, the consumer will use the loan proceeds to directly purchase a vehicle from a seller. Leasing A lease agreement, between a lessor and lessee, sets forth terms that allow the lessee to use the vehicle for a set number of months, typically 12 to 48 months, while making a payment to the lessor each month. Leasing a vehicle is similar to obtaining credit in that both require an application, decision, and ongoing contractual obligation. For example, like a consumer seeking credit to purchase a vehicle, a consumer seeking to lease a vehicle must provide basic financial information such as income and credit history. Moreover, by signing the lease agreement, the consumer undertakes a major financial obligation in the form of a commitment to make a stream of payments over a specified period. The consumer can typically purchase the vehicle at the end of the lease term for a pre-determined amount, which is generally based on the residual value of the vehicle.9 Buy-Here, Pay-Here While most Buy-Here, Pay-Here (BHPH) dealers are independently owned entities that serve as the primary lender and servicer, some larger BHPH dealers sell or assign their contracts to an affiliated BHPH finance company once the contract has been consummated with the consumer. Ancillary Products and Services In addition to the actual vehicle, auto dealers and finance companies sometimes offer ancillary, or add-on, products and services at the time of vehicle purchase. For example: Guaranteed Auto Protection or Guaranteed Asset Protection (GAP) is a product designed to cover the difference, or “gap,” between the amount owed by the consumer on the auto loan and the amount received from the auto insurer in the event the vehicle is stolen, damaged, or totaled.
Generally, there are two types of GAP products in the market. A “GAP waiver” is a contractual agreement between the consumer and the finance company to cancel the debt in the event the vehicle is stolen, damaged, or totaled. The agreement typically appears in the
9 The residual value is the projected market value of the vehicle at the end of the lease, which is used in calculating the amount the consumer would have to pay to purchase the vehicle at the end of the lease term.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 5 retail installment sales contract or as an addendum to the sales contract. Most lease contracts offered by a captive finance company will typically include a GAP waiver. A “GAP waiver insurance” is an agreement between a consumer and an insurer. With this product, the consumer agrees to pay the insurer premiums for coverage and in return, the insurer agrees to pay the consumer the “gap” amount in the event of a total loss. Upon receiving this payout, the consumer will typically use it to pay off the remaining balance on the auto loan.
An Extended Warranty is a product that covers the cost of some repairs either in addition to or after the manufacturer’s warranty ends. These products typically exclude routine maintenance, such as oil changes and tire replacements. Credit insurance is a product in which the provider agrees to make the consumer’s auto payments upon the occurrence of certain situations, such as death or disability. There are four main types of credit insurance:
o Credit life insurance – pays off all or some of the outstanding balance on the loan in the event the consumer dies;
o Credit disability insurance – makes payments on the loan if the consumer becomes ill or injured and, as a result, cannot work;
o Involuntary unemployment insurance – makes payments on the loan if the consumer becomes unemployed; and o Credit property insurance – protects the car secured by the loan from events such as theft, accident, or natural disasters. This differs from property insurance. Applicable Laws/Regulations Entities offering auto finance products or services must comply with Federal consumer financial laws to the extent that the law applies to the particular entity and its activities: The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, require creditors to disclose information relating to the cost of loans, comply with advertising requirements, and process credit balances.
The Consumer Leasing Act (CLA) and its implementing regulation, Regulation M, require lessors to provide specific disclosures prior to consummation of a consumer lease and include certain disclosures in advertisements that contain specified triggering terms. The Electronic Fund Transfer Act (EFTA) and its implementing regulation, Regulation E, protect consumers engaging in electronic fund transfers. Among other things, Regulation E prohibits persons from requiring, as a condition of loan approval, a customer’s authorization for loan repayment through a recurring electronic funds transfer (EFT) except in limited circumstances.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 6 The Fair Debt Collection Practices Act (FDCPA) governs collection activities conducted by third party collection agencies, as well as servicer collection activities if the servicer acquired the loan when it was already in default.
The Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V, require that furnishers of information to consumer reporting agencies ensure the accuracy of data they place in the consumer reporting system. Additionally, the FCRA prohibits the use of consumer reports for impermissible purposes, and it requires users of consumer reports to provide certain disclosures to consumers. The FCRA also limits certain information sharing between affiliated companies. Examiners should note that the FCRA’s implementing regulations may differ for depository and non-depository institutions. The Gramm-Leach-Bliley Act (GLBA) and its implementing regulation, Regulation P, require entities to provide privacy notices and limit information sharing in particular ways. The Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, set forth requirements for accepting applications and providing notice of any adverse action, and prohibit discrimination against any borrower with respect to any aspect of a credit transaction:
o On the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract);
o Because all or part of the applicant’s income derives from any public assistance program; or o Because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.10 If examiners identify concerns related to ECOA or Regulation B, they should consult with the Fair Lending team in the Office of Supervision Policy, as those issues are beyond the scope of these procedures. An examination of whether an entity’s auto finance activities involve discrimination or other practices in violation of the ECOA will rely on procedures outlined in the CFPB’s ECOA Examination Procedures.
10 The Consumer Credit Protection Act, 15 USC 1601 et seq., is the collection of federal statutes that protects consumers when applying for or receiving credit. The Act includes statutes that have dispute rights for consumers, such as the Fair Credit Reporting Act. The ECOA prohibits discriminating against an applicant who has exercised a dispute right pursuant to one of the statutes outlined in the Act.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 7 To carry out the Examination Objectives, the examination process may also include assessing other risks to consumers. Collecting information about risks to consumers, whether or not there are specific legal guidelines addressing such risks, can help inform the CFPB’s policymaking. Moreover, these risks may include potentially unfair, deceptive, or abusive acts or practices (UDAAPs) with respect to the entity’s interactions with consumers.11 The CFPB uses the following standards when assessing UDAAPs:
o A representation, omission, act, or practice is deceptive when: The representation, omission, act, or practice misleads or is likely to mislead the consumer;
The consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and The misleading representation, omission, act, or practice is material. o An act or practice is unfair when:
It causes or is likely to cause substantial injury to consumers; The injury is not reasonably avoidable by consumers; and The injury is not outweighed by countervailing benefits to consumers or to competition.
o An abusive act or practice:
Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or Takes unreasonable advantage of – A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
The inability of the consumer to protect the consumer’s interests in selecting or using a consumer financial product or service; or The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
11 Section 1036 of the Dodd-Frank Act, 12 USC 5536.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 8 Refer to the examination procedures regarding UDAAPs for more information about the legal standards and the CFPB’s approach to examining for UDAAPs. The particular facts in a case are crucial to a determination of UDAAPs. As set forth in the Examination Objectives section, examiners should follow the CFPB internal consultation requirements to determine whether the applicable legal standards have been met before a violation of any Federal consumer financial law is cited, including a UDAAP violation. General Considerations Completing the examination modules, as applicable, will allow examiners to develop a thorough understanding of a regulated entity’s practices and operations. To complete the modules, examiners should obtain and review, as applicable, each entity’s: Organizational charts and process flowcharts;
Board minutes, annual reports, or the equivalent, to the extent available; Relevant management reporting;
Policies and procedures;
Compensation and employee incentive structures and policies; Rate sheets;
Fee sheets;
Loan/lease applications;
Loan/lease underwriting guidelines;
Loan/lease account documentation, notes, disclosures, and all other contents of underwriting and closing files;
Operating checklists, worksheets, and review documents; Relevant computer program and system details;
Dealer agreements, due diligence and monitoring procedures, and origination (lending or leasing) procedures;
Servicing related policies and procedures, such as those related to payment posting and payment allocation, and repossessions;
Service provider due diligence and monitoring procedures, and service provider contracts; Compliance monitoring and/or audit reports;
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 9 Management’s responses to compliance monitoring and/or audit findings; Debt collection practices;
Repossession reports;
Training programs and materials;
Advertisements; and Complaints.
Examiners should request that the entity provide a “walkthrough” of its origination and servicing processes using one or two specific consumer accounts as an example. Examiners should obtain access to, or a walkthrough of, the entity’s online services such as its origination interface and online applications, and servicing interface and online payments. Depending on the scope of the examination, examiners should perform transaction testing using approved sampling procedures, which may require use of a judgmental or statistical sample. Examiners should also conduct interviews with management and staff to determine whether they understand and consistently follow the policies, procedures, and regulatory requirements applicable to automobile financing; manage change appropriately; and implement effective controls. Examiners should also consider observing live or recorded customer interactions if consumer complaints or transaction testing indicate potential concerns.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 10 Module 1 – Company Business Model Examiners should review the entity’s portfolio and interview management to understand its business model.
1. Determine the type of products and services the entity offers and its strategy. [Click&type] 2. Determine the product volume, mix, trends, and concentrations. [Click&type] 3. Review the organizational chart and reporting structure to determine the responsibilities of key managers.
[Click&type] 4. Determine whether the compliance and underwriting functions operate independently of the production function (sales unit).
[Click&type] 5. Assess the overall effectiveness of the entity’s compliance management system (CMS). An effective CMS commonly has two interdependent control components: board and management oversight and compliance program, which includes policies and procedures, training, monitoring and/or audit, and consumer complaint response. Additionally, an institution’s compliance expectations extend to service provider relationships into which the institution has entered. Please refer to the Compliance Management Review (CMR) examination procedures for more information.
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 11 Module 2 – Advertising and Marketing Examiners should develop a detailed understanding of the entity’s marketing program to determine whether its marketing policies, procedures, and practices are consistent with the requirements of applicable Federal consumer financial laws. 1. Determine the relationships that the entity has with affiliated or other third parties to advertise, offer, sell, or provide loans, leases, or other products and services. [Click&type] 2. Assess how the entity reaches its potential customers through its statements, advertising, or other marketing representations. Examiners should review: a. Marketing and advertising materials, including signs or other displays and prescreened solicitations; and b. The criteria used to determine the potential recipients of the particular solicitations. [Click&type] Truth in Lending Act/Regulation Z 1. Review advertising policies and procedures used by the entity to ensure that there are adequate controls and procedures in place to ensure compliance. [Click&type] 2. Review a sample of the entity’s advertisements, including any electronic advertising, and verify that any specific credit terms advertised actually are or will be arranged or offered by the creditor. Also verify that required disclosures are made clearly and conspicuously. (12 CFR 1026.24(a) and (b)) [Click&type] 3. If the advertisement states a rate of finance charge: a. Determine whether the rate is stated as an “annual percentage rate,” using that term or the abbreviation “APR”;
b. Determine whether the APR may increase after consummation. If so, verify that fact is stated;
c. Determine whether the advertisement states any other rate; and
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 12 d. If the advertisement discloses the simple annual rate or periodic rate that is applied to an unpaid balance, determine whether it is disclosed more conspicuously than the annual percentage rate. (12 CFR 1026.24(c)) [Click&type] 4. When triggering terms are used, determine whether the advertisements contain the additional required terms in a clear and conspicuous manner. (12 CFR 1026.24(b) and (d)) [Click&type] 5. If an advertisement appearing in a catalog, electronically, or other multiple-page advertisement uses a table or schedule to comply with the requirements in 12 CFR 1026.24(d)(2), determine whether the table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced property or services offered. (12 CFR 1026.24(e)(2)) [Click&type] 6. If television or radio advertisements use triggering terms, determine whether the advertisement provides the additional terms either by: a. Clearly and conspicuously stating each of the additional required terms; or b. Clearly and conspicuously stating the “annual percentage rate” and, if the rate may increase after consummation, that fact, and a toll-free number, or any telephone number that allows a consumer to reverse the phone charges when calling, along with a reference that such number may be used to obtain additional information. (12 CFR 1026.24(g)) [Click&type] Consumer Leasing Act/Regulation M 1. Review advertising policies and procedures used by the entity to ensure that there are adequate controls and procedures in place to ensure compliance. [Click&type] 2. Review a sample of the entity’s advertisements, including any electronic advertisements, and verify that the advertised terms are usually and customarily available, or that the lessor will lease the property at those terms. Also verify that required disclosures are made clearly and conspicuously. (12 CFR 1013.7(a) and (b)) [Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 13 3. When triggering terms are used, determine whether the advertisements contain the additional required terms. (12 CFR 1013.7(d)) [Click&type] 4. If television or radio advertisements use triggering terms, determine whether the advertisement states the items listed in 12 CFR 1013.7(d)(2) or provides the alternative disclosures in 12 CFR 1013.7(f). (12 CFR 1013.7(d)(2) and (f)) [Click&type] Fair Credit Reporting Act/Regulation V Affiliate Marketing Opt Out – Section 624; 15 U.S.C. 1681s-3; 12 CFR 1022 Subpart C 1. Determine whether the entity receives consumer eligibility information from an affiliate. If not, Subpart C of 12 CFR 1022 does not apply.
[Click&type] 2. Determine whether the entity uses consumer eligibility information received from an affiliate to make a solicitation for marketing purposes that is subject to the notice and opt-out requirements. If not, Subpart C of 12 CFR 1022 does not apply. [Click&type] 3. Determine that, where applicable, the consumer is provided with an appropriate notice and a reasonable opportunity and method to opt out of the entity’s use of eligibility information to make solicitations for marketing purposes to the consumer, and that the entity is honoring the consumer’s opt-outs.
[Click&type] 4. If compliance risk management weaknesses or other risks requiring further investigation are noted, obtain and review a sample of notices to ensure compliance and a sample of opt-out requests from consumers to determine if the entity is honoring the opt-out requests. a. Determine whether the opt-out notices are clear, conspicuous, and concise and contain the required information, including the name of the affiliate(s) providing the notice, a general description of the types of eligibility information that may be used to make solicitations to the consumer, and the duration of the opt-out (12 CFR 1022.23(a)). b. Review opt-out notices that are coordinated and consolidated with any other notice or disclosure that is required under other provisions of law for compliance with the affiliate marketing regulation (12 CFR 1022.23(b)).
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 14 c. Determine whether the opt-out notices and renewal notices provide the consumer a reasonable opportunity to opt out and a reasonable and simple method to opt out (12 CFR 1022.24 and .25).
d. Determine whether the opt-out notice and renewal notice are provided (by mail, delivery, or electronically) so that a consumer can reasonably be expected to receive that actual notice (12 CFR 1022.26).
e. Determine whether, after an opt-out period expires, an entity provides a consumer a renewal notice prior to making solicitations based on eligibility information received. [Click&type] Prescreened Consumer Reports and Opt-Out Notice – Sections 604(c) and 615(d); 15 U.S.C. 1681b(c) and 15 U.S.C. 1681m(d) 12 CFR 1022.54 1. Determine whether the entity obtained and used prescreened consumer reports in connection with offers of credit and/or insurance.
[Click&type] 2. Evaluate the entity’s policies and procedures to determine if a list of the criteria used for prescreened offers, including all post-application criteria, is maintained in the entity’s files and the criteria are applied consistently when consumers respond to the offers. [Click&type] 3. Determine if written solicitations contain the required disclosures of the consumers’ right to opt out of prescreened solicitations and if the solicitations comply with all requirements applicable at the time of the offer.
[Click&type] 4. If procedural weaknesses or other risks requiring further investigation are noted, obtain and review a sample of approved and denied responses to the offers to ensure that criteria were appropriately followed.
[Click&type] Other Risks to Consumers 1. Assess whether the entity clearly and prominently discloses the material terms and conditions of the auto loan, lease, or other products and services. [Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 15 2. Determine whether the entity engages in any deceptive acts or practices when marketing its products.
[Click&type] 3. Determine whether the promotional materials clearly and prominently disclose any material limitations, conditions, or restrictions on the offer. This is of particular importance when the entity uses terms such as “rewards,” “discounts,” or “free.” [Click&type] 4. Determine whether the entity clearly and prominently discloses the optional nature of any optional products and whether the decision to purchase an optional product is considered in decisions to grant financing.
[Click&type] 5. Determine whether the entity reviews or monitors recorded telephone calls, transcripts of online communications, and websites to ensure that advertising and solicitations comply with applicable Federal consumer financial laws.
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 16 Module 3 – Application and Origination When entities take applications, evaluate applicants, and originate auto loans or leases, they are subject to the legal requirements discussed below. Examiners should determine whether the entity’s application and origination practices are consistent with these legal requirements. Truth in Lending Act/Regulation Z Disclosure Forms 1. Determine if the entity has changed any TILA disclosure forms or if there are forms that have not previously been reviewed for accuracy. If so, verify the accuracy of each disclosure by reviewing the following:
a. Note and/or contract forms (including those furnished to dealers); and b. Standard closed-end credit disclosures. (12 CFR 1026.17(a) and 1026.18) [Click&type] Closed-End Credit Transactional Testing Procedures 1. Determine that the disclosures are clear, conspicuous, grouped together or segregated as required, and provided in writing in a form the consumer may keep. For disclosures provided electronically (other than for advertising requirements), determine whether those disclosures were provided in compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act). (12 CFR 1026.17(a)(1)) [Click&type] 2. Determine whether the terms “Finance Charge” and “Annual Percentage Rate” and corresponding rates or amounts are disclosed more conspicuously than other terms, except for the creditor’s identity. (12 CFR 1026.17(a)(2)) [Click&type] 3. Determine whether the required disclosures were given to the consumer in writing, in a form that the consumer may keep, before consummation of the transaction. (12 CFR 1026.17(a)(1) and (b)) [Click&type] 4. Determine whether the information required by 12 CFR 1026.18(a) through (p) and (r) is disclosed, as applicable. (12 CFR 1026.18) [Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 17 5. Determine whether the entity retained evidence of compliance with the requirements of 12 CFR Part 1026, other than the advertising requirements, for two years after the date the disclosures were required to be made or an action was required to be taken. (12 CFR 1026.25(a)) [Click&type] Consumer Leasing Act/Regulation M Disclosure Forms 1. Determine if the entity has changed any CLA disclosure forms or if there are forms that have not been previously reviewed for accuracy. If so, verify the accuracy of each disclosure by reviewing the following:
a. Note and/or contract forms (including those furnished to dealers); and b. Standard leasing disclosures. (12 CFR 1013.3 and 4) [Click&type] Transactional Testing Procedures 1. Determine that the disclosures are clear, conspicuous, and provided in writing in a form the consumer may keep. For disclosures provided electronically (other than disclosures in advertisements), determine whether those disclosures were provided in compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act). (12 CFR 1013.3(a)) [Click&type] 2. Determine whether the disclosures are provided in a dated statement and in the prescribed format. (12 CFR 1013.3(a)(1)) [Click&type] 3. Determine whether the information required by 12 CFR 1013.4(b) through (f), (g)(2), (h)(3), (i)(1), (j), and (m)(1) is segregated and in a form substantially similar to the model in Appendix A. (12 CFR 1013.3(a)(2)) [Click&type] 4. Determine whether the required disclosures were made before consummation of the lease. (12 CFR 1013.3(a)(3)) [Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 18 5. Determine whether the disclosures are accurate and include the information required by 12 CFR 1013.4(a) through (s), as applicable. (12 CFR 1013.4) [Click&type] 6. Determine whether disclosures are given to lessees when they “renegotiate” or “extend” their leases, except as provided in 12 CFR 1013.5(d). (12 CFR 1013.5) [Click&type] 7. Determine whether the entity retained evidence of compliance with the requirements of 12 CFR Part 1013, other than the advertising requirements, for a period of not less than two years after the date the disclosures were required to be made or an action was required to be taken. (12 CFR 1013.8) [Click&type] Electronic Fund Transfer Act/Regulation E 1. If the entity initiates preauthorized electronic fund transfers (EFTs), assess the entity’s compliance with the applicable requirements relating to preauthorized EFTs. a. Determine whether the entity obtains proper written authorization for preauthorized EFTs from a consumer’s account and provides a copy of the authorization to the consumer. (12 CFR 1005.10(b)) b. Determine whether the entity conditions an extension of credit to a consumer on the consumer’s repayment by preauthorized EFTs. (12 CFR 1005.10(e)(1)) [Click&type] Fair Credit Reporting Act/Regulation V Entities that obtain information from a consumer reporting agency to determine a consumer’s creditworthiness must comply with the requirements of FCRA. When an entity denies applications for products like loans, or provides such products on materially less favorable terms to a consumer (e.g., charging a higher interest rate) because of the consumer report information it obtains, the entity must provide appropriate adverse action notice or risk-based pricing notices to the consumer. Please refer to the FCRA examination procedures, Adverse Action Disclosures and Risk-Based Pricing Notice, for more information. Adverse Action Disclosures – Sections 615(a) and (b); 15 U.S.C. 1681m(a) and (b) 1. Determine whether the policies and procedures adequately ensure that the entity or other person provides the appropriate disclosures, including the consumer’s credit score as appropriate, when it takes an adverse action against consumers based in whole or in part on
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 19 information contained in a consumer report or specified information received from third parties, including affiliates.
[Click&type] 2. Review the policies and procedures of the entity or other person for responding to requests for information in response to these adverse action notices. [Click&type] 3. If procedural weaknesses or other risks requiring further investigation are noted, review a sample of adverse action notices to determine if they are accurate and in compliance. [Click&type] Risk-Based Pricing Notice – Section 615(h); 15 U.S.C. 1681m(h); 12 CFR 1022, Subpart H 1. Determine whether the entity uses consumer report information in consumer credit decisions. If yes, determine whether the entity uses such information to provide credit on terms that are “materially less favorable” than the most favorable material terms available to a substantial proportion of its consumers. Relevant factors in determining the significance of differences in the cost of credit include the type of credit product, the term of the credit extension, and the extent of the difference. If yes, the entity is subject to the risk-based pricing regulations. [Click&type] 2. Determine the method the entity uses to identify consumers who must receive a risk-based pricing notice and whether the method complies with the regulation (12 CFR 1022.72(b)). [Click&type] 3. For entities that use the direct comparison method (12 CFR 1022.72(b)), determine whether the entity directly compares the material terms offered to each consumer and the material terms offered to other consumers for a specific type of credit product. [Click&type] 4. For entities that use the credit score proxy method (12 CFR 1022.72(b)(1)): a. Determine whether the entity calculates the cutoff score by considering the credit scores of all, or a representative sample of, consumers who have received credit for a specific type of credit product;
b. Determine whether the entity recalculates the cutoff score no less than every two years;
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 20 c. For new entrants into the credit business, for new products subject to risk-based pricing, or for acquired credit portfolios, determine whether the entity recalculates the cutoff scores within time periods specified in the regulation; d. For entities using more than one credit score to set material terms, determine whether the entity establishes a cutoff score according to the methods specified in the regulation; and e. If no credit score is available for a consumer, determine whether the entity provides the consumer a risk-based pricing notice.
[Click&type] 5. For entities that use the tiered pricing method (12 CFR 1022.72(b)(2)): a. When four or fewer pricing tiers are used, determine if the entity sends risk-based pricing notices to consumers who do not qualify for the top, best-priced tier; or b. When five or more pricing tiers are used, determine if the entity provides risk-based pricing notices to consumers who do not qualify for the two top, best-priced tiers; and any other tier that, combined with the top two tiers, equal no less than the top 30 percent and no more than the top 40 percent of the total number of tiers. [Click&type] 6. Determine whether the entity provides a risk-based pricing notice to a consumer (12 CFR 1022.72(a)). For entities that provide the notice, proceed to #7, below. If the entity does not provide a risk-based pricing notice, proceed to #8, below, to determine whether an exception applies (12 CFR 1022.74).
[Click&type] 7. Determine whether the risk based pricing notice contains (12 CFR 1022.73(a)(1)): a. A statement that a consumer report (or credit report) includes information about the consumer’s credit history and the type of information included in that history; b. A statement that the terms offered, such as the APR, have been set based on information from a consumer report;
c. A statement that the terms offered may be less favorable than the terms offered to consumers with better credit histories;
d. A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report;
e. The identity of each consumer reporting agency that furnished a consumer report used in the credit decision;
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 21 f. A statement that federal law gives the consumer the right to obtain a copy of a consumer report from the consumer reporting agency or agencies identified in the notice without charge for 60 days after receipt of the notice;
g. A statement informing the consumer how to obtain a consumer report from the consumer reporting agency or agencies identified in the notice and providing contact information (including a toll-free telephone number, where applicable) specified by the consumer reporting agency or agencies;
h. A statement directing consumers to the website of the CFPB to obtain more information about consumer reports; and i. If a credit score of the consumer to whom a person grants, extends, or otherwise provides credit is used in setting the material terms of credit: i. A statement that a credit score is a number that takes into account information in a consumer report, that the consumer's credit score was used to set the terms of credit offered, and that a credit score can change over time to reflect changes in the consumer's credit history;
ii. The credit score used by the person in making the credit decision; iii. The range of possible credit scores under the model used to generate the credit score; iv. All of the key factors that adversely affected the credit score, which shall not exceed four key factors, except that if one of the key factors is the number of inquiries made with respect to the consumer report, the number of key factors shall not exceed five; v. The date on which the credit score was created; and vi. The name of the consumer reporting agency or other person that provided the credit score.
[Click&type] 8. If the entity does not provide a risk-based pricing notice, determine if one of the following situations that qualify for a regulatory exception applies (12 CFR 1022.74(a)-(f)): a. A consumer applies for specific terms of credit and receives them, unless those terms were specified by the entity using a consumer report after the consumer applied for the credit and after the entity obtained the consumer report; b. An entity provides a notice of adverse action;
c. An entity makes a firm offer of credit in a prescreened solicitation (even if the person makes other firm offers of credit to other consumers on more favorable material terms);
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 22 d. An entity generally provides a credit score disclosure to each consumer that requests a loan that is not or will not be secured by residential real property; or e. An entity that otherwise provides credit score disclosures to consumers that request loans provides a disclosure for when no credit score is available. [Click&type] 9. For entities that choose to provide a credit score disclosure to consumers that request a loan that is not or will not be secured by residential real property, determine whether the 12 CFR 1022.74(e) notice generally is provided to each consumer that requests such an extension of credit and that each notice contains:
a. A statement that a consumer report (or credit report) is a record of the consumer’s credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors;
b. A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer’s credit history;
c. A statement that the consumer’s credit score can affect whether the consumer can obtain credit and what the cost of that credit will be;
d. A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report;
e. A statement that federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free report from each of the nationwide consumer reporting agencies once during any 12-month period;
f. Contact information for the centralized source from which consumers may obtain their free annual consumer reports;
g. A statement directing consumers to the website of CFPB to obtain more information about consumer reports;
h. The current credit score of the consumer or the most recent credit score of the consumer that was previously calculated by the consumer reporting agency for a purpose related to the extension of credit;
i. The distribution of credit scores among consumers who are scored under the same scoring model that is used to generate the consumer’s credit score; the distribution must: i. Use the same scale as that of the credit score provided to the consumer; and
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 23 ii. Be presented:
A. In the form of a bar graph containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar;
B. By other clear and readily understandable graphical means; or C. In a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers; the presentation may use a graph or statement obtained from the entity providing the credit score if it meets these requirements;
j. The range of possible credit scores under the model used to generate the credit score; k. The date on which the credit score was created; and l. The name of the consumer reporting agency or other person that provided the credit score.
[Click&type] 10. For entities that otherwise provide credit score disclosures to consumers that request loans, determine whether the 12 CFR 1022.74(f) notice is provided to the applicable consumers in situations where no credit score is available for the consumer, as required by 12 CFR 1022.74(f). Determine whether each notice contains:
a. A statement that a consumer report (or credit report) includes information about the consumer’s credit history and the type of information included in that history; b. A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time in response to changes in the consumer’s credit history;
c. A statement that credit scores are important because consumers with higher credit scores generally obtain more favorable credit terms;
d. A statement that not having a credit score can affect whether the consumer can obtain credit and what the cost of that credit will be;
e. A statement that a credit score about the consumer was not available from a consumer reporting agency, which must be identified by name, generally due to insufficient information regarding the consumer’s credit history;
f. A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the consumer report;
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 24 g. A statement that federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free consumer report from each of the nationwide consumer reporting agencies once during any 12-month period;
h. The contact information for the centralized source from which consumers may obtain their free annual consumer reports; and i. A statement directing consumers to the website of the CFPB to obtain more information about consumer reports.
[Click&type] 11. For entities that provide credit score exception notices and that obtain multiple credit scores in setting material terms of credit, determine whether the score(s) is disclosed in a manner consistent with the regulation (12 CFR 1022.74(d)(4) and .74(e)(4)): a. If an entity only relies upon one of those credit scores in setting the material terms of credit granted, extended, or otherwise provided to a consumer (for example, by using the low, middle, high, or most recent score), determine whether the notice includes that credit score and the other information required by 12 CFR 1022.74(d); or b. If an entity relies upon multiple credit scores in setting the material terms of credit granted, extended, or otherwise provided to a consumer (for example, by computing the average of all the credit scores obtained), determine whether the notice includes one of those credit scores and the other information required by 12 CFR 1022.74(d). [Click&type] 12. For all notices, determine whether the notices are clear and conspicuous and comply with the specific format requirements for the notices (12 CFR 1022.73(b), .74(d)(2), .74(e)(2), and .74(f)(3)).
[Click&type] 13. For all notices, determine whether the notices are provided within the required time frames (12 CFR 1022.73(c), .74(d)(3), .74(e)(3), and .74(f)(4)), as set out as follows: Risk-based pricing notices For closed-end credit, the notice generally must be provided to the consumer after the decision to approve a credit request is communicated to the consumer, but before consummation of the transaction.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 25 Credit score disclosures for loans not secured by residential real property The notice generally must be provided to the consumer as soon as reasonably practicable after the credit score has been obtained, but in any event, at or before consummation in the case of closed-end credit.
Credit score exception notices when no credit score is available The notice generally must be provided to the consumer as soon as reasonably practicable after the entity has requested the credit score, but in any event, not later than consummation of a transaction in the case of closed-end credit. Application to certain automobile lending transactions For automobile lending transactions made through an auto dealer that is unaffiliated with the entity, the entity may provide a notice in the time periods described above. Alternatively, the entity may arrange to have the auto dealer provide a notice to the consumer on its behalf within these time periods and maintain reasonable policies and procedures to verify that the auto dealer provides the notice to the consumer within the applicable time periods. If the entity arranges to have the auto dealer provide a credit score disclosure for loans not secured by residential real property, the entity complies if the consumer receives a notice containing a credit score obtained by the auto dealer within these time periods, even if a different credit score is obtained and used by the entity.
For all notices, determine whether the entity follows the rules of construction pertaining to the number of notices provided to the consumer(s) (12 CFR 1022.75). In a transaction involving two or more consumers, an entity must provide a risk-based notice to each consumer. If the consumers have the same address and the notice does not include a credit score(s), an entity may satisfy the requirements by providing a single notice addressed to both consumers. However, if a notice includes a credit score(s), the entity must provide a separate notice to each consumer whether the consumers have the same address or not. Each separate notice that includes a credit score(s) must contain only the credit score(s) of the consumer to whom the notice is provided, and not the credit score(s) of the other consumer. Similarly, for credit score disclosure exception notices, whether the consumers have the same address or not, the entity must provide a separate notice to each consumer and each separate notice that includes a credit score(s) must contain only the credit score(s) of the consumer to whom the notices is provided. For all notices, determine whether the entity uses the model forms in Appendix H of the regulation. If yes, determine that it does not modify the model form so extensively as to affect the substance, clarity, comprehensibility, or meaningful sequence of the forms in Appendix H.
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 26 Optional Products 1. Determine whether the entity offers or finances optional products or services and, if so, which products or services the entity offers or finances. [Click&type] 2. Determine how the entity tracks the sale or financing of optional products or services. [Click&type] 3. Determine whether the entity uses a service provider in connection with the sale of any optional products or services. If so, how does the entity ensure that these providers effectively manage compliance with Federal consumer financial laws applicable to the product or service being provided? [Click&type] 4. Determine whether the entity added optional products or services on the loan or lease without the consumer’s explicit authorization.
[Click&type] Other Risks to Consumers 1. Evaluate the underwriting practices of the entity, including the average loan to value ratios, lengths of terms, and whether the entity originates loans or leases with a high risk of default (e.g., determine if there is evidence of false or undocumented income). [Click&type] 2. Evaluate the entity’s early payment default rate.
[Click&type] 3. Evaluate the loan agreement and identify potential risks of consumer harm. [Click&type] 4. Evaluate communications related to vehicle financing and the financing of optional products or services, including any scripts.
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 27 5. Obtain records of and evaluate the communications between the entity and the dealers regarding sales incentives and production goals. [Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 28 Module 4 – Payment Processing and Account Maintenance Servicers collect and process auto loan or lease payments from borrowers. Payment processing includes collecting payments such as regular payments or prepayments, posting a payment to a borrower’s account, assessing fees such as late fees or nonsufficient funds charges, or providing account statements to borrowers.
To assess payment posting and fee practices, examiners should review the policies and procedures and a sample of servicing records for both loans and leases, as applicable. Examiners should begin by reviewing a sample of records from the servicer’s primary record system. If potential problems are found, examiners should review copies of relevant records outside the primary system, such as copies of consumer payment records and copies of bills from vendors documenting any services related to the consumer’s loan or lease account. If consumer complaints or document review indicate potential violations in these areas, examiners also may conduct interviews of consumers from the sample and ask questions relevant to each topic area below.
Payment Processing Overview of Servicer’s Activities 1. Assess the servicer’s process for crediting payments to borrower accounts. [Click&type] 2. Determine whether the servicer timely posts payments and credits the borrower’s accounts. [Click&type] 3. Determine how the servicer responds when a payment, such as a check, EFT, or other payment method from the borrower’s deposit account fails, including when and how the servicer notifies the borrower of a failed transfer.
[Click&type] 4. Determine whether the servicer’s customer service center has access to current loan or lease information, including whether a payment transfer has failed. Determine what practices are in place to advise the borrower when the borrower has concerns that the payment transfer may not have gone through correctly.
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 29 5. Determine whether the servicer allows the borrower to access payment records, including the amortization of the loan, amount of principal and interest paid to date, and if desired, the payoff amount. Assess the servicer’s procedures for allowing borrowers to access these records. [Click&type] 6. In assessing risks to consumers associated with payment processing, examiners may find evidence of violations of—or an absence of compliance policies and procedures with respect to—other laws, such as the Servicemembers Civil Relief Act. In these circumstances, examiners should identify such matters for appropriate action, such as, where authorized, possible referral to federal or state regulators. For example, the Servicemembers Civil Relief Act requires a servicer to reduce the interest rate that an active duty servicemember must pay on a pre-service loan (entered into before the borrower entering military service) to no more than six percent upon receiving a written request and a copy of the servicemember’s military orders.
[Click&type] Assessment of Fees 1. Determine whether the servicer informs consumers in a timely manner about fees, penalties, or other charges that have been assessed and the reasons for the assessment. [Click&type] 2. Determine whether the servicer has assessed a late fee or other delinquency fee, even if the servicer received the full amount due on time.
[Click&type] 3. Assess late fee pyramiding: Determine whether the servicer has assessed or collected any late or delinquency fee on a payment where such fee is only attributable to late or delinquency fees assessed on earlier installments (and the payment is otherwise the amount due for the applicable period and is paid on its due date or within an applicable grace period). [Click&type] Application of Payments 1. Determine whether the servicer followed the order of payment application specified in the loan or lease agreements when crediting payments.
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 30 2. If a borrower has multiple loans or leases with the same servicer, determine the policies for payment allocation, such as whether interest rate is considered and whether a borrower can change allocation of his or her monthly payment.
[Click&type] 3. If a borrower has multiple loans or leases with the same servicer, assess how the servicer allocates partial payments and if the servicer provides information to consumers on its default payment allocation methodology.
[Click&type] 4. Assess how the servicer handles partial payments (for example, whether the servicer credits the borrower’s account for the amount received or whether the servicer uses a suspense account).
[Click&type] 5. Determine the circumstances under which the servicer sends back payments, including, if applicable, whether the servicer in a timely, clear, and understandable manner explains the reason a payment is sent back and the future payment amount that would be accepted. NOTE: After the servicer has provided the customer written notice that the contract has been declared in default and the remaining payments due under the contract have been accelerated, the servicer may not be required to accept payments that are insufficient to pay the full balance due.
[Click&type] Prepayments 1. Determine whether the servicer restricts or refuses any prepayments including prepayments of future installments or principal payments.
[Click&type] 2. Determine whether the servicer assesses fees for any prepayments. [Click&type] 3. Determine whether the servicer’s process for prepayments creates any undue burden on borrowers’ ability to make a prepayment.
[Click&type] 4. Determine whether information or instruction about how the servicer credits prepayments is clearly conveyed to the borrower.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 31 [Click&type] 5. Assess whether the servicer credits prepayments to the borrower’s principal balance or to a future installment of the borrower’s account without reducing principal. [Click&type] 6. Assess whether the servicer considers borrower instruction when applying the prepayment to the account and if the borrower may choose between having the additional payments applied to the borrower’s principal balance or applied to a future installment without reducing principal. Does the servicer require specific instruction from the borrower, such as a written request to apply to the prepayment to a future installment or to principal? [Click&type] Periodic Statements Determine whether the servicer provides borrowers with periodic statements of the account. If so, examiners should review policies, procedures, and systems to assess the content of statements provided to consumers.
1. Determine whether the statements clearly and conspicuously identify payment requirements, payment allocation, and any charges and fees.
[Click&type] 2. Determine how statements are provided to borrowers.
[Click&type] 3. Determine whether the servicer informs the borrower of any interest rate changes, and when and how this information is provided.
[Click&type] 4. Determine whether the servicer has a process to verify that interest rate and payment changes to borrower’s accounts based on a change to a variable interest rate are accurate. [Click&type] Electronic Fund Transfer Act/Regulation E If the servicer is within the scope of coverage and obtains electronic payments from borrowers, assess compliance with EFTA’s requirements for handling authorizations for electronic payments from consumers.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 32 1. Determine whether the servicer is complying with the appropriate disclosure requirements if the servicer is converting check payments from borrowers to electronic fund transfers (12 CFR 1005.3(b)(2)).
[Click&type] 2. Determine whether the servicer is complying with the appropriate disclosure requirements if the servicer is collecting returned item fees by electronic fund transfer (12 CFR 1005.3(b)(3)).
[Click&type] 3. Determine whether the EFT is a single or a recurring EFT that is a preauthorized electronic transfer. To qualify as a preauthorized electronic fund transfer, the transfer is one that is authorized in advance to recur at substantially regular intervals (12 CFR 1005.3, 1005.2(k)). [Click&type] 4. If the servicer initiates preauthorized EFTs, assess the servicer’s compliance with the applicable advance authorization, disclosures, and other requirements relating to preauthorized electronic fund transfers under the EFTA and Regulation E (12 CFR 1005.10). a. Does the servicer obtain proper written authorization for recurring preauthorized electronic fund transfers from a consumer’s account and provide a copy of the authorization to the consumer (12 CFR 1005.10(b), 1005.2(k))? b. Will the preauthorized transfers vary in amount? If so, does the servicer, prior to each transfer, provide reasonable advance notice to the consumer, in accordance with applicable regulations, of the amount to be transferred and the scheduled date of transfer, or give the consumer the option of receiving notice only when a transfer falls outside a specified range of amounts or differs from the most recent transfer by more than an agreed-upon amount (12 CFR 1005.10(d))? [Click&type] Account Maintenance Truth in Lending Act/Regulation Z Treatment of Credit Balances 1. Assess compliance with Regulation Z, Treatment of Credit Balances. Please refer to the regulation and examination narrative and procedures regarding Regulation Z, 12 CFR 1026.21, for more information.
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 33 Other Risks to Consumers Servicing Transfers 1. Determine whether the servicer has transferred or acquired loans or leases to/from a different servicing technology platform or to/from another servicer during the period covered by the examination.
[Click&type] 2. Determine whether the servicer provides borrowers with adequate and timely information when it transfers or sells servicing rights to a new servicer. [Click&type] 3. Determine whether the servicer provides borrowers with adequate and timely information when it receives or purchases servicing rights from another servicer. [Click&type] 4. Assess whether the servicer provides the borrower with the information necessary for the borrower to continue to make timely payments to the new servicer. [Click&type] 5. Assess the servicer’s process for forwarding any payments received by borrowers after an account has been transferred to a new servicer.
[Click&type] 6. Assess the servicer’s process and controls to ensure transferred account information is accurate.
[Click&type] 7. Determine whether current automated clearing house (ACH) payment programs transfer to the new servicer and whether borrowers are notified about what impact the servicing transfer has on the existing ACH payment program. For example, determine whether the servicer takes steps to ensure consumers do not inadvertently fail to make a timely payment or make a double payment following transfer.
[Click&type] 8. Determine whether the lender or servicer required the borrower to undergo a period of deferral while the servicing rights were being transferred and whether interest accumulated during that time.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 34 [Click&type] 9. Determine whether information regarding any debt restructures/workouts has been transferred.
[Click&type] 10. Determine whether a servicer who receives servicing transfers complies with the terms of any debt restructure/workout agreements entered into by the borrower and the prior servicer. [Click&type] Payoff Statements 1. Assess a servicer’s policies and procedures for processing payoff statement requests. [Click&type] 2. Determine if the servicer provides an accurate statement of the total outstanding balance that would be required to pay the consumer's obligation in full as of a specified date within a reasonable time after receiving a request from the consumer or any person acting on behalf of the consumer.
[Click&type] Optional Products 1. Determine whether the servicer offers or finances optional products or services (such as biweekly payment plans, payment protection, credit protection, or extended warranties) and, if so, which products and/or services the servicer offers or finances. [Click&type] 2. Determine whether the servicer offers or finances debt cancellation, debt suspension, or other similar optional products or services and, if so, which products and/or services the servicer offers.
[Click&type] 3. Determine how the servicer monitors optional products attached to loans or leases, including cancelling the products and providing refunds in a timely manner, where applicable. [Click&type] 4. Determine how refunds of unused optional products or services are processed after the loan is prepaid or the loan is terminated (e.g., after repossession or total loss). Does the servicer’s process consider state law requirements for refunds?
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 35 [Click&type] 5. Determine whether the servicer uses a service provider in connection with optional products and, if so, how the servicer ensures that these providers effectively manage compliance with Federal consumer financial laws applicable to the product or service being provided. [Click&type] 6. Review marketing materials, such as telemarketing scripts, direct mail, web-based, or other media, and determine whether each optional product’s costs and terms are clearly and prominently disclosed. If consumer complaints or document review indicate potential violations in these areas and the servicer engages in telemarketing, then monitor call center activity and statements of representatives marketing the products. If the servicer engages in web-based marketing, monitor Internet communications related to the marketing. [Click&type] 7. Determine whether the servicer added optional products or services without obtaining explicit authorization from the consumer. If the servicer obtains written authorization, review records of consumers who received additional products or services to ensure that written authorization has been provided and retained.
[Click&type] 8. For bi-weekly payment plan product solicitations, determine whether the servicer clearly and conspicuously explains the terms and conditions, including, where applicable, whether the servicer will be crediting payments bi-weekly or only monthly. [Click&type] Leases 1. Determine whether the servicer informs consumers in a timely manner about fees, penalties, or other charges that have been imposed after the lease has expired and the reasons for the imposition.
[Click&type] 2. In assessing risks to consumers, examiners may find evidence of violations of—or an absence of compliance policies and procedures with respect to—other laws, in which case examiners should identify such matters for appropriate actions, such as, where authorized, possible referral to other regulators. For example, the Servicemembers Civil Relief Act has provisions that allow a servicemember to terminate certain lease agreements if: a. The lease is executed by or on behalf of a person who thereafter and during the term of the lease enters military service under a call or order specifying a period of not less than
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 36 180 days (or who enters military service under a call or order specifying a period of 180 days or less and who, without a break in service, receives orders extending the period of military service to a period of not less than 180 days); or b. The servicemember, while in military service, executes the lease and thereafter receives military orders either (1) for a permanent change of station from either a location inside the continental United States to one outside the continental United States, or from a location in a state outside the continental United States to any location outside that state, or (2) to deploy with a military unit for a period of not less than 180 days. [Click&type] 3. Assess policies and procedures for the expiration of lease agreements, including an assessment of turn-in events, and representations made to consumers regarding the condition of the vehicle and mileage.
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 37 Module 5 – Collections, Debt Restructuring, Repossession, and Accounts in Bankruptcy Examiners should obtain a sample of servicing records for customers in default, including a sufficient number of loans or leases in which the consumer has filed for bankruptcy, to assess collection practices. Examiners should also obtain a sample of servicing records for customers whose vehicles have been repossessed or are in the process of being repossessed. Examiners should obtain collection call records and listen to a sample of collection calls to assess for compliance with Federal consumer financial laws. Examiners should also closely review any collections related complaints to identify potential risks to consumers or violations of Federal consumer financial law.
Collections Fair Debt Collection Practices Act (FDCPA) Under the FDCPA, a “debt collector” is generally defined as any person who regularly collects, or attempts to collect, consumer debts due another person or entity or uses some name other than its own when collecting its own consumer debts, with certain exceptions. The definition includes, for example, an entity that regularly collects debts for an unrelated entity. The debt collector definition has an exception that frequently applies to servicing: an entity is not a debt collector under the FDCPA when it collects debts that were not in default when they were obtained by the servicer.12 Thus, a servicer that purchases the servicing rights for a portfolio of loans will be a debt collector only for loans that were in “default” at the time of the purchase.13 If the entity has acted or is acting as a debt collector under the FDCPA, determine if the entity has:
1. Communicated with the consumer or third parties in any prohibited manner (15 U.S.C. 1692b and c);
[Click&type] 2. Furnished the written validation notice within the required time period and otherwise complied with applicable validation requirements (15 U.S.C. 1692g);
12 15 U.S.C. 1692a(6)(F)(iii).
13 The FDCPA itself does not contain a definition of the term “default.” In determining whether a debt is in default, the following factors, among others, are generally considered: the creditor’s customary policies and practices; terms of the contract; determinations by the originator, and state law.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 38 [Click&type] 3. Used any harassing, abusive, unfair, or deceptive collection practice prohibited by FDCPA (15 U.S.C. 1692d, 1692e, 1692f, and 1692j);
[Click&type] 4. Collected any amount not expressly authorized by the debt instrument creating the debt or permitted by law (15 U.S.C. 1692f(1));
[Click&type] 5. Applied all payments received as instructed and, where no instruction was given, applied payments only to undisputed debts (15 U.S.C. 1692h); [Click&type] 6. Filed suit in an authorized forum if the entity sued to collect the debt (15 U.S.C. 1692i). [Click&type] Refer to the FDCPA examination procedures for more detailed information. Servicing Transfers 1. Assess compliance with FDCPA, Right to Validation Notice for Certain Consumers. Please refer to the examination procedures regarding FDCPA, 15 U.S.C. 1692g(a), for more information.
[Click&type] Other Risks to Consumers 1. Determine when and how a borrower is notified that the account is past due, and when a past due account is sent to collections.
[Click&type] 2. Determine whether the servicer reviews defaulted borrowers for any available debt restructuring/workout options before sending the account to collections. [Click&type] 3. If the servicer contacts borrowers by telephone, consider the following: a. Employees and service providers clearly indicate to consumers that they are calling about the collection of a debt.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 39 b. Employees and service providers do not disclose the existence of a consumer’s debt to the public without the consent of the consumer, except as permitted by law. c. The entity avoids repeated telephone calls to consumers that annoy, abuse, or harass any person at the number called.
[Click&type] 4. Determine whether the servicer’s representatives risk making misrepresentations or risk using other deceptive means to collect debts. Determine whether the servicer has appropriate controls to prevent such practices.
[Click&type] 5. Determine whether collections staff transfer borrowers to debt restructure/workouts staff, in accordance with the servicer’s policies and procedures, to discuss potential payment alternatives.
[Click&type] 6. For regulated entities using service providers for collection activity, determine whether the servicer has policies and procedures in place to monitor the service provider for compliance with Federal consumer financial laws. Please refer to the CMR examination procedures for more information on service provider oversight.
[Click&type] Collecting Delinquent Accounts through Legal Action 1. Determine whether the servicer has policies and controls in place to ensure the accuracy of information used to collect delinquent accounts through legal action. [Click&type] Debt Restructuring/Workouts 1. Determine whether the servicer offers formal or informal debt restructuring/workout options to borrowers in default or at risk of default. Such options may include forbearances, repayment plans, loan modifications, or other repayment options. a. Assess the servicer’s policies and procedures for workouts, including how the servicer discloses the requirements, terms, and any associated fees or other consequences (e.g., decreased credit score) when providing workout options to borrowers. b. Determine how borrowers apply for any available workout options and what the eligibility requirements are for each option.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 40 c. Determine whether and how the servicer communicates with borrowers about possible workout options.
d. Determine how the servicer determines what workout option(s) it will offer to the borrower, if any.
e. Determine whether the servicer offers any available workout options consistently to all borrowers in similar situations.
f. Determine whether the servicer has internal timelines for processing borrower requests for workout options and whether the servicer notifies the borrower of receipt of the application of documents.
g. Determine how promptly workouts go into effect once agreed to by the servicer. h. Determine if the servicer includes any waiver of legal rights in its workout agreements. [Click&type] Repossessions For the loans or leases in the repossession sample, examiners should focus on whether the consumer is, in fact, in default and whether all amounts due are correct. Examiners should review the amounts recorded in the servicer’s system of record and compare them to statements made in communications from the borrower, including consumer complaints. Examiners should review complaints of consumers whose vehicles were repossessed in the prior year or are currently in the process of repossession.
Often, used vehicles sold to subprime borrowers are sold with a Global Positioning System (GPS) enabled Starter Interrupt Device (SID) for payment assurance capabilities. A SID is a payment assurance device that has the ability to interrupt the starter functionality of a vehicle upon which it is installed and prevent the vehicle from starting. A GPS with the SID is installed typically at the point of sale or at the post-repossession reinstatement. Some SIDs also remind consumers when payments are due or past due. Not all GPS devices have SIDs; many are solely used for navigation purposes. Examiners should closely review any repossession related complaints to identify potential risks to consumers or violations of law related to SIDs. 1. Assess the servicer’s policies and procedures for repossessions, including how the servicer oversees and communicates with service providers performing repossession services. Please refer to the Bureau’s CMR procedures for more information on service provider oversight. a. Assess the servicer’s policies and procedures for how a repossession order is cancelled after a borrower enters into a modified payment agreement, or makes a sufficient payment to the underlying loan agreement or modified payment agreement. b. Assess how servicers assign vehicles to be repossessed to service providers and if the same vehicle may be assigned to more than one service provider.
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 41 c. Assess if complaints (oral or written) from borrowers regarding service providers are addressed and resolved promptly. Please refer to the CMR examination procedures for more information on consumer complaint response.
d. Assess how servicers cancel repossession orders that previously were communicated to service providers and whether servicers ensure that the service provider acknowledged the cancellation communication.
e. Assess the servicer’s policies and procedures for selling repossessed vehicles at auction, including how it chooses facilities and how it applies proceeds to the balance of the loan. [Click&type] 2. Assess the servicer’s policies and procedures for using SIDs or other payment assurance devices, including if the payment assurance device was used in accordance with the disclosure provided regarding the device at origination and how payment assurance devices are removed from vehicles after the loan or lease has been paid off. [Click&type] 3. Assess the quality of the servicer’s data and information to determine if the use of the SID is appropriate.
[Click&type] 4. Assess the quality of the servicer’s communications with borrowers with SIDs to determine if the use of the SID is clear.
[Click&type] 5. Determine whether the servicer has repossessed a vehicle owned by a consumer who made payments sufficient to prevent a repossession or is current on the loan or lease. Assess the root cause of any such repossession.
[Click&type] 6. Determine whether the servicer has repossessed a vehicle owned by a consumer complying with the terms of a workout agreement. Assess the root cause of any such repossession. [Click&type] 7. Determine whether the servicer provides accurate information to the consumer after a repossession about the total amount due, including principal, interest, fees, expenses, or other charges. Include any communications about redemption programs in this review. [Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 42 8. In assessing risks to consumers, examiners may find evidence of violations of—or an absence of compliance policies and procedures with respect to—other laws, in which case examiners should identify such matters for appropriate actions, such as, where authorized, possible referral to other regulators. For example, the Servicemembers Civil Relief Act prohibits servicers from repossessing, without a court order, the vehicle of any active duty military consumer who paid a deposit or installment before entering military service. Examiners should determine whether compliance policies and procedures include checking the Department of Defense’s Manpower Database prior to completing a repossession and documenting the results.
[Click&type] 9. Determine if the servicer or a service provider detains or refuses to return personal property found in repossessed vehicles until the consumer pays a fee, where the consumer requested return of the property.
[Click&type] Bankruptcy 1. Determine whether the servicer properly identifies accounts as being in active bankruptcy to ensure that the servicer provides protection from collections to which the borrower is entitled under federal bankruptcy law.
[Click&type] 2. For consumers who have filed for bankruptcy, determine whether the servicer provides accurate information to the debtor about the total amount due, including principal, interest, fees, expenses, or other charges, as of the date the debtor filed for bankruptcy. [Click&type] 3. For consumers who have filed for Chapter 13 bankruptcy, determine whether the servicer provides notice of any change in the payment amount due, including any change that results from an interest rate, to the debtor, the debtor’s counsel, the bankruptcy trustee, and the court, before a payment in the new amount is due.
[Click&type] 4. For consumers who have filed for Chapter 13 bankruptcy, determine whether the servicer provides notice of fees or other amounts charged to the account to the debtor, the debtor’s counsel, the bankruptcy trustee, and the court during the pendency of the bankruptcy case. [Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 43 5. Determine whether payments received from a bankruptcy trustee are properly applied to the consumer’s account.
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 44 Module 6 – Credit Reporting, Information Sharing, and Privacy Credit Reporting Fair Credit Reporting Act/Regulation V Examiners should obtain a sample of servicing records. For the loans or leases in the sample, compare the information in the servicer’s system of record with the information reported to the credit reporting agencies. Examiners should also review consumer complaints or review documents for potential violations of the FCRA and its implementing regulation, Regulation V. 1. Assess compliance with the FCRA Furnisher Requirements. Refer to the FCRA examination procedures, 12 CFR 1022.40-43, for more information.
[Click&type] 2. Assess whether lenders maintain written policies and procedures regarding data accuracy, report information accurately, and have procedures in place to ensure that inquiries and complaints concerning reported data are appropriately resolved in accordance with FCRA requirements.
[Click&type] Information Sharing Gramm-Leach-Bliley Act/Regulation P – Privacy Notices 1. Assess compliance with Privacy of Consumer Financial Information Regulations that implement the GLBA. Refer to the GLBA examination procedures, 12 CFR 1016.4 and 1016.5, for more information.
[Click&type] Fair Credit Reporting Act/Regulation V – Information Sharing with Affiliates 1. Assess compliance with the FCRA Affiliate Marketing Rule. Refer to the FCRA examination procedures, 12 CFR 1022.21, for more information.
[Click&type]
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CFPB Examination Procedures Auto Finance CFPB August 2019 Auto Finance 45 Module 7 – Examiner Conclusions and Wrap-Up To conclude this supervisory activity, examiners must complete all steps under this section, regardless of the entity’s risk profile.
1. Summarize the findings, supervisory concerns, and regulatory violations. [Click&type] 2. For the violations noted, determine the root cause by identifying weaknesses in internal controls, audit and compliance reviews, training, management oversight, or other factors. [Click&type] 3. Determine whether the violation(s) are a pattern or practice, or isolated. [Click&type] 4. Identify any action needed to correct violations and weaknesses in the entity’s compliance management system, as appropriate. Please refer to the CMR examination procedures for more information.
[Click&type] 5. Discuss findings with the entity’s management and, if necessary, obtain a commitment for corrective action.
[Click&type] 6. Record violations according to Bureau policy in the Report of Examination/Supervisory Letter and CFPB’s electronic database system to facilitate analysis and reporting. [Click&type] 7. If the examiner believes enforcement action may be appropriate, contact appropriate agency personnel for guidance.
[Click&type] 8. Prepare a memorandum for inclusion in the work papers and CFPB’s official system of record that outlines planning and strategy considerations for the next examination and, if appropriate, interim follow-up.
[Click&type]
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 1 Examination Procedures Consumer Reporting Agencies These examination procedures are intended for use in examining larger participants in the consumer reporting market. The procedures contain a series of modules, grouping similar requirements together. Prior to using these procedures, examiners should complete a risk assessment and scope memorandum. Depending on the scope, and in conjunction with the compliance management system review procedures, each examination will cover one or more of the following modules:
1. Entity Business Model 2. Accuracy of Information and Furnisher Relations 3. Contents of Consumer Reports 4. Permissible Purposes and Other User Issues 5. Consumer File and Score Disclosures 6. Consumer Inquiries, Complaints, and Disputes and the Reinvestigation Process 7. Consumer Alerts, Identity Theft, and Human Trafficking Provisions 8. Prescreening, Employment Reports, and Investigative Consumer Reports 9. Other Products and Services and Risks to Consumers 10. Examination Conclusions and Wrap-Up Examination Objectives • To evaluate the quality of the regulated entity’s compliance management systems, including its internal controls and policies and procedures, related to its consumer reporting business. • To identify acts or practices that materially increase the risk of violations of federal consumer financial law in connection with consumer reporting. • To gather facts that help to determine whether a regulated entity engages in acts or practices that violate the requirements of federal consumer financial law. • To determine, in accordance with CFPB internal consultation requirements, whether a violation of federal consumer financial law has occurred and whether further supervisory or enforcement actions are appropriate.
Background Exam Date:
[Click&type] Prepared By:
[Click&type] Reviewer:
[Click&type] Docket #:
[Click&type] Entity Name:
[Click&type]
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 2 A consumer report contains information about a consumer, such as a credit history and other transaction details. Lenders use one type of consumer report—commonly referred to as credit reports—to assess borrower risk when evaluating applications for credit cards, home mortgage loans, automobile loans, and other types of credit. Consumer reports also may be used for a number of other purposes, such as to determine eligibility and pricing for other types of products and services and other relationships. The consumer reporting market affects hundreds of millions of consumers.
The Dodd-Frank Act (12 U.S.C. 5514(a)(1)(B)) gave the Consumer Financial Protection Bureau (“CFPB”) supervisory authority over “larger participants” of markets for consumer financial products or services, as the CFPB defines by rule. In July 2012, the CFPB finalized its larger participant regulation in the market of consumer reporting (77 Fed. Reg. 42874). The rule, which appears in 12 CFR Part 1090, and was published in the Federal Register on July 20, 2012, is effective September 30, 2012. It provides that a nonbank covered person that offers or provides consumer reporting is a larger participant of the consumer reporting market if the person’s annual receipts resulting from consumer reporting are more than $7 million. (12 CFR 1090.104(b)). Under the regulation, “consumer reporting” includes different types of consumer reporting entities, such as credit bureaus, resellers, specialty consumer reporting agencies, and analyzers of consumer report information and other account information. (12 CFR 1090.104(a)(4); 77 Fed. Reg. at 42875, 42883-85).
These entities perform a variety of functions. For example, credit bureaus collect information, including credit account information, items sent for collection, and public records such as bankruptcies. Resellers purchase consumer information from one or more consumer reporting agencies, typically provide further input to the consumer report (including by merging files from multiple agencies or adding information from other data sources), and then resell the report to lenders and other users. Specialty consumer reporting agencies primarily collect and provide specific types of information that may be used to make eligibility decisions for particular consumer financial products or services, such as payday loans or checking accounts, or for decisions in other areas. Analyzers apply statistical and other methods to consumer report information to facilitate the interpretation of that information and its use in decisions regarding other products and services. For example, they may develop and sell credit scoring services and products. A key federal consumer financial law relevant specifically to the consumer reporting market is the Fair Credit Reporting Act (“FCRA”) (15 U.S.C. 1681 et seq.).1 The FCRA was enacted in 1971 and significantly amended in 1996, 2003, 2010, 2018, and 2021. Together with its implementing regulation, Regulation V,2 it creates a regulatory framework for the furnishing, use, and disclosure of information in reports associated with credit, insurance, employment, and other decisions made about consumers. In doing so, it imposes a number of obligations on entities that qualify as
1 For clarity, these procedures refer to the FCRA by listing the section of the Act followed by the relevant section of Title 15 of the U.S. Code (e.g., Section 603; 15 U.S.C. 1681a).
2 Pursuant to its authority under the Dodd-Frank Act, the CFPB in late 2011 restated the FCRA’s implementing rules in Regulation V, 12 CFR Part 1022.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 3 “consumer reporting agencies.” It also imposes obligations on persons who use consumer report information (“users”) or furnish information to consumer reporting agencies (“furnishers”). While there is considerable overlap, the definition of “consumer reporting” in the CFPB’s larger participant rule does not mirror the FCRA’s definitions of “consumer report” or “consumer reporting agency.”3 As a result, an entity that is subject to the larger participant rule may or may not be a “consumer reporting agency” for FCRA purposes. Module 1 includes procedures to determine whether a particular larger participant is a “consumer reporting agency” and meets other FCRA definitions. If a particular larger participant is determined not to be a “consumer reporting agency” in Module 1, examiners should consult with Headquarters on the extent to which the remaining modules apply to the entity being examined (since many presuppose the existence of a consumer reporting agency) and on the extent to which other federal consumer financial laws apply to the entity.
If a larger participant operates as a consumer reporting agency, the FCRA requires it to employ reasonable procedures, in preparing consumer reports, to “assure maximum possible accuracy” of the information concerning the individual about whom the report relates. (Section 607(b); 15 U.S.C. 1681e(b)). A consumer reporting agency may provide only consumer reports in specific circumstances and must adopt reasonable procedures to ensure a consumer report is provided only when the requester has a permissible purpose. (Section 604; 15 U.S.C. 1681b; Section 607(a); 15 U.S.C. 1681e(a)). Consumers have the right to access information in their files at consumer reporting agencies and the right to dispute information and have it corrected if it is found to be inaccurate. (Section 609(a); 15 U.S.C. 1681g(a); Section 611(a)(1); 15 U.S.C. 1681i(a)(1)). The FCRA provides consumers additional protections such as the opportunity to elect not to receive prescreening offers and to request fraud and active duty alerts. (Section 604(e)(5); 15 U.S.C. 1681b(e)(5); Section 605A; 15 U.S.C. 1681c-1).
The FCRA also imposes special obligations on two types of consumer reporting agencies that operate nationwide, known as “nationwide consumer reporting agencies” (Section 603(p); 15 U.S.C. 1681a(p)) and “nationwide specialty consumer reporting agencies” (Section 603(x); 15 U.S.C. 1681a(x)). For example, these nationwide agencies generally must provide consumers with a free file disclosure every twelve months upon request. (Section 612(a); 15 U.S.C. 1681j(a)). In addition to complying with all applicable provisions of the FCRA, larger participants of the consumer reporting market must comply with other applicable federal consumer financial laws. For example, the Gramm-Leach-Bliley Act (GLBA) and its implementing regulation, Regulation P,4 govern how nonpublic personal information that financial institutions collect about consumers can be shared with nonaffiliated third parties and what financial institutions must tell consumers about their information-sharing practices. These provisions limit how consumer reporting agencies can disclose to nonaffiliated third parties nonpublic personal information obtained from financial
3 Compare 12 CFR 1090.104 with FCRA Section 603(d), (f); 15 U.S.C. 1681a(d), (f). 4 In 2011, the CFPB restated various privacy regulations that had been issued by other federal agencies under the Gramm-Leach- Bliley Act. The resulting Regulation P appears at 12 CFR Part 1016.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 4 institutions (such as credit header information5) if the disclosure is not part of a consumer report. (12 CFR 1016.11; see generally 65 Fed. Reg. 33646, 33668 (May 24, 2000)). To carry out the objectives set forth in the Examination Objectives section, the examination process also will include assessing other risks to consumers. These risks may include potentially unfair, deceptive, or abusive acts or practices (UDAAPs). Please refer to the examination procedures regarding UDAAPs in the CFPB examination manual for information about the legal standards and the CFPB’s approach to examining for UDAAPs. The particular facts and circumstances in a case are crucial to the determination of UDAAPs. As set out in the Examination Objectives section, examiners should consult with Headquarters to determine whether the applicable legal standards have been met before a violation of any federal consumer financial law could be cited, including a UDAAP violation.
General Considerations Completing the following examination modules will allow examiners to develop a thorough understanding of the regulated entity’s practices and operations. To complete the modules, examiners should obtain and review the following as applicable: • Organizational charts and process flowcharts;
• Board minutes, annual reports, or the equivalent to the extent available; • Relevant management reporting;
• Policies and procedures, including complaint monitoring procedures; • Applications from prospective furnishers and users; • Furnisher and user audit results;
• Samples of individual consumer reports, file disclosures, and disputes and responses to them, and other consumer reporting product outputs, notes, and disclosures; • Telephone recordings;
• Operating and compliance checklists, worksheets, and review documents; • Relevant computer program and system details;
• Due diligence and monitoring procedures;
• Compensation policies;
5 “Credit header” information refers to basic information in a credit report that identifies the person who is the subject of the report, such as name, variations of names, current and prior addresses, and phone numbers.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 5 • Historical examination information;
• Audit and compliance reports, and management responses to findings; • Training programs and materials;
• Third-party contracts, including agreements with furnishers and users; and • Advertisements, marketing research, and website information. Depending on the scope of the examination, examiners should perform transaction testing using sampling procedures, which may require the use of a judgmental or statistical sample. Examiners also should conduct interviews with management and staff to determine whether they understand and consistently follow the policies, procedures, and regulatory requirements applicable to consumer reporting and implement effective controls. Examiners should review relevant consumer complaints in scoping and conducting examinations, as appropriate. Examiners also may consider conducting user, furnisher, and/or consumer interviews.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 6 Examination Procedures Module 1 - Entity Business Model Nature Of Operations For FCRA Purposes Assess whether the entity operates as a “consumer reporting agency,” a “nationwide consumer reporting agency,” a “nationwide specialty consumer reporting agency,” and/or a “reseller” for FCRA purposes by making the following determinations:
1. Consumer Reporting Agency. Determine in consultation with Headquarters if the entity operates as a “consumer reporting agency.” (Section 603(f); 15 U.S.C. 1681a(f)). Definitions of “consumer reporting agency” and “consumer report” (including a list of items that are not “consumer reports”) are set forth in the Glossary. If the entity does not operate as a “consumer reporting agency,” contact Headquarters for instructions before proceeding with the remaining examination procedures.
2. Nationwide Consumer Reporting Agency. Determine in consultation with Headquarters whether the entity operates as a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis (hereinafter a “nationwide consumer reporting agency”) by assessing whether it is a consumer reporting agency that regularly engages in the practice of assembling or evaluating, and maintaining, for the purpose of furnishing consumer reports to third parties bearing on a consumer’s credit worthiness, credit standing, or credit capacity, each of the following regarding consumers residing nationwide: a. Public record information and b. Credit account information from persons who furnish that information regularly and in the ordinary course of business. (Section 603(p); 15 U.S.C. 1681a(p)). 3. Circumvention or Evasion of Treatment as a Nationwide Consumer Reporting Agency. If the answer to step 2 above is no, assess whether the entity is circumventing or evading treatment as a nationwide consumer reporting agency by any means, including but not limited to: a. Corporate organization, reorganization, structure, or restructuring, including merger, acquisition, dissolution, divestiture, or asset sale of a consumer reporting agency (for example, by (1) restructuring operations so that certain data types are assembled and maintained only by a corporate affiliate or (2) restructuring so that corporate affiliates separately assemble and maintain all information on consumers residing in each state); or b. Maintaining or merging public record and credit account information in a manner that is substantially equivalent to that described in steps 2a and 2b above. If the entity is circumventing or evading treatment as a nationwide consumer reporting agency, assess whether the entity is in compliance with all obligations imposed upon nationwide consumer reporting agencies in reviewing the remaining modules. (15 U.S.C. 1681x; 12 CFR 1022.140(c)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 7 4. Nationwide Specialty Consumer Reporting Agency. Determine in consultation with Headquarters whether the entity qualifies as a “nationwide specialty consumer reporting agency” by determining whether it is a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis relating to: a. Medical records or payments, b. Residential or tenant history, c. Check writing history, d. Employment history, or e. Insurance claims. (Section 603(x); 15 U.S.C. 1681a(x)). 5. Reseller. Determine in consultation with Headquarters whether the entity operates as a “reseller” by determining whether it is a consumer reporting agency that: a. Assembles and merges information contained in the database of another consumer reporting agency or multiple consumer reporting agencies concerning any consumer for purposes of furnishing such information to any third party, to the extent of such activities; and b. Does not maintain a database of the assembled or merged information from which new consumer reports are produced. (Section 603(u); 15 U.S.C. 1681a(u)). Affiliates And Other Third-Party Relationships 6. Affiliates.
a. Ascertain whether the entity is affiliated with any other entities. b. If so, determine:
i. The identities of the affiliates, ii. The nature of their business activities, including whether any of the affiliates operate as consumer reporting agencies, and iii. The ownership and governance structure of the affiliates. 7. Service Providers. Determine whether the entity uses any service providers in conducting its consumer reporting business. If so:
a. Identify who the service providers are, whether they are affiliated with the entity, and what services they perform, and b. Assess whether the entity:
i. Requests and reviews the service providers’ policies, procedures, internal controls, and training materials to ensure that the service providers conduct appropriate training and
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 8 oversight of employees or agents that have consumer contact or compliance responsibilities;
ii. Includes in its contracts with its service providers clear expectations about compliance as well as appropriate and enforceable consequences for violating any compliancerelated responsibilities;
iii. Establishes internal controls and ongoing monitoring to determine whether its service providers are complying with federal consumer financial law; and iv. Takes prompt action to address fully any problems identified through the monitoring process, including terminating the relationship where appropriate. See CFPB Bulletin 2012-03 (April 13, 2012).
Internal Structure, Controls, And Compliance Management 8. Organizational Structure. Review the organizational chart to determine the reporting structure and the responsibilities of key managers for consumer reporting activities. 9. Staff Who Interact With Consumers. Review the qualifications, experience levels, and training programs that the company requires or uses for staff who interact with consumers. 10. Compliance Management Review. Review the entity’s general compliance management system using the compliance management review section of the CFPB examination manual. Customer Base And Products And Services Offered 11. Furnishers. If the entity assembles information about consumers, identify who furnishes the information to the entity (including, for example, by type of business or industry). 12. Users. If the entity provides consumer reports to third parties, identify the third parties that use reports from the entity (including, for example, by type of business or industry). 13. Specialization. Ascertain whether the entity specializes in collecting and reporting particular types of information and, if so, what types.
14. Prescreening. Determine if the entity engages in “prescreening,” by furnishing consumer reports (e.g., lists of consumers) in connection with any credit or insurance transactions that are not initiated by the consumers (to solicit the consumers to obtain credit or insurance) and where the consumers have not authorized the entity to provide such reports. (Section 603(l); 15 U.S.C. 1681a(l); Section 604(c)(1); 15 U.S.C. 1681b(c)(1)). Prescreening is discussed further in Module 8.
15. Employment Reports. Determine if the entity furnishes any reports for employment purposes and, if so, to whom (including, for example, by type of business or industry). (Section 603(h); 15 U.S.C. 1681a(h); Section 604(b); 15 U.S.C. 1681b(b)). Employment reports are discussed further in Module 8.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 9 16. Investigative Consumer Reports. Determine whether the entity provides any “investigative consumer reports.” (Section 603(e); 15 U.S.C. 1681a(e)). Investigative consumer reports are defined in the Glossary and discussed in Module 8.
17. Credit Scoring and Other Scoring Products.
a. Determine whether the entity offers any credit scores to third parties. Refer to the Glossary for the definition of “credit score” for these procedures. b. Determine whether the entity offers any other types of scoring products to third parties, such as insurance scores.
c. If the answer to (a) or (b) above is yes, determine: i. What role the entity plays in developing or modifying the scores and scoring products, ii. Whether any other parties are involved in developing or modifying the scores and scoring products, and iii. To whom the scores and scoring products are offered and provided. 18. Other Products or Services. Ascertain whether the entity offers any types of products or services other than consumer reports and scoring products. If so, review all of these products and services and to whom they are offered and provided. Other products and services are discussed further in Module 9.
19. Relationship of FCRA and Non-FCRA Products and Services. a. Determine if the entity offers some products and services that are subject to the FCRA and other products and services that the entity does not treat as subject to the FCRA. b. If so, identify:
i. All products and services that the entity treats as not subject to the FCRA, ii. The information sources and uses for such products, and iii. Any policies, practices, and procedures deployed by the entity to differentiate between the products and services that it treats as subject to the FCRA and those that it treats as not subject to the FCRA.
c. For products that the entity deems not subject to the FCRA, identify the criteria relied on for treating each product as non-FCRA.
d. Assess in consultation with Headquarters whether there are any products or services offered by the entity that constitute “consumer reports,” but that the entity is not treating as subject to the FCRA.
e. Consult with Headquarters on whether any other federal consumer financial laws should be reviewed with respect to those products and services that are not subject to the FCRA.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 10 Module 2 - Accuracy of Information and Furnisher Relations This module discusses the FCRA requirement that consumer reporting agencies employ reasonable procedures in preparing consumer reports to assure maximum possible accuracy of consumer information, as well as other FCRA requirements relating to dealings with furnishers. Additional FCRA requirements related to accuracy are addressed in other modules (such as Module 6, which addresses how disputes must be handled).
1. Reasonable Procedures to Ensure Maximum Possible Accuracy. Assess whether the entity follows reasonable procedures, in preparing a consumer report, to assure maximum possible accuracy of information concerning the individual to whom the report relates. (Section 607(b); 15 U.S.C. 1681e(b)). In doing so, consider all relevant factors, including the following: a. Screening of furnishers. Determine what measures the entity uses to screen furnishers. b. Form and manner in which information is reported. Assess the steps the entity takes to ensure that information is furnished in a form and manner that minimizes the likelihood that the information may be incorrectly reflected in a consumer report. Consider, for example, whether the entity ensures that reported information: i. Includes appropriate identifying information about the consumer to whom it pertains, ii. Is furnished in a clearly understandable form and manner, and iii. Is furnished with a date specifying the time period to which the information pertains. c. Screening and matching of information from furnishers. i. Review procedures used by the entity to screen information received from furnishers for accuracy, including any audit procedures or other quality control measures. Identify relevant data quality metrics used by the entity. Assess how the entity responds if it receives poor quality data from a particular furnisher. ii. Review procedures used by the entity to match data to the appropriate consumer file. d. Measures to prevent duplicative tradelines on reports. Assess the measures utilized by the entity to ensure that reports do not include duplicative tradelines. Review, for example, what information the entity requires furnishers to provide—such as information to identify the original creditor for debts—before it accepts tradelines. e. Other measures to test accuracy. Review any other measures utilized by the entity to assess the accuracy of consumer information. Identify the nature of all such measures. 2. Notice of Furnisher Responsibilities. Determine whether the entity provides a notice of furnisher responsibilities under the FCRA to every person who regularly and in the ordinary course of business furnishes consumer information to the entity. (Section 607(d); 15 U.S.C. 1681e(d)). Review the terms of the notice provided to determine whether it is substantially similar to the model notice in Appendix M to Regulation V (12 CFR Part 1022).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 11 Module 3 - Contents of Consumer Reports This module addresses the FCRA’s requirements governing what consumer reporting agencies must include in or exclude from consumer reports.
1. Required Information in Consumer Reports. Determine whether the entity includes the following required information in its consumer reports: a. Bankruptcy information. If the report identifies information regarding a case under Title 11 of the U.S. Code that involves the consumer:
i. The chapter of Title 11 invoked (e.g., chapter 7, 11, etc.) if provided by the source of the information and ii. The fact that the bankruptcy action has been withdrawn before a final judgment, if the entity has received documentation so certifying. (Section 605(d)(1); 15 U.S.C. 1681c(d)(1)).
b. Voluntary closure of account. The fact that an account was voluntarily closed by the consumer, if the entity includes information related to the account in the report after receiving notification from the furnisher that the account was voluntarily closed. (Section 605(e); 15 U.S.C. 1681c(e)).
c. Inquiries as factor. If the entity provides a consumer report that contains any credit or other risk score or predictor on any consumer and a key factor that adversely affected such score or predictor was the number of inquiries, a clear and conspicuous statement that a key factor that adversely affected such score or predictor was the number of inquiries (unless the entity is a check services company, acting as such, to the extent that it is engaged in issuing authorizations for the purpose of approving or processing negotiable instruments, electronic fund transfers, or similar methods of payments). (Section 605(d)(2); 15 U.S.C. 1681c(d)(2)).
d. Existence of a dispute. The fact that the consumer disputes information, if the entity includes disputed information in the report after receiving notification from a furnisher of the dispute. (Section 605(f); 15 U.S.C. 1681c(f)).
e. Overdue child support obligations. Any information on the failure of the consumer to pay overdue support which:
i. Is provided A. To the consumer reporting agency by a state or local child support enforcement agency; or B. To the consumer reporting agency and verified by any local, state, or federal government agency; and
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 12 ii. Predates the report by seven years or less. (Section 622; 15 U.S.C. 1681s-1). 2. Prohibited Information in Consumer Reports. Determine whether the entity provides reports that include any of the following prohibited types of information. a. Previously deleted information. Determine whether the entity includes in consumer reports or in a consumer’s file information that was previously deleted from the consumer’s file (unless the information has been reinserted based on a certification from the furnisher that the information is complete and accurate). (Section 611(a)(5)(B)(i), (5)(C); 15 U.S.C. 1681i(a)(5)(B)(i), (5)(C)).
b. Obsolete information. The FCRA prohibits the inclusion of the five types of information listed below in all reports except those reports used in connection with (1) credit transactions or life insurance underwriting that involve or may reasonably be expected to involve at least $150,000 or (2) individual employment decisions where the annual salary equals or may reasonably be expected to equal $75,000 or more. For all reports that do not fall within these two exemptions, determine whether the entity includes any of the following types of prohibited information:
i. Cases under Title 11 or the Bankruptcy Act, if the date of entry of the order for relief or the date of adjudication is more than 10 years earlier than the date of the report; ii. Civil suits, civil judgments, and records of arrest, if: A. The governing statute of limitations had expired as of the date of the report and B. The date of entry is more than seven years before the date of the report; iii. Paid tax liens if the date of payment is more than seven years before the date of the report;
iv. Accounts placed for collection or charged to profit and loss that are more than seven years old as of the date of the report, provided that: A. For delinquent accounts placed for collection, charged to profit and loss, or subjected to any similar action, the seven-year period begins 180 days after the date of delinquency that immediately preceded the collection activity, charge to profit and loss, or similar action, but B. Special triggering rules apply for reporting on Federal Family Education Loans, 20 U.S.C. 1080a(f), and C. Information regarding the status of Perkins Loans may be reported until the loan is paid in full, 20 U.S.C. 1087cc(c)(3); or v. Any other adverse item of information (other than records of convictions of crimes) that is more than seven years old as of the date of the report. (Section 605(a)-(c); 15 U.S.C. 1681c(a)-(c)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 13 c. Medical contact information. Determine whether the entity includes the name, address, and telephone number of any medical information furnisher that has notified the agency of its status, other than under the following permitted circumstances: i. The name, address, and telephone number are restricted or reported using codes that do not identify, or provide information sufficient to infer, the specific provider or the nature of the services, products, or devices to a person other than the consumer or ii. The report is being provided to an insurance company for a purpose relating to engaging in the business of insurance other than property and casualty insurance. (Section 605(a)(6); 15 U.S.C. 1681c(a)(6)).
d. Veteran’s medical debt. Determine whether the entity (must be a nationwide CRA defined in Section 603(p)) complies with the requirements related to veteran’s medical debt. i. Determine whether the consumer reporting agency uses the database as a means to identify whether furnished information about consumers is related to a veteran’s medical debt. (Section 302(c)(5) of the Economic Growth, Regulatory Relief, and Consumer Protection Act; Pub. L. No. 115-174; 132 Stat. 1296 (2018)). ii. Determine whether the entity provides reports that include any of the following prohibited types of information regarding veteran’s medical debt: A. Any information related to a veteran’s medical debt, if the date on which the hospital care, medical services, or extended care services was rendered relating to the debt precedes the consumer report by less than 1 year if the consumer reporting agency has actual knowledge that the information is related to a veteran’s medical debt and the consumer reporting agency is in compliance with its obligation under section 302(c)(5) of the Economic Growth, Regulatory Relief, and Consumer Protection Act. (Section 605(a)(7); 15 U.S.C. 1681c(a)(7)). B. Any information related to a fully paid or settled veteran’s medical debt that had been characterized as delinquent, charged off, or in collection if the consumer reporting agency has actual knowledge that the information is related to a veteran’s medical debt and the consumer reporting agency is in compliance with its obligation under section 302(c)(5) of the Economic Growth, Regulatory Relief, and Consumer Protection Act. (Section 605(a)(8); 15 U.S.C. 1681c(a)(8)). e. Other prohibited medical information. Determine whether the entity provides consumer reports that contain any medical information about a consumer for employment purposes or in connection with a credit or insurance transaction, other than under any one of the following permitted circumstances:
i. The information consists of medical contact information treated in the manner specified in 2c above;
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 14 ii. If furnished in connection with an insurance transaction, the consumer affirmatively consented to the furnishing of the report;
iii. If furnished for employment purposes or in connection with a credit transaction: A. The information is relevant to process or effect the employment or credit transaction and B. The consumer provided specific written consent for the furnishing of the report that describes in clear and conspicuous language the use for which the information will be furnished; or iv. The information pertains solely to transactions, accounts, or balances relating to debts arising from the receipt of medical services, products, or devises, where such information, other than account status or amounts, is restricted or reported using codes that do not identify, or do not provide information sufficient to infer, the specific provider or the nature of such services, products, or devices, as provided in step 2c above. (Section 604(g); 15 U.S.C. 1681b(g)).
f. Information subject to an identity theft block. Determine whether the entity provides any consumer reports that include information that must be blocked pursuant to an identity theft block, as explained in steps 15-21 of Module 7. (Section 605B; 15 U.S.C. 1681c-2). g. Information resulting from human trafficking. Determine whether the entity provides any consumer reports that include information that must be blocked pursuant to the prohibition on inclusion of adverse information in consumer reporting in cases of human trafficking, as explained in steps 36-44 of Module 7. (Section 605C; 15 U.S.C. 1681c-3). h. Prohibited information about prescreening inquiries. Determine whether the entity includes information about “credit or insurance transactions that are not initiated by the consumer” (which are typically related to prescreened offers) in consumer reports. This prohibition does not apply to disclosure to the consumer of such inquiries made no more than one year prior to the consumer’s request for a file disclosure. Note that the term “credit or insurance transactions that are not initiated by the consumer” does not include the use of a consumer report by a person with which the consumer has an account or insurance policy, for purposes of reviewing the account or insurance policy or collecting the account. (Section 603(m); 15 U.S.C. 1681a(m); Section 604(c)(3); 15 U.S.C. 1681b(c)(3)). i. Prohibited disclosure of the fact that government has sought or obtained information for counterterrorism purposes.
i. Determine whether the entity has disclosed, in a consumer report or in any other manner, any information indicating that the FBI has sought or obtained a consumer report or information identifying the consumer’s financial institutions. If so, determine whether prior to making the disclosure, the agency received a certification from an appropriate FBI official that disclosure may:
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 15 A. Threaten national security;
B. Interfere with a criminal, counterterrorism, or counterintelligence investigation; C. Interfere with diplomatic relations; or D. Endanger the life or physical safety of any person. (Section 626(d); 15 U.S.C. 1681u(d)).
ii. Determine whether the entity discloses, in a consumer report or in any other manner, any information indicating that a government agency that conducts investigations, intelligence or counterintelligence activities, or analysis related to international terrorism has sought or obtained access to a consumer report or other information in the consumer’s file. If so, determine whether prior to making the disclosure, the agency received a certification from an appropriate agency official that disclosure may: A. Threaten national security;
B. Interfere with a criminal, counterterrorism, or counterintelligence investigation; C. Interfere with diplomatic relations; or D. Endanger the life or physical safety of any person. (Section 627(c); 15 U.S.C. 1681v(c)).
j. Adverse information from previously prepared investigative reports. If the entity prepares investigative consumer reports, determine whether any of its consumer reports include any adverse information from a previously generated investigative consumer report (other than information that is a matter of public record). If so, determine whether: A. Such adverse information was verified in the process of preparing the subsequent consumer report or B. The adverse information was received within the three-month period preceding the date the subsequent report was furnished. (Section 614; 15 U.S.C. 1681l). 3. Procedures Regarding Contents of Consumer Reports. Determine whether the entity maintains adequate procedures to meet the FCRA requirements regarding information that must be contained in or excluded from consumer reports (described in steps 1 and 2 above). Consider in particular the following:
a. Whether the entity has reasonable procedures in place to ensure that required information about bankruptcies, voluntary closures of accounts, and inquiries as factors is included and that disputed information is marked as such, as described in step 1 above; b. Whether the entity uses reasonable procedures to ensure that information described in step 2b above is excluded from consumer reports once it is too old to be disclosed; and
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 16 c. Whether the entity has reasonable procedures in place to protect medical contact information, as described in step 2c above. (Section 607(a); 15 U.S.C. 1681e(a)). (Procedures to prevent the reappearance of deleted information are addressed in step 15 of Module 6. Procedures related to identity theft and prescreening inquiries are discussed in step 1 of Module 7 and step 11 of Module 8, respectively.)
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 17 Module 4 - Permissible Purposes and Other User Issues This module discusses various requirements that the FCRA imposes on consumer reporting agencies in their dealings with users of consumer reports. One such requirement is the obligation to ensure that anyone to whom it furnishes a consumer report has a permissible purpose (as detailed below) to obtain a report.
Examiners should note that reports made to governmental agencies that contain only identifying information (i.e., name, address, former addresses, places of employment, or former places of employment) are not subject to the permissible purpose requirement described below. (Section 608; 15 U.S.C. 1681f). The FCRA also requires certain disclosures, on proper certification, to the FBI for counterintelligence purposes and to other governmental agencies for counterterrorism purposes. (Section 626; 15 U.S.C. 1681u; Section 627; 15 U.S.C. 1681v). 1. Verification of Identity and Uses of Prospective Users. Determine whether the entity makes a reasonable effort to verify the identity of a new prospective user and the uses certified by such prospective user prior to furnishing a consumer report to the user. (Section 607(a); 15 U.S.C. 1681e(a)). Determine the steps the entity takes to verify the uses certified by prospective users (such as onsite visits to the users’ places of business, checking the users’ references, confirmation of applicants’ business identity, examining applications and supporting documentation supplied by applicants, or other methods, to detect suspect representations, discrepancies, illogical information, suspicious patterns, factual anomalies, and other indicia of unreliability).
2. Certification of Purposes. Determine whether the entity’s procedures require prospective users of consumer reports to:
a. Identify themselves, b. Certify the purposes for which the information is sought, and c. Certify that the information will be used for no other purpose. (Section 607(a); 15 U.S.C. 1681e(a)).
3. Reasonable Procedures Regarding Permissible Purposes. Determine whether the entity maintains reasonable procedures to ensure that, aside from the provision of consumer reports to government agencies in appropriate circumstances, consumer reports are furnished only in the following permissible circumstances:
a. In response to a court order or federal grand jury subpoena. b. In accordance with the written instructions of the consumer. c. To a person that the entity has reason to believe intends to use the report as information for any of the following reasons:
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 18 i. In connection with a credit transaction involving the consumer on whom information is to be furnished and that involves (a) extending credit to the consumer, (b) reviewing an account of the consumer, or (c) collecting an account of the consumer; ii. For employment purposes;
iii. In connection with the underwriting of insurance involving the consumer; iv. In connection with a determination of the consumer’s eligibility for a license or other benefit granted by a governmental instrumentality that is required by law to consider an applicant’s financial responsibility or status;
v. As a potential investor or servicer, or current insurer, in connection with a valuation of, or an assessment of the credit or prepayment risks associated with, an existing credit obligation;
vi. Otherwise has a legitimate business need for the information: A. In connection with a business transaction that the consumer initiates or B. To review an account to determine whether the consumer continues to meet the terms of the account.
vii. To executive departments and agencies in connection with the issuance of governmentsponsored individually billed travel charge cards.
d. In response to a request by the head of a state or local child support enforcement agency (or authorized appointee) if the person making the request makes various certifications to the consumer reporting agency regarding the need to obtain the report. e. To an agency administering a state plan under 42 U.S.C. 654 to set an initial or modified child support award.
f. To the Federal Deposit Insurance Corporation or the National Credit Union Administration in connection with its appointment or operation as a conservator, receiver, or liquidating agent for an insured depository institution or insured credit union or its resolution or liquidation of a failed or failing insured depository institution or insured credit union. (Section 604; 15 U.S.C. 1681b; Section 607(a); 15 U.S.C. 1681e(a)). 4. Reasonable Grounds for Belief That Information Will Be Misused. Determine whether the entity has furnished a consumer report to any person even though the entity had reasonable grounds for believing that the consumer report would not be used for one of the permissible purposes listed in step 3 above. (Section 607(a); 15 U.S.C. 1681e(a)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 19 5. Specific Permissible Use Issues for Consumer Reporting Agencies That Furnish Reports for Resale.
a. Determine whether the entity provides reports to any person that seeks the report for purposes of reselling the report or any information in the report. (For purposes of this analysis and step 5b below, do not consider any reselling where the end-user is a federal agency or department that obtains the information in order to determine the consumer’s eligibility for access to classified information and that certifies that nondisclosure is required for the reasons set forth in Section 607(e)(3) (15 U.S.C. 1681e(e)(3)).) b. If the entity does furnish reports that are used for resale, determine whether the entity requires the reseller to disclose to the entity the following information: i. The identity of the end-user of the report (or information) and ii. Each permissible purpose for which the report is furnished to the end-user of the report (or information). (Section 604; 15 U.S.C. 1681b; Section 607(e); 15 U.S.C. 1681e(e)). 6. Specific Permissible Use Issues for Entities that Resell Reports (or Information From Reports) Obtained From Other Consumer Reporting Agencies. a. Determine whether the entity obtains consumer reports from another consumer reporting agency for purposes of reselling the report or any information in the report. (For purposes of this analysis and step 6b below, do not consider any reselling where the end-user is a federal agency or department that obtains the information in order to determine the consumer’s eligibility for access to classified information and that certifies that nondisclosure is required for the reasons set forth in Section 607(e)(3) (15 U.S.C. 1681e(e)(3)).) b. If so, consider the following with respect to the entity’s reselling activities: i. Determine whether the entity discloses to the originating consumer reporting agency: A. The identity of the end-user of the report or information and B. Each permissible purpose for which the report or information is furnished to the end-user. (Section 607(e)(1); 15 U.S.C. 1681e(e)(1)). ii. Assess whether the entity has established and complies with reasonable procedures designed to ensure that the report or information is resold only for a permissible purpose identified in step 3 above. Determine, for example, whether the entity requires each person to which the report or information is resold and that resells or provides the report or information to any other person to:
A. Identify each end-user of the resold report or information, B. Certify each purpose for which the report or information will be used, and
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 20 C. Certify that the report or information will be used for no other purpose. (Section 607(e)(2)(A); 15 U.S.C. 1681e(e)(2)(A)).
iii. Assess whether the entity makes reasonable efforts before reselling any report to verify the identifications and certifications referred to in step 6bii above. (Section 607(e)(2)(B); 15 U.S.C. 1681e(e)(2)(B)).
7. Improper Limits on User Disclosures to Consumers. Determine whether the entity prohibits any user of its consumer reports from disclosing the report’s contents to the consumer, if adverse action against the consumer has been taken by the user based in whole or in part on the report. (Section 607(c); 15 U.S.C. 1681e(c)).
8. Required Notices to Users. Determine whether the entity provides users with a notice of their responsibilities under the FCRA. (Section 607(d); 15 U.S.C. 1681e(d)). Review the content of the notice provided to determine:
a. Whether it is substantially similar to the content prescribed in Appendix N to Regulation V (12 CFR Part 1022) and b. Whether the information is clearly and prominently displayed. 9. Address Discrepancy Notices. If the entity is a nationwide consumer reporting agency, determine whether it notifies persons who request consumer reports of the existence of an address discrepancy in all instances when:
a. A request includes an address for the consumer that substantially differs from the addresses in the consumer’s file and b. The entity provides a consumer report in response to the request. (Section 605(h); 15 U.S.C. 1681c(h)).
10. Unauthorized disclosures by officers or employees. Determine whether the entity has policies and procedures in effect to ensure that officers and employees do not provide information concerning an individual from the agency’s files to a person not authorized to receive that information. (Section 620; 15 U.S.C. § 1681r).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 21 Module 5 - Consumer File and Score Disclosures This module assesses compliance with the FCRA provisions that require consumer reporting agencies to give consumers access to their files and scores. 1. Identification Required for Consumer Disclosures. a. Determine whether the entity requires consumers to furnish proper identification in order to obtain disclosure of their files and/or scores. (Section 610(a)(1); 15 U.S.C. 1681h(a)(1)). b. Assess whether the entity has developed and implemented reasonable requirements for the types of information consumers need to provide to constitute proof of identity. Evaluate whether the entity:
i. Ensures that the information is sufficient to enable the entity to match consumers with their files and ii. Adjusts the information to be commensurate with an identifiable risk of harm arising from misidentifying the consumer. (For illustrative examples, see 12 CFR 1022.123.) 2. Statement of Rights to Be Provided With Disclosures. Determine whether the entity provides the following with each written file disclosure provided at the consumer’s request: a. A summary of rights that:
i. Is substantially similar to the CFPB’s model summary in Appendix K to Regulation V (12 CFR Part 1022), ii. Has all information clearly and prominently displayed, and iii. Includes a description of:
A. The right of a consumer to obtain a copy of a consumer report under Section 609(a) (15 U.S.C. 1681g(a)) from each consumer reporting agency; B. The frequency and circumstances under which a consumer is entitled to receive a free consumer report under Section 612 (15 U.S.C. 1681j); C. The right of a consumer to dispute information in the consumer’s file under Section 611 (15 U.S.C. 1681i);
D. The right of a consumer to obtain a credit score from a consumer reporting agency and a description of how to obtain a credit score;
E. The method by which a consumer can contact, and obtain a free consumer report from, a nationwide consumer reporting agency; and F. The method by which a consumer can contact, and obtain a consumer report from, a nationwide specialty consumer reporting agency;
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 22 b. In the case of a nationwide consumer reporting agency, a toll-free telephone number for the entity at which personnel are accessible to consumers during normal business hours; c. A list of all federal agencies responsible for enforcing the FCRA (with addresses and phone numbers), in a form that will assist the consumer in selecting the appropriate agency; d. A statement that the consumer may have additional rights under state law and that the consumer may wish to contact a state or local consumer protection agency or a state attorney general (or the equivalent thereof) to learn of those rights; and e. A statement that a consumer reporting agency is not required to remove accurate derogatory information from a consumer’s file unless the information is outdated under Section 605 (15 U.S.C. 1681c) or cannot be verified. (Section 609(c)(1)-(2); 15 U.S.C. 1681g(c)(1)-(2); 12 CFR Part 1022, Appendix K).
3. Information to Be Provided in Response to File Requests. Determine whether the entity clearly and accurately discloses the following to consumers upon request: a. All information in the consumer’s file at the time of the request, except— i. The entity must not disclose the first five digits of the consumer’s Social Security number (or similar identification number) if the consumer requests (after providing appropriate proof of identity) that they be truncated (as explained in step 1b above); and ii. The entity need not disclose any information concerning credit scores or any other risk scores or predictors relating to the consumer (except under the circumstances described in step 4 below).
b. The sources of the information, except for sources acquired and used solely in preparing an investigative consumer report. (For disclosures required with respect to investigative consumer reports, see step 19 of Module 8.) c. The name or trade name written in full (and, if requested by the consumer, the address and telephone number) of each person that procured a consumer report (including all end-users, but not including certain federal government users for purposes related to classified information in national security investigations):
i. For employment purposes, during the two-year period preceding the date of the request; or ii. For any other purpose, during the one-year period preceding the date of the request. d. The dates, original payees, and amounts of any checks that: i. Are included in the file at the time of the disclosure and ii. Form the basis for any adverse characterization of the consumer.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 23 e. A record of all inquiries received by the entity during the 1-year period preceding the request that identified the consumer in connection with a credit or insurance transaction that was not initiated by the consumer.
f. If the consumer requests a credit file and not a credit score, a statement that the consumer may request and obtain a credit score. (Section 609(a); 15 U.S.C. 1681g(a)). 4. Information to Be Provided in Response to Credit Score Requests. a. Determine whether the entity:
i. Distributes any scores that are used in connection with residential real property loans or ii. Develops any scores that assist credit providers in understanding a consumer’s general credit behavior and predicting the consumer’s future credit behavior. (Section 609(f)(4); 15 U.S.C. 1681g(f)(4)).
If the answers to (i) and (ii) above are both “no,” skip to step 5 below. b. Assess the entity’s handling of consumer requests for credit scores. Refer to the Glossary and step 17 of Module 1 for the definition of “credit score.” In evaluating the entity’s handling of consumer requests for credit scores, consider: i. Whether the entity provides the following information when a consumer requests a credit score:
A. A statement indicating that the information and credit scoring model may be different than the credit score that may be used by the lender and B. A notice that includes:
(1) The current credit score of the consumer or the most recent credit score of the consumer that was previously calculated by the entity for a purpose related to the extension of credit;
(2) The range of possible credit scores under the model used; (3) All of the key factors (as defined in the Glossary) that adversely affected the credit score of the consumer in the model used (not to exceed four factors, except that if the number of inquiries is a key factor it must be included without regard to the numerical limit);
(4) The date on which the credit score was created; and (5) The name of the source that provided the credit score or credit file upon which the credit score was created. (Section 609(f)(1), (f)(2)(B), (f)(7), (f)(9); 15 U.S.C. 1681g(f)(1), (f)(2)(B), (f)(7), (f)(9)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 24 ii. Whether the entity provides a credit score that:
A. Is derived from a credit scoring model that the entity distributes widely to users in connection with residential real property loans or B. Should assist the consumer in understanding the credit scoring assessment of the consumer’s credit behavior and predictions about the consumer’s future credit behavior. (Section 609(f)(7); 15 U.S.C. 1681g(f)(7)).
5. Explaining File and Score Disclosures. Evaluate whether the entity provides trained personnel to explain information in the disclosures to consumers described above. (Section 610(c); 15 U.S.C. 1681h(c)).
6. Contact Information for Developer of Score or Methodology. When a consumer requests a credit score that the entity distributes but did not develop or modify, assess whether the entity provides the consumer with the name, address, and website for contacting the person or entity that developed the score or developed the methodology for the score. (Section 609(f)(5); 15 U.S.C. 1681g(f)(5)).
7. Form of Disclosures. Determine whether the entity:
a. Makes the disclosures described in steps 2, 3, 4, and 6 above in writing, unless the consumer authorizes another form (Section 610(a)(2), (b); 15 U.S.C. 1681h(a)(2), (b)) and b. Allows a consumer obtaining a disclosure described above to be accompanied by one other person of his or her choosing who furnishes reasonable identification (Section 610(d); 15 U.S.C. 1681h(d)).
8. Free Annual Reports. The FCRA requires nationwide consumer reporting agencies and nationwide specialty consumer reporting agencies to provide free annual reports if they have been in continuous operation for at least a year. Nationwide consumer reporting agencies must jointly operate a “centralized source” that consumers can use to obtain their free reports. Each nationwide specialty consumer reporting agency must make free reports available through a “streamlined process.”
a. Who must provide free annual reports. Determine if the entity has an obligation to provide free annual reports in response to consumer requests by assessing whether: i. It has been furnishing consumer reports to third parties on a continuing basis with respect to consumers residing nationwide for the last 12 months and ii. It is a nationwide consumer reporting agency or a nationwide specialty consumer reporting agency (as determined in steps 2 and 4 of Module 1). If the answer to (i) or (ii) above is no, skip to step 9 below regarding free disclosures after adverse actions. (Section 612(a)(1)(A), (a)(4); 15 U.S.C. 1681j(a)(1)(A), (a)(4)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 25 b. Basic compliance. Determine whether the entity provides all of the disclosures described in steps 2 and 3 above without charge to the consumer upon a consumer’s request once during any 12-month period. For nationwide consumer reporting agencies, this obligation applies only to requests made through the centralized source. (Section 612(a)(1)(A)-(B); 15 U.S.C. 1681j(a)(1)(A)-(B)).
c. Timeliness. Assess whether the entity provides free annual reports within the statutory timeframe, which is within 15 days after the date the request is received. (Section 612(a)(2); 15 U.S.C. 1681j(a)(2)).
d. Special requirements for nationwide consumer reporting agencies. If the entity is a nationwide consumer reporting agency, assess whether it meets the following requirements in addition to those described in (b) and (c) above: i. Ease of access. Determine whether the entity through the centralized source does the following when consumers seek information regarding their files with the entity: A. Makes available a standardized form for consumers to use when requesting an annual file disclosure request by mail or through the website; B. Provides information through the centralized source website and telephone number regarding how to make a request through the website, by a toll-free telephone number, and by a single mail address;
C. Provides clear and easily understandable information and instructions, including: (1) Providing information on the progress of the consumer’s request; (2) Providing access on the website to a “help” or “frequently asked questions” screen, which includes specific information that consumers might reasonably need to request file disclosures, answers to questions that consumers might reasonably ask, and instructions on how to file a complaint with the centralized source and the CFPB;
(3) If a consumer cannot be properly identified, notifying the consumer and providing directions on how to complete the request, including what additional information or documentation will be required to complete the request, and how to submit such information; and (4) A statement indicating that the consumer has reached the website or telephone number for ordering free annual credit reports as required by federal law. (12 CFR 1022.136(a)-(b)).
ii. Collection of personally identifiable information. Determine whether the entity collects only as much personally identifiable information through the centralized source as is reasonably necessary to properly identify the consumer and to process the transaction(s) requested by the consumer. (12 CFR 1022.136(b)(2)(ii)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 26 iii. Procedures to anticipate and respond to volume of consumers who request consumer reports from the centralized source. Determine whether the entity, in conjunction with the other nationwide consumer reporting agencies, has implemented reasonable procedures to anticipate, and respond to, the volume of consumers who use the centralized source to meet the requirements of 12 CFR 1022.136(b)(2)(i), (c), & (e). iv. Reports owned by an associated consumer reporting agency. Determine whether, in response to a consumer’s request (accompanied by proper identification) through the centralized source, the entity provides a file disclosure of every consumer report that the entity has the ability to provide to a third party relating to that consumer, regardless of whether the consumer report is owned by the entity or by an associated consumer reporting agency. (12 CFR 1022.136(d)).
v. Advertising, marketing, or establishment of accounts. If any advertising or marketing for products or services or requests to establish accounts are done through the centralized source, determine whether:
A. They are delayed until after the consumer has obtained his or her annual file disclosure and B. Any communications, instructions, or permitted advertising or marketing do not interfere with, detract from, contradict, or otherwise undermine the purpose of the centralized source. (12 CFR 1022.136(g)).
vi. Conditions. Determine whether the centralized source requires consumers to set up an account or asks or requires consumers to agree to terms or conditions in connection with obtaining an annual file disclosure from the entity. (12 CFR 1022.136(h)). e. Special requirements for nationwide specialty consumer reporting agencies. If the entity is a nationwide specialty consumer reporting agency, assess whether it meets the following requirements in addition to those described in 8b and 8c above: i. Streamlined process. Determine whether the entity has established a streamlined process for accepting and processing consumer requests for free annual disclosures that:
A. Includes a toll-free telephone number that:
(1) Allows consumers to request their disclosures; (2) Provides clear and prominent instructions for requesting disclosures by any additional available request methods that do not interfere with, detract from, contradict, or otherwise undermine the ability of consumers to obtain annual file disclosures through the streamlined process;
(3) Is published in conjunction with other published numbers for the entity; and
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 27 (4) Is clearly and prominently posted on any website related to consumer reporting that the entity owns or maintains, along with instructions for requesting disclosures by any additional available request methods; and B. Provides clear and easily understandable information and instructions to consumers, including:
(1) Providing information on the status of the consumer’s request; (2) For a website request method, providing access to a “help” or “frequently asked questions” screen, which includes more specific information on how to order file disclosures, answers to questions that consumers might reasonably ask, and instructions on how to file a complaint with the entity and the CFPB; and (3) If a consumer cannot be properly identified, providing notice of that fact and directions on how to complete the request, including what additional information or documentation is required and how to submit it. (12 CFR 1022.137(a)).
ii. Collection of personal information. Determine whether the entity collects only as much personal information as is reasonably necessary to properly identify the consumer. (12 CFR 1022.137(a)(2)(ii)).
iii. Anticipating and responding to volume of consumers. Determine whether the entity has implemented reasonable procedures to anticipate, and respond to, the volume of consumers who will use the streamlined process to meet the requirements of 12 CFR 1022.137(a)(2)(i), (b), & (c).
iv. Requests received through other methods. Determine whether the entity accepts consumer requests for annual file disclosures from consumers who use methods other than the streamlined process or instructs such consumers on how to use the streamlined process. (12 CFR 1022.137(e)).
f. Handling of personally identifiable information. Determine whether the entity (or the centralized source) uses or discloses any personally identifiable information collected from a consumer because of the consumer’s request for an annual or other disclosure required by the FCRA from the entity that the consumer made through the centralized source or the streamlined process, for any reason other than the following: i. To provide the FCRA disclosure requested by the consumer; ii. To process a transaction requested by the consumer at the same time as the disclosure request;
iii. To comply with applicable legal requirements; or iv. To update personally identifiable information already maintained by the entity for the purpose of providing consumer reports, provided that the entity uses and discloses the
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 28 updated personally identifiable information subject to the same legal restrictions that would apply to the information that is updated or replaced. (12 CFR 1022.136(f), 1022.137(d)).
9. Free Disclosures After Adverse Action. Determine whether the entity complies with its obligation to provide a statement of rights and make the file disclosure described in steps 2 and 3 above without charge to any consumer about whom it maintains a file if the consumer makes a request within 60 days after receiving either:
a. An adverse action notice or b. A notification from a debt collection agency affiliated with the entity stating that the consumer’s credit rating may be or has been adversely affected. (Section 612(b); 15 U.S.C. 1681j(b)).
10. Free Disclosures in Connection With Fraud Alerts. If the entity is a nationwide consumer reporting agency and inserts a fraud alert in the consumer’s file at the request of the consumer or the consumer’s representative, determine whether it:
a. Discloses to the consumer that the consumer may request: i. A free file disclosure (in the case of an initial fraud alert) or ii. Two free file disclosures in the 12-month period beginning on the date of the fraud alert (in the case of an extended fraud alert); and b. Provides all disclosures described in steps 2 and 3 above without charge within three business days after the consumer requests the disclosure. (Section 605A(a)(2), (b)(2); 15 U.S.C. 1681c-1(a)(2), (b)(2)).
11. Other Free Disclosures. Determine whether the entity makes all disclosures described in steps 2 and 3 above without charge to any consumer upon request once during any 12-month period if the consumer certifies in writing that the consumer:
a. Is unemployed and intends to apply for employment in the 60-day period beginning on the date of the certification, b. Is a recipient of public welfare assistance, or c. Has reason to believe that the consumer’s file at the entity contains inaccurate information due to fraud. (Section 612(c); 15 U.S.C. 1681j(c)).
12. Charges for Other File Disclosures. Determine whether any charges imposed by the entity for file disclosures not covered in steps 8 to 11 above are: a. Reasonable, b. Not in excess of the annually adjusted maximum amount ($11.50 as of January 2012), and
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 29 c. Indicated to the consumer before the disclosure is made. (Section 612(f); 15 U.S.C. 1681j(f)).
13. Charges for Credit Score Disclosures. Determine in consultation with Headquarters whether the fees charged by the entity for credit score disclosures are reasonable and fair. (Section 609(f)(8); 15 U.S.C. 1681g(f)(8)).
14. “Free” Disclosures in Exchange for Other Purchases. a. Determine whether the entity offers any file disclosures prepared by or obtained from, directly or indirectly, a nationwide consumer reporting agency that are represented, either expressly or by implication, to be available to the consumer at no cost if the consumer purchases a product or service or agrees to purchase a product or service subject to cancellation.
b. If so, determine in consultation with Headquarters whether all such offers prominently include the disclosures required by 12 CFR 1022.138(b), as applicable, and comply with the general requirements of 12 CFR 1022.138(a)(3)(i)-(vi). Advertising issues are also addressed in Module 9.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 30 Module 6 - Consumer Inquiries, Complaints, and Disputes and the Reinvestigation Process This module addresses consumer inquiries, complaints, and disputes, as well as the investigation procedures the FCRA requires a consumer reporting agency to follow if a consumer disputes the completeness or accuracy of any item of information contained in his or her file. Compliance management is addressed in Module 1 and in the compliance management review section of the examination manual, and consumer file disclosure requests are discussed in detail in Module 5. General Processes 1. Channels for Consumers to Contact the Entity.
a. Identify all channels the entity makes available for consumers to submit inquiries, complaints, and disputes, including telephone, physical locations, addresses for written submissions, websites, email addresses, and other Internet-based channels. b. Assess the effectiveness of each of these channels, including ease of access for consumers, wait times, and company responsiveness. Consider the limits, if any, that each channel places on the amount or type of information or documentation that consumers can submit in support of their dispute.
2. Toll-Free Number for Nationwide Consumer Reporting Agencies. If the entity is a nationwide consumer reporting agency, determine whether it has established a toll-free telephone number at which personnel are accessible to consumers during normal business hours. Assess the ease of accessing a live person, including hold times and call abandonment rates. (Section 609(c)(2)(B); 15 U.S.C. 1681g(c)(2)(B)). 3. Responsiveness and Training of Personnel. Assess the responsiveness and training of company personnel who handle consumer inquiries, complaints, and disputes. In doing so: a. Determine if staffing levels are sufficient for the volume of inquiries, complaints, and disputes. Assess whether assumptions used for staffing determinations are supported by analysis. (For procedures related to staffing levels for the centralized source and streamlined processes, see also steps 8d and 8e of Module 5). b. Consider response times and other performance metrics used by the entity. c. Assess the level of training provided or required for all staff that handle consumer inquiries, complaints, and disputes. (For procedures related to training of personnel who explain file disclosures, see step 5 of Module 5.) 4. Systems and Procedures Review.
a. Evaluate the systems, procedures, and policies used by the entity for capturing, logging, categorizing, tracking, handling, investigating, and resolving consumer inquiries, disputes, and complaints. Assess whether these systems and procedures are adequate to ensure
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 31 compliance with the requirements identified in steps 5-25 below. Include in this review any systems and procedures used to communicate information to and from furnishers, users, and other consumer reporting agencies.
b. Assess how the systems and procedures identify and handle: i. Patterns of complaints or disputes that suggest systematic problems and ii. Repeated complaints or disputes by the same consumer. 5. Handling of CFPB Complaints. If the entity is a nationwide consumer reporting agency, assess the following with respect to complaints it receives from the CFPB: a. Whether the entity reviews each such complaint to determine whether its legal obligations under the FCRA have been met (including any obligation imposed by an applicable court or administrative order);
b. Whether it provides reports to the CFPB regarding the determinations of and actions taken in connection with its review of such complaints; and c. Whether it maintains, for a reasonable time period, records regarding the disposition of each such complaint. (Section 611(e)(3); 15 U.S.C. 1681i(e)(3)). Disputes And The Reinvestigation Process Steps 6 to 21 below apply to consumer reporting agencies except those that operate only as resellers (as defined in the Glossary and step 5 of Module 1). If the entity operates only as a reseller, skip to steps 22 to 25 below.
6. Reasonable Reinvestigation. Determine whether the entity conducts a reasonable reinvestigation, free of charge, when a consumer notifies the entity (directly or through a reseller) that the consumer disputes the completeness or accuracy of any item of information contained in the consumer’s file at the entity. (Section 611(a)(1); 15 U.S.C. 1681i(a)(1)). 7. Termination of Frivolous or Irrelevant Reinvestigations. Assess the circumstances under which the entity declines to investigate a dispute on the grounds that it is frivolous or irrelevant. Determine:
a. Whether the entity reasonably determines before terminating such a reinvestigation that the dispute by the consumer is frivolous or irrelevant (such as if a consumer fails to provide sufficient information to investigate the disputed information) and b. Whether the entity provides notice to the consumer within five business days after determining that a dispute is frivolous or irrelevant, by mail or other means authorized by the consumer, that:
i. Includes the reasons for the determination and
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 32 ii. Identifies any information required to investigate the disputed information (the entity may identify this information by using a standardized form describing the general nature of such information). (Section 611(a)(3); 15 U.S.C. 1681i(a)(3)). 8. Review of All Relevant Information. Determine whether in conducting its reinvestigations the entity reviews and considers all relevant information submitted by the consumer within 30 days after receiving the dispute from the consumer or reseller. (Section 611(a)(1)(A), (a)(4); 15 U.S.C. 1681i(a)(1)(A), (a)(4)). Review how the entity handles and uses attachments and other supplementary materials and text provided by the consumer in disputes submitted by mail, Internet, telephone, or other means.
9. Timely and Complete Notification to Furnisher.
a. Determine whether within five business days after receiving notice of a dispute, the entity provides notification to the furnisher (other than in cases of “expedited dispute resolutions” described in step 19 below).
b. Assess whether this notification includes all relevant information regarding the dispute that the entity has received from the consumer or reseller. (Section 611(a)(2)(A); 15 U.S.C. 1681i(a)(2)(A)). In making this assessment:
i. Consider disputes that come in through all of the different channels that consumers can use to lodge disputes.
ii. Assess how information from attachments submitted by consumers is handled. 10. Update to Furnisher if Additional Information Received. If the entity receives additional information from the consumer or reseller after it provides the initial notification to the furnisher, but within thirty days after receiving the dispute, determine whether the entity provides such information to the furnisher (other than in cases of “expedited dispute resolutions” described in step 19 below). (Section 611(a)(2)(B); 15 U.S.C. 1681i(a)(2)(B)). 11. Time Limits for Completing Reinvestigation. For disputes that are not terminated as frivolous or irrelevant (see step 7 above), determine whether the entity completes the reinvestigation and records the current status or deletes the information before the applicable statutory deadline. The deadline is 30 days after the entity receives the notice from the consumer or reseller, except under the following two circumstances: a. The time can be extended up to 15 additional days if: i. The entity receives information from the consumer during the initial 30-day period that is relevant to the reinvestigation and ii. The disputed information is not found to be inaccurate or incomplete or unverifiable in the initial 30-day period (Section 611(a)(1); 15 U.S.C. 1681i(a)(1)); or
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 33 b. The deadline is 45 days after receipt of the notice from the consumer or reseller if the dispute was sent after the consumer received an annual free report (Section 612(a)(3); 15 U.S.C. 1681j(a)(3)).
12. Inaccurate, Incomplete, or Unverifiable Information. If information disputed by a consumer is found to be inaccurate, incomplete, or cannot be verified, determine if the entity: a. Promptly deletes the information from the consumer’s file, or modifies it as appropriate; b. Promptly notifies the furnisher that the information has been modified or deleted from the consumer’s file; and c. Ensures that the information is not reinserted into the consumer’s file unless the furnisher certifies that the information is complete and accurate. (Section 611(a)(5)(A), (a)(5)(B)(i); 15 U.S.C. 1681i(a)(5)(A), (a)(5)(B)(i)).
13. Handling of Disputes Related to Credit Scores Developed by Others. If the entity declines to process disputes relating to credit scores that were developed by another person or entity, confirm:
a. That the entity did not itself develop or modify the scores and b. That the entity provides the consumer with the name and address and website for contacting the person or entity who developed the score or developed the methodology of the score. (Section 609(f)(5); 15 U.S.C. 1681g(f)(5)).
14. Reinsertion of Deleted Information. If information deleted from a consumer’s file through a reinvestigation is later reinserted in the file, determine whether the entity provides the consumer the following in writing within five business days of the reinsertion: a. A statement that the disputed information has been reinserted; b. The business name and address (and telephone number, if reasonably available) of any furnisher contacted by the entity or that contacted the entity in connection with the reinsertion of such information; and c. A notice that the consumer has the right to add a statement to the consumer’s file disputing the accuracy or completeness of the disputed information. (Section 611(a)(5)(B); 15 U.S.C. 1681i(a)(5)(B)).
15. Procedures to Prevent Reappearance of Deleted Information. Assess whether the entity maintains reasonable procedures designed to prevent the reappearance in a consumer’s file, and in consumer reports, of information that is deleted based on a reinvestigation (other than information that is reinserted after the furnisher certifies that it is complete and accurate). (Section 611(a)(5)(C); 15 U.S.C. 1681i(a)(5)(C)). See also step 2a of Module 3, which addresses whether the entity actually has included previously deleted information in consumer reports.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 34 16. Automated System for Furnishers to Report Reinvestigation Results. If the entity is a nationwide consumer reporting agency, determine if it provides furnishers access to an automated system that allows them to report the results of a reinvestigation that finds incomplete or inaccurate information to other nationwide consumer reporting agencies. (Section 611(a)(5)(D); 15 U.S.C. 1681i(a)(5)(D)).
17. Notice to Consumer of Results of Reinvestigation. Determine if the entity provides written notice to a consumer (or the reseller, if the dispute was provided through a reseller) of the results of a reinvestigation, by mail or by any other means authorized by the consumer, within five business days after the completion of the reinvestigation (except in the case of “expedited resolutions” described in step 19 below). Determine whether, as part of this notice or in addition to this notice, the entity provides the following to the consumer in writing within the five-day period:
a. A statement that the reinvestigation is completed;
b. A consumer report based upon the consumer’s file as revised; c. A notice that, if requested by the consumer, a description of the procedure used to determine the information’s accuracy and completeness will be provided by the entity, including the business name and address of any furnisher contacted in connection with such information (with telephone number, if reasonably available); d. A notice that the consumer has the right to add a statement to the consumer's file disputing the information’s accuracy or completeness; and e. A notice that the consumer has the right to request that the entity furnish notifications regarding deletions or statements of dispute to certain users who have received reports containing the information. (Section 611(a)(6); 15 U.S.C. 1681i(a)(6)). 18. Description of Procedures Used. If a consumer requests a description of the procedures used, determine whether the entity provides such a description within 15 days after receiving the request (except in cases of “expedited dispute resolutions” described in step 19 below). (Section 611(a)(7); 15 U.S.C. 1681i(a)(7)).
19. Expedited Dispute Resolutions.
a. Determine whether the entity engages in any “expedited dispute resolutions” in which it does not provide timely and complete notification or updates to the furnisher, does not provide written notice to the consumer of the results of the reinvestigation, and/or does not make available a description of the procedures used upon consumer request (per steps 9, 10, 17, and 18 above).
b. If so, determine whether for each of these “expedited dispute resolutions,” the entity: i. Deletes the disputed information within three business days after the date on which the entity receives notice of the dispute from the consumer,
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 35 ii. Provides prompt notice of the deletion to the consumer (or to the reseller, if the complaint came through a reseller) by telephone, iii. Provides written confirmation of the deletion and a revised consumer report, within five business days after making the deletion, and iv. Includes in the telephone notice described in 19bii above or in a written notice accompanying the confirmation and copy of the report described in 19biii above a statement of the consumer’s right to request that the entity notify certain prior users under Section 611(d) (15 U.S.C. 1681i(d)). (Section 611(a)(8); 15 U.S.C. 1681i(a)(8)). 20. Statements of Dispute.
a. If the reinvestigation does not resolve the dispute, determine whether the entity allows the consumer to file a brief statement setting forth the nature of the dispute. (Section 611(b); 15 U.S.C. 1681i(b)).
b. If the entity limits the length of such statements of dispute, determine whether: i. The entity allows the consumer up to at least 100 words and ii. The entity provides the consumer with assistance in writing a clear summary of the dispute. (Section 611(b); 15 U.S.C. 1681i(b)).
c. In instances where consumers file statements of dispute: i. Determine whether the entity:
A. Clearly notes in any subsequent reports containing the information in question that it is disputed by the consumer and B. Provides either the consumer’s statement or a codification or summary thereof that is clear and accurate.
ii. If not, assess whether there are reasonable grounds for the entity to believe that the dispute is frivolous or irrelevant. (Section 611(c); 15 U.S.C. 1681i(c)). 21. Notification to Users of Deletions or Disputes. Review whether the entity notifies users upon consumer request of (1) any deletion of information which is found to be inaccurate or whose accuracy can no longer be verified or (2) any notation as to disputed information. Such notification must be provided to any person specifically designated by the consumer who has received a consumer report containing the deleted or disputed information: a. For employment purposes within the previous two years or b. For any other purpose within the previous six months. (Section 611(d); 15 U.S.C. 1681i(d)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 36 Reseller Responsibilities Regarding Disputes The following procedures should be used to review a reseller’s conduct when the reseller receives consumer disputes concerning the completeness or accuracy of information contained in a consumer report produced by the reseller.
22. Assessment by Reseller. Determine whether the reseller determines whether the item of information is incomplete or inaccurate as a result of an act or omission of the reseller within five business days of receiving notice of a dispute from a consumer and without charge to the consumer. (Section 611(f)(2)(A); 15 U.S.C. 1681i(f)(2)(A)). 23. Timely Correction of Reseller Errors. When the reseller determines that disputed information is incomplete or inaccurate as a result of its own act or omission, determine whether the reseller corrects the information in the consumer report or deletes it within 20 days after receiving the notice without charge to the consumer. (Section 611(f)(2)(B)(i); 15 U.S.C. 1681i(f)(2)(B)(i)).
24. Notice to Consumer Reporting Agency That Produced Report. a. For instances where the reseller determines that the item of information is not incomplete or inaccurate as a result of its own acts or omissions, determine whether the reseller conveys notice of the dispute to each consumer reporting agency that provided the reseller with the information at issue without charge to the consumer. b. If so, determine:
i. Whether the reseller includes with the notice all relevant information provided by the consumer and ii. Whether the reseller uses an address or a notification mechanism specified by the consumer reporting agency for such notices. (Section 611(f)(2)(B); 15 U.S.C. 1681i(f)(2)(B)).
25. Conveyance of Reinvestigation Notices to Consumers. Determine whether the reseller immediately reconveys reinvestigation notices that it receives from the consumer reporting agency to the consumer, including any notice of a deletion by telephone. (Section 611(f)(3); 15 U.S.C. 1681i(f)(3)).
Dispute Process For Veteran’s Medical Debt The following procedures should be used to review the entity’s conduct when the entity receives a veteran’s medical debt dispute.
26. Notice Submitted by Veteran. Determine whether the consumer submitted a valid veteran’s medical debt dispute to the consumer reporting agency or reseller. The veteran may submit the following documentation:
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 37 a. A notice from the Department of Veteran Affairs stating the Department has assumed liability for part, or all, of a veteran’s medical debt; or b. Proof of liability of the Department of Veterans Affairs for payment of the debt; or c. Documentation that the Department of Veterans Affairs is in the process of making payments for authorized hospital care, medical services, or extended care services rendered. (Section 611(g); 15 U.S.C. 1681i(g)).
27. Deletion of Information from File. Determine whether the entity, after receiving any of the documentation listed in step 26, deleted all information relating to the veteran’s medical debt from the file and notified the furnisher and veteran of the deletion. (Section 611(g)(3); 15 U.S.C. 1681i(g)(3)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 38 Module 7 - Consumer Alerts, Identity Theft, and Human Trafficking Provisions This Module addresses a number of requirements that the FCRA imposes on consumer reporting agencies to address identity theft, to block certain information resulting from human trafficking, and to protect active duty military consumers, including security freezes, fraud and active duty alerts and blocking of reporting of information that stems from identity theft or human trafficking. In addition to the procedures set out below, other modules also touch on identity protection issues – including, for example, the requirement that consumer reporting agencies notify parties requesting reports regarding address discrepancies (discussed in step 9 of Module 4). Policies And Procedures 1. Review and assess the entity’s general policies and procedures governing how the entity responds when consumers assert that they are or have been a victim of fraud, identity theft, or human trafficking. For policies and procedures specifically related to alerts, see step 5 below. For policies and procedures specifically related to human trafficking, see step 44 below. Fraud And Active Duty Alerts 2. Duty to Provide Contact Information. If the entity is not a nationwide consumer reporting agency, determine whether it explains to consumers who suspect they have been or are about to be a victim of fraud or a related crime (including identity theft) how to contact the CFPB and the nationwide consumer reporting agencies to obtain more detailed information and request alerts. (Section 605A(g); 15 U.S.C. 1681c-1(g)). 3. Reseller Responsibility to Reconvey Alerts. If the entity acts as a reseller (see step 5 of Module 1), determine whether it complies with its statutory obligation to include in its reports any fraud alert or active duty alert placed in the file of a consumer by another consumer reporting agency. (Section 605A(f); 15 U.S.C. 1681c-1(f)). 4. Applicability of Requirement to Include Alerts. The procedures in steps 5 to 26 below apply only to nationwide consumer reporting agencies. If the entity is not a nationwide consumer reporting agency, skip to step 27 below.
5. Specific Policies and Procedures Regarding Alerts. Determine whether the nationwide consumer reporting agency has established policies and procedures relating to fraud alerts and active duty alerts, including:
a. Procedures that inform consumers of the availability of such alerts and b. Procedures that allow consumers to request initial, extended, or active duty alerts in a simple and easy manner, including by telephone. (Section 605A(d); 15 U.S.C. 1681c-1(d)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 39 6. Requirements for Alerts. Determine whether the nationwide consumer reporting agency includes an initial fraud alert, extended fraud alert, or active duty alert in a consumer’s file when the entity:
a. Maintains a file on the consumer, b. Has received appropriate proof of the requester’s identity (see step 1b of Module 5), and c. Receives from the consumer (or an individual acting on behalf of or as a personal representative of a consumer):
i. In the case of an initial fraud alert, a direct request that asserts in good faith a suspicion that the consumer has been or is about to become a victim of fraud or related crime, including identity theft;
ii. In the case of an extended fraud alert, a direct request and an identity theft report (as defined in the Glossary); or iii. In the case of an active duty alert, a direct request from an active duty military consumer (or an individual acting on behalf of or as a personal representative of an active duty military consumer). (Section 605A(a)(1), (b)(1), (c); 15 U.S.C. 1681c- 1(a)(1), (b)(1), (c)). An active duty military consumer means a consumer in military service who:
A. Is on active duty 6 or is a reservist performing duty under a call or order to active duty under a provision of law referred to in 10 U.S.C. 101(a)(13), and B. Is assigned to service away from the usual duty station of the consumer. (Section 603(q)(1); 15 U.S.C. 1681(q)(1)).
7. Duration of Alerts. Determine whether the nationwide consumer reporting agency includes any fraud or active duty alert in the consumer’s file and provides the alert along with any credit score generated in using that file for:
a. Not less than 1 year from the request date for initial fraud alerts, b. 7 years from the request date for extended fraud alerts, and c. 12 months from the request date for active duty alerts, unless the consumer or his or her representative requests that the alert be removed earlier and provides appropriate proof of the requester’s identity (see step 1b of Module 5). (Section 605A(a)(1)(A), (b)(1)(A), (c)(1); 15 U.S.C. 1681c-1(a)(1)(A), (b)(1)(A), (c)(1); 12 CFR 1022.121).
6 The term “active duty” here means full-time duty in the active military service of the United States. This includes full-time training duty, annual training duty, and attendance while in the active military service, at a school designated as a service school by law or by the Secretary of the military department concerned. (10 U.S.C. 101(d)(1)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 40 8. Referrals to and From Other Nationwide Consumer Reporting Agencies of Alerts. a. Determine whether the nationwide consumer reporting agency refers information regarding fraud alerts, extended fraud alerts, and active duty alerts to each of the other nationwide consumer reporting agencies and has appropriate referral procedures in place. (Section 605A(a)(1)(B), (b)(1)(C), (c)(3); 15 U.S.C. 1681c-1(a)(1)(B), (b)(1)(C), (c)(3); Section 621(f); 15 U.S.C. 1681s(f)).
b. When the nationwide consumer reporting agency receives referrals of fraud alerts and active duty alerts from other nationwide consumer reporting agencies, determine whether it responds in the same way that it would if it received the request directly from the consumer. (Section 605A(e); 15 U.S.C. 1681c-1(e)).
9. Free Disclosures in Connection with Fraud Alerts. See step 10 of Module 5 for procedures regarding nationwide consumer reporting agencies’ obligation to provide upon request a free file disclosure in connection with an initial fraud alert or two free file disclosures in connection with an extended fraud alert and to disclose the consumer’s right to such disclosures. (Section 605A(a)(2), (b)(2); 15 U.S.C. 1681c-1(a)(2), (b)(2)).
10. Exclusion From Prescreening During Extended Fraud Alerts and Active Duty Alerts. See steps 9 and 10 of Module 8 for procedures relating to the requirement that nationwide consumer reporting agencies exclude consumers with extended fraud alerts and active duty alerts from prescreening lists for five or two years respectively unless the consumer asks to be included. (Section 605A(b)(1)(B), (c)-(d); 15 U.S.C. 1681c-1(b)(1)(B), (c)-(d)). 11. Contents of Alerts. Determine whether the entity’s fraud alerts and active duty alerts: a. Notify all prospective consumer report users that the consumer may be the victim of fraud, including identity theft, or is an active duty military consumer, as applicable, and b. Are presented in a manner that facilitates clear and conspicuous view of such notification by any person requesting a consumer report about the consumer. (Section 603(q)(2); 15 U.S.C. 1681a(q)(2)).
12. Notification in Alerts Regarding Credit Extensions. a. Determine whether each initial fraud alert, extended fraud alert, and active duty alert included in a file by the entity notifies prospective users that the consumer does not authorize establishment of any new credit plan or extension of credit in the consumer’s name (other than under an open-end credit plan), or issuance of an additional card on an existing credit account requested by the consumer, or any increase in credit limit on an existing credit account requested by the consumer, except under specific circumstances permitted by Section 605A(h); 15 U.S.C. 1681c-1(h).
b. In the case of extended fraud alerts, determine whether each alert included by the entity also provides a telephone number or other reasonable contact method designated by the consumer. (Section 605A(h); 15 U.S.C. 1681c-1(h)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 41 Security Freezes 13. Security Freeze. Verify that the consumer reporting agency (a nationwide CRA defined in Section 603(p)) accepts security freeze requests through alternate channel(s), in addition to its webpage. (Section 605A(i)(6)(A)(vi); 15 U.S.C. 1681c-1(i)(6)(A)(vi)). 14. Placement of a Security Freeze. For consumers who request a security freeze, determine whether the nationwide consumer reporting agency:
a. Placed the freeze free of charge.
b. Placed the freeze only upon receipt of proper identification. c. Placed the freeze timely. For toll-free telephone or electronic requests, the consumer reporting agency must place the freeze no later than 1 business day after receiving the request. For requests by mail, the consumer reporting agency must place the freeze no later than 3 business days after receiving the request. (Section 605A(i)(2)(A); 15 U.S.C. 1681c- 1(i)(2)(A)).
d. Sent confirmation of the freeze to the consumer, no later than 5 business days after placing the freeze. The confirmation must inform the consumer of: i. The process to remove the freeze, including a mechanism to authenticate the consumers; and ii. The consumer’s rights described in Section 615(d)(1)(D). (Section 605A(i)(2)(B); 15 U.S.C. 1681c-1(i)(2)(B)).
15. Removal of a Security Freeze. A nationwide consumer reporting agency may only remove a security freeze upon the direct request of the consumer or upon the determination the freeze was placed due to a material misrepresentation of fact by the consumer. (Section 605A(i)(3); 15 U.S.C. 1681c-1(i)(3)).
a. For removals due to material misrepresentations, determine: i. How the consumer reporting agency concluded that the consumer made a material misrepresentation.
ii. Whether the consumer reporting agency notified the consumer in writing prior to removing the security freeze.
b. For removals upon request of the consumer, determine whether the consumer reporting agency:
i. Removed the freeze free of charge.
ii. Removed the freeze timely. For toll-free telephone or electronic requests, the consumer reporting agency must remove the freeze no later than 1 hour after receiving the request.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 42 For requests by mail, the consumer reporting agency must remove the freeze no later than 3 business days after receiving the request.
16. Temporary Security Freeze Removal. For a temporary removal of a security freeze requested by a consumer, determine whether the nationwide consumer reporting agency: a. Removed the freeze for the period of time specified by the consumer. b. Removed the freeze timely. For toll-free telephone or electronic requests, the consumer reporting agency must remove the freeze no later than 1 hour after receiving the request. For requests by mail, the consumer reporting agency must remove the freeze no later than 3 business days after receiving the request. (Section 605A(i)(3)(E); 15 U.S.C. 1681c- 1(i)(3)(E)).
17. Exceptions. A security freeze will not apply to a consumer reporting agency that provides a consumer report for any of the instances listed in Section 605A(i)(4). Determine whether the consumer reporting agency:
a. Provided a consumer report for any of the allowable exceptions; b. Failed to provide a consumer report due to a security freeze despite a valid exception; or c. Provided a consumer report for a consumer with a valid security freeze in place and an exception did not apply.
18. Notice of Rights. Whenever a consumer is required to receive notice of rights under Section 609, verify that the notice contains the language listed in Section 605A(i)(5). 19. Webpage. Determine whether the nationwide consumer reporting agency established a website that:
a. Allows a consumer to request a security freeze;
b. Allows a consumer to request an initial fraud alert; c. Allows a consumer to request an extended fraud alert; d. Allows a consumer to request an active duty fraud alert; and e. Allows a consumer to opt-out of the use of information in a credit report to send the consumer a solicitation of credit or insurance, in accordance with Section 615(d). Security Freezes For Protected Consumers The FCRA defines “protected consumer” as an individual who is under the age of 16 at the time a freeze request is made, or an incapacitated person or a protected person for whom a guardian or conservator has been appointed. The term “protected consumer’s representative” means a person
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 43 who provides to the consumer reporting agency sufficient proof of authority to act on behalf of a protected consumer, listed in Section 605A(j)(1)(F).
20. Placement of Security Freeze for a Protected Consumer. When a protected consumer’s representative directly requests a security freeze for a protected consumer, determine whether the nationwide consumer reporting agency, as defined in Section 603(p): a. Received sufficient proof of identification, as defined under Section 605A(j)(1)(G). b. Received sufficient proof of authority, as defined under Section 605A(j)(1)(F). c. Placed the freeze free of charge.
d. Placed the freeze timely. For toll-free telephone or electronic requests, the consumer reporting agency must place the freeze no later than 1 business day after receiving the request. For requests by mail, the consumer reporting agency must place the freeze no later than 3 business days after receiving the request. (Section 605A(j)(2)(A); 15 U.S.C. 1681c- 1(j)(2)(A)).
e. Sent confirmation of the freeze to the protected consumer’s representative, no later than 5 business days after placing the freeze, informing the representative of the process to remove the freeze, including a mechanism to authenticate the protected consumer’s representative.
f. Created a file record for the protected consumer if one did not exist. 21. Prohibition on Release of Record or File of Protected Consumer. Determine whether the consumer reporting agency provided the protected consumer’s report, any information derived from the protected consumer’s report, or any record created for the protected consumer, after a security freeze was placed. (Section 605A(j)(3); 15 U.S.C. 1681c-1(j)(3)). 22. Removal of a Protected Consumer Security Freeze. A consumer reporting agency may only remove a protected consumer’s security freeze in cases listed in Section 605A(j)(4)(A). a. For removals made upon the request of the protected consumer’s representative, determine whether the consumer reporting agency:
i. Removed the freeze free of charge.
ii. Removed the freeze timely. For toll-free telephone or electronic requests, the consumer reporting agency must remove the freeze no later than 1 hour after receiving the request. For requests by mail, the consumer reporting agency must remove the freeze no later than 3 business days after receiving the request.
b. For removals made upon the request of the protected consumer, if the consumer is not under 16 years old at the time of the request, determine whether the consumer reporting agency:
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 44 i. Removed the freeze free of charge.
ii. Removed the freeze timely. For toll-free telephone or electronic requests, the consumer reporting agency must remove the freeze no later than 1 hour after receiving the request. For requests by mail, the consumer reporting agency must remove the freeze no later than 3 business days after receiving the request.
c. For removals where the security freeze was placed due to a material misrepresentation of fact by the protected consumer’s representative, determine: i. How the consumer reporting agency concluded that the protected consumer’s representative made a material misrepresentation.
ii. Whether the consumer reporting agency notified the protected consumer’s representative in writing prior to removing the security freeze. 23. Protected Consumer Temporary Security Freeze Removal. For temporary removal of a protected consumer’s security freeze, the request must be made by either the protected consumer or the protected consumer’s representative, provided the protected consumer is not under 16 years old at the time of the request. Determine whether the consumer reporting agency:
a. Removed the freeze for the period of time specified by the consumer. b. Removed the freeze timely. For toll-free telephone or electronic requests, the consumer reporting agency must remove the freeze no later than 1 hour after receiving the request. For requests by mail, the consumer reporting agency must remove the freeze no later than 3 business days after receiving the request Active Duty Credit Monitoring The following procedures should be used to review an entity’s (a nationwide CRA defined in Section 603(p)) conduct to provide free electronic credit monitoring for consumers that inform the entity of their active duty military status.7 (Section 605A(k); 15 U.S.C. 1681c-1(k)). 24. Credit Monitoring. For a consumer who informs the entity of their active duty status, determine whether the consumer reporting agency:
a. Requested and received appropriate proof of identity, proof of the consumer’s active duty status,8 and the consumer’s contact information.
7 The term “active duty military consumer” is defined in 15 U.S.C. 1681a(q)(1). The term also includes a member of the National Guard, as defined in 10 U.S.C. 101(c).
8 A consumer’s active duty status can be verified through: a method or service approved by the Department of Defense, or a certification of active duty status approved by the NCRA.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 45 b. Provided a free electronic monitoring service for two years after the entity verifies the consumer’s active duty status, that at a minimum, notifies a consumer of material additions or modifications to the file within 48 hours of the changes.9 i. The notification may be by mobile application, email, or text message. If the notification does not inform the consumer of the specific change, the notice must link to a website that provides that information.
ii. The notice, or the first page of the electronic credit monitoring service website, shall include a hyperlink to a summary of the consumer’s rights under the FCRA. Each file disclosure from the entity must also include a summary of the consumer’s rights under the FCRA.
25. Information use and disclosure. Determine whether the entity collected information from consumers, as a result of a request to obtain the service, and if so, used or disclosed that information for the following permitted purposes only (16 CFR 609.3(d)): a. To provide the free electronic credit monitoring service requested by the consumer; b. To process a transaction requested by the consumer at the same time as the request for the free electronic credit monitoring service;
c. To comply with applicable legal requirements; or d. To update information already maintained by the entity for the purpose of providing consumer reports.
26. Prohibited practices. Determine whether the entity engaged in any of the following prohibited practices (16 CFR 609.3(e) and (f)):
a. Advertised or marketed products or services to the consumer during the enrollment process. This includes any communications or instructions that advertise or market any products and services.
b. Provided communications, instructions, or advertising or marketing that interfered with, detracted from, contradicted, or undermined the purpose of providing the free electronic credit monitoring service. Examples include:
i. Materials that represent, expressly or implication, that an active duty consumer must purchase a paid product or service in order to receive the free electronic credit monitoring; or ii. Materials that falsely represent, expressly or implication, that a product or service offered additionally to the free electronic credit monitoring service, such as identify
9 Material additions or modifications are defined in 16 CFR Part 609.2(l).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 46 theft insurance, is also free, or fail to clearly and prominently disclose that consumers must cancel a service within the initial free period to avoid being charged. c. Required an active duty military consumer to agree to terms or conditions in connection with obtaining the free electronic credit monitoring service, other than those terms or conditions required to comply with applicable legal requirements. Identity Theft Statement Of Rights The FCRA requires consumer reporting agencies under certain circumstances to provide a summary of rights of identity theft victims that contains all of the information required by the CFPB.
27. Who Receives a Statement of Rights. Determine if the entity provides a statement of rights to any consumer who expresses a belief to the entity that the consumer is a victim of fraud or identity theft involving credit, an electronic fund transfer, or an account or transaction at or with a financial institution or other creditor. (Section 609(d)(2); 15 U.S.C. 1681g(d)(2)). 28. Content and Format of Statement of Rights. Confirm that: a. The disclosures provided are substantially similar to the CFPB’s model summary in Appendix I to Regulation V, 12 CFR Part 1022, and b. All required information is clearly and prominently displayed. (Section 609(d); 15 U.S.C. 1681g(d); 12 CFR Part 1022, Appendix I).
Identity Theft Blocking Requirement Consumer reporting agencies must “block” the reporting of certain information resulting from an alleged identity theft. Special rules apply to two different types of consumer reporting agencies. 29. Entities Subject to Different Blocking Requirements. Check services companies and resellers have different obligations than other consumer reporting agencies when consumers request an identity theft block. Determine if the entity is: a. A reseller (as determined in step 5 of Module 1) or b. A check services company acting as such that issues authorizations for the purpose of approving or processing negotiable instruments, electronic funds transfers, or similar methods of payment.
If so, skip to step 19 (for resellers) or 20 (for check services companies) below. (Section 605B(d)-(e); 15 U.S.C. 1681c-2(d)-(e)).
30. Blocking Requirement. Absent the circumstances described in step 17 below, determine whether the entity blocks the reporting of consumer file information that the consumer identifies as resulting from an alleged identity theft (other than in reports provided to a federal, state, or local law enforcement agency) within four business days after the entity receives:
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 47 a. Appropriate proof of the identity of the consumer (see step 1b of Module 5), b. A copy of an identity theft report, c. The identification of such information by the consumer, and d. A statement by the consumer that the information is not information relating to any transaction by the consumer. (Section 605B(a), (f); 15 U.S.C. 1681c-2(a), (f)). 31. Requirements If Declining to Block Information. The FCRA allows consumer reporting agencies to decline a block request or rescind a block under limited circumstances. If the entity declines to implement an identity theft block, or rescinds any identity theft block, assess whether it:
a. Notifies the consumer promptly, in the same manner as consumers are notified of the reinsertion of previously deleted information and b. Reasonably determines that:
i. The information was blocked in error or a block was requested by the consumer in error;
ii. The information was blocked, or a block was requested by the consumer, on the basis of a material misrepresentation of fact by the consumer relevant to the request to block; or iii. The consumer obtained possession of goods, services, or money as a result of the blocked transaction or transactions. (Section 605B(c); 15 U.S.C. 1681c-2(c)). 32. Notification to Furnishers of Identity Theft Block. Determine whether the entity promptly notifies the furnisher of information subject to an identity theft block request: a. That the information may be a result of identity theft, b. That an identity theft report has been filed, c. That a block has been requested, and d. Of the block’s effective dates. (Section 605B(b); 15 U.S.C. 1681c-2(b)). 33. Reseller Obligations. If the entity is a reseller, review how it responds when consumers request an identity theft block to determine if the reseller does the following: a. In instances where the reseller is not otherwise furnishing or reselling a consumer report concerning the information identified by the consumer at the time of the block request, determine if the reseller informs the consumer that the consumer may report the identity theft to the CFPB to obtain consumer information regarding identity theft.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 48 b. In instances where the consumer identifies to the entity information in the consumer’s file that resulted from identity theft and where the entity is a reseller of the identified information, determine if the reseller:
i. Blocks any consumer report it maintains from subsequent use and ii. Provides notice to the consumer of the file block, including the name, address, and telephone number of the consumer reporting agency from which the information was obtained. (Section 605B(d); 15 U.S.C. 1681c-2(d)).
34. Obligations of Check Services Company. If the entity is a check services company, determine whether it refrains from reporting to a nationwide consumer reporting agency any information that an identity theft report identifies as resulting from identity theft beginning four business days after the entity receives:
a. Appropriate proof of the identity of the consumer (as explained in step 1b in Module 5), b. A copy of an identity theft report, and c. The consumer’s identification of such information. (Section 605B(e); 15 U.S.C. 1681c- 2(e)).
35. Acceptance of Identity Theft Reports. If the entity asks for additional information or documentation before accepting an identity theft report in connection with a request for an extended fraud alert or for identity theft blocking, determine whether: a. The entity’s request is reasonable and made for the purpose of determining the validity of the alleged identity theft, b. The entity makes its request within 15 days after the later of the date it receives the copy of the report form or the request by the consumer for the extended fraud alert or for identity theft blocking, and c. The entity makes any supplemental requests for information or documentation and its final determination on the acceptance of the identity theft report by the statutory deadline, which is:
i. 15 days after its initial request for information or documentation or ii. If the entity receives any additional information or documentation on the eleventh day or later within the 15-day period, within five days after the date of receipt. (12 CFR 1022.3(i)).
Human Trafficking Blocking Requirement FCRA Section 605C and Regulation V require consumer reporting agencies to block the reporting of certain information resulting from human trafficking when a consumer submits
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 49 “trafficking documentation”(15 U.S.C. 1681c-3; 12 CFR 1022.142). “Trafficking documentation” means:
a. Victim Determination. Documentation of a determination that the consumer is a victim of trafficking,10 made by one of the following, or a signed statement by the consumer that the consumer is a victim of trafficking that is signed or certified by a representative of one of the following:
i.
A federal, state, or tribal governmental entity.
ii.
A non-governmental organization or members of a human trafficking task force authorized by a governmental entity to make such a determination.
iii.
A court of competent jurisdiction (12 CFR 1022.142(b)(6)(i)).11
b. Identified adverse items of information. Documentation prepared by the consumer or the consumer’s designated representative, which:
i.
Identifies adverse items of information that resulted from human trafficking of which the consumer is a victim and should not be furnished by a consumer reporting agency.
ii.
Contains a preferred method for the consumer reporting agency to contact the consumer. (12 CFR 1022.142(b)(6)(ii)). The consumer reporting agency must use only this method of contact for communicating with the consumer or their representative about the submission of trafficking documentation and the consumer reporting agency’s actions taken in response to such submission. The consumer reporting agency must not use the consumer’s preferred contact information for any other purpose.
Regulation V describes the requirements by which consumer reporting agencies must accept, consider, and respond to such consumer submissions and the related obligations to retain records and maintain reasonable policies and procedures (12 CFR 1022.142(d)–(h)). 36. Methods of Submission to Consumer Reporting Agency. Verify that the consumer reporting agency:
10 “Trafficking” and “human trafficking” hereafter refer to “severe forms of trafficking in persons” or “sex trafficking” as defined in Section 103 of the Trafficking Victims Protection Act of 2000. The term “severe forms of trafficking in persons” means “(A) sex trafficking in which a commercial sex act is induced by force, fraud, or coercion, or in which the person induced to perform such act has not attained 18 years of age; or (B) the recruitment, harboring, transportation, provision, or obtaining of a person for labor or services, through the use of force, fraud, or coercion for the purpose of subjection to involuntary servitude, peonage, debt bondage, or slavery.” 22 U.S.C. 7102(11). The term “sex trafficking” means “the recruitment, harboring, transportation, provision, obtaining, patronizing, or soliciting of a person for the purpose of a commercial sex act.” Id., at 7102(12). 11 Such documentation may alternatively consist of documents filed in a court of competent jurisdiction where a central issue in the case is whether the consumer is a victim of trafficking and the court has, at a minimum, affirmed the consumer’s claim either by accepting certain pieces of evidence which are assumed to be true or finding that the there is no genuine dispute as to any material fact supporting a judgment in favor of the victim as a matter of law. 12 CFR 1022.142(b)(6)(i)(B).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 50
a. Provides two mailing addresses, one of which must be the address used for disputes under Section 611 (15 U.S.C. 1681i), for a consumer and consumer representative to submit the appropriate proof of identity and trafficking documentation.
b. Accepts submissions to the mailing address and website address (if applicable) used for disputes under Section 611 (15 U.S.C. 1681i).
c. Accepts submissions sent to any mailing address or web address (if applicable) that is maintained by the consumer reporting agency and dedicated to submissions for the blocking of adverse items of information resulting from human trafficking.
d. Includes information on its publicly available website about how to provide submissions for the blocking of adverse items of information resulting from human trafficking. (12 CFR 1022.142(d)(1)–(2)).
37. Acceptance of Inquiries by Toll-Free Telephone Number. If the entity is a nationwide consumer reporting agency, as defined in the Glossary and step 2 of Module 1, verify that it:
a. Allocates a reasonable amount of personnel to respond to consumer inquiries about consumer submissions at the toll-free telephone number used for disputes under Section 611 (15 U.S.C. 1681i).
b. Has established a toll-free telephone number dedicated to addressing submissions from consumers seeking to block adverse information resulting from human trafficking. (12 CFR 1022.142(d)(3))
38. Blocking of Adverse Information Resulting from Human Trafficking. When a consumer or their representative provides a submission through one of the two mailing addresses designated for such purposes or through a secure online website portal or a website used for disputes under Section 611, the consumer agency must block the identified adverse items of information (12 CFR 1022.142(e)(1)). Determine whether the consumer reporting agency:
a. Received appropriate proof of identity, as defined by 12 CFR 1022.123 and discussed in step 1 of Module 5.
b. Received trafficking documentation, including a victim determination and identified adverse items of information, as defined by 12 CFR 1022.142(b)(6).
c. Blocked the reporting of any adverse item of information identified by the consumer (or their representative).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 51 d. Activated the block timely. The consumer reporting agency must block the identified information within four business days of receiving the consumer’s submission. (12 CFR 1022.142(e)(1)).
39. Requirement to Attempt to Resolve Deficiencies. A consumer reporting agency must notify a consumer within five business days if additional information is necessary to complete the consumer’s submission (12 CFR 1022.142(e)(2)). If the consumer reporting agency notified the consumer that additional information was necessary to complete the consumer’s submission, determine:
a. Whether such notification was sent within five business days of receipt of the consumer’s initial submission.
b. Why the consumer reporting agency determined that additional information was necessary to complete the consumer’s submission. It may not request information related to the validity of the facts or circumstances detailed in the submitted trafficking documentation establishing the consumer is a victim of trafficking or whether trafficking resulted in the identified adverse information. The consumer reporting agency may request additional information only when:
i.
It cannot reasonably confirm the consumer’s, or the consumer’s representative’s (if applicable), appropriate proof of identity, as defined by 12 CFR 1022.123;
ii.
The consumer did not provide victim determination documentation, as defined by 12 CFR 1022.142(b)(6); or
iii.
It cannot properly identify the adverse items of information. (12 CFR 1022.142(e)(2)).
40. Final Determination on the Consumer’s Submission. Whether or not the consumer reporting agency attempts to resolve deficiencies in the consumer’s submission, determine whether the consumer reporting agency:
a. Made a final determination on the consumer’s submission no later than 25 business days after receiving the initial submission. (12 CFR 1022.142(e)(2)(ii)).
b. Upon confirming completion of the submission, initiated or maintained a block of the identified adverse information. (12 CFR 1022.142(e)(3)).
41. Authority to Decline or Rescind a Block. If the consumer reporting agency declines to block the identified adverse information or activates a block and then later rescinds it, determine:
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 52 a. The consumer reporting agency’s basis for doing so. It may only decline or rescind a block for one of the reasons listed in 12 CFR 1022.142(e)(4) (listed below), and not based on the validity of facts or circumstances detailed in the consumer’s trafficking documentation. Determine whether the consumer reporting agency declined or rescinded a block because:
i.
It could not reasonably confirm the appropriate proof of identity, as defined by 12 CFR 1022.123;
ii.
The consumer could not provide a victim determination, as defined by 12 CFR 1022.124(b)(6); or
iii.
The consumer reporting agency could not properly identify the relevant adverse items of information.
b. Whether, before declining or rescinding the block, the consumer reporting agency used the consumer’s preferred method of contact to notify the consumer and attempt to resolve any deficiency in the consumer’s submission. (12 CFR 1022.142(e)(4)).
42. Notification to Consumer of Action Taken in Response to Submission. A consumer reporting agency must provide written or electronic notice to a consumer of actions taken in response to the consumer’s submission (12 CFR 1022.142(f)). Determine whether the consumer reporting agency sent such a notice, and, if so, whether:
a. The consumer reporting agency sent the notice within five business days of making a final determination on the consumer’s submission (or, if rescinding a previously applied block, five business days after such rescission).
b. The notice included the following required contents:
i.
A statement that the consumer reporting agency’s review of the submission is completed.
ii.
A statement of the outcome of the submission, including the reason(s) for declining to block the adverse information, if applicable.
iii.
If the consumer’s file was revised, a free copy of the revised consumer report.
iv.
A description of the procedure used to determine the outcome of the submission.
v.
Contact information of the consumer reporting agency where the consumer may appeal the determination or revise their submission to cure any of the reasons cited for the declination.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 53 vi.
The web page where consumers may submit complaints to the Bureau. (12 CFR 1022.142(f)).
43. Record Retention. Determine whether the consumer reporting agency, for seven years after it receives the consumer’s submission, retains evidence of:
a. The consumer’s submission.
b. The consumer reporting agency’s compliance with this section, including all actions it took and, if applicable, its reasons for declining to block or rescinding any block of identified items of adverse information. (12 CFR 1022.142(g)).
44. Policies and Procedures to Ensure and Maintain Compliance. A consumer reporting agency must establish and maintain written policies and procedures reasonably designed to ensure and monitor the compliance of the consumer reporting agency and its employees with the requirements of 12 CFR 1022.142. Determine whether the consumer reporting agency established and maintained such policies and whether the policies and procedures are appropriate to the nature, size, complexity, and scope of its activities. (12 CFR 1022.142(h)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 54 Module 8 - Prescreening, Employment Reports, and Investigative Consumer Reports This module addresses the requirements that the FCRA imposes on consumer reporting agencies that engage in prescreening or furnish employment reports or investigative consumer reports. Prescreening The FCRA includes detailed requirements that must be followed when consumer reporting agencies provide consumer reports not authorized by the consumer that are used to solicit consumers to obtain credit or insurance, a process known as “prescreening.” In prescreening, a consumer reporting agency typically either edits a list of consumers developed by the requesting creditor or insurer (or its agents) or independently creates a list of consumers according to the requesting entity’s specifications.
In addition to the examination procedures listed below, step 2f of Module 3 and step 3e of Module 5 address the FCRA’s requirements that consumer reporting agencies include prescreening inquiries from the preceding year in consumer file disclosures, but not list prescreening inquiries in consumer reports issued to third parties. (Section 604(c)(3); 15 U.S.C. 1681b(c)(3); Section 609(a)(5); 15 U.S.C. 1681g(a)(5)).
1. Whether Entity Engages in Prescreening. Determine if the entity engages in “prescreening,” by furnishing consumer reports in connection with any credit or insurance transactions that are not initiated by the consumers (to solicit the consumers to obtain credit or insurance) and where the consumers have not authorized the entity to provide such reports (as determined in step 14 of Module 1). (Section 603(l); 15 U.S.C. 1681a(l); Section 604(c)(1); 15 U.S.C. 1681b(c)(1)). If not, skip to step 12 below.
2. Consumer Information Released in Prescreening. Determine whether the entity provides any information about the consumer other than the following in connection with prescreening: a. The name and address of a consumer, b. An identifier that is not unique to the consumer and that is used solely for the purpose of verifying the consumer’s identity, and c. Other information pertaining to the consumer that does not identify the relationship or experience of the consumer with respect to a particular creditor or other entity. (Section 604(c)(2); 15 U.S.C. 1681b(c)(2)).
3. Notification System for Opt-Outs. Determine whether the entity maintains a notification system, including a toll-free telephone number, which permits any consumer whose consumer report is maintained by the entity to notify the entity, with appropriate identification, of the consumer’s election to be excluded (“opt out”) from any list of names and addresses provided by the entity for prescreening. (Section 604(e)(5); 15 U.S.C. 1681b(e)(5)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 55 a. Affiliates. If the entity has affiliates that engage in prescreening, determine whether they are part of the notification system and whether opt-outs are honored by all of the affiliated entities. (Section 604(e)(4)(D), (e)(5); 15 U.S.C. 1681b(e)(4)(D), (e)(5)). b. Joint notification system for nationwide consumer reporting agencies. If the entity is a nationwide consumer reporting agency, determine whether it maintains a joint notification system with other nationwide consumer reporting agencies to accomplish the purposes described in step 3 above. (Section 604(e)(6); 15 U.S.C. 1681b(e)(6)). c. Publicity. Assess how information about the notification system is disseminated to consumers, including whether the entity annually publishes in a publication of general circulation in the area served by the entity:
i. A notification that information in consumer files maintained by the entity may be used in connection with prescreening and ii. The address and toll-free telephone number to use to opt out. (Section 604(e)(5); 15 U.S.C. 1681b(e)(5)).
4. Entity Response After System Notification. When the entity’s notification system provides notification of a consumer’s election, determine whether the entity: a. Informs the consumer that the election is effective only for five years unless the consumer submits to the entity a signed notice of election form issued by the entity and b. Provides a notice of election form if requested by the consumer (which must be provided within five business days after receipt of the election notification if the request is made with the system notification). (Section 604(e)(3); 15 U.S.C. 1681b(e)(3)). 5. Tracking Opt-Outs. Assess the systems and procedures that the entity uses for tracking which consumers have opted out and the effective period for each such opt-out, which must: a. Begin no more than five business days after the date of notification and b. Continue until:
i. The consumer notifies the entity through its notification system that the election is no longer effective or ii. If the consumer did not provide a signed notice of election form issued by the entity, five years and five business days after the notification. (Section 604(e)(4); 15 U.S.C. 1681b(e)(4)).
6. Honoring Opt-Outs. Assess whether the entity has systems and processes in place to ensure that consumers who have opted out are not included in prescreening lists. Determine whether the entity provides any consumer reports for prescreening about consumers who have opted out (either through the notification system or by submitting a signed notice of election form
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 56 issued by the entity) during the effective period of the opt-outs. (Section 604(c)(1); 15 U.S.C. 1681b(c)(1)).
7. Firm Offer of Credit. Determine whether the entity has adequate procedures in place to determine whether the persons to whom it provides prescreened consumer reports are extending firm offers of credit or insurance (as defined in the Glossary) to each identified consumer. (Section 603(l); 15 U.S.C. 1681a(l); Section 604(c)(1); 15 U.S.C. 1681b(c)(1)). 8. Consumers Under 21. Determine whether the entity provides consumer reports for prescreening that contain dates of birth that show that the consumers are not yet 21, without first obtaining the consumers’ consent. (Section 604(c)(1)(B)(iv); 15 U.S.C.
1681b(c)(1)(B)(iv)).
9. Extended Fraud Alerts. Determine whether the entity excludes any consumer whose file includes an extended fraud alert from any list of consumers it prepares and provides to any third party for prescreening, unless:
a. The consumer or the consumer’s representative requests that such exclusion be rescinded or b. More than five years have elapsed since the consumer requested the extended fraud alert. (Section 605A(b)(1)(B); 15 U.S.C. 1681c-1(b)(1)(B)).
10. Active Duty Alerts. Determine whether the entity excludes any consumer whose file includes an active duty alert from any list of consumers that it prepares and provides to any third party for prescreening, unless:
a. The consumer or the consumer’s representative requests that such exclusion be rescinded or b. More than two years have elapsed since the consumer requested the active duty alert. (Section 605A(c)(2); 15 U.S.C. 1681c-1(c)(2)).
11. Tracking Inquiries. Assess the systems and procedures that the entity uses to track prescreening inquiries. Evaluate whether these systems and procedures are adequate to meet the entity’s obligations to provide to the consumer a list of all prescreening inquiries over the last year with any consumer file disclosure, but not to disclose information about such inquiries in consumer reports furnished to others (see steps 2f in Module 3 and step 3e in Module 5). (Section 604(c)(3); 15 U.S.C. 1681b(c)(3); Section 609(a)(5); 15 U.S.C. 1681g(a)(5)). Employment Reports The FCRA imposes additional requirements on consumer reporting agencies when they prepare and furnish reports for employment purposes.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 57 12. Whether Entity Provides Employment Reports. Determine if the entity furnishes any reports for employment purposes (as determined in step 15 of Module 1). If not, skip to step 18 below.
13. Certification Regarding Employment Laws. Determine if prior to furnishing consumer reports for employment purposes, the entity obtains a certification from the person requesting the report that information from the consumer report will not be used in violation of any applicable federal or state equal employment opportunity law or regulation. (Section 604(b)(1)(A)(ii); 15 U.S.C. 1681b(b)(1)(A)(ii)).
14. Other Certifications. Determine if prior to furnishing consumer reports for employment purposes (other than in connection with an application for employment in a position regulated by the Secretary of Transportation under 49 U.S.C. 31502 or subject to safety regulation by a state transportation agency, when the application was made solely by mail, telephone, computer, or other similar means), the entity obtains a certification from the person requesting the report that:
a. A separate, clear, and conspicuous written disclosure has been provided to the consumer before the report is procured or caused to be procured indicating that a consumer report may be obtained for employment purposes;
b. The consumer has authorized in writing (on the disclosure described in (a) above or on another document) the procurement of the report by that person; and c. Before taking any adverse action based in whole or in part on the report the requester will provide the following to the consumer to whom the report relates (unless the user is a federal agency or department and appropriate certifications relating to a national security investigation are made under Section 604(b)(4)(A) (15 U.S.C. 1681b(b)(4)(A))): i. A copy of the report and ii. A written description of the consumer’s FCRA rights, as prescribed by the CFPB. (Section 604(b); 15 U.S.C. 1681b(b)).
15. Summary of Rights. Determine if the entity provides a summary of the consumer’s FCRA rights, as prescribed by the CFPB, either before furnishing the report or with the report. (Section 604(b)(1)(B); 15 U.S.C. 1681b(b)(1)(B); Section 609(c); 15 U.S.C. 1681g(c)). 16. Certain Transportation-Related Reports. When consumer reports are issued for use in decisions regarding employment in positions regulated by the Secretary of Transportation under 49 U.S.C. 31502 or subject to safety regulation by a state transportation agency, in connection with applications made solely by mail, telephone, computer, or other similar means, determine if prior to furnishing such reports, the entity obtains a certification from the person requesting the report that:
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 58 a. The requester has provided to the consumer, by oral, written, or electronic means, notice that a consumer report may be obtained for employment purposes and a summary of the consumer’s rights under Section 615(a)(3); 15 U.S.C. 1681m(a)(3); b. The consumer has consented, orally, in writing, or electronically, to the procurement of the report by the requester;
c. If the requester takes adverse action on the employment application based in whole or in part on the report, the requester will provide to the consumer to whom the report relates within three business days of taking such action, an oral, written, or electronic notification: i. That adverse action has been taken based in whole or in part on a consumer report received from a consumer reporting agency;
ii. Of the name, address, and telephone number of the consumer reporting agency that furnished the consumer report (including a toll-free telephone number established by the entity if the entity is a nationwide consumer reporting agency); iii. That the consumer reporting agency did not make the decision to take the adverse action and is unable to provide to the consumer the specific reasons why the adverse action was taken; and iv. That the consumer may, upon providing proper identification, request a free copy of a report and may dispute with the consumer reporting agency the accuracy or completeness of any information in the report; and d. If the consumer requests a copy of the consumer report from the person after receiving the disclosure identified above, the person will send or provide to the consumer a copy of the report and a written description of the consumer’s FCRA rights, as prescribed by the CFPB, within three business days of receiving the consumer’s request, together with proper identification. (Section 604(b)(2)-(3); 15 U.S.C. 1681b(b)(2)-(3)). 17. Public Record Information for Employment Purposes. a. Determine whether the entity in preparing consumer reports for employment purposes compiles and reports items of information on consumers that are matters of public record and are likely to have an adverse effect upon a consumer’s ability to obtain employment (excluding any situations where the user is a federal agency or department and appropriate certifications relating to a national security investigation are made under Section 604(b)(4)(A) (15 U.S.C. 1681b(b)(4)(A))).
b. If the answer is yes, determine whether the entity: i. Notifies the consumer of the fact that public record information is being reported by the consumer reporting agency, together with the name and address of the person to whom such information is being reported, at the time that the public record information is reported to the user of the consumer report; or
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 59 ii. Maintains strict procedures designed to ensure that whenever public record information that is likely to have an adverse effect on a consumer’s ability to obtain employment is reported, it is complete and up-to-date. For purposes of this paragraph, items of public record relating to arrests, indictments, convictions, suits, tax liens, and outstanding judgments are considered up-to-date if the current public record status of the item at the time of the report is reported. (Section 613; 15 U.S.C. 1681k). Investigative Consumer Reports The FCRA imposes additional requirements on consumer reporting agencies when they prepare and furnish “investigative consumer reports.” The term “investigative consumer report” is defined in the Glossary and is a type of consumer report that includes information obtained through personal interviews with the consumer’s neighbors, friends, associates, or others. In addition to the procedures listed below, step 2h in Module 3 addresses when adverse information from investigative consumer reports can be included in subsequent consumer reports under Section 614 (15 U.S.C. 1681l), and step 3b in Module 5 relates to information sources for investigative consumer reports under Section 609 (15 U.S.C. 1681g).
18. Whether the Entity Furnishes Investigative Reports. Determine if the entity furnishes any investigative reports (as determined in step 16 of Module 1). If not, skip steps 19-20 below. 19. Certification From Person Requesting Report. Determine whether prior to preparing or furnishing investigative consumer reports, the entity obtains from the person requesting the report a certification that:
a. Within three days after first requesting the report, the requester mailed or otherwise delivered a written disclosure to the consumer that i. Clearly and accurately discloses that an investigative consumer report including information as to his character, general reputation, personal characteristics, and mode of living, whichever are applicable, may be made, and ii. Includes a statement informing the consumer of his or her right to request the additional disclosures described below and a written summary of rights under Section 609(c) (15 U.S.C. 1681g); and b. Upon written request made by the consumer within a reasonable period of time after the receipt of the disclosure mentioned above, the requester will make a complete and accurate disclosure of the nature and scope of the investigation requested, in writing mailed, or otherwise delivered, to the consumer within five days after the date the disclosure request was received or the date the report was first requested, whichever is later. (Section 606(a)(1)-(2); 15 U.S.C. 1681d(a)(1)-(2); Section 606(d)(1); 15 U.S.C. 1681d(d)(1)). 20. Prohibited Activities. Determine whether the entity engages in any of the following prohibited activities:
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 60 a. Inquiries that would violate employment law if made by an employer. Making an inquiry for the purpose of preparing an investigative consumer report for employment purposes if the making of the inquiry by an employer or prospective employer of the consumer would violate any applicable federal or state equal employment opportunity law or regulation. (Section 606(d)(2); 15 U.S.C. 1681d(d)(2)). b. Certain public record information. Furnishing an investigative consumer report that includes public record information relating to an arrest, indictment, conviction, civil judicial action, tax lien, or outstanding judgment, unless: i. The entity has verified the information’s accuracy during the 30-day period ending on the date the report is furnished or ii. The report is for employment purposes and complies with all of the requirements described in step 17 above. (Section 606(d)(3); 15 U.S.C. 1681d(d)(3)). c. Certain adverse information from personal interviews. Preparing or furnishing an investigative consumer report on a consumer that contains information that is adverse to the consumer’s interest and that is obtained through a personal interview with a neighbor, friend, or associate of the consumer or with another person with whom the consumer is acquainted or who has knowledge of such item of information, unless: i. The entity has followed reasonable procedures to obtain confirmation of the information from an additional source that has independent and direct knowledge of the information or ii. The person interviewed is the best possible source of the information. (Section 606(d)(4); 15 U.S.C. 1681d(d)(4)).
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 61 Module 9 - Other Products and Services and Risks to Consumers Larger participants of the consumer reporting market may provide consumer financial products or services that are not covered in the preceding modules. Examiners should consider whether any of the entity’s consumer financial products or services creates other risks to consumers. In addition, products and services that are covered in Modules 2 to 8 may be subject to federal consumer financial laws that are not specifically addressed in those modules, including the prohibition on engaging in any unfair, deceptive, or abusive acts or practices. The advertising and Gramm-Leach- Bliley privacy procedures below provide examples of the types of conduct to identify. Please refer also to the UDAAP examination procedures in doing this review. Examiners should consult with Headquarters to determine whether the applicable legal standards have been met before citing any violation.
Advertising Issues 1. Review any advertising and promotional materials prepared by or on behalf of the entity to market the entity’s products or services to consumers in any media or channel. Determine whether they contain any material misrepresentations, expressly or by implication, including of the following:
a. The existence, nature, or amount of fees or other costs, b. The nature and benefits of the product or service advertised, c. The means by which to close or cancel an account, or d. Account terms.
In doing this review, consider how the entity’s representations compare to its actual practices, including, for example, how companies close or cancel accounts based on consumer requests, especially for accounts that were part of a free trial or that involve automatic billing or renewal. 2. Determine whether advertisements and promotional materials directed to consumers in any media or channel clearly disclose all material limitations or conditions on the terms or availability of products or services marketed to consumers, such as: a. The expiration date for terms that apply only during an introductory period or b. Material prerequisites for obtaining particular products, services, or benefits (e.g., discounts, refunds, or rebates).
3. Determine whether advertisements and promotional materials directed to consumers in any media or channel avoid using fine print, separate statements, or inconspicuous disclosures to correct potentially misleading headlines.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 62 4. If additional products or services are sold or offered in connection with products or services sold to consumers, determine if the entity ensures that: a. Marketing materials, including direct mail promotions, telemarketing scripts, internet and print ads, radio recordings, and television commercials, reflect the actual terms and conditions of the product and are not deceptive or misleading to consumers; b. Employee incentive or compensation programs tied to the sale and marketing of add-on products require adherence to company-specific program guidelines and do not create incentives for employees to provide inaccurate information about the products; c. Scripts and manuals used by the entity’s telemarketing and customer service centers: i. Direct the telemarketers and customer service representatives to accurately state the terms and conditions of the various products, including material limitations on eligibility for benefits;
ii. Prohibit enrolling consumers in programs without clear affirmative consent to purchase the add-on product, obtained after the consumer has been informed of the terms and conditions;
iii. Provide clear guidance as to the wording and appropriate use of rebuttal language and any limits on the number of times that the telemarketer or customer service representative may attempt to rebut the consumer's request for additional information or to decline the product; and iv. Where applicable, make clear to consumers that the purchase of add-on products is not required as a condition of obtaining the requested product or service, unless there is such a requirement;
d. To the maximum extent practicable, telemarketers and customer service representatives do not deviate from approved scripts; and e. Cancellation requests are handled in a manner that is consistent with the product's actual terms and conditions and that does not mislead the consumer. See generally CFPB Bulletin 2012-06 (July 18, 2012). (For “free” file disclosures that require purchase of additional products or services, see also step 14 in Module 5). 5. For each product or service that the entity markets to consumers, assess whether the entity designs advertisements, promotional materials, disclosures, and scripts used in any media or channel to be comprehensible by the target audience.
Gramm-Leach-Bliley Act/Regulation P 6. For information that is not in or from a consumer report subject to the FCRA:
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 63 a. Identify the types of consumer information that the entity shares with third parties (other than consumer reports subject to the FCRA) and any policies and procedures that the entity has in place governing such information sharing.
b. Determine whether the entity discloses to nonaffiliated third parties nonpublic personal information that it receives from financial institutions (other than in the form of a consumer report subject to the FCRA). This could occur, for example, if a consumer reporting agency discloses credit header information obtained from a financial institution to nonaffiliated direct marketers or others that do not have a permissible purpose to obtain that information as part of a consumer report. If not, skip to step 7 below. c. If the answer to step 6b is yes, determine:
i. Whether the originating financial institution provided notice to its customers of the sharing described in step 6b and gave them an opportunity to opt out and ii. Whether the redisclosure of the information by the entity under examination described in step 6b was done in a manner that was consistent with the originating financial institution’s privacy policy and any applicable consumer opt-out directions. If the answer to step 6ci or 6cii is no, consult with Headquarters regarding Gramm-Leach- Bliley Act/Regulation P limitations on reuse and redisclosure. (12 CFR 1016.11). For background on this topic, see 65 Fed. Reg. 33646, 33668 (May 24, 2000)). 7. Determine whether the entity’s privacy and information-sharing practices are otherwise consistent with the requirements of Sections 502 to 509 of the Gramm-Leach-Bliley Act (15 U.S.C. 6802-09) and Regulation P (12 CFR Part 1016), to the extent they apply. Refer to the Privacy of Consumer Financial Information examination procedures for more information.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 64 Module 10 – Examination Conclusions and Wrap-Up To conclude this supervisory activity, examiners must complete all steps under this section, regardless of the entity’s risk profile.
1. Summarize the findings, supervisory concerns, and regulatory violations. 2. For the violations noted, determine the root cause by identifying weaknesses in internal controls, audit and compliance reviews, training, management oversight, or other factors. Determine whether the violation(s) are pattern or practice, or isolated. 3. Identify action needed to correct violations and weaknesses in the institution’s compliance management system, as appropriate.
4. Discuss findings with the institution’s management and, if necessary, obtain a commitment for corrective action.
5. Record violations according to agency policy in the Report of Examination/Supervisory Letter and the CFPB’s electronic database system to facilitate analysis and reporting. 6. Determine if enforcement action is appropriate. If so, contact appropriate agency personnel for guidance.
7. Prepare a memorandum for inclusion in the workpapers and CFPB’s official system of record that outlines planning and strategy considerations for the next examination and, if appropriate, interim follow-up.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 65 GLOSSARY:
1. “Consumer reporting agency” is any person who, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and who uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports. (Section 603(f); 15 U.S.C. 1681a(f)).
2. “Consumer report” is any written, oral, or other communication of any information by a consumer reporting agency that bears on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living that is used or expected to be used or collected, in whole or in part, for the purpose of serving as a factor in establishing the consumer's eligibility for any of the following: a. Credit or insurance to be used primarily for personal, family, or household purposes. b. Employment purposes.
c. Any other purpose authorized under Section 604 (15 U.S.C. 1681b). (Section 603(d); 15 U.S.C. 1681a(d)).
BUT the term “consumer report” does not include any of the following (except with respect to certain disclosures of medical information, as explained in Section 603(d)(3) (15 U.S.C. 1681a(d)(3)) and Section 604(g)(3) (15 U.S.C. 1681b(g)(3)): a. Any report containing information solely about transactions or experiences between the consumer and the institution making the report.
b. Any communication of that transaction or experience information among entities related by common ownership or affiliated by corporate control (for example, different institutions that are members of the same holding company or subsidiary companies of an insured institution).
c. Communication of other information among persons related by common ownership or affiliated by corporate control if:
i. It is clearly and conspicuously disclosed to the consumer that the information may be communicated among such persons; and ii. The consumer is given the opportunity, before the time that the information is communicated, to direct that the information not be communicated among such persons.
d. Any authorization or approval of a specific extension of credit directly or indirectly by the issuer of a credit card or similar device.
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 66 e. Any report in which a person who has been requested by a third party to make a specific extension of credit directly or indirectly to a consumer, such as a lender who has received a request from a broker, conveys his or her decision with respect to such a request, if the third party advises the consumer of the name and address of the person to whom the request was made, and such person makes the disclosures the consumer required under Section 615 (15 U.S.C. 1681m).
f. A communication that meets the requirements of Section 603(o) (15 U.S.C. 1681a(o)) by a person who regularly performs employment procurement services. g. An employee investigation report of the specific type described in Section 603(y) (15 U.S.C. 1681a(y)). (Section 603(d)(2); 15 U.S.C. 1681a(d)(2)). 3. “Credit score”:
a. Means a numerical value or a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default;
b. But does not include – i. Any mortgage score or rating of an automated underwriting system that considers one or more factors in addition to credit information, including the loan to value ratio, the amount of down payment, or the financial assets of a consumer; or ii. Any other elements of the underwriting process or underwriting decision. (Section 609(f)(2)(A)(ii); 15 U.S.C. 1681g(f)(2)(A)(ii)).
4. “Firm offer of credit or insurance” means an offer of credit or insurance that will be honored if the consumer is determined, based on information in a consumer report on the consumer, to meet the specific criteria used to select the consumer for the offer. Despite this general definition, the offer may be made conditional on one or more of the following: a. That the consumer must be found, based on information in the consumer's application, to meet specific criteria bearing on credit worthiness or insurability, as applicable. These specific criteria must be established:
i. Before selection of the consumer for the offer and ii. For the purpose of determining whether to extend credit or insurance pursuant to the offer.
b. That there must be a verification:
i. That the consumer continues to meet the specific criteria used to select the consumer for the offer, by using information in a consumer report on the consumer, information in the consumer's application for the credit or insurance, or other information bearing on the credit worthiness or insurability of the consumer; or
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 67 ii. Of the information in the consumer's application for the credit or insurance, to determine that the consumer meets the specific criteria bearing on credit worthiness or insurability.
c. That the consumer must furnish any collateral that is a requirement for the extension of the credit or insurance. Such a requirement must be established before selection of the consumer for the offer of credit or insurance and must be disclosed to the consumer in the offer of credit or insurance. (Section 603(l); 15 U.S.C. 1681a(l)). 5. “Identity theft” means a fraud committed or attempted using the identifying information of another person without authority. (12 CFR 1022.3(h)).
6. “Identity theft report” means a report that alleges identity theft with as much specificity as the consumer can provide and that is a copy of an official valid report filed by the consumer with a law enforcement agency, the filing of which subjects the person filing the report to criminal penalties if the information is false, as well as any additional information or documentation that an information furnisher or consumer reporting agency reasonably requests to determine the validity of the alleged identity theft pursuant to the procedures set forth in the FCRA. (12 CFR 1022.3(i)).
7. “Investigative consumer reports” means consumer reports or portions thereof in which information on a consumer’s character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on or with others with whom he is acquainted or who may have knowledge concerning any such items of information. This does not include specific factual information on a consumer’s credit record obtained directly from a creditor of the consumer or from a consumer reporting agency when such information was obtained directly from a creditor of the consumer or from the consumer. (Section 603(e); 15 U.S.C. 1681a(e)). 8. “Key factors” means all relevant elements or reasons adversely affecting the credit score for the particular individual, listed in the order of their importance based on their effect on the credit score. (Section 609(f)(2)(B); 15 U.S.C. 1681g(f)(2)(B)). 9. “Nationwide consumer reporting agency” is a consumer reporting agency that regularly engages in the practice of assembling or evaluating and maintaining, for the purpose of furnishing consumer reports to third parties bearing on a consumer’s credit worthiness, credit standing, or credit capacity, each of the following regarding consumers residing nationwide: a. Public record information and b. Credit account information from persons who furnish that information regularly and in the ordinary course of business. (Section 603(p); 15 U.S.C. 1681a(p)). 10. “Nationwide specialty consumer reporting agency” is a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis relating to: a. Medical records or payments,
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CFPB Consumer Reporting Examination Procedures Larger Participants CFPB June 2023 Procedures 68 b. Residential or tenant history, c. Check writing history, d. Employment history, or e. Insurance claims. (Section 603(x); 15 U.S.C. 1681a(x)). 11. “Reseller” is a consumer reporting agency that: a. Assembles and merges information contained in the database of another consumer reporting agency or multiple consumer reporting agencies concerning any consumer for purposes of furnishing such information to any third party, to the extent of such activities; and b. Does not maintain a database of the assembled or merged information from which new consumer reports are produced. (Section 603(u); 15 U.S.C. 1681a(u)).
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CFPB Credit Card Account
Examination Procedures Management CFPB February 2015 Procedures 1 Credit Card Account Management These Credit Card Account Management Examination Procedures (Procedures) consist of modules covering the various elements of credit card account management; each module identifies specific matters for review. Before using the Procedures, examiners should complete a risk assessment and examination scope memorandum in accordance with CFPB supervisory policy.
Notably, it is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive or abusive act or practice (UDAAP) under the Dodd- Frank Act. UDAAPs can cause significant financial injury to consumers, erode consumer confidence, and undermine the financial marketplace. As examiners conduct card origination examinations, they should be alert to the potential for UDAAPs. The “Unfair, Deceptive, or Abusive Acts or Practices” section of the CFPB Supervision and Examination Manual provides additional information about identifying these practices. Further, the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, applies to credit card lenders. Under ECOA, it is unlawful for a creditor to discriminate against any borrower with respect to any aspect of a credit transaction: • On the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract);
• Because all or part of the applicant’s income derives from any public assistance program; or • Because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.
While reviewing a lender’s credit card lending activities (e.g., account origination activities, account servicing activities, or marketing and sale of add-on products), examiners must be mindful of activities that may indicate discrimination in violation of the ECOA. An examination of whether a lender’s credit card lending activities involve discrimination in violation of the ECOA will rely on procedures outlined in the CFPB’s ECOA Examination Program Manual, including the ECOA Baseline Review Modules, and the Interagency Fair Lending Examination Procedures.
1 These reflect FFIEC-approved TILA procedures.
Exam Date:
[Click&type] Exam ID No.:
[Click&type] Prepared By:
[Click&type] Reviewer:
[Click&type] Docket #:
[Click&type] Entity Name:
[Click&type]
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Examination Procedures Management CFPB February 2015 Procedures 2 Depending on scope, and in conjunction with the compliance management systems review, each examination will cover one or more of the following modules: Module 1:
Advertising and Marketing Module 2:
Account Origination Module 3:
Account Servicing Module 4:
Payments and Periodic Statements Module 5:
Dispute Resolution Module 6:
Marketing, Sale, and Servicing of Credit Card Add-on Products
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Examination Procedures Management CFPB February 2015 Procedures 3 Module 1: Advertising and Marketing General advertising requirements (12 CFR 1026.16(a)-(b), (f)) Regulation Z requires that if a credit card advertisement states specific terms, it must only state those terms that the issuer will offer or arrange. For example, an issuer may not advertise a very low annual percentage rate (APR) that will not, in fact, be available at any time; however, it may advertise terms that will only be offered for a limited period or terms that will become available at a future date. This requirement is not limited only to the disclosures that are required by Regulation Z to be included in the advertisement, but also applies to any specific component of the credit plan.
If any charge imposed as part of the plan is set forth affirmatively or negatively in an advertisement for a credit card, additional disclosures must also be included in the advertisement.2 If any of these terms that trigger additional disclosures are mentioned in an advertisement (so-called “triggering terms”), the advertisement must also include the following information, in a clear and conspicuous manner:3 • Any minimum, fixed, transaction, activity or similar charge that is a finance charge under 12 CFR 1026.4 that could be imposed;
• Any periodic rate that may be applied expressed as an APR, and if the plan provides for a variable periodic rate, that fact shall be disclosed; and • Any membership or participation fee that could be imposed. This additional information is referred to as “triggering terms.” If an advertisement for credit to finance the purchase of goods or services specified in the advertisement specifies a periodic payment amount, it must also state the total number of payments and the time period to repay the obligation, assuming that the consumer pays only the periodic payment amount advertised. The disclosure of the total of payments and the time period to repay the obligation must be equally prominent to the statement of the periodic payment amount. An advertisement may not refer to an APR as “fixed,” or use a similar term, unless the advertisement also specifies a time period that the rate will be fixed and the rate will not increase during that period, or if no such time period is provided, the rate will not increase while the plan is open.
2 See Appendix 1 to these procedures or 12 CFR 1026.6(b)(3). 3 See 12 CFR 1026.16, Supp. I, Comment 1 and 2 regarding the clear and conspicuous standards that apply to advertisements.
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Examination Procedures Management CFPB February 2015 Procedures 4 Special rules for television, radio, catalogue or multi-page, and electronic advertisement (12 CFR 1026.16(c) and (e)) If an advertisement is made through television or radio and states any of the “triggering terms” as discussed previously, the advertisement may comply with the additional disclosure requirements by stating any APRs applicable to the account (and variable rate disclosures, if applicable), and listing a toll-free telephone number (or a number that allows a consumer to reverse phone charges), along with a reference that such number may be used by consumers to obtain the additional cost information.
If the advertisement containing one or more of the “triggering terms” is a catalogue or other multi-page advertisement, or an electronic advertisement (such as an advertisement appearing on a website), Regulation Z permits issuers to put all of the triggered terms in one place. Issuers may use a table or schedule to include the triggered terms, provided the table or schedule is clearly and conspicuously set forth, and if any “triggering terms” are mentioned elsewhere in the advertisement, it must include a reference to the page or location where the table or schedule begins.
Rules for advertisements for certain promotional/deferred APR and/or fee offers (12 CFR 1026.16(g) and (h)) From time to time, credit card issuers will offer special interest rates or fees in connection with a credit card account. These special rates and fees can take several types of forms: • Promotional rate: Any APR applicable to one or more balances or transactions for a specified period of time that is lower than the APR that will be in effect at the end of that period on such balances or transactions.
• Introductory rate: A promotional rate offered in connection with the opening of an account. • Promotional fee: A fee required to be disclosed in the account-opening summary table4 where the fee is (1) applicable either to the credit plan or to one or more balances or transactions; (2) applicable for a specified period of time; and (3) is lower than the fee that will be in effect at the end of that period for such plan or types of balances or transactions. • Introductory fee: A promotional fee offered in connection with the opening of an account. • Promotional period: The maximum time period for which a promotional rate or promotional fee may be applicable.
• Deferred interest: Finance charges accrued on balances or transactions that a consumer is not obligated to pay or that will be waived or refunded to a consumer if those balances or
4 See 12 CFR 1026.6(b)(1) and (2).
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Examination Procedures Management CFPB February 2015 Procedures 5 transactions are paid in full by a specified date. “Deferred interest” does not include any finance charges the consumer avoids paying in connection with any recurring grace period. • Deferred interest period: The maximum period from the date the consumer becomes obligated for the balance or transaction until the specified date by which the consumer must pay the balance or transaction in full in order to avoid finance charges, or receive a waiver or refund of finance charges.
Regulation Z contains specific requirements for advertisements that include these types of offers: • If any APR or fee that may be applied to the account is an introductory rate or introductory fee, the term “introductory” or “intro” must be in immediate proximity to each listing of the introductory rate or introductory fee in a written or electronic advertisement. If these terms are included in the same phrase as the listing, they will be deemed to be in “immediate proximity.”
• If any APR or fee that may be applied to the account is a promotional rate or a promotional fee, the following information must also be stated in a clear and conspicuous manner,5 and for written or electronic advertisements, in a prominent location closely proximate to the first listing of the promotional rate or fee: o When the promotional rate will end;
o The APR that will apply after the end of the promotional period (if the advertisement includes a promotional rate);6 and o The fee that will apply after the end of the promotional period (if the advertisement includes a promotional fee).7 If a deferred interest offer is advertised, the following requirements apply: • The deferred interest period must be stated in a clear and conspicuous manner. • If the phrase “no interest” or similar term regarding the possible avoidance of interest obligations is stated, the term “if paid in full” must also be stated in a clear and conspicuous manner preceding the disclosure of the deferred interest period.
5 For this provision, the term “clear and conspicuous” for purpose of written or electronic advertisements means that the disclosures must be equally prominent to the promotional rate or promotional fee to which they apply. If the disclosures are the same type size as the promotional rate or promotional fee to which they apply, they will be deemed to be equally prominent. See Comment 16(1) and (2) regarding the clear and conspicuous standards that apply to advertisements. 6 12 CFR 1026.16(g)(4)(ii) and the Comment 16(g)(1) contain additional detailed explanations of the correct way to disclose the APR that will be in effect at the end of the promotional period if the APR will be a variable rate or is based on the consumer’s creditworthiness.
7 These requirements do not apply to an envelope or other enclosure in which an application or solicitation is mailed, or to a banner advertisement linked to an application or solicitation provided electronically.
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Examination Procedures Management CFPB February 2015 Procedures 6 • If the deferred interest offer is included in a written or electronic advertisement, the deferred interest period and, if applicable, the term “if paid in full” must also be stated in immediate proximity to each statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period.8 • The following additional information must also be included; for written or electronic advertisements, this information must be included in a prominent location closely proximate to the first statement of “no interest” or other similar term referred to in the prior bullet:9 o A statement that interest will be charged from the date the consumer becomes obligated for the balance or transaction subject to the deferred interest offer if the balance or transaction is not paid in full within the deferred interest period; and o A statement, if applicable, that interest will be charged from the date the consumer incurs the balance or transaction subject to the deferred interest offer if the account is in default before the end of the deferred interest period. Comment 16(g)(3) and (4) and 16(h)(4) and (5) identify practices that will and will not be deemed to meet the requirements for “immediate proximity,” “prominent location closely proximate to,” and “first listing” for written and electronic advertisements: • A term that is in the same phrase as the statement it clarifies will be deemed to be in “immediate proximity.”
• If information appears in the same paragraph as the first listing of a term, it will be deemed to be in a “prominent location closely proximate to” the first statement of the term. • Information disclosed in a footnote is not considered a “prominent location closely proximate to” the statement.
The “first statement” is the most prominent listing of the statement on the front side of the first page of the principal promotional document. The principal promotional document is the document designed to be seen first by the consumer in a mailing, such as a cover letter or solicitation letter.
8 For this provision, the term “clear and conspicuous” for purposes of written or electronic advertisements means that the required information must be equally prominent to each statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period. If the information required to be disclosed is the same type size as the statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period, the disclosure will be deemed to be equally prominent.
9 These requirements do not apply to an envelope or other enclosure in which an application or solicitation is mailed, or to a banner advertisement or pop-up advertisement linked to an application or solicitation provided electronically.
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Examination Procedures Management CFPB February 2015 Procedures 7 • If one of the statements does not appear on the front side of the first page of the principal promotional document, then the first listing of one of these statements is the most prominent listing of a statement on the subsequent pages of the principal promotional document. • If one of the statements is not listed on the principal promotional document or there is no principal promotional document, the first listing of one of these statements is the most prominent listing of the statement on the front side of the first page of each document containing one of these statements.
• If one of the statements does not appear on the front side of the first page of a document, then the first listing of one of these statements is the most prominent listing of a statement on the subsequent pages of the document.
• If the listing of one of these statements with the largest type size on the front side of the first page (or subsequent pages if one of these statements is not listed on the front side of the first page) of the principal promotional document (or each document listing one of these statements if a statement is not listed on the principal promotional document or there is no principal promotional document) is used as the most prominent listing, it will be deemed to be the first listing.
Marketing to college students (12 CFR 1026.57) Regulation Z establishes several requirements related to the marketing of credit cards to students at an institution of higher education. The regulation limits an issuer’s ability to offer a college student any tangible item to induce the student to apply for or participate in a credit card plan offered by the issuer. Specifically, Regulation Z prohibits a card issuer from offering tangible items as inducement:
• On the campus of an institution of higher education;
• Near the campus of an institution of higher education; or • At an event sponsored by or related to an institution of higher education. A tangible item means physical items, such as gift cards, t-shirts, or magazine subscriptions, but does not include non-physical items such as discounts, reward points, or promotional credit terms. With respect to offers “near” the campus, Comment 57(c)(3) states that a location that is within 1,000 feet of the border of the campus is considered near the campus. Any card issuer that was a party to one or more college credit card agreements in effect at any time during a calendar year must submit to the CFPB an annual report regarding those agreements. The term “college credit card agreement” means any business, marketing or promotional agreement between a card issuer and an institution of higher education or an affiliated organization in connection with which college student credit cards are issued to college students currently enrolled at that institution. Except for the initial report, a card issuer must
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Examination Procedures Management CFPB February 2015 Procedures 8 submit its annual report for each calendar year to the CFPB by the first business day on or after March 31 of the following calendar year.
Internet posting of credit card agreements (12 CFR 1026.58) Each quarter, credit card issuers are required to submit to the CFPB any credit card agreement that the issuer offered as of the last business day of the preceding calendar quarter. The CFPB posts these agreements on the CFPB’s public website.10 If the issuer has previously submitted a particular agreement, it does not need to resubmit it unless it has been amended. The issuer must also notify the CFPB if it no longer offers any credit cards whose agreements have been previously submitted. An issuer will not be required to make a quarterly submission if it does not have any new agreements, amendments, or withdrawals. Regulation Z also contains reporting exceptions, including for issuers who have fewer than 10,000 credit card accounts open as of the last business day of the calendar quarter. With respect to agreements that a card issuer is required to submit to the CFPB, the card issuer generally also must provide these same credit card agreements on its publically available website. The card issuer must update these agreements at least quarterly. In addition, with respect to any open credit card account (i.e., the cardholder can obtain extensions of credit on the account or there is an outstanding balance on the account that has not been charged off), a card issuer must provide the cardholder with access to his or her specific credit card agreement by either (1) posting and maintaining the cardholder’s agreement on the card issuer’s website; or (2) providing a copy of the agreement within 30 days of receipt of a consumer’s request. If the issuer chooses to make the agreements available upon request, it generally must give consumers the ability to place a request through its website or over the phone. Unfair, deceptive, or abusive acts or practices (12 USC 5531 and 5536) Under the Dodd-Frank Act, it is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive or abusive act or practice. As examiners review credit card advertising materials, they should be aware of any advertising practices that present a risk of harm to consumers. See “Unfair, Deceptive, or Abusive Acts or Practices,” CFPB Supervision and Examination Manual, for additional information on identifying unfair, deceptive, or abusive acts or practice.
10 Information about the CFPB’s database on credit card agreements is available at http://www.consumerfinance.gov/creditcards/agreements/.
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Examination Procedures Management CFPB February 2015 Procedures 9 Examination Procedures Advertising (12 CFR 1026.16) 1. Sample advertising copy, including any electronic advertising, since the previous examination and verify that the terms of credit are accurate, clear, balanced, and conspicuous. If triggering terms are used, determine that the required disclosures are made (12 CFR 1026.16). A. Determine that the creditor does not offer college students any tangible item to induce such students to apply for or open an open-end consumer credit plan offered by such creditor, if such offer is made:
i. On the campus of an institution of higher education; ii. Near the campus of an institution of higher education; or iii. At an event sponsored by or related to an institution of higher education. (12 CFR 1026.57(c)) B. If an advertisement refers to an APR as “fixed” (or similar term), determine 1) that the advertisement also specifies a time period that the rate will be fixed and 2) that the rate will not increase during that period. (12 CFR 1026.16(f)) C. If an advertisement used the word “fixed” or a similar word and no time period is specified in which the rate will be fixed, determine that the rate will not increase while the plan is open. (12 CFR 1026.16(f)) D. If an APR or fee that may be applied to the account is an introductory rate or introductory fee, determine that the term introductory or intro is in immediate proximity to each listing of the introductory rate or introductory fee in a written or electronic advertisement. (12 CFR 1026.16(g)(3)) E. If any APR or fee that may be applied to the account is a promotional rate under 12 CFR 1026.16(g)(2)(i) or any fee that may be applied to the account is a promotional fee under 12 CFR 1026.16(g)(2)(iv), determine that the following information is stated in a clear and conspicuous manner in the advertisement (12 CFR 1026.16(g)(4)): i. When the promotional rate or promotional fee will end and ii. The annual percentage rate that will apply after the end of the promotional period. NOTE: If such rate is variable, determine that the annual percentage rate complies with the accuracy standards in 12 CFR 1026.60(c)(2), 1026.60(d)(3), 1026.60(e)(4), or 1026.16(b)(1)(ii), as applicable. If such rate cannot be determined at the time disclosures are given because the rate depends at least in part on a later determination of the consumer’s creditworthiness, determine that the advertisement discloses the specific rates
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Examination Procedures Management CFPB February 2015 Procedures 10 or the range of rates that might apply. (12 CFR 1026.16(g)(4)(ii)). Further, if the promotional rate or fee is stated in a written or electronic advertisement, determine that the information in 12 CFR 1026.16 (g)(4)(i), and, as applicable, 12 CFR 1026 (g)(4)(ii), or (g)(4)(iii) are also stated in a prominent location closely proximate to the first listing of the promotional rate or promotional fee.
F. If a deferred interest offer is advertised for an open-end account not subject to 12 CFR 1026.40, determine that the deferred interest period is stated in a clear and conspicuous manner in the advertisement. If the phrase “no interest” or similar term regarding the possible avoidance of interest obligations under the deferred interest program is stated, determine that the term “if paid in full” is also stated in a clear and conspicuous manner preceding the disclosure of the deferred interest period in the advertisement. If the deferred interest offer is included in a written or electronic advertisement, determine that the deferred interest period and, if applicable, the term “if paid in full” are stated in immediate proximity to each statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period. (12 CFR 1026.16(h)(3)) G. If any deferred interest offer is advertised for an open-end account not subject to 12 CFR 1026.40, determine that the 12 CFR 1026(h)(4)(i) and (h)(4)(ii) language (of 12 CFR 1026.16(h)(4) ) is stated in the advertisement and is similar to Sample G–24 in Appendix G. If the deferred interest offer is included in a written or electronic advertisement, determine that this information is stated in a prominent location closely proximate to the first statement of “no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term regarding interest or payments during the deferred interest period. (12 CFR 1026.16(h)(4)) NOTE: The requirements in 12 CFR 1026.16(h)(4) apply to any advertisement of an open-end credit plan not subject to 12 CFR 1026.40 (requirements for home equity plans) 12 CFR 1026.16(h)(1). However, the requirements do not apply to an envelope or other enclosure in which an application or solicitation is mailed, or to a banner advertisement or pop-up advertisement linked to an application or solicitation provided electronically. (12 CFR 1026.16(h)(5)) [Click&type] Annual report to the CFPB (12 CFR 1026.57) 1. If the card issuer was a party to one or more college credit card agreements in effect at any time during a calendar year, verify that the card issuer submits to the CFPB an annual report regarding those agreements in the form and manner prescribed by the CFPB. (12 CFR 1026.57(d)(1)) A. NOTE: A college credit card agreement is any business, marketing, or promotional agreement between a card issuer and an institution of higher education (or an affiliated
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Examination Procedures Management CFPB February 2015 Procedures 11 alumni organization or foundation) in connection with which credit cards are issued to college students at that institution of higher education. (12 CFR 1026.57(a)(5)) 2. The annual report to the CFPB must include the following (12 CFR 1026.57(d)(2)): A. Identifying information about the card issuer and the agreements submitted, including the issuer’s name, address, and identifying number (such as an RSSD ID number or tax identification number);
B. A copy of any college credit card agreement to which the card issuer was a party that was in effect at any time during the period covered by the report; C. A copy of any memorandum of understanding in effect at any time during the period covered by the report between the card issuer and an institution of higher education or affiliated organization that directly or indirectly relates to the college credit card agreement or that controls or directs any obligations or distribution of benefits between any such entities;
D. The total dollar amount of any payments pursuant to a college credit card agreement from the card issuer to an institution of higher education or affiliated organization during the period covered by the report, and the method or formula used to determine such amounts; E. The total number of credit card accounts opened pursuant to any college credit card agreement during the period covered by the report; and F. The total number of credit card accounts opened pursuant to any such agreement that were open at the end of the period covered by the report. 3. If the card issuer is subject to reporting, determine if the card issuer submits its annual report for each calendar year to the CFPB by the first business day on or after March 31 of the following calendar year. (12 CFR 1026.57(d)(3)) [Click&type]
Submission of agreements to the CFPB (12 CFR 1026.58(c)) 1. For card issuers that issue credit cards under a credit card account under an open-end (not home-secured) consumer credit plan, determine that the card issuer makes quarterly submissions to the CFPB in the form and manner specified by the CFPB that contain: A. Identifying information about the card issuer and the agreements submitted, including the issuer’s name, address, and identifying number (such as an RSSD ID number or tax identification number) (12 CFR 1026.58(c)(1)(i));
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Examination Procedures Management CFPB February 2015 Procedures 12 B. The credit card agreements that the card issuer offered to the public as of the last business day of the preceding calendar quarter that the card issuer has not previously submitted to the CFPB (12 CFR 1026.58(c)(1)(ii));
C. Any credit card agreement previously submitted to the CFPB that was amended during the preceding calendar quarter and that the card issuer offered to the public as of the last business day of the preceding calendar quarter as described in 12 CFR 1026.58(c)(3) (12 CFR1026.58(c)(1)(iii)); and D. Notification regarding any credit card agreement previously submitted to the CFPB that the issuer is withdrawing, as described in 12 CFR 1026.58(c)(4), (c)(5), (c)(6), and (c)(7) (12 CFR 1026.58(c)(1)(iv)).
2. Verify that quarterly submissions were sent to the CFPB no later than the first business day on or after January 31, April 30, July 31, and October 31, of each year. (12 CFR 1026.58(c)(1)) 3. If a credit card agreement that previously has been submitted to the CFPB is amended, verify that the card issuer submits the entire amended agreement to the CFPB, in the form and manner specified by the CFPB, by the first quarterly submission deadline after the last day of the calendar quarter in which the change became effective. (12 CFR1026.58(c)(3)) NOTE: If a credit card agreement has been submitted to the CFPB, the agreement has not been amended and the card issuer continues to offer the agreement to the public, no additional submission regarding that agreement is required. 4. If a card issuer no longer offers to the public a credit card agreement that previously has been submitted to the CFPB, ensure that the card issuer notifies the CFPB by the first quarterly submission deadline after the last day of the calendar quarter in which the issuer ceased to offer the agreement. (12 CFR 1026.58(c)(4)) NOTE: A card issuer is not required to submit any credit card agreements to the CFPB if the card issuer had fewer than 10,000 open credit card accounts as of the last business day of the calendar quarter. (12 CFR 1026.58(c)(5)(i)) 5. If an issuer that previously qualified for the de minimis exception ceases to qualify, determine that the card issuer begins making quarterly submissions to the CFPB no later than the first quarterly submission deadline after the date as of which the issuer ceased to qualify. (12 CFR 1026.58(c)(5)(ii)) 6. If a card issuer that did not previously qualify for the de minimis exception qualifies for the de minimis exception, determine that the card issuer continues to make quarterly submissions to the CFPB until the issuer notifies the CFPB that the card issuer is withdrawing all agreements it previously submitted to the CFPB. (12 CFR 1026.58(c)(5)(iii))
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Examination Procedures Management CFPB February 2015 Procedures 13 7. A card issuer is not required to submit to the CFPB a credit card agreement if, as of the last business day of the calendar quarter, the agreement is offered for accounts under one or more private label credit card plans each of which has fewer than 10,000 open accounts and is not offered to the public other than for accounts under such a plan. ( 12 CFR 1026.58(c)(6)(i)) NOTE: A private label credit card is one that is usable only at a single merchant or affiliated group of merchants. A private label credit card plan is all private label credit card accounts issued by a particular issuer with credit cards usable at the same single merchant or affiliated group of merchants. (12 CFR 1026.58(b)(8)) 8. If an agreement that previously qualified for the private label credit card exception ceases to qualify, determine that the card issuer submits the agreement to the CFPB no later than the first quarterly submission deadline after the date as of which the agreement ceased to qualify. (12 CFR 1026.58(c)(6)(ii)) 9. If an agreement that did not previously qualify for the private label credit card exception qualifies for the exception, determine that the card issuer continues to make quarterly submissions to the CFPB with respect to that agreement until the issuer notifies the CFPB that the agreement is being withdrawn. (12 CFR 1026.58(c)(6)(iii)) NOTE: A card issuer is not required to submit to the CFPB a credit card agreement if, as of the last business day of the calendar quarter, the agreement is offered as part of a product test offered to only a limited group of consumers for a limited period of time, is used for fewer than 10,000 open accounts, and is not offered to the public other than in connection with such a product test. (12 CFR 1026.58(c)(7)(i)) 10. If an agreement that previously qualified for the product testing exception ceases to qualify, determine that the card issuer submits the agreement to the CFPB no later than the first quarterly submission deadline after the date as of which the agreement ceased to qualify. (12 CFR 1026.58(c)(7)(ii)) 11. If an agreement that did not previously qualify for the product testing exception qualifies for the exception, determine that the card issuer continues to make quarterly submissions to the CFPB with respect to that agreement until the issuer notifies the CFPB that the agreement is being withdrawn. (12 CFR 1026.58(c)(7)(iii)) 12. Verify that each agreement contains the provisions of the agreement and the pricing information in effect as of the last business day of the preceding calendar quarter. (12 CFR 1026.58(c)(8)(i)(A)) 13. Verify that agreements do not include any personally identifiable information relating to any cardholder, such as name, address, telephone number, or account number. ( 12 CFR 1026.58(c)(8)(i)(B))
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Examination Procedures Management CFPB February 2015 Procedures 14 14. Verify that agreements are presented in a clear and legible font. (12 CFR 1026.58(c)(8)(i)(D)) 15. Verify that pricing information is set forth in a single addendum to the agreement that contains only the pricing information. (12 CFR 1026.58(c)(8)(ii)(A)) NOTE: With respect to information other than the pricing information that may vary between cardholders depending on creditworthiness, state of residence, or other factors, issuers may, but are not required to, include that information in a single addendum (the optional variable terms addendum) to the agreement separate from the pricing addendum (12 CFR 1026.58(c)(8)(iii)).
16. If pricing information varies from one cardholder to another depending on the cardholder’s creditworthiness or state of residence or other factors, verify that the pricing information is disclosed either by setting forth all the possible variations (such as purchase APRs of 13 percent, 15 percent, 17 percent, and 19 percent) or by providing a range of possible variations (such as purchase APRs ranging from 13 percent to 19 percent). (12 CFR 1026.58(c)(8)(ii)(B)) 17. If a rate included in the pricing information is a variable rate, verify that the issuer identifies the index or formula used in setting the rate and the margin. ( 12 CFR 1026.58(c)(8)(ii)(C)) 18. If rates vary from one cardholder to another, verify that the issuer discloses such rates by providing the index and the possible margins (such as the prime rate plus 5 percent, 8 percent, 10 percent, or 12 percent) or range of margins (such as the prime rate plus from 5 to 12 percent). (12 CFR 1026.58(c)(8)(ii)(C)) NOTE: The value of the rate and the value of the index are not required to be disclosed. 19. Determine that issuers do not provide provisions of the agreement or pricing information in the form of change-in-terms notices or riders (other than the pricing information addendum and the optional variable terms addendum). (12 CFR 1026.58(c)(8)(iv)) 20. Determine that changes in provisions or pricing information are integrated into the text of the agreement, the pricing information addendum or the optional variable terms addendum, as appropriate. (12 CFR 1026.58(c)(8)(iv)) [Click&type] Posting of agreements offered to the public (12 CFR 1026.58(d)) 1. Determine that the card issuer posts and maintains on its publicly available website the credit card agreements that the issuer is required to submit to the CFPB under 12 CFR 1026.58(c). (12 CFR 1026.58(d)(1)) 2. With respect to an agreement offered solely for accounts under one or more private label credit card plans (and the issuer does not post and maintain the agreements on its publicly available
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Examination Procedures Management CFPB February 2015 Procedures 15 website), determine that the issuer posts and maintains the agreement on the publicly available website of at least one of the merchants where cards issued under each private label credit card plan with 10,000 or more open accounts may be used. (12 CFR 1026.58(d)(1)) 3. Verify that agreements posted pursuant to 12 CFR 1026.58(d) conform to the form and content requirements for agreements submitted to the CFPB specified in 12 CFR 1026.58(c)(8). (112 CFR 1026.58(d)(2)) 4. Determine that agreements are posted in an electronic format that is readily usable by the general public. (12 CFR 1026.58(d)(3)) 5. Verify that agreements are placed in a location on its website that is prominent and readily accessible by the public and accessible without submission of personally identifiable information. (12 CFR 1026.58(d)(3)) 6. Determine that the card issuer updates the agreements posted on its website at least as frequently as the quarterly schedule required for submission of agreements to the CFPB under 12 CFR 1026.58(c). (12 CFR 1026.58(d)(4)) NOTE: If the issuer chooses to update the agreements on its website more frequently, the agreements posted on the issuer’s website may contain the provisions of the agreement and the pricing information in effect as of a date other than the last business day of the preceding calendar quarter.
[Click&type] Posting of agreements for “open” accounts (12 CFR 1026.58(e)) 1. With respect to any open (i.e., the cardholder can obtain extensions or there is an outstanding balance on the account that has not been charged off) credit card account, determine that the card issuer either:
A. Posts and maintains the cardholder’s agreement on its website; or B. Promptly provides a copy of the cardholder’s agreement to the cardholder upon the cardholder’s request.
2. If the card issuer makes an agreement available upon request, ensure that the issuer provides the cardholder with the ability to request a copy of the agreement both by: A. Using the issuer’s website, such as by clicking on a clearly identified box to make the request (12 CFR 1026.58(e)(1)(ii)), and B. Calling a readily available telephone line the number for which is displayed on the issuer’s website and clearly identified as to purpose. (12 CFR 1026.58(e)(1)(ii) and (e)(2))
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Examination Procedures Management CFPB February 2015 Procedures 16 3. If an issuer does not maintain a website from which cardholders can access specific information about their individual accounts determine that the issuer makes agreements available upon request by providing the cardholder with the ability to request a copy of the agreement by calling a readily available telephone line the number for which is (12 CFR 1026.58(e)(2)):
A. Displayed on the issuer’s website and clearly identified as to purpose; or B. Included on each periodic statement sent to the cardholder and clearly identified as to purpose.
4. Verify that the card issuer sends to the cardholder or otherwise make available to the cardholder a copy of the cardholder’s agreement in electronic or paper form no later than 30 days after the issuer receives the cardholder’s request. (12 CFR 1026.58(e)(1)(ii)) 5. Determine that agreements posted on the card issuer’s website or made available upon the cardholder’s request conform to the form and content requirements for agreements submitted to the CFPB specified in 12 CFR 1026.58(c)(8). (12 CFR 1026.58(e)(3)(i)) 6. If the card issuer posts an agreement on its website or otherwise provides an agreement to a cardholder electronically, verify that the agreement is posted or provided in an electronic format that is readily usable by the general public and is placed in a location that is prominent and readily accessible to the cardholder. (12 CFR 1026.58(e)(3)(ii)) 7. If agreements posted or otherwise provided contain personally identifiable information relating to the cardholder, such as name, address, telephone number, or account number, ensure that the issuer takes appropriate measures to make the agreement accessible only to the cardholder or other authorized persons. (12 CFR 1026.58(e)(3)(iii)) 8. Determine that agreements posted or otherwise provided set forth the specific provisions and pricing information applicable to the particular cardholder. (12 CFR 1026.58(e)(3)(iv)) 9. Determine that provisions and pricing information are complete and accurate as of a date no more than 60 days prior to (12 CFR 1026.58(e)(3)(iv)): A. The date on which the agreement is posted on the card issuer’s website under 12 CFR 1026.58(e)(1)(i);
B. The date the cardholder’s request is received under 12 CFR 1026.58(e)(1)(ii) or (e)(2). NOTE: Card issuers may provide credit card agreements in electronic form under 12 CFR 1026.58(d) and (e) without regard to the consumer notice and consent requirements of 15 USC 101(c) of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 USC. 7001 et seq.). (12 CFR 1026.58(f)) [Click&type]
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Examination Procedures Management CFPB February 2015 Procedures 17 Module 2: Account Origination Rules on issuance of credit cards (12 CFR 1026.12(a)) Issuers are generally required to issue credit cards only upon oral or written request, or as a renewal of, or substitute for, an accepted credit card.
Consumers can apply for credit card accounts through a variety of channels; for example, in response to a prescreened offer, by completing a “take-one” application, submitting an electronic application, or directly calling an issuer. Regulation Z contains several requirements for disclosures that generally must accompany application or solicitation materials. The Fair Credit Reporting Act (FCRA)/Regulation V and the Equal Credit Opportunity Act/Regulation B (Regulation B) also contain several requirements with which credit card issuers must comply when soliciting requests from consumers to open a credit or charge card account. Prescreened consumer reports and opt-out notices (15 USC 1681b(c) and 1681m(d); 12 CFR 1022.54) Credit card issuers who use prescreened offers to solicit requests from consumers to open a credit or charge card account must ensure that they do so incompliance with the FCRA, which permits credit card issuers to obtain prescreened consumer reports to make firm offers of credit to consumers, unless the consumer elects to opt out of being included on prescreened lists. The law contains a number of requirements for the content of the prescreened lists, as well as notice and opt-out requirements. These requirements are discussed in detail in the Fair Credit Reporting Act section of the CFPB Examination Manual.11 Credit and charge card applications and solicitations (12 CFR 1026.60) Regulation Z generally requires credit card issuers to provide disclosures on or with credit card applications and solicitations, in order to ensure that consumers are aware of certain costs and fees associated with a particular credit card prior to applying for or requesting the card. Credit card solicitation or application disclosures generally must be made in a tabular format on or with a solicitation or an application that is mailed to consumers or provided to consumers in electronic form. The regulation also contains certain disclosure requirements for telephone applications and solicitations initiated by the card issuer, as well as applications and solicitations made available to the general public (such as catalog, magazine, or other generally available publications) or provided in-person to the consumer. See Appendix 1 to these procedures for detailed information on the required contents of these disclosures.
11 See “Fair Credit Reporting Act,” CFPB Supervision and Examination Manual V.2 (October 2012), at FCRA 23.
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Examination Procedures Management CFPB February 2015 Procedures 18 Ability to Pay (12 CFR 1026.51) General Provisions Credit card issuers are required to consider an applicant’s ability to pay the minimum monthly payment on an account prior to opening a credit card account or increasing a credit limit. The regulation states that this determination must be based on consideration of the applicant’s income or assets and the applicant’s current obligations. A card issuer may consider other factors at its option, such as credit score, provided the additional factors are permissible under Regulation B. The issuer may consider income based on the following information: • Information provided by the consumer in connection with the account, including information provided by the consumer through the application process; • Information provided by the applicant in connection with other financial relationships with the issuer or the issuer’s affiliates (subject to information sharing rules); • Information from third parties (subject to information sharing rules); or • Information obtained through any empirically derived, demonstrably and statistically sound model that reasonably estimates an applicant’s income or assets, including any income or assets to which the applicant has a reasonable expectation of access. A card issuer may consider the consumer’s current obligations based on information provided by the consumer or in a consumer report. In evaluating a consumer's current obligations, a card issuer need not assume that credit lines for other obligations are fully utilized. Card issuers must use a reasonable method for estimating the minimum monthly payment for the purpose of determining the consumer’s ability to pay. Regulation Z contains a “safe harbor” provision, which states that a card issuer complies with the requirement that it use a reasonable method for determining the minimum monthly payment if the card issuer does the following: • Assumes utilization, from the first day of the billing cycle, of the full credit line that the issuer is considering offering to the consumer; and • Uses the same minimum monthly payment formula that it uses for the actual product, provided that if the minimum monthly payment calculation includes interest and/or mandatory fees, the issuer includes them in the calculation.
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Examination Procedures Management CFPB February 2015 Procedures 19 Card issuers are also required to establish and maintain reasonable written policies and procedures to consider the applicant’s ability to pay. “Reasonable” policies and procedures include the issuer’s policy on consideration of income (whether it will consider income and/or assets (income/assets) to which the consumer has “reasonable expectation of access,” or whether it will limit consideration to the consumer’s independent income/assets). “Reasonable” policies and procedures also include the consideration of at least one of the following: • The ratio of debt obligations to income;
• The ratio of debt obligations to assets; or • Residual income.
Applicants 21 or older If an applicant is 21 or older, the card issuer is required to determine the applicant’s and any coapplicant/cosigner/guarantor’s ability to pay based on the applicant/coapplicant/cosigner/guarantor’s current or reasonably expected income or assets in order to open a credit card account or increase a credit line. The issuer may also consider any income or assets to which the parties have a “reasonable expectation of access” as part of the applicant(s)’current or reasonably expected income; however, the issuer is not required to do so. Comment 51(a)(1)(i)(4)(ii) provides examples of “current or reasonably expected income,” including current or expected salary, wages, bonus pay, tips, and commissions. Other sources of income could include interest or dividends, retirement benefits, public assistance, alimony, child support, or separate maintenance payments. Current or reasonably expected income also includes income that is deposited regularly in an account on which the applicant is an accountholder. The income and/or assets to which an applicant has a “reasonable expectation of access” includes those in which an applicant does not have a current or expected ownership interest but that are available to an applicant through the actions of a non-applicant (for example, the non-applicant regularly pays the expenses of the applicant).
Applicants under the age of 21 If the applicant is under the age of 21, the issuer may not open a credit card account unless the issuer has financial information indicating that the applicant can make the minimum monthly payment based on the applicant’s current or reasonably expected income or assets, or the issuer has a signed agreement from a co-applicant/cosigner/guarantor who is 21 or older and has a documented ability to make the minimum monthly payment. It is important to note that if the applicant is under 21, the issuer may not consider income or assets to which the applicant only has a “reasonable expectation of access;” however, it may use that standard to assess the over-21 co-applicant/cosigner/guarantor’s ability to pay.
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Examination Procedures Management CFPB February 2015 Procedures 20 Disclosures required to be provided to the consumer at account opening (12 CFR 1026.5 and 1026 1026.6) Regulation Z requires that card issuers provide certain disclosures to consumers at account opening. These disclosures generally must be made clearly and conspicuously, in a form that the consumer can keep. In general, this means that the disclosures must be written or in electronic form, unless Regulation Z specifically states otherwise.
These disclosures must generally be provided to the consumer before the first transaction is made under the plan, although Regulation Z contains exceptions for certain charges that are imposed as part of the plan and are not required to be disclosed under 12 CFR 1026.6(b)(2)12 and instances where the consumer establishes the credit card account over the phone and makes the first transaction at that time.13 See Appendix 1 to these procedures for detailed information on the required formatting and contents of these disclosures.
Collection of membership and application fees (12 CFR 1026.5(b)(1)(iv)(A) and 1026.5(b)(1)(v)) In general, the card issuer may not collect any fee before account opening disclosures are provided; however, Regulation Z permits certain membership fees and application fees to be collected before account opening disclosures are provided, as long as specific requirements are met. An issuer may collect or obtain the consumer’s agreement to pay membership fees, including application fees excludable from the finance charge under 12 CFR 1026.4(c)(1), before providing account-opening disclosures. In order to do so, the consumer must be able to reject the plan after receiving the disclosures and have no obligation to pay these fees, or any other fee or charge.14 If the consumer rejects the plan, the issuer must promptly refund the membership fee or application fee if it has been paid, or take other action necessary to ensure the consumer is not obligated to pay that fee or any other fee or charge.
Limitations on fees during first year after account opening (12 CFR 1026.52(a)) During the first year after the opening of a credit card account, the card issuer may not require the consumer to pay fees in excess of the 25 percent of the credit limit in effect when the account
12 See 12 CFR 1026.5(b)(1)(ii) 13 See 12 CFR 1026.5(b)(1)(iii) 14 A membership fee for purposes of this 12 CFR 1026.5 has the same meaning as a fee for the issuance or availability of credit described in 12 CFR 12 CFR 1026.60(b)(2).
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Examination Procedures Management CFPB February 2015 Procedures 21 is opened.15 The 25 percent limit applies to any fees or other charges that the card issuer may or will require the consumer to pay with respect to the account during the first year after account opening, other than charges attributable to periodic interest rates. For example, the following fees would be counted towards the 25 percent limit:
• Fees for the issuance or availability of credit, including any fee based on account activity or inactivity and any fee that a consumer is required to pay in order to receive a particular credit limit;
• Fees for insurance, debt cancellation, or debt suspension coverage written in connection with the credit transaction, if the insurance, debt cancellation, or debt suspension is required by the terms of the account;
• Fees that the consumer is required to pay in order to engage in transactions using the account (such as cash advance fees, balance transfer fees, foreign transaction fees, and fees for using the account for purchases);
• Fees that the consumer is required to pay for violating the terms of the account (except those specifically excluded, as described later);
• Fixed finance charges;
• Minimum charges imposed if a charge would otherwise have been determined by applying a periodic interest rate to a balance except for the fact that such charge is smaller than the minimum; and • A security deposit for the account, provided that it is charged to the credit card account. Certain fees are specifically excluded from this prohibition and do not count towards the 25 percent limitation:
• Late payment fees, over the limit fees, and returned payment fees; and • Fees that the consumer is not required to pay with respect to the account, such as an expedited payment fee, fees for optional services like travel insurance, fees for reissuing a lost or stolen card, or statement reproduction fees.
A card issuer that charges a fee to a credit card account that exceeds the 25 percent limit will not violate the prohibition if the card issuer waives or removes the fee and any associated interest charges or credits the account for an amount equal to the fee and any associated interest charges within a reasonable amount of time, but no later than the end of the billing cycle following the billing cycle during which the fee was charged.
15 For the purposes of this requirement, an account is considered “opened” no earlier than the date on which the consumer may use the account to engage in transactions.
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Examination Procedures Management CFPB February 2015 Procedures 22 Only decreases to the credit limit during the first year after the account is opened affect the amount of fees that the issuer can assess. If a card issuer decreases the credit limit during the first year after the account is opened, the card issuer is required to waive, remove, or credit the consumer’s account for fees that exceed 25 percent of the reduced credit limit. Limitations on penalty fees (12 CFR 1026.52(b)) Regulation Z contains specific requirements for card issuers who assess penalty fees against consumers who violate the terms or other requirements of a credit card account. Penalty fees imposed by card issuers must be reasonable and proportional to the violation of the account terms. Card issuers must reevaluate penalty fees at least annually to ensure that the fee represents a reasonable proportion of the total costs incurred by the card issuer as a result of the consumer’s violation.16 If the issuer determines that the fee must be decreased based on this reevaluation, it must decrease the fee within 45 days after completing the reevaluation. Card issuers may also increase a fee if the reevaluation determined that a higher fee represents a reasonable proportion of the cost, and may begin charging the increased fee once it has provided consumers with the Change-in-Terms Notice required by 12 CFR 1026.9.17 As an alternative, Regulation Z contains a “safe harbor” provision, which is that a card issuer’s penalty fees will be considered reasonable and proportional (and will not require annual reevaluation) if the dollar amount of the fee does not exceed: • $27 for the first instance of a violation;
• $38, if the card issuer previously imposed a penalty fee for a violation of the same type that occurred during the same billing cycle or one of the next six billing cycles; or • If the account is a charge card that requires payment of the full outstanding balance at the end of each billing cycle, three percent of the delinquent balance if the card issuer has not received the required payment for two or more consecutive billing cycles.18 Credit card issuers must not charge penalty fees that exceed the dollar amount associated with the consumer’s violation of the terms or other requirements of the credit card account. For example, an issuer may not charge a $39 late payment fee on the day after a $20 minimum payment is due but is not received. Instead, in this example, the fee cannot exceed $20. The regulation also bans imposition of penalty fees when there is no dollar amount associated with the violation, such as transactions that the card issuer declines to authorize, “inactivity” based on the consumer’s failure
16 The Official Interpretation to 12 CFR 1026.52(b)(1)(i) discusses the factors that should be included in this annual reevaluation of penalty fees.
17 See the “Change-in-Terms Notice” section of these examination procedures. 18 The dollar amounts of the “safe harbor” fees are adjusted annually by the CFPB to reflect changes in the Consumer Price Index. The amounts listed are those in effect beginning January 1, 2014. Through December 31, 2016 card issuers were permitted to impose fees of $26 for the first instance of a violation, and $36 if the card issuer if the card issuer previously imposed a penalty fee for a violation of the same type that occurred during the same billing cycle or one of the next six billing cycles.
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Examination Procedures Management CFPB February 2015 Procedures 23 to use the account to make new purchases, or the closure or termination of an account. It also prohibits issuers from charging multiple penalty fees based on a single event or transaction.
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Examination Procedures Management CFPB February 2015 Procedures 24 Examination Procedures Credit and charge card application and solicitation disclosures (12 CFR 1026.60) 1. Determine that the credit card solicitation or application disclosures were made clearly and conspicuously on or with a solicitation or an application. (12 CFR 1026.60) 2. For the disclosures in 12 CFR 1026.60(b)(1) through (5) (except for (b)(1)(iv)(B) and (b)(7) through (15), determine that the creditor made the disclosures required for 12 CFR 1026.60(c), (d)(2), (e)(1) and (f) in the form of a table with headings, content, and format substantially similar to the applicable tables found in G-10 in Appendix G to Regulation Z. (12 CFR 1026.60(a)(2)(i)) 3. Determine that the table required by 12 CFR 1026.60(a)(2)(i) contains only the information required or permitted by that section of the regulation. If the creditor provides other information, determine that such information appears outside the table. (12 CFR 1026.60(a)(2)(ii)) 4. Determine that the disclosures required by 12 CFR 1026.60(b)(1)(iv)(B), (b)(1)(iv)(C), and (b)(6) are placed directly beneath the table required by 12 CFR 1026.60(a)(2)(i). (12 CFR 1026.60(a)(2)(iii)) 5. When a tabular format is required, determine that the following disclosures are disclosed in bold text (12 CFR 1026.60(a)(2)(iv)):
A. Annual percentage rate required to be disclosed pursuant to 12 CFR 1026.60(b)(1), B. Introductory rate required to be disclosed pursuant to 12 CFR 1026.60(b)(1)(ii), C. Rate that will apply after a premium initial rate expires required to be disclosed under 12 CFR 1026.60(b)(1)(iii), and D. Fee or percentage amounts or maximum limits on fee amounts required to be disclosed pursuant to 12 CFR 1026.60 (b)(2), (b)(4), (b)(8) through (b)(13). NOTE: Bold text shall not be used for the amount of any periodic fee disclosed pursuant to 12 CFR 1026.60(b)(2) that is not an annualized amount, and other APRs or fee amounts disclosed in the table. (12 CFR 1026.60(a)(2)(iv)) 6. Determine that the card issuer discloses, on or with an solicitation or application: (12 CFR 1026.60(b)) A. Annual percentage rate. Each periodic rate that may be used to compute the finance charge on an outstanding balance for purchases, a cash advance, or a balance transfer, expressed as an annual percentage rate. When more than one rate applies for a category
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Examination Procedures Management CFPB February 2015 Procedures 25 of transactions, determine that the range of balances to which each rate is applicable is also disclosed. (12 CFR 1026.60(b)(1)) NOTE: The APR for purchases disclosed pursuant to 12 CFR 1026.60(b)(1) shall be in at least 16-point type, except for the following: Oral disclosures of the annual percentage rate for purchases; or a penalty rate that may apply upon the occurrence of one or more specific events.
i.
Variable rate information. If a rate is a variable rate, determine that the card issuer discloses the fact that the rate may vary and how the rate is determined. Determine that the card issuer identifies the type of index or formula that is used in setting the rate. Determine that the value of the index and the amount of the margin that are used to calculate the variable rate are not disclosed in the table. Determine further that any applicable limitations on rate increases are not included in the table. (12 CFR 1026.60(b)(1)(i)) ii.
Discounted initial rate. If the initial rate is an introductory rate, determine that the card issuer discloses in the table the introductory rate, the time period during which the introductory rate will remain in effect, and the term “introductory” or “intro” in immediate proximity to the introductory rate. Determine further that the card issuer discloses, as applicable, either the variable or fixed rate that would otherwise apply to the account. (12 CFR 1026.60(b)(1)(ii)) iii.
Premium initial rate. If the initial rate is temporary and is higher than the rate that will apply after the temporary rate expires, determine that the card issuer discloses the premium initial rate and the time period during which the premium initial rate will remain in effect. Determine that the premium initial rate for purchases is in at least 16-point type. Determine that the issuer discloses in the table the rate that will apply after the premium initial rate expires, in at least 16-point type. (12 CFR 1026.60(b)(1)(iii)) iv.
Penalty rates. Except as for provided introductory rate or employee preferential rate requirements (discussed later), if a rate may increase as a penalty for one or more events specified in the account agreement, such as a late payment or an extension of credit that exceeds the credit limit, determine that the card issuer discloses the increased rate that may apply, a brief description of the event or events that may result in the increased rate, and a brief description of how long the increased rate will remain in effect. (12 CFR 1026.60(b)(1)(iv)(A)) v.
Introductory rate. If the issuer discloses an introductory rate in the table or in any written or electronic promotional materials accompanying applications or solicitations (and subject to paragraph (c) or (e) of 12 CFR 1026.60), determine that the issuer briefly discloses, directly beneath the table, the circumstances, if
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Examination Procedures Management CFPB February 2015 Procedures 26 any, under which the introductory rate may be revoked, and the type of rate that will apply after the introductory rate is revoked. (12 CFR 1026.60(b)(1)(iv)(B)) vi.
Employee preferential rates. If the issuer discloses in the table a preferential APR for which only employees of the card issuer, employees of a third party, or other individuals with similar affiliations with the card issuer or third party are eligible, determine that the issuer briefly discloses directly beneath the table the circumstances under which such preferential rate may be revoked and the rate that will apply after such preferential rate is revoked. (12 CFR 1026.60(b)(1)(iv)(C)) vii.
Rates that depend on consumer’s creditworthiness. If a rate cannot be determined at the time disclosures are given because the rate depends, at least in part, on a later determination of the consumer’s creditworthiness, determine that the card issuer discloses the specific rates or the range of rates that could apply and a statement that the rate for which the consumer may qualify at account opening will depend on the consumer’s creditworthiness, and other factors if applicable. (12 CFR 1026.60(b)(1)(v)) NOTE: If the rate that depends, at least in part, on a later determination of the consumer’s creditworthiness is a penalty rate, as described in (b)(1)(iv), the card issuer at its option may disclose the highest rate that could apply, instead of disclosing the specific rates or the range of rates that could apply. (12 CFR 1026.60(b)(1)(v)) viii.
APRs that vary by state. Determine that the card issuer does not list annual percentage rates for multiple states in the table. Note, however, that issuers imposing annual percentage rates that vary by state may, at the issuer’s option, disclose in the table: the specific annual percentage rate applicable to the consumer’s account; or the range of the annual percentage rates, if the disclosure includes a statement that the annual percentage rate varies by state and refers the consumer to a disclosure provided with the table where the annual percentage rate applicable to the consumer’s account is disclosed. (12 CFR 1026.60(b)(1)(vi)) B. Fees for issuance or availability. Determine that the card issuer discloses any annual or other periodic fee, expressed as an annualized amount, or any other fee that may be imposed for the issuance or availability of a credit or charge card, including any fee based on account activity or inactivity. (12 CFR 1026.60(b)(2)) C. Fixed finance charge; minimum interest charge. Determine that the creditor discloses any fixed finance charge that could be imposed during a billing cycle, as well as a brief description of that charge. Determine that the creditor discloses any minimum interest charge if it exceeds $1.00 that could be imposed during a billing cycle, and a brief description of the charge. (12 CFR 1026.60(b)(3))
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Examination Procedures Management CFPB February 2015 Procedures 27 D. Transaction charge. Determine that the creditor discloses any transaction charge imposed for the use of the card for purchases. (12 CFR 1026.60(b)(4)) E. Grace period. Determine that the issuer discloses the date by which or the period within which any credit extended for purchases may be repaid without incurring a finance charge due to a periodic interest rate and any conditions on the availability of the grace period. If no grace period is provided, determine that this fact is disclosed. In disclosing in the tabular format a grace period that applies to all types of purchases, determine that the issuer uses the phrase “How to Avoid Paying Interest on Purchases” as the heading for the row describing the grace period. If a grace period is not offered on all types of purchases, in disclosing this fact in the tabular format, determine that the issuer uses the phrase “Paying Interest” as the heading for the row describing this fact. NOTE: If the length of the grace period varies, the card issuer may disclose the range of days, the minimum number of days, or the average number of days in the grace period, if the disclosure is identified as a range, minimum, or average. (12 CFR 1026.60(b)(5)) F. Balance computation method. Determine that the creditor disclosed the name of the balance computation method that is used to determine the balance on which the finance charge is computed, or an explanation of the method used if it is not listed. In determining which balance computation method to disclose, the creditor should have assumed that the credit extended will not be repaid within any grace period. (12 CFR 1026.60(b)(6)) NOTE: Disclosures required by 12 CFR 1026.60(b)(6) must be placed directly beneath the table.
G. Statement on charge card payments. Determine that the creditor discloses a statement that charges incurred by use of the charge card are due when the periodic statement is received. (12 CFR 1026.60(b)(7)) H. Cash advance fee. Determine that the creditor disclosed any fee imposed for an extension of credit in the form of cash or its equivalent. (12 CFR 1026.60(b)(8)) I. Late payment fee. Determine that the creditor disclosed any fee imposed for a late payment. (12 CFR 1026.60(b)(9)) J. Over-the-limit fee. Determine that the creditor disclosed any fee imposed for exceeding the credit limit. (12 CFR 1026.60(b)(10)) K. Balance transfer fee. Determine that the creditor disclosed any fee imposed to transfer a balance. (12 CFR 1026.60(b)(11)) L. Returned payment fee. Determine that the creditor disclosed any fee imposed for a returned payment. (12 CFR 1026.60(b)(12))
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Examination Procedures Management CFPB February 2015 Procedures 28 M. Required insurance, debt cancellation, or debt suspension coverage. Determine that the fee imposed required insurance, debt cancellation or suspension coverage is disclosed if the insurance, debt cancellation or coverage is required as part of the plan. (12 CFR 1026.60(b)(13)) N. Available credit. Determine whether total of required fees for the issuance or availability of credit and/or security deposit debited to the account at account opening equal or exceed 15 percent of minimum credit limit for the account. If so, determine that the creditor disclosed, as applicable, the available credit remaining after the fees and/or security deposit are debited to the account. (12 CFR 1026.60(b)(14)) O. Website reference. For issuers of credit cards that are not charge cards, determine that the creditor disclosed a reference to the website established by the Consumer Financial Protection Bureau (CFPB) and a statement that the consumers may obtain on the website information about shopping for and using credit cards. (12 CFR 1026.60(b)(15)) [Click&type] Ability to make the required minimum payments (12 CFR 1026.51) 1. Determine that the card issuer does not open a credit card account for a consumer unless the card issuer considers the ability of the consumer to make the required minimum periodic payments under the terms of the account based on the consumer’s income or assets and current obligations. (12 CFR 1026.51(a)(1)(i)) 2. Verify that the card issuer establishes and maintains reasonable written policies and procedures to consider a consumer’s income or assets and current obligations. Reasonable policies and procedures to consider a consumer’s ability to make the required payments include a consideration of at least one of the following: (12 CFR 1026.51(a)(1)(ii)) A. The ratio of debt obligations to income;
B. The ratio of debt obligations to assets; or C. The income the consumer will have after paying debt obligations. NOTE: Reasonable written policies and procedures may include treating any income and assets to which the consumer has a reasonable expectation of access as the consumer’s income or assets, or may be limited to consideration to the consumer’s independent income and assets.
3. Confirm that the card issuer does not issue a credit card to a consumer who does not have any income or assets, and that the credit does not issue a credit card without reviewing any information about a consumer’s income, assets, or current obligations. (12 CFR 1026.51(a)(1)(ii))
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Examination Procedures Management CFPB February 2015 Procedures 29 NOTE: A card issuer may consider the consumer’s income or assets based on information provided by the consumer, in connection with the credit card account or any other financial relationship the card issuer or its affiliates has with the consumer, subject to any applicable information-sharing rules, and information obtained through third parties, subject to any applicable information-sharing rules. A card issuer may also consider information obtained through any empirically derived, demonstrably and statistically sound model that reasonably estimates a consumer’s income or assets. (Comment 12 CFR 1026.51(a)-5) 4. Determine that the card issuer uses a reasonable method for estimating the minimum periodic payments the consumer would be required to pay under the terms of the account. (12 CFR 1026.51(a)(2)(i)) 5. A card issuer’s estimate of the minimum periodic payment is compliant (i.e., receives the benefit of a safe harbor) if it uses the following method (12 CFR 1026.51(a)(2)(ii)): A. The card issuer assumes utilization, from the first day of the billing cycle, of the full credit line that the issuer is considering offering to the consumer; and B. The card issuer uses a minimum payment formula employed by the issuer for the product the issuer is considering offering to the consumer or, in the case of an existing account, the minimum payment formula that currently applies to that account, provided that: i. If the applicable minimum payment formula includes interest charges, the card issuer estimates those charges using an interest rate that the issuer is considering offering to the consumer for purchases or, in the case of an existing account, the interest rate that currently applies to purchases; and ii. If the applicable minimum payment formula includes mandatory fees, the card issuer must assume that such fees have been charged to the account. 6. Rules affecting young consumers: If the card issuer opens a credit card account under an open-end (not home-secured) consumer credit plan for a consumer less than 21 years old, verify that the issuer requires that such consumers:
A. Submit a written application; and B. Either possess an independent ability to make the required minimum periodic payments on the proposed extension of credit in connection with the account under 12 CFR 1026.51(b)(1)(i)) or provide a signed agreement of a cosigner, guarantor, or joint applicant who is at least 21 years old who has the ability to make the required minimum periodic payments on such debts, and be either jointly liable with the consumer for any debt on the account, or secondarily liable for any debt on the account incurred by the consumer before the consumer has attained the age of 21 pursuant to 12 CFR 1026.51(b)(1)(ii)(A) and (B).
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Examination Procedures Management CFPB February 2015 Procedures 30 [Click&type] Account opening initial disclosures (12 CFR 1026.6) 1. Review financial institution policies, procedures, and systems to determine, either separately or when completing the actual file review, whether the account opening initial disclosures are provided before the first transaction is made under the plan (12 CFR 1026.5(b)(1). 2. Determine that the creditor provided the account-opening disclosures specified in 12 CFR 1026.6(b)(2)(i) through (b)(2)(v) (except for 12 CFR 1026.6 (b)(2)(i)(D)(2) and 12 CFR 1026.6 (b)(2)(vii) through (b)(2)(xiv) in the form of a table with the headings, content, and format substantially similar to any of the applicable tables in G–17 in Appendix G to Regulation Z. (12 CFR 1026.6(b)(1)) 3. Determine that the following disclosures are disclosed in bold text (12 CFR 1026.6(b)(1)(i)): A. Any APR required to be disclosed pursuant to 12 CFR 1026.6(b)(2)(i); B. Any introductory rate permitted to be disclosed pursuant to 12 CFR 1026.6 (b)(2)(i)(B) or required to be disclosed under 12 CFR 1026.6 (b)(2)(i)(F); C. Any rate that will apply after a premium initial rate expires permitted to be disclosed pursuant to 12 CFR 1026.6 (b)(2)(i)(C) or required to be disclosed pursuant to 12 CFR 1026.6 (b)(2)(i)(F); and D. Any fee or percentage amounts or maximum limits on fee amounts disclosed pursuant to 12 CFR 1026.6 (b)(2)(ii), (b)(2)(iv), (b)(2)(vii) through (b)(2)(xii). 4. Determine that bold text is not used for: The amount of any periodic fee disclosed pursuant to 12 CFR 1026.6(b)(2) that is not an annualized amount; and other annual percentage rates or fee amounts disclosed in the table. (12 CFR 1026.6(b)(1)(i)) 5. Determine that only the information required or permitted by 12 CFR 1026.6 (b)(2)(i) through (b)(2)(v) (except for 12 CFR 1026.6 (b)(2)(i)(D)(2)) and (b)(2)(vii) through (b)(2)(xiv) are provided in the table. Disclosures required by 12 CFR 1026.6 (b)(2)(i)(D)(2), (b)(2)(i)(D)(3), (b)(2)(vi) and (b)(2)(xv) shall be placed directly below the table required by 12 CFR 1026.6(b)(1). (12 CFR 1026.6(b)(1)(ii)) NOTE: Disclosures required by 12 CFR 1026.6(b)(3) through (b)(5) that are not otherwise required to be in the table and other information may be presented with the account agreement or account-opening disclosure statement, provided such information appears outside the required table.
6. For creditors that impose fees referred to in 12 CFR 1026.6(b)(2)(vii) through (b)(2)(xi) that vary by state and that provide the disclosures required by 12 CFR 1026.6(b) in person at the time the open-end (not home-secured) plan is established in connection with financing the
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Examination Procedures Management CFPB February 2015 Procedures 31 purchase of goods or services determine that the creditor discloses in the account-opening table either:
A. The specific fee applicable to the consumer’s account, or B. The range of fees, a statement that the amount of the fee varies by state, and a reference to the account agreement or other disclosure provided with the account-opening table where the amount of the fee applicable to the consumer’s account is disclosed. (12 CFR 1026.6(b)(1)(iii)) NOTE: A creditor is not permitted to list fees for multiple states in the account-opening summary table (12 CFR 1026.6(b)(1)(iii)).
C. If the amount of any fee required to be disclosed under 12 CFR 1026.6 is determined on the basis of a percentage of another amount, the percentage used and the identification of the amount against which the percentage is applied may be disclosed instead of the amount of the fee. (12 CFR 1026.6(b)(1)(iv)) 7. Determine that the creditor discloses in the appropriate format, as applicable: A. Annual percentage rate. Each periodic rate that may be used to compute the finance charge on an outstanding balance for purchases, a cash advance, or a balance transfer, expressed as an APR. When more than one rate applies for a category of transactions, determine that the creditor discloses the range of balances to which each rate is applicable. Ensure that the APR for purchases disclosed pursuant to this paragraph is in at least 16-point type, except for a penalty rate that may apply upon the occurrence of one or more specific events. (12 CFR 1026.6(b)(2)(i)) i. Variable rate information. If the rate is a variable rate, determine that the creditor also disclosed the fact that the rate may vary and how the rate is determined (i.e., identify the type of index or formula used in setting the rate). (12 CFR 1026.6(b)(2)(i)(A)) ii. Discounted initial rate. If the initial rate is an introductory rate, determine that the creditor disclosed that the rate would otherwise apply to the account. Where the rate is not tied to an index or formula, determine that the creditor disclosed the rate that will apply after the introductory rate expires. For a variable rate account, determine that the creditor disclosed a rate based on the applicable index or formula in accordance with the accuracy requirements. (12 CFR 1026.6(b)(2)(i)(B)) iii. Premium initial rate. If the initial rate is temporary and is higher than the rate that will apply after the temporary rate expires, determine that the creditor disclosed the premium initial rate. Determine that the premium rate for purchases is in at least 16point type. (12 CFR 1026.6(b)(2)(i)(C))
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Examination Procedures Management CFPB February 2015 Procedures 32 iv. Penalty rates. Except for introductory rates and employee preferential rates (discussed later), if the rate is a penalty rate, determine that the creditor disclosed as part of the APR disclosure the increased rate that may apply, a brief description of the event or events that may result in the increased rate, and a brief description of how long the increased rate will remain in effect. (12 CFR 1026.6(b)(2)(i)(D)(1)) v. Introductory rates. If the creditor discloses in the table an introductory rate, as that term is defined in 12 CFR 1026.16(g)(2)(ii), determine that the creditor briefly disclosed directly beneath the table the circumstances under which the introductory rate may be revoked, and the rate that will apply after the introductory rate is revoked. (12 CFR 1026.6(b)(2)(i)(D)(2)) vi. Employee preferential rates. If the creditor discloses in the table a preferential APR for which only employees of the creditor, employees of a third party, or other individuals with similar affiliations with the creditor or third party are eligible, determine that the creditor briefly disclosed directly beneath the table the circumstances under which the preferential rate may be revoked, and the rate that will apply after the preferential rate is revoked. (12 CFR 1026.6(b)(2)(i)(D)(3)) vii. Point of sale where APRs vary by state or based on creditworthiness. If the creditor imposes an APR that varies by state or based on the consumer’s creditworthiness and provides required disclosures in person at the time the open-end (not home-secured) plan is established in connection with financing the purchase of goods or services, determine that the creditor discloses either (12 CFR 1026.6(b)(2)(i)(E)): a. The specific APR applicable to the consumer’s account, or b. The range of the APRs, if the disclosure includes a statement that the APR varies by state or will be determined based on the consumer’s creditworthiness and refers the consumer to the account agreement or other disclosure provided with the account-opening table where the AP applicable to the consumer’s account is disclosed. Determine that the creditor does not list APRs for multiple states in the account opening table. B. Determine that the issuer discloses in the table (12 CFR 1026.6(b)(2)(i)(F)): c. Any introductory rate, and d. Any rate that would apply upon expiration of a premium initial rate. C. Fees for issuance or availability. Determine that the credit disclosed any annual or periodic fee that may be imposed for the issuance or availability of an open-end plan (including any fee based on account activity or inactivity); how frequently the fee will be imposed; and the annualized amount of the fee. (12 CFR 1026.6(b)(2)(ii))
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Examination Procedures Management CFPB February 2015 Procedures 33 D. Fixed finance charge and minimum interest charge. Determine that the creditor disclosed any fixed finance charge and any minimum interest charge if it exceeds $1.00 that could be imposed during a billing cycle, and a brief description of the charge. (12 CFR 1026.6(b)(2)(iii)) E. Determine that the creditor disclosed any non-periodic fee that relates to opening the plan. A creditor must disclose that the fee is a one-time fee. (12 CFR 1026.6(b)(2)(ii)(B)) F. Transaction charges. Determine that the creditor discloses any transaction charge imposed by the creditor for use of the open-end plan for purchases. (12 CFR 1026.6(b)(2)(iv)) G. Grace period. The date by which or the period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate and any conditions on the availability of the grace period. If no grace period is provided, that fact must be disclosed. If the length of the grace period varies, the creditor may disclose the range of days, the minimum number of days, or the average number of the days in the grace period, if the disclosure is identified as a range, minimum, or average. In disclosing in the tabular format a grace period that applies to all features on the account, the phrase “How to Avoid Paying Interest” shall be used as the heading for the row describing the grace period. If a grace period is not offered on all features of the account, in disclosing this fact in the tabular format, the phrase “Paying Interest” shall be used as the heading for the row describing this fact. (12 CFR 1026.6(b)(2)(v)) H. Balance computation method. Determine that the creditor disclosed in the account opening disclosures the name of the balance computation method that is used to determine the balance on which the finance charge is computed for each feature, or an explanation of the method used if it is not listed, along with a statement that an explanation of the methods required by 12 CFR 1026.6(b)(4)(i)(D). In determining which balance computation method to disclose, the creditor should have assumed that the credit extended will not be repaid within any grace period. (12 CFR 1026.6(b)(2)(vi)) I. Cash advance fee. Determine that the creditor disclosed any fee imposed for an extension of credit in the form of cash or its equivalent. (12 CFR 1026.6(b)(2)(vii)) J. Late payment fee. Determine that the creditor disclosed any fee imposed for a late payment. (12 CFR 1026.6(b)(2)(viii)) K. Over-the-limit fee. Determine that the creditor disclosed any fee imposed for exceeding the credit limit. (12 CFR 1026.6(b)(2)(ix)) L. Balance transfer fee. Determine that the creditor disclosed any fee imposed to transfer a balance. (12 CFR 1026.6(b)(2)(x))
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Examination Procedures Management CFPB February 2015 Procedures 34 M. Returned payment fee. Determine that the creditor disclosed any fee imposed for a returned payment. (12 CFR 1026.6(b)(2)(xi)) N. Required insurance, debt cancellation, or debt suspension coverage. Determine that the fee imposed for required insurance, debt cancellation or suspension coverage is disclosed if the insurance, debt cancellation or coverage is required as part of the plan. Creditors must also cross reference additional information about the insurance or coverage as applicable. (12 CFR 1026.6(b)(2)(xii)) O. Available credit. Determine whether total of required fees for the issuance or availability of credit and/or security deposit debited to the account at account opening equal or exceed 15 percent of the credit limit for the account. If so, determine that the creditor disclosed, as applicable, the available credit remaining after the fees and/or security deposit are debited to the account. (12 CFR 1026.6(b)(2)(xiii)) P. Website reference. For issuers of credit cards that are not charge cards, determine that the creditor disclosed a reference to the website established by the CFPB and a statement that the consumers may obtain on the website information about shopping for and using credit cards. (12 CFR 1026.6(b)(2)(xiv)) Q. Billing error rights reference. Determine that the creditor disclosed a statement that information about consumers’ right to dispute transactions is included in the accountopening disclosures. (12 CFR 1026.6(b)(2)(xv)) R. Charges and finance charges. For charges imposed as part of open-end (not homesecured) plan, the circumstances under which the charge may be imposed, including the amount of the charge or explanation of how the charge is determined. For finance charges, a statement of when finance charges begin to accrue, including an explanation of whether or not any time period exists within which any credit extended may be repaid without incurring a finance charge. If such a time period is provided, a creditor may, at its option and without disclosure, impose no finance charge when payment is received after the time period’s expiration. (12 CFR 1026.6(b)(3)(i)) S. Disclosure of rates: Determine that the creditor disclosed, as applicable, for each periodic rate that may be used to calculate interest (12 CFR 1026.6(b)(4)(i)): i. The rate (expressed as a periodic rate and a corresponding APR), ii. The range of balances to which the rate is applicable, iii. The type of transaction to which the periodic rate applies, iv. An explanation of the method used to determine the balance to which the rate is applied.
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Examination Procedures Management CFPB February 2015 Procedures 35 T. Variable-rate Accounts. For interest rate changes that are tied to increases in an index or formula (variable-rate accounts) determine that the following are specifically set forth in the account agreement (12 CFR 1026.6(b)(4)(ii)):
i. The fact that the annual percentage rate may increase. ii. How the rate is determined, including the margin. iii. The circumstances under which the rate may increase. iv. The frequency with which the rate may increase.
v. Any limitation on the amount the rate may change.
vi. The effect(s) of an increase.
vii. Except as specified in 12 CFR 1026.6 (b)(4)(ii)(H), a rate is accurate if it is a rate as of a specified date and this rate was in effect within the last 30 days before the disclosures are provided.
U. Rate changes not due to index or formula: For interest rate changes that are specifically set forth in the account agreement and not tied to increases in an index or formula, determine that the creditor discloses (12 CFR 1026.6(b)(4)(iii)): i. The initial rate (expressed as a periodic rate and a corresponding APR) ii. How long the initial rate will remain in effect and the specific events that cause the initial rate to change.
iii. The rate (expressed as a periodic rate and a corresponding APR) that will apply when the initial rate is no longer in effect and any limitation on the time period the new rate will remain in effect.
iv. The balances to which the new rate will apply.
v. The balances to which the current rate at the time of the change will apply. V. Voluntary credit insurance, debt cancellation, or debt suspension. Determine that the creditor disclosed the applicable disclosures if the creditor offers optional credit insurance, or debt cancellation or debt suspension coverage. (12 CFR 1026.6(b)(5)(i)) W. Security interests. Determine that the creditor disclosed the fact that the creditor has or will acquire a security interest in the property purchased under the plan, or in other property identified by item or type. (12 CFR 1026.6(b)(5)(ii)) X. Statement of billing rights. Determine that the creditor disclosed a statement that outlines the consumer’s rights and the creditor’s responsibilities. (12 CFR 1026.6(b)(5)(iii))
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Examination Procedures Management CFPB February 2015 Procedures 36 [Click&type] Limitations on fees (12 CFR 1026.52) 1. During the first year after the opening of a credit card account under an open-end (not homesecured) consumer credit plan, determine whether the card issuer required the consumer to pay covered fees in excess of the 25 percent of the credit limit in effect when the account is opened. (12 CFR 1026.52(a)(1)) NOTE: The 25 percent limitation on fees does not apply to fees assessed prior to opening the account.
NOTE ALSO: An account is considered opened no earlier than the date on which the account may first be used by the consumer to engage in transactions. A. Covered fees include fees (Comment 12 CFR 1026.52(a)(2)-1): i. For the issuance or availability of credit, including any fees based on account activity or inactivity;
ii. For insurance, debt cancellation or debt suspension coverage, if the insurance or debt cancellation or suspension coverage is required by the terms of the account; iii. The consumer is required to pay to engage in transactions using the account, such as: a. Cash advance fees;
b. Balance transfer fees;
c. Foreign transaction fees; and d. Fees for using the account for purchases.
B. Fees the consumer is required to pay for violating the terms of the account, except to the extent they are specifically excluded (see below); C. Fixed finance charges; and D. Minimum charges imposed if a charge would otherwise have been determined by applying a periodic interest rate to a balance except for the fact that such charge is smaller than the minimum.
NOTE: Section 1026.52(a) does not authorize the imposition or payment of fees or charges otherwise prohibited by law. (12 CFR 1026.52(a)(3) E. Fees not covered by this limitation include: (12 CFR 1026.52(a)(2)(i)
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Examination Procedures Management CFPB February 2015 Procedures 37 i. Late payment fees, over-the-limit fees, and returned-payment fees; or ii. Fees that the consumer is not required to pay with respect to the account, such as: a. An expedited payment fee;
b. Fees for optional services like travel insurance;
c. Fees for reissuing a lost or stolen card; or d. Statement reproduction fees.
F. Review penetration rates of various optional services to determine if they are truly optional and therefore not covered by the 25 percent limitation. G. Ensure that the card issuer does not impose a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan unless the dollar amount of the fee is consistent with 12 CFR 1026.52(b)(1) and (b)(2). (12 CFR 1026.52(b)) H. Determine that a card issuer imposes a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan only if the dollar amount of the fee is consistent with either 12 CFR 1026.52(b)(1)(i) or 12 CFR 1026.52(b)(1)(ii). (12 CFR 1026.52(b)(1)) I. Cost determination. A card issuer may impose a fee for a particular violation (e.g., late payment) if the card issuer has determined that the fee represents a reasonable proportion of the total costs incurred by the issuer as a result of that type of violation. If a card issuer is relying on a cost determination instead of the safe harbors (see below), review (12 CFR 1026.52(b)(1)(i)):
i. The number of violations of a particular type experienced by the card issuer during a prior period of reasonable length (e.g., a 12-month period). ii. The costs incurred by the card issuer during that period as a result of those violations. Losses and associated costs (including the cost of holding reserves against potential losses and the cost of funding delinquent accounts) must be excluded from this analysis.
iii. If used by the card issuer when making its determination: a. The number of fees imposed by the card issuer as a result of the type of violation during the period that the issuer reasonably estimates it will be unable to collect. b. Reasonable estimates for an upcoming period of changes in the number of violations of the relevant type, the resulting costs, and the number of fees that the card issuer will be unable to collect.
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Examination Procedures Management CFPB February 2015 Procedures 38 J. If applicable, whether the items in paragraph 1-3 have been reevaluated by the card issuer at least once during the prior 12 months. If as a result of the reevaluation the card issuer determines that a lower fee represents a reasonable proportion of the total costs incurred by the card issuer as a result of that type of violation, determine that the card issuer begins imposing the lower fee within 45 days after completing the reevaluation. NOTE: If as a result of the reevaluation the card issuer determines that a higher fee represents a reasonable proportion of the total costs incurred by the card issuer as a result of that type of violation, the card issuer may begin imposing the higher fee after complying with the notice requirements in 12 CFR 1026.9. (12 CFR 1026.52(b)(1)(i)) K. Safe harbors. A card issuer may impose a fee for violating the terms or other requirements of the account if the dollar amount of the fee does not exceed, as applicable (12 CFR 1026.52(b)(1)(ii)(A)-(C)):
i. $26.00, ii. $37.00 if the card issuer previously imposed a fee pursuant to 12 CFR 1026.52(b)(1)(ii)(A) for a violation of the same type that occurred during the same billing cycle or one of the next six billing cycles or iii. Three percent of the delinquent balance on a charge card account that requires payment of outstanding balances in full at the end of each billing cycle if the card issuer has not received the required payment for two or more consecutive billing cycles.
NOTE: The dollar amounts in paragraphs i and ii above will be adjusted annually by the CFPB to the extent that changes in the Consumer Price Index warrant an increase or decrease of a whole dollar.
L. Determine that the card issuer does not impose a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan that exceeds the dollar amount associated with the violation. (12 CFR 1026.52(b)(2)(i)(A)) M. Determine that a card issuer does not impose a fee for violating the terms or other requirements of a credit card account under an open end (not home-secured) consumer credit plan when there is no dollar amount associated with the violation. For purposes of 12 CFR 1026.52(b)(2)(i), there is no dollar amount associated with the following violations (12 CFR 1026.52(b)(2)(i)(B)):
i. Transactions that the card issuer declines to authorize; ii. Account inactivity; and iii. The closure or termination of an account.
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Examination Procedures Management CFPB February 2015 Procedures 39 N. Determine that the card issuer does not impose more than one fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) consumer credit plan based on a single event or transaction. (12 CFR 1026.52(b)(2)(ii)) [Click&type]
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Examination Procedures Management CFPB February 2015 Procedures 40 Module 3: Account Servicing Subsequent disclosure requirements Change-in-Terms Notice (12 CFR 1026.9(c)(2)) When a significant change in account terms is made, the issuer must provide the consumer with a written notice of the change at least 45 days prior to the effective date of the change. A “significant change in account terms” is defined in Regulation Z as a change to a rate, fee, or other account term required to be disclosed under 12 CFR 1026.6(b)(1), (2), or (4); an increase in the minimum periodic payment; or the acquisition of a security interest.19 For increases in charges required to be disclosed under 12 CFR 1026.6(b)(3) that do not meet the definition of a “significant change in account terms,” the issuer may either provide the Change-in-Terms Notice or provide oral or written notice of the amount of the charge before the consumer agrees to or becomes obligated to pay the charge, at a time and manner that the consumer would be likely to notice the disclosure of the charge.
The 45-day period for notice does not apply if a consumer has agreed to a particular change: in this instance, the Change-in-Terms Notice may be mailed or delivered as late as the effective date of the change. This only applies, however, when a consumer substitutes collateral or when the creditor can advance additional credit only if a change relatively unique to that consumer is made, such as the consumer providing additional security or paying an increased minimum payment amount.20 Regulation Z also excludes certain account changes from the Change-in- Terms Notice requirements, including changes to the consumer’s credit limit, except as otherwise required by 12 CFR 1026.9(c)(2)(vi), changes in the name of the credit card or credit plan, the termination or suspension of credit privileges, and changes arising by operation of law.21 In certain instances, the consumer has the right to reject a significant change to an account term.22 The consumer may do so by notifying the creditor of the rejection before the effective date of the change. Upon such notification, the creditor may not (1) apply the change to the account; or (2) impose a fee or charge or treat the account as in default solely as a result of the rejection. The creditor also may not require repayment of the balance on the account using a
19 See 12 CFR 1026.9(c)(2)(ii).
20 The following are not considered agreements between the consumer and the creditor for purposes of this notice exception: (a) the consumer's general acceptance of the creditor's contract reservation of the right to change terms; (b) the consumer's use of the account (which might imply acceptance of its terms under state law); (c) the consumer's acceptance of a unilateral term change that is not particular to that consumer, but rather is of general applicability to consumers with that type of account; and (d) the consumer's request to reopen a closed account or to upgrade an existing account to another account offered by the creditor with different credit or other features. See 12 CFR 1026.9(c)(2)(i)(B). 21 See 12 CFR 1026.9(c)(2)(v) for additional circumstances under which a creditor is not required to provide notice. 22 The right to reject does not apply when the change in terms is due to the consumer’s failure to make the minimum monthly payment within 60 days after the payment due date. See 12 CFR 1026.9(h)(3).
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Examination Procedures Management CFPB February 2015 Procedures 41 method that is less beneficial than one of the following: (1) the method of repayment for the account before the change in terms; (2) an amortization period of no less than five years, beginning no earlier than the effective date of the increase; or (3) a required minimum periodic payment that includes a percentage of the balance that is equal to no more than twice the percentage required before the effective date of the increase.23 If a creditor decreases the credit limit on an account, advance notice of the decrease must be provided before an over-the-limit fee or a penalty rate can be imposed solely as a result of the consumer exceeding the newly decreased credit limit. The creditor is required to provide notice in writing or orally at least 45 days prior to imposing the over-the-limit fee or penalty rate and must state that the credit limit on the account has been or will be decreased. See Appendix 1 to these procedures for detailed information on the required formatting and contents of the Change-in-Terms Notice.
Supplemental credit access devices and additional features (12 CFR 1026.9(b)) Credit card issuers may add additional features to a credit card account, such as adding overdraft checking to an existing account, or adding the ability to secure cash advances on the credit card when the account did not previously offer that feature. Issuers may also offer supplemental credit access devices, such as convenience checks, that give the consumer an alternative method for accessing the line of credit. If the issuer adds the feature or delivers the supplemental credit access device within 30 days after mailing or delivering the account opening disclosures, and the finance charge terms are the same as those previously disclosed, then Regulation Z does not require the issuer to make any additional disclosures. Except for checks that can be used to access the credit card account (generally referred to as “convenience checks”), if the credit feature that is added or the supplemental credit device has the same finance charge terms as previously disclosed but are issued later than 30 days after account opening disclosures are provided, the card issuer must disclose, before the consumer uses the feature or device for the first time, that it is used for obtaining credit under the terms previously disclosed. However, except for convenience checks, if a credit feature is added or a credit access device is mailed or delivered to the consumer, and the finance charge terms for the feature or device differ from disclosures previously given, the applicable finance charge disclosures for the added feature or device must be given before the consumer uses the feature or device for the first time.24 Additional disclosure requirements apply for convenience checks that are provided more than 30 days after account-opening disclosures under 12 CFR 1026.6(b) are mailed or delivered, or are provided within 30 days of the account-opening disclosures and the finance charge terms for the checks differ from the finance charge terms previously disclosed. See Appendix 1 to these procedures for detailed information on the required formatting and contents of this disclosure.
23 See 12 CFR 1026.55(c)(2).
24 See 12 CFR 1026.6(b)(3)(ii)(A) for the specific finance charge disclosures that are required.
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Examination Procedures Management CFPB February 2015 Procedures 42 Disclosures required upon renewal of a credit or charge card (12 CFR 1026.9(e)) A card issuer is required to mail or deliver written notice of the renewal to the cardholder if it imposes any annual or other periodic fee to renew a credit or charge card account of the type subject to 1026.60, including any fee based on account activity or inactivity or any card issuer that has changed or amended any term of a consumer's account required to be disclosed in the table on the account opening disclosures25 that has not previously been disclosed to the consumer. If the card issuer imposes any annual or other periodic fee for renewal, the notice must be provided at least 30 days or one billing cycle, whichever is less, before the mailing or the delivery of the periodic statement on which any renewal fee is initially charged to the account. If the card issuer has changed or amended any of the terms disclosed in the account opening disclosure table and has not previously disclosed the changes to the consumer, it must provide the notice at least 30 days prior to the scheduled renewal date of the consumer's credit or charge card. The notice must contain the following information: • The disclosures contained in 12 CFR 1026.60(b)(1) through (b)(7) that would apply if the account were renewed; and • The manner and timing by which the cardholder may terminate credit availability under the account to avoid paying the renewal fee, if applicable. These disclosures may be made on or with a periodic statement. If any of the disclosures are provided on the back of a periodic statement, the card issuer must include a reference to those disclosures on the front of the statement.
Limitations on increasing APRs, fees, and charges (12 CFR 1026.55) Unless an exception applies, a card issuer must not increase the following rates, fees, or charges in connection with a credit card account:
• An APR;
• Periodic fees for the issuance or availability of the credit plan (as described in 12 CFR 1026.6(b)(2)(ii));
• A fixed finance charge or minimum interest charge that exceeds $1(as described in 12 CFR 1026. 6(b)(2)(iii)); or • A charge for required insurance, debt cancellation, or debt suspension (as described in 12 CFR 1026.6(b)(2)(xii)).
25 See 12 CFR 1026.6(b)(1)-(2)
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Examination Procedures Management CFPB February 2015 Procedures 43 Regulation Z provides for some general exceptions to this prohibition: • Temporary or Promotional APRs, fees, or charges: A card issuer may increase one of these APRs, fees, or charges upon expiration of a specified period of six months or longer, provided that, prior to the commencement of that period, the card issuer provided a written disclosure that clearly and conspicuously discloses the length of time period that the lower APR, fee, or charge will be in effect, and the APR, fee, or charge that will apply after the expiration of the time period. Once the time period expires, the card issuer may not apply the increased APR, fee, or charge to a transaction that occurred prior to the disclosed time period, and may not apply an APR, fee, or charge to a transaction that occurred during the disclosed time period that is higher that the disclosed increased APR. If the required disclosure of the APR, fee, or charge increase is provided to the consumer through a Change-in-Terms Notice, the card issuer may not apply the increased APR, fee, or charge to transactions that occurred within 14 days after provision of the notice.26 • Variable APRs: A card issuer may increase an APR when the APR varies according to an index that is not under the card issuer’s control and is available to the general public, and the increase in the APR is due to an increase in the index. • Advance notification: A card issuer may increase an APR, fee, or charge described previously in accordance with certain subsequent notification provisions of Regulation Z, provided that it meets certain requirements for each type of notification: o Additional credit feature or supplemental credit devices: If the card issuer has added a credit feature to the existing account or has provided a supplemental credit device (such as a convenience check) which causes an APR, fee, or charge as described previously to increase, and has provided the consumer with advance notice of the increase in the APR, fee, or charge, the card issuer must not apply the increased APR, fee, or charge to transactions that occurred prior to provision of the notice.27 o Change-in-Terms Notice: The card issuer may increase the APR, fees, or charges after complying with the applicable notice requirements in 12 CFR 1026.9(b), (c), or (g), provided that:
If the notice is provided pursuant to 12 CFR 1026.9(b), the card issuer must not apply the increased APR, fee, or charge to ta transaction that occurred prior to provision of the notice; and
26 See 12 CFR 1026.9(c)(2) 27 See Appendix 1 of these procedures or 12 CFR 1026.9(b) for specific disclosure requirements.
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Examination Procedures Management CFPB February 2015 Procedures 44 If the notice is provided pursuant to 12 CFR 1026.9(c) or (g), the card issuer must not apply the increased APR, fee, or charge to transactions that occurred prior to or within 14 days after provision of the notice.28 This advance notice exception does not permit a card issuer to increase an APR, fee or charge during the first year after the account is opened, while the account is closed, or while the card issuer does not permit the consumer to use the account for new transactions. For purposes of this provision, an account is considered open no earlier than the date on which the account may first be used by the consumer to engage in transactions.
When a card issuer increases an APR, fee, or charge pursuant to the advance notification exception, it may not require repayment of a “protected balance” using a method that is less beneficial to the consumer than one of the following methods:
The method of repayment of the account before the effective date of the increase; An amortization period of not less than five years, beginning no earlier than the effective date of the increase; or A required minimum periodic payment that includes a percentage of the balance that is equal to no more than twice the percentage required before the effective date of the increase.
A “protected balance” for the purpose of this requirement means the amount owed for a category of transactions to which an increased APR, fee, or charge cannot be applied after the APR, fee, or charge for that category has been increased.29 • Delinquency: The card issuer may increase an APR, fee, or charge as described previously if the minimum payment has not been received within 60 days after the due date, provided that the card issuer complied with applicable notice requirements.30 If the card issuer receives six consecutive required minimum periodic payments on or before the payment due date beginning with the first payment due following the effective date of the increase, the card issuer must reduce the increased APR, fee, or charge with respect to transactions that occurred prior to or within 14 days of the 12 CFR 1026.9(c) or (g) notice to the rate or amount that applied prior to the increase.31
28 See Appendix 1 of these procedures or 12 CFR 1026.9(c)(2) for specific disclosure requirements. 29 See 12 CFR 1026.55(c).
30 See Appendix 1 of these procedures or 12 CFR 1026.9(g) for specific disclosure requirements. 31 See also 12 CFR 1026.59 for Regulation Z’s requirements for reevaluation of rate increases.
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Examination Procedures Management CFPB February 2015 Procedures 45 • Workout and Temporary Hardship Arrangements: The card issuer may increase an APR, fee, or charge described previously if the consumer successfully completes or fails to comply with the terms of a workout arrangement, provided that card issuer complied with applicable disclosure requirements and adheres to certain requirements upon the completion or failure of the arrangement.
• Servicemembers’ Civil Relief Act (SCRA): The issuer is permitted to increase the rate, fee, or charge once the SCRA ceases to apply, provided that the card issuer does not apply to any transactions that occurred prior to the decrease an APR, fee, or charge that exceeds the APR, fee, or charge that applied to those transactions prior to the decrease. These requirements continue to apply to a balance on a credit card account after the account is closed or acquired by another creditor; or the balance is transferred to another credit card account issued by the same creditor, its affiliate, or its subsidiary.32 Reevaluation of rate increases (12 CFR 1026.59) Requirement to reevaluate APR increases If a card issuer has increased an APR on a credit card account, it is required to review the account no less frequently than once every six months and, if appropriate, based on that review, reduce the APR. The requirement to reevaluate rate increases applies both to increases in APRs based on consumer-specific factors, such as changes in the consumer’s creditworthiness, and to increases in APRs imposed based on factors that are not specific to the consumer, such as changes in market conditions or the issuer’s cost of funds. This review must consider either the same factors on which the increase was originally based or the factors the card issuer currently considers in determining the APR applicable to similar new credit card accounts. If the consumer’s APR was increased because the consumer failed to make his minimum monthly payment within 60 days after the payment due date, the card issuer is required to automatically reduce the APR back to its prior amount with respect to transactions that occurred prior to or within 14 days after the 12 CFR 1026.9(c) or (g) notice if the consumer makes six consecutive minimum monthly payments on time, beginning with the first payment due date following the effective date of the increase. If, however, the consumer does not do so, the card issuer is required to conduct the review described previously no later than six months after the sixth payment due following the effective date of the rate increase. Timing requirements for APR reductions If, based on its review, a card issuer is required to reduce the rate applicable to an account, the issuer must reduce the rate within 45 days after completing the evaluation. The rate reduction is required to apply to any outstanding balances to which the increased rate has been applied, and
32 See 12 CFR 1026.55(d) and (e)
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Examination Procedures Management CFPB February 2015 Procedures 46 to any new transactions that occur after the effective date of the rate reduction that would otherwise have been subject to the increased rate. If the issuer does not reduce the rate to an amount equal to or lower than the rate applicable prior to the increase, the issuer will be required to conduct the reevaluation every six months until the rate is reduced to or below that amount.33 Exceptions The requirement to reevaluate rate increases does not apply to increases in an APR that was previously decreased pursuant to the requirements of the Servicemembers’ Civil Relief Act. The requirements also do not apply to accounts that a card issuer has charged off in accordance with loan loss provisions.
Requirements for over-the-limit transactions (12 CFR 1026.56) An “over-the-limit transaction” means any extension of credit by a card issuer to complete a transaction that causes a consumer’s credit card account balance to exceed the credit limit. Credit card issuers have the option as to whether to permit over-the-limit transactions. Regulation Z does not require that they permit them, nor does it prohibit them from doing so. However, if a card issuer permits over-the-limit transactions and charges a fee for such transactions, it must provide the consumer notice and reasonable opportunity to affirmatively consent (opt in) to the card issuer’s payment of the over-the-limit transaction prior to the assessment of any over-thelimit fee or charge on the consumer’s account.
The initial notice must be oral, written, or electronic, and segregated from all other information. It must include the following information:
• The dollar amount of any fees or charges assessed by the card issuer for an over-the-limit transaction;
• Any increased periodic rate (expressed as an APR) that may be imposed on the account as a result of an over-the-limit transaction; and • An explanation of the consumer’s right to affirmatively consent (opt in) to the card issuer’s payment of over-the-limit transactions, including the method(s) by which the consumer may consent.34 If the consumer affirmatively consents, the issuer is also required to provide written confirmation (or electronic confirmation if the consumer agrees to receive electronic communications) of the
33 If the rate applicable immediately prior to the increase was a variable rate, the reevaluation will be required unless the rate has been reduced to a variable rate determined by the same formula that was used to calculate the APR applicable immediately prior to the increase.
34 Safe Harbor: Appendix G to Regulation Z contains a “safe harbor” provision if the issuer uses the model forms in Appendix G to the regulation. The appendix contains two Model Forms for this type of notice, Model Forms G-25(A) and G-25(B). Card issuers who use either of these forms, or substantially similar notices, for the initial notice and opt-in will be deemed to be in compliance with the notice content requirements.
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Examination Procedures Management CFPB February 2015 Procedures 47 consumer’s consent. The issuer must also provide a consumer notice in writing of the right to revoke that consent following the assessment of an over-the-limit fee or charge. This notice of the right to revoke must be provided on the front page of any periodic statement that reflects the imposition of an over-the-limit fee. A consumer’s affirmative consent is effective until it is revoked by the consumer, or until the card issuer decides for any reason to cease paying overthe-limit transactions for the consumer. A consumer may affirmatively consent to the issuer’s payment of over-the-limit transactions at any time in the manner described by the initial notice. A consumer may affirmatively revoke consent at any time in the manner described by the notice of the right to revoke. A card issuer must comply with the consumer’s revocation request as soon as reasonably practicable after the card issuer receives it. Even if the consumer has affirmatively consented to the issuer’s payment of over-the-limit transactions, Regulation Z prohibits certain issuer practices in connection with the assessment of over-the-limit fees or charges. An issuer can only charge one over-the-limit fee or charge per billing cycle, and only if the credit limit was exceeded during the billing cycle. An issuer cannot impose an over-the-limit fee on the account for the same transaction in more than three billing cycles where the consumer has not reduced the account balance below the credit limit by the payment due date for either of the last two billing cycles. The prohibition on imposing an over-thelimit fee or charge in more than three billing cycles for the same over-the-limit transaction(s) does not apply if another over-the-limit transaction occurs during either of the last two billing cycles. Regulation Z also prohibits certain acts or practices in connection with the over-the-limit fees or other penalty charges. Specifically, issuers are prohibited from engaging in three practices: • Assessing an over-the-limit fee solely because the issuer failed to promptly replenish the consumer’s available credit following the crediting of the consumer’s payment; • Conditioning the amount of available credit on the consumer’s consent to the payment of over-the-limit transactions if the card issuer assesses a fee or charge for such service (e.g., opting in to an over-the-limit service to obtain a higher credit limit); and • Imposing any over-the-limit fee if the credit limit is exceeded solely because of the issuer’s assessment of certain interest charges or fees on the consumer’s account during that billing cycle.
Credit line increases (12 CFR 1026.51) Credit card issuers may not increase a consumer’s credit limit unless they consider the consumer’s ability to make the minimum monthly payment on the account with the increased credit limit. The ability to pay requirements for credit line increases are the same as the ability to pay requirements for opening a credit card account.35
35 See Module 2 of these procedures, or 12 CFR 1026.51.
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Examination Procedures Management CFPB February 2015 Procedures 48 If the consumer is under the age of 21, and the credit card account was opened based on the under-21 applicant’s independent ability to pay, the issuer cannot increase the credit limit on the account if the consumer is still under 21 unless the consumer has the independent ability to make the minimum monthly payment on the increased limit, or a co-applicant/cosigner/guarantor agrees in writing to assume liability for the debt. If the consumer is still under 21 and the account had a cosigner/guarantor/joint applicant at account opening, the cosigner/guarantor/joint applicant must agree in writing to assume liability on the increase (unless the cosigner/guarantor/joint applicant requested the credit line increase).
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Examination Procedures Management CFPB February 2015 Procedures 49 Examination Procedures Subsequent disclosure requirements (12 CFR 1026.9) 1. If, 30 days after mailing or delivering the account-opening disclosures under 12 CFR 1026.6(a)(1) or (b)(3)(ii)(A), the creditor adds a credit feature or furnishes a credit access device (other than as a renewal, resupply, or the original issuance of a credit card, or except with regard to checks that access a credit card account) on the same finance charge terms, determine that the creditor discloses, before the consumer uses the feature or device for the first time, that it is for use in obtaining credit under the terms previously disclosed. (12 CFR 1026.9(b)(1)) 2. Determine that, except with regard to checks that access a credit card account, whenever a credit feature is added or a credit access device is mailed or delivered to the consumer, and the finance charge terms for the feature or device differ from disclosures previously given, the disclosures required by 12 CFR 1026.6(a)(1) or (b)(3)(ii)(A) that are applicable to the added feature or device are given before the consumer uses the feature or device for the first time. (12 CFR 1026.9(b)(2)) 3. Checks that access a credit card account. If checks that can be used to access a credit card account are provided more than 30 days after account-opening disclosures under 12 CFR 1026.6(b) are mailed or delivered, or are provided within 30 days of the account-opening disclosures and the finance charge terms for the checks differ from the finance charge terms previously disclosed, determine that the creditor discloses on the front of the page containing the checks the following terms in the form of a table with the headings, content, and form substantially similar to Sample G–19 in Appendix G to Regulation Z. (12 CFR 1026.9(b)(3)): A. If a promotional rate applies to the checks, determine that the creditor discloses: i. The promotional rate and the time period during which the promotional rate will remain in effect (12 CFR 1026.9(b)(3)(i)(A)(1));
ii. The type of rate that will apply (such as whether the purchase or cash advance rate applies) after the promotional rate expires, and the annual percentage rate that will apply after the promotional rate expires. For a variable-rate account, a creditor must disclose an annual percentage rate based on the applicable index or formula in accordance with the accuracy requirements set forth in paragraph (b)(3)(ii) of this (12 CFR 1026.9(b)(3)(i)(A)(2)); and iii. The date, if any, by which the consumer must use the checks in order to qualify for the promotional rate. If the creditor will honor checks used after such date but will apply an annual percentage rate other than the promotional rate, the creditor must disclose this fact and the type of annual percentage rate that will apply if the consumer uses the checks after such date (12 CFR 1026.9(b)(3)(i)(A)(3)).
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Examination Procedures Management CFPB February 2015 Procedures 50 iv. If any APR required to be disclosed pursuant to 12 CFR 1026.9(b)(3)(i) is a variable rate, determine that the creditor also disclosed the fact that the rate may vary and how the rate is determined. Determine that the creditor identified the type of index or formula used in setting the rate. Determine that the creditor does not disclose the value of the index and the amount of the margin that are used to calculate the variable rate in the table and that any applicable limitations on rate increases are not included in the table (12 CFR 1026.9(b)(3)(iii)).
B. If no promotional rate applies to the checks, determine that the creditor discloses the type of rate that will apply to the checks and the applicable annual percentage rate. For a variable-rate account, a creditor must disclose an annual percentage rate based on the applicable index or formula in accordance with the accuracy requirements set forth in 12 CFR 1026.9(b)(3)(ii). (12 CFR 1026.9(b)(3)(i)(B)(1)) C. Determine that the creditor discloses:
i. Any transaction fees applicable to the checks disclosed under 12 CFR 1026.6(b)(2)(iv). (12 CFR 1026.9(b)(3)(i)(C)) ii. Whether or not a grace period is given within which any credit extended by use of the checks may be repaid without incurring a finance charge due to a periodic interest rate. When disclosing whether there is a grace period, the phrase “How to Avoid Paying Interest on Check Transactions” shall be used as the row heading when a grace period applies to credit extended by the use of the checks. When disclosing the fact that no grace period exists for credit extended by use of the checks, the phrase “Paying Interest” shall be used as the row heading. (12 CFR 1026.9(b)(3)(i)(D)) NOTE: The disclosures in 12 CFR 1026.9(b)(3)(i) must be accurate as of the time the disclosures are mailed or delivered. A variable APR is accurate if it was in effect within 60 days of when the disclosures are mailed or delivered. (12 CFR 1026.9(b)(3)(ii)) 4. Except as provided in 12 CFR 1026.9(c)(2)(i)(B), (c)(2)(iii) and (c)(2)(v), when a significant change in account terms as described in 12 CFR 1026.9(c)(2)(ii) is made, determine that the creditor provides a written notice of the change at least 45 days prior to the effective date of the change to each consumer who may be affected. (12 CFR 1026.9(c)(2)(i)(A)) 5. The 45-day timing requirement, however, does not apply if the consumer has agreed to a particular change as described in 12 CFR 1026.9(c)(2)(i)(B). For these instances, however, determine that the creditor provided a notice in accordance with the timing requirements of 12 CFR 1026.9(c)(2)(i)(B). (12 CFR 1026.9(c)(2)(i)(A)) 6. For open-end (not home-secured) plans, determine that increases in the rate applicable to a consumer’s account due to delinquency, default or as a penalty described in 12 CFR 1026.9(g) that are not due to a change in the contractual terms of the consumer’s account are
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Examination Procedures Management CFPB February 2015 Procedures 51 disclosed pursuant to 12 CFR 1026.9(g) instead of 12 CFR 1026.9(c)(2). (12 CFR 1026.9(c)(2)(i)(A)) 7. When a notice of change in terms is required, determine that it is mailed or delivered no later than the effective date of the change, if the consumer agrees to the particular change. Section 1026.9(c)(2)(i)(B) applies only when a consumer substitutes collateral or when the creditor can advance additional credit only if a change relatively unique to that consumer is made, such as the consumer’s providing additional security or paying an increased minimum payment amount. (12 CFR 1026.9(c)(2)(i)(B)) NOTE: The 45-day timing requirements does not apply in certain narrow circumstances, as described in 12 CFR 1026.9(c)(2)(i)(B). The following are not considered agreements between the consumer and the creditor for purposes of 12 CFR 1026.9(c)(2)(i)(B): A. The consumer’s general acceptance of the creditor’s contract reservation of the right to change terms;
B. The consumer’s use of the account (which might imply acceptance of its terms under state law);
C. The consumer’s acceptance of a unilateral term change that is not particular to that consumer, but rather is of general applicability to consumers with that type of account; and, D. The consumer’s request to reopen a closed account or to upgrade an existing account to another account offered by the creditor with different credit or other features. (12 CFR 1026.9(c)(2)(i)(B)) 8. The 45-day advance notice requirement applies to changes to the following terms (12 CFR 1026.9(c)(2)(ii)):
A. APR increase, including each periodic rate that may be used to compute the finance charge on outstanding balances for purchases, a cash advance, or a balance transfer (such rates may include any discounted initial rate, premium initial rate, or penalty rate that may be applied to the account);
i. Variable-rate information;
ii. Discounted or premium initial rates;
iii. Penalty rates;
B. Fees for issuance or availability, including any fee based upon account activity or inactivity;
C. Fixed finance charge or minimum interest charge, if it exceeds $1.00;
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Examination Procedures Management CFPB February 2015 Procedures 52 D. Transaction charge for purchases;
E. Grace period;
F. Balance computation method;
G. Cash advance fee;
H. Late payment fee;
I. Over-the-limit fee;
J. Balance transfer fee;
K. Returned payment fee;
L. Required insurance, debt cancellation, or debt suspension coverage; and M. Increase in required minimum periodic payment, or the acquisition of a security interest. 9. Except as provided in 12 CFR 1026.9(c)(2)(vi), if a creditor increases any component of a charge, or introduces a new charge, required to be disclosed under 12 CFR 1026.6(b)(3) that is not a significant change in account terms as described in paragraph (c)(2)(ii), determine that the creditor either (12 CFR 1026.9(c)(2)(iii)):
A. Complies with the requirements of 12 CFR 1026.9(c)(2)(i), or B. Provides notice of the amount of the charge before the consumer agrees to or becomes obligated to pay the charge, at a time and in a manner that a consumer would be likely to notice the disclosure of the charge, either in writing or orally. 10. Ensure that the written change-in-terms notice contains the following disclosures (12 CFR 1026.9(c)(2)(iv)(A)):
A. A summary of the changes made to terms required by 12 CFR 1026.6(b)(1) and (b)(2) or 12 CFR 1026.6(b)(4), a description of any increase in the required minimum payment, and a description of any security interests being acquired by the creditor. B. A statement that changes are being made to the account. C. For accounts other than credit card accounts under an open-end (not home-secured) consumer credit plan subject to 12 CFR 1026.9(c)(2)(iv)(B), a statement indicating that the consumer has the right to opt out of the changes, if applicable, and a reference to the opt-out right provided in the notice, if applicable.
D. The date the changes will become effective.
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Examination Procedures Management CFPB February 2015 Procedures 53 E. If applicable, a statement that the consumer may find additional information about the summarized changes, and other changes, in the notice.
F. In the case of a rate change, other than a penalty rate, a statement that if a penalty rate currently applies to the consumer’s account, the new rate described in the notice will not apply to the consumer’s account until the consumer’s account balances are no longer subject to the penalty rate.
G. If the change in terms being disclosed is an increase in the APR, the balances to which the increased rate will apply. If applicable, creditors should disclose a statement identifying the balances to which the current rate will apply as of the effective date of the change. H. If the change in terms being disclosed is an increase in an annual percentage rate for a credit card account under an open-end (not home-secured) consumer credit plan, a statement of no more than four principal reasons for the rate increase, listed in their order of importance.
NOTE: The disclosed reasons must accurately describe the principal factors actually considered by the card issuer in increasing the rate. (Comment 12 CFR 1026.9(c)(2)(iv)-11) 11. In addition to the disclosures in 12 CFR 1026.9(c)(2)(iv)(A), if a card issuer makes a significant change in account terms on a credit card account, determine that the creditor provides the following information on the notice provided pursuant to 12 CFR 1026.9(c)(2)(i) (12 CFR 1026.9(c)(2)(iv)(B)):
NOTE: This information is not required to be provided in the case of an increase in the required minimum periodic payment, an increase in a fee as a result of a reevaluation of a determination made under 12 CFR 1026.52(b)(1)(i) or an adjustment to the safe harbors in 12 CFR 1026.52(b)(1)(ii) to reflect changes in the Consumer Price Index, a change in an annual percentage rate applicable to a consumer’s account, an increase in a fee previously reduced consistent with 50 USC app. 527 (Servicemembers Civil Relief Act) or similar federal or state statute or regulation if the amount of the increased fee does not exceed the amount of that fee prior to the reduction, or when the change results from the creditor not receiving the consumer’s required minimum periodic payment within 60 days after the due date for that payment.
A. A statement that the consumer has the right to reject the change or changes prior to the effective date of the changes, unless the consumer fails to make a required minimum periodic payment within 60 days after the due date for that payment; B. Instructions for rejecting the change or changes, and a toll-free telephone number that the consumer may use to notify the creditor of the rejection; and
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Examination Procedures Management CFPB February 2015 Procedures 54 C. If applicable, a statement that if the consumer rejects the change or changes, the consumer’s ability to use the account for further advances will be terminated or suspended.
12. Changes resulting from failure to make minimum periodic payment within 60 days from due date for credit card accounts under an open-end (not home-secured) consumer credit plan. (12 CFR 1026.9(c)(2)(iv)(C)):
A. If the significant change required to be disclosed pursuant to 12 CFR 1026.9(c)(2)(i) is an increase in an annual percentage rate or a fee or charge required to be disclosed under 12 CFR 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) based on the consumer’s failure to make a minimum periodic payment within 60 days from the due date for that payment, determine that the notice provided pursuant to 12 CFR 1026.9(c)(2)(i) states that the increase will cease to apply to transactions that occurred prior to or within 14 days of provision of the notice, if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase.
B. If the significant change required to be disclosed pursuant to 12 CFR 1026.9(c)(2)(i) is an increase in a fee or charge required to be disclosed under 12 CFR 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) based on the consumer’s failure to make a minimum periodic payment within 60 days from the due date for that payment, determine that the notice provided pursuant to 12 CFR 1026.9(c)(2)(i) also states the reason for the increase. 13. Determine that the summary of changes described in 12 CFR 1026.9(c)(2)(iv)(A)(1) is in a tabular format (except for a summary of any increase in the required minimum periodic payment, a summary of a term required to be disclosed under 12 CFR 1026.6(b)(4) that is not required to be disclosed under 12 CFR 1026.6(b)(1) and (b)(2), or a description of any security interest being acquired by the creditor), with headings and format substantially similar to any of the account-opening tables found in G–17 in Appendix G to Regulation Z. Determine that the table discloses the changed term and information relevant to the change, if that relevant information is required by 12 CFR 1026.6(b)(1) and (b)(2). Determine that the new terms are described in the same level of detail as required when disclosing the terms under 12 CFR 1026.6(b)(2). (12 CFR 1026.9(c)(2)(iv)(D)(1)) 14. If a notice required by 12 CFR 1026.9(c)(2)(i) (change in terms) is included on or with a periodic statement, determine that the information described in 12 CFR 1026.6(c)(2)(iv)(A)(1) is disclosed on the front of any page of the statement. Determine that the summary of changes described in 12 CFR 1026.9(c)(2)(iv)(A)(1) immediately follows the information described in 12 CFR 1026.9(c)(2)(iv)(A)(2) through 12 CFR 1026.9(c)(2)(iv)(A)(7) and, if applicable, 12 CFR 1026.9(c)(2)(iv)(A)(8), 12 CFR 1026.9(c)(2)(iv)(B), and 12 CFR 1026.9(c)(2)(iv)(C), and is substantially similar to the format shown in Sample G-20 or G-21 in Appendix G to Regulation Z. (12 CFR 1026.9(c)(2)(iv)(D)(2))
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Examination Procedures Management CFPB February 2015 Procedures 55 15. If a notice required by 12 CFR 1026.9(c)(2)(i) is not included on or with a periodic statement, determine that the information described in 12 CFR 1026.9(c)(2)(iv)(A)(1) is disclosed on the front of the first page of the notice or segregated on a separate page from other information given with the notice. (12 CFR 1026.9(c)(2)(iv)(D)(3)) NOTE: The summary of changes required to be in a table pursuant to 12 CFR 1026.9(c)(2)(iv)(A)(1) may be on more than one page, and may use both the front and reverse sides, so long as the table begins on the front of the first page of the notice and there is a reference on the first page indicating that the table continues on the following page. 16. Determine that the summary of changes described in 12 CFR 1026.9(c)(2)(iv)(A)(1) immediately follows the information described in 12 CFR 1026.9(c)(2)(iv)(A)(2) through 12 CFR 1026.9(c)(2)(iv)(A)(7) and, if applicable, 12 CFR 1026.9(c)(2)(iv)(A)(8), (c)(2)(iv)(B), and (c)(2)(iv)(C), and is substantially similar to the format shown in Sample G-20 or G-21 in Appendix G to Regulation Z. (12 CFR 1026.9(c)(2)(iv)(D)(3)) 17. For open-end plans (other than home equity plans subject to the requirements of 12 CFR 1026.40), note that a creditor is not required to provide notice under this if (12 CFR 1026.9(c)(2)(v)):
A. The change involves:
i. Charges for documentary evidence;
ii. A reduction of any component of a finance or other charge; iii. A suspension of future credit privileges (except as provided in 12 CFR 1026.9(c)(2)(vi)) or termination of an account or plan; iv. When the change results from an agreement involving a court proceeding; v. When the change is an extension of the grace period; or vi. The change is applicable only to checks that access a credit card account and the changed terms are disclosed on or with the checks in accordance with 12 CFR 1026.9(b)(3) (12 CFR 1026.9(c)(2)(v)(A));
B. The change is an increase in an APR upon the expiration of a specified period of time, provided that (12 CFR 1026.9(c)(2)(v)(B)):
i. Prior to commencement of that period, the creditor disclosed in writing to the consumer, in a clear and conspicuous manner, the length of the period and the APR or fee that would apply after expiration of the period;
ii. The disclosure of the length of the period and the APR or fee that would apply after expiration of the period are set forth in close proximity and in equal prominence to
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Examination Procedures Management CFPB February 2015 Procedures 56 the first listing of the disclosure of the rate or fee that applies during the specified period of time; and iii. The APR or fee that applies after that period does not exceed the rate disclosed pursuant to 12 CFR 1026.9(c)(2)(v)(B)(1) or, if the rate disclosed pursuant to 12 CFR 1026.9(c)(2)(v)(B)(1) was a variable rate, the rate following any such increase is a variable rate determined by the same formula (index and margin) that was used to calculate the variable rate disclosed pursuant to 12 CFR 1026.9(c)(2)(v)(B)(1); C. The change is an increase in a variable APR in accordance with a credit card or other account agreement that provides for changes in the rate according to operation of an index that is not under the control of the creditor and is available to the general public (12 CFR 1026.9(c)(2)(v)(C)); or D. The change is an increase in an APR, a fee or charge required to be disclosed under 12 CFR 1026.6(b)(2)(ii), (b)(2)(iii), (b)(2)(viii), (b)(2)(ix) or (b)(2)(xii), or the required minimum periodic payment due to the completion of a workout or temporary hardship arrangement by the consumer or the consumer’s failure to comply with the terms of such an arrangement, provided that (12 CFR 1026.9(c)(2)(v)(D)): i. The APR or fee or charge applicable to a category of transactions or the required minimum periodic payment following any such increase does not exceed the rate or fee or charge or required minimum periodic payment that applied to that category of transactions prior to commencement of the arrangement or, if the rate that applied to a category of transactions prior to the commencement of the workout or temporary hardship arrangement was a variable rate, the rate following any such increase is a variable rate determined by the same formula (index and margin) that applied to the category of transactions prior to commencement of the workout or temporary hardship arrangement; and ii. The creditor has provided the consumer, prior to the commencement of such arrangement, with a clear and conspicuous disclosure of the terms of the arrangement (including any increases due to such completion or failure). This disclosure must generally be provided in writing. However, a creditor may provide the disclosure of the terms of the arrangement orally by telephone, provided that the creditor mails or delivers a written disclosure of the terms of the arrangement to the consumer as soon as reasonably practicable after the oral disclosure is provided. 18. If a creditor decreases the credit limit on the account, determine that advance notice of the decrease is provided before an over-the-limit fee or a penalty rate can be imposed solely as a result of the consumer exceeding the newly decreased credit limit. Determine that notice is provided in writing or orally at least 45 days prior to imposing the over-the-limit fee or penalty rate and that it states that the credit limit on the account has been or will be decreased. (12 CFR 1026.9(c)(2)(vi))
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Examination Procedures Management CFPB February 2015 Procedures 57 19. Determine that the disclosures contained in 12 CFR 1026.60(b)(1) through (b)(7) are provided if the account is renewed and (1) the card issuer imposes an annual or other periodic fee for the renewal or (2) the card issuer has changed or amended any term of the account required to be disclosed under 12 CFR 1026.6(b)(1) and (b)(2) that has not previously been disclosed to the consumer. Additionally, the disclosure provided upon renewal must disclose how and when the cardholder may terminate the credit to avoid paying the renewal fee, if any. (12 CFR 1026.9(e)) 20. Determine that the creditor provides a written notice to each consumer who may be affected when (12 CFR 1026.9(g)(1)):
A. A rate is increased due to the consumer’s delinquency or default; or B. A rate is increased as a penalty for one or more events specified in the account agreement, such as making a late payment or obtaining an extension of credit that exceeds the credit limit.
21. Whenever any notice is required to be given pursuant to paragraph 12 CFR 1026.9(g)(1), determine that the creditor provided written notice of the increase in rates at least 45 days prior to the effective date of the increase. The notice must be provided after the occurrence of the events described in 12 CFR 1026.9(g)(1)(i) and (g)(1)(ii) that trigger the imposition of the rate increase. (12 CFR 1026.9(g)(2)) 22. If a creditor is increasing the rate due to delinquency or default or as a penalty, determine that the creditor provided the following information on the notice sent pursuant to 12 CFR 1026.9(g)(1) (12 CFR 1026.9(g)(3)(i)(A)):
A. A statement that the delinquency or default rate or penalty rate, as applicable, has been triggered;
B. The date on which the delinquency or default rate or penalty rate will apply; C. The circumstances under which the delinquency or default rate or penalty rate, as applicable, will cease to apply to the consumer’s account, or that the delinquency or default rate or penalty rate will remain in effect for a potentially indefinite time period; D. A statement indicating to which balances the delinquency or default rate or penalty rate will be applied;
E. If applicable, a description of any balances to which the current rate will continue to apply as of the effective date of the rate increase, unless a consumer fails to make a minimum periodic payment within 60 days from the due date for that payment; and F. For a credit card account under an open-end (not home-secured) consumer credit plan, a statement of no more than four principal reasons for the rate increase, listed in their order of importance.
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Examination Procedures Management CFPB February 2015 Procedures 58 NOTE: The disclosed reasons must accurately describe the principal factors actually considered by the card issuer in increasing the rate. (Commentary 12 CFR 1026.9(g) - 7) 23. If the rate increase required to be disclosed pursuant to 12 CFR 1026.9(g)(1) is an increase pursuant to 12 CFR 1026.55(b)(4) based on the consumer’s failure to make a minimum periodic payment within 60 days from the due date for that payment, determine that the notice provided pursuant to 12 CFR 1026.9(g)(1) also states that the increase will cease to apply to transactions that occurred prior to or within 14 days of provision of the notice, if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase. (12 CFR 1026.9(g)(3)(i)(B)) 24. If a notice required by 12 CFR 1026.9(g)(1) (Increase in rates due to delinquency or default or as a penalty) is included on or with a periodic statement, determine that the disclosure described in paragraph (g)(3)(i) is in the form of a table and provided on the front of any page of the periodic statement, above the notice described in paragraph 12 CFR 1026.9(c)(2)(iv) if that notice is provided on the same statement. (12 CFR 1026.9(g)(3)(ii)(A)) 25. If a notice required by 12 CFR 1026.9(g)(1) (increase in rates) is not included on or with a periodic statement, determine that the information described in 12 CFR 1026.9(g)(3)(i) is disclosed on the front of the first page of the notice. Ensure that only information related to the increase in the rate to a penalty rate is included with the notice. NOTE: This notice may be combined with a notice described in 12 CFR 1026.9(c)(2)(iv) or (g)(4) (A statement indicating to which balances the delinquency or default rate or penalty rate will be applied). (12 CFR 1026.9(g)(3)(ii)(B)) 26. Exception for Decreases in the Credit Limit – If a creditor does not provide the 45-day notice under 12 CFR 1026.9(g)(1) prior to increasing the rate for obtaining an extension of credit that exceeds the credit limit, determine that the creditor provides at least 45 days in advance of imposing the penalty rate a notice, in writing, that includes (12 CFR 1026.9(g)(4)): A. A statement that the credit limit on the account has or will be decreased. B. The date on which the penalty rate will apply, if the outstanding balance exceeds the credit limit as of that date;
C. A statement that the penalty rate will not be imposed on that date, if the outstanding balance does not exceed the credit limit as of that date; D. The circumstances under which the penalty rate, if applied, will cease to apply to the account, or that the penalty rate, if applied, will remain in effect for a potentially indefinite period of time;
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Examination Procedures Management CFPB February 2015 Procedures 59 E. A statement indicating to which balances the penalty rate may be applied; and F. If applicable, a description of any balances to which the current rate will continue to apply as of the effective date of the rate increase, unless the consumer fails to make a minimum periodic payment within 60 days from the due date for that payment. G. In addition to this notice, determine that the creditor does not increase the applicable rate to the penalty rate if the outstanding balance does not exceed the credit limit on the date set forth in the notice. (12 CFR 1026.9(g)(4)(ii)) 27. If a notice provided pursuant to 12 CFR 1026.9(g)(4)(i) is included on or with a periodic statement, determine that the information described in 12 CFR 1026.9(g)(4)(i) is in the form of a table and provided on the front of any page of the periodic statement (12 CFR 1026.9(g)(4)(iii)(A)); or, 28. If a notice required by 12 CFR 1026.9(g)(4)(i) is not included on or with a periodic statement, determine that the information described in 12 CFR 1026.9(g)(4)(i) is disclosed on the front of the first page of the notice. Determine that only information related to the reduction in credit limit is included with the notice, except that this notice may be combined with a notice described in 12 CFR 1026.9(c)(2)(iv) or (g)(1). (12 CFR 1026.9(g)(4)(iii)(B)) 29. When the consumer is given the right to reject a significant change to an account term prior to the effective date of the change, determine whether the consumer was given the option to reject the change by notifying the creditor of the rejection before the effective date of the change. (12 CFR 1026.9(h)(1)) 30. If the creditor was notified of the rejection of a significant change to an account term, determine that the creditor did not:
A. Apply the charge to the account;
B. Impose a fee or charge or treat the account as in default solely as a result of the rejection; or C. Require repayment of the balance on the account using a method that is LESS beneficial to the consumer than one of the following methods:
i. The method of repayment for the account on the date on which the creditor was notified of the rejection;
ii. An amortization period of not less than five years, beginning no earlier than the date on which the creditor was notified of the rejection; or iii. A required minimum periodic payment that includes a percentage of the balance that is equal to no more than twice the percentage required on the date on which the creditor was notified of the rejection. (12 CFR 1026.9(h)(2))
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Examination Procedures Management CFPB February 2015 Procedures 60 NOTE: These requirements do not apply if the creditor has not received the consumer’s required minimum periodic payment within 60 days after the due date for that payment and the creditor has provided timely change in terms disclosures. (12 CFR 1026.9(h)(3)) [Click&type] Limitations on increasing APRs, fees, and charges (12 CFR 1026.55) 1. With respect to a credit card account under an open-end (not home-secured) consumer credit plan, determine that the card issuer did not increase an APR or fee or charge required to be disclosed under 12 CFR 1026.6(b)(2)(ii) (fee for issuance or availability (e.g., an annual fee)), (b)(2)(iii) (fixed finance charge or minimum interest charge), or (b)(2)(xii) (fee for required insurance, debt cancellation, or debt suspension coverage), unless as permitted by one of the six exceptions:
A. Temporary rate, fee, or charge exception;
B. Variable rate exception;
C. Advance notice exception;
D. Delinquency exception;
E. Workout and temporary hardship arrangement; and F. Servicemembers Civil Relief Act exception (12 CFR 1026.55(a)-(b)). 2. To assess whether the temporary rate, fee, or charge exception applies (12 CFR 1026.55(b)(1)), determine whether:
A. The card issuer increased the APR, fee, or charge upon the expiration of a specified period of six months or longer and B. Prior to the commencement of that period, the card issuer disclosed in writing to the consumer, in a clear and conspicuous manner, the length of the period and the APR, fee, or charge that would apply after expiration of the period. 3. If the temporary rate exception applies, determine that the card issuer: A. Did not apply an APR, fee, or charge to transactions that occurred prior to the period that exceeds the APR, fee, or charge that applied to those transactions prior to the period; B. Provided the required notice, but did not apply an APR, fee, or charge (to transactions that occurred within 14 days after provision of the notice) that exceeds the APR, fee, or charge that applied to that category of transactions prior to provision of the notice; and
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Examination Procedures Management CFPB February 2015 Procedures 61 C. Did not apply an annual percentage rate to transactions that occurred during the period that exceeds the increased APR, fee, or charge.
4. If the variable rate exception applies (12 CFR 1026.55(b)(2)), determine that the card issuer did not increase an APR unless:
A. The increase in the APR is due to an increase in the index; and B. The annual percentage rate varies according to an index that is not under the card issuer’s control and is available to the general public.
NOTE: For purposes of qualifying under this exception, an index is considered under the card issuer’s control if the card issuer applies a minimum rate or floor below which the rate cannot decrease. However, because there is no disadvantage to consumers, issuers are not prevented from setting a maximum rate or ceiling. (Comment 12 CFR 1026.55(b)(2) – 2(ii)) 5. If the advance notice exception applies (12 CFR 1026.55(b)(3)), determine that the card issuer: A. Did not apply that increased APR, fee, or charge to transactions that occurred prior to provision of the notice;
B. Did not apply the increased APR, fee, or charge to transactions that occurred prior to or within 14 days after provision of the notice; and C. Did not increase the APR, fee, or charge during the first year after the account is opened. 6. If the delinquency exception applies (12 CFR 1026.55(b)(4)), determine that the card issuer: A. Disclosed in a clear and conspicuous manner in the required notice a statement of the reason for the increase, and B. Will cease the increase if the card issuer receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase.
7. If the delinquency exception applies and the card issuer received six consecutive required minimum periodic payments on or before the payment due date beginning with the first payment due following the effective date of the increase, determine that the card issuer reduces any APR, fee, or charge (increased pursuant to the delinquency exception) to the original APR, fee, or charge that applied prior to the increase with respect to transactions that occurred prior to or within 14 days after provision of the required notice. 8. If the workout and temporary hardship arrangement exception applies (12 CFR 1026.55(b)(5)), determine that:
A. Prior to commencement of the arrangement (except as provided in 12 CFR 1026.9(c)(2)(v)(D)) the card issuer provided the consumer with a clear and conspicuous
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Examination Procedures Management CFPB February 2015 Procedures 62 written disclosure of the terms of the arrangement (including any increases due to the completion or failure of the arrangement); and B. Upon the completion or failure of the arrangement, the card issuer did not apply to any transactions that occurred prior to commencement of the arrangement an APR, fee, or charge that exceeds the APR, fee, or charge that applied to those transactions prior to commencement of the arrangement.
9. If the Servicemembers Civil Relief Act exception applies (12 CFR 1026.55(b)(6)), determine that the card issuer increased the APR, fee, or charge only after 50 U.S.C. app. 527 or a similar federal or state statute or regulation no longer applied. Further, determine that the issuer did not apply to any transactions that occurred prior to the decrease an APR, fee, or charge that exceeded the APR, fee, or charge that applied to those transactions prior to the decrease. 10. For protected balances (12 CFR 1026.55(c)), determine that the card issuer did not require repayment using a method that is less beneficial to the consumer than one of the following methods:
A. The method of repayment for the account before the effective date of the increase; B. An amortization period of not less than five years, beginning no earlier than the effective date of the increase; or C. A required minimum periodic payment that includes a percentage of the balance that is equal to no more than twice the percentage required before the effective date of the increase.
11. If a card issuer promotes the waiver or rebate of finance charges due to a periodic interest rate or fees or charges (12 CFR 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii)) and applies the waiver or rebate to a credit card account under an open-end (not home-secured) consumer credit plan, any cessation of the waiver or rebate on that account constitutes an increase in an annual percentage rate, fee, or charge for purposes of 12 CFR 1026.55. [Click&type] Reevaluation of rate increases (12 CFR 1026.59) 1. If a card issuer increases an APR that applies to a credit card account under an open-end (not home-secured) consumer credit plan, based on the credit risk of the consumer, market conditions, or other factors, or increased such a rate on or after January 1, 2009, and 45 days’ advance notice of the rate increase is required pursuant to 12 CFR 1026.9(c)(2) or (g), determine that the card issuer (12 CFR 1026.59(a)(1)):
A. Evaluates the factors described in 12 CFR 1026.59(d); and
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Examination Procedures Management CFPB February 2015 Procedures 63 B. Based on its review of such factors, reduces the APR applicable to the consumer’s account, as appropriate.
2. If a card issuer is required to reduce the rate applicable to an account pursuant to 12 CFR 1026.59(a)(1), determine that the card issuer reduces the rate not later than 45 days after completion of the evaluation described in 12 CFR 1026.59(a)(1). (12 CFR 1026.59(a)(2)(i)) NOTE: Any reduction in an APR required pursuant to 12 CFR 1026.59(a)(1) shall apply to (12 CFR 1026.59(a)(2)(ii)):
A. Any outstanding balances to which the increased rate described in 12 CFR 1026.59(a)(1) has been applied; and B. New transactions that occur after the effective date of the rate reduction that would otherwise have been subject to the increased rate.
3. Determine that the card issuer has reasonable written policies and procedures in place to conduct the review described in 12 CFR 1026.59(a). (12 CFR 1026.59(b)) 4. Determine that a card issuer that is subject to 12 CFR 1026.59(a) conducts the review described in 12 CFR 1026.59(a)(1) not less frequently than once every six months after the rate increase. (12 CFR 1026.59(c)) 5. Except as provided in 12 CFR 1026.59(d)(2), determine that the card issuer reviews either (12 CFR 1026.59(d)(1)):
A. The factors on which the increase in an APR was originally based; or B. The factors that the card issuer currently considers when determining the APRs applicable to similar new credit card accounts under an open-end (not home-secured) consumer credit plan.
6. For rate increases imposed between January 1, 2009 and February 21, 2010, determine that an issuer considered the factors described in 12 CFR 1026.59(d)(1)(ii) when conducting the first two reviews required under 12 CFR 1026.59(a), unless the rate increase subject to 12 CFR 1026.59(a) was based solely upon factors specific to the consumer, such as a decline in the consumer’s credit risk, the consumer’s delinquency or default, or a violation of the terms of the account. (12 CFR 1026.59(d)(2)) 7. If an issuer increases a rate applicable to a consumer’s account pursuant to 12 CFR 1026.55(b)(4) based on the card issuer not receiving the consumer’s required minimum periodic payment within 60 days after the due date, note that the issuer is not required to perform the review described in 12 CFR 1026.59(a) prior to the sixth payment due date after the effective date of the increase. However, if the APR applicable to the consumer’s account is not reduced pursuant to 12 CFR 1026.55(b)(4)(ii), determine that the card issuer performs the review described in 12 CFR 1026.59(a). Determine that the first such review occurs no
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Examination Procedures Management CFPB February 2015 Procedures 64 later than six months after the sixth payment due following the effective date of the rate increase. (12 CFR 1026.59(e)) 8. The obligation to review factors described in 12 CFR 1026.59(a) and (d) ceases to apply (12 CFR 1026.59(f)):
A. If the issuer reduces the APR applicable to a credit card account under an open-end (not home-secured) consumer credit plan to the rate applicable immediately prior to the increase, or, if the rate applicable immediately prior to the increase was a variable rate, to a variable rate determined by the same formula (index and margin) that was used to calculate the rate applicable immediately prior to the increase; or B. If the issuer reduces the APR to a rate that is lower than the rate described in 12 CFR 1026.59(f)(1).
9. Except as provided in 12 CFR 1026.59(g)(2), 12 CFR 1026.59 applies to credit card accounts that have been acquired by the card issuer from another card issuer. (12 CFR 1026.59(g)) A. Determine that a card issuer that complies with 12 CFR 1026.59 by reviewing the factors described in 12 CFR 1026.59(d)(1)(i) reviews the factors considered by the card issuer from which it acquired the accounts in connection with the rate increase. (12 CFR 1026.59(g)(1)) B. If, not later than six months after the acquisition of such accounts, a card issuer reviews all of the credit card accounts it acquires in accordance with the factors that it currently considers in determining the rates applicable to its similar new credit card accounts (12 CFR 1026.59(g)(2)):
i. Except as provided in 12 CFR 1026.59(g)(2)(iii), determine that the card issuer conducts reviews described in 12 CFR 1026.59(a) for rate increases that are imposed as a result of its review under this paragraph.
ii. Except as provided in 12 CFR 1026.59(g)(2)(iii), note that the card issuer is not required to conduct reviews in accordance with 12 CFR 1026.59(a) for any rate increases made prior to the card issuer’s acquisition of such accounts. iii. Note that if as a result of the card issuer’s review, an account is subject to, or continues to be subject to, an increased rate as a penalty, or due to the consumer’s delinquency or default, the requirements of 12 CFR 1026.59(a) apply. Servicemembers Civil Relief Act exception: Note that the requirements of 12 CFR 1026.59 do not apply to increases in an APR that was previously decreased pursuant to the Servicemembers Civil Relief Act (50 U.S.C. app. 527), provided that such a rate increase is made in accordance with 12 CFR 1026.55(b)(6). (12 CFR 1026.59(h)(1))
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Examination Procedures Management CFPB February 2015 Procedures 65 Charged off accounts exception: Note that the requirements of 12 CFR 1026.59 do not apply to accounts that the card issuer has charged off in accordance with loan-loss provisions. (12 CFR 1026.59(h)(2)) NOTE: Appendix G to Regulation Z is amended by revising Forms G-10(B), G-10(C), G- 10(E), G-17(B), G-17(C), G-18(B), G-18(D), G-18(F), G-18(G), G-20, G-21, G-22, G- 25(A), and G-25(B).
[Click&type]
Over-the-limit transactions (12 CFR 1026.56) 1. If the credit card issuer charges a fee for over-the-limit transactions, determine that the oral, written or electronic “opt-in” notice includes all of the following applicable items (and not any information not specified in or otherwise permitted) (12 CFR 1026.56(e)(1)): A. Fees – The dollar amount of any fees or charges assessed by the card issuer on a consumer’s account for an over-the-limit transaction;
B. APR(s) – Any increased periodic rate(s) (expressed as an APR(s)) that may be imposed on the account as a result of an over-the-limit transaction; and C. Disclosure of opt-in right – An explanation of the consumer’s right to affirmatively consent to the card issuer’s payment of over-the-limit transactions, including the method(s) by which the consumer may consent.
2. Determine that the written notice informing the consumer of the right to revoke consent following the assessment of an over-the-limit fee or charge describes that right, including the method(s) by which the consumer may revoke consent. (12 CFR 1026.56(e)(2)) 3. Joint Relationships. Determine that, if two or more consumers are jointly liable on a credit card account, the card issuer treats the affirmative consent of any of the joint consumers as affirmative consent for that account. Similarly, determine that the card issuer treats a revocation of consent by any of the joint consumers as revocation of consent for that account. (12 CFR 1026.56(f)) 4. Notwithstanding a consumer’s affirmative consent to a card issuer’s payment of over-thelimit transactions, determine that the card issuer does not (12 CFR 1026.56(j)): A. Impose more than one over-the-limit fee or charge on a consumer’s credit card account per billing cycle, and, in any event, only if the credit limit was exceeded during the billing cycle. In addition, the card issuer may not impose an over-the-limit fee or charge on the consumer’s credit card account for more than three billing cycles for the same over-the-limit transaction where the consumer has not reduced the account balance below the credit limit by the payment due date for either of the last two billing cycles.
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Examination Procedures Management CFPB February 2015 Procedures 66 NOTE: There is an exception to the latter prohibition if another over-the-limit transaction occurred in the last two billing cycles B. Impose an over-the-limit fee or charge solely because of the card issuer’s failure to promptly replenish the consumer’s available credit following the crediting of the consumer’s payment following the crediting of the consumer’s payment under 12 CFR 1026.10.
C. Condition the amount of a consumer’s credit limit on the consumer affirmatively consenting to the card issuer’s payment of over-the-limit transactions if the card issuer assesses a fee or charge for such service.
D. Impose an over-the-limit fee or charge for a billing cycle if a consumer exceeds a credit limit solely because of fees or interest charged by the card issuer (defined as charges imposed as part of the plan under 12 CFR 1026.6(b)(3)) to the consumer’s account during that billing cycle.
[Click&type] Credit line increases (12 CFR 1026.51) 1. Determine that the card issuer does increase the credit limit for a consumer unless the card issuer considers the ability of the consumer to make the required minimum periodic payments under the terms of the account based on the consumer’s income or assets and current obligations. (12 CFR 1026.51(a)(1)(i)) 2. Verify that the card issuer establishes and maintains reasonable written policies and procedures to consider a consumer’s income or assets and current obligations. Reasonable policies and procedures to consider a consumer’s ability to make the required payments include a consideration of at least one of the following: (12 CFR 1026.51(a)(1)(ii)) A. The ratio of debt obligations to income;
B. The ratio of debt obligations to assets; or C. The income the consumer will have after paying debt obligations. NOTE: Reasonable written policies and procedures may include treating any income and assets to which the consumer has a reasonable expectation of access as the consumer’s income or assets, or may be limited to consideration to the consumer’s independent income and assets.
3. Determine that the card issuer uses a reasonable method for estimating the minimum periodic payments the consumer would be required to pay under the terms of the account. (12 CFR 1026.51(a)(2)(i))
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Examination Procedures Management CFPB February 2015 Procedures 67 4. A card issuer’s estimate of the minimum periodic payment is compliant (i.e., receives the benefit of a safe harbor) if it uses the following method (12 CFR 1026.51(a)(2)(ii)): A. The card issuer assumes utilization, from the first day of the billing cycle, of the full credit line that the issuer is considering offering to the consumer; and B. The card issuer uses a minimum payment formula employed by the issuer for the product the issuer is considering offering to the consumer or, in the case of an existing account, the minimum payment formula that currently applies to that account, provided that: i. If the applicable minimum payment formula includes interest charges, the card issuer estimates those charges using an interest rate that the issuer is considering offering to the consumer for purchases or, in the case of an existing account, the interest rate that currently applies to purchases; and ii. If the applicable minimum payment formula includes mandatory fees, the card issuer must assume that such fees have been charged to the account. 5. If a credit card account was opened for a consumer under the age of 21 without a cosigner, guarantor, or joint applicant pursuant to 12 CFR 1026.51(b)(1), determine that the issuer does not increase the credit limit on the account before the consumer turns 21 unless: A. At the time of the contemplated increase, the consumer has an independent ability to make the required minimum periodic payments; or B. A cosigner, guarantor, or joint accountholder who is at least 21 years old and has the ability to make the required minimum periodic payments agrees in writing to assume liability for any debt incurred on the account. (12 CFR 1026.51(b)(2)(i)) 6. If a credit card account was opened for such a consumer with a cosigner, guarantor, or joint applicant pursuant to 12 CFR 1026.51(b)(1)(ii), determine that the issuer does not increase the credit limit on such account before the consumer attains the age of 21 unless the cosigner, guarantor, or joint accountholder who assumed liability at account opening agrees in writing to assume liability on the increase. (12 CFR 1026.51(b)(2)) [Click&type]
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Examination Procedures Management CFPB February 2015 Procedures 68 Module 4: Payments and Periodic Statements Periodic statements (12 CFR 1026.5(b)(2); 12 CFR 1026.7; 12 CFR 1026.8) Regulation Z requires credit card issuers to provide a consumer with a periodic statement for each billing cycle at the end of which an account has a debit or credit balance of more than $1 or on which a finance charge has been imposed. The issuer is not required to send a periodic statement for an account if:
• It is deemed to be uncollectible;
• Delinquency proceedings have been instituted;
• The issuer has charged off the account in accordance with loan loss provisions and will not charge any additional fees or interest in the account; or • Furnishing the statement would violate Federal law.
Credit card issuers must adopt reasonable procedures to ensure that periodic statements are mailed or delivered at least 21 days prior to the payment due date disclosed on the periodic statement, and that payments are not treated as late for any purpose if they are received within 21 days after mailing or delivery of the statement. In addition, for all consumer credit card accounts with grace periods, issuers must adopt reasonable procedures designed to ensure that periodic statements are mailed or delivered at least 21 days prior to the date on which a grace period (if any) expires and that finance charges are not imposed as a result of the loss of a grace period if a payment is received within 21 days after mailing or delivery of a statement.36 See Appendix 1 to these procedures for detailed information on the required formatting and contents of the periodic statement.
Payments (12 CFR 1026.10) General and specific requirements (12 CFR 1026.10(a) and (b)) A credit card issuer is generally required to credit a payment to the consumer's account as of the date of receipt. The “date of receipt” is the date that the payment instrument or other means of completing payment reaches the issuer. A card issuer does not violate this provision when a delay in crediting does not result in a finance or other charge. Also, issuers may specify reasonable requirements for payments that enable most consumers to make conforming payments. These may include, but are not limited to:
36 For purposes of this requirement, a “grace period” is defined as a period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate.
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Examination Procedures Management CFPB February 2015 Procedures 69 • Specifying that payments include the account number or a payment stub; • Setting reasonable cut-off times for payments to be credited on a particular day; or • Specifying that only checks or money orders should be sent by mail, and that payment is to be made in U.S. dollars.
If the issuer accepts a payment that does not conform to the requirements specified on or with the periodic statement, the issuer is required to credit the payment within five days of receipt.37 Generally, a card issuer may set reasonable cut-off times for payments to be received by mail, by electronic means, by telephone, and in person, provided that such cut-off times shall be no earlier than 5 p.m. on the payment due date at the location specified by the creditor for the receipt of such payments. Special rules apply for payments made in person at a branch or office of a card issuer that is a financial institution.38 For those payments, any payments received prior to the close of business of that branch or office will be considered received on the date on which the consumer makes the payment. Card issuers may not impose a cut-off time for in-person payments earlier than the close of business for the branch or office. A card issuer may impose a cut-off time earlier than 5 p.m. for such payments, if the close of business of the branch or office is earlier than 5 p.m.
Limitations on fees related to method of payment (12 CFR 1026.10(e)) An issuer, or any third-party processor that collects, receives, or processes payments on behalf of a creditor, may not impose a separate fee for processing a payment unless the payment method is for an expedited service which involves the assistance of a live customer service representative. An expedited service requires the payment to be credited the same day, or if the payment is received after any cut-off time established by the issuer, the next business day. Issuer’s failure to credit payment (12 CFR 1026.10(c), 1026.10(d), and 1026.10(f)) If an issuer fails to properly credit a payment in time to avoid the imposition of a finance charge or other charges, the issuer is required to adjust the consumer’s account so that the charges imposed are credited to the consumer’s account during the next billing cycle. If an issuer does not accept payments by mail on the due date for payments (for example, if the U.S. Postal Service does not deliver mail on that date), the issuer generally must not treat payments received on the next business day as late for any purpose such as increasing the APR as a penalty, reporting the consumer as delinquent to a credit reporting agency, assessing a late
37 If a creditor promotes a method for making payments, such payments must be considered conforming payments and (if made prior to any reasonably cut-off time specified by the creditor) must be credited to the consumer’s account as of the date of receipt, except when a delay in crediting does not result in a finance or other charge. 38 For purposes of this provision, “financial institution” means a bank, savings association, or credit union.
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Examination Procedures Management CFPB February 2015 Procedures 70 fee or any other fee, initiating collection activities, or terminating benefits (such as rewards on purchases).39 If an issuer changes the address for receiving payments, such as a mailing address or the address of a branch where customers can make payments, and the change causes a delay in crediting payment to a customer’s account, the issuer cannot charge a late payment fee or finance charge during the 60-day period following the date on which the change took effect. The issuer can also credit an amount equal to the fee or charge if such a fee or charge has been imposed. Payment allocation (12 CFR 1026.53) When different rates apply to different balances on a credit card account, issuers are generally required to allocate payments in excess of the minimum payment first to the balance with the highest APR and any remaining portion to the other balances in descending order based on the applicable APR. Regulation Z does not require card issuers to allocate the minimum monthly payment in any particular manner.
However, if any of the balances are subject to a deferred interest program, issuers must allocate excess payments first to the deferred interest balance during the last two billing cycles of the deferred interest period. In addition, during a deferred interest period, issuers are permitted (but not required) to allocate excess payments in the manner requested by the consumer.40 For accounts with secured balances, issuers are permitted (but not required) to allocate excess payments to the secured balance if requested by the consumer. Limitations on the imposition of finance charge related to loss of grace period (12 CFR 1026.54) Section 1026.54 prohibits a credit card issuer from calculating finance charges based on balances for days in previous billing cycles as a result of the loss of a grace period (a practice sometimes referred to as “double-cycle billing”). In addition, when a consumer pays some, but not all, of a balance prior to the expiration of a grace period, an issuer is prohibited from imposing finance charges based on the portion of the balance that has been repaid (but only if that balance was subject to the grace period).
39 If a creditor accepts or receives payments made on the due date by a method other than mail, such as electronic or telephone payments, the creditor is not required to treat a payment made by that method on the next business day as timely, even if it does not accept mailed payments on the due date.
40 Balances subject to a temporary or promotional interest rate are not included in this exception, unless the consumer may be obligated to pay interest that accrues during the period if the balance is not paid in full prior to the expiration of the period. See Comment 53(b).
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Examination Procedures Management CFPB February 2015 Procedures 71 Treatment of credit balances (12 CFR 1026.11(a)) Issuers are required to credit the amount of any credit balance of greater than $1 to a customer’s account. Credit balances greater than $1 must be refunded within seven business days of receiving a written request from the consumer. Issuers must also make a good faith effort to refund to the consumer by cash, check, or money order, or credit to a deposit account of the consumer, any part of the credit balance of more than $1 remaining in the account for more than six months.
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Examination Procedures Management CFPB February 2015 Procedures 72 Examination Procedures Periodic statement disclosures (12 CFR 1026.7) 1. Review financial institution policies, procedures, and systems to determine, either separately or when completing the actual file review, whether the periodic statement is furnished when required by Regulation Z: if at the end of a billing cycle, the account has a debit or credit balance of $1 or more or if a finance charge has been imposed (12 CFR 1026.5(b)(2)(i)). Also, the creditor must adopt reasonable procedures designed to ensure that periodic statements for credit card accounts are mailed or delivered at least 21 days prior to the payment due date and the date on which any grace period expires (for non-credit card openend credit, there is a 21-day rule if there is a grace period and a 14-day rule if there is no grace period). (12 CFR 1026.5(b)(2)(ii)(B)(2)) 2. Determine that the creditor discloses on the periodic statement (12 CFR 1026.7(b)): A. Previous balance. The account balance outstanding at the beginning of the billing cycle. (12 CFR 1026.7(b)(1)) B. Identification of transactions. An identification of each credit transaction in accordance with 12 CFR 1026.8. (12 CFR 1026.7(b)(2)) C. Credits. Any credit to the account during the billing cycle, including the amount and the date of crediting. The date need not be provided if a delay in crediting does not result in any finance or other charge. (12 CFR 1026.7(b)(3)) D. Periodic rates. Each periodic rate that may be used to compute the interest charge expressed as an annual percentage rate and using the term Annual Percentage Rate, along with the range of balances to which it is applicable. (12 CFR 1026.7(b)(4)) NOTE: If no interest charge is imposed when the outstanding balance is less than a certain amount, the creditor is not required to disclose that fact, or the balance below which no interest charge will be imposed. The types of transactions to which the periodic rates apply shall also be disclosed. For variable-rate plans, the fact that the APR may vary; and A promotional rate, as that term is defined in 12 CFR 1026.16(g)(2)(i), is required to be disclosed only in periods in which the offered rate is actually applied. E. Balance on which finance charge computed. The amount of the balance to which a periodic rate was applied and an explanation of how that balance was determined, using the term Balance Subject to Interest Rate. (12 CFR 1026.7(b)(5)) F. Charges imposed. The amounts of any charges imposed as part of a plan as stated in 12 CFR 1026.6(b)(3), grouped together, in proximity to transactions identified under 12
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Examination Procedures Management CFPB February 2015 Procedures 73 CFR 1026.6 (b)(2), substantially similar to Sample G–18(A) in Regulation Z. (12 CFR 1026.7(b)(6)) i. Interest. Finance charges attributable to periodic interest rates, using the term Interest Charge, must be grouped together under the heading Interest Charged, itemized and totaled by type of transaction, and a total of finance charges attributable to periodic interest rates, using the term Total Interest, must be disclosed for the statement period and calendar year to date, using a format substantially similar to Sample G–18(A). ii. Fees. Charges imposed as part of the plan other than charges attributable to periodic interest rates must be grouped together under the heading Fees, identified consistent with the feature or type, and itemized, and a total of charges, using the term Fees, must be disclosed for the statement period and calendar year to date, using a format substantially similar to Sample G–18(A).
G. Change-in-terms and increased penalty rate summary for open-end (not home-secured) plans. Creditors that provide a change-in-terms notice required by 12 CFR 1026.9(c), or a rate increase notice required by 12 CFR 1026.9(g), on or with the periodic statement, must disclose the information in 12 CFR 1026.9(c)(2)(iv)(A) and (c)(2)(iv)(B) (if applicable) or 12 CFR 1026.9(g)(3)(i) on the periodic statement in accordance with the format requirements in 12 CFR 1026.9(c)(2)(iv)(D), and 12 CFR 1026.9(g)(3)(ii). See Forms G–18(F) and G–18(G). (12 CFR 1026.7(b)(7)) H. Grace period. The date by which or the time period within which the new balance or any portion of the new balance must be paid to avoid additional finance charges. If such a time period is provided, a creditor may, at its option and without disclosure, impose no finance charge if payment is received after the time period’s expiration. (12 CFR 1026.7(b)(8)) I. Address for notice of billing errors. The address to be used for notice of billing errors. Alternatively, the address may be provided on the billing rights statement permitted by 12 CFR 1026.9(a)(2). (12 CFR 1026.7(b)(9)) J. Closing date of billing cycle; new balance. The closing date of the billing cycle and the account balance outstanding on that date disclosed in accordance with 12 CFR 1026.7(b)(13). (12 CFR 1026.7(b)(10)) K. Due date; late payment costs. With the exception of periodic statements provided solely for charge cards and periodic statements provided for a charged-off account where payment of the entire account balance is due immediately, determine that the creditor disclosed (in accordance with 12 CFR 1026.7(b)(13)):
i. The due date for a payment (the due date must be the same day of the month for each billing cycle). (12 CFR 1026.7(b)(11)(i)(A))
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Examination Procedures Management CFPB February 2015 Procedures 74 ii. The amount of any late payment fee and any increased periodic rate(s) (expressed as an annual percentage rate(s)) that may be imposed on the account as a result of a late payment. If a range of late payment fees may be assessed, verify that the card issuer either states a range of fees or the highest fee and an indication that the fee imposed could be lower. (12 CFR 1026.7(b)(11)(i)(B)) NOTE: If the rate may be increased for more than one feature or balance, the card issuer may state the range of rates or the highest rate that could apply and at the issuer’s option an indication that the rate imposed could be lower. NOTE: Further, with the exception of the negative or no amortization disclosures required by 12 CFR 1026.7(b)(12)(ii), the repayment disclosures in 12 CFR 1026.7(b)(12) (as listed in step 12 below) are not required for: a. Charge card accounts that require payment of outstanding balances in full at the end of each billing cycle;
b. A billing cycle immediately following two consecutive billing cycles in which the consumer paid the entire balance in full, had a zero outstanding balance or had a credit balance; and c. A billing cycle where paying the minimum payment due for that billing cycle will pay the entire outstanding balance on the account for that billing cycle. L. Given those exceptions above, determine that the card issuer disclosed on the periodic statement 12 CFR 1026.7(b)(12):
i. The following statement with a bold heading: “Minimum Payment Warning: If you make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance” (12 CFR 1026.7(b)(12)(i)(A)); ii. The minimum payment repayment estimate, as described in Appendix M1 to Regulation Z. NOTE: If the minimum payment repayment estimate is less than two years, determine that the card issuer disclosed the estimate in months. Otherwise, the estimate must be disclosed in years and rounded to the nearest whole year (12 CFR 1026.7(b)(12)(i)(B));
iii. The minimum payment total cost estimate, as described in Appendix M1 to Regulation Z, rounded to the nearest whole dollar or to the nearest cent, at the card issuer’s option (12 CFR 1026.7(b)(12)(i)(C));
iv. A statement that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the current outstanding balance shown on the periodic statement. A statement that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the assumption that only
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Examination Procedures Management CFPB February 2015 Procedures 75 minimum payments are made and no other amounts are added to the balance (12 CFR 1026.7(b)(12)(i)(D));
v. A toll-free telephone number where the consumer may obtain from the card issuer information about credit counseling services (12 CFR 1026.7(b)(12)(i)(E)); and vi. The disclosures required for 12 CFR 1026.7(b)(12)(i)(F)(1): a. The estimated monthly payment for repayment in 36 months, as described in Appendix M1 to Regulation Z. The estimated monthly payment for repayment in 36 months must be rounded to the nearest whole dollar or to the nearest cent, at the card issuer’s option (12 CFR 1026.7(b)(12)(i)(F)(1)(i)); b. A statement that the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in three years if the consumer pays the estimated monthly payment for three years (12 CFR 1026.7(b)(12)(i)(F)(1)(ii));
c. The total cost estimate for repayment in 36 months, as described in Appendix M1 to Regulation Z. The total cost estimate for repayment in 36 months must be rounded to the nearest whole dollar or to the nearest cent, at the card issuer’s option (12 CFR 1026.7(b)(12)(i)(F)(1)(iii)); and d. The savings estimate for repayment in 36 months, as described in Appendix M1 to Regulation Z. The savings estimate for repayment in 36 months must be rounded to the nearest whole dollar or to the nearest cent, at the card issuer’s option (12 CFR 1026.7(b)(12)(i)(F)(1)(iv)). NOTE: The disclosures (listed in a through d above) required for 12 CFR 1026.7(b)(12)(i)(F)(1) do not apply to a periodic statement in any of the following circumstances:
a. The minimum payment repayment estimate that is disclosed on the periodic statement pursuant to paragraph 12 CFR 1026.7(b)(12)(i)(B) after rounding is three years or less;
b. The estimated monthly payment for repayment in 36 months, as described in Appendix M1 to Regulation Z, rounded to the nearest whole dollar or nearest cent that is calculated for a particular billing cycle is less than the minimum payment required for the plan for that billing cycle; and c. A billing cycle where an account has both a balance in a revolving feature where the required minimum payments for this feature will not amortize that balance in a fixed amount of time specified in the account agreement and a balance in a fixed repayment feature where the required minimum payment
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Examination Procedures Management CFPB February 2015 Procedures 76 for this fixed repayment feature will amortize that balance in a fixed amount of time specified in the account agreement which is less than 36 months. vii.
If negative or no amortization occurs when calculating the minimum payment estimate as described in Appendix M1 to Regulation Z, determine that the card issuer provides the following disclosures on each periodic statement instead of the disclosures set forth in 12 CFR 1026.7(b)(12)(i) (12 CFR 1026.7(b)(12)(ii)): a. “Minimum Payment Warning: Even if you make no more charges using this card, if you make only the minimum payment each month we estimate you will never pay off the balance shown on this statement because your payment will be less than the interest charged each month” (12 CFR 1026.7(b)(12)(ii)(A));
b. “If you make more than the minimum payment each period, you will pay less in interest and pay off your balance sooner” (12 CFR 1026.7(b)(12)(ii)(B)); c. The estimated monthly payment for repayment in 36 months rounded to the nearest whole dollar or to the nearest cent, at the creditor’s option (12 CFR 1026.7(b)(12)(ii)(C));
d. A statement that the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in three years if the consumer pays the estimated monthly payment each month for three years (12 CFR 1026.7(b)(12)(ii)(D)); and e. A toll-free telephone number where the consumer may obtain from the card issuer information about credit counseling services consistent with 12 CFR 1026.7(b)(12)(iv). (12 CFR 1026.7(b)(12)(ii)(E)) viii.
Verify that the items required to be disclosed, as addressed in the procedures in step L above (required by 12 CFR 1026.7(b)(12)) are disclosed in accordance with the format requirements of 12 CFR 1026.7(b)(13) and are substantially similar to the samples provided in Appendix G of Regulation Z. ix.
Determine that a card issuer provides (to the extent available from the United States Trustee or a bankruptcy administrator) through the disclosed toll-free telephone number the name, street address, telephone number, and website address for at least three organizations that have been approved by the United States Trustee or a bankruptcy administrator to provide credit counseling services in either the state in which the billing address for the account is located or the state specified by the consumer. (12 CFR 1026.7(b)(12)(iv)(A)) x.
Determine that the card issuer at least annually updates the credit counseling information it discloses for consistency with the information available from the
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Examination Procedures Management CFPB February 2015 Procedures 77 United States Trustee or a bankruptcy administrator. (12 CFR 1026.7(b)(12)(iv)(B)) M. Determine that the card issuer provided periodic statement disclosures according to the following format requirements (12 CFR 1026.7(b)(13)): i. The due date is disclosed on the front of the first page of the periodic statement and that the amount of the late payment fee and the APR(s) are stated in close proximity thereto.
ii. The ending balance and the repayment disclosures (required by 12 CFR 1026.7(b)(12) are disclosed closely proximate to the minimum payment due. iii. The due date, late payment fee and APR, ending balance, minimum payment due, and repayment disclosures are grouped together.
NOTE: Sample G-18(D) in Appendix G of Regulation Z sets forth an example of how these terms may be grouped.
N. For accounts with an outstanding balance subject to a deferred interest or similar program, determine that the creditor disclosed the date by which that outstanding balance must be paid in full in order to avoid the obligation to pay finance charges on such balance on the front of any page of each periodic statement issued during the deferred interest period beginning with the first periodic statement issued during the deferred interest period that reflects the deferred interest or similar transaction. The disclosure provided pursuant to this paragraph must be substantially similar to Sample G–18(H) in Appendix G to Regulation Z. (12 CFR 1026.7(b)(14)) [Click&type] Crediting a consumer’s account (12 CFR 1026.10) 1. Ensure that the creditor credits payment to a consumer’s account as of the date of receipt, except when a delay in crediting does not result in a finance charge or other charge. (12 CFR 1026.10(a)) 2. If a creditor specifies requirements for payments, determine that they are reasonable and enable most consumers to make conforming payments. (12 CFR 1026.10(b)) 3. Except as provided by 12 CFR 1026.10(b)(4)(ii), if a creditor specifies, on or with the periodic statement, requirements for the consumer to follow in making payments as permitted under 12 CFR 1026.10, but accepts a payment that does not conform to the requirements, determine that the payment is credited within five days of receipt. (12 CFR 1026.10(b)(4)(i))
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Examination Procedures Management CFPB February 2015 Procedures 78 4. If the creditor promotes a method for making payments, determine that the creditor considers such payments conforming payments in accordance with 12 CFR 1026.10(b) and that they are credited to the consumer’s account as of the date of receipt, except when a delay in crediting does not result in a finance charge or other charge. (12 CFR 1026.10(b)(4)(ii)) 5. If the creditor sets a cut-off time for payments to be received by mail, by electronic means, by telephone, or in person, verify that the cut-off time is 5 p.m. or later on the payment due date at the location specified by the creditor for the receipt of such payments. (12 CFR 1026.10(b)(2)(ii)) 6. For in-person payments on a credit card account under an open-end (not home-secured) consumer credit plan at a financial institution branch or office that accepts such payments, a card issuer shall not impose a cut-off time earlier than the close of business for any such payments made in person at any branch or office of the card issuer at which such payments are accepted. However, a card issuer may impose a cut-off time earlier than 5 p.m. for such payments, if the close of business of the branch or office is earlier than 5 p.m. (12 CFR 1026.10(b)(3)(i)) 7. If a creditor fails to credit a payment as required and imposes a finance or other charge, ensure that the creditor credits the charge(s) to the consumer’s account during the next billing cycle. (12 CFR 1026.10(c)) 8. If (due to a weekend or holiday, for example) a creditor does not receive or accept payments by mail on the due date for payments, determine that the creditor treats as timely a payment received on the next business day. (12 CFR 1026.10(d)(1)) NOTE: If a creditor accepts or receives payments made on the due date by a method other than mail, such as electronic or telephone payments, the creditor is not required to treat a payment made by that method on the next business day as timely. 9. For credit card accounts under an open-end (not home-secured) consumer credit plan, determine that the creditor does not impose a separate fee to allow consumers to make a payment by any method, such as mail, electronic, or telephone payments, unless such payment method involves an expedited service by a customer service representative of the creditor. (12 CFR 1026.10(e)) NOTE: For purposes of 12 CFR 1026.10(e), the term “creditor” includes a third party that collects, receives, or processes payments on behalf of a creditor. 10. If a card issuer makes a material change in the address for receiving payments or procedures for handling payments, and such change causes a material delay in the crediting of a payment to a consumer’s account during the 60-day period following the date on which such change took effect, ensure that the card issuer does not impose any late fee or finance charge for a late payment on the credit card account during the 60-day period following the date on which the change took effect. (12 CFR 1026.10(f))
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Examination Procedures Management CFPB February 2015 Procedures 79 [Click&type] Allocation of payments (12 CFR 1026.53) 1. Determine whether, when a consumer makes a payment in excess of the required minimum periodic payment, the card issuer allocates the excess amount: A. First to the balance with the highest APR, and B. Any remaining portion to the other balances in descending order based on the applicable APR.
2. For balances on a credit card account subject to a deferred interest or similar program, determine whether the card issuer allocated any amount paid by the consumer in excess of the required minimum periodic payment:
A. Consistent with the general requirement discussed above, except that, during the two billing cycles immediately preceding expiration of the deferred interest period, the excess amount must have been allocated first to the balance subject to the deferred interest or similar program and any remaining portion allocated to any other balances consistent with 12 CFR 1026.53(a) (12 CFR 1026.53(b)(1)(i)), or B. In the manner requested by the consumer (12 CFR 1026.53(b)(1)(ii)). 3. When a balance on a credit card account is secured, the card issuer may at its option allocate any amount paid by the consumer in excess of the required minimum periodic payment to that balance if requested by the consumer. (12 CFR 1026.53(b)(2)) [Click&type] Loss of a grace period (12 CFR 1026.54) 1. Determine whether the card issuer imposed finance charges as a result of the loss of a grace period on a credit card account under an open-end (not home-secured) consumer credit plan based on:
A. Balances for days in billing cycles that precede the most recent billing cycle, a prohibited practice; or B. Any portion of a balance subject to a grace period that was repaid prior to the expiration of the grace period. (12 CFR 1026.54).
2. With respect to the prohibition discussed above, issuers are not required to follow any specific methodology, but an issuer is in compliance if it applies the consumer’s payment to the balance subject to the grace period and calculates interest charges on the amount of the balance that remains unpaid. (Comment 12 CFR 1026.54(a)(1)-5)
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Examination Procedures Management CFPB February 2015 Procedures 80 Exceptions: This rule does not apply to adjustments to the finance charge as a result of: A. The resolution of a dispute under 12 CFR 1026.12, unauthorized use, or 12 CFR 1026.13, billing error; or B. The return of a payment.
[Click&type] Treatment of credit balances, account termination (12 CFR 1026.11) 1. Determine institution’s treatment of credit balances. Specifically, if the account’s credit balance is in excess of $1, the institution must take the actions listed below. (12 CFR 1026.11) A. Credit the amount to the consumer’s account; and B. Either:
i. Refund any part of the remaining credit balance within seven business days from receiving a written request from the consumer; or ii. If no written request is received and the credit remains for more than six months, make a good faith effort to refund the amount of the credit to the consumer by cash, check, money order, or credit to a deposit account of the consumer. No further action is required if the consumer’s current location is not known to the creditor and cannot be traced through the consumer’s last known address or telephone number. 2. Determine that institution has not terminated an account prior to its expiration date solely because the consumer did not incur a finance charge. However, a creditor is not prohibited from closing an account that, for three consecutive months, no credit has been extended (such as by purchase, cash advance, or balance transfer) and the account has had no outstanding balance. (12 CFR 1026.11(b)) 3. Determine that, for credit card accounts under an open-end (not home-secured) consumer credit plan, the card issuer has adopted reasonable written policies and procedures designed to ensure that an administrator of an estate of a deceased account holder can determine the amount of and pay any balance on the account in a timely manner. (12 CFR 1026.11(c)(1)(i)) NOTE: This does not apply to the account of a deceased consumer if a joint account holder remains on the account.
4. Ensure that, upon request by the administrator of an estate, the card issuer provides the administrator with the amount of the balance on a deceased consumer’s account in a timely manner. (12 CFR 1026.11(c)(2)(i)) NOTE: Providing the amount of the balance on the account within 30 days of receiving the request is deemed to be timely.
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Examination Procedures Management CFPB February 2015 Procedures 81 5. Verify that, after receiving a request from the administrator of an estate for the amount of the balance on a deceased consumer’s account, the card issuer does not impose any fees on the account (such as a late fee, annual fee, or over the-limit fee) or increase any annual percentage rate, except as provided by 12 CFR 1026.55(b)(2) (i.e., due to the operation of an index). (12 CFR 1026.11(c)(3)(i)) 6. Determine that, if payment in full of the disclosed balance, pursuant to 12 CFR 1026.11(c)(2), is received within 30 days after disclosure, the card issuer waives or rebates any additional finance charge due to a periodic interest rate. (12 CFR 1026.11(c)(3)(ii)) [Click&type]
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Examination Procedures Management CFPB February 2015 Procedures 82 Module 5: Dispute Resolution Billing error resolution (12 CFR 1026.13) Regulation Z contains an error resolution process that a card issuer must follow in the event of a billing error on or related to the periodic statement. The error resolution process is triggered when the consumer provides the issuer with written notice of a billing error within the 60-day timeframe discussed later. A “billing error” is defined under Regulation Z as any of the following items that are reflected on or, in some cases, with or pertaining to a periodic statement: • An extension of credit that is not made to the consumer or a person who has authority to use the consumer’s credit card account;
• An extension of credit that is not identified in accordance with Regulation Z’s requirements for identification of transactions on a periodic statement; • An extension of credit for property or services that the consumer did not accept, or that were not delivered to the consumer as agreed;
• The issuer’s failure to properly credit a payment or other credit issued to the consumer’s account;
• A computational or similar accounting error that is made by the issuer; • An extension of credit for which the consumer requests additional clarification, including documentary evidence; or • The issuer’s failure to mail or deliver a periodic statement to the consumer’s last known address, if that address was received by the issuer, in writing, at least 20 days before the end of the billing cycle for which the statement was required. The error resolution process is triggered if the issuer receives a billing error notice from a consumer within 60 days after the issuer transmitted the first periodic statement that reflects the alleged billing error, or if the issuer failed to provide the periodic statement, 60 days from the time the statement should have been sent. The written notice must contain enough information to enable the issuer to identify the consumer’s name and account number and must, to the extent possible, indicate the consumer’s belief and the reasons for the belief that a billing error exists, along with the type, date, and amount of the error.
The issuer must mail or deliver to a consumer a written acknowledgment within 30 days of receiving a billing error notice, unless the issuer is able to resolve the issue before the 30 days have passed. The issuer then has two complete billing cycles or 90 days (whichever is shorter) to comply with the resolution procedures discussed later.
Until a billing error is resolved, the consumer is not required to pay (and the issuer is not permitted to attempt to collect) any portion of any required payment that the consumer believes
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Examination Procedures Management CFPB February 2015 Procedures 83 is related to the disputed amount, including related finance and other charges; and the issuer may not accelerate any part of the debt or restrict or close the account solely because the consumer has exercised his right to dispute the charge. The issuer also cannot make or threaten to make an adverse report to any person about the consumer’s credit standing, or report that the account is delinquent because the consumer failed to pay the disputed amount or related charges. However, the issuer:
• May take action to collect any undisputed portion of the item or bill; • May deduct any disputed amount and related finance or other charges from the consumer’s credit limit on the account; or • May reflect a disputed amount and related finance or other charges on a periodic statement, provided that the issuer indicates on or with the periodic statement that payment of any disputed amount and related finance or other charges is not required until the billing error is resolved.
If the issuer determines that a billing error has occurred as asserted, it is required to correct the billing error and credit the consumer’s account with any disputed amount and related finance or other charge as applicable, and mail or deliver a written correction notice to the consumer. If the issuer, after conducting a reasonable investigation, determines that a billing error did not occur or that a different billing error occurred from that asserted, the issuer is required to provide the consumer with a written explanation asserting the issuer’s belief as to why the alleged billing error does not exist, along with copies of documentary evidence of the consumer’s debt (if the consumer has requested it). If the issuer determined that a different billing error occurred than the one originally alleged, the issuer must correct the billing error and credit the consumer’s account with any disputed amount and related finance or other charges, as applicable.41 If a card issuer determines that a consumer owes all or part of the disputed amount and related finance or other charges, the issuer must also notify the consumer in writing of the amount owed and the time when payment is due. The issuer must give the consumer the length of any disclosed grace period applicable to the consumer during which the consumer can pay the amount due without incurring additional finance or other charges. The issuer generally may report an account or amount as delinquent because the amount due remains unpaid after allowing any disclosed grace period as discussed previously or 10 days (whichever is longer) during which the consumer can pay the amount. However, a card issuer may not report an account or amount as delinquent because such amount remains unpaid, if the issuer receives further written notice from the consumer that any portion of the billing error is in dispute, unless the card issuer (a) promptly reports that the amount or account is in dispute; (b) mails or delivers to the consumer (at the same time the report is made) a written notice of the
41 If the billing error asserted related to unauthorized use (as defined in 12 CFR 1026.12(b)(1)(i)), the issuer may hold the consumer liable for up to $50 of the unauthorized amount. See 12 CFR 1026.12.
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Examination Procedures Management CFPB February 2015 Procedures 84 name and address of each person to whom the creditor makes a report; and (c) promptly reports any subsequent resolution of the reported delinquency to all persons to whom the creditor has made a report. An issuer that has already fully complied with the resolution procedures is not required to reinvestigate if a consumer reasserts substantially the same billing error. Liability of cardholder for unauthorized use (12 CFR 1026.12(b)) Regulation Z provides special rules for the unauthorized use of a credit card. The term “unauthorized use” means the use of a credit card by a person, other than the consumer who is authorized on the account, who does not have actual, implied, or apparent authority to use, and from which the consumer receives no benefit. Generally, consumers become aware of unauthorized use of their credit card account by discovering that their card has been lost or stolen, by noticing an unauthorized charge on their billing statement, or through notification from the card issuer. Regulation Z limits the consumer’s liability for unauthorized use to the lesser of $50 or the amount of unauthorized charges obtained before the card issuer is notified of the unauthorized use. In order for the card issuer to hold the consumer liable for up to $50 of unauthorized charges, the following must be true:
• The credit card must be an accepted credit card;
• The card issuer must have provided the consumer with adequate notice that the consumer’s liability will not exceed $50 (or any lesser amount), that the cardholder may give oral or written notification, and the means by which the consumer can notify the issuer of the unauthorized use (for example, a telephone number, an address, or both); and • The card issuer has provided a means to identify the cardholder on the account or the authorized user of the card (for example, a signature, photograph, or fingerprint on the card or other biometric means, or electronic or mechanical confirmation).42 As discussed previously, Regulation Z limits the consumer’s liability for unauthorized use to the lesser of $50 or the amount of unauthorized charges obtained before the card issuer is notified of the unauthorized use. Notice is considered “given” when the steps are taken by the consumer as may be reasonably required in the ordinary course of business to provide the card issuer with the pertinent information about the loss, theft, or possible unauthorized use of a credit card account,
42 The cardholder may not be held liable for any amount under 12 CFR 1026.12(b) when the card itself (or some other sufficient means of identification of the cardholder) is not used to conduct the unauthorized transaction. Since the issuer has not provided a means to identify the user under these circumstances, the issuer has not fulfilled one of the conditions for imposing liability. For example, when merchandise is ordered by telephone or the Internet by a person without authority to do so, using a credit card account number by itself or with other information that appears on the card (for example, the card expiration date and a 3- or 4digit cardholder identification number), no liability may be imposed on the cardholder. See Comment 12(b)(2)(iii).
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Examination Procedures Management CFPB February 2015 Procedures 85 regardless of whether any particular officer, employee, or agent of the card issuer does, in fact, receive the information.43 If a card issuer seeks to impose liability when a claim of unauthorized use is made by a consumer, the card issuer must conduct a reasonable investigation of the claim. In conducting its investigation, the card issuer may reasonably request the consumer's cooperation. The card issuer may not automatically deny a claim based solely on the consumer's failure or refusal to comply with a particular request, including providing an affidavit or filing a police report; however, if the card issuer otherwise has no knowledge of facts confirming the unauthorized use, the lack of information resulting from the consumer's failure or refusal to comply with a particular request may lead the card issuer reasonably to terminate the investigation. The procedures involved in investigating claims may differ, but actions such as the following represent steps that a card issuer may take, as appropriate, in conducting a reasonable investigation of an unauthorized transaction: • Reviewing the types or amounts of purchases made in relation to the consumer's previous purchasing pattern.
• Reviewing where the purchases were delivered in relation to the consumer's residence or place of business.
• Reviewing where the purchases were made in relation to where the consumer resides or has normally shopped.
• Comparing any signature on credit slips for the purchases to the signature of the consumer or an authorized user in the card issuer's records, including other credit slips. • Requesting documentation to assist in the verification of the claim. • Requiring a written, signed statement from the consumer or authorized user. For example, the issuer may include a signature line on a billing rights form that the consumer may send in to provide notice of the claim. However, an issuer may not require the consumer to provide an affidavit or signed statement under penalty of perjury as part of a reasonable investigation.
• Requesting a copy of a police report, if one was filed. • Requesting information regarding the consumer's knowledge of the person who allegedly used the card or of that person's authority to do so.
43 A consumer may also initiate the error resolution process under 12 CFR 1026.13, as unauthorized use is a “billing error.” Regardless of whether or not the consumer exercises his rights under 12 CFR 1026.13, the liability limitations for unauthorized use in 12 CFR 1026.12(b) apply.
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Examination Procedures Management CFPB February 2015 Procedures 86 Annual Statement of Billing Rights (12 CFR 1025.6(b)(5)(iii) and 12 CFR 1026.9(a)(1) and (2)) Prior to the first transaction for a credit card account, card issuers are required to provide to a consumer a statement that outlines the consumer’s rights and the creditor’s responsibilities regarding billing error resolution and the right of a cardholder to assert claims or defenses against the card issuer (the so-called “billing rights summary”). This statement must be substantially similar to the statement found in Model Form G-3(A) in Appendix G to Regulation Z. A card issuer also must mail or deliver the billing rights summary at least once per calendar year, at intervals of not less than 6 months and not more than 18 months, either to all consumers or to each consumer entitled to a periodic statement in the billing cycle in which the billing rights summary is provided. As an alternative, the creditor may include a statement substantially similar to Model Form G-4(A) in Appendix G to Regulation Z on or with each periodic statement. Right of a consumer to assert claims or defenses against the card issuer (12 CFR 1026.12(c)) When a person who honors a credit card fails to satisfactorily resolve a dispute as to property or services purchased with the credit card, the consumer may assert against the card issuer all claims (other than tort claims) and defenses arising out of the transaction and relating to the failure to resolve the dispute. The consumer may withhold payment up to the amount of credit outstanding for the property or services that gave rise to the dispute and any finance or other charges imposed on that amount. The card issuer may not report the amount withheld as delinquent until the dispute is settled or judgment is rendered. These rights only apply if:
• The consumer has made a good faith attempt to resolve the dispute with the person honoring the credit card; and • The amount of credit extended to obtain the property or services that result in the assertion of the claim or defense by the cardholder exceeds $50, and the disputed transaction occurred in the same state as the cardholder's current designated address or, if not within the same state, within 100 miles from that address; unless the person honoring the credit card:
o Is the same person as the card issuer;
o Is controlled by the card issuer directly or indirectly; o Is under the direct or indirect control of a third person that also directly or indirectly controls the card issuer;
o Controls the card issuer directly or indirectly;
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Examination Procedures Management CFPB February 2015 Procedures 87 o Is a franchised dealer in the card issuer's products or services; or o Has obtained the order for the disputed transaction through a mail solicitation made or participated in by the card issuer.
Prohibitions on offsets (12 CFR 1026.12(d)) Card issuers are generally prohibited from offsetting a consumer’s credit card debt against the consumer’s funds held on deposit with the issuer. However, Regulation Z does permit automatic payment plans that allow the card issuer to periodically deduct all or part of the consumer’s credit card debt for a deposit account held with the issuer, if authorized in writing by the consumer.44
44 This prohibition does not alter or affect the right of a card issuer acting under state or Federal law to do any of the following with regard to funds of a cardholder held on deposit with the card issuer if the same procedure is constitutionally available to creditors generally: (a) obtain or enforce a consensual security interest in the funds; (b) attach or otherwise levy upon the funds; or (c) obtain or enforce a court order relating to the funds.
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Examination Procedures Management CFPB February 2015 Procedures 88 Examination Procedures Billing error resolution (12 CFR 1026.12 and 13) 1. Review a sample of billing error resolution files and a sample of consumers who have asserted a claim or defense against the financial institution for a credit card dispute regarding property or services. Verify the following (12 CFR 1026.12 and 12 CFR 1026.13): A. Liability for unauthorized credit card use is limited to $50; B. Disputed amounts are not reported delinquent unless remaining unpaid after the dispute has been settled;
C. Offsetting credit card indebtedness is prohibited; and D. Errors are resolved within two complete billing cycles. Annual billing rights statement (12 CFR 1026.9(a)(1)) 1. Determine whether the creditor mailed or delivered the billing rights statement at least once per calendar year, at intervals of not less than 6 months or more than 18 months, customers and whether the institution used the short form notice with each periodic statement. (12 CFR 1026.9(a)(1)) NOTE: As an alternative to the annual billing rights statement (12 CFR 1026.9(a)(1)), the creditor may mail or deliver, on or with each periodic statement, a statement substantially similar to Model Form G–4(A) in Appendix G to Regulation Z, as applicable. (12 CFR 1026.9(a)(2)) [Click&type]
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Examination Procedures Management CFPB February 2015 Procedures 89 Module 6: Marketing, Sale, and Servicing of Credit Card Add-on Products Credit card issuers market various “add-on” products to card users that are supplementary to the credit provided by the card itself. Consumers may purchase the products when they apply for a new credit card or can add them to an existing credit card account. Card issuers often enroll new account holders in these products through either the credit card application, or at the time the consumer activates the credit card. Existing account holders can typically purchase the product by telephone, mail, or through the credit card issuer’s website. In general, consumers are charged a monthly fee for the product, typically either a flat fee or a percentage of the statement balance. Debt protection and identity theft protection products are two common “add-on” products. Debt protection products typically offer to suspend or cancel all or part of a consumer’s obligation to repay an outstanding credit card balance when a qualifying event occurs. “Cancellation” benefits usually promise forgiveness of some or all of a cardholder’s debt:-; either cancelling the minimum monthly payment for a certain period of time and reducing the account balance, or forgiving the total credit card balance altogether. “Suspension” benefits typically offer to allow a cardholder to skip the minimum monthly payment without penalty and without accruing interest for a specific period, but do not reduce the cardholder’s account balance. Qualifying events may vary across products, but generally include loss of life, disability, involuntary unemployment, and leave of absence from employment. Some products also include certain “life events” such as the birth or adoption of a child, marriage, relocation, divorce, hospitalization, and retirement. Identity theft protection products are promoted as helping protect consumers against identity theft. These products often take the form of credit score monitoring. In order to receive the full benefits of many identity theft protection products, consumers must authorize the product administrator to access the consumer’s credit report.
Credit card issuers who offer credit card add-on products should ensure that the products are marketed, sold, and serviced in a manner that is not unfair, deceptive, or abusive to consumers. The CFPB has found that issuers have engaged in deceptive practices, for instance, when they: • Sell consumers a product despite the consumer providing information that indicated they would be ineligible for the product’s primary benefits.
• Lead consumers to believe that they could avoid paying the product fee by paying their balance in full before the monthly payment due date when they would have had to pay it before the end of the billing cycle in order to avoid the fee. • Inform consumers that the products were a “limited time offer” or that the consumer’s account was eligible for a limited time “special offer,” when, in fact, almost all consumers were eligible for and were offered products.
• Fail to disclose that the products were optional or representing that the products were an “additional feature” of the account.
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Examination Procedures Management CFPB February 2015 Procedures 90 • Represent that the products would improve the consumer’s credit score. • Represent that consumers could try the product for “free for 30 days,” when in fact consumer was billed beginning at the time of purchase and had to call and cancel within 30 days to obtain a refund.
• Imply that consumer would receive benefits immediately upon reporting a claim when, in fact, consumers were required to submit benefit forms and supporting documentation.45 The CFPB has identified unfair billing practices in connection with the offering of some identity theft protection products. As noted previously, for many identity theft products, the consumer cannot receive the full benefits of the product by agreeing verbally. Rather, the consumer must complete and submit a form with additional information, including an authorization for the administrator to access the consumer’s credit report. The CFPB has found instances when consumers verbally agreed to enrollment but never returned the authorization form. These consumers were still charged for the product despite not completing the second step, but when they attempted to claim the product’s benefits, they were unable to do so.46 As examiners review credit card add-on products, they should be aware of these and any additional marketing, sales, or servicing practices that present a risk of harm to consumers. See “Unfair, Deceptive, or Abusive Acts or Practices,” CFPB Supervision and Examination Manual, for additional information on identifying unfair, deceptive, or abusive acts or practice.
45 See In the Matter of American Express Centurion Bank, Administrative Proceeding File No. 2013-CFPB-0011 (December 24, 2013); In the Matter of American Express, FSB, Administrative Proceeding File No. 2013-CFPB-0012 (December 24, 2013); In the Matter of American Express Travel Related Services, Administrative Proceeding File No. 2013-CFPB-0013 (December 24, 2013); In the Matter of Bank of America, N.A.; and FIA Card Services, N.A., Administrative Proceeding File No. 2014-CFPB- 0004 (April 9, 2014); In the Matter of Synchrony Bank, f/k/a GE Capital Retail Bank, Administrative Proceeding File No. 2014- CFPB-0007 (June 19, 2014).
46See In the Matter of JPMorgan Chase Bank, N.A. and Chase Bank USA N.A., Administrative Proceeding File No. 2013-CFPB- 0007 (September 19, 2013); In the Matter of American Express Centurion Bank, Administrative Proceeding File No. 2013- CFPB-0011 (December 24, 2013); In the Matter of American Express, FSB, Administrative Proceeding File No. 2013-CFPB- 0012 (December 24, 2013); In the Matter of American Express Travel Related Services, Administrative Proceeding File No. 2013-CFPB-0013 (December 24, 2013); In the Matter of U.S. Bank, National Association; Administrative Proceeding File No. 2014-CFPB-0013 (September 25, 2014).
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Examination Procedures Management CFPB February 2015 Procedures 91 Examination Procedures General information 1. Briefly describe the types of credit card add-on products offered by the bank during the Review Period, including their key terms, conditions, and features. 2. Name and describe the involvement of any affiliates or service providers in offering the products and whether they are a third party provider or affiliate. Also describe the services provided and how much of the time during the review period services were provided by the third party provider or affiliate. If the services changed over time, note the dates of the changes and describe how the services changed.
[Click&type] Compliance management, quality control, and training 1. Review copies of any internal audit reports that would have included a review of the products that were offered to consumers during the review period. A. Assess whether the audit(s) appear to have been comprehensive, accurate, adequate, and timely. A few examples of factors to consider in reviewing the reports include the following: i.
Who conducted the audits - Internal auditors or external auditors? ii.
What time period was covered by the reports? When was the report issued? iii.
What products were covered by the reports? For example, an internal audit report may document the results of a review of the bank’s credit reporting products but not its debt protection products.
iv.
If the review focused upon marketing, what marketing channels were covered by the reports? v.
Are any activities of service providers or affiliates included in any of the reports? vi.
Did audit listen to a sample of inbound or outbound calls if the products are marketed or serviced by telephone? Was the size of the sample adequate? vii.
What other areas, if any, were not covered by the reports? To the extent that areas were not covered, consider whether these are areas that should be included in the scope of the review. To the extent review is required, document the results of the additional review in the space below or refer to the portion of these procedures under which you have documented the results of the additional review.
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Examination Procedures Management CFPB February 2015 Procedures 92 viii.
If no audit reports were issued during the review period, review internal audit’s plans for the next two calendar years. Did audit have a reasonable, risk-based basis for not auditing the products during the applicable time period? a. Were the bank’s UDAAP risks considered in the audit plan? b. If so, was the assessment of the risks reasonable? c. Was an appropriate audit schedule implemented that considered these risks? d. Were UDAAP reviews done of other types of products, such as “add on” products relating to other types of loans, such as auto loans? B. Review any findings noted in the reports and assess the status of any actions taken by the bank in response. Consider whether further review is needed by examiners. To the extent further review is required, document the results of the additional review in the space below or refer to the portion of these procedures under which you have documented the results of the additional review. For example, an internal audit report may contain findings indicating possible inaccuracies in calculating the fees for the product. If so, that finding should be noted below and a determination made about the extent that we need to do further review of fee calculations.
2. Review copies of any compliance risk management reports that would have included a review of the products that were offered to consumers during the review period. A. Assess the scope of the reports. A few examples of factors to consider in reviewing the scope include the following:
i. What time period was covered by the reports? When were the reports issued? ii. What products were covered by the reports? iii. If the reports include data on marketing, what marketing channels were covered by the reports? Do the reports contain data from all marketing channels used by the bank to market the products? iv. Are any activities of service providers or affiliates included in any of the reports? v. What other areas (other than specific products and marketing channels) if any, were not covered by the reports? vi. Is the bank’s MIS sufficient to monitor and manage the various debt protection products? vii. Where there negative trends or information evident in the reports which management failed to note?
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Examination Procedures Management CFPB February 2015 Procedures 93 B. Document any negative findings noted in the reports and the status of any actions taken by the bank in response.
i. Assess whether the bank’s planned responses were adequate and whether management has determined that any planned corrective action is complete. If management reports that corrective actions are complete, document the basis for management’s determination that they are complete and assess whether management has an adequate basis for that determination.
ii. Determine if examiners needs to conduct a further review of any deficiencies noted in the report or management’s determination that corrective actions have been completed. If so, note the need for an additional review in the findings below and document the findings of any additional review by describing the additional review that was performed and the outcome of the review.
3. Assess the manuals and other materials provided regarding any formal or informal training that any individual receives regarding the sale and marketing of the products. Consider the following:
A. Which employees of the bank, its service providers (if any), and its affiliates (if any) receive training related to UDAAP or the products? B. Is the training appropriate for the scope of those employees’ responsibilities, such as enrollment, claims processing, cancellation, or refunds? 4. Assess the bank’s policies and procedures for conducting Quality Assurance (QA) reviews of telemarketing calls and the QA reports (if any) provided by the bank. A. Do the reports appear to have been produced as required by any procedures? For example, were they produced with the frequency provided by the procedures? B. Review the findings in the QA reports. Describe any trends in the numbers or types of issues found that are red flags which require further review. To the extent further review is required, document the results of the additional review in the space below or refer to the portion of these procedures under which you have documented the results of the additional review.
C. Document any findings noted in the reports and the status of any actions taken by the bank in response. Consider whether further review is needed by examiners. To the extent further review is required, document the results of the additional review in the space below or refer to the portion of these procedures under which you have documented the results of the additional review. For example, an internal audit report may contain findings indicating possible inaccuracies in calculating the fees for the product. If so, that finding should be noted below and a determination made about the extent that we need to do further review of fee calculations
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Examination Procedures Management CFPB February 2015 Procedures 94 5. Review the records regarding any disciplinary actions or other actions taken against any part of the bank, any affiliate, any employee, or any third party concerning the marketing, sales, and/or operation of the products.
A. Summarize any actions taken.
B. Document any examiner concerns with the actions taken. 6. Review and summarize consumer complaints received. A. Review the complaint data provided. Describe any trends in the numbers and/or types of complaints that are red flags which require further examiner review. B. To the extent further review of any trends is required, document the results of the additional review in the space below or refer to the portion of these procedures under which you have documented the results of the additional review. 7. Review the reports used by management to monitor customer complaints related to the marketing, sales, and/or operation of the products during the review period. A. Who uses these reports? B. Do the reports note any of the same trends in numbers or types of complaints that were noted during the review of the complaints themselves under Procedure 6 above? C. If the reports note particular trends or red flags, did management take appropriate action to address them? 8. Review the bank’s summary of significant litigation. Describe any trends noted. Document any procedures or additional reviews performed during the examination to address any concerns noted by the examiner.
[Click&type]
Marketing and sales 1. Assess the marketing campaign materials for the products sold during the review period: A. Were marketing materials provided for each of the bank’s products? If not, discuss with bank. Obtain copies of any missing materials.
B. Do the terms presented in the marketing materials match the product descriptions given to examiners by the bank? If not, discuss with management to obtain an explanation. 2. Describe the enrollment process for each product.
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Examination Procedures Management CFPB February 2015 Procedures 95 A. Does the bank enroll customers in the products? Are service providers or Bank affiliates involved with the enrollment of any products? Which ones? B. When customers indicate that they want to purchase one of these products, are they required to complete additional steps to activate and/or receive the full benefits of the products? For example, are customers required to provide written consents to allow the service provider or others to obtain copies of their credit reports or other records? If additional information or consents are required, C. What controls are in place to ensure that customers are not billed for the products until the information or consents are provided? 3. Select a sample from the list of consumers who purchased the products during the review period that required consumer to complete more than one step to activate and/or receive the full benefits of the products. In selecting the sample, consider the following: A. Generally, each product will require a separate sample, unless the products are subject to the same additional steps.
B. If the bank used one or more affiliates or service providers in administering its enrollment process, treat the products administered by each service provider as a separate population and select a sample from each population.
C. When providing the bank with the selected sample, request: (a) account statements which show when customers were billed for the products and how much they were billed and (b) copies of bank records indicating whether the required additional steps were completed, and if it was, the date that the process was completed. If the additional steps involved customers’ submitting signed authorizations, request a copy of the signed authorizations also.
4. Review the scripts for the products sold during the review period. Were scripts provided for each of the bank’s products? If not, discuss this with bank. Obtain copies of any missing scripts. Summarize the results below.
5. Select a sample of the inbound telemarketing calls and a sample of the outbound telemarketing calls. If the bank used one or more affiliates or service providers to make inbound or outbound telemarketing calls, treat the calls made by each party as a separate call population and select a sample from each population.
A. When providing the bank with the selected sample, request (a) copies of any disclosures mailed to customers following the telephone purchase, (b) proof that the disclosures were mailed, and (c) copies of any signed applications or authorizations that were required to be returned by customers.
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Examination Procedures Management CFPB February 2015 Procedures 96 B. Listen to the entire conversation for each of the inbound or outbound calls that are a part of the selected samples. Record observations regarding the sample (including any observations about mailed disclosures). Upon completion of the samples, summarize findings below.
6. Review the description of any customer targeting model or other mechanism or process that the Bank, its components, affiliates, or third parties have used, uses, or have created to target product marketing and sales to specific customers or groups of customers. A. Summarize any targeting model, mechanism, or process below. B. If the bank targets specific types of customers, does the bank tailor advertisements, promotional materials, disclosures, and scripts to take into account the level of sophistication and experience of the target audience? 7. Assess any incentives or incentive programs connected to the sales and marketing of any product offered to customers during the review period. Consider whether the incentive programs may have negatively or positively influenced the likelihood that customers received accurate information about the products and customers understood what they were being offered.
[Click&type]
Customer cancellations and benefit claims requests 1. Select a sample of the calls containing customer cancellation requests. A. If the bank used one or more affiliates or service providers to handle these calls, treat the calls handled by each party as a separate call population and select a sample from each population.
B. Review the information supplied by the bank about each product type. Listen to the entire conversation for each of the tapes from the sample containing customer cancellation requests. Record observations regarding the calls. Upon completion of the sample, summarize findings below.
2. Select a sample of the calls containing customer claims for benefits. A. If the bank used one or more affiliates or service providers to handle these calls, treat the calls handled by each party as a separate call population. B. Review the information about each product type. Listen to the entire conversation for each of the tapes from the sample containing customer benefit claims. Record observations regarding the calls. Upon completion of the sample, summarize findings below. [Click&type]
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Examination Procedures Management CFPB February 2015 Procedures 97 Appendix 1: Disclosure Requirements This Appendix contains content and format requirements for the various disclosures required under Regulation Z. It should be used in conjunction with the Credit Card Account Management Examination Procedures in order to gain an understanding of the specific requirements for each type of disclosure.
Module 2: Application and solicitation disclosures (12 CFR 1026.60) The following information is required to be disclosed on or with a direct mail or electronic credit card application or solicitation. Certain information, as designated later, must be included in a table with headings, content, and format substantially similar to the applicable tables found in G- 10 in Appendix G to Regulation Z. If the amount of any fee required to be disclosed is determined on the basis of a percentage of another amount, the percentage used and the identification of the amount against which the percentage is applied may be disclosed instead of the amount of the fee.
• APR: The disclosure must include the APR for purchases, cash advances, and balance transfers. If more than one rate applies for a category of transactions, the disclosure must contain the range of balances to which each rate applies. The APR for purchases must be in 16-point type,47 and all APRs must be in bold type. The APRs must be included in the table. (12 CFR 1026.60(b)(1)) (Charge cards are not subject to this requirement.) o Variable rates: If any of the APRs are variable, the disclosure must state that the rate may vary and how the rate is determined, along with the type of index or formula used in setting the rate. This information must be included in the table. Information on the value of the index and the amount of the margin that are used to calculate the variable rate, and any applicable limitations on rate increases may not be included in the table. (12 CFR 1026.60(b)(1)(i)) o Discounted initial rate: If the initial APR is an introductory rate (as defined in 12 CFR 1026.16(g)(2)(ii)), the disclosure must include in the table: The introductory rate in bold type, The time period during which it will remain in effect, The term “introductory” or “intro” in immediate proximity to the rate. The rate that will apply after the introductory rate expires. If this rate is variable, the rate must be based on the applicable index or formula in accordance with the
47 The 16-point font requirement does not apply to oral disclosures of the APR for purchases or to a penalty rate that may apply upon the occurrence of one or more specific events.
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Examination Procedures Management CFPB February 2015 Procedures 98 accuracy requirements in 12 CFR 1026.60(c)(2), (d)(3), or (e)(4), as applicable (12 CFR 1026.60(b)(1)(ii)).
• Premium Rates: If the initial APR is temporary and is higher than the rate that will apply after the temporary rate expires, the disclosure must include in the table the premium initial rate and the time period during which the premium initial rate will remain in effect. The premium initial rate for purchases must be in at least 16-point type, and the table must include the rate that will apply after the premium initial rate expires, in at least 16point bold type. (12 CFR 1026.60(b)(1)(iii)) • Penalty rates: Except for introductory rates or employee preferential rates (discussed later), if a rate may increase as a penalty for one or more events specified in the account agreement, such as a late payment or an extension of credit that exceeds the credit limit, the card issuer must disclose the increased rate that may apply, a brief description of the event or events that may result in the increased rate, and a brief description of how long the increased rate will remain in effect. (12 CFR 1026.60(b)(1)(iv)(A)) If a penalty rate depends, at least in part, on a later determination of the consumer’s creditworthiness, the disclosure may state the highest rate that could apply, instead of the specific rate or the range of rates that could apply. (12 CFR 1026.60(b)(1)(v)) o Introductory rate: If the issuer discloses an introductory rate in the table or in any written or electronic promotional materials accompanying applications or solicitations for direct mail applications or applications made available to the general public, the disclosure must include, directly beneath the table, the circumstances, if any, under which the introductory rate may be revoked, and the type of rate that will apply after the introductory rate is revoked. (12 CFR 1026.60(b)(1)(iv)(B)) o Employee preferential rates: If the issuer discloses in the table a preferential APR for which only employees of the card issuer, employees of a third party, or other individuals with similar affiliations with the card issuer or third party are eligible, the circumstances under which such preferential rate may be revoked and the rate that will apply after such preferential rate is revoked must be disclosed directly beneath the table. (12 CFR 1026.60(b)(1)(iv)(C)) • Rates that depend on consumer’s creditworthiness: If the APR cannot be determined at the time disclosures are given because it depends, at least in part, on a later determination of the consumer’s creditworthiness, the disclosure must include the specific rates or the range of rates that could apply and a statement that the rate for which the consumer may qualify at account opening will depend on the consumer’s creditworthiness, and other factors if applicable. (12 CFR 1026.60(b)(1)(v)) • APRs that vary by state: If the APR varies by state, the disclosure may include in the table either the specific APR that would apply to the consumer’s account or the range of the APRs, if the disclosure includes a statement that the APR varies by state and refers
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Examination Procedures Management CFPB February 2015 Procedures 99 the consumer to a disclosure provided with the table where the APR applicable to the consumer’s account is disclosed. The card issuer may not list APRs for multiple states in the table. (12 CFR 1026.60(b)(1)(vi)) • Fees for issuance or availability. The disclosure must include in the table, in bold type, any annual or other periodic fee that may be imposed for the issuance or availability of a credit or charge card, including any fee based on account activity or inactivity; how frequently it will be imposed; and any annualized amount of the fee. (The bold text must not be used for the amount of any periodic fee described previously that is not an annualized amount.) The card issuer must include in the table, in bold type, any nonperiodic fee that relates to opening an account and disclose that the fee is a one-time fee. (12 CFR 1026.60(b)(2))48 • Fixed finance charge; minimum interest charge. The disclosure must include in the table any fixed finance charge, as well as a brief description of that charge. The card issuer must disclose any minimum interest charge if it exceeds $1.0049 that could be imposed during a billing cycle, and a brief description of the charge. The issuer has the option of disclosing in the table any minimum interest charge below $1.00. (12 CFR 1026.60(b)(3)) (Charge cards are not subject to this requirement.) • Transaction charge: The disclosure must include in the table, in bold type, any transaction charge imposed for the use of the card for purchases. (12 CFR 1026.60(b)(4)) • Grace Period: The disclosure must include in the table the date by which or the period within which any credit extended for purchases may be repaid without incurring a finance charge due to a periodic interest rate and any conditions on the availability of the grace period. (Charge cards are not subject to this requirement.) o If no grace period is provided, that fact must be disclosed. o If the length of the grace period varies, the disclosure may include the range of days, the minimum number of days, or the average number of days in the grace period, if the disclosure is identified as a range, minimum, or average. o In disclosing in the tabular format a grace period that applies to all types of purchases, the phrase “How to Avoid Paying Interest on Purchases” is required to be used as the heading for the row describing the grace period. If a grace period is not offered on all types of purchases, in disclosing this fact in the tabular format, the phrase “Paying
48 For examples of these types of fees, see Comment 60(b)(2). 49 The $1.00 threshold amount shall be adjusted periodically by the CFPB to reflect changes in the Consumer Price Index. The CFPB shall calculate each year a price level adjusted minimum interest charge using the Consumer Price Index in effect on June 1 of that year. When the cumulative change in the adjusted minimum value derived from applying the annual Consumer Price level to the current minimum interest charge threshold has risen by a whole dollar, the minimum interest charge will be increased by $1.00.
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Examination Procedures Management CFPB February 2015 Procedures 100 Interest” must be used as the heading for the row describing this fact. (12 CFR 1026.60(b)(5)) • Balance Computation Method: The name of the balance computation method (listed in 12 CFR 1026.60(g)) used to determine the balance for purchases on which the finance charge is computed must be disclosed directly beneath the table. (12 CFR 1026.60(b)(6)) (Charge cards are not subject to this requirement.) • Statement on Charge Card Payments: If the card is a charge card, a statement that charges incurred are due when the periodic statement is received must be included in the table. (12 CFR 1026.60(b)(7)) • The following fees must be disclosed in the table, in bold type. If these fees vary by state (with the exception of the fees listed in 1026.60(b)(13)), the issuer may, at its option, disclose in the table, either the specific fee that would apply to the consumer’s account or the range of the fees, if the disclosure includes a statement that the fee varies by state and refers the consumer to a disclosure provided with the table where the fee applicable to the consumer’s account is disclosed. The card issuer may not list fees for multiple states in the table.
o Cash advance fee (12 CFR 1026.60(b)(8)) o Late payment fee (12 CFR 1026.60(b)(9)) o Over-the-limit fee (12 CFR 1026.60(b)(10)) o Balance transfer fee (12 CFR 1026.60(b)(11)) o Returned payment fee (12 CFR 1026.60(b)(12)) o Fees for any required insurance, debt cancellation, or debt suspension coverage, along with a cross-reference to any additional information provided about the insurance or coverage accompanying the application or solicitation. (12 CFR 1026.60(b)(13)) (Charge cards are not subject to this requirement.) • Available Credit: If the card issuer requires fees for the issuance or availability of credit or a security deposit, and the total amount of those required fees and/or security deposit that will be imposed and charged to the account when the account is opened is 15 percent or more of the minimum credit limit for the card, a card issuer must disclose in the table the available credit remaining after these fees or security deposit are debited to the account, assuming that the consumer receives the minimum credit limit. (Charge cards are not subject to this requirement.) o If fees for issuance or availability are optional, these fees should not be considered in determining whether the disclosure must be given.
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Examination Procedures Management CFPB February 2015 Procedures 101 o If the 15 percent threshold test is met, the issuer must disclose the amount of available credit calculated by excluding those optional fees, and the available credit including those optional fees. (12 CFR 1026.60(b)(14)) • CFPB Website Reference: A reference to the website established by the Bureau and a statement that consumers may obtain on the website information about shopping for and using credit cards must be included in the table. (12 CFR 1026.60(b)(15)) If the application or solicitation is initiated by the card issuer by telephone, the issuer is required to orally disclose the information in 12 CFR 1026.60(b)(1)-(7) and (b)(14), to the extent applicable. These oral disclosures must be accurate as of the time they are given. In the alternative, the card issuer does not need to give the oral disclosures if it does not impose fees for issuance or availability, as described in 12 CFR 1026.60(b)(2), or if it imposes such a fee, the card issuer provides the consumer with a right to reject the plan. To use this alternative, the card issuer must disclose in writing within 30 days after the consumer requests the card (but not later than the delivery of the card) the applicable information in 12 CFR 1026.60(b) and, as applicable, the fact that the consumer has the right to reject the plan and not be obligated to pay fees described in 12 CFR 1026.60(b)(2) or any other fees or charges until the consumer has used the account or made a payment on the account after receiving a billing statement. The alternative disclosures generally must be accurate as of the time they are mailed or delivered.50 (12 CFR 1026.60(d)) If the application or solicitation is made available to the general public, such as through a catalog, magazine, or other generally available publication, the card issuer may disclose in a prominent location on the application or solicitation the following information: • The applicable information from 12 CFR 1026.60(b);
• The date the required information was printed, including a statement that the required information was accurate as of that date and is subject to change after that date; and • A statement that the consumer should contact the card issuer for any change in the required information since it was printed, and a toll-free number or mailing address for that purpose.
In the alternative, if none of the items in 12 CFR 1026.60(b) are provided on or with the application or solicitation, the card issuer may state in a prominent location on the application or solicitation that there are costs associated with the use of the card, and that the consumer may
50 A variable annual percentage rate is one that is accurate if it was: (A) in effect at the time the disclosures are mailed or delivered; or (B) in effect as of a specified date (and the rate is then updated from time to time, but no less frequently than each calendar month).
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Examination Procedures Management CFPB February 2015 Procedures 102 contact the card issuer to request specific information about the costs, along with a toll-free number and mailing address for that purpose. The card issuer must promptly respond to any requests. (12 CFR 1026.60(e)) Applications and solicitations initiated by the card issuer and given to the consumer in person must include the information required by 12 CFR 1026.60(b), to the extent applicable. A card issuer complies with this requirement if the issuer provides disclosures in accordance with 12 CFR 1026.60(c)(1) or (e)(1).
Module 2: Account opening disclosures (12 CFR 1026.6) The following are required to be disclosed in the account-opening table: • APR: The disclosure must include the APR for purchases, cash advances, and balance transfers. If more than one rate applies for a category of transactions, the disclosure must contain the range of balances to which each rate applies. The APR for purchases must be in 16-point type,51 and all APRs must be in bold type. (12 CFR 1026.6(b)(2)(i)) o Variable Rates: If any of the APRs are variable, the disclosure must state that the rate may vary and how the rate is determined, along with the type of index or formula used in setting the rate. Information on the value of the index and the amount of the margin that are used to calculate the variable rate, and any applicable limitations on rate increases or decreases may not be included in the table. (12 CFR 1026.6(b)(2)(A)) o Discounted Initial Rates: If the initial APR is an introductory rate (as defined in 12 CFR 1026.16(g)(2)(ii)), the disclosure must include the rate that would otherwise apply to the account (if the issuer was not offering the introductory rate). If the rate is not tied to an index or formula, the disclosure must include the rate that will apply after the introductory rate expires. In a variable-rate account, the disclosure must include a rate based on the applicable index or formula (in accordance with the accuracy requirements of 12 CFR 1026.6(b)(4)(ii)(G)). The issuer also is required to disclose in the table the introductory rate, and the time period during which the introductory rate will remain in effect. The card issuer must disclose the introductory rate using the term “introductory” or “intro” in immediate proximity to the introductory rate. (12 CFR 1026.6(b)(2)(i)(B) and (F)) o Premium Rates: If the initial APR is temporary and is higher than the rate that will apply after the temporary rate expires, the disclosure must include the premium initial rate in the table. The premium initial rate for purchases must be in at least 16-point type. (12 CFR 1026.6(b)(2)(i)(C)) The issuer also is required to disclose in the table the time period during which the premium initial rate will remain in effect and the
51 The 16-point font requirement does not apply to a penalty rate that may apply upon the occurrence of one or more specific events.
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Examination Procedures Management CFPB February 2015 Procedures 103 rate that will apply after the premium initial rate expires. The rate that will apply after the premium initial rate for purchases expires must be in at least 16-point type. (12 CFR 1026.6(b)(2)(i)(C) and (F)) o Penalty rates: Except for introductory rates or employee preferential rates (discussed later), if a rate may increase as a penalty for one or more events specified in the account agreement, such as a late payment or an extension of credit that exceeds the credit limit, the disclosure must include the increased rate that may apply, a brief description of the event or events that may result in the increased rate, and a brief description of how long the increased rate will remain in effect. (12 CFR 1026.6(b)(2)(i)(D)(1)) Introductory rate: If the issuer discloses an introductory rate in the table, the disclosure must include, directly beneath the table, the circumstances, if any, under which the introductory rate may be revoked, and the rate that will apply after the introductory rate is revoked. (12 CFR 1026.6(b)(2)(i)(D)(2)) Employee preferential rates: If the issuer discloses in the table a preferential APR for which only employees of the card issuer, employees of a third party, or other individuals with similar affiliations with the card issuer or third party are eligible, the circumstances under which such preferential rate may be revoked and the rate that will apply after such preferential rate is revoked must be disclosed directly beneath the table. (12 CFR 1026.6(b)(2)(i)(D)(3)) o Point of Sale where APR varies by state or based on creditworthiness: If the APR varies by state or depends on the consumer’s creditworthiness, and the account opening disclosure is provided in person at the time the plan is established in connection with financing the purchase of goods or services, the issuer may, at its option, disclose either the specific APR that would apply to the consumer’s account or the range of the APRs, if the disclosure includes a statement that the APR varies by state or will be determined based on the consumer’s creditworthiness, and refers the consumer to the account agreement or other disclosure provided with the table where the APR applicable to the consumer’s account is disclosed. The card issuer may not list APRs for multiple states in the table. (12 CFR 1026.6(b)(2)(i)(E)) • Fees for issuance or availability: The disclosure must include, in bold type, any annual or other periodic fee that may be imposed for the issuance or availability of a credit or charge card, including any fee based on account activity or inactivity; how frequently it will be imposed; and the annualized amount of the fee. (The bold text must not be used for the amount of any periodic fee described previously that is not an annualized amount.) The disclosure must also include any non-periodic fee that related to opening the plan, and state that the fee is a one-time fee. (12 CFR 1026.6(b)(2)(ii))
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Examination Procedures Management CFPB February 2015 Procedures 104 • Fixed finance charge; minimum interest charge: The disclosure must include any fixed finance charge, as well as a brief description of that charge. The card issuer must disclose any minimum interest charge if it exceeds $1.00 that could be imposed during a billing cycle, and a brief description of the charge. The issuer has the option of disclosing in the table any minimum interest charge below $1.00. (12 CFR 1026.6(b)(2)(iii)) • Transaction charge: The disclosure must include, in bold type, any transaction charge imposed for the use of the card for purchases. (12 CFR 1026.6(b)(2)(iv)) • Grace Period: The disclosure must include the date by which or the period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate and any conditions on the availability of the grace period. o If no grace period is provided, that fact must be disclosed. o If the length of the grace period varies, the disclosure may include the range of days, the minimum number of days, or the average number of days in the grace period, if the disclosure is identified as a range, minimum, or average. o In disclosing in the tabular format a grace period that applies to all features on the account, the phrase “How to Avoid Paying Interest” must be used as the heading for the row describing the grace period. If a grace period is not offered on all features of the account, in disclosing this fact in the tabular format, the phrase “Paying Interest” must be used as the heading for the row describing this fact. (12 CFR 1026.6(b)(2)(v)) • Balance Computation Method: The name of the balance computation method used to determine the balance on which the finance charge is computed for each feature, or an explanation of the method used (if it is not one of the methods listed in 12 CFR 1026.60(g)), along with a statement that an explanation of the method is provided with the account opening disclosure. In determining which balance computation method to disclose, the issuer is required to assume that the credit extended will not be repaid within any grace period, if one is offered. (12 CFR 1026.6(b)(2)(vi)) • The following fees must be disclosed in bold type. If the fee varies by state (with the exception of the fees described in 12 CFR 1026.6(b)(2)(xii)) and the account opening disclosure is provided in person at the time the plan is established in connection with financing the purchase of goods or services, the card issuer may, at its option, disclose either the specific fee that would apply to the consumer’s account or the range of the fees, if the disclosure includes a statement that the fee varies by state, and refers the consumer to the account agreement or other disclosure provided with the table where the fee applicable to the consumer’s account is disclosed. The card issuer may not list fees for multiple states in the table. (12 CFR 1026.6(b)(1)(iii)) o Cash advance fee (12 CFR 1026.6(b)(2)(vii))
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Examination Procedures Management CFPB February 2015 Procedures 105 o Late payment fee (12 CFR 1026.6(b)(2)(viii)) o Over-the-limit fee (12 CFR 1026.6(b)(2)(ix)) o Balance transfer fee (12 CFR 1026.6(b)(2)(x)) o Returned payment fee (12 CFR 1026.6(b)(2)(xi)) o Fees for any required insurance, debt cancellation, or debt suspension coverage, along with a cross-reference to any additional information provided about the insurance or coverage. (12 CFR 1026.6(b)(2)(xii)) • Available Credit: If the card issuer requires fees for the issuance or availability of credit or a security deposit, and the total amount of those required fees and/or security deposit that will be imposed and charged to the account when the account is opened is 15 percent or more of the minimum credit limit for the card, a card issuer must disclose the available credit remaining after these fees or security deposit are debited to the account. The determination whether the 15 percent threshold is met must be based on the minimum credit limit for the plan. However, if the 15 percent threshold is met, the disclosure provided must be based on the actual initial credit limit provided on the account. The card issuer must also disclose that the consumer has the right to reject the plan and would not be obligated to pay those fees or any other fee or charges until the consumer has used the account or made a payment on the account after receiving a periodic statement. o If fees for issuance or availability are optional, these fees should not be considered in determining whether the disclosure must be given.
o If the 15 percent threshold test is met, the issuer must disclose the amount of available credit calculated by excluding those optional fees, and the available credit including those optional fees. (12 CFR 1026.6(b)(2)(xiii)) • Website Reference: For credit cards that are not charge cards, a reference to the website established by the CFPB and a statement that consumer may obtain on the website information about shopping for and using credit cards. (12 CFR 1026.6(b)(2)(xiv)) • Billing Error Rights Reference: A statement that information about the consumer’s right to dispute transactions is included in the account opening disclosures. (12 CFR 1026.6(b)(2)(xv))
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Examination Procedures Management CFPB February 2015 Procedures 106 The following information is required to be disclosed outside of the table:52 • Charges imposed as part of the plan: For charges imposed as part of the plan, the circumstances under which the charge may be imposed, including the amount of the charge or an explanation of how the charge is determined. For finance charges, include a statement of when the charge begins to accrue and an explanation of whether or not the account includes a grace period.53 (12 CFR 1026.6(b)(3)) o Charges imposed as part of the plan are:
Finance charges identified under 12 CFR 1026.4(a) and 12 CFR 1026.4(b). (12 CFR 1026.6(b)(3)(ii)(A)) Charges resulting from the consumer’s failure to use the plan as agreed, except amounts payable for collection activity after default, attorney’s fees whether or not automatically imposed, and post-judgment interest rates permitted by law. (12 CFR 1026.6(b)(3)(ii)(B)) Taxes imposed on the credit transaction by a state or other governmental body, such as documentary stamp taxes on cash advances. (12 CFR 1026.6(b)(3)(ii)(C)) Charges for which the payment, or nonpayment, affect the consumer’s access to the plan, the duration of the plan, the amount of credit extended, the period for which credit is extended, or the timing or method of billing or payment. (12 CFR 1026.6(b)(3)(ii)(D)) Charges imposed for terminating a plan. (12 CFR 1026.6(b)(3)(ii)(E)) Charges for voluntary credit insurance, debt cancellation or debt suspension. (12 CFR 1026.6(b)(3)(ii)(F)) o Charges that are not imposed as part of the plan include (12 CFR 1026.6(b)(3)(iii)): Charges imposed on a cardholder by an institution other than the card issuer for the use of the other institution's ATM in a shared or interchange system. (12 CFR 1026.6(b)(3)(iii)(A)) A charge for a package of services that includes an open-end credit feature, if the fee is required whether or not the open-end credit feature is included and the non-
52 Charges imposed as part of the plan that are not required to be disclosed in the account-opening table may be disclosed along with the account-opening table (outside of the table) prior to the first transaction, or may be disclosed after account opening but before the consumer agrees to pay or becomes obligated to pay for the charge, provided they are disclosed at a time and in a manner that a consumer would be likely to notice them. (12 CFR 1026.5(b)(1)(ii)) 53 If a grace period is provided, an issuer may, at its option and without disclosure, elect not to impose a finance charge when payment is received after the time period expires.
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Examination Procedures Management CFPB February 2015 Procedures 107 credit services are not merely incidental to the credit feature. (12 CFR 1026.6(b)(3)(iii)(B)) Charges under 12 CFR 1026.4(e) (Certain security interest charges) disclosed as specified. (12 CFR 1026.6(b)(3)(iii)(C)) • Rates (12 CFR 1026.6(b)(4)) o For each periodic rate that may be used to calculate interest (12 CFR 1026.6(b)(4)(i)): Rates: The rate, expressed as a periodic rate and a corresponding APR. (12 CFR 1026.6(b)(4)(i)(A)) Range of balances: The range of balances to which the rate is applicable; however, an issuer is not required to adjust the range of balances disclosure to reflect the balance below which only a minimum charge applies. (12 CFR 1026.6(b)(4)(i)(B)) Type of transaction: The type of transaction to which the rate applies, if different rates apply to different types of transactions. (12 CFR 1026.6(b)(4)(i)(C)) Balance computation method: An explanation of the method used to determine the balance to which the rate is applied. (12 CFR 1026.6(b)(4)(i)(D)) o Variable-rate accounts: For interest rate changes that are tied to increases in an index or formula specifically set forth in the account agreement (12 CFR 1026.6(b)(4)(ii)): The fact that the APR may increase. (12 CFR 1026.6(b)(4)(ii)(A)) How the rate is determined, including the margin. (12 CFR 1026.6(b)(4)(ii)(B)) The circumstances under which the rate may increase. (12 CFR 1026.6(b)(4)(ii)(C)) The frequency with which the rate may increase. (12 CFR 1026.6(b)(4)(ii)(D)) Any limitation on the amount the rate may change. (12 CFR 1026.6(b)(4)(ii)(E)) The effect(s) of an increase. (12 CFR 1026.6(b)(4)(ii)(F)) Except as specified in 12 CFR 1026.6(b)(4)(ii)(H), a rate is accurate if it is a rate as of a specified date and this rate was in effect within the last 30 days before the disclosures are provided. (12 CFR 1026.6(b)(4)(ii)(G)) Issuers imposing APRs that vary according to an index that is not under the issuer’s control that provide the disclosures required 12 CFR 1026.6(b) in person at the time the open-end plan is established in connection with financing the
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Examination Procedures Management CFPB February 2015 Procedures 108 purchase of goods or services may disclose in the table a rate, or range of rates to the extent permitted by 12 CFR 1026.6(b)(2)(i)(E), that was in effect within the last 90 days before the disclosures are provided, along with a reference directing the consumer to the account agreement or other disclosure provided with the account-opening table where an APR applicable to the consumer's account in effect within the last 30 days before the disclosures are provided is disclosed. (12 CFR 1026.6(b)(4)(ii)(H)) • Rate changes not due to index or formula. For interest rate changes that are specifically set forth in the account agreement and not tied to increases in an index or formula (12 CFR 1026.6(b)(4)(iii)):
o The initial rate (expressed as a periodic rate and a corresponding APR) required under 12 CFR 1026.6(b)(4)(i)(A). (12 CFR 1026.6(b)(4)(iii)(A)) o How long the initial rate will remain in effect and the specific events that cause the initial rate to change. (12 CFR 1026.6(b)(4)(iii)(B)) o The rate (expressed as a periodic rate and a corresponding APR) that will apply when the initial rate is no longer in effect and any limitation on the time period the new rate will remain in effect. (12 CFR 1026.6(b)(4)(iii)(C)) o The balances to which the new rate will apply. (12 CFR 1026.6(b)(4)(iii)(D)) o The balances to which the current rate at the time of the change will apply. (12 CFR 1026.6(b)(4)(iii)(E)) • Voluntary credit insurance, debt cancellation or debt suspension: The disclosures in 12 CFR 1026.4(d)(1)(i) and (d)(1)(ii) and (d)(3)(i) through (d)(3)(iii) if the issuer offers optional credit insurance or debt cancellation or debt suspension coverage that is identified in 12 CFR 1026.4(b)(7) or (b)(10). (12 CFR 1026.6(b)(5)(i)) • Security interests: The fact that the issuer has or will acquire a security interest in the property purchased under the plan, or in other property identified by item or type. (12 CFR 1026.6(b)(5)(ii)) • A statement that outlines the consumer’s rights and the issuer’s responsibilities under 12 CFR 1026.12(c) and 12 CFR 1026.13 and that is substantially similar to the statement found in Model Form G-3(A) in appendix G to 12 CFR 12 CFR 1026. (12 CFR 1026.6(b)(5)(iii))
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Examination Procedures Management CFPB February 2015 Procedures 109 Module 3: Change-in-Terms Notice (12 CFR 1026.9(c)(2)(iv)) If a creditor makes a significant change in account terms that requires a 45-day advance notice, the notice must contain the following information:
• A summary of the changes made to terms required to be disclosed by 12 CFR 1026.6(b)(1) and (b)(2) or 12 CFR 1026.6(b)(4), a description of any increase in the required minimum periodic payment, and a description of any security interest being acquired by the creditor (12 CFR 1026.9(c)(2)(iv)(A)(1)). o If the change is to a term required to be disclosed by 12 CFR 1026.6(b)(1) or (2), this change must be in tabular format, with headings and format substantially similar to any of the account-opening tables found in G-17 in Appendix G to 12 CFR 1026. The table must disclose the changed term and information relevant to the change, if that relevant information is required by 12 CFR 1026.6(b)(1) and (b)(2). The new terms shall be described in the same level of detail as required when disclosing the terms under 12 CFR 1026.6(b)(2) (12 CFR 1026.9(c)(2)(iv)(D)(1)). • A statement that changes are being made to the account (12 CFR 1026.9(c)(2)(iv)(A)(2)); • The date the changes will become effective (12 CFR 1026.9(c)(2)(iv)(A)(4)); • If applicable, a statement that the consumer may find additional information about the summarized changes, and other changes to the account, in the notice (12 CFR 1026.9(c)(2)(iv)(A)(5));
• If the creditor is changing a rate on the account, other than a penalty rate, a statement that if a penalty rate currently applies to the consumer's account, the new rate described in the notice will not apply to the consumer's account until the consumer's account balances are no longer subject to the penalty rate (12 CFR 1026.9(c)(2)(iv)(A)(6)); • If the change in terms being disclosed is an increase in an APR, the balances to which the increased rate will be applied. If applicable, a statement identifying the balances to which the current rate will continue to apply as of the effective date of the change in terms (12 CFR 1026.9(c)(2)(iv)(A)(7)); and • If the change in terms being disclosed is an increase in an APR, a statement of no more than four principal reasons for the rate increase, listed in their order of importance (12 CFR 1026.9(c)(2)(iv)(A)(8)).
• If the change in terms is an increase in an APR or fee or charge required to be disclosed under 12 CFR 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) based on the consumer’s failure to make a minimum periodic payment within 60 days of the payment due date:
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Examination Procedures Management CFPB February 2015 Procedures 110 o The reason for the increase if there is an increase in a fee or charge required to be disclosed under 12 CFR 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) (12 CFR 1026.9(c)(2)(iii)(C)(2)); and o A statement that the increase will cease to apply to transactions that occurred prior to or within 14 days of provision of the notice, if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase (12 CFR 1026.9(c)(2)(iii)(C)(1)).
• Information concerning the consumer’s right to reject the change in terms:54 o A statement that the consumer has the right to reject the change or changes prior to the effective date of the changes, unless the consumer fails to make a required minimum periodic payment within 60 days after the due date for that payment (12 CFR 1026.9(c)(2)(iv)(B)(1));
o Instructions for rejecting the change or changes, and a toll-free telephone number that the consumer may use to notify the creditor of the rejection (12 CFR 1026.9(c)(2)(iv)(B)(2)); and o If applicable, a statement that if the consumer rejects the change or changes, the consumer's ability to use the account for further advances will be terminated or suspended (12 CFR 1026.9(c)(2)(iv)(B)(3)).
• If the notice is included on or with a periodic statement, the summary of changes (pursuant to 12 CFR 1026.9(c)(2)(iv)(A)(1)) must be disclosed on the front of any page of the statement. The summary of changes must immediately follow the information described in 12 CFR 1026.9(c)(2)(iv)(A)(2) through (c)(2)(iv)(A)(7) and, if applicable, 12 CFR 1026.9(c)(2)(iv)(A)(8), (c)(2)(iv)(B), and (c)(2)(iv)(C), and be substantially similar to the format shown in Sample G-20 or G-21 in Appendix G to 12 CFR 12 CFR 1026. • If a notice required by 12 CFR 1026.9(c)(2)(i) is not included on or with a periodic statement, o The summary of changes (pursuant to 12 CFR 1026.9(c)(2)(iv)(A)(1)) must, at the creditor’s option, be disclosed on the front of the first page of the notice or segregated on a separate page from other information given with the notice. The summary of
54 This information is not required to be provided in the case of an increase in the required minimum periodic payment, an increase in a fee as a result of a reevaluation of a determination made under 12 CFR 1026.52(b)(1)(i)), or an adjustment to the safe harbors in 12 CFR 1026.52(b)(1)(ii) to reflect changes in the Consumer Price Index, a change in an APR applicable to a consumer's account, an increase in a fee previously reduced consistent with 50 U.S.C.USC app. 527 or a similar Federal or state statute or regulation if the amount of the increased fee does not exceed the amount of that fee prior to the reduction, or when the change results from the creditor not receiving the consumer's required minimum periodic payment within 60 days after the due date for that payment (1026.9(c)(2)(iv)(B))
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Examination Procedures Management CFPB February 2015 Procedures 111 changes required to be in a table pursuant to 12 CFR 1026.9(c)(2)(iv)(A)(1) may be on more than one page, and may use both the front and reverse sides, so long as the table begins on the front of the first page of the notice and there is a reference on the first page indicating that the table continues on the following page. The summary of changes described in 12 CFR 1026.9(c)(2)(iv)(A)(1) must immediately follow the information described in 12 CFR 1026.9(c)(2)(iv)(A)(2) through (c)(2)(iv)(A)(7) and, if applicable, 12 CFR 1026.9(c)(2)(iv)(A)(8), (c)(2)(iv)(B), and (c)(2)(iv)(C), substantially similar to the format shown in Sample G-20 or G-21 in Appendix G to 12 CFR 12 CFR 1026. (12 CFR 1026.9(c)(2)(iv)(D)) Module 3: Checks that access a credit card account (12 CFR 1026.9(b)(3)) If checks that can be used to access a credit card account are provided more than 30 days after account-opening disclosures under 12 CFR 1026.6(b) are mailed or delivered, or are provided within 30 days of the account-opening disclosures and the finance charge terms for the checks differ from the finance charge terms previously disclosed, the following information must be disclosed on the front of the page containing the checks in the form of a table with the headings, content, and form substantially similar to Sample G-19 in Appendix G to 12 CFR 12 CFR 1026 (12 CFR 1026.9(b)(3)(i)):
• If a promotional rate applies to the checks (12 CFR 1026.9(b)(3)(i)(A)): o The promotional rate and the time period during which the promotional rate will remain in effect (12 CFR 1026.9(b)(3)(i)(A)(1));
o The type of rate that will apply (such as whether the purchase or cash advance rate applies) after the promotional rate expires, and the APR that will apply after the promotional rate expires (12 CFR 1026.9(b)(3)(i)(A)(2)); and o The date, if any, by which the consumer must use the checks in order to qualify for the promotional rate. If the creditor will honor checks used after such date but will apply an APR other than the promotional rate, the creditor must disclose this fact and the type of APR that will apply if the consumer uses the checks after such date (12 CFR 1026.9(b)(3)(i)(A)(3)).
• If no promotional rate applies to the checks, the type of rate that will apply to the checks and the applicable APR (12 CFR 1026.9(b)(3)(i)(B)(1)). • Any transaction fees applicable to the checks disclosed under 12 CFR 1026.6(b)(2)(iv) (12 CFR 1026.9(b)(3)(i)(C)); and • Whether or not a grace period is given within which any credit extended by use of the checks may be repaid without incurring a finance charge due to a periodic interest rate. When disclosing whether there is a grace period, the phrase “How to Avoid Paying
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Examination Procedures Management CFPB February 2015 Procedures 112 Interest on Check Transactions” must be used as the row heading when a grace period applies to credit extended by the use of the checks. When disclosing the fact that no grace period exists for credit extended by use of the checks, the phrase “Paying Interest” shall be used as the row heading (12 CFR 1026.9(b)(3)(i)(D)). • Accuracy:
o The disclosures must be accurate as of the time the disclosures are mailed or delivered. A variable APR is accurate if it was in effect within 60 days of when the disclosures are mailed or delivered (12 CFR 1026.9(b)(3)(ii)). o If any APR required to be disclosed is a variable rate, the card issuer must also disclose the fact that the rate may vary and how the rate is determined. In describing how the applicable rate will be determined, the card issuer must identify the type of index or formula that is used in setting the rate. The value of the index and the amount of the margin that are used to calculate the variable rate, and any applicable limitations on rate increases may not be disclosed in the table (12 CFR 1026.9(b)(3)(iii)).
Module 3: Notice of increase in rates due to delinquency, default, or as a penalty (12 CFR 1026.9(g) Creditors must provide notice of an increase in rates due to delinquency, default, or as a penalty at least 45 days prior to the effective date of the rate increase. If this notice is provided on or with a periodic statement, it must be in the form of a table and provided on the front of any page of the periodic statement, above any notice of changes in account terms under 12 CFR 1026.9(c)(2)(iv). If the notice is not included on or with the periodic statement, the required information must be disclosed on the front of the first page of the notice. The only other information that may be included along with this notice is a notification of a change in significant account terms (pursuant to 12 CFR 1026.9(c)(2)(iv)) or notification of an increase of rate for obtaining an extension of credit that exceeds the credit limit (pursuant to 12 CFR 1026.9(g)(4)).
• The notice must include the following information:
o A statement that the delinquency or default rate or penalty rate, as applicable, has been triggered (12 CFR 1026.9(g)(3)(i)(A)(1));
o The date on which the delinquency or default rate or penalty rate will apply (12 CFR 1026.9(g)(3)(i)(A)(2));
o The circumstances under which the delinquency or default rate or penalty rate, as applicable, will cease to apply to the consumer's account, or that the delinquency or default rate or penalty rate will remain in effect for a potentially indefinite time period (12 CFR 1026.9(g)(3)(i)(A)(3));
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Examination Procedures Management CFPB February 2015 Procedures 113 o A statement indicating to which balances the delinquency or default rate or penalty rate will be applied (12 CFR 1026.9(g)(3)(i)(A)(4));
o If applicable, a description of any balances to which the current rate will continue to apply as of the effective date of the rate increase, unless a consumer fails to make a minimum periodic payment within 60 days from the due date for that payment (12 CFR 1026.9(g)(3)(i)(A)(5)); and o A statement of no more than four principal reasons for the rate increase, listed in their order of importance (12 CFR 1026.9(g)(3)(i)(A)(6)).
• If the rate increase is based on the consumer's failure to make a minimum periodic payment within 60 days from the due date for that payment, the notice must also state that the increase will cease to apply to transactions that occurred prior to or within 14 days of provision of the notice, if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase (12 CFR 1026.9(g)(3)(i)(B)). • If a creditor has decreased a consumer’s credit limit and will apply a penalty rate if the consumer exceeds the reduced credit limit, notice is not required prior to increasing the rate for obtaining an extension of credit that exceeds the credit limit, provided that (12 CFR 1026.9(g)(4)):
o The creditor provides at least 45 days in advance of imposing the penalty rate a notice, in writing, that includes the following information (12 CFR 1026.9(g)(4)(i)): A statement that the credit limit on the account has been or will be decreased (12 CFR 1026.9(g)(4)(i)(A));
A statement indicating the date on which the penalty rate will apply, if the outstanding balance exceeds the credit limit as of that date (12 CFR 1026.9(g)(4)(i)(B));
A statement that the penalty rate will not be imposed on the date specified in 12 CFR 1026.9(g)(4)(i)(B), if the outstanding balance does not exceed the credit limit as of that date (12 CFR 1026.9(g)(4)(i)(C));
The circumstances under which the penalty rate, if applied, will cease to apply to the account, or that the penalty rate, if applied, will remain in effect for a potentially indefinite time period (12 CFR 1026.9(g)(4)(i)(D)); A statement indicating to which balances the penalty rate may be applied (12 CFR 1026.9(g)(4)(i)(E)); and If applicable, a description of any balances to which the current rate will continue to apply as of the effective date of the rate increase, unless the consumer fails to
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Examination Procedures Management CFPB February 2015 Procedures 114 make a minimum periodic payment within 60 days from the due date for that payment; (12 CFR 1026.9(g)(4)(i)(F));
o The creditor does not increase the rate applicable to the consumer's account to the penalty rate if the outstanding balance does not exceed the credit limit on the date set forth in the notice and described in 12 CFR 1026.9(g)(4)(i)(B). (12 CFR 1026.9(g)(4)(ii)) Module 4: Periodic statements (12 CFR 1026.7(b); 12 CFR 1026.8) The following information is required to be disclosed on the periodic statement, as applicable: • Previous balance. The account balance outstanding at the beginning of the billing cycle. (12 CFR 1026.7(b)(1)) • Identification of transactions: An identification of each credit transaction in accordance with 12 CFR 1026.8. (12 CFR 1026.7(b)(2)) The issuer shall identify credit transactions on or with the first periodic statement that reflects the transaction by furnishing the following information, as applicable (12 CFR 1026.8): o Sale credit: (12 CFR 1026.8(a)) For each credit transaction involving the sale of property or services, the issuer must disclose the amount and date of the transaction, and either (12 CFR 1026.8(a)(1)):
• A brief identification of the property or services purchased, for issuers and sellers that are the same or related (12 CFR 1026.8(a)(1)(i)); or • The seller's name; and the city and state or foreign country where the transaction took place. The issuer may omit the address or provide any suitable designation that helps the consumer to identify the transaction when the transaction took place at a location that is not fixed; took place in the consumer's home; or was a mail, Internet, or telephone order. (12 CFR 1026.8(a)(1)(ii)) Issuers are not required to include this information if an actual copy of the receipt or other credit document is provided with the first periodic statement reflecting the transaction, and the amount of the transaction and either the date of the transaction to the consumer's account or the date of debiting the transaction are disclosed on the copy or on the periodic statement. (12 CFR 1026.8(a)(2)) o Nonsale credit: For each credit transaction not involving the sale of property or services, the issuer must disclose a brief identification of the transaction; the amount of the transaction; and at least one of the following dates:
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Examination Procedures Management CFPB February 2015 Procedures 115 the date of the transaction, the date the transaction was debited to the consumer's account, or, if the consumer signed the credit document, the date appearing on the document. If an actual copy of the receipt or other credit document is provided and that copy shows the amount and at least one of the specified dates, the brief identification may be omitted. (12 CFR 1026.8(b)) o Alternative issuer procedures; consumer inquiries for clarification or documentation: The following procedures apply to issuers that treat an inquiry for clarification or documentation as a notice of a billing error, including correcting the account in accordance with 12 CFR 1026.13(e) (12 CFR 1026.8(c)): Failure to disclose the information required by 12 CFR 1026.8(a) and (b) is not a failure to comply with the regulation, provided that the issuer also maintains procedures reasonably designed to obtain and provide the information. This applies to transactions that take place outside a state, as defined in 12 CFR 1026.2(a)(26), whether or not the issuer maintains procedures reasonably adapted to obtain the required information. (12 CFR 1026.8(c)((1)) As an alternative to the brief identification for sale or nonsale credit, the issuer may disclose a number or symbol that also appears on the receipt or other credit document given to the consumer, if the number or symbol reasonably identifies that transaction with that issuer. (12 CFR 1026.8(c)(2)) • Credits: Any credit to the account during the billing cycle, including the amount and the date of crediting. The date need not be provided if a delay in crediting does not result in any finance or other charge. (12 CFR 1026.7(b)(3)) • Periodic rates: (12 CFR 10267(b)(4)) o Each periodic rate that may be used to compute the interest charge expressed as an APR and using the term “Annual Percentage Rate,” along with the range of balances to which it is applicable.
A promotional rate is only required to be disclosed in periods in which the offered rate is actually applied. (12 CFR 1026.7(b)(4)(ii)) For variable-rate plans, the statement must include the fact that the APR may vary. o The types of transactions to which the periodic rates apply.
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Examination Procedures Management CFPB February 2015 Procedures 116 o If no interest charge is imposed when the outstanding balance is less than a certain amount, the issuer is not required to disclose that fact, or the balance below which no interest charge will be imposed.
• Balance on which finance charge computed: The amount of the balance to which a periodic rate was applied and an explanation of how that balance was determined, using the term “Balance Subject to Interest Rate.” (12 CFR 1026.7(b)(5)) o When a balance is determined without first deducting all credits and payments made during the billing cycle, that fact and the amount of the credits and payments must be disclosed.
o As an alternative to providing an explanation of how the balance was determined, an issuer that uses a balance computation method identified in 12 CFR 1026.60(g) may, at the issuer's option, identify the name of the balance computation method and provide a toll-free telephone number where consumers may obtain from the issuer more information about the balance computation method and how resulting interest charges were determined. If the method used is not identified in 12 CFR 1026.60(g), the issuer shall provide a brief explanation of the method used. 55 • Charges imposed. The following information must be disclosed in a format substantially similar to Sample G-18(A) in Appendix G to 12 CFR 12 CFR 1026. (12 CFR 1026.7(b)(6)) o The amount of any charges imposed as part of a plan, grouped together, in proximity to the identified credit transactions.
o Finance charges attributable to periodic interest rates, using the term “Interest Charge,” must be grouped together under the heading “Interest Charged,” itemized and totaled by type of transaction. A total of finance charges attributable to periodic interest rates, using the term “Total Interest,” must be disclosed for the statement period and calendar year to date.
o Charges imposed as part of the plan other than charges attributable to periodic interest rates must be grouped together under the heading “Fees,” identified consistent with the feature or type, and itemized. A total of charges, using the term “Fees,” must be disclosed for the statement period and calendar year to date. • Certain Changes in Terms: If a change-in-terms notice required by 12 CFR 1026.9(c)(2) is provided on or with the periodic statement, a tabular summary of key changes must appear on the front of the statement. Similarly, if a notice of a rate increase due to
55 These balance computation methods include Average Daily Balance (including new purchases); Average Daily Balance (excluding new purchases); Adjusted Balance; Previous Balance; and Daily Balance. See 12 CFR 1026.60(g) for the definitions of each method.
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Examination Procedures Management CFPB February 2015 Procedures 117 delinquency or default or as a penalty required by 12 CFR 1026.9(g)(1) is provided on or with the periodic statement, information required to be provided about the increase must be presented in a table on the front of the statement. See Forms G-18(F) and G-18(G) in Appendix G to 12 CFR 12 CFR 1026. (12 CFR 1026.7(b)(7)) • Grace period: The date by which or the time period within which the new balance or any portion of the new balance must be paid to avoid additional finance charges. If such a time period is provided, an issuer may, at its option and without disclosure, impose no finance charge if payment is received after the time period's expiration. (12 CFR 1026.7(b)(8)) • Address for notice of billing errors: The address to be used for notice of billing errors. Alternatively, the address may be provided on the billing rights statement permitted by 12 CFR 1026.9(a)(2). (12 CFR 1026.7(b)(9)) • Closing Date of Billing Cycle: The closing date of the billing cycle. (12 CFR 1026.7(b)(10)) • New Balance, Due Date, Late Payment Costs, and Repayment Disclosures: The following items must be included on the periodic statement, in the specific format described. Regulation Z requires that these items be grouped together on the periodic statement (see Sample G-18D in Appendix G to 12 CFR 12 CFR 1026 for an example of how these terms may be grouped).
o Ending Balance: The account balance outstanding on the closing date of the billing cycle. The ending balance must be disclosed in close proximity to the minimum payment due (12 CFR 1026.7(b)(10) and (13)).
o Due date; late payment costs: The due date and late payment cost must be disclosed as described below (12 CFR 1026.7(b)(11)):
The payment due date must be disclosed on the front of the first page of the statement. The due date disclosed must be the same day of the month for each billing cycle. (12 CFR 1026.7(b)(11)(i)(A); 12 CFR 1026.7(b)(13)) The amount of any late payment fee and any increased APR that may be imposed on the account as a result of a late payment must be included in the periodic statement, in close proximity to the due date. If a range of late payment fees may be assessed, the card issuer may state the range of fees, or the highest fee and an indication that the fee imposed could be lower. If the rate may be increased for more than one feature or balance, the card issuer may state the range of rates or
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Examination Procedures Management CFPB February 2015 Procedures 118 the highest rate that could apply and at the issuer's option an indication that the rate imposed could be lower. (12 CFR 1026.7(b)(11)(i)(B) and 1026.7(b)(13))56 o Repayment disclosures (12 CFR 1026.7(b)(12)) Unless negative or no amortization occurs when calculating the minimum payment repayment estimate, the following disclosures must be included on each periodic statement, closely proximate to the minimum payment due. See Appendix M1 to 12 CFR 12 CFR 1026 for the specific language and formatting that must be used for repayment disclosures.57 • The following statement with a bold heading: “Minimum Payment Warning: If you make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance.” (12 CFR 1026.7(b)(12)(i)(A));
• The minimum payment repayment estimate as described in Appendix M1 to 12 CFR 12 CFR 1026. If the minimum payment repayment estimate is less than 2 years, the card issuer must disclose the estimate in months. Otherwise, the estimate must be disclosed in years and rounded to the nearest whole year (12 CFR 1026.7(b)(12)(i)(B));
• The minimum payment total cost estimate as described in Appendix M1 to 12 CFR 12 CFR 1026, rounded either to the nearest whole dollar or to the nearest cent, at the card issuer's option (12 CFR 1026.7(b)(12)(i)(C)); • A statement that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the current outstanding balance shown on the periodic statement. A statement that the minimum payment repayment estimate and the minimum payment total cost estimate are based on the assumption that only minimum payments are made and no other amounts are added to the balance (12 CFR 1026.7(b)(12)(i)(D)); • A toll-free telephone number where the consumer may obtain from the card issuer information about credit counseling services consistent with 12 CFR 1026.7(b)(12)(i)(E); and
56 These disclosure requirements do not apply to the following: periodic statements provided solely for charge card accounts (12 CFR 1026.7(b)(11)(ii)(A)); and periodic statements provided for a charged-off account where payment of the entire account balance is due immediately (12 CFR 1026.7(b)(11)(ii)(B)). 57 Repayment disclosures under 12 CFR 1026.7(b)(12) are not required in the following instances: charge card accounts that require payment of outstanding balances in full at the end of each billing cycle; a billing cycle immediately following two consecutive billing cycles in which the consumer paid the entire balance in full, had a zero outstanding balance, or had a credit balance; and a billing cycle where paying the minimum payment due for that billing cycle will pay the entire outstanding balance on the account for that billing cycle. See 12 CFR 1026.7(b)(12)(v).
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Examination Procedures Management CFPB February 2015 Procedures 119 • The following disclosures (12 CFR 1026.7(b)(12)(i)(F)(1)): o The estimated monthly payment for repayment in 36 months as described in Appendix M1 to 12 CFR 1026, rounded either to the nearest whole dollar or to the nearest cent, at the card issuer's option (12 CFR 1026.7(b)(12)(i)(F)(1)(i)); o A statement that the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in 3 years if the consumer pays the estimated monthly payment each month for 3 years (12 CFR 1026.7(b)(12)(i)(F)(1)(ii));
o The total cost estimate for repayment in 36 months as described in Appendix M1 to 12 CFR 1026, rounded either to the nearest whole dollar or to the nearest cent, at the card issuer's option (12 CFR 1026.7(b)(12)(i)(F)(1)(iii)); and o The savings estimate for repayment in 36 months as described in Appendix M1 to 12 CFR 1026, rounded either to the nearest whole dollar or to the nearest cent, at the card issuer's option (12 CFR 1026.7(b)(12)(i)(F)(1)(iv)).58 Negative or no amortization. If negative or no amortization occurs when calculating the minimum payment repayment estimate, the following disclosure must appear on the periodic statement instead of the Repayment Disclosures described in 12 CFR 1026.7(b)(12)(i):
• The following statement: “Minimum Payment Warning: Even if you make no more charges using this card, if you make only the minimum payment each month we estimate you will never pay off the balance shown on this statement because your payment will be less than the interest charged each month” (12 CFR 1026.7(b)(12)(ii)(A));
• The following statement: “If you make more than the minimum payment each period, you will pay less in interest and pay off your balance sooner” (12 CFR 1026.7(b)(12)(ii)(B));
• The estimated monthly payment for repayment in 36 months, as described in Appendix M1 to 12 CFR 1026. The estimated monthly payment for
58 The requirements of 12 CFR 1026.7(b)(12)(i)(F)(1) do not apply to a periodic statement in any of the following circumstances: The minimum payment repayment estimate that is disclosed on the periodic statement after rounding is three years or less; the estimated monthly payment for repayment in 36 months that is calculated for a particular billing cycle is less than the minimum payment required for the plan for that billing cycle; and a billing cycle where an account has both a balance in a revolving feature where the required minimum payments for this feature will not amortize that balance in a fixed amount of time specified in the account agreement and a balance in a fixed repayment feature where the required minimum payment for this fixed repayment feature will amortize that balance in a fixed amount of time specified in the account agreement which is less than 36 months. See 12 CFR 1026.7(b)(12)(i)(F)(2).
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Examination Procedures Management CFPB February 2015 Procedures 120 repayment in 36 months must be rounded either to the nearest whole dollar or to the nearest cent, at the issuer's option (12 CFR 1026.7(b)(12)(ii)(C)); • A statement that the card issuer estimates that the consumer will repay the outstanding balance shown on the periodic statement in 3 years if the consumer pays the estimated monthly payment each month for 3 years (12 CFR 1026.7(b)(12)(ii)(D)); and • A toll-free telephone number where the consumer may obtain from the card issuer information about credit counseling services consistent with 12 CFR 1026.7(b)(12)(iv). (12 CFR 1026.7(b)(12)(ii)(E)) Provision of information about credit counseling services. (12 CFR 1026.7(b)(12)(iv)) • Required information: To the extent available from the United States Trustee or a bankruptcy administrator, a card issuer must provide through the toll-free telephone number, disclosed pursuant to 12 CFR 1026.7(b)(12)(i) or (b)(12)(ii), the name, street address, telephone number, and website address for at least three organizations that have been approved by the United States Trustee or a bankruptcy administrator pursuant to 11 USC 111(a)(1) to provide credit counseling services in, at the card issuer's option, either the state in which the billing address for the account is located or the state specified by the consumer (12 CFR 1026.7(b)(12)(iv)(A)). • Updating required information: At least annually, a card issuer must update the information provided pursuant to 2 CFR 1026.7(b)(12)(iv)(A) for consistency with the information available from the United States Trustee or a bankruptcy administrator (12 CFR 1026.7(b)(12)(iv)(B)). • Deferred interest or similar transactions: For accounts with an outstanding balance subject to a deferred interest or similar program, the date by which that outstanding balance must be paid in full in order to avoid the obligation to pay finance charges on such balance must be disclosed on the front of any page of each periodic statement issued during the deferred interest period beginning with the first periodic statement issued during the deferred interest period that reflects the deferred interest or similar transaction. The disclosure provided pursuant to this paragraph must be substantially similar to Sample G-18(H) in Appendix G to 12 CFR 1026. (12 CFR 1026.7(b)(14))
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Examination Procedures Management CFPB February 2015 Procedures 121 Appendix 2: Calculating Finance Charge and APR Finance charge (12 CFR 1026.6(b)(3) and 12 CFR 1026.7(b)(5) and (b)(6)(ii)) On periodic statements, finance charges attributable to periodic interest rates, using the term “Interest Charge,” must be grouped together under the heading “Interest Charged,” itemized and totaled by type of transaction. A total of finance charges attributable to periodic interest rates, using the term “Total Interest,” must be disclosed for the statement period and calendar year to date, using a format substantially similar to Sample G-18(A) in Appendix G to 12 CFR 1026. In addition, the periodic statement must disclose the amount of the balance to which a periodic rate was applied, using the term Balance Subject to Interest Rate. The examiner must know how to compute the balance to which the periodic rate is applied. Common methods used are the previous balance method, the daily balance method, and the average daily balance method, which are described as follows:
• Previous balance method: The balance on which the periodic finance charge is computed is based on the balance outstanding at the start of the billing cycle. The periodic rate is multiplied by this balance to compute the finance charge. • Daily balance method: A daily periodic rate is applied to either the balance on each day in the cycle or the sum of the balances on each of the days in the cycle. If a daily periodic rate is multiplied by the balance on each day in the billing cycle, the finance charge is the sum of the products. If the daily periodic rate is multiplied by the sum of all the daily balances, the result is the finance charge.
• Average daily balance method: The average daily balance is the sum of the daily balances (either including or excluding current transactions) divided by the number of days in the billing cycle. A periodic rate is then multiplied by the average daily balance to determine the finance charge. If the periodic rate is a daily one, the product of the rate multiplied by the average balance is multiplied by the number of days in the cycle. In addition to these common methods, financial institutions have other ways of calculating the balance to which the periodic rate is applied. By reading the financial institution’s explanation, the examiner can calculate the balance to which the periodic rate was applied. In some cases, the examiner may need to obtain additional information from the financial institution to verify the explanation disclosed. Examiners must discuss any inability to understand the disclosed explanation with management and examiners must emphasize to management Regulation Z’s requirement that disclosures be clear and conspicuous.
When a balance is determined without first deducting all credits and payments made during the billing cycle, that fact and the amount of the credits and payments must be disclosed on the periodic statement.
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Examination Procedures Management CFPB February 2015 Procedures 122 If the financial institution uses the daily balance method and applies a single daily periodic rate, disclosure of the balance to which the rate was applied may be stated as any of the following: • A balance for each day in the billing cycle. The daily periodic rate is multiplied by the balance on each day and the sum of the products is the finance charge. • A balance for each day in the billing cycle on which the balance in the account changes. The finance charge is figured by the same method as discussed previously, but the statement shows the balance only for those days on which the balance changed. • The sum of the daily balances during the billing cycle. The balance on which the finance charge is computed is the sum of all the daily balances in the billing cycle. The daily periodic rate is multiplied by that balance to determine the finance charge. • The average daily balance during the billing cycle. If this is stated, the financial institution may, at its option, explain that the average daily balance is or can be multiplied by the number of days in the billing cycle and the periodic rate applied to the product to determine the amount of interest.
If the financial institution uses the daily balance method, but applies two or more daily periodic rates, the sum of the daily balances may not be used. Acceptable ways of disclosing the balances include:
• A balance for each day in the billing cycle;
• A balance for each day in the billing cycle on which the balance in the account changes; or • Two or more average daily balances, each applicable to the daily periodic rates imposed for the time that those were in effect, provided that the creditor explains that interest is or may be determined by:
o multiplying each of the average daily balances by the number of days in the billing cycle (or if the daily rate varied during the cycle, by multiplying by the number of days the applicable rate was in effect), o by multiplying each of the results by the applicable daily periodic rate, and o adding these products together.
In explaining the method used to find the balance on which the finance charge is computed, the financial institution need not reveal how it allocates payments or credits. That information may be disclosed as additional information, but all required information must be clear and conspicuous. NOTE: Section 1026.54 prohibits a credit card issuer from calculating finance charges based on balances for days in previous billing cycles as a result of the loss of a grace period (a practice sometimes referred to as “double-cycle billing”).
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Examination Procedures Management CFPB February 2015 Procedures 123 Finance Charge Resulting from Two or More Periodic Rates Some financial institutions use more than one periodic rate in computing the finance charge. For example, one rate may apply to balances up to a certain amount and another rate to balances more than that amount. If two or more periodic rates apply, the financial institution must disclose all rates and conditions. The range of balances to which each rate applies also must be disclosed. Annual percentage rate (12 CFR 1026.14) The basic method for determining the APR in open-end credit transactions involves multiplying each periodic rate by the number of periods in a year. This method is used in all types of openend disclosures, including:
• The corresponding APR in the initial disclosures;
• The corresponding APR on periodic statements;
• The APR in early disclosures for credit card accounts;
• The APR in advertising; and • The APR in oral disclosures.
The corresponding APR is prospective and it does not involve any particular finance charge or periodic balance.
The disclosed APR on an open-end credit account is accurate if it is within one-eighth of one percentage point of the APR calculated under Regulation Z.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 1 Examination Procedures Debt Collection These examination procedures apply to larger participants in the consumer debt collection market defined by 12 CFR 1090.105 and other entities within the supervisory authority of the Consumer Financial Protection Bureau (CFPB) to the extent that they seek to collect debt from consumers. The procedures contain a series of modules, grouping similar requirements together. Prior to using these procedures, however, examiners should complete a risk assessment and scope memorandum. Depending on the scope, and in conjunction with the compliance management system review procedures, each examination will cover one or more of the following modules: 1. Entity Business Model 2. Communications in Connection with Debt Collection 3. Information Sharing, Privacy, and Interactions with Consumer Reporting Agencies 4. Validation Notice, Consumer FDCPA Disputes and Complaints, and Ceasing Communication 5. Payment Processing and Account Maintenance 6. Equal Credit Opportunity Act 7. Litigation Practices, Administrative Wage Garnishment and Repossession, and Time-Barred Debt Examination Objectives 1. To assess the quality of the regulated entity’s compliance management systems, including its internal controls and policies and procedures, for its debt collection business.
2. To identify acts or practices that materially increase the risk of violations of Federal consumer financial laws in connection with debt collection.
3. To gather facts that help to determine whether a regulated entity engages in acts or practices that violate the requirements of Federal consumer financial laws.
4. To determine, in accordance with CFPB internal consultation requirements, whether a violation of a Federal consumer financial law has occurred and whether further supervisory or enforcement actions are appropriate.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 2 Background A variety of entities, including originating creditors, third-party collectors, debt buyers, and collection attorneys, engage in debt collection. Originating creditors may attempt to obtain payment from the consumer, typically by sending letters, placing telephone calls, or other attempts to contact the consumer to convince the consumer to pay. Originating creditors also may hire debt collectors to assist with their in-house collection activity or outsource the collection of debt to third-party collection agencies or attorneys, or sell the debt to debt buyers after an account has been delinquent for a period of time. Third-party collection agencies collect debt on behalf of originating creditors or other debt owners, often on a contingency fee basis. Debt buyers purchase debt, either from the originating creditor or from another debt buyer, usually for a fraction of the balance owed. Debt buyers sometimes use third-party collection agencies or collection attorneys to collect their debt, but many also undertake their own collection efforts. Debt buyers also may decide to sell purchased debt to another debt buyer. The Dodd-Frank Act gave the CFPB supervisory authority over a variety of institutions that may engage in debt collection, including certain depository institutions and their affiliates, nonbank entities in the residential mortgage, payday lending, and private education lending markets, and larger participants in other markets as defined by a rule of the Bureau such as in the student loan servicing and automobile financing markets, as well as their service providers. The Act also gave the CFPB supervisory authority over “larger participants” of markets for consumer debt collection, as the CFPB defines by rule, and their service providers. (12 USC 5514(a)(1)(B)). On October 24, 2012, the CFPB issued a larger participant regulation in the market of consumer debt collection. The consumer debt collection larger participant rule, which appears in 12 CFR Part 1090, was effective January 2, 2013. It provides that a nonbank covered person is a larger participant of the consumer debt collection market if the person’s annual receipts resulting from consumer debt collection – as defined in the rule – are more than $10 million. As they seek to collect debt from consumers, the entities that the CFPB supervises must comply with various laws to the extent applicable, including:
• The Fair Debt Collection Practices Act (FDCPA) and its implementing regulation, Regulation F, governs collection activities including prohibiting deceptive, unfair, and abusive collection practices. The FDCPA applies to entities that are “debt collectors” under the Act (see Step 1 of Module 1 for details).
• The Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V, require that furnishers of information to consumer reporting agencies follow reasonable policies and procedures regarding the accuracy and integrity of data they place in the consumer reporting system. The FCRA and Regulation V require furnishers and consumer reporting agencies to handle disputes and impose other obligations on furnishers, consumer reporting agencies, and users of consumer reports. • The Gramm-Leach-Bliley Act (GLBA) and its implementing regulation, Regulation P, impose limitations on when financial institutions can share nonpublic personal
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Examination Procedures Debt Collection CFPB March 2022 Procedures 3 information with third parties. They also require under certain circumstances that financial institutions disclose their privacy policies and permit customers to opt out of certain sharing practices with unaffiliated entities.
• The Electronic Fund Transfer Act (EFTA) and its implementing regulation, Regulation E, impose requirements if an entity within the statute’s scope of coverage obtains electronic payments from a consumer.
• The Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, apply to all creditors and prohibit discrimination in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex (including sexual orientation and gender identity discrimination), marital status, age (provided the applicant has the capacity to contract), receipt of public assistance income, or exercise in good faith of any right under the Consumer Credit Protection Act. (12 CFR 1002.2(z), 1002.4(a)). Credit transactions encompass “every aspect of an applicant’s dealings with a creditor regarding an application for credit or an existing extension of credit,” and include “revocation, alteration, or termination of credit” and “collection procedures.” (12 CFR 1002.2(m)). To carry out the objectives set forth in the Examination Objectives section, the examination process also will include assessing other risks to consumers. These risks may include potentially unfair, deceptive, or abusive acts or practices (UDAAPs). Please refer to the examination procedures regarding UDAAPs for information about the legal standards and the CFPB’s approach to examining for UDAAPs. The particular facts and circumstances in a case are crucial to the determination of UDAAPs. As set out in the Examination Objectives section, examiners should consult with Headquarters to determine whether the applicable legal standards have been met before a UDAAP violation is cited.
General Considerations Completing the following examination modules will allow examiners to develop a thorough understanding of the regulated entities’ practices and operations. To complete the modules, examiners should obtain and review the following as applicable: • Organizational charts and process flowcharts;
• Board minutes, annual reports, or the equivalent to the extent available; • Relevant management reporting;
• Policies and procedures;
• Notes and disclosures;
• Telephone recordings;
• Operating checklists, worksheets, and review documents;
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Examination Procedures Debt Collection CFPB March 2022 Procedures 4 • Monitoring procedures;
• Compensation policies;
• Relevant computer program and system details;
• Consumer files, including original loan documents, and payment records systems; • Historical examination information;
• Audit and compliance reports, and management responses to findings; • Training programs and materials;
• Scripts for employee use;
• Third-party contracts and oversight materials, including monitoring reports and findings; • Written correspondence with consumers;
• Court documents; and • Consumer complaints and disputes, including those submitted to CFPB Consumer Response Center, Consumer Sentinel, the Better Business Bureau, or other sources as appropriate.
Depending on the scope of the examination, examiners should perform transaction testing using sampling procedures, which may require use of a judgmental or statistical sample. Examiners should also conduct interviews with management and staff to determine whether they understand and consistently follow the policies, procedures, and regulatory requirements applicable to debt collection, and implement effective controls.
Examiners should review relevant consumer complaints in scoping and conducting examinations, as appropriate. If consumers may possess information needed to resolve potential violations or risks of violations of law, examiners should consult with regional management and Headquarters to determine whether to interview these consumers.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 5 Module 1: Entity Business Model This module assesses whether the entity is a “debt collector” under the FDCPA and therefore subject to that Act.1 In addition, this module addresses other aspects of the entity’s business model, including affiliate and vendor relationships, internal controls, and related account management issues.
Nature of Operations for FDCPA Purposes 1. Assess whether the entity is a “debt collector” for purposes of the FDCPA. In doing so: a. Determine whether the entity falls within the general definition of “debt collector” (15 USC 1692a(6)) [12 CFR 1006.2(i)] by determining whether it: i. Regularly collects, or attempts to collect, consumer debts for another person or institution;
ii. Uses interstate commerce or the mail in a business the principal purpose of which is consumer debt collection; or iii. Uses a name other than its own when collecting its own consumer debts. b. If the entity falls within the general definition per step 1a above, determine whether the entity nevertheless falls into an exception from the definition of “debt collector” to the extent that it is:
i. Collecting the following types of debts if they are owed to another: A. Debts it originated (15 USC 1692a(6)(F)(ii)); [12 CFR 1006.2(i)(2)(vi)(B)] B. Debts that were not in default when they were obtained (15 USC 1692a(6)(F)(iii)); [12 CFR 1006.2(i)(2)(vi)(C)] C. Debts that were obtained as security for a commercial credit transaction (15 USC 1692a(6)(F)(iv)); [12 CFR 1006.2(i)(2)(vi)(D)] D. Debts if the activity is incidental to a bona fide fiduciary relationship or escrow arrangement (for example, a debt held in the entity’s trust department or mortgage loan escrow for taxes and insurance) (15 USC 1692a(6)(F)(i)); [12 CFR 1006.2(i)(2)(vi)(A)] ii. Using an officer or employee of the creditor to collect debts owed to the creditor in the creditor’s own name (15 USC 1692a(6)(A)); [12 CFR 1006.2(i)(2)(i)]
1 The FDCPA applies only to the collection of obligations or alleged obligations of consumers to pay money arising out of transactions in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes. 15 USC 1692a(3), (5). [12 CFR § 1006.2(e), (h)] The FDCPA does not apply to the collection of corporate debt or to debt owed for business or agricultural purposes. These examination procedures should not be used if the debt at issue is corporate debt or debt owed for business or agricultural purposes.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 6 iii. Collecting debts regularly for other institutions to which it is related by common ownership or corporate control if the entity only does so for persons to whom it is so related or affiliated and the entity’s principal business is not the collection of debts (15 USC 1692a(6)(B)); [12 CFR 1006.2(i)(2)(ii)] iv. An officer or employee of the United States or any State, collecting or attempting to collect debt in the performance of his or her official duties (15 USC 1692a(6)(C)); [12 CFR 1006.2(i)(2)(iii)] v. Serving legal process or attempting to serve legal process in connection with the judicial enforcement of any debt (15 USC 1692a(6)(D)) [12 CFR 1006.2(i)(2)(iv)]; or vi. A nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors (15 USC 1692a(6)(E)). [12 CFR 1006.2(i)(2)(v)] Affiliates and Third-party Relationships 2. Ascertain whether the entity is affiliated with any other entities. If so, determine the identities of the affiliates and the nature of their business activities, including whether any of the affiliates engage in debt collection.
3. Determine whether the entity uses any service providers in conducting its debt collection activities. If so:
a. Identify who the service providers are, whether they are affiliated with the entity, and what services they perform, and b. Assess whether the entity:
i. Requests and reviews the service providers’ policies, procedures, internal controls, and training materials to ensure that the service providers conduct appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities;
ii. Includes in its contracts with its service providers clear expectations about compliance with Federal consumer financial laws as well as appropriate and enforceable consequences for violating any compliance-related responsibilities; iii. Establishes internal controls and ongoing monitoring to determine whether its service providers are complying with Federal consumer financial law; and iv. Takes prompt action to address fully any problems identified through the monitoring process, including terminating the relationship where appropriate. See CFPB Bulletin 2016-02 (October 31, 2016).
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Examination Procedures Debt Collection CFPB March 2022 Procedures 7
Internal Structure, Controls, and Compliance Management 4. Review the organizational chart to determine the reporting structure and the responsibilities of key managers for debt collection activities.
5. Review the qualifications, experience levels, and training programs that the company requires or uses for staff who interact with consumers.
6. Evaluate compensation practices and programs.
a. Evaluate the quality and impact of controls on the compensation program. b. To the extent that the entity’s compensation program creates incentives for behaviors or practices that result in heightened risk to consumers, determine whether the policy also includes disciplinary procedures such as reductions in compensation or termination if an employee is found to engage in such risky behaviors or practices.
7. Review the entity’s general compliance management system using the compliance management review section of the CFPB Supervision and Examination Manual.
8. Review the entity’s policies and procedures for monitoring both incoming and outgoing communications, attempts to communicate, and other outgoing messages.
9. Review the entity’s policies and procedures for gathering and maintaining underlying information regarding the underlying debt(s).
10. Determine whether the entity retains records that are evidence of compliance or noncompliance with the FDCPA and Regulation F until at least three years after the last collection activity on a debt. (12 CFR 1006.100(a)).
a. For example, the entity should retain all telephone logs and copies of documents provided to consumers. (Comment 100(a)-1).
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Examination Procedures Debt Collection CFPB March 2022 Procedures 8 b. There is no requirement to create additional records for the sole purpose of evidencing compliance. (Comment 100(a)-2).
c. Determine whether the entity retains any recordings of telephone calls in connection with the collection of a debt for three years after the date of the call. (12 CFR 1006.100(b)).
Debt Ownership or Account Transfer Debt Purchases 11. Determine whether the entity collects on any debt it purchased from another party. If so: a. Review the account information that the entity received regarding the debt when it purchased the debt. Consider in particular whether the entity received information sufficient to make required disclosures and to determine the consumer’s identity, the amount due, whether all amounts due were permitted by contract or applicable law, and the original creditor.
b. Review sale contracts, considering in particular the following items: i. Provisions that describe the nature of the account-level information that is provided by the seller;
ii. Any representations or disclaimers made relating to the accuracy of the account-level information that is provided by the seller; and iii. Whether the entity can request additional account-level information upon request, including how long the additional account-level information will be available and how much it will cost.
c. Determine whether the entity has reason to doubt the accuracy of the account-level information it received from the seller (for example, if there were patterns of disputes, unusual gaps of information, or known problems with account maintenance). d. Determine whether the information received is sufficient to substantiate representations made to consumers regarding the debt and the consumer’s liability for the debt.
Debt sales 12. Determine whether the entity sells any debt to any debt buyers. If so: a. Review the information that the entity provides regarding the debt to the debt buyers. Consider in particular whether the entity provides information sufficient to determine the [Click&type] [Click&type]
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Examination Procedures Debt Collection CFPB March 2022 Procedures 9 consumer’s identity, the amount due, whether all amounts due were permitted by contract or applicable law, and the original creditor.
b. Review sale contracts, in particular:
i. Provisions that describe the nature of the account-level information provided to the debt buyer;
ii. Any representations or disclaimers made relating to the accuracy of the account-level information provided to the debt buyer; and iii. Whether the entity agreed to provide additional account-level information upon the buyer’s request, including how long the additional account-level information will be available and how much it will cost.
c. If the entity sells any debt that has been disputed by the consumer, determine: i. Whether the entity attempts to verify the debt prior to selling it, and ii. Whether the entity provides information about the dispute to the debt buyer. d. Determine whether the entity had reason to doubt the accuracy of the account-level information it provided to the buyer (for example, if there were patterns of disputes, unusual gaps of information, or known problems with account maintenance). e. Determine whether the debt collector entity sells debt that it knows or should know has been paid or settled or discharged in bankruptcy. If it does, determine if the entity qualifies for an exception to the prohibition on doing so. (12 CFR 1006.30(b)). f. If Module 3 is not scoped into the exam, consider scoping in the following: Determine whether the entity complies with restrictions in FCRA concerning the sale, transfer, or placement for collection debts with a report of identity theft. (15 USC 1681m(f)).
Account Transfers 13. Determine what information the entity provides when it transfers consumer accounts to any third parties (including, for example, the original creditor or a service provider) for collection activity or receives any accounts from third parties for collection activity.
14. Determine whether the debt collector entity places for collection debt that it knows or should know has been paid or settled or discharged in bankruptcy. If it does, determine if the entity qualifies for an exception to the prohibition on doing so. (12 CFR 1006.30(b)). [Click&type] [Click&type] [Click&type]
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Examination Procedures Debt Collection CFPB March 2022 Procedures 10 Module 2: Communications in Connection with Debt Collection This module addresses FDCPA and UDAAP issues that may arise when entities communicate or attempt to communicate with consumers or third parties as part of their debt collection activities. As noted, the FDCPA (and its implementing Regulation F) only applies if the entity is a “debt collector” under the FDCPA, while the prohibition on unfair, deceptive, or abusive acts and practices applies to all supervised entities.
In assessing an entity’s communications, examiners should consider documents and recordings, including hard copies or electronic copies of letters, voice recordings of telephone communications, and notes made during or after telephone calls or personal visits. Examiners should review a sample of records and listen to a sample of collection calls. FDCPA “Communicate” or “communication” under the FDCPA and Regulation F means the conveying of information regarding a debt directly or indirectly to any person through any medium (15 USC 1692a(2)). [12 CFR 1006.2(d)] If an attempt to contact, a message to, or a discussion with a consumer or third party does not convey information regarding a debt, it is not a communication under the FDCPA or the Rule.
Even if they are not communications, such actions may be “attempts to communicate” for the purposes of the FDCPA and Regulation F. An “attempt to communicate” is any act to initiate a communication or other contact about a debt with any person through any medium, including by soliciting a response from such person (12 CFR 1006.2(b)). A “limited-content message” is not a communication for the purposes of the FDCPA and Regulation F; however, it is an attempt to communicate. See 12 CFR 1006.2(j) for more information on what is required for a voicemail message to be a limited-content message. If the entity is a “debt collector” (per step 1 of Module 1), follow steps 1 to 18 below; otherwise skip to step 19.
Disclosing the Debt Collector’s Identity and the Purpose/Nature of the Communication 1. Determine whether the debt collector places telephone calls without meaningful disclosure of its identity (except for calls placed for the sole purpose of acquiring location information). (15 USC 1692d(6)). [12 CFR 1006.14(g)] a. A debt collector does not violate meaningful disclosure requirements by leaving a limitedcontent message. Comment 2(j)-3.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 11 2. Determine whether the debt collector communicates or attempts to communicate with consumers using emails and text messages, and if so:
3. Determine whether the debt collector communicates or attempts to communicate through a social media platform and if so, whether the communication or attempt to communicate is viewable by the general public or the person’s social media contacts. (12 CFR 1006.22(f)(4)).
4. Determine whether the debt collector discloses in its first written communication with the consumer that it is attempting to collect a debt and that any information obtained will be used for that purpose. If the initial communication is oral, determine whether the debt collector also discloses the same information again in the initial written communication with the consumer. (15 USC 1692e(11)). [12 CFR 1006.18(e)(1)]
5. Determine whether the debt collector discloses in each subsequent communication that the communication is from a debt collector. (15 USC 1692e(11)) [12 CFR 1006.18(e)(2)]. A limited-content message under 12 CFR 1006.2(j) is not a communication; as such, a debt collector who leaves only a limited-content message need not make the disclosures required by 12 CFR 1006.18(e)(1) and (2).
6. Determine whether the debt collector misrepresents its identity or authorization by: a. Using any business, company, or organization name other than the true name of the debt collector’s business, company, or organization (15 USC 1692e(14)) [12 CFR 1006.18(c)(4)]. A debt collector may use a shortened version of its name in a limitedcontent message so as not to disclose a name that indicates the collector is in the business of debt collection;
b. Misrepresenting that it is vouched for, bonded by, or affiliated with the United States or any State, including by using any badge, uniform, or facsimile thereof (15 USC 1692e(1)) [12 CFR 1006.18(b)(1)(i)];
c. Falsely representing or implying that an individual debt collector is an attorney or that any communication is from an attorney (15 USC 1692e(3)) [12 CFR 1006.18(b)(1)(iii)]; d. Falsely representing or implying that it operates or is employed by a consumer reporting agency (15 USC 1692e(16)) [12 CFR 1006.18(b)(1)(ii)];
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Examination Procedures Debt Collection CFPB March 2022 Procedures 12 e. Using or distributing any written communication or attempt to communicate that creates a false impression as to its source, authorization, or approval, or that simulates or is falsely represented to be a government document (15 USC 1692e(9)) [12 CFR 1006.18(c)(3)]; f. Using any forms that falsely imply that someone other than the creditor is participating in the collection activities. If so, determine the source of the forms. (15 USC 1692j) [12 CFR 1006.30(e)]; or g. Using any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer. (12 CFR 1006.18(d)). i. See Comment 18(d)-1 for more information on this provision’s applicability to social media communications.
7. Determine whether the debt collector makes any false representations regarding the nature of the communications or attempts to communicate, for example by: a. Falsely representing or implying that documents are legal process (15 USC 1692e(13)) [12 CFR 1006.18(b)(1)(vii)]; or b. Falsely representing that documents are not legal process forms, or that documents do not require action by the consumer (15 USC 1692e(15)) [12 CFR 1006.18(b)(1)(viii)].
8. Determine whether the debt collector sends postcards to communicate or attempt to communicate with the consumer regarding a debt. (15 USC 1692f(7)) [12 CFR 1006.22(f)(1)].
9. Determine whether the debt collector leaves messages on consumers’ electronic call recording devices (i.e., voicemail or answering machines) and if so, whether the content of the message meets the requirements of a “limited-content message” as described in Regulation F (12 CFR 1006.2(j)). A voicemail that is not a limited-content message must comply with the restrictions on disclosures to third parties which are outlined in the “Special Limits on Communications with Third Parties section” of these procedures.
10. Determine whether the debt collector refrains from using any language or symbols on envelopes, other than its address and its business name, when communicating or attempting to communicate with consumers by mail or telegram. If it uses its business name on envelopes, determine whether the name indicates that it is in the debt collection business. (15 USC 1692f(8)) [12 CFR 1006.22(f)(2)].
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Examination Procedures Debt Collection CFPB March 2022 Procedures 13 11. Determine whether the debt collector causes any person to incur charges for communications or attempts to communicate by concealing the true purpose of the communications or attempts to communicate (e.g., by making collect calls or sending telegrams). (15 USC 1692f(5)) [12 CFR 1006.22(d)].
Time and Place of Communications; Attempts to Communicate 12. Determine whether the debt collector communicates with the consumer without obtaining prior consent directly from the consumer or the express permission of a court of competent jurisdiction in any of the following situations. (15 USC 1692c) [12 CFR 1006.6(b)(4)]. For purposes of steps 13 and 14, “consumer” is defined to include the borrower’s spouse, parent (if the borrower is a minor), guardian, executor, successor in interest, or administrator. (15 USC 1692c(d)) [12 CFR 1006.6(a)].
a. Determine whether the debt collector communicates or attempts to communicate with any consumer at an unusual time or place or at a time or place that the debt collector knows or should know is inconvenient. A debt collector knows or should know that a time or place is inconvenient for a consumer if the consumer uses the word “inconvenient” or if the facts and circumstances indicate that a time or place is inconvenient for the consumer even if the consumer does not specifically state to the debt collector that a time or place is “inconvenient” (Comment 6(b)(1)-1). Absent information to the contrary, debt collectors are to assume that calls between 9:00 p.m. and 8:00 a.m. in the consumer’s local time are inconvenient. (15 USC 1692c(a)(1)) [12 CFR 1006.6(b)(1)(i)]. b. Determine whether the debt collector communicates with any consumer at work if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving communications of that nature. (15 USC 1692c(a)(3)) [12 CFR 1006.6(b)(3)].
c. Determine whether the debt collector has engaged in any communications with any consumer after learning that the consumer was represented by an attorney with respect to the debt. If so, determine whether the contact was permissible because: i. The debt collector did not know the attorney’s name and address and could not readily ascertain that information;
ii. The attorney had failed to respond within a reasonable period of time to a communication from the debt collector [12 CFR 1006.6(b)(2)(i)]; or iii. The attorney had consented to the debt collector’s direct communication with the consumer. (15 USC 1692c(a)(2)) [12 CFR 1006.6(b)(2)(ii)].
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Examination Procedures Debt Collection CFPB March 2022 Procedures 14 Harassing, Oppressive, or Abusive Conduct 13. Determine whether the debt collector engages in any conduct the natural consequence of which is to harass, oppress, or abuse any person. (15 USC 1692d) [12 CFR 1006.14(a)]. This provision applies to any communication medium (e.g., in person interactions, telephone calls, audio recordings, paper documents, mail, email, text messages, social media, or other electronic media and applies based on the cumulative effect of the debt collector’s conduct. Prohibited conduct includes, but is not limited to:
a. Using or threatening to use violence to physically harm a person or his or her reputation or property (15 USC 1692d(1)) [12 CFR 1006.14(c)];
b. Using obscene or profane language or other language the natural consequence of which is to abuse the hearer or reader (15 USC 1692d(2)) [12 CFR 1006.14(d)]; c. Publishing a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements of Section 603(f) or 604(a)(3) of the FCRA (15 USC 1681a(f) or 1681b(a)(3)) (15 USC 1692d(3)) [12 CFR 1006.14(e)]; d. Advertising a debt for sale to coerce payment (15 USC 1692d(4)) [12 CFR 1006.14(f)]; or e. Communicating with a person in any other harassing, oppressive, or abusive manner not identified above, including through text messages or emails. Examiners should consult with Headquarters to assess whether a particular communication or group of communications are harassing, oppressive, or abusive.
False, Deceptive, or Misleading Communications 14. Determine whether the debt collector uses any false, deceptive, or misleading representations in connection with the collection of any debt. (15 USC 1692e) [12 CFR 1006.18(a)]. This would include, but is not limited to:
a. Misrepresenting the character, amount, or legal status of the debt (15 USC 1692e(2)(A)) [12 CFR 1006.18(b)(2)(i)];
b. Falsely representing or implying that nonpayment will result in the arrest of any person or the seizure, garnishment, attachment or sale of any person’s property or wages, unless such action is lawful and the debt collector or creditor intends to take such action (15 USC 1692e(4)) [12 CFR 1006.18(b)(3)];
c. Threatening to take any action that cannot legally be taken or that is not intended to be taken [12 CFR 1006.18(c)(1)]. Examples include:
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Examination Procedures Debt Collection CFPB March 2022 Procedures 15 i. Bringing or threatening to bring a legal action against a consumer to collect a timebarred debt (i.e., a debt for which the applicable statute of limitations has expired) [12 CFR 1006.26(b)].
ii. Threatening to make third-party disclosures about the existence of a debt as prohibited by 15 USC 1692c(b) [12 CFR 1006.6(d)(1)]; or iii. Threatening to furnish information to a consumer reporting agency that the debt collector does not actually intend to furnish (15 USC 1692e(5)); d. Falsely representing or implying that the sale, referral, or transfer of any interest in the debt will cause the consumer either to lose any claim or defense to payment or become subject to any practice prohibited by the FDCPA or 12 CFR Part 1006 (15 USC 1692e(6)) [12 CFR 1006.18(b)(1)(v)];
e. Falsely representing or implying that the consumer has committed a crime or other conduct to disgrace the consumer (15 USC 1692e(7)) [12 CFR 1006.18(b)(1)(iv)]; f. Threatening to communicate or communicating to any person credit information which is known or which should be known to be false, including not communicating disputed debts as such (15 USC 1692e(8)) [12 CFR 1006.18(c)(2)];
g. Falsely representing or implying that accounts have been turned over to innocent purchasers for value (15 USC 1692e(12)) [12 CFR 1006.18(b)(1)(vi)]; or h. Using any other false representation or deceptive means to collect or attempt to collect any debt or obtain information concerning a consumer (15 USC 1692e(10)) [12 CFR 1006.18(d)].
Telephone Call Frequency Limitation 15. Determine whether the debt collector causes a person’s telephone to ring or engages any person in telephone conversations repeatedly or continuously with intent to annoy, abuse, or harass (15 USC 1692d(5)) [12 CFR 1006.14(b)(1)]. Compliance with this provision is presumed, unless either of the following occurs:
a. The debt collector places telephone calls to a person in connection with the collection of a particular debt more than seven times within a seven-day period, subject to certain exceptions in Section 1006.14(b)(3) (12 CFR 1006.14(b)(2)(ii)(A)). b. The debt collector places a telephone call within seven days after engaging in a telephone conversation with the person about the particular debt, subject to certain exceptions in Section 1006.14(b)(3) (12 CFR 1006.14(b)(2)(ii)(B)).
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Examination Procedures Debt Collection CFPB March 2022 Procedures 16 Special Limits on Communications with Third Parties The FDCPA limits debt collectors’ communications with “third parties,” which for purposes of these procedures means anyone other than: the consumer, the consumer’s attorney, a consumer reporting agency (if otherwise permitted by law), the creditor, the creditor’s attorney, or the debt collector’s attorney (15 USC 1692c(b)) [12 CFR 1006.6(d)(1)]. For purposes of this section on Special Limits on Communications with Third Parties, the term “consumer” includes the consumer’s spouse, consumer’s parent (if the consumer is a minor), consumer’s guardian, the executor or administrator of the consumer’s estate, if the consumer is deceased, or a confirmed successor in interest, as defined in Regulation X, 12 CFR 1024.31, or Regulation Z, 12 CFR 1026.2(a)(27)(ii) [15 USC 1692c(d), 12 CFR 1006.6(a)]. 16. Assess whether the debt collector has adequate policies and procedures to avoid disclosure of the existence of a debt to third parties, for example, how does the debt collector identify itself or leave messages with third parties?
17. Determine whether the debt collector communicates with any third parties to obtain location information, which is defined as the consumer’s home address and telephone number or place of employment [12 CFR 1006.10(a)]. If so:
a. Determine whether the debt collector refrains from making statements that: i. Reveal the debt collection company’s name, unless specifically asked (15 USC 1692b(1)) [12 CFR 1006.10(b)(1)], or ii. Indicate that the consumer owes a debt (15. USC 1692b(2)) [12 CFR 1006.10(b)(2)]. b. Determine whether the debt collector communicates with any third parties more than once. 12 CFR 1006.10(c). If so, determine whether the communication is permissible because:
i. The third party specifically requested additional communication; or ii. The debt collector reasonably believes that the information from the first communication was wrong or incomplete and that the third party has since received better location information. (15 USC 1692b(3)).
c. Determine whether the debt collector knows the consumer is represented by an attorney and has knowledge of, or can readily ascertain, such attorney’s name and address. If so, determine whether the debt collector communicates only with the attorney, unless the attorney fails to respond within a reasonable period of time to a communication from the debt collector. (15 USC 1692b(6)) [12 CFR 1006.10(b)(5)].
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Examination Procedures Debt Collection CFPB March 2022 Procedures 17 18. Determine if the debt collector communicates with any third party in connection with the collection of any debt for reasons not related to obtaining location information. If so, determine whether the contact is permissible because:
a. The debt collector:
i. Received prior consent directly from the consumer [12 CFR 1006.6(d)(2)(ii)]; or ii. Received express permission from a court of competent jurisdiction (15 USC 1692c(b)) [12 CFR 1006.6(d)(2)(iii)]; or iii. As reasonably necessary to effectuate a postjudgment judicial remedy. (12 CFR 1006.6(d)(2)(iv)).
b. Additionally, a debt collector may send an email to an email address if, among other things, the immediately prior debt collector used the email address to communicate with the consumer about the debt. Comment 6(d)(4)(iii)-1.
19. Debt collectors generally may not communicate with a consumer using an email address that the debt collector knows is provided by the consumer’s employer, unless the debt collector received the consumer’s direct prior consent and the consumer has not withdrawn that consent, or the consumer used the email address to contact the debt collector and has not since opted out of communications to that email address (or the debt collector obtained the email address from a prior debt collector who satisfied one of those conditions) (12 CFR 1006.22(f)(3)).
Other Risks to Consumers 20. Determine whether the entity makes calls to consumers’ mobile phones, sends emails or text messages to consumers, or uses any other newer technology in contacting consumers. If so: a. Review the circumstances of such contacts including (to the extent applicable) how the entity identifies itself in making these contacts (e.g., information provided via caller identification or its email address).
21. Determine whether the entity makes representations to consumers regarding the effect of debt payments on consumer credit reports and scores, and if so, whether these representations are deceptive under the FDCPA or deceptive under the Dodd-Frank Act’s prohibition on deceptive acts and practices. See Bulletin 2013-08 (July 10, 2013). [Click&type] [Click&type] [Click&type] [Click&type]
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Examination Procedures Debt Collection CFPB March 2022 Procedures 18 22. Using the UDAAP examination procedures, consider whether any of the entity’s debt collection communications constitute unfair, deceptive, or abusive acts or practices, or a risk of such a violation. Conduct that is prohibited under the FDCPA (or that would be, if done by a “debt collector”) may, depending on the facts and circumstances, also raise UDAAP concerns. Examiners should consult with Headquarters to determine whether the applicable legal standards have been met before a UDAAP violation is cited.
23. Determine whether the entity sues or threatens to sue on time-barred debt. (12 CFR 1006.26(b)). Threats to sue on time-barred debt also may be analyzed under Module 7.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 19 Module 3: Information Sharing, Privacy, and Interactions with Consumer Reporting Agencies This module addresses specific requirements related to information sharing, privacy, and interactions with consumer reporting agencies under the GLBA and Regulation P; the FCRA and Regulation V; and the FDCPA and Regulation F.
GLBA and Regulation P Under the GLBA, many entities that collect debts including debt collection agencies are “financial institutions.” Certain obligations are triggered at the start of a “customer relationship.” Originating creditors can establish a customer relationship at the time they make a loan.2 A debt buyer can establish a “customer relationship” with a debtor when the debt buyer locates the individual and tries to obtain payments on the debt.3 1. Determine whether the entity under examination originated the debt, has purchased the debt, or is collecting on behalf of another party that owns the debt.
2. For debt that the entity under examination originated or has purchased and on which the entity is trying to obtain payments, use the Privacy of Consumer Financial Information examination procedures to assess compliance with the applicable requirements of Sections 502 to 509 of the GLBA (15 USC 6802-09) and Regulation P (12 CFR Part 1016).
3. For debt that the collector does not own but collects or attempts to collect on behalf of another party, use the Privacy of Consumer Financial Information examination procedures to assess compliance with the “reuse and redisclosure” limitations. (12 CFR 1016.11).
FCRA and Regulation V / FDCPA and Regulation F Users of Consumer Reports 4. Determine if the entity obtains consumer reports from any consumer reporting agency. If so, use the FCRA examination procedures to assess its compliance with the requirements on users of consumer reports, including whether:
2 See 12 CFR 1016.3(j)(2)(i)(B), 1016.3(j)(3)(i)(B).
3 See 12 CFR 1016.3(j)(3)(i)(J). An entity also can establish a “customer relationship” by acquiring ownership of the servicing rights for the loan. See 12 CFR 1016.3(j)(2)(i)(C), 1016.3(j)(3)(i)(L). [Click&type] [Click&type] [Click&type]
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Examination Procedures Debt Collection CFPB March 2022 Procedures 20 a. It trains its employees regarding use of consumer reports; b. It has a permissible purpose for all reports obtained and does not use the reports for any impermissible purpose (15 USC 1681b(f));
c. It complies with duties of users regarding address discrepancies (15 USC 1681c(h); 12 CFR 1022.82); and d. If the entity is a creditor, it provides notice to consumers when furnishing negative information about the consumer to a credit reporting agency. 15 USC 1681s–2(a)(7).
Furnishing Information about Consumers The FCRA imposes obligations on entities that provide information to consumer reporting agencies (this activity is called “furnishing”). If the entity is furnishing, examiners should obtain a sample of items furnished to consumer reporting agencies, a sample of notices of disputes received from consumer reporting agencies and consumers, and the corresponding loan or collection files. In doing this review, examiners should become familiar with the entity’s process relating to furnishing information, including the manner in which it furnishes information (e.g., through an electronic system or otherwise), the frequency of the furnishing, and how consumer disputes are communicated to consumer reporting agencies. Regulation F prohibits “passive collections”, that is, the regulation requires debt collectors to complete a specified action or actions to notify consumers about a debt before furnishing information regarding the debt to a consumer reporting agency. [12 CFR 1006.30(a)(1)]. Other FDCPA provisions which apply to furnishers who are debt collectors are addressed in Module 2 and should be considered for coverage in this module if Module 2 is not scoped into the exam. Examiners should refer to step 15 of Module 2 if the entity is a “debt collector” for FDCPA purposes and furnishes credit information it knows or should know is false, including if it furnishes information about disputed debts without identifying them as such (15 USC 1692e(8)) [12 CFR 1006.18(c)(2)].
Regulation V Requirements for Furnishers 5. Determine if the entity is a “furnisher” for purposes of the Furnisher Rule (12 CFR 1022.40- 1022.43) because it furnishes information relating to consumers to one or more consumer reporting agencies for inclusion in a consumer report. Note that an entity is not a furnisher when it:
a. Provides information to a consumer reporting agency solely to obtain a consumer report in accordance with sections 604(a) and (f) of the FCRA (i.e., uses the consumer report only for the purpose for which the consumer report is authorized to be provided); b. Is acting as a “consumer reporting agency” as defined in section 603(f) of the FCRA; c. Is a consumer to whom the furnished information pertains; or [Click&type]
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Examination Procedures Debt Collection CFPB March 2022 Procedures 21 d. Is a neighbor, friend, or associate of the consumer, or another individual with whom the consumer is acquainted or who may have knowledge about the consumer, and who provides information about the consumer’s character, general reputation, personal characteristics, or mode of living in response to a specific request from a consumer reporting agency. (12 CFR 1022.41(c)).
If the entity is not a furnisher, skip to step 13 below.
6. Assess compliance with Regulation V’s requirements relating to accuracy and integrity by determining:
a. Whether the furnisher has established and implemented reasonable written policies and procedures regarding the accuracy and integrity of the information relating to consumers that it furnishes to a consumer reporting agency;
b. Whether these policies and procedures are appropriate to the nature, size, complexity, and scope of each furnisher’s activities;
c. Whether the furnisher considered the guidelines in Appendix E of Regulation V in developing its policies and procedures, and incorporated those guidelines that are appropriate; and d. Whether the furnisher reviews its policies and procedures on accuracy and integrity periodically and updates them as necessary to ensure their continued effectiveness. (12 CFR 1022.42).
7. Assess the furnisher’s handling of Regulation V “direct disputes” from consumers, which are disputes submitted by a consumer directly to a furnisher (including a furnisher that is a debt collector) concerning the accuracy of any information contained in a consumer report and pertaining to an account or other relationship that the furnisher has or had with the consumer. (12 CFR 1022.41, 1022.43). In doing so, consider the following: a. Determine whether the entity has policies and procedures for properly identifying a direct dispute as such. (12 CFR 1022.41, 1022.43).
b. Determine whether the furnisher conducts reasonable investigations of direct disputes from consumers where required, including a review of all relevant information provided by the consumer. (12 CFR 1022.43(a)-(b), (e)(1), (2)). c. Determine whether the furnisher completes the investigation and reports the results to the consumer within the required time frame (12 CFR 1022.43(e)(3)). [Click&type] [Click&type]
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Examination Procedures Debt Collection CFPB March 2022 Procedures 22 d. Determine whether the furnisher notifies and provides corrected information to the consumer reporting agencies when the results of its investigation finds that inaccurate information was furnished to the consumer reporting agencies (12 CFR 1022.43(e)(4)). e. If the furnisher declines to investigate a direct dispute on the ground that it is frivolous or irrelevant, determine whether the furnisher:
i. Has reasonably determined that the dispute is frivolous or irrelevant. A dispute qualifies as “frivolous or irrelevant” if:
A. The consumer did not provide sufficient information to investigate the disputed information;
B. The direct dispute is substantially the same as a dispute previously submitted by or on behalf of the consumer, and the dispute is one with respect to which the furnisher already has complied with the statutory or regulatory requirements (provided, however, that a direct dispute would not be “substantially the same” as the one previously submitted if the dispute includes new information required by Regulation V to be provided to the furnisher, but that had not previously been provided to the furnisher); or C. The furnisher is not required to investigate the direct dispute because one or more of the exceptions listed in 12 CFR 1022.43(b) is applicable (12 CFR 1022.43(f)(1)).
ii. Notifies the consumer within five business days after finding the dispute frivolous or irrelevant (12 CFR 1022.43(f)(2)); and iii. Includes in the consumer notification the reasons for the findings and the information necessary to investigate the disputed information (12 CFR 1022.43(f)(3)).
8. Determine if the furnisher has provided an address in a consumer report relating to the consumer or otherwise clearly and conspicuously specified an address for submitting direct disputes in writing or electronically (if the consumer has agreed to the electronic delivery of information from the furnisher).
a. If so, determine whether it accepts and investigates all direct disputes submitted to the specified address(es). (12 CFR 1022.43(c)).
b. If not, determine whether it accepts and investigates all direct disputes submitted to any of its business addresses. (12 CFR 1022.43(c)).
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Examination Procedures Debt Collection CFPB March 2022 Procedures 23 Disputes Received from Consumer Reporting Agencies 9. Determine whether the furnisher complies with its obligation to do the following when it is notified by a consumer reporting agency that a consumer has disputed the accuracy or completeness of information that it previously has furnished: a. Conduct an investigation with respect to the disputed information (15 USC 1681s- 2(b)(1)(A));
b. Review all relevant information provided by the consumer reporting agency (15 USC 1681s-2(b)(1)(B));
c. Report the results of the investigation to the consumer reporting agency (15 USC 1681s- 2(b)(1)(C));
d. Report the results of the investigation to all other nationwide consumer reporting agencies to which the information was furnished if the investigation finds that the furnished information was inaccurate or incomplete (15 USC 1681s-2(b)(1)(D)); e. Modify, delete, or permanently block the furnishing of information that is found to be inaccurate or incomplete or could not be verified (15 USC 1681s-2(b)); and f. Complete the required investigations, reviews, and reports within applicable time limits (15 USC 1681s-2(b)(2)).
Other Furnisher Issues 10. For furnishers who are FDCPA debt collectors, determine whether the furnisher engages in “passive collections” by furnishing information about a debt to a consumer reporting agency before the collector:
a. Speaks to the consumer about the debt in person or by telephone; or b. Sends a letter or electronic message to the consumer about the debt and waits a reasonable period of time to receive a notice of undeliverability. (12 CFR 1006.30(a)). This prohibition does not apply to a debt collector’s furnishing of information to a nationwide specialty consumer reporting agency that compiles information on a consumer’s check-writing history.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 24 11. Assess the furnisher’s compliance with the other requirements that the FCRA imposes on furnishers using the FCRA examination procedures. Consider in particular whether the entity:
a. Does not furnish information relating to a consumer to a consumer reporting agency it knows or has reasonable cause to believe is inaccurate (15 USC 1681s-2(a)(1)(A)), which may also violate the FDCPA (15 USC 1692e(8)) [12 CFR 1006.18(c)(2)]; b. Does not furnish information to a consumer reporting agency after receiving notice from the consumer (at the address specified for such notices) that the information was inaccurate when the information is, in fact, inaccurate (15 USC 1681s-2(a)(1)(B)); c. If it regularly and in the ordinary course of business furnishes information and has furnished information that it determines is not accurate or complete, i. Promptly notifies the consumer reporting agency and provides corrections; and ii. Thereafter does not send the consumer reporting agency any of the information that remains incomplete or inaccurate. (15 USC 1681s-2(a)(2)); d. Within 90 days of furnishing information about a delinquent account that is being placed for collection, charged-off, or subjected to any similar action, i. Notifies the consumer reporting agency of the month and year of commencement of a delinquency that immediately preceded the action; and ii. Thereafter does not furnish a different month and year of commencement of the delinquency unless it identifies an error that requires correction (15 USC 1681s- 2(a)(5));
e. Furnishes a notice to a consumer reporting agency of a dispute in situations where: i. A consumer has disputed the completeness or accuracy of any information the entity furnished; and ii. The entity continues furnishing the information to a consumer reporting agency. (15 USC 1681s-2(a)(3)).
12. Determine whether the furnisher has adequate procedures in place to keep track of information that it has determined to be incomplete or inaccurate or that it has been unable to verify in response to a dispute and to prevent re-furnishing of such information as long as it remains incomplete, inaccurate, or unverifiable, consistent with the requirements of 15 USC 1681s-2(a)(2) and 15 USC 1681s-2(b).
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Examination Procedures Debt Collection CFPB March 2022 Procedures 25 Identity Theft Issues Including Prevention of Re-Pollution of Consumer Reports 13. If the entity is a furnisher:
a. Determine whether it has reasonable procedures in place to ensure that items of information blocked because of an alleged identity theft are not re-furnished to a consumer reporting agency after the entity is notified of a block by a consumer reporting agency (15 USC 1681s-2(a)(6)(A));
b. Review a sample of notices from a consumer reporting agency of allegedly fraudulent information due to identity theft furnished by the entity, to determine whether the entity does not re-furnish the item to a consumer reporting agency (15 USC 1681s-2(a)(6)(A)); and c. Assess whether the furnisher improperly furnishes to any consumer reporting agency any information alleged to result from identity theft after the consumer provides an identity theft report to the entity at the address specified by the entity, unless the furnisher subsequently knows or is informed by the consumer that the information is correct (15 USC 1681s-2(a)(6)(B)).
14. Determine whether the entity sells, transfers for consideration, or places for collection a debt after being notified by a consumer reporting agency that the debt resulted from identity theft. (15 USC 1681m(f)).
15. If the entity is a “debt collector” (per step 1 of Module 1), determine if it acts on behalf of one or more third parties that are creditors or other users of a consumer report. If so: a. Determine whether the debt collector has policies and procedures in place to use if it is notified that any information relating to the debt it is attempting to collect may be fraudulent or may be the result of identity theft. Consider specifically whether it: i. Notifies the third party for whom it is collecting that the information may be fraudulent or the result of identity theft; and ii. Upon request, provides the consumer to whom the debt purportedly relates all information to which the consumer would otherwise be entitled if the consumer were not a victim of identity theft, but wished to dispute the debt under applicable provisions of law.
b. If procedural weaknesses or other risks requiring further investigation are noted, review a sample of instances where consumers have alleged identity theft and requested [Click&type] [Click&type]
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Examination Procedures Debt Collection CFPB March 2022 Procedures 26 information related to transactions to determine if all of the appropriate information was provided to the consumer. (15 USC 1681m(g)).
Information Sharing Among Affiliates 16. If the entity shares information with affiliates, use the FCRA examination procedures for affiliate marketing, to assess compliance with the FCRA affiliate marketing rule (12 CFR 1022.20-1022.27).
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Examination Procedures Debt Collection CFPB March 2022 Procedures 27 Module 4: Validation Notice, Consumer FDCPA Disputes and Complaints, and Ceasing Communication This module addresses consumer inquiries, complaints, and FDCPA disputes, as well as the debt verification obligations imposed by the FDCPA (where applicable). This review assesses (1) whether complaints are resolved adequately and in a timely manner, (2) whether they reflect any potential violations of Federal consumer financial law, and (3) whether the entity has a process in place to analyze and address any underlying sources or systemic reasons for any law violations revealed by the complaints.
Examiners should review reports to management and the board of directors (or principals), consumer complaint log(s), performance metrics, and exception/trend reports and should listen to live calls and taped calls.
FDCPA General Disclosure Delivery Requirements Throughout this module, determine whether the entity is in compliance with the requirements of the FDCPA and Regulation F for the delivery of disclosures provided to consumers. 1. With certain exceptions noted below, whenever the FDCPA or Regulation F requires a debt collector to provide a disclosure and the disclosure is provided in writing or electronically, the debt collector must provide the disclosure in a manner that is reasonably expected to provide actual notice and in a form that the consumer may keep and access later. 12 CFR 1006.42(a)(1).
a. These requirements generally do not apply to:
i. The notice of a reasonable and simple method to opt out. [12 CFR 1006.42(a)(2)] ii. The disclosure in the initial communication with a consumer that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose. [12 CFR 1006.42(a)(2)] iii. The disclosure in a subsequent communication that the communication is from a debt collector. [12 CFR 1006.42(a)(2)] b. However, these requirements do apply if the disclosures listed in step 1(a) are included in a written or electronic validation notice, or in the response to a FDCPA dispute or request for original-creditor information. [12 CFR 1006.42(a)(2)] c. Generally, a debt collector satisfies these requirements if the debt collector mails a printed copy of a disclosure to the consumer’s last known address. However, mailing a printed copy to the last known address does not satisfy the requirement if the debt collector, at the time of mailing, knows or should know that the consumer does not
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Examination Procedures Debt Collection CFPB March 2022 Procedures 28 currently reside at, or receive mail at, that location. Comment 1006.42(a)(1)-3. Additionally, a debt collector who sends a required disclosure in writing or electronically and who receives a notice that the disclosure was not delivered has not sent the disclosure in a manner that is reasonably expected to provide actual notice. Comment 1006.42(a)(1)- 2.
2. A debt collector must make the disclosures required by 12 CFR 1006.18(e)(1) and (2) in the same language or languages that the debt collector used for the rest of the communication in which the disclosure is included. Any translation of the disclosures must be complete and accurate. 12 CFR 1006.18(e)(4).
Validation Information If the entity is a “debt collector” (per step 1 of Module 1), follow steps 3 to 16 below; otherwise skip to step 17 below. Any entity that qualifies as a “debt collector” under the FDCPA must provide consumers with certain basic information about each debt it attempts to collect. If a debt collector also furnishes information about the debt, examiners should check to ensure the debt collector is in compliance with obligations under Regulation F related to “passive collections” (see Module 3). These obligations are covered under Module 3 but may be scoped into an exam under this module if Module 3 is not scoped into the exam. 3. Determine whether the debt collector correctly uses the model validation notice. Regulation F includes a model validation notice as Model Form B-1 (located in Appendix B to Regulation F). If a debt collector correctly uses the model validation notice, a version of the model validation notice that adds or omits certain optional content, a version that includes certain content on a separate page, or a version that is otherwise substantially similar to the model validation notice, the debt collector receives a safe harbor for the validation information requirements in Section 1006.34(c) and for the clear and conspicuous requirement in Section 1006.34(d)(1). (12 CFR 1006.34(d)(2)(i)-(iii) & (3)). Determine whether, if the model validation notice is not used, the debt collector correctly provides the required information to the consumer.
4. Determine whether the debt collector provides the following “validation information” to the consumer, either in the initial communication or within five days of the initial communication. For certain residential mortgage debt, pursuant to a special rule, a debt collector may omit certain validation information from the validation notice. (12 CFR 1006.34(c)(5)). The debt collector is not required to provide the validation information if the consumer pays the debt within five days of the initial communication. (12 CFR 1006.34(a)). [Click&type] [Click&type] [Click&type]
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Examination Procedures Debt Collection CFPB March 2022 Procedures 29 a. The debt collector communication disclosure required by 12 CFR 1006.34(c)(1). b. The information about the debt required by 12 CFR 1006.34(c)(2). c. The information about consumer protections required by 12 CFR 1006.34(c)(3). d. The consumer-response information required by 12 CFR 1006.34(c)(4).
5. Determine whether the validation information, whether provided orally or in a validation notice, is “clear and conspicuous” as defined by 12 CFR 1006.34(b)(1). (12 CFR 1006.34(d)(1)).
6. If the debt collector delivers a validation notice electronically, determine whether it correctly uses certain formatting options, such as a hyperlink to the debt collector’s website. (12 CFR 1006.34(d)(4)).
7. Use step 1 of Module 4 to determine if the validation notice was sent in the manner required by 12 CFR 1006.42. (12 CFR 1006.34(a)(1)(i)).
8. Determine whether the debt collector sends validation notices completely and accurately translated into languages other than English.
a. The debt collector may send a validation notice translated into any language if certain requirements are met. (12 CFR 1006.34(e)(1)).
b. The debt collector may offer to provide a copy of the validation notice in Spanish using the optional disclosures described in 12 CFR 1006.34(d)(3)(vi). If the debt collector provides these optional disclosures and the consumer requests a Spanish-language validation notice, the debt collector must provide a validation notice completely and accurately translated into Spanish. (12 CFR 1006.34(e)(2)).
9. Determine whether during the validation period defined in Section 1006.34(b)(5), the debt collector’s communications and/or collection activities overshadow or are inconsistent with the disclosure of the consumer’s rights to dispute the debt or to request the name and address of the original creditor. (15 USC 1692g(b)) [12 CFR 1006.38(b)(1)]. This could occur, for example, if a debt collector threatens dire consequences for the consumer if the consumer [Click&type] [Click&type] [Click&type] [Click&type] [Click&type]
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Examination Procedures Debt Collection CFPB March 2022 Procedures 30 fails to make an immediate payment or if a debt collector demands immediate payment without noting that the consumer has 30 days to dispute the debt.
10. Determine whether the consumer invokes his or her verification rights by notifying the debt collector in writing during the validation period that the consumer disputes the debt or any portion thereof or by requesting the name and address of the original creditor. If so, determine whether the debt collector:
a. Ceases collection of the debt (or any disputed portion), until the debt collector mails the consumer a copy of verification of the debt, a copy of the judgment, or the name and address of the original creditor in writing or electronically in the manner required by 12 CFR 1006.42. (15 USC 1692g(b)) [12 CFR 1006.38(c)]; or b. In the case of a FDCPA dispute that the debt collector reasonably determines is a duplicative dispute, either responds as required for a non-duplicative dispute or notifies the consumer in writing or electronically in the manner required by 12 CFR 1006.42(a)(1) that the dispute is duplicative, provides a brief statement of the reasons for this determination, and refers the consumer to the debt collector’s response to the earlier dispute. (12 CFR 1006.38(d)(2)(ii)).
Ceasing Communications 11. Determine whether a consumer notified the debt collector in writing that he or she refuses to pay a debt or wishes for the debt collector to cease further communications. 12 CFR 1006.6(c)(1). Written electronic communications fulfill the “in writing” requirement of this rule. Comments 1006.6(c)(1)-1 and -2. If such a request was made in writing: a. Determine whether the debt collector continued to communicate with the consumer, the consumer’s spouse, parent (if the consumer is a minor), guardian, executor, or administrator with respect to the debt.
b. If the debt collector continued to communicate with the consumer per step 11(a) above, determine whether the communications are permissible because they are limited to: i. Advising the consumer that further collection efforts are being terminated (15 USC 1692c(c)(1)) [12 CFR 1006.6(c)(2)(i)];
ii. Notifying the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor (15 USC 1692c(c)(2)) [12 CFR 1006.6(c)(2)(ii)]; or
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Examination Procedures Debt Collection CFPB March 2022 Procedures 31 iii. Where applicable, notifying the consumer that the debt collector or creditor intends to invoke a specified remedy (15 USC 1692c(c)(3)) [12 CFR 1006.6(c)(2)(iii)].
12. If a consumer opts out of communications through the opt-out option required for electronic communications by 12 CFR 1006.6(e), assess whether the debt collector honors the consumer’s opt-out request as required by 12 CFR 1006.14(h).
13. Assess whether the debt collector honors consumers’ requests not to communicate in a specific medium as required by 12 CFR 1006.14(h). This request may be made separate from an opt out request described in step 12 above and need not be in writing.
FDCPA Disputes 14. Assess the debt collector’s policies and procedures for handling consumer FDCPA disputes and the steps the debt collector takes upon learning that a consumer disputes the debt.
15. Evaluate whether the debt collector communicates or threatens to communicate false credit information or information which should be known to be false, including not communicating disputed debts as such. (15 USC 1692e(8)) [12 CFR 1006.18(c)(2)].
16. Evaluate the debt collector’s policies and procedures concerning accounts where consumers assert that the underlying debt is the result of identity theft or other fraudulent activity.
Other Risks to Consumers 17. Evaluate the comprehensiveness of systems, procedures, and/or flowcharts for capturing, logging, tracking, handling, and reporting disputes and/or complaints and their resolutions.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 32 18. Identify all channels and physical locations the entity provides for receipt of customer disputes, complaints, and inquiries.
19. Assess the effectiveness of any telephone line available for inquiries or complaints, including (a) whether it is toll-free, (b) the ease of accessing a live person, (c) the hold times, and (d) the call abandonment rates. Assess the quality and training of call center personnel.
20. Assess the effectiveness of other means available for disputes, inquiries, or complaints, including written submissions and any online portal.
21. Evaluate the entity’s processes and promptness in responding to consumer disputes and complaints.
22. Determine whether consumer complaints are captured, correctly categorized, and are handled appropriately.
23. Determine if staffing levels are sufficient for volume of complaints and whether assumptions used for staffing determinations are validated or supported by analysis.
24. Determine whether the entity has a process for analyzing complaints to identify patterns of debt collection practices that violate the law or pose risks to consumers. For example, such analysis might indicate violations by a particular employee or service provider or data integrity problems associated with a particular set of accounts or portfolio. Determine what steps, if any, are taken if patterns are discovered.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 33 Module 5: Payment Processing and Account Maintenance This module addresses how consumers’ payments are applied to their accounts and other account maintenance issues, including those associated with electronic fund transfers. Examiners should review the entity’s policies, procedures, and practices regarding fees, other charges, and payment allocation and processing to assess whether they are adequate to ensure compliance with the standards set forth below.
FDCPA If the entity is a “debt collector” (per step 1 of Module 1), follow steps 1 to 13 below; otherwise skip to step 7 below.
1. Determine whether the debt collector applies all payments received as directed by the consumer and, where no direction is given, applies payments only to undisputed debts. (15 USC 1692h) [12 CFR 1006.30(c)].
2. Determine whether the debt collector collects or attempts to collect any amount (including interest, late fees, service charges, collection charges, attorney fees, or court costs) not expressly authorized by the agreement creating the debt or permitted by law. (15 USC 1692f(1)) [12 CFR 1006.22(b)].
3. Determine whether the debt collector overstates the balance of the debt or otherwise collects any amount not expressly authorized by the agreement creating the debt or permitted by law. (15 USC 1692f(1), 1692e(2)(A)). [12 CFR 1006.22(b); 12 CFR 1006.18(b)(2)(i)].
4. Determine whether the debt collector misrepresents the services it has rendered or the compensation to which it is lawfully entitled. (15 USC 1692e(2)(B)) [12 CFR 1006.18(b)(2)(ii)].
5. If the debt collector accepts or solicits any postdated payment instruments, assess the following:
a. If the debt collector accepts a check or other payment instrument that is postdated by more than five days, determine whether the debt collector provides written notice to the [Click&type] [Click&type] [Click&type] [Click&type]
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Examination Procedures Debt Collection CFPB March 2022 Procedures 34 consumer of its intention to deposit the check or instrument three to ten business days prior to depositing the check. (15 USC 1692f(2)) [12 CFR 1006.22(c)(1)]. b. Determine whether the debt collector solicits postdated checks or other postdated payment instruments for the purpose of threatening or instituting criminal prosecution. (15 USC 1692f(3)) [12 CFR 1006.22(c)(2)].
c. Determine whether the debt collector deposits or threatens to deposit post-dated checks or other postdated payment instruments prior to the date on the check or instrument. (15 USC 1692f(4)) [12 CFR 1006.22(c)(3)].
6. Determine whether the debt collector uses any unfair or unconscionable means to collect or attempt to collect any debt not identified above. (15 USC 1692f) [12 CFR 1006.22(a)].
EFTA/Regulation E If the entity receives payment through an electronic fund transfer, it may be required to comply with the requirements of the EFTA and Regulation E. If the entity has established electronic fund transfers from the consumer’s account, examiners should use the EFTA examination procedures to review the extent to which the entity is complying with the EFTA. 7. Determine if the consumer agreed to initiate or if the entity initiated an electronic fund transfer subject to the EFTA/Regulation E (“EFT”). Consider if the entity is using methods subject to the EFTA or methods that are not subject to the EFTA such as remotely-created checks.
8. Determine whether the EFT is a single EFT or a preauthorized EFT. To qualify as a preauthorized EFT, the transfer is one that is authorized in advance to recur at substantially regular intervals. (12 CFR 1005.2(k)).
9. If the entity initiates preauthorized EFTs:
a. Assess the entity’s compliance with the applicable advance authorization, disclosures, and other requirements relating to preauthorized EFTs under the EFTA and Regulation E. (12 CFR 1005.10).
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Examination Procedures Debt Collection CFPB March 2022 Procedures 35 b. Determine whether the entity obtains proper written authorization for preauthorized EFTs from a consumer’s account and provides a copy of the authorization to the consumer. (12 CFR 1005.10(b)).
10. Determine whether the preauthorized EFTs will vary in amount. If so, determine whether the payee or financial institution, prior to each transfer, provides reasonable advance notice to the consumer, when required by applicable regulations, of the amount to be transferred and the scheduled date of transfer. (12 CFR 1005.10(d)).
11. If the entity initiates single EFTs using information from a check, assess whether the entity obtains authorization from the consumer to initiate the EFT and is complying with appropriate notice requirements. (12 CFR 1005.3(b)(2)(ii)).
12. If the entity initiates an EFT to collect a fee for the return of an EFT or a check that is unpaid, determine whether the entity is complying with appropriate notice requirements. (12 CFR 1005.3(b)(3)).
Other Risks to Consumers 13. If the entity initiates single EFTs in circumstances other than those described under items 11 or 12 above, determine whether the entity obtains prior authorization from the consumer.
14. Assess whether the entity issues refunds of overpayments and returns payments received in error to consumers in a timely and transparent manner.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 36 15. Using the UDAAP examination procedures including any procedures for any Bureau regulations issued under its UDAAP rulemaking authority, evaluate whether the entity’s practices with respect to payment processing, fees and charges, and other accounting issues raise any potential UDAAP concerns. Examiners should consult with Headquarters to determine whether the applicable legal standards have been met before a UDAAP violation is cited.
Module 6: Equal Credit Opportunity Act Under the ECOA and its implementing Regulation B, creditors may not discriminate against an applicant in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex (including sexual orientation and gender identity discrimination), marital status, age (provided the applicant has the capacity to contract), receipt of public assistance income, or exercise in good faith of any right under the Consumer Credit Protection Act. (12 CFR 1002.2(z), 1002.4(a)). Credit transactions encompass “every aspect of an applicant’s dealings with a creditor regarding an application for credit or an existing extension of credit,” and include “revocation, alteration, or termination of credit” and “collection procedures.” (12 CFR 1002.2(m)).
1. Determine whether the entity is a “creditor” for ECOA purposes, under 15 USC 1691a(e), by determining if the entity is a person who regularly participates in a credit decision, including setting the terms of the credit. A “creditor” includes a creditor’s assignee, transferee, or subrogee who so participates. For purposes of 12 CFR 1002.4(a) and (b), a “creditor” also includes a person who, in the ordinary course of business, regularly refers applicants or prospective applicants to creditors, or selects or offers to select creditors to whom requests for credit may be made. (12 CFR 1002.2(1)).
2. If the entity is a “creditor” per step 1 above, evaluate whether the entity is complying with the requirements of ECOA and Regulation B, as applicable, using the ECOA examination procedures. In conducting this evaluation, pay particular attention to the following: a. The extent of discretion in the entity’s collection procedures and practices, and the extent to which the entity controls and monitors the exercise of that discretion; b. The extent to which the entity’s collection procedures and practices incorporate a prohibited basis under ECOA;
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Examination Procedures Debt Collection CFPB March 2022 Procedures 37 d. The extent of fair lending training offered to individuals involved in the entity’s collection activities.
The above factors create conditions under which the risk of fair lending violations may be increased. Whether any particular factor constitutes a fair lending violation requires consideration of the particular facts and circumstances at issue. For more information regarding the scoping of fair lending exams, see CFPB ECOA examination procedures.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 38 Module 7: Litigation Practices, Administrative Wage Garnishment, Repossession, and Time-Barred Debt This module addresses collection actions in court and potential risks to consumers that may arise in this context. It also addresses repossession and collection of debt that is beyond the applicable statute of limitations for a collection lawsuit.
Litigation Practices Examiners should first determine whether the entity files legal actions to collect debt or exercises any control over such actions. If so, examiners should review court documents filed by or on behalf of the entity, steps to enforce court judgments such as garnishment of consumer wages and attachment of consumer bank accounts, policies of the debt owner and state or local laws governing these practices, consumer complaints, consumer files, and other relevant materials to ascertain the following:
1. If the entity is a “debt collector” subject to the FDCPA (per step 1 of Module 1), determine whether it brings actions only in forums permitted by the FDCPA by evaluating: a. Whether it brings actions to enforce a security interest in real property securing the consumer’s obligations only in the judicial district or similar legal entity in which such real property is located [12 CFR 1006.30(d)(1)]; and b. Whether it brings all other actions only in the judicial district or similar legal entity in which:
i. The consumer signed the contract sued upon; or ii. The consumer resides at the time the action is commenced. (15 USC 1692i) [12 CFR 1006.30(d)(2)].
2. If the entity is a “debt collector” subject to the FDCPA (per step 1 of Module 1), determine whether its litigation practices involve:
a. Unfair or unconscionable means (15 USC 1692f) [12 CFR 1006.22(a)]; b. False, deceptive, or misleading representations or means (15 USC 1692e) [12 CFR 1006.18(a)]; or c. Harassing, oppressive, or abusive conduct in violation of the FDCPA (15 USC 1692d) [12 CFR 1006.14(a)].
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Examination Procedures Debt Collection CFPB March 2022 Procedures 39 3. Determine whether any of the entity’s litigation practices are unfair, abusive, or deceptive. Refer to the examination procedures regarding UDAAPs for more information about the legal standards and the CFPB’s approach to examining for UDAAPs. Examiners should consult with Headquarters to determine whether the applicable legal standards have been met before a UDAAP violation is cited.
Administrative Wage Garnishment and Repossession 4. Determine whether the entity repossesses, disables, or threatens to repossess or disable property through nonjudicial action under any of the following circumstances: a. There is no present right to possession of the property claimed as collateral through an enforceable security interest;
b. There is no present intention to take possession of the property; or c. The property is exempt by law from repossession or disablement. These determinations should be made, for example, when the entity participates in administrative wage garnishment as a means of collection on federal student loans or in the repossession of automobiles to collect on consumer loans secured by automobiles. If the entity takes such action, consult with Headquarters to determine if the entity is subject to 15 USC 1692f [12 CFR 1006.22] including its subparagraph (6) [(e)] and to assess whether the conduct raises any UDAAP concerns.
Time-barred Debt 5. Determine whether the entity has policies and procedures related to debt for which the applicable statute of limitations has expired (“time-barred debt”), including how the entity identifies such debt and how it collects on such debt (if at all).
6. Determine whether the entity sues or threatens to sue on time-barred debt. (12 CFR 1006.26(b)). Threats to sue on time-barred debt also may be analyzed under Module 2.
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Examination Procedures Debt Collection CFPB March 2022 Procedures 40 debt and its ability to sue on the debt. Communications in connection with time-barred debt also may be analyzed under Module 2.
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CFPB Education Examination Procedures Loan CFPB September 2022 Procedures 1 Education Loan Examination Procedures After completing the risk assessment and examination scoping, examiners should use these procedures to conduct an education loan examination.
In addition, the CFPB expects every regulated entity under its supervision and enforcement authority to have an effective compliance management system appropriate for the size and complexity of the entity and adapted to its business strategy and operations. Examiners should also use the compliance management system review procedures to conduct review and testing of components of the supervised entity’s compliance management system.1 These procedures include guidance for examination of all aspects of private education loans, examination of servicing practices in connection with all types of student loans, and examination of education-related credit. The examination procedures contain a series of modules, grouping similar requirements together. In many cases, the examination scope will focus on either origination or servicing. Depending on the scope, and in conjunction with the compliance management system and consumer complaint response review procedures, each examination will cover parts of one or more of the following modules. Module 7 – Examination Conclusions and Wrap-up is a required module and must be completed. The modules include: 1. Advertising, Marketing, and Lead Generation 2. Customer Application, Qualification, Loan Origination, and Disbursement 3. Student Loan Servicing 4. Borrower Inquiries and Complaints 5. Collections, Accounts in Default, and Credit Reporting 6. Information Sharing and Privacy 7. Examination Conclusion and Wrap-up
1 A supervised entity must develop and maintain a sound compliance management system that is integrated into the overall framework for product design, delivery, and administration — that is, the entire product and service lifecycle. Ultimately, compliance should be part of the day-to-day responsibilities of management and the employees of a supervised entity; issues should be self-identified; and corrective action should be initiated by the entity. Supervised entities are also expected to manage relationships with service providers to ensure that these providers effectively manage compliance with Federal consumer financial laws applicable to the product or service being provided. See CFPB Supervision and Examination Manual, https://www.consumerfinance.gov/policy-compliance/guidance/supervision-examinations/.
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CFPB Education Examination Procedures Loan CFPB September 2022 Procedures 2 Examination Objectives 1. To assess the quality of the regulated entity’s compliance risk management systems, including internal controls and policies and procedures, for preventing violations of Federal consumer financial law in its private education lending business or student loan servicing business. 2. To identify acts or practices that materially increase the risk of violations of Federal consumer financial law in connection with private education lending or student loan servicing. 3. To gather facts that help determine whether a regulated entity engages in acts or practices that are likely to violate Federal consumer financial law in connection with private education lending or student loan servicing.
4. To determine, in consultation with headquarters, whether a violation of a Federal consumer financial law has occurred, and whether further supervisory or enforcement actions are appropriate.
Background Education loans are essential for many students to obtain post-secondary education and are a significant part of the nation’s economy. During the last decade, a greater proportion of Americans than ever pursued post-secondary education, and the costs to students have risen steadily. In light of the rising cost of obtaining post-secondary education, American consumers have increasingly turned to education loans to bridge the gap between personal and family resources and the total cost of education.
The Dodd-Frank Wall Street Reform and Consumer Act of 2010 (Dodd-Frank Act) gave the CFPB supervisory authority over a variety of institutions that may engage in private education lending or student loan servicing, including certain depository institutions and their affiliates, and nonbank entities in the private education lending market, as well as their service providers. The Dodd-Frank Act also gave the CFPB supervisory authority over “larger participants” of markets for consumer financial products, as the CFPB defines by rule, and their service providers (12 USC 5514(a)(1)(B)). On December 3, 2013, the CFPB issued a larger participant regulation for the student loan servicing market. The student loan servicing larger participant rule became effective March 1, 2014 and is codified in 12 CFR Section 1090.106. The rule provides that a nonbank covered person is a larger participant of the student loan servicing market if the person’s servicing account volume, as defined by the rule, exceeds one million accounts.
Private Education Lending The CFPB has supervisory authority over entities that originate private education loans. In broad terms, private education loans are consumer loans made directly to students and/or parents to fund undergraduate, graduate, and other forms of postsecondary education.2 Private education loans are
2 Under Section 140 of the Truth in Lending Act, 15 U.S.C. § 1650, a private education loan means a loan provided by a private education lender that:
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CFPB Education Examination Procedures Loan CFPB September 2022 Procedures 3 offered by banks, non-profits, nonbanks, credit unions, state-affiliated organizations, and institutions of higher education, including both for-profit schools (also known as proprietary institutions) and non-profit schools. Private education loans are typically used to cover the shortfall between the cost of higher education programs and available financial aid, which can include scholarships, work-study, grants, and loans made by the U.S. Department of Education under the Federal Direct Loan Program (Direct Loans). Private education loans can also be used to finance the cost of attending institutions ineligible to participate in the Federal Direct Loan Program, and they may also be used by borrowers who are ineligible for Direct Loans. In the past, private lenders were also able to provide borrowers with federally-guaranteed student loans under the Family Federal Education Loan Program (FFELP).3 Under FFELP, lenders would use private capital to make FFELP loans. FFELP was eliminated under the Health Care and Education Reconciliation Act of 2010.4 Today, most federal student loans are made directly through the U.S. Department of Education under the Direct Loan program pursuant to Title IV of the Higher Education Act.5 Unlike Direct Loans or FFELP loans, private education loans are not subsidized or insured by the federal government. Private education loan borrowers are not eligible for the benefits and protections offered to borrowers with federal student loans under Title IV of the Higher Education Act, including certain Income-Driven Repayment plans, although some private loan programs offer graduated repayment options and private lenders can choose to offer Income-Driven Repayment options. However, like federal education loans, private education loans are generally non-dischargeable in bankruptcy, unless the borrower can show undue hardship by not discharging the loans.
Private education loans are typically made through several different channels, including school referral to a preferred lender or set of lenders; a consumer independently shopping for a private lender; or through the school itself (institutional loans including deferred tuition or billing plans). For non-institutional loans, the school will typically certify enrollment, financial need levels, and academic progress to the lender. The school certification process enables school financial aid offices to gain an overview of student financing needs and propose appropriate mixes of aid sources to the student. School certification also enables lenders to ensure that private loan monies
• Is not made, insured, or guaranteed under Title IV of the Higher Education Act of 1965; • Is issued expressly for postsecondary educational expenses to a borrower, regardless of whether the loan is provided through the educational institution that the subject student attends or directly to the borrower from the private educational lender; and • Does not include an extension of credit under an open end consumer credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling. 3 See Higher Education Act of 1965, Pub. L. No. 89-329, title IV, Sec. 421 (1965). 4 See Health Care and Education Reconciliation Act of 2010, Pub.L. 111-152, title II, Sec. 2201 (2010). 5 The vast majority of new federal student loans are originated by the Department of Education through the Federal Direct Loan Program. Up until 2018, a small share of new federal student loans was originated directly by higher education institutions through the Federal Perkins Loan Program, which provided low-interest loans to students with financial need. The authority to make new loans under the Perkins program lapsed in 2018, but borrowers must repay existing Perkins loan obligations.
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CFPB Education Examination Procedures Loan CFPB September 2022 Procedures 4 are used to cover the student’s cost of attendance.6 Once a student takes out a private education loan, the money is typically distributed directly to the school which, in some cases, then disburses any overages to the borrower. Private education loans sometimes take non-traditional forms such as temporary credits and income share agreements.
Unlike federal loans, private education loan products are typically underwritten to a credit policy and priced based on risk. Private education lenders typically involve a cosigner because many younger students may not have a robust credit record. The private education loan product often has variable rates, based on LIBOR or Prime plus a margin.7 The margin is risk-based, usually ranging from less than zero percent to over 13 percent. Private lenders often offer fixed rate loans as well. Like the variable rate loans, the pricing is risk-based. Education loans are generally longer in duration than other forms of consumer credit, with the exact term varying based on the terms of the loan and the total amount borrowed. The term can be as short as five years and as long as 30 years.
Lenders use different underwriting methods relying on various measures of the borrower’s ability to pay when originating private student loans. For loans to full-time undergraduate students, product approval and pricing are predominantly based on the credit of a cosigner. For graduate/professional students, part-time students, and employed students, pricing may be solely based on the student’s credit history, if the student applies without a cosigner. Like federal loans, private education loans have traditionally offered full deferment of payments during school, capitalizing on the accrued interest upon entering repayment. However, some private education loans require some form of in-school payment, from full principal-and-interest payments to interest-only payments to nominal fixed monthly sums (e.g., $25). Increasingly, lenders offer a range of loan products that enable borrowers to choose whether to make in-school payments or defer payments until the end of the post-school grace period. Whether payments are required during the in-school period can affect the loan’s interest rate. Borrowers may acquire loans with different repayment terms – for example, they may choose to make interest-only payments on freshman and sophomore year loans, and then switch to deferred loans for subsequent years.
Student Loan Servicing As a result of the Larger Participant Rule issued on December 3, 2013, the CFPB also has supervisory authority over a number of nonbank student loan servicers. Student loan servicers handle three main types of post-secondary education loans.8 First, some entities service
6 Lenders who market loans directly to borrowers often use school verification as an additional underwriting tool. 7 Developments with the LIBOR will prompt many of these private education loans to transition to a different reference interest rate by June 2023.
8 There are additional federal programs under Title IV that also authorize student loans. For example, one such program finances loans made directly by certain post-secondary education institutions through their financial aid offices. See 20 USC Section 1087aa. Another program offers grants to those who pledge to become teachers. If the recipients do not become teachers, then the disbursed
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CFPB Education Examination Procedures Loan CFPB September 2022 Procedures 5 outstanding loans made under FFELP. These loans are either serviced by the loan holders themselves or serviced pursuant to contracts with the loan holders. Second, the student loan servicing market includes Direct Loans originated by the U.S. Department of Education and some FFELP loans that were purchased by the Department of Education. Direct Loans and governmentowned FFELP loans are serviced by entities that contract with the Department of Education pursuant to Title IV of the Higher Education Act of 1965. Third, some entities service private student loans, made without federal involvement. Private student loans are usually serviced either by the originating institutions or by other third-party entities. The same entities awarded servicing contracts for Direct Loans and government-owned FFELP loans may also service legacy Commercial FFELP loans and private student loans.
Servicing, in general, is the day-to-day management of a borrower’s loans. Servicers’ duties typically include maintaining borrowers’ account records, sending periodic statements advising borrowers about amounts due and outstanding balances, receiving payments from borrowers and allocating them among various loans and loan holders, reporting to creditors or investors, providing borrowers with information and facilitating enrollment in a range of benefits and protections (including loan forgiveness programs), and attempting default aversion activities for delinquent borrowers. Servicers receive scheduled periodic payments from borrowers pursuant to the terms of their loans and apply the payments to principal and interest and other fees as may be required pursuant to the terms of the loans or of the contracts governing the servicers’ work. Typically, student loan servicing also involves maintaining records of payments and balances and answering borrowers’ questions. Servicers also make borrowers aware of alternative payment arrangements such as income-driven payment plans or deferments, and process requests or applications for said payment arrangements. Servicers may provide other services to help prevent default as well.
Student loan servicers also play a role while students are still in school. A borrower may receive multiple disbursements of a loan, or multiple loans, over the course of one or more academic years. Repayment of the loans may be deferred until some future point, such as when the student finishes post-secondary education or separates from school prior to completion of a program of study. A student loan servicer will maintain records of the amount lent to the borrower and of any interest that accrues; the servicer also may send statements of such amounts to the borrower. Private education lenders and student loan servicers—whether banks or nonbanks—must comply with Federal consumer financial laws to the extent that the law applies to the particular entity and its activities:
• The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, generally impose requirements on lenders for certain private education loans, including disclosure of terms and interest rates. They also impose requirements on lenders regarding advertising of these terms, crediting of payments, and treatment of credit balances with respect to closed-end consumer credit transactions. In 2009, Regulation Z was amended following the passage of the Higher Education Opportunity Act (HEOA) to add disclosure and timing requirements that
funds are converted from grants to loans. See 20 USC Section 1070g-2.
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CFPB Education Examination Procedures Loan CFPB September 2022 Procedures 6 apply specifically to creditors making private education loans as defined by the regulation.9 TILA, as amended by HEOA, also bans prepayment penalties on private education loans.10 • The Electronic Funds Transfer Act (EFTA) and its implementing regulation, Regulation E, impose requirements if the loan servicer of the education loan within the scope of coverage obtains recurring electronic payments from borrowers.
• The Fair Debt Collection Practices Act (FDCPA) governs the activities of debt collectors. • The Fair Credit Reporting Act (FCRA), and its implementing regulation, Regulation V, require entities that furnish information to consumer reporting agencies to have reasonable written policies and procedures to ensure the accuracy and integrity of information they furnish to consumer reporting agencies. FCRA and Regulation V also require that lenders give risk-based pricing notices when, based on consumer reports, they give borrowers materially less favorable loan terms than a substantial proportion of other consumers to which they lend. FCRA and Regulation V also put restrictions on the use and dissemination of various types of consumer information. In addition, when a consumer reporting agency notifies a furnisher of a consumer dispute, FCRA and Regulation V require the furnisher to reinvestigate the dispute. They also require furnishers to handle disputes submitted directly to the furnisher by consumers about information the lender furnished to the consumer reporting agency. They also place limits on obtaining or using medical information when determining eligibility for a student loan. Additionally, the FCRA provides consumers the right to request that a financial institution remove a reported default on a private education loan if the financial institution offers certain qualifying loan rehabilitation programs and the consumer meets the program requirements. • The Equal Credit Opportunity Act (ECOA) makes it unlawful to discriminate against any applicant for credit with respect to any aspect of a credit transaction: ○ On the basis of race, color, religion, national origin, sex, sexual orientation, gender identity, marital status, or age (provided the applicant has the capacity to contract); ○ Because all or part of the applicant’s income derives from any public assistance program; or ○ Because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.11
9 Notably, the Regulation Z definition of private education loans is narrower that TILA’s. See 12 CFR § 1026.46 (b)(5). Among other differences, it excludes tuition billing plans and short-term credit offered by the postsecondary institution itself. While these excluded products are not required to comply with the disclosure and timing regime described here, they are private education loans for the purposes of assessing the Bureau’s supervisory authority under Dodd-Frank. 10 15 USC 1650(e).
11 The Consumer Credit Protection Act (the Act), 15 USC 1601 et seq., is the collection of federal statutes that protects consumers when applying for or receiving credit. The Act includes statutes that have dispute rights for consumers, such as the Fair Credit Reporting Act (FCRA). The Equal Credit Opportunity Act (ECOA) prohibits discriminating against an applicant who has exercised a dispute right pursuant to one of the statutes outlined in the Act.
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CFPB Education Examination Procedures Loan CFPB September 2022 Procedures 7 Creditors also are prohibited from making any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application. In addition, ECOA and Regulation B require lenders to provide adverse action notices to consumers.
• The Gramm-Leach-Bliley Act (GLBA), through its implementing regulation, Regulation P, requires entities to provide privacy notices and limits information sharing in particular ways. To carry out the objectives set forth in the Examination Objectives section, the examination process also will include assessing other risks to consumers that are not governed by specific statutory or regulatory provisions. These risks may include potentially unfair, deceptive, or abusive acts or practices (UDAAPs) with respect to lenders’ or servicers’ interactions with consumers.12 Collecting information about risks to consumers, whether or not there are specific legal guidelines addressing such risks, can help inform the CFPB’s policymaking. Generally, the standards the CFPB will use in assessing UDAAPs are:
• A representation, omission, act, or practice is deceptive when: 1. The representation, omission, act, or practice misleads or is likely to mislead the consumer; 2. The consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and 3. The misleading representation, omission, act, or practice is material. • An act or practice is unfair when:
1. It causes or is likely to cause substantial injury to consumers; 2. The injury is not reasonably avoidable by consumers; and 3. The injury is not outweighed by countervailing benefits to consumers or to competition. • An abusive act or practice:
1. Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or 2. Takes unreasonable advantage of – ○ A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
12 Section 1036 of the Dodd-Frank Act, PL 111-203 (July 21, 2010).
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CFPB Education Examination Procedures Loan CFPB September 2022 Procedures 8 ○ The inability of the consumer to protect its interests in selecting or using a consumer financial product or service; or ○ The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
Refer to the examination procedures regarding UDAAPs for more information about the legal standards and the CFPB’s approach to examining for UDAAPs. The particular facts in a case are crucial to the determination of UDAAPs. As set forth in the Examination Objectives section, examiners should consult with Regional management and headquarters to determine whether the applicable legal standards have been met before a violation of any Federal consumer financial law is cited, including a UDAAP violation. Role of Educational Entities in Higher Education Finance Many schools offer their students the opportunity to finance their post-secondary educational expenses through various types of internal or co-branded programs and products. These programs may include private student loans, payment plans, temporary credits, income-share agreements, and other agreements.
The CFPB’s supervisory authority extends to these school entities and their affiliates when they offer or provide private education loans as defined in Section 140 of the Truth in Lending Act, 15 U.S.C. § 1650. Similarly, the CFPB’s supervisory authority extends to some entities that act as third-party service providers to institutions that originate private education loans and are themselves subject to the Bureau’s supervisory authority.13 General Considerations Completing the following examination modules, as applicable, will allow examiners to develop a thorough understanding of a regulated entity’s practices and operations. To complete the modules, examiners should obtain and review, as applicable, each entity’s: • Organizational charts and process flowcharts;
• Board minutes, annual reports, or the equivalent to the extent available; • Relevant management reporting;
• Policies and procedures;
• Rate sheets;
• Fee sheets;
13 12 USC 5481(26)
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CFPB Education Examination Procedures Loan CFPB September 2022 Procedures 9 • Loan applications, loan account documentation, notes, disclosures, and all other contents of loan underwriting and servicing of account files; • Underwriting guidelines;
• Loan servicing contracts;
• Loan transfer policies and procedures;
• Payment posting and allocation policies and procedures; • Policies and procedures relating to alternative repayment plans, including income-based repayment plans, deferment, forbearance, and public service loan forgiveness; • Operating checklists, worksheets, and review documents; • Relevant computer program and system details;
• Service provider due diligence and monitoring procedures and service provider contracts; • Compensation policies;
• Historical examination information;
• Audit and compliance reports;
• Management’s responses to findings;
• Training programs and materials;
• Advertisements and co-marketing or co-branding agreements; and • Complaints.
Finally, examiners should obtain access or a walkthrough of the creditor’s online origination interface, the creditor’s online applications, a walkthrough of the origination process to test the timeliness and completeness of disclosures, and access to the systems used for the servicing and collection of payments for education loans, including any consumer interfaces. Depending on the scope of the examination, examiners should perform transaction testing using approved sampling procedures, which may require the use of a judgmental or statistical sample. Examiners also should conduct interviews with management and staff to determine whether they understand and consistently follow the policies, procedures, and regulatory requirements applicable to private education lending; manage change appropriately; and implement effective controls. Examiners also should consider observing customer interactions if consumer complaints or document reviews indicate potential concerns.
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CFPB Education Loan Examination Procedures Module 1 CFPB September 2022 Procedures 10 Module 1: Advertising, Marketing, and Lead Generation Examiners analyzing private student loan origination should engage in several steps to assess potential violations of law in connection with the advertising or marketing of private education loans. Examiners should begin the process by understanding how private education loans are developed and marketed to consumers. This can be accomplished through a review of the private education lender’s policies, procedures, and internal controls. Examiners should also interview the entity’s management to determine the process used to verify that marketing and advertising materials comply with consumer protection laws. Examiners should evaluate representative samples of all marketing and advertising materials, including print, electronic, and other media, such as the Internet, email and text messages, telephone solicitation scripts, agreements and disclosures for the product(s) and service(s). Examiners should also understand the extent of any relationships that the private education lender has with service providers (including brokers, agents, or lead generators) to advertise, offer, or provide loans. Truth in Lending Act (TILA) and Implementing Regulation Z Regulation Z imposes general advertising requirements applicable to all closed-end loans. Regulation Z has additional requirements applicable to certain private education lending, including additional disclosure requirements, prohibitions on co-branding an educational institution with the private education lending advertising material, and prohibitions on statements that an educational institution endorses the lender’s loans.14 Additionally, Regulation Z includes model forms that creditors may use which vary depending on the step of the origination process. 1. Assess compliance with the advertising requirements in Regulation Z for closed-end loans. (12 CFR 1026.24) [Click&type] 2. Determine whether the advertisements for credit are clear and conspicuous and state specific credit terms that actually are, or will be, arranged or offered by the lender. (12 CFR 1026.24(a) and (b)) [Click&type] 3. Determine whether the lender is using “triggering terms,” and, if so, that additional requirements are satisfied. (12 CFR 1026.24(d)) [Click&type]
14 See Note 9.
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CFPB Education Loan Examination Procedures Module 1 CFPB September 2022 Procedures 11 4. In connection with solicitations15 for private education loans as defined by regulation, assess compliance with private education loan specific disclosure requirements. (12 CFR 1026.47). Disclosures are required on or with the solicitation and must include: a. The interest rates (or range of rates) at the time of the solicitation, and a statement, if applicable, that the interest rate will depend on the consumer’s creditworthiness; whether the rate is fixed or variable, and certain additional information regarding interest rates than may increase after consummation;
b. Fees and default or late payment costs;
c. Repayment terms;
d. Cost estimates;
e. Eligibility;
f. Alternatives to private education loans;
g. Rights of consumers; and h. Self-certification information.
[Click&type] 5. Assess the creditor’s advertisements and marketing materials for compliance with the Regulation Z prohibition on co-branding and institutional endorsement requirements for covered private education loans. (12 CFR 1026.48) [Click&type] 6. Determine whether the creditor has established a preferred lender arrangement with a covered educational institution. For each preferred lender arrangement determine whether the creditor met the requirements of 12 CFR 1026.48(f) to provide the covered educational institution with the information required under 12 CFR 1026.47(a)(1)-(5) for each type of covered private education loan planned to be offered by the preferred lender for students attending the covered educational institution.
[Click&type]
15 See 12 CFR 1026.46(d)(1)(i). For the purposes of the disclosures for private education loans, the term solicitation means an offer of credit that does not require the consumer to complete an application. A firm offer of credit as defined in section 603(l) of the Fair Credit Reporting Act (15 USC 1681a(l)) is a solicitation.
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CFPB Education Loan Examination Procedures Module 1 CFPB September 2022 Procedures 12 Equal Credit Opportunity Act (ECOA) and Implementing Regulation B 1. Assess the private education lender’s compliance with ECOA’s marketing and advertising requirements, including the prohibition against discrimination or discouragement on a prohibited basis. Examiners should complete the advertising portion of the ECOA chapter of the CFPB Supervision and Examination Manual.
[Click&type] 2. Assess the methods used by the private education lender to solicit, market to, or advertise to potential applicants for private education loan products, including but not limited to identifying any scripts. Determine whether there are any differences in the entity’s solicitation or marketing efforts by lines of business, channel, loan product, particular educational institution, type of educational institution, or geography.
[Click&type] 3. Assess the factors used by the private education lender to determine which potential applicants receive solicitations for private education loan products, as well as the terms and conditions of those solicitations.
[Click&type] 4. Assess the marketing prospect databases used by the private education lender to determine which potential applicants receive solicitations for private education loan products, including the factors used by the marketing prospect database.
[Click&type] 5. Assess the private education lender’s guidelines, policies, procedures, and standards regarding making private education loan product recommendations, referring a loan applicant to a different loan product than first requested (including parent or co-signer loan products), or referring a loan applicant to subsidiaries, affiliates, or different lending channels within the entity.
[Click&type] Service Provider Business Arrangements (e.g., Agents, Brokers, or Lead Generators) Private education lenders may have arrangements with service providers to perform advertising and marketing. Examiners should assess whether the private education lender is monitoring its service provider relationships and activities for compliance with consumer regulations. Examiners’ review of service provider arrangements should include a review of the private
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CFPB Education Loan Examination Procedures Module 1 CFPB September 2022 Procedures 13 education lender’s internal policies, procedures, service provider agreements, compensation programs, and training and promotional materials, including telemarketing scripts. 1. Determine whether the private education lender monitors the training of the service provider employees who market or promote private education loan products to ensure that those employees are trained to comply with applicable law, including to avoid making statements or taking actions that might be unfair, deceptive, or abusive. [Click&type] 2. Determine whether the private education lender reviews a service provider’s primary interface with consumers, such as reviewing recorded telephone calls or transcripts of online communication.
[Click&type] Other Risks to Consumers 1. Determine whether the private education lender’s advertisements make representations about future potential employment or earnings opportunities.
[Click&type] 2. Determine whether the private education lender describes the loans as “government loan programs,” “government-supported loans,” or otherwise endorsed or sponsored by a federal or state government entity.
[Click&type] 3. Determine whether the private education lender uses terms such as pre-approved, guaranteed, or fixed rate on promotional material, and, if so, whether the lender discloses any limitations, conditions, or restrictions on the offer.
[Click&type] 4. Determine whether the private education lender has established a compensation structure that rewards employees based on the dollar value or number of private education loans originated. [Click&type]
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CFPB Education Loan Examination Procedures Module 2 CFPB September 2022 Procedures 14 Module 2: Application, Qualification, Loan Origination and Disbursement Examiners analyzing private student loan origination should obtain and review a sample of applications (including scripts for telephone applications and screen captures of online applications), policies and procedures, training materials, and audits pertaining to the taking of applications, to ensure that the private education lender has controls to comply with consumer protection regulations. If possible, examiners should observe the interaction between consumers and the private education lender’s loan officers. Examiners should also review loan files and conduct loan officer interviews to determine whether the officers understand the policies, procedures, and regulatory requirements applicable to private education lending, and whether the officers are consistently applying applicable policies and procedures. If consumer complaints or document review indicates potential violations in the application, qualification, origination, or disbursement process, examiners may also conduct interviews of consumers and ask questions relevant to each topic below.
Customer Application, Qualification, and Underwriting TILA and Implementing Regulation Z In addition to the Regulation Z requirement that private education lenders provide TILA closedend disclosures prior to loan consummation under 12 CFR 1026.17 and .18, lenders also have three additional disclosure requirements for certain private education loans.16 Specific disclosures are required for the following stages in the loan origination process: application, approval, and final. Additionally, TILA provides customers with a right of rescission after the consummation of private education loans.
1. Assess the private education lender’s compliance with Regulation Z general disclosure requirements for closed-end credit. (12 CFR 1026.18). TILA disclosures must, among other things, be clear and conspicuous and made prior to the consummation of the loan. In addition, certain information must be disclosed, including:
a. Creditor;
b. Amount financed;
c. Finance charge;
d. Annual Percentage Rate (APR);17
16 See Note 9.
17 NOTE: When verifying Annual percentage rate (APR) accuracies, use the Office of the Comptroller of the Currency’s APR calculation model or other calculation tool acceptable to the CFPB.
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CFPB Education Loan Examination Procedures Module 2 CFPB September 2022 Procedures 15 e. Variable Rate;
f. Payment schedule including amount, timing and number of payments; g. Total of payments;
h. Demand feature; and i. Late payment.
[Click&type] 2. Assess the private education lender’s compliance with Regulation Z general disclosure requirements for variable rate loans. (12 CFR 1026.18(f)) [Click&type] 3. Assess the private education lender’s compliance with Regulation Z private education disclosure requirements, for private education loans as defined under the regulation. (12 CFR 1026.47). Examiners should verify that each disclosure was provided at the appropriate stage of the lending process, and that all information required by the respective disclosure was included. Review the TILA chapter in the CFPB Supervision and Examination Manual for a full list of each item required for each of the four private education disclosures.18 [Click&type] 4. Application Disclosures – Lenders must provide application disclosures on or with an application for a covered private education loan. If the application is taken over the phone, the creditor may, at its option, provide the application disclosure orally. If the creditor does not provide an oral disclosure, the application disclosure must be provided to the consumer or placed in the mail within three business days19 unless the lender denies the application or approves the loan and instead provides the approval disclosure within three business days. Content of the application is the same as the solicitation disclosure. (12 CFR 1026.46(d)(1)). See Module 1’s discussion of Solicitation Disclosures for more information. [Click&type] 5. Approval Disclosures – Lenders must provide approval disclosures prior to consummation of the covered private education loan, on or with any notice of approval provided to the consumer. (12 CFR 1026.46(d)(2)). If the lender provides an approval notice to the consumer in person, the approval disclosure must be provided concurrently. If notice of approval is communicated over the phone, the private education lender must place the approval disclosure in the mail within three business days. Content of the approval disclosure must include:
18 Solicitation Disclosures are covered in Module 1.
19 The lender satisfies this requirement once the disclosure is mailed to the consumer.
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CFPB Education Loan Examination Procedures Module 2 CFPB September 2022 Procedures 16 a. Interest rate information;
b. Fees and default or late payment costs;
c. Repayment terms;
d. Alternatives to private education loans; and e. Rights of the consumer.
[Click&type] 6. Final Disclosure – Lenders must provide a final disclosure after the consumer accepts the loan and prior to disbursement (see #14, below). Content of the final disclosure must include: a. Interest rate information;
b. Fees and default or late payment costs;
c. Repayment terms; and d. Cancellation right (see #14 below).
[Click&type] 7. Assess, as applicable, the private education lender’s compliance with the Regulation Z requirement to obtain a signed self-certification form, attesting to the cost of attendance for the period covered by the covered private education loan and amount of financial assistance, other than the private education loan, for that period. (12 CFR 1026.48(e)). The U.S. Department of Education has published a specific form that must be used by the lender. [Click&type] 8. Determine whether the private education lender has a process to verify the accuracy and completeness of signed self-certification forms or uses other procedures (such as verifying students’ financial aid need with the school financial aid office) to determine that covered private education loan amounts do not exceed financial need. (12 CFR 1026.48(e)) [Click&type] 9. Assess the private education lender’s compliance with Regulation Z term change and redisclosure provisions. (12 CFR 1026.48(c)). Examiners should request loan files for covered private education loans where there was a change in terms, specifically the rate or terms of the loan under 12 CFR 1026.48(c)(4)(ii), to verify compliance with these provisions. [Click&type]
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CFPB Education Loan Examination Procedures Module 2 CFPB September 2022 Procedures 17 10. Determine whether the private education lender provided a new TILA disclosure if the lender changed the consumer’s interest rate, payment, or term to accommodate a specific request from the consumer.
[Click&type] 11. If the private education lender changed loan terms, and the change was not in connection with a specific request from the consumer, assess compliance with the exemptions to the change prohibition not requiring re-disclosure under 12 CFR 1026.48(c)(3). [Click&type] 12. Determine whether the lender withdrew a previously approved offer, or terms, for a reason other than those permitted under the regulation, or for a reason that was not a direct request from the consumer.
[Click&type] 13. Assess the private education lender’s compliance with Regulation Z requirement that the consumer’s application and offer must remain open for 30 days. (12 CFR 1026.48(c)(1)) [Click&type] 14. Assess the private education lender’s compliance with Regulation Z requirement that consumers be allowed a right to cancel the covered private education loan. (12 CFR 1026.48(d)). Included in the final disclosure, the lender must provide customers with statements that:
a. The consumer has the right to cancel the loan, without penalty, at any time before midnight of the third business day following the date on which the consumer receives the final loan disclosures. The statement must include the specific date on which the cancellation period expires and state that the consumer may cancel by that date. b. The loan proceeds will not be disbursed until the cancellation period expires. c. The method or methods by which the consumer may cancel; if the creditor permits cancellation by mail, the statement must specify that the consumer’s mailed request will be deemed timely if placed in the mail not later than the cancellation date specified on the disclosure.
[Click&type] 15. Assess compliance with the Electronic Signatures in Global and National Commerce Act (E- Sign Act) (15 USC 7001 et seq.). (The E-Sign Act does not mandate that lenders or consumers use or accept electronic records or signatures. It permits lenders to satisfy any statutory or regulatory disclosure requirements by providing the information electronically after making
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CFPB Education Loan Examination Procedures Module 2 CFPB September 2022 Procedures 18 certain disclosures, obtaining the consumer’s affirmative consent, and obtaining a reasonable demonstration that the consumer can receive and retain disclosures electronically.) [Click&type] ECOA and Implementing Regulation B Eligibility, Underwriting, and Pricing 1. Determine whether the entity utilizes cohort default rates (CDR) or any other educational institution-specific variable (such as graduation rate), in determining borrower eligibility, underwriting and/or pricing of private education loans.
[Click&type] 2. Assess the entity’s business justification for utilizing CDR or any educational institutionspecific variables and determine whether the entity conducts an analysis to support its business justification.
[Click&type] 3. Determine whether the lender maintains any partnership, referral relationship, or preferred lender agreement with any educational institution regarding the entity’s private education lending programs. Assess any financial or compensation arrangements. To the extent the entity distinguishes among or categorizes educational institutions, assess each such category. [Click&type] 4. Assess the entity’s procedures, guidelines, and policies for identifying new educational institutions at which to make its private education loan products available. Assess eligibility standards, the eligibility monitoring process, and procedures for the elimination of ineligible educational institutions.
[Click&type] 5. Assess the entity’s underwriting and pricing guidelines, policies, procedures, and standards for each private education loan product offered during the review period. If the underwriting or pricing guidelines, policies, or procedures differ by lines of business, channel, divisions or geography, assess the differences.
[Click&type] 6. Assess any credit scoring systems used in the underwriting and/or pricing processes. If the system is proprietary, assess all variables that in any way influence the score, including the weight of each variable in determining the score, and documentation validating the system. [Click&type]
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CFPB Education Loan Examination Procedures Module 2 CFPB September 2022 Procedures 19 7. Determine whether the entity used an automated underwriting system (AUS) in underwriting private education loans and assess how it was used during the review period. Determine all variables that in any way influence the AUS decision or score. For each product, determine the percentage of private education loan applications underwritten with the assistance of each AUS, and the percentage of private education loans underwritten without using any AUS. [Click&type] 8. Assess differences between rate sheets used for pricing private education loan products by line of business, channel, division, or geographical area, as well as rate sheets that are specific to a particular educational institution or a particular type of educational institution. [Click&type] 9. Determine whether the underwriting and/or pricing guidelines, policies, procedures, or standards differ in any way based on the applicants’ or the co-applicants’ race, color, religion, national origin, sex, sexual orientation, gender identity, marital status, age (provided the applicant has the capacity to contract), receipt of income from any public assistance program, or other prohibited basis. Include any consideration of age in the credit process, including but not limited to products with age restrictions or incorporation of age into a model or credit decision.
[Click&type] 10. Assess any underwriting or pricing criteria related to a specific educational institution or type of educational institution.
[Click&type] 11. Assess any differences in underwriting or pricing of products designed for individual institutions or different institution types (for instance, university, college, undergraduate, graduate, two-year, certificate).
[Click&type] 12. Assess the entity’s guidelines, policies, procedures, and standards for making overrides or exceptions in the underwriting and/or pricing of a private education loan. Determine if overrides or exceptions are capped at a certain percentage or number. Determine whether exception reporting is conducted and assess the quality of the report and the review process. [Click&type] 13. Assess the entity’s guidelines, policies, procedures, and standards for providing adverse action notices to private education loan applicants. Include the procedures currently followed when the entity takes adverse action on oral or written private education loan applications and requests for preapproval submitted by consumers.
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CFPB Education Loan Examination Procedures Module 2 CFPB September 2022 Procedures 20 [Click&type] 14. Determine how the entity links variables used in underwriting into adverse action reasons. [Click&type] 15. Assess the circumstances under which the entity requires an applicant to obtain a guarantor or co-signer for a private education loan.
[Click&type] 16. Determine whether the private education lender refrains from collecting information on the race, color, religion, national origin, or sex of the applicant or any other person in connection with a loan transaction unless it is for purposes of a “self-test.” [Click&type] Other Risks to Consumers 1. Assess the private education lender’s process for approving and communicating approval of private education loans.
[Click&type] 2. Determine whether the private education lender approves loans in a timely manner, allowing borrowers to have full use of a 30-day firm offer period.
[Click&type] 3. Determine whether the private education lender discloses that optional or related products and services that are offered simultaneously with credit—such as insurance, credit protection, and consumer report update services—are not required to obtain credit and are not considered in decisions to grant credit.
[Click&type] 4. Determine the circumstances under which the private education lender requires students to add a co-signer; and, if applicable, the consequences that flow from the addition of a co-signer, including whether the borrower is provided accurate information about such consequences. [Click&type] 5. Determine whether the lender provides co-signers with information and disclosures of the cosigners’ rights and responsibilities associated with signing the private education loan. [Click&type]
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CFPB Education Loan Examination Procedures Module 2 CFPB September 2022 Procedures 21 6. Determine whether a loan product is a private education loan as defined by Regulation Z, and, if so, the supervised entity’s compliance with TILA’s prohibition on the use of prepayment penalties for private education loans. (See 15 U.S.C. 1650(e)) [Click&type] 7. Determine whether a supervised entity participates in Federal Student Aid programs and, if so, how the supervised entity communicates with and advises borrowers regarding the availability of Federal Aid.
[Click&type] Disbursement Processing Regulation Z 1. Determine whether the private education lender disbursed funds at least three business days after the consumer received the disclosures required by section 1026.47(c) for certain private education loans.20 (12 CFR 1026.48(d)) [Click&type] Other Risks to Consumers 1. Assess the private education lender’s cancellation policy in the event that a borrower consummates a loan and subsequently has less or no need for the private education loan. [Click&type] 2. Determine whether the lender is fully disbursing the principal amount of the loan disclosed to the customer, whether in a lump sum or in accordance with the educational institution’s disbursement requirements (e.g., half each semester).
[Click&type] 3. Determine whether the lender places limitations on the student’s use of private education loan funds (e.g., a lender establishes a requirement that funds borrowed to pay for books or other educational expenses are used solely at a specific retailer). [Click&type] 4. Determine whether the lender has arrangements that require or pressure students to accept disbursement of education funds to a prepaid card or other required payment device; and, if so, any attendant fees and requirements are fully disclosed to the consumer.
20 See Note 9.
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CFPB Education Loan Examination Procedures Module 2 CFPB September 2022 Procedures 22 [Click&type]
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 23 Module 3: Student Loan Servicing Student loan servicing portfolios may include: private education loans; legacy loans from the discontinued FFEL program; loans made by colleges and universities, including loans made under the Perkins loan program (institutional loans); and/or Direct Loans.21 Private education lenders may service their own accounts, or contract with servicers who specialize in managing education loans to service their portfolios. Only servicers under contract with the Department of Education may service Direct Loans, but contractors that service loans for the Department of Education may also service private education loans or FFELP loans from other loan holders. Servicing requirements and borrower protections may differ depending on whether an education loan is a private education, FFELP, or Direct loan; however, servicers generally adopt consistent approaches to common servicing functions across loan types. Refer to the Department of Education’s website for more information on various loan characteristics, repayment plans, benefits, etc., relating to federal loans. During a student loan servicing examination, examiners should review policies and procedures, including policies and procedures governing the oversight of subcontractors and service providers, as well as samples of servicing files and any relevant portions of IT systems responsible for servicing education loans. Examiners should review loan records on servicers’ systems, copies of written communications provided to borrowers, call recordings, websites and online accounts using test logins, and any other relevant documentation. Examiners also should review the servicer’s complaint files to identify patterns of issues or significant concerns. Unless otherwise specified, examiners should consider the following as it applies to the servicing of all student loans, including private loans and federal loans (FFELP, Direct Loans, Perkins loans, etc.). Electronic Fund Transfer Act (EFTA) and Implementing Regulation E 1. Determine whether the servicer obtains appropriate authorization for preauthorized electronic fund transfers (EFTs). See 12 CFR 1005.10(b); CFPB Compliance Bulletin 2015-06. [Click&type] 2. Determine whether the servicer provides a copy of the authorization to the consumer. See 12 CFR 1005.10(b); CFPB Compliance Bulletin 2015-06.
[Click&type]
21 There are additional federal programs under Title IV that also authorize student loans. For example, one such program offers grants to those who pledge to become teachers. If the recipients do not become teachers, then the disbursed funds are converted from grants to loans. See 20 USC Section 1070g-2.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 24 3. Determine whether the servicer conditions an extension of credit to a consumer on the consumer’s repayment by preauthorized EFTs, whether initially or upon default. See 15 U.S.C. § 1693k(1); cf. 12 CFR 1005.10(e)(1).
[Click&type] Truth In Lending Act (TILA) and Implementing Regulation Z
1. Assess compliance with Regulation Z – Treatment of Credit Balances. Refer to the examination procedures regarding Regulation Z, 12 CFR 1026.21, for more information. [Click&type] Adverse Action Notices (Fair Credit Reporting Act (FCRA) and Equal Credit Opportunity Act (ECOA)) 1. Assess the servicer’s compliance with FCRA, 15 USC 1681m, pertaining to notices required when a servicer takes adverse action with respect to any borrower on the basis of information in a consumer report.
[Click&type] 2. Assess the servicer’s compliance with Regulation B, 12 CFR 1002.9, pertaining to notices required when a servicer takes adverse action relating to applications for credit, as defined in 12 CFR 1002.2(f) and (j).
[Click&type] 3. Assess compliance with Regulation B, 12 CFR 1002.12(b) pertaining to retaining records of applications for credit.
[Click&type] Other Risks to Consumers As stated in the Background section above, the examination process will include assessing other risks to consumers, including potentially unfair, deceptive, or abusive acts or practices (UDAAPs) with respect to servicers’ interactions with consumers. Please refer to the examination procedures regarding UDAAPs for information about the legal standards and the CFPB’s approach to examining for UDAAPs. The particular facts and circumstances in a case are crucial to the determination of UDAAPs. To the extent the Department of Education’s contracts or regulations instruct federal student loan servicers to service federal loans in a given manner, adherence to those instructions may be relevant but not determinative as the Bureau reviews for risks to consumers and the prohibition against UDAAPs.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 25 While not determinative of whether a UDAAP violation occurred at any one servicer, depending on the particular facts and circumstances, the following may potentially assist examiners in evaluating for potential UDAAPs, risks to consumers, or compliance management system concerns, and/or help identify when further follow-up requests may be appropriate. The particular facts and circumstances in a case are crucial to the determination of UDAAPs, and this is not an exhaustive list of the facts and circumstances that might be relevant. As set out in the Examination Objectives section and consistent with the Bureau’s supervisory process, examiners should consult with Headquarters to determine whether the applicable legal standards have been met before a UDAAP violation is cited.
Payment Processing Student loan borrowers often take out more than one loan to cover the total expense of obtaining an education. Servicers typically group those loans into one servicing account, meaning that borrowers get one billing statement and have one online login even though they might have several independent loan obligations. The borrower is billed a regular monthly payment that is the aggregate of the monthly payments owed for each loan. When a borrower pays more (overpayment) or less (underpayment) than that monthly payment, the servicer allocates the payment among the borrower’s various loans according to certain default allocation methodologies. Borrowers also have the ability to choose how the servicer allocates a payment among the borrower’s loans.
For both federal and private loans, when a borrower makes an overpayment that is high enough to cover the current month’s payment, as well as one or more future months’ payment, servicers may offer an option to advance the due date, either automatically or upon request by the borrower. For example, a borrower making a February payment that would also cover the March payment may have the next due date advanced to April. However, borrowers have a choice as to whether an overpayment should advance the due date or not.
1. Determine whether payments from borrowers, cosigners, and third parties received by the servicer are accurately credited to the appropriate account as of the date of receipt. If not, determine whether the delayed crediting results in a late fee, additional interest accrual, furnishing of negative credit information, or loss of any borrower or cosigner benefit. [Click&type] 2. Determine whether and how the servicer allows borrowers, cosigners, or third parties to provide instructions on how to allocate underpayments and overpayments among multiple loans in one account, including whether and in what circumstances the servicer allows borrowers to provide standing instructions.
[Click&type] 3. Assess whether the servicer clearly and prominently discloses the ability to provide instructions on how to allocate underpayments and overpayments among multiple loans in an
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 26 account. Such disclosures may be found, for example, on the servicer’s website or billing statement.
[Click&type] 4. Assess the ease of using available methods for providing instructions, including over the phone, by mail, online, and through mobile application.
[Click&type] 5. Assess whether the servicer consistently honors payment instructions, and the extent to which the servicer honors borrower, co-signer, or third-party instructions provided after a payment is received.
[Click&type] 6. Assess the servicer’s default methodology for allocating overpayments among multiple loans in an account and the resulting borrower consequences. Also, assess the servicer’s default methodology for allocating underpayments among multiple loans in an account and the resulting borrower consequences, particularly for loans with late fees and borrowers in latestage delinquency.
[Click&type] 7. Determine whether the servicer clearly and prominently discloses a basic overview and/or detailed description of the default allocation methodologies for payment allocation, and/or whether the servicer discloses the manner in which the default methodologies will impact the borrower’s loan balances, total interest expense, etc. Such disclosures may be found, for example, on the servicer’s website or billing statement. [Click&type] 8. When the servicer advances a due date automatically upon receipt of an overpayment that is high enough to cover the current month’s and one or more future months’ monthly payments, determine whether the servicer advances the due date when a borrower submits an overpayment. If so, determine whether the servicer allows the borrower to opt out, including whether the borrower may opt out on an ongoing basis. Where the borrower provides instruction regarding whether to advance the due date after an overpayment is received, determine whether the servicer honors the instruction.
[Click&type] 9. Where applicable, determine whether disclosures explaining the ability to opt out of advancing the due date and the consequences of advancing or not advancing the due date are clear and prominent, including with respect to the additional interest that accrues when borrowers do not continue making monthly payments and any potential effect nonpayment may have on
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 27 eligibility for benefits and protections to which a borrower may be entitled. Such disclosures may be found, for example, on the servicer’s website or billing statement. [Click&type] 10. Determine whether the servicer treats multiple underpayments within a billing cycle that, when combined, equal the full monthly payment differently from a single payment equal to the monthly payment.
[Click&type] 11. Determine whether, and under what circumstances, the servicer recalculates payments, repayment schedules, or amortization schedules for borrowers’ loans, and assess any applicable notices to the borrower.
[Click&type] Fees 1. Determine whether the servicer charges any fees (e.g., late fees, payment fees, etc.), and, if yes, whether such fees are permissible under the relevant promissory note and consistent with any requirements related to fees established by the holder of the loan. [Click&type] 2. Determine whether fees or other charges were assessed when the servicer received payments on or before the applicable due date, including during any applicable grace period. [Click&type] 3. Determine whether the servicer charges late fees on a per-loan basis at a fixed-dollar amount, including a minimum fixed-dollar fee per loan, such that total late fee amounts change depending on how an underpayment is allocated.
[Click&type] 4. Determine whether the servicer charges a borrower or cosigner a late fee more than once with respect to a single late payment (including late fee pyramiding). [Click&type] 5. Determine whether the servicer charges a borrower or cosigner any fee to modify, defer, forbear, renew, extend, or amend a loan, and review communications and disclosures relating to those fees.
[Click&type]
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 28 6. Determine whether and how the servicer charges fees for processing payments, including any fees for a borrower to submit payment by phone or for expedited payment processing, and review communications and disclosures relating to those fees. [Click&type] Billing Statements and Payment Histories 1. Determine whether the information provided on billing statements and/or borrowers’ online accounts is accurate, clear, and understandable, and whether relevant information borrowers need on a monthly basis to make informed decisions about managing their loan obligations is missing.
[Click&type] 2. Determine whether the billing statement and borrowers’ online accounts provide information on individual loan obligations, at the account-level, or using sub-groups of loans. [Click&type] 3. Determine whether the billing statement and online account include the total accrued interest due on the account and for each loan.
[Click&type] 4. Where the billing statement reflects zero dollars due, determine whether the billing statements and website provide an easily understandable explanation of the meaning and consequences of having loans with due dates that have been advanced beyond the next regular due date, including, for example, the next date upon which payments will come due, why the borrower is billed for zero dollars, and the consequences associated with the decision to accept a payment holiday (e.g., the effect on interest accrual and the borrower’s ability to make a qualified payment towards certain federal student loan programs).
[Click&type] 5. Determine whether information on billing statements and the website about alternative, nonstandard repayment plans, including Income-Driven Repayment plans if applicable, is accurate and clear.
[Click&type] 6. For borrowers with loans for which late fees are not permitted, determine whether the billing statements or other communications suggest late fees may be charged. [Click&type]
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 29 7. Determine whether, for cosigned loans, cosigners have access to, for example, billing statements, online accounts, payment histories, or other account information related to the loans for which they have cosigned.
[Click&type] 8. Determine whether, upon request, the servicer provides, for example, an amortization schedule, payment history, or other communication documenting historical payments on individual loans.
[Click&type] 9. Determine whether and how the servicer accurately informs consumers about the number of qualifying payments made towards various benefit offerings, including, as applicable, potential Public Service Loan Forgiveness (PSLF) for borrowers who certified public service employment, cosigner release, interest rate reductions, etc. [Click&type] 10. Determine whether and how a servicer records payments that have met the on-time requirements for borrower benefit programs, including payments that may qualify for PSLF if the borrower later certifies public service employment.
Borrower Communications for Federal Loans Borrowers of FFELP loans and Direct Loans are entitled to various repayment plans, including Standard Repayment, Graduated Repayment, Extended Repayment, and Income-Driven Repayment plans. The Standard Repayment plan, which is the default choice if a borrower does not opt into a different plan, is a 10-year repayment plan with fixed payments. The Extended Repayment plan consists of fixed or graduated payments that are lower than the standard plan because the repayment term is extended to up to 25 years. Graduated Repayment plans are 10-year plans, with payments starting lower and ending higher.
Income-Driven Repayment plans allow borrowers to tie their payments to a percentage of their discretionary income. There are four Income-Driven Repayment plans: (1) Revised Pay As You Earn (REPAYE); (2) Pay As You Earn (PAYE); (3) Income-Based Repayment (IBR); and (4) Income-Contingent Repayment (ICR). Depending on the type of loans the borrower has, a borrower may be eligible for one repayment plan, but not another. For example, the REPAYE plan is available to all Direct Loan borrowers except borrowers of Parent PLUS Direct Loans, but only available to FFELP loan borrowers if the borrower consolidates the loans into a Direct Loan. PAYE is only available to new borrowers of Direct Loans on or after October 1, 2007, who received a disbursement of a Direct Loan on or after October 1, 2011. IBR is available to all FFELP and Direct Loan borrowers, except for Direct or FFEL Plus Loans made to parents. Each plan has slightly different terms, including the number of payments necessary before the remainder is forgiven (20 or 25 years) and the payment calculation. Payments under REPAYE and
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 30 PAYE are 10 percent of a borrowers’ discretionary income (calculated as Adjusted Gross Income minus 150 percent of the applicable Federal Poverty Level). IBR payments are also 10 percent of discretionary income for new borrowers on or after July 1, 2014, but otherwise 15 percent of discretionary income. ICR payments are the lesser of 20 percent of discretionary income (calculated as 100 percent of the applicable Federal Poverty Level), or what a borrower would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to income. For any of these plans, borrowers who have no discretionary income would have zero dollar payments.
To apply for an Income-Driven Repayment Plan, borrowers can fill out a form online with the Department of Education, and authorize the servicer to use IRS income data for the calculation. This information is forwarded to the servicer to process. The borrower can also file an application by filling out a manual form and sending it to the servicer along with proof of income. After enrolling, borrowers must recertify their income and family size every 12 months to continue making the lower payments.
Borrowers are also eligible for various deferment and forbearance plans in various scenarios. For example, borrowers may obtain a deferment when a borrower is enrolled in school at least halftime, is unemployed, has an economic hardship, or is on active military duty. Certain administrative, voluntary, and hardship forbearances are also available. For more information on the different repayment options, refer to the Department of Education’s website and the Income-Driven Repayment application form. Servicers are responsible for communicating these repayment options to borrowers, helping borrowers understand the application processes, processing and approving applications, and implementing the repayment options.
Communications about repayment options 1. Assess the policies, procedures, and scripts related to oral and written communications and the training provided to personnel who communicate with borrowers about alternative repayment or forgiveness options, including Income-Driven Repayment plans, loan forgiveness, loan cancellation, discharge options, and defense to repayment. [Click&type] 2. Assess the servicer’s monitoring of personnel who communicate with borrowers about alternative repayment or forgiveness options.
[Click&type] 3. Determine whether the servicer has any incentives or performance goals based on call/task time or resolution goals, and assess whether they impact the service provided by personnel who communicate to borrowers about Income-Driven Repayment plans or forgiveness options. [Click&type]
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 31 4. Determine whether written communications provided to borrowers about repayment options clearly and prominently disclose important information, like the steps to apply and the fact that payments can be as low as zero dollars per month (for Direct and FFELP loans). [Click&type] 5. Determine whether the servicer encourages federal loan borrowers with long-term financial hardship to sign up for forbearance or deferment instead of an Income-Driven Repayment plan, for example, by mentioning forbearance or deferment before income-driven repayment plans in the servicer’s communications with borrowers or by omitting mention of income-driven repayment plans in such communications.
[Click&type] 6. Determine whether the servicer enrolls federal loan borrowers with long-term financial hardship in multiple, consecutive forbearances instead of income-driven repayment plans. [Click&type] 7. Determine whether the servicer has procedures, and whether the servicer follows its procedures, related to communicating with borrowers about repayment plans, including, for example:
a. Whether phone representatives assess the borrower’s long and short term financial situation and disclose the repayment plan reasonably believed to be the most appropriate for the borrower;
b. The order in which phone representatives discuss, in various scenarios, income-driven repayment plans versus other options;
c. Whether phone representatives present the income-driven repayment plan that would give the borrower the lowest monthly payment;
d. Whether phone representatives disclose important information, like the steps to apply and the fact that payments can be as low as zero dollars per month (for Direct and FFELP loans); and
e. Whether phone representatives discuss the attributes and potential consequences of the repayment plans, including that certain repayment arrangements may increase costs over the life of the loan or result in tax liabilities.
[Click&type] 8. Determine whether phone representatives’ assessments of the temporary or short-term nature of hardship, for borrowers the representatives enroll in voluntary “hardship” forbearance or deferment, match the borrowers’ communications with the representatives.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 32 [Click&type] 9. Determine whether phone representatives communicate to borrowers before enrolling in a forbearance or deferment (1) the consequences of forbearance or deferment, including interest capitalization and any impact on co-signer release for private student loans (where applicable), and (2) the benefits and potential consequences of an income-driven repayment plan for federal student loans.
[Click&type] 10. Determine whether phone representatives obtain sufficient income information from borrowers, including any spousal income, and inform borrowers that if they have low or no income, they may be eligible for Income-Driven Repayment plans with payments as low as zero dollars.
[Click&type] 11. For borrowers of FFELP loans applying for the Income Based Repayment (IBR) plan or who inquire about loan forgiveness options, determine whether phone representatives disclose that borrowers may be eligible for other benefits or protections, including REPAYE and PSLF, if they obtain Direct Consolidation loans.
[Click&type] 12. Determine whether and in what circumstances phone representatives tell borrowers that payments are required to enroll in income driven-repayment plans. [Click&type] Income-Driven Repayment Plan Applications and Recertification 13. Determine whether, when, and how the servicer informs borrowers that they need to recertify their income and family size to continue making reduced payments under an income-driven repayment plan.
[Click&type] 14. Assess the sufficiency and timeliness of notices informing borrowers of the need to recertify to continue making reduced payments under an income-driven repayment plan. [Click&type] 15. When recertification notices are sent via email, determine what information the servicer provides in the email and where in the email the information is placed, and whether the message refers borrowers to an online mailbox. Determine whether the servicer tracks whether borrowers open emails or initiated contact with the servicer, and if the servicer initiates additional outreach to non-responders.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 33 [Click&type] 16. Determine whether and how the servicer provides borrowers with timely information on the status of income-driven repayment plan applications (including recertification applications). [Click&type] 17. Determine whether, when received timely, the servicer processes initial income-driven repayment plan applications in time to prevent adverse consequences (including processing timely applications before periods of repayment begin), and whether the servicer processes timely recertification applications in time to prevent adverse consequences (including capitalization of interest at the end of the 12-month repayment period). [Click&type] 18. When a borrower submits a recertification application within the deadline set by the Department of Education, but there are delays, determine whether the servicer maintains the old payment amount until the new scheduled monthly payment amount is determined, and assess the servicer’s process for ensuring the old payment is maintained. [Click&type] 19. Determine whether and when the servicer uses non-interest-capitalizing administrative forbearances or interest-capitalizing voluntary forbearances to forbear payments while the servicer processes income-driven repayment plan applications and recertification applications. [Click&type] 20. Determine how the servicer handles incomplete applications for income-driven repayment plans (including recertification applications), including, for example:
a. Determine whether the servicer accurately informs borrowers that an application is incomplete and whether this notification is provided within a reasonable period of time.
b. Determine whether the servicer informs the borrower about the information or documentation the borrower must submit to address the specific application deficiency.
c. Assess written or oral communications that inform borrowers who submit incomplete applications about how to address application deficiencies in a timely manner. [Click&type] 21. Determine whether the servicer incorrectly denied applications for income-driven repayment, incorrectly concluded that such applications were incomplete, or incorrectly calculated Income-Driven Repayment plan payment amounts.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 34 [Click&type] 22. Determine whether the servicer follows established procedures for determining which incomedriven repayment plan to enroll a borrower in when borrowers check the “choose for me” option on the Income-Driven Repayment plan application. [Click&type] 23. Determine whether, when, and how the servicer contacts borrowers to inform them that their payments will increase due to a failure to timely recertify. [Click&type] Borrower Communications for Private Education Loans 1. If the servicer offers alternative repayment plans or loan modifications for private education loans, determine whether the servicer discloses (e.g., on its website) the repayment plans, key eligibility criteria, qualification processes, terms, and the required documentation and information necessary to be considered for each of the plans. [Click&type] 2. If the servicer offers alternative repayment plans or loan modifications for private education loans, determine how the servicer decides to whom to offer the plans or loan modifications, and whether there are policies and procedures aimed at ensuring consistency with regard to when plans are offered.
[Click&type] 3. If the servicer is a financial institution, determine whether the servicer offers a private education loan rehabilitation program under FCRA Section 623(a)(1)(E), that includes, without limitation, a requirement of the consumer to make consecutive on-time monthly payments in a number that demonstrates, in the assessment of the financial institution, a renewed ability and willingness to repay the loan.
[Click&type] 4. If the servicer is a financial institution, determine whether the servicer removes reported defaults from consumer reports upon the consumer’s completion of such rehabilitation program described in step 3 above and upon the consumer’s request to remove the reported default.
[Click&type] 5. Assess the training provided to servicer personnel who handle or communicate with borrowers about alternative repayment plans, forbearance, deferment, or loan modifications.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 35 [Click&type] 6. Assess the servicer’s monitoring of personnel who communicate with borrowers about alternative repayment plans, forbearance, deferment, or loan modifications. [Click&type] 7. Assess how the servicer prioritizes among forbearance, deferment, proprietary alternative repayment plans, and loan modifications in phone discussions and written materials. [Click&type] 8. Determine whether written or verbal communications about alternative repayment plans, deferment, forbearance, or loan modifications accurately and sufficiently describe the attributes and consequences, including any capitalization of interest. [Click&type] Cosigned Private Education Loans 1. Assess communications to borrowers about the availability of cosigner release, the criteria for qualifying for cosigner release, and the process to apply for cosigner release, if applicable. [Click&type] 2. If certain actions by the borrower can delay or permanently prevent the borrower from obtaining cosigner release (such as obtaining a forbearance), determine whether the servicer discloses this fact before the borrower takes such actions. [Click&type] 3. If the servicer requires borrowers to make a certain number of consecutive and/or on-time payments to qualify for cosigner release, determine how zero dollar payments during periods when loans are paid ahead impact a borrower’s progress towards that requirement and determine whether the servicer informs the borrower of these consequences. [Click&type] 4. If the servicer requires a written application to apply for cosigner release, and a borrower submits an incomplete written application, determine whether the servicer asks the borrower for supplemental information to complete the application. [Click&type] 5. Determine whether the servicer accurately applies any criteria for cosigner release appearing in the borrower’s loan notes, company’s marketing materials, and/or website.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 36 [Click&type] 6. Assess communications to borrowers about denial of cosigner release. [Click&type] 7. Assess the appeal process, if any, after the denial of a cosigner release application. [Click&type] 8. Determine whether the servicer retains documents pertinent to a decision to deny a cosigner release application.
[Click&type] 9. Determine whether the servicer deems a borrower to have defaulted on a loan because a cosigner dies or enters bankruptcy, and, if so, assess the circumstances, policies, and procedures, related to that practice.
[Click&type] Payoff 1. Determine whether and how the servicer discloses methods to obtain a payoff statement and basic information about how to pay off a loan, including how a borrower can pay off an individual loan or loans when the servicer services multiple loans for the borrower. [Click&type] 2. Determine whether the servicer provides written payoff statements listing payoff amounts for individual loans, including whether these notices are provided in a timely manner in response to borrower requests and whether the servicer honors those payoff statements. [Click&type] 3. Determine whether the servicer provides timely paid in full notices. [Click&type] 4. Determine whether the servicer provides a refund or reimbursement of any payoff overpayment in a timely manner.
[Click&type] 5. If a large lump sum payment satisfies much of, but not all of, the remaining balance and the remaining amount exceeds the lender/servicer’s tolerance levels, determine whether the servicer attempts to contact the borrower or payer to inform the borrower or payer that he or
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 37 she did not pay off the loan, and determine whether the borrower continues to receive billing notices.
[Click&type] Transfer of Servicing Examiners should engage in several steps to assess potential violations of Federal consumer financial protection law in connection with servicing and loan ownership transfers. First, examiners should review policies and procedures and obtain a sample of servicing records, for loans transferred within the review period. Examiners also may need to review copies of the electronic and paper documents transferred from the prior servicer. Additionally, examiners should review relevant records such as copies of monthly statements, and other letters or communications sent to consumers. Examiners should look at servicing transfers when the servicer is the transferor (sender), when the servicer is the transferee (recipient), and when the servicer is transferring accounts internally (e.g., a transfer between two of the servicer’s systems).22
When the servicer is a transferor 1. Determine whether the servicer has a mechanism for accurately capturing and conveying information on a borrower’s payment plan, benefits, terms, conditions, payment instructions, disputes or complaints from the consumer, and/or payment history for loans being transferred to another servicer.
[Click&type] 2. Determine whether progress towards loan forgiveness options available to borrowers with Federal loans (e.g., at the end of Income-Driven Repayment and PSLF), or progress toward other benefits that require consecutive payments like co-signer release for borrowers with applicable private loans, is accurately captured and conveyed to the new servicer. [Click&type] 3. Determine whether the servicer maintains documents and data on each account in a manner that facilitates compiling such documents and data into a servicing file for purposes of transferring the account.
[Click&type] 4. Determine whether and how the servicer transfers borrower accounts that involve a pending application for deferment, forbearance, alternative repayment plans, or benefits.
22 Examiners should be aware that student loan servicing transfers may occur for a number of reasons, including the sale of a loan, the reassignment of servicing rights by the loan holder, or action by a borrower that automatically triggers the transfer of servicing (e.g., the completion of an Employer Certification Form (ECF) indicating interest in the Public Service Loan Forgiveness program).
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 38 [Click&type] 5. Determine whether the servicer sends notices to borrowers informing them of an impending transfer and whether notices informing borrowers of an impending transfer sufficiently and timely inform borrowers of key information, including the date of transfer and contact information.
[Click&type]
6. Assess the servicer’s process for forwarding any payments received from borrowers after an account has been transferred to a new loan servicer, including the timeliness of such forwards. [Click&type] When the servicer is a transferee 7. Determine whether the servicer conducts due diligence to ensure that it has accurate and complete information on a borrower’s payment plan, benefits, terms, conditions, payment instructions, and payment history for loans received from another servicer, which may entail reviewing the servicer’s pre-onboarding testing protocols, contract provisions ensuring the transfer of data or documentation, quality control efforts, and organization and labeling of information.
[Click&type] 8. Determine whether borrowers were financially impacted by the servicing transfer, including whether the borrower was charged late fees or if the servicer furnished negative credit information because of the transfer and whether additional interest accrued or interest capitalized as a result of a mandatory forbearance or deferment used to facilitate the transfer. [Click&type] 9. Determine whether the servicer has a process for monitoring and verifying the accuracy and completeness of data or documentation received from a transferor servicer, and whether the servicer has processes to address any related issues.
[Click&type] 10. Determine whether the servicer has a process for monitoring and verifying the receipt of payments prior to, during and following transfer, including payments submitted to the transferor servicer following transfer, and whether the servicer has a process to address any related issues.
[Click&type] 11. Determine whether the servicer has a process for monitoring and verifying changes in monthly payment amount following any redisclosure or reamortization resulting from transfer, whether
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 39 servicer provides notice to the borrower of anticipated changes in monthly payment amount, and whether the servicer has a process to address any related issues. [Click&type] 12. Determine whether the servicer has a specific policy or procedure for handling the transfer of borrower accounts that involve a pending application for deferment, forbearance, alternative repayment plans, or benefits, including whether the servicer flags those accounts, ensures that it retains all documentation relating to the pending application, and processes those applications in a timely manner.
[Click&type] 13. Determine whether and when the servicer sends notices to borrowers informing them of an impending transfer, and whether notices informing borrowers of an impending transfer clearly disclosed material information, including the date of transfer and contact information. [Click&type] 14. Determine whether and in what circumstances the servicer ceased providing benefits or other offerings provided to the borrower by the prior servicer.
[Click&type] 15. Determine whether recurring payments transfer to the servicer, and whether borrowers are notified about what impact the loan servicing transfer has on the existing recurring payment program with sufficient time to complete any necessary action requested by the servicer in order to prevent a missed payment.
[Click&type]
Internal Transfers 16. Determine whether the servicer has a mechanism for accurately capturing, conveying, and maintaining information on a borrower’s payment plan, benefits, terms, conditions, and full payment history for loans being transferred to another loan owner when the servicer does not change.
[Click&type] 17. Determine whether the servicer has a process for monitoring and verifying the accuracy and completeness of information that is transferred automatically or manually from one loan owner to another, or one servicing system to another, and whether the servicer has processes to address any related issues.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 40 [Click&type] In-School Deferment and Repayment Status Processing 1. For borrowers entering repayment status, assess the timeliness and adequacy of the initial communications from the servicer to the borrower, and determine whether the servicer provides the borrower with an overview of all available repayment options. [Click&type] 2. Determine how the servicer makes decisions on whether a borrower’s account should be placed in an in-school status, a grace period, deferment, or repayment, and whether the servicer has a process for reversing adverse consequences (including late fees and interest capitalization and adverse credit reporting) when that process results in errors. [Click&type] 3. Determine whether borrowers can access loan information online or on written account statements before their loans enter repayment, and determine the sufficiency and accuracy of those statements.
[Click&type] 4. Determine how the servicer accounts for medical leave and other absences from school in its decisions regarding when a borrower should enter repayment status. [Click&type] Borrower Benefits Some private and federal student loans offer various borrower benefits, such as rate reduction for Automated Clearing House (ACH) payments or timely payments, graduation “bonus,” payment deferment for borrowers serving on active duty, or other rewards to encourage the borrower to either take out the loan initially or to ensure payments are made in a timely manner once the loan is in repayment. On many occasions, these benefits may be offered to a borrower years before repayment is required. Examiners should verify that loan servicers are aware of what benefits were offered to borrowers and ensure that those benefits are provided to borrowers who meet the necessary qualifications.
1. Determine whether the servicer has retained appropriate documentation of all benefits offered to borrowers, including whether this documentation is recorded at the loan level. [Click&type] 2. Determine whether the servicer has sufficient systems capabilities and controls to ensure that earned benefits are honored, including whether the servicer has sufficient policies and procedures in place to keep track of borrower progress towards receiving benefits.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 41 [Click&type] 3. Assess the extent to which servicer communications, including communications on the servicer’s website, written communications, or oral communications, inform borrowers of the benefits available to them, the criteria for earning those benefits, and the process for obtaining those benefits.
[Click&type] 4. Determine whether the servicer clearly discloses why benefits are denied, the conditions and requirements that were not met, and whether and how the borrower can regain benefit. [Click&type] 5. Determine whether the servicer has procedures, and whether the servicer follows its procedures, for circumstances where a servicer is informed that a borrower attended a school for which the Department of Education has made a finding supporting a potential discharge (e.g., a defense to repayment (DTR) claim or a closed school discharge), including whether phone representatives assess the borrower’s current circumstances and disclose the discharge option reasonably believed to be the most appropriate to the borrower. [Click&type] 6. Determine whether the servicer has procedures, and whether the servicer follows its procedures, for circumstances where a servicer is informed of a borrower’s disability, including whether phone representatives assess the borrower’s current circumstances and disclose the availability of any discharge or modification option reasonably believed to be the most appropriate to the borrower (e.g., the Total and Permanent Disability Discharge (TPD) program for federal loans).
[Click&type] 7. Determine whether the servicer has procedures, and whether the servicer follows its procedures, for circumstances where the borrower informs the servicer that a borrower is working in public service, including whether phone representatives assess the borrower’s current circumstances and disclose the availability of any cancellation or loan forgiveness options reasonably believed to be the most appropriate to the borrower (e.g., PSLF, Teacher Loan Forgiveness, Perkins Loan Cancellation).
[Click&type] 8. Determine whether the servicer processes requests for borrower benefits, including benefits or protections available under Title IV of the Higher Education Act (e.g., PSLF, TPD discharge, DTR), in a timely and accurate manner.
[Click&type]
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 42 9. Determine whether the servicer has procedures, and whether the servicer follows its procedures, for circumstances where a servicer is informed that a borrower is serving in the military, including whether phone representatives assess a military borrower’s current circumstances and disclose the availabililty of any borrower benefits or consumer protections appropriate to the military borrower (e.g., IDR and PSLF, military deferment,23 Perkins Loan Cancellation).
[Click&type] 10. For private loans, determine whether the servicer offers military deferment, what the criteria are, whether the criteria are appropriately applied, and whether the servicer communicates its reasoning for denying deferments.
[Click&type] 11. Determine whether the servicer has procedures, and whether the servicer follows its procedures, for circumstances where a servicer is informed that a borrower is serving in an area of hostilities and received special pay, including whether phone representatives assess a military borrower’s current circumstances and disclose the availabililty of an interest rate reduction to zero percent for eligible military borrowers (e.g., certain Direct Loans, Perkins Loans).
[Click&type] 12. Determine whether the servicer has procedures, and whether the servicer follows its procedures, for circumstances where a servicer is informed that a borrower is serving in the military, including whether phone representatives assess a military borrower’s current circumstances and disclose, where applicable, the availabililty of a waiver of the requirement to annually recertify under an income driven repayment plan when a servicemember is on active duty under certain circumstances.
[Click&type] NOTE: In assessing risks to consumers, examiners may find evidence of violations of – or an absence of compliance policies and procedures with respect to – other laws. In these circumstances, examiners should identify such matters for appropriate action, such as, where authorized, possible referral to federal or state regulators.
For example, the Servicemembers Civil Relief Act (SCRA) requires a servicer to reduce the interest rate that a servicemember must pay on private and federal student loans to six percent in specific circumstances.
23 For federal student loans, criteria for military deferment are defined under Title IV of the Higher Education Act. 20 USC Section 1088(d). National Guard and Reservists can request deferment when called to active duty during a time of war, other military operation, or during national emergency. Active duty servicemembers can request deferment if serving (1) during an a time of war, other military operation, or during a national emergency, and (2) at a duty station at which they are not normally assigned.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 43 Variable Interest Rates 1. Determine whether the servicer informs the borrower of any interest rate changes, and when and how this information is provided.
[Click&type] 2. Determine whether the servicer has a process to verify that interest rate and payment changes to borrowers’ accounts based on a change to a variable interest rate are accurate. [Click&type] Additional Concerns for Institutional Loans Examiners should pay particular attention to an entity’s CMS, communications with borrowers about repayment options, and collection practices. In addition to performing all analyses relevant to private education loans, for institutional loans examiners should: 1. Determine whether the supervised entity calculates fees and tuition in connection with the credit product and, if so, if it calculates these items in accordance with the terms of the program the borrower attended.
[Click&type] 2. Determine whether the supervised entity accurately and timely credits account transactions, including calculations of account balances following distribution or return of aid. [Click&type] 3. Determine whether a supervised entity uses payment plans or temporary credits for all or any portion of its programs.
[Click&type] 4. Determine how the supervised entity calculates and issues refunds to borrowers who withdraw from a school or program short of completing the program or term for which the loans were taken out.
[Click&type] 5. Determine whether and under what circumstances the supervised entity withholds transcripts (or engages in any other type of refusal to certify a student’s completion of a program) from students who owe a debt.
[Click&type] 6. Determine whether and under what circumstances the supervised entity imposes any enrollment restrictions upon institutional loan borrowers based on their repayment status.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 44 [Click&type] 7. Determine whether and under what circumstances the supervised entity imposes additional fees or increased tuition upon institutional loan borrowers based on their repayment status. [Click&type] 8. Determine whether the supervised entity uses acceleration clauses with its institutional loans in situations where a borrower who withdraws from a school or program owes more than the proportional cost of the time they were enrolled in the program. If the supervised entity uses acceleration clauses, compare the entity’s policies to those for the return of unused federal funds for similar programs (i.e., Perkins Loans, Pell Grants, Direct Loans). [Click&type] 9. Determine whether a loan product is a private education loan as defined by Regulation Z, and, if so, the supervised entity’s compliance with TILA’s prohibition on the use of prepayment penalties for private education loans. (See 15 U.S.C. 1650(e)) [Click&type] Public Student Loan Forgiveness (PSLF) The Public Service Loan Forgiveness (PSLF) program is a federal benefit provided under the Higher Education Act (HEA) implemented by the Department of Education that forgives the remainder of a borrower’s Direct Loan balance after the borrower has made 120 qualifying payments (10 years) while working full-time for a qualifying employer. Qualifying employers include governments (federal, state, local, tribal), nonprofits that are taxexempt under Section 501(c)(3) of the Internal Revenue Code, and other types of non-profit organizations that provide certain types of qualifying public service. For-profit organizations, labor unions, partisan political organizations, and nonprofits that are not tax-exempt under Section 501(c)(3) and that do not provide a qualifying service do not qualify. Qualifying payments include payments for the full amount billed that are made after October 1, 2007, and no later than 15 days after the due date under certain repayment plans. Payments while a borrower’s loans are in an in-school status, a grace period, deferment, forbearance, or default do not qualify. 24 Only payments made under an Income-Driven Repayment plan (e.g., REPAYE, PAYE, IBR), the 10-year Standard Repayment Plan, or a different repayment plan with payments that are at least equal to the 10-year Standard Repayment Plan amount count towards forgiveness. Payments under an Extended Repayment Plan do not count, and payments under a Graduated Repayment Plan initially will not count because payments start out lower than the 10-year Standard Repayment amount, and then gradually rise to an amount that exceeds the standard 10-year
24 A primary exception is that the months of administrative forbearance under the CARES Act do count towards PSLF eligibility. See Pub. L. No: 116-136, § 3513(c), 134 Stat. 286 (2020).
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 45 payment amount. Graduated payment amounts that exceed the standard 10-year payment amount can be counted toward the PSLF eligibility.
Outside of the temporary limited waiver discussed below, PSLF is only available for borrowers who make 120 qualifying payments on a Direct Loan. That means payments made on other types of federal loans, like FFELP or Perkins loans, traditionally do not qualify. However, many of these borrowers can consolidate these loans into a Direct Consolidation Loan, and then payments on the Direct Consolidation Loan can qualify. PSLF is not available for private loans. On October 6, 2021, the U.S. Department of Education issued a limited waiver of PSLF requirements that provides borrowers a temporary chance to receive credit for previously unqualifying payments. Pursuant to the waiver, borrowers can receive credit towards PSLF for any month they worked in a qualifying public service job and were not in default on their federal student loans. The waiver is available to borrowers with almost any type of federal loan or repayment plan.25 To take advantage of this waiver, the borrower must: 1) consolidate into a Direct Loan; and 2) certify their public service employment history. A borrower must complete both steps before the waiver expires on October 31, 2022.
At any point once a borrower leaves school and enters repayment, a borrower can submit a Public Service Loan Forgiveness (PSLF) & Temporary Expanded PSLF (TEPSLF) Certification & Application(Application) to indicate intent to pursue PSLF. The Application will initiate a process through which a borrower’s student loan servicer can verify the borrower’s qualifying employment and validate any on-time, qualifying payments made toward an eligible loan. The borrower and employer usually each fill out a part of this form. The borrower or employer can then submit the form to the borrower’s servicer or the servicer the Department of Education uses for PSLF processing. For all borrowers, the servicer that the Department of Education uses for PSLF processing will determine whether the borrower’s employer is a qualified employer. If the borrower’s employer is a qualified employer, the borrower’s loans will be transferred to the servicer the Department of Education uses for PSLF processing, and that servicer will handle the loans until the borrower has made 120 qualifying payments. 1. Determine whether information the servicer provides about PSLF, including online materials, is accurate, clear, and understandable, and whether relevant information borrowers need to make informed decisions about the program is missing.
[Click&type] 2. Assess the servicer’s call scripts and other materials to determine if or when phone representatives are directed to ask whether borrowers work for a government or non-profit entity.
[Click&type]
25 The PSLF waiver is not available to borrowers with Parent Plus loans.
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 46 3. Determine whether the servicer informs borrowers about the availability of PSLF when they indicate they are employed in the government or non-profit sectors. [Click&type] 4. When borrowers express interest in using PSLF, determine whether the servicer informs borrowers about the benefits of and process for submitting an Application. [Click&type] 5. After the borrower has already submitted an Application for at least one period of eligible employment, determine whether the servicer informs the borrower about the benefits of submitting additional Applications.
[Click&type] 6. When borrowers express interest in using PSLF, determine whether the servicer checks to make sure the borrower has qualifying Direct Loans, and if the borrower has FFELP or Perkins loans, accurately describes the need to obtain a Direct Consolidation Loan to benefit from PSLF.
[Click&type] 7. When borrowers express interest in using PSLF, determine whether the servicer confirms that the borrower is repaying using an Income-Driven Repayment plan, and if the borrower is not, accurately describes which payment plans are eligible for PSLF, and how an Income-Driven Repayment plan will maximize the benefit.
[Click&type] 8. Determine whether the servicer informs all borrowers of Direct Loans who are inquiring about a Direct Consolidation Loan that their progress towards PSLF will reset once they consolidate. [Click&type] 9. Determine whether the servicer informs borrowers with both Direct Loans and other federal loans who are inquiring about a Direct Consolidation Loan that they may elect to exclude the existing Direct Loans for which they have already made Qualifying Payments from the Direct Consolidation Loan.
[Click&type] 10. Determine whether the servicer accurately calculates the number of qualifying payments during periods of employment for which the borrower has submitted valid employment certification and the estimated loan forgiveness eligibility dates. [Click&type]
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CFPB Education Loan Examination Procedures Module 3 CFPB September 2022 Procedures 47 11. Determine whether processing delays or errors relating to Income-Driven Repayment plan applications or recertifications resulted in months of forbearance that do not qualify towards PSLF.
[Click&type] 12. Determine whether the servicer has appropriate policies and procedures to send information on payment histories, repayment plans, loan types, etc., to subsequent servicers so that they, or a future servicer, can make an accurate determination about the number of qualifying payments the borrower made during the entire period of repayment. [Click&type] 13. Determine whether the servicer has appropriate policies and procedures to collect information on payment histories, repayment plans, loan types, etc., from prior servicers so that the servicer, or a future servicer, can make an accurate determination about the number of qualifying payments the borrower made during the entire period of repayment. [Click&type] 14. Assess the servicer’s policy for determining whether a payment is a qualifying payment under the following scenarios, and determine whether the servicer followed the policy: a. Payment or non-payment when zero dollars is billed because a borrower’s account is paid ahead or because the borrower has a zero dollar IDR payment; b. Payments made when less than the full payment under a borrower’s chosen repayment plan is billed because a borrower’s account is partially paid ahead; c. How late after a due date a payment can be received and count as a qualified payment; d. How early before a due date a payment can be received and count as a qualified payment;
e. Multiple payments in one month that combine to cover the monthly payment; and f. IDR payment amounts made beyond a 12-month period because the borrower submitted a recertification application on time, but the servicer had not yet determined the new scheduled monthly payment amount.
[Click&type] 15. Assess the servicer’s policy for identifying payments that do not count toward PSLF but do count toward the maximum number of payments under an IDR plan. [Click&type]
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CFPB Education Loan Examination Procedures Module 4 CFPB September 2022 Procedures 48 Module 4: Borrower Inquiries and Complaints Examiners should review borrower inquiries and complaints and call specific complaining borrowers to interview them regarding their experiences. Examiners should listen to live calls and taped calls to assess the quality and training of the servicer’s call center personnel. Examiners should determine the root cause of borrower inquiries and complaints, whether they were resolved adequately (including appropriate remediation for all borrowers affected by the root cause), and whether they were resolved in a timely manner. In addition to reviewing individual inquiries and complaints, examiners should review the related policies and procedures. As part of this review, examiners should assess whether complaints drive adjustments to business practices, where appropriate. Examiners should also review the escalation paths available to borrowers, including those available for borrowers facing financial hardship.
Other Risks to Consumers 1. Identify all channels and physical locations provided for receipt of borrower complaints and inquiries.
[Click&type] 2. Evaluate the comprehensiveness of systems policies, and procedures for capturing, logging, tracking, handling, and reporting complaints and their resolutions, including for repeat consumer complaints.
[Click&type] 3. Assess the effectiveness of any telephone line available for submitting inquiries or complaints, including (a) whether it is toll-free, (b) the ease of accessing a live person, (c) the hold times, and (d) the call abandonment rates.
[Click&type] 4. Assess the effectiveness of other means available for submitting inquiries or complaints, including written submissions and any online portal.
[Click&type] 5. Evaluate the processes for and speed of responses to borrower complaints. Review reports to management and the board of directors (or principals). Review the consumer complaint log(s), performance metrics, and exception/trend reports to determine whether borrower complaints are captured, correctly categorized, and handled appropriately. [Click&type] 6. Determine whether staffing levels are sufficient for call volume, and determine whether assumptions used for staffing determinations are validated or supported by analysis.
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CFPB Education Loan Examination Procedures Module 4 CFPB September 2022 Procedures 49 [Click&type] 7. Listen to live calls and taped calls to assess the quality and training of call center personnel. [Click&type] 8. Determine whether the servicer provides borrowers with an adequate process to escalate, appeal, or ask for reconsideration of the resolution of complaints and inquiries. [Click&type] 9. Assess whether the servicer responds to borrower inquiries within a reasonable time period. For federal student loan borrowers, servicers must respond within 30 days after receiving any borrower inquiry.
[Click&type] 10. Determine whether, when the servicer takes action or makes adjustments to a borrower’s account in light of a complaint, the servicer determines whether other borrowers were affected by the same issue and seeks to resolve the issue systemically. [Click&type]
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CFPB Education Loan Examination Procedures Module 5 CFPB September 2022 Procedures 50 Module 5: Collections, Accounts in Default, and Credit Reporting Examiners should obtain a sample of servicing records for customers in default. Examiners should obtain collection call records and listen to a sample of collection calls. If consumer complaints or document review indicate potential violations in these areas, examiners also may conduct interviews of consumers from the sample and ask questions relevant to each topic area below. In connection with these steps, examiners should evaluate the following. Collections and Accounts in Default Under the FDCPA, a debt collector is generally defined as any person who regularly collects, or attempts to collect, consumer debts due another person or institution or uses some name other than its own when collecting its own consumer debts, with certain exceptions. The definition includes, for example, an institution that regularly collects debts for an unrelated institution. The debt collector definition has an exception that frequently applies to loan servicing: an institution is not a debt collector under the FDCPA when it collects debts that were not in default when they were obtained by the servicer.26 Thus, a servicer that purchases the servicing rights for a portfolio of loans will be a debt collector only for loans that were in “default” at the time of the purchase.27 Examiners should obtain a sample of collection call records and assess whether collectors complied with the requirements listed in the FDCPA procedures. Examiners should also listen to a sample of collection calls.
Fair Debt Collection Practices Act (FDCPA) 1. Assess compliance with FDCPA. Refer to the FDCPA examination procedures for more information.
[Click&type] Other Risks to Consumers 1. Determine whether the servicer contacts borrowers in an appropriate manner: a. Employees and third-party contractors clearly indicate to consumers whom they are calling about the collection of a debt.
26 15 USC 1692a (6)(F)(iii).
27 The Fair Debt Collection Practices Act (FDCPA) itself does not contain a definition of the term default. The standard private student loan note often states that the debt is in default if the payment is 15 or 30 days late. federal loans go into default at 270 days past due.
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CFPB Education Loan Examination Procedures Module 5 CFPB September 2022 Procedures 51 b. Employees and third-party contractors do not disclose the existence of a consumer’s debt to the public without the consent of the consumer, except as permitted by law. c. The entity avoids repeated telephone calls to consumers that annoy, abuse, or harass any person at the number called.
[Click&type] 2. Determine whether the servicer’s representatives make omissions or misrepresentations, or use inappropriate methods to collect debts.
[Click&type] 3. Determine whether collections staff transfer borrowers to loss mitigation staff, in accordance with the institution’s policies and procedures, to discuss loss mitigation alternatives. [Click&type] 4. Determine whether the supervised entity automatically ceases all collection efforts for borrowers that have filed bankruptcy petitions under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code.
[Click&type] 5. Determine whether the supervised entity attempts to collect, transfer, sell, or place debts that have been discharged in bankruptcy.
[Click&type] 6. Determine whether the supervised entity withholds academic transcripts from borrowers who have filed bankruptcy.
[Click&type] The Use of Service Providers for Collections 1. For regulated entities utilizing service providers for collection activity, determine whether the lender has policies and procedures in place to monitor the service provider for compliance with Federal consumer financial laws.
[Click&type] Workouts for Accounts in Default 1. Determine when and how a borrower is notified that their account is past due, and when a past due account is sent to collections.
[Click&type]
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CFPB Education Loan Examination Procedures Module 5 CFPB September 2022 Procedures 52 2. Determine whether the servicer reviews defaulted borrowers for all repayment status options before sending the account to collections.
[Click&type] 3. Determine whether the lender, or servicer, offers formal or informal workout programs for borrowers in default. If so:
a. Determine whether the lender, or servicer, discloses the requirements and any associated fees when providing workout options to borrowers in default. b. Determine whether the lender, or servicer, that offers workout programs provides each option available to borrowers.
c. Determine whether the lender or servicer provides payment options for borrowers in default, and, if so, whether the lender or servicer is providing the options consistently to all borrowers in similar situations.
d. Determine whether the lender or servicer prioritizes workout options based on loan type (federal loans versus private loans), and, if so, whether the lender or servicer has policies and procedures that document the prioritization rationale. e. Examiners should obtain a sample of collection call records for accounts that are in default and assess whether collectors follow policies and procedures for handling such accounts. [Click&type] Collecting Delinquent Accounts through Legal Action Determine whether the lender or servicer has policies and controls in place to ensure the accuracy of information used to collect delinquent accounts through legal action. [Click&type] FCRA and Implementing Regulation V – Furnisher Requirements Examiners should obtain a sample of loan servicing records. For the loans in the sample, compare the information in the servicer’s system of record with the information reported to the credit reporting agencies. Examiners should also review consumer complaints or review documents for potential violations of the Fair Credit Reporting Act and implementing Regulation V. 1. Assess compliance with the FCRA Furnisher Requirements. Refer to the FCRA examination procedures, 12 CFR 1022.40-43, for more information.
[Click&type] 2. If the servicer is a financial institution, determine whether the servicer offers a private education loan rehabilitation program under FCRA Section 623(a)(1)(E), which includes,
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CFPB Education Loan Examination Procedures Module 5 CFPB September 2022 Procedures 53 without limitation, a requirement of the consumer to make consecutive on-time monthly payments in a number that demonstrates, in the assessment of the financial institution, a renewed ability and willingness to repay the loan.
[Click&type]
3. If the servicer is a financial institution, determine whether the servicer removes reported defaults from consumer reports upon the consumer’s completion of such rehabilitation program described in step 2 above and upon the consumer’s request to remove the reported default.
[Click&type]
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CFPB Education Loan Examination Procedures Module 6 CFPB September 2022 Procedures 54 Module 6: Information Sharing and Privacy Gramm-Leach-Bliley Act (GLBA) and Implementing Regulation P – Privacy Notices 1. Assess compliance with Privacy of Consumer Financial Information Regulations that implement GLBA. Refer to the GLBA examination procedures, 12 CFR 1016.4 and 1016.5, for more information.
[Click&type] FCRA and Regulation Implementing V – Information Sharing with Affiliates 1. Assess compliance with the FCRA Affiliate Marketing Rule. Refer to the FCRA examination procedures, 12 CFR 1022.21, for more information. [Click&type]
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CFPB Education Loan Examination Procedures Module 7 CFPB September 2022 Procedures 55 Module 7 – Examination Conclusions and Wrap-Up To conclude this supervisory activity, examiners must complete all steps under this section, regardless of the entity’s risk profile.
1. Summarize the findings, supervisory concerns, and regulatory violations. [Click&type] 2. For the violations noted, determine the root cause by identifying weaknesses in internal controls, audit and compliance reviews, training, management oversight, or other factors. Determine whether the violation(s) are pattern or practice, or isolated. [Click&type] 3. Identify action needed to correct violations and weaknesses in the institution’s compliance management system, as appropriate.
[Click&type] 4. Discuss findings with the institution’s management and, if necessary, obtain a commitment for corrective action.
[Click&type] 5. Record violations according to agency policy in the Report of Examination/Supervisory Letter and the CFPB’s electronic database system to facilitate analysis and reporting. [Click&type] 6. Determine if enforcement action is appropriate. If so, contact appropriate agency personnel for guidance.
[Click&type] 7. Prepare a memorandum for inclusion in the workpapers and CFPB’s official system of record that outlines planning and strategy considerations for the next examination and, if appropriate, interim follow-up.
[Click&type]
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 1 Mortgage Origination These Mortgage Origination Examination Procedures (Procedures) consist of modules covering the various elements of the mortgage origination process; each module identifies specific matters for review. Examiners will use the Procedures in examinations of mortgage brokers and mortgage lenders. Before using the Procedures, examiners should complete a risk assessment and examination scope memorandum in accordance with general CFPB procedures. After completing the risk assessment and examination scoping in accordance with CFPB-approved mortgage originations strategy, examiners are to use these procedures to conduct a mortgage origination examination. These procedures include guidance for examination of all aspects of mortgage origination. The examination procedures include a series of modules that group similar requirements together. Depending on the scope of the examination, and in conjunction with the compliance management system review, including consumer complaint review, each examination will cover one or more of the following modules. Module 8 – Examiner Conclusions and Wrap-Up is a required module and must be completed. The modules are as follows: Module 1 Company Business Model Module 2 Advertising and Marketing Module 3 Loan Originators Module 4 Loan Disclosures and Terms - Closed-End Residential Mortgage Loans Module 5 Loan Disclosures and Terms - Other Residential Mortgage Loans Module 6 Appraisals Module 7 Underwriting Module 8 Examiner Conclusions and Wrap-Up
Exam Date:
[Click&type] Exam ID No.
[Click&type] Prepared By:
[Click&type] Reviewer:
[Click&type] Docket #:
[Click&type] Entity Name:
[Click&type]
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 2 Examination Objectives 1. To assess the quality of a supervised entity’s compliance management systems in its mortgage origination business.
2. To identify acts or practices that materially increase the risk of violations of Federal consumer financial law, and associated harm to consumers, in connection with mortgage origination.
3. To gather facts that help determine whether a supervised entity engages in acts or practices that are likely to violate Federal consumer financial law in connection with mortgage origination.
4. To determine, in accordance with CFPB internal consultation requirements, whether a violation of a federal consumer financial law has occurred and whether further supervisory or enforcement actions are appropriate.
Background This section of the Procedures provides background on the mortgage business and the federal consumer financial law requirements that apply.
1. Mortgage Types Residential mortgage loans have a variety of features to meet differing consumer needs. The length of a mortgage is usually 30 years or less, but can vary from one year to 50 years. Interest rates can be fixed or adjustable. Some adjustable rate mortgage loans (ARMs) are “hybrid,” having a fixed interest rate for a certain period of time and then changing to an adjustable rate. Hybrid ARMs often are identified informally using two numbers, such as 5/1. The first number identifies the number of years the interest rate will be fixed, and the second number identifies the frequency with which the interest rate will adjust after the fixed interest rate period ends. A “5/1” loan would have a fixed interest rate for five years, and then the interest rate would adjust one time per year. Alternatively, the second number can denote the number of years the loan will have an adjustable rate: in a “2/28 loan,” the loan would have a fixed interest rate for two years, and after the two-year fixed interest rate period, then the interest rate would adjust periodically over the subsequent 28 years based on an index plus a margin. Typically, the initial two-year rate is low, but the adjustable rate can rise based on rate fluctuations in the marketplace. Most, but not all, loans are “fully amortizing,” meaning that the borrower pays down part of the principal and the full amount of interest that is due each month so that at the end of the loan term, the principal is paid off. Other loans might not amortize fully over their terms. One type of loan that does not fully amortize over its term is a balloon payment mortgage where payments may be made for a period of time, with the remaining balance due in one lump sum, or “balloon.” Another type is an “interest-only” (I-O) loan, in which only the interest is paid for a certain time period at the beginning of the loan; after the initial period, the borrower either makes increased principal and interest payments to amortize the principal over the remaining term, or pays a large “balloon”
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 3 payment, usually at the end of the term. These loans can have a fixed or adjustable rate. In addition, for a period of time, payment option adjustable rate mortgages (Pay Option ARMs, or Option Payment ARMs) were offered to many consumers, although this practice is not common in today’s mortgage marketplace. These loans provided borrowers with several payment choices each month during the loan’s introductory period, including a minimum payment that was less than the interest accruing and due with the principal each month. If the borrower chose the minimum payment option, the accrued but unpaid interest was added to the loan balance, so the principal amount actually increased. This outcome, where the outstanding loan balance increase as opposed to decreases, is known as negative amortization. Eventually the loan would be recast after the introductory period (typically five years), and the borrower’s fully amortizing payments increased in order to repay the increased principal (which included the unpaid interest added to the original principal balance) and interest. Balloon loans, interest-only loans, and Pay Option ARMs often are called “non-traditional loans.”
Mortgage originators offer various mortgage products that may be classified in different ways, such as:
a. Purpose Mortgages often are categorized by whether they are used to purchase real property (called purchase money loans) or to refinance an existing loan (refinances). Refinance loans can either be “no cash out” or “cash out” loans. “No cash out” loans are refinance transactions where the proceeds of the new loan are used to pay off existing liens and can sometimes include the closing costs associated with the transaction. There is typically a small amount of funds that the borrower can receive back from the transaction and it still be considered a “no cash out” transaction. “Cash out” loans are loans made for more than the existing loan’s outstanding principal balance. The borrower receives the cash borrowed in excess of the amount necessary to pay off the existing loan and associated closing costs. Additional loans (junior liens) other than the primary loan (first lien) may also be paid off with the proceeds of the new transaction. The purpose of these junior loans and secondary market requirements will determine if the new transaction would be considered a “cash out” or a “no cash out” transaction.
Construction loans, bridge loans, temporary loans, or combined construction to permanent financing loans are examples of short-term loans for other purposes. Another type of loan is a “home equity” loan, in which the borrower can receive funds to use for any purpose by borrowing against home equity. Equity is the amount the property is currently worth, minus the outstanding principal balance of any other mortgage the consumer has. Reverse mortgages are available to older homeowners to borrow against the equity they have in their homes. (See below for fuller discussion of reverse mortgages.) b. Lien position Lien position determines which mortgage loan receives priority over other loans in the event of a foreclosure or bankruptcy. A mortgage that is in a first lien position, sometimes called a
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 4 senior loan, has priority for payment over a mortgage in a junior lien position if there is a foreclosure or bankruptcy proceeding. The proceeds from the foreclosure sale are divided according to lien position. A “simultaneous second lien” is a second lien originated at the same time as a first lien mortgage, which may allow a consumer to borrow an amount that is 100 percent of the value of the home. Sometimes lenders have allowed consumers to borrow an amount greater than the value of the property, although this practice is not common in today’s mortgage marketplace. Payments necessary for a simultaneous second lien will have an impact on the borrower’s ability to repay the mortgage. c. Closed-end or open-end Most purchase money and refinance mortgages are considered “closed-end credit” under the Truth in Lending Act, generally consisting of installment financing where the amount borrowed and repayment schedule are set at the transaction’s outset. Closed-end mortgages can take first or junior lien positions.
In contrast, home equity lines of credit (HELOCs) are “open-end credit,” extended to a consumer under a plan in which:
i. the creditor reasonably contemplates repeated transactions; ii. the credit line generally is made available to the consumer to the extent that any unpaid balance is repaid; and iii. the creditor may impose a finance charge from time to time on an outstanding unpaid balance.1 During the time while borrowers are able to draw down funds, they usually must pay a monthly interest charge on the outstanding balance. If the borrower owes funds after a fixed period of years, called the “draw period,” the consumer enters the “repayment period” and must pay off the outstanding balance in regular periodic payments of principal and interest. The repayment period is also a fixed term of years. HELOCs are often, but not always, in a junior lien position.
Depending upon the lender and the HELOC agreement, the consumer may have to pay back the entire outstanding balance as soon as the draw period ends. In these cases, there is no repayment period, just a balloon payment in the amount of the outstanding balance when the draw period ends. HELOCs usually have an adjustable interest rate that changes over time, so the consumer’s payments may not be the same from month to month.
112 CFR 1026.2(a)(20).
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 5 d. Reverse Mortgages A reverse mortgage is a special type of loan that allows homeowners 62 and older to borrow against the equity in their homes. It is called “reverse” because the consumer receives payments from the lender, without making loan payments to the lender. In exchange for borrowing the money and receiving these payments, the borrower grants the lender a lien interest in the home. The lender charges interest each month and is paid off when the borrower leaves the home.
In taking out a reverse mortgage loan, a consumer can receive a lump-sum payment, regular monthly payments, or a line of credit. The borrower does not have to pay back the loan as long as the borrower continues to live in the home, maintain it, and stay current on expenses like homeowner’s insurance and property taxes. If the borrower moves, passes away, or goes into assisted living or a nursing home on a long-term basis, the loan has to be paid off, including the outstanding principal and interest accrued during the life of the loan, usually by selling the house. However, a non-borrowing spouse may be permitted to remain in the home after the borrower has left the home under certain circumstances.2 The vast majority of reverse mortgages extended today are through the Home Equity Conversion Mortgage (HECM) program, which is the reverse mortgage product insured by the Federal Housing Administration.
Because of the unique features of reverse mortgages, examiners should follow the procedures that are specific to reverse mortgages and be aware that other mortgage origination and servicing examination procedures may not apply to reverse mortgages. e. Ability-to-Repay The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the Truth in Lending Act (TILA) to require that creditors make a reasonable, good faith determination that the consumer can repay almost all closed-end transactions secured by a dwelling. The requirement applies generally to closed-end loans secured by a dwelling, including manufactured housing, conventional and governmental loans, and prime and subprime loans (see below). One way that lenders can meet TILA’s ability-to-repay (ATR) requirement is by making qualified mortgages (QMs)—loans with certain features determined, by rule, meet TILA’s ATR standards. If lenders do not choose to originate QM loans, they must demonstrate that loans otherwise meet TILA’s ATR requirement. As a result, mortgages are usually referred to as either QM loans, which are presumed to comply with TILA’s ATR requirement, or Non-QM loans, which must comply with the general ability-to-repay requirements directly.
2 For more information, see https://www.hud.gov/program_offices/housing/sfh/hecm/surviving_non_borrowing_spouse.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 6 The ATR rule does not apply to HELOCs, timeshares, reverse mortgages, temporary or bridge loans, or loans to finance the initial construction of a dwelling. It also does not apply to certain types of creditors making loans under programs for low- and middle- income borrowers, such as housing finance agencies, Community Development Financial Institutions and certain nonprofit organizations.
f. Conventional Lending Conventional lending generally refers to prime standardized mortgage products that are not government-backed loans (discussed below). Conventional loans can be “conforming” or “non-conforming.” Conventional conforming mortgages meet the underwriting and documentation standards set by the government sponsored enterprises (GSEs): Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). Loans that are eligible for purchase by the GSEs have QM status under a temporary provision that expires October 1, 2022 (or whenever the GSEs exit conservatorship, whichever is earlier). Non-conforming mortgages may have, among other attributes, principal balances that exceed the loan limits set by the GSEs. g. Governmental Support Government-backed lending includes mortgage lending that is insured by the Federal Housing Administration (FHA) or guaranteed by either the U.S. Department of Veteran Affairs (VA) or the U.S. Department of Agriculture’s (USDA) Rural Housing Service (RHS), among other agencies. Government-supported loans generally offer terms similar to conventional loans, but these loans provide additional benefits to consumers such as smaller down payments, higher loan-to-value ratios (amount of loan in proportion to the appraised value of the home), less restrictive qualifying criteria or lower interest rates. Consumers that qualify for these loans must pay additional insurance or guarantee fees in order to obtain the government backing. FHA, VA, and USDA have defined what constitutes a QM under the authority granted to them under the Dodd-Frank Act.. All of these loans are collectively referred to as “Agency” loans in these examination procedures. h. Subprime and Alt-A Lending Subprime mortgages carry interest rates higher than the rates of prime mortgages. These loans might also be called “higher-priced” or “high cost” mortgages, depending on how much the interest rate exceeds the average prime offer rate. A subprime mortgage generally has a higher cost and is offered to prospective borrowers with impaired credit records – those borrowers whose credit rating is “subprime.” The higher interest rate is intended to compensate the lender for accepting the greater risk in lending to such borrowers. Traditionally, “subprime” has been the riskiest lending category, followed by “Alt-A,” or Alternative-A, and then A-paper, or “prime,” as the least risky. Alt-A borrowers may have prime credit, but some aspect of the loan makes it riskier.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 7 2. Business of Mortgage Origination Mortgage lending generally occurs through retail, wholesale, or correspondent lending channels. Sometimes there are no clear lines of demarcation among the channels, as a participant may operate in more than one of them. Each channel is described in more detail below. a. Retail Channel In the retail channel, the lender conducts the origination process directly with the consumer, either in person or through an online application. An employee of the lender, generally called a loan officer, solicits the loan, takes the application, and tracks the application through to the closing process.
b. Wholesale Channel − Mortgage Brokers In the wholesale channel, a mortgage broker solicits the loan and takes the application from the consumer. Mortgage brokers are independent contractors and are not employees of the lender. The broker establishes relationships with multiple mortgage lenders and offers different mortgage loan products from these lenders. Mortgage brokers generally do not make underwriting decisions and do not actually fund the loans. In this channel, it is the mortgage lender that makes the underwriting decision, based on information provided by the broker. These mortgage lenders, called wholesale lenders, often are divisions of larger depository institutions. Generally, a wholesale lender requires a broker to enter into a wholesale lending agreement before the broker may originate loans on the lender’s behalf. In a variant of standard wholesale mortgage originations, some brokers “table fund” loans. In a table-funded transaction, the mortgage broker closes the loan as the lender of record and then assigns the loan to a purchaser at or immediately after the closing. The loan purchaser provides the funding for the loan, but the documents name the mortgage broker as the creditor. c. Correspondent Channel – Small Mortgage Lenders Correspondent lending, a form of retail lending, is often comprised of smaller institutions, or mortgage bankers. Correspondent lenders are the primary interface with consumers, conducting all steps in the mortgage origination process and funding their own loans. They generally originate and deliver loans pursuant to underwriting standards set by other lenders or investors, usually larger depository lenders. What differentiates a correspondent lender from a retail lender is that correspondent lenders will not portfolio or securitize these loans but will always sell their loans to another aggregator or investor. In addition to soliciting consumers directly, correspondent lenders may also receive applications and mortgage documents from mortgage brokers. Generally, an investor will require a correspondent lender to enter into a written correspondent lending agreement before the correspondent may originate loans for sale to the wholesale investor.
There are instances where mortgage brokers desire to make a transition and become correspondent lenders. These mortgage brokers typically identify themselves as a mini-
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 8 correspondent lender. The mini-correspondent model is a non-delegated arrangement where the mortgage “broker” performs a subset of the mortgage origination activities in partnership with a traditional wholesale lender, who—in this instance—acts as the investor. The minicorrespondent will fund the loan in its name, usually using a warehouse line of credit, and then sells the loan to the wholesale lender/investor. While some mortgage brokers successfully transition into a mortgage banker, there may be instances where a mortgage broker remains as a mini-correspondent lender and never makes the complete transition to being an independent mortgage banker for various business-related reasons. Instead, the mortgage broker continues to conduct certain activities as a traditional mortgage broker, despite entering into mini-correspondent arrangements with particular wholesale lenders. 3. Federal Consumer Financial Law Requirements and Supporting Guidance Mortgage originators must comply with several federal consumer financial laws: a. The Real Estate Settlement Procedures Act (RESPA) and its implementing regulation, Regulation X, require lenders or mortgage brokers, with respect to mortgage origination, to provide borrowers with disclosures regarding the nature and costs of the real estate settlement process. RESPA also protects borrowers against certain abusive practices, such as fees or kickbacks for the referral of settlement service business and arrangements to evade the RESPA requirements. RESPA also places requirements on the administration of, and limitations upon required deposits into, escrow accounts. Generally, for closed-end loans secured by a dwelling, application and closing disclosures are provided under Regulation Z, pursuant to the TILA-RESPA Integrated Disclosure rule, which requires a Loan Estimate and a Closing Disclosure (collectively, Integrated Disclosures) to be provided for loans with applications received on or after October 3, 2015. For closed-end loans secured by a dwelling whose applications are received before October 3, 2015, and for reverse mortgages, HELOCs, chattel mortgage loans, and loans made by an entity that does not fit the Regulation Z definition of a creditor, the RESPA disclosures required at or before origination include, as applicable: i. Good Faith Estimate (GFE) of settlement costs within three business days after application (note that the GFE is not required to be provided if the TILA open-end disclosures are provided to the borrower, as required by Regulation Z); ii. An initial notice explaining whether the servicing rights to the loan may be transferred (note that this requirement does not apply to HELOCs); and iii. For loans other than HELOCs subject to TILA and Regulation Z, a settlement statement (HUD-1/1A) provided at or before closing that reflects the actual costs to be paid by the borrower and seller or the borrower when there is no seller, respectively.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 9 b. The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, provide a uniform system for creditors’ disclosures of credit terms. Generally, for closed-end loans secured by a dwelling, application and closing disclosures are provided under Regulation Z, pursuant to the TILA-RESPA Integrated Disclosure rule, which requires the Integrated Disclosures to be provided for loans with applications received on or after October 3, 2015. For applications received before October 3, 2015, reverse mortgages, HELOCs, chattel mortgage loans, and loans made by an entity that does not fit the Regulation Z definition of a creditor, the TILA disclosures required at or before origination include:
i. Initial Truth-in-Lending (initial TIL) disclosure within three business days after application; and ii. Final Truth-in-Lending (final TIL) disclosure at least three business days before closing.
c. In addition, Regulation Z:
i.
Imposes certain advertising rules;
ii.
Requires written disclosure and re-disclosure of certain loan terms; iii.
Requires that creditors make a good faith determination of the borrower’s ability to repay and verify information they relied on to do so; iv.
Provides consumers with rescission rights in certain circumstances; v.
Provides consumers with legal remedies if the creditor fails to consider ability to repay;
vi.
Delineates and prohibits certain unfair and deceptive mortgage lending practices; vii. Restricts certain mortgage loan originator compensation; viii. Requires certain mortgage loan originator qualifications; ix.
Requires loan originator identification on certain loan documents; x.
Requires depository institutions to have policies and procedures to ensure and monitor compliance with certain requirements;
xi.
Prohibits certain terms and practices in the origination of “higher-priced” loans and prohibit additional terms and practices on a subset of these loans known as “high cost loans;”
xii. Requires escrow accounts for certain “higher-priced” mortgage loans; xiii. Prohibits certain appraisal practices; and
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 10 xiv. Prohibits mandatory arbitration, the financing of credit insurance, or waivers of federal rights.
For loans covered by either the Integrated Disclosures or the pre-existing TILA and RESPA requirements, several additional disclosures are necessary, depending on the type of loan.
i.
Provision of a written list of homeownership counseling organizations that provide relevant counseling services in the loan applicant’s location; ii.
Disclosure of affiliated business arrangements;
iii.
Special information booklet, otherwise known as “Your home loan toolkit: A stepby-step guide;” and iv.
Consumer Handbook on Adjustable Rate Mortgages (CHARM) booklet. d. The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) and its implementing regulations, Regulation G (Federal) and Regulation H (State), establish requirements for registration and, when applicable, standards for licensing of individuals who are residential mortgage loan originators. The registration and licensing requirements are administered, in part, through the Nationwide Mortgage Licensing System and Registry (NMLSR). Each loan originator, unless exempt, must obtain and maintain a state loan originator’s license if not an employee of a covered financial institution, register through the NMLSR, obtain a unique identifier, and provide it to consumers in certain circumstances, and maintain registration through the NMLSR. e. The Gramm-Leach-Bliley Act (GLBA), through its implementing regulation, Regulation P, requires covered entities to provide privacy notices and limits the sharing of certain consumer information without providing the consumer notice and an opportunity to optout.
f. The Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V, impose disclosure and other requirements on mortgage lenders that obtain information from a consumer reporting agency to determine a consumer’s credit worthiness. These include the disclosure of credit score information, disclosure of adverse action, and disclosure of risk-based pricing.
g. Mortgage Acts and Practices – Advertising Rule (MAP Rule), also known as Regulation N, applies only to non-depository mortgage lenders and state-chartered credit unions, as well as entities that market and advertise mortgage products but are not mortgage lenders, such as mortgage brokers, real estate brokers, advertising agencies, lead generators, and rate aggregators. The MAP Rule sets forth specific deceptive acts and practices in the advertising
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 11 of mortgage loan products and prohibits misrepresentation in any commercial communication concerning terms of mortgage loan products.3 h. The Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, prohibit creditors from discriminating against any applicant with respect to any aspect of a credit transaction:
i. On the basis of race, color, religion, national origin, sex,4 marital status, or age (provided the applicant has the capacity to contract); ii. Because all or part of the applicant’s income derives from any public assistance program; or iii. Because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.5 Creditors also are prohibited from making any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage, on a prohibited basis, a reasonable person from making or pursuing an application. ECOA’s fair lending requirements are predominately covered in the Bureau’s fair lending examinations. In addition, ECOA and Regulation B require lenders to retain information related to applications, existing accounts, and prescreened solicitations for a specified period of time, and to provide adverse action notices and appraisal and other written valuations to consumers, such as those generated by automated valuation models (AVMs) and broker price opinions.
i. The Home Mortgage Disclosure Act (HMDA) and its implementing regulation, Regulation C, require mortgage lenders that meet certain threshold conditions to collect, report to federal regulators, and disclose to the public certain data about applications for, and originations and purchases of, home purchase loans, home improvement loans, and refinancings for each calendar year. The data include information about the loan or application (e.g., loan amount, loan purpose, action taken), the applicant (e.g., sex, ethnicity and race), and the property (e.g., property type and geographic information such
3 The MAP Rule became effective on August 19, 2011. Mortgage Acts and Practices – Advertising, 76 Fed. Reg. 43826 (July 22, 2011).
4 The term “sex,” as used in ECOA and Regulation B includes discrimination based on sexual orientation and gender identity. See Equal Credit Opportunity (Regulation B); Discrimination on the Bases of Sexual Orientation and Gender Identity, 86 Fed. Reg. 14363 (Mar. 16, 2021), available at https://www.federalregister.gov/documents/2021/03/16/2021-05233/equal-creditopportunity-regulation-b-discrimination-on-the-bases-of-sexual-orientation-and-gender. 5 The Consumer Credit Protection Act, 15 U.S.C. 1601 et seq., is the collection of federal statutes that protects consumers when applying for or receiving credit. The Act includes statutes that have certain rights for consumers, such as dispute rights under the Fair Credit Reporting Act. The ECOA prohibits discriminating against an applicant who has exercised a right, such as a dispute right pursuant to one of the statutes outlined in the Act.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 12 as census tract, state and metropolitan statistical area (MSA)). HMDA’s requirements are covered in the Bureau’s HMDA exams.
These laws historically have been implemented by regulations published by one or more of seven federal agencies, including the Federal Trade Commission, the Department of Housing and Urban Development, the Board of Governors of the Federal Reserve System, and other prudential regulators. The Dodd-Frank Act generally transferred these agencies’ rulemaking authority under those laws to the Bureau, which published implementing regulations under its authority, effective beginning December 30, 2011. When examiners observe violations of regulatory requirements, they should cite to the regulation that was in effect at the time the act occurred.
The CFPB has issued policy guidance discussing the above regulations and detailing how the Bureau intends to exercise its supervision and enforcement authority. Below are descriptions and links to two guidance documents regarding mini-correspondent lenders and third-party service providers.
j. As discussed above, some mortgage brokers take on the title of a “mini-correspondent lender” as they transition to correspondent lending. However, just because a party calls itself a “mini-correspondent lender” does not mean that it is automatically exempt from regulations applicable to transactions involving mortgage brokers. See Policy Guidance on Supervisory and Enforcement Considerations Relevant to Mortgage Brokers Transitioning to Mini-Correspondent Lenders (July 9, 2014), CFPB Policy Guidance, http://files.consumerfinance.gov/f/201407_cfpb_guidance_mini-correspondentlenders.pdf.
k. Third-party service providers for supervised banks and non-banks are expected to comply with federal consumer financial law. However, the outsourcing of mortgage origination activities to third-party service providers (e.g., software vendors, mortgage brokers, and settlement agents) does not limit or remove a supervised bank or nonbank’s obligations under consumer financial services law. Supervised banks and nonbanks are expected to oversee their business relationships with service providers in a manner that ensures compliance with federal consumer financial law by all parties. See CFPB Bulletin 2016-0262, Service Providers (October 31, 2016), https://files.consumerfinance.gov/f/documents/102016_cfpb_OfficialGuidanceServicePro viderBulletin.pdf To carry out the objectives set forth in the Examination Objectives section, the examination process also will include assessing other risks to consumers generally prohibited by the Dodd- Frank Act. These risks may include potentially unfair, deceptive, or abusive acts or practices (UDAAPs) with respect to mortgage originators’ interactions with consumers.6
6 Sec. 1036 of the Dodd Frank Act (July 21, 2010).
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 13 Please refer to CFPB’s examination procedures regarding UDAAPs for more information about the legal standards and the CFPB’s approach to examining for UDAAPs. The particular facts in a case are crucial to a determination of unfair, deceptive, or abusive acts or practices. As set out in the Examination Objectives section, examiners should consult with Headquarters to determine whether the applicable legal standards have been met before a violation of any federal consumer financial law can be cited, including a UDAAP violation. General Considerations Completing the following examination modules will allow examiners to develop a thorough understanding of mortgage brokers’ and lenders’ practices and operations. To complete the modules, examiners should obtain and review, as applicable, each entity’s: 1. organizational charts and process flowcharts; 2. board minutes, annual reports, or the equivalent to the extent available; 3. relevant management reporting;
4. policies and procedures;
5. rate sheets;
6. loan applications, verification of information relied on in determining ability to repay; 7. loan account documentation, notes, disclosures, and all other contents of loan underwriting and closing files;
8. operating checklists, worksheets, and review documents; 9. relevant computer program and system details; 10. wholesale and correspondent lending agreements, due diligence and monitoring procedures, and lending procedures;
11. underwriting guidelines; compensation policies; 12. historical examination information;
13. audit and compliance reports; management’s responses to findings; 14. training programs and materials;
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 14 15. service provider contracts;7 16. advertisements; and 17. complaints.
Information requests for mortgage origination examinations are geared towards obtaining the type of information examiners need prior to an examination team’s scheduled on-site review of an institution. The information requests should be tailored to reflect an institution’s specific risk profile or the scope of the particular examination.
Transaction testing should occur for all mortgage origination focused examinations. In selecting a sample of files for transaction testing, examiners should use reasonable sampling methods, which may require use of a judgmental or statistical sample. The sample size selected for transaction testing should reflect the size, product line, and risk profile of the institution and the scope of the examination. The sample size should allow examiners to gain a thorough understanding of the nature of the institution’s mortgage origination business line(s). Examiners should obtain a list of consumer files, as requested in the mortgage origination information requests, and select a valid sample for further review. 1. Consider weighting the sample to review more loans from branches with a larger volume of complaints or product type that presents a greater risk of consumer financial harm. 2. Obtain complete loan files, which contain the disclosures required by federal consumer financial laws and other legal documents, as well as underwriting documents, rate sheets, and all documents provided to and by the consumer.
When on-site, examiners should review the sample of loan origination files to assess an institution’s compliance with the federal consumer financial laws as further described in the individual modules below.
As resources permit, examiners also should conduct interviews with management, staff and third parties to determine whether they understand and consistently follow the policies, procedures, and regulatory requirements applicable to mortgage lending; manage change appropriately, including implementation of new requirements; and implement effective controls. Examiners also should consider observing consumer interactions and, if consumer complaints or the document review indicate potential concerns, interviewing consumers.
7 CFPB issued a bulletin highlighting its expectation that supervised banks and non-banks oversee their business relationships with service providers in a manner that ensures compliance with federal consumer financial law. See CFPB Bulletin 2016-02, Service Providers (October 31, 2016), https://www.consumerfinance.gov/policy-compliance/guidance/supervisoryguidance/compliance-bulletin-and-policy-guidance-2016-02-service-providers.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 15 Examination Procedures Module 1 – Company Business Model Conduct initial interviews for all relevant departments. This may occur during deep-dive meetings held with the institution at the beginning of on-site examination activities. Some of the information outlined below may have already been gathered during the pre-scoping and information gathering portion of the examination.
1. Determine the type of mortgage origination channel(s) used by the entity. Is the entity: a. Acting as a broker;
b. Acting as a correspondent;
c. Lending through a retail system;
d. Lending through a wholesale or correspondent system; or e. Using a combination of these strategies? 2. Determine the funding source(s) the entity uses. 3. Ascertain the product volume, mix, trends, and concentrations across all branches. 4. Review the organizational chart and reporting structure for mortgage loan origination to determine the reporting structure and responsibilities of key managers. 5. Review and list the types of products the entity offers. Determine whether the entity offers hybrid ARMs, interest-only loans, simultaneous second liens, Alt- A loans, or subprime loans. If the entity offers reverse mortgages, determine whether it offers HECMs and, if so, what percentage of the reverse mortgages originated are HECMs. 6. Determine whether the quality control (or audit, as applicable), underwriting, and appraisal functions operate independently of the production function (sales unit). 7. If the examination includes assessment of the entity’s compliance with RESPA: a. Determine whether the entity allows borrowers to choose their title insurer or requires the borrowers to use an affiliated settlement service provider. Please refer to the RESPA examination procedures, Purchase of Title Insurance, 12 CFR 1024.16; Payment or Receipt of Referral or Unearned Fees, 12 CFR 1024.14; and Affiliated Business Arrangements, 12 CFR 1024.15, for more information. b. Assess whether fees, payments, advances, loans, services, discounts, free website advertising, rebate, or other consideration given or received from any settlement service provider may be considered a kickback, unearned fee, or thing of value in
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 16 return for the referral of settlement services business. Please refer to the RESPA examination procedures, 12 CFR 1024.14, for more information. Mini-Correspondent Lenders Some mortgage brokers take on the title of a “mini-correspondent lender” as they transition to correspondent lending. However, just because a party calls itself a “mini-correspondent lender” does not mean that it is automatically exempt from regulations applicable to transactions involving mortgage brokers. Therefore, to determine the true nature of a mini-correspondent: 1. Determine whether the mini-correspondent still acts as a mortgage broker in some transactions, either brokering to the same wholesale lender that supplies the warehouse in of credit or otherwise.
a. If so, determine what distinguishes the mini-correspondent’s mortgage brokerage transactions from its lender transactions.
2. Determine the number of investors the mini-correspondent has available to purchase its loans.
3. Determine whether the mini-correspondent is using a bona fide warehouse line of credit as the source to fund the loans that it originates. a. Determine how thorough the process was for the mini-correspondent to get approved for that warehouse line of credit.
b. Determine whether the mini-correspondent has more than one warehouse line of credit.
c. Determine whether the warehouse lender providing the line of credit affiliated with any of the mini-correspondent’s investors that purchase loans from the minicorrespondent.
d. If the warehouse line of credit is provided by an investor to whom the minicorrespondent will sell loans to, determine whether the warehouse line is a “captive” line (i.e., the mini-correspondent is required to sell the loans to investors providing the warehouse lines or affiliates of the investors). e. Determine what percentage of the mini-correspondent’s total monthly originated volume is sold by the mini-correspondent to the entity providing the warehouse line of credit to the mini-correspondent or to an investor related to the entity providing the warehouse line of credit.
f. Determine whether the mini-correspondent’s total warehouse line of credit capacity bear a reasonable relationship, consistent with correspondent lenders generally, to its size (i.e., its assets or net worth).
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 17 4. Determine what changes the mini-correspondent has made to staff, procedures, and infrastructure to support the transition from mortgage broker to mini-correspondent. 5. Determine what training or guidance has the mini-correspondent received to understand the additional compliance risk associated with being the lender or creditor of a residential mortgage transaction.
6. Determine which entity (mini-correspondent, warehouse lender, or investor) is performing the majority of the mortgage origination activities. a. Determine which entity underwrites the mortgage loan before consummation and otherwise makes the final credit decision.
b. Determine what percentage of the mortgage origination activities (such as the taking of loan applications, loan processing, and pre-consummation underwriting) is being performed by the mini-correspondent or an independent agent of the mini-correspondent.
c. If the majority of the mortgage origination activities are being performed by an investor, determine whether there is a plan in place to transition these activities to the mini-correspondent. Determine what conditions must be met to make this transition.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 18 Module 2 – Advertising and Marketing This module applies to both mortgage brokers and mortgage lenders. Examiners should evaluate the originator’s advertising materials and disclosures across all media, including print, television, radio, telephone solicitation scripts, and electronic media (including the Internet, email, and text messages) for any material misrepresentations. If the entity engages in telemarketing, examiners also should listen to a selection of the sales calls. Finally, examiners should determine whether the entity employs or acts as a third-party lead generator, and should understand the extent of any relationships that the entity has with affiliated or other service providers (i.e., as a broker or agent) to advertise, offer, or provide loans or other products and services. Transaction Testing TILA, Regulation Z 1. Assess compliance with TILA, Advertising Provisions, for advertisements concerning openend accounts. Please refer to the TILA examination procedures, Advertising, regarding 12 CFR 1026.16, for more information.
2. Assess compliance with TILA, Advertising Provisions, for advertisements concerning closed-end loans. Please refer to the TILA examination procedures, Advertising, regarding 12 CFR 1026.24, for more information.
RESPA, Regulation X 1. Assess whether the entity complies with the RESPA Section 8 prohibitions against giving or accepting kickbacks for the referral of settlement service business and a split or portion of unearned fees.8 Please refer to the examination procedures regarding RESPA, 12 CFR 1024.14, for more information.
SAFE Act, Regulation G 1. Assess whether mortgage loan originator employees of depository institutions disclose NMLS numbers on all advertisements, whether those advertisements are made on paper or electronically. (12 CFR 1007.105) FCRA, Regulation V 1. Assess compliance with Fair Credit Reporting Act prescreening obligations. For more information please refer to the FCRA examination procedures on Prescreened Consumer Reports and Opt-Out Notice, Sections 604(c) and 615(d); 15 U.S.C. 1681b(c)
8 If the testing required to complete this procedure has been completed under Module 1, Procedure 8, please refer to those results without repeating the procedure here.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 19 and 15 U.S.C. 1681m(d); and 12 CFR 1022.54, in Module 3 – Disclosures to Consumers and Miscellaneous Requirements.
2. Assess compliance with FCRA’s affiliate marketing rule. Please refer to the FCRA examination procedures, 12 CFR 1022.20 – 1022.27, for more information. Mortgage Acts and Practices, Regulation N (12 CFR 1014.3) 1. For non-depositories and state-chartered credit unions, determine whether advertisements, promotional materials, and other “commercial communications”9 for mortgage credit products contain material misrepresentations, expressly or by implication, of the following:10 f. the interest rate charged for the product, including, but not limited to the amount of interest owed each month that is included in the consumer's payments, loan amount, or total amount due, or whether the difference between the interest owed and the interest paid is added to the total amount due from the consumer (12 CFR 1014.3(a)(1)-(2)); g. the annual percentage rate, simple annual rate, periodic rate, or any other rate (12 CFR 1014.3(b));
h. the existence, nature, or amount of fees or other costs associated with the product, including, but not limited to misrepresentations that no fees are charged (12 CFR 1014.3(c));
i. the existence, cost, payment terms, or other terms associated with any additional product or feature that may be sold with the product, including, but not limited to credit insurance or credit disability insurance (12 CFR (1014.3(d));
j. the terms, amounts, payments, or other requirements related to taxes or insurance associated with the product, including, but not limited to whether separate payment of taxes or insurance are required or the extent to which tax or insurance payments are included in the loan payments, loan amount, or total amount due from the consumer (12 CFR 1014.3(e)(1)-(2));
k. the existence, nature, or amount of prepayment penalties (12 CFR 1014.3(f));
9 The MAP Rule, 12 CFR 1014, which applies to non-banks and state-chartered credit unions, defines “commercial communication” broadly as “any written or oral statement, illustration, or depiction, whether in English or any other language, that is designed to effect a sale or create interest in purchasing goods or services, whether it appears on or in a label, package, package insert, radio, television, cable television, brochure, newspaper, magazine, pamphlet, leaflet, circular, mailer, book insert, free standing insert, letter, catalogue, poster, chart, billboard, public transit card, point of purchase display, film, slide, audio program transmitted over a telephone system, telemarketing script, on-hold script, upsell script, training materials provided to telemarketing firms, program-length commercial (“infomercial”), the internet, cellular network, or any other medium. Promotional materials and items and Web pages are included in the term commercial communication.” 12 CFR 1014.2. 10The MAP Rule lists 19 examples of specific prohibited claims, including the claims described in this item.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 20 l. the variability of interest, payments, or other terms of the product, including but not limited to misrepresentations using the word “fixed” (12 CFR 1014.3(g)); m. comparisons between rates or payments available for a period less than the full length of the product and actual or hypothetical rates or payments (12 CFR 1014.3(h)(1)-(2)); n. product type, including whether the loan amortizes (12 CFR 1014.3(i)); o. amount of the obligation, or the existence, nature, or amount of cash or credit available to the consumer (12 CFR 1014.3(j));
p. existence, number, amount, or timing of any minimum or required payments, including misrepresentations about whether payments are required in a reverse mortgage or other mortgage credit product (12 CFR 1014.3(k));
q. potential for default, including misrepresentations concerning the circumstances when the consumer could default for nonpayment of taxes, insurance, or maintenance, or for failure to meet other obligations (12 CFR 1014.3(l));
r. product effectiveness with respect to debt reduction, elimination, restructuring, or waiver or forgiveness of the debt in whole or in part (12 CFR 1014.3(m)); s. the affiliation of a mortgage credit product or product provider to a governmental entity or other organization (12 CFR 1014.3(n)(1));
t. the relation of a mortgage credit product to a governmental benefit, or that the mortgage credit product advertised is endorsed, sponsored, or affiliated with any government or other program (12 CFR 1014.3(n)(2));
u. the source of any commercial communication, including but not limited to whether the commercial communication is made by or on behalf of the consumer’s current mortgage lender or servicer (12 CFR 1014.3(o));
v. the right of a consumer to reside in the dwelling subject to the mortgage credit product or the duration of that right, including but not limited to what conditions a consumer with a reverse mortgage can stay in the dwelling (12 CFR 1014.3(p)); w. a consumer’s credit qualifications for a particular product or program, including whether the consumer has been preapproved or guaranteed for any such product or term (12 CFR 1014.3(q));
x. the consumer's likelihood to obtain a refinancing or modification, including misrepresentations concerning whether the consumer has been preapproved or guaranteed for refinancing or modification (12 CFR 1014.3(r));
y. the availability, nature, or substance of counseling services, including, but not limited to the qualifications of those offering the services or advice (12 CFR 1014.3(s)).
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 21 2. For non-depositories and state-chartered credit unions, determine whether the entity keeps and maintains records of all advertisements and promotions for a period of twenty-four months from the last date the entity made or disseminated the applicable advertisement or promotion (12 CFR 1014.5(a)).
Other Risks to Consumers - General 1. Determine whether advertisements and promotional materials for mortgage loan products contain misleading representations that a lender or broker is acting in a fiduciary capacity or in the consumer’s best interest.
2. Determine whether advertisements and promotional materials for mortgage loan products clearly disclose all material limitations or conditions on the terms or availability of products or services, such as:
a. special interest rates for a limited time period (teaser rates); b. the expiration date for terms that apply only during an introductory period; c. interest rate resets that could cause significant increases in payments; d. material prerequisites for obtaining particular products, services, or benefits (e.g., discounts, refunds or rebates);
e. non-amortizing or less-than-fully amortizing loan terms; f. balloon payments; or g. prepayment penalties.
3. Determine whether advertisements and promotional materials avoid using fine print, separate statements, or inconspicuous disclosures to correct potentially misleading headlines. 4. If additional products or services are sold or offered in connection with the loan, such as credit insurance products, home warranties, or annuities, determine whether advertisements and promotional materials provide timely, clear, and understandable information about the existence of costs, payment terms, penalties, or other terms and charges, the reasons for their imposition, and the salesperson’s compensation from cross-sales. 5. Determine the target audience for each type of advertisement and product. Assess whether the entity designs advertisements, promotional materials, disclosures and scripts to be comprehensible by the target audience.
Please refer to the UDAAP examination procedures, Marketing and Disclosures, for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 22 Other Risks to Consumers – Non-traditional Mortgage Loans 1. Determine whether advertisements and promotional materials: a. Provide timely, clear, and understandable information about the costs, key terms, and features associated with non-traditional mortgage loans, including information about balloon clauses, negative or less than full amortization, prepayment penalties, and the cost of reduced documentation that are important in enabling the consumer to make an informed decision whether the product meets the consumer’s needs. Please refer to the UDAAP examination procedures, Marketing and Disclosures, for more information.
Other Risks to Consumers – Reverse Mortgages 1. Determine whether the entity offers or receives compensation from those offering other financial products, like an annuity or long-term care insurance, to be paid for with the proceeds of the reverse mortgage. If so, determine whether the entity provides timely, clear, and understandable information about these products.
2. Determine whether the entity provides timely, clear, and understandable information about the costs and relative risks of reverse mortgages.
3. Determine whether the entity provides timely, clear, and understandable information about the requirements to pay property taxes, insurance, utilities, maintenance, and other expenses after obtaining a reverse mortgage.
4. Determine whether the entity provides timely, clear, and understandable information about the circumstances under which the borrower may be required to pay the loan in full. 5. Determine whether the entity provides timely, clear, and understandable information about the ability of a non-borrowing spouse to stay in the home if the borrowing spouse no longer resides there or passes away, if applicable.
6. Determine whether the entity provides timely, clear, and understandable information regarding the ability of the borrower’s estate or heirs to retain the home after the borrower passes away. 7. Determine whether the entity has adequate safeguards against improper marketing of reverse mortgages to seniors who have medical or cognitive problems or in situations raising concerns about undue influence by third parties.
Please refer to the UDAAP examination procedures, Marketing and Disclosures, for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 23 Module 3 - Loan Originators This module focuses on an entity’s compliance with the compensation, qualification, identification, and policy and procedure requirements for loan originators. Examiners should be prepared to review compensation agreements, tax records, receipts and other appropriate documentation in order to identify all compensation and incentive plans and confirm compliance with the Loan Originator Rule. For the qualification and documentation aspect of the Loan Originator Rule, examiners should be prepared to assess whether loan originators are appropriately registered and are identified on the required documents. For loan originators that are not required to be registered, examiners should be prepared to assess whether background qualification requirements have been met by the institution.
Transaction Testing TILA, Regulation Z Prohibited Payments to Loan Originators (12 CFR 1026.36(d)(1)) 1. Review loan files, loan originator compensation agreements (including incentive programs), payment records, and other applicable records to confirm that loan originators are not receiving prohibited payments. Please refer to the TILA examination procedures Prohibited Payments to Loan Originators, 12 CFR 1026.36(d)(1)(i), for more information. 2. Interview loan originators, including highly compensated loan originators, to verify information obtained from written records provided by the creditor. Please refer to sample questions at the TILA examination procedures Prohibited Payments to Loan Originators, 12 CFR 1026.36(d)(1)(i),end of this module for more information. 3. Assess whether, in connection with a consumer credit transaction secured by a dwelling, no loan originator receives and no person pays to a loan originator, directly or indirectly, compensation that is based on any of the transaction’s terms or a factor that is a proxy for a term. (12 CFR 1026.36(d)(1)(i)).11 Please refer to the TILA examination procedures Prohibited Payments to Loan Originators, 12 CFR 1026.36(d)(1)(i), for more information.
4. Assess whether, in connection with a consumer credit transaction secured by a dwelling, a loan originator receives and a person pays an originator, directly or indirectly, compensation that is based on loan product type.12 Please refer to the TILA examination procedures
11 The amount of credit extended is not deemed to be a transaction term, provided compensation received by or paid to a loan originator, directly or indirectly, is based on a fixed percentage of the amount of credit extended. Such compensation may be subject to a minimum or maximum dollar amount.
12 Compensation based on loan product type often will violate Regulation Z because many “products” in the market refer to different bundles of specific transaction terms. See Loan Originator Compensation Requirements under the Truth in Lending Act
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 24 Prohibited Payments to Loan Originators, 12 CFR 1026.36(d)(1)(i), for more information.
5. Assess whether, in connection with a consumer credit transaction secured by a dwelling, an institution uses point banks, marketing service agreements, or other similar devices to provide prohibited compensation to an individual loan originator based on transaction terms or the terms of multiple transactions conducted by that individual loan originator. Please refer to the TILA examination procedures, Prohibited Payments to Loan Originators, 12 CFR 1026.36(d)(1)(i) for more information.
6. Determine whether creditors and loan originator organizations have retained records related to loan originator compensation and compensation agreements for three years after the date of payment. Please refer to the TILA examination procedures General Procedures, for more information.
7. Assess whether any of the proceeds from a consumer credit transaction secured by a dwelling are placed into an account from which payments are made back to the individual loan originator or an entity owned in whole or part by that individual loan originator and those payments are not reflected on the final settlement statement for the transaction. Please refer to the TILA examination procedures Prohibited Payments to Loan Originators, 12 CFR 1026.36(d)(1)(i), for more information.
8. If loan originators receive compensation pursuant to a non-deferred compensation plan, determine whether the 10 percent total compensation limit applies. If it does, determine whether non-deferred compensation received by the loan originator complies with the 10 percent total compensation limit. Please refer to the TILA examination procedures, Prohibited Payments to Loan Originators, for more information. Prohibition on Dual Compensation (12 CFR 1026.36(d)(2)) 1. Determine whether any loan originator receives compensation directly from a consumer and from any person other than the consumer in a consumer credit transaction secured by a dwelling. Please refer to the TILA examination procedures Prohibition on Dual Compensation regarding Regulation Z, 12 CFR 1026.36(d) for more information. Prohibition on Steering (12 CFR 1026.36(e)) 1. Confirm that, in connection with a consumer credit transaction secured by a dwelling, a loan originator does not direct or “steer” a consumer to consummate a transaction based on the fact that the originator will receive greater compensation from the creditor in that transaction than in other transactions the originator offered or could have offered to the consumer, unless
(Regulation Z), 78 Fed. Reg. 11,279, 11,327 n. 82 (Feb. 15, 2013). See also, 2013 Loan Originator Rule Small Entity Compliance Guide (Feb. 2013), available at https://files.consumerfinance.gov/f/201503_cfpb_2013-loan-originator-rule-smallentity-compliance-guide.pdf.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 25 the consummated transaction is in the consumer’s interest. Please refer to the TILA examination procedures, Prohibition on Steering, 12 CFR 1026.36(e)(1), for more information.
The rule provides a safe harbor to facilitate compliance with the prohibition on steering in 12 CFR 1026.36(e)(1). The loan originator is deemed to comply with the anti-steering prohibition if the consumer is presented with loan options that meet specific conditions for each type of transaction in which the consumer expressed an interest. Loan Originator Qualifications and Documentation (12 CFR 1007, 1008, and 1026.36(f)) 1. Determine whether an individual is a loan originator. Please refer to the SAFE Act Regulations G, 12 CFR 1007.102, and Appendix A, and Regulation H, 12 CFR 1008.103 and its corresponding Appendix A for examples.
2. Determine whether the loan originator organization and its individual loan originators are registered or licensed as required by applicable state and federal law, including the SAFE Act. 3. Determine whether the financial institution’s written policies and procedures comply with SAFE Act requirements and the institution conducts annual independent compliance tests to assure compliance with the SAFE Act regulation.
Please refer to the SAFE Act examination procedures for supervised financial institutions regarding Regulation G, 12 CFR 1007.104. For loan originators required to be registered under state law, see Regulation Z, 12 CFR 1026.36(f). 4. Determine whether the loan originator organization, including a creditor: a. complies with state law qualification requirements for legal existence and foreign qualification, to the extent applicable;
b. ensures its individual loan originators are licensed and/or registered to the extent required under the SAFE Act and state law; and 5. Determine whether the loan originator organization, for individual loan originator employees who are not licensed and do not have to be licensed, prior to acting as loan originators: a. obtains, among other things, a criminal background check, a credit report, and information about administrative, civil or criminal findings; b. makes certain determinations, including financial responsibility, where applicable; and c. provides periodic training.
6. Confirm that the NMLSR ID information for the loan originator organization and the primary individual loan originator is disclosed on the credit application; the Loan Estimate and the Closing Disclosure; the note or loan contract; and the security instrument.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 26 Please refer to the TILA examination procedures Loan Originator Qualifications and Documentation regarding Regulation Z, 12 CFR 1026.36(f).
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 27 Module 4 – Loan Disclosures and Terms - Closed-End Residential Mortgage Loans This module focuses on the disclosures required for closed-end residential transactions subject to the TILA-RESPA Integrated Disclosure rule, effective October 3, 2015. The Loan Estimate and Closing Disclosure (collectively, Integrated Disclosures) are required for most closed-end loans secured by a dwelling for which applications are received on or after the effective date. Examiners should obtain and review a sample of complete loan files to assess the entity’s compliance. If consumer complaints regarding mortgage origination and closing indicate potential violations of disclosure requirements, examiners may also conduct interviews of consumers from the sample and ask questions relevant to each topic area below. Transaction Testing Loan Estimate TILA, Regulation Z Estimates Prior to the Loan Estimates (12 CFR 1026.19(e)(2)) 1. If the creditor has provided the consumer with a written estimate of terms or costs prior to delivery of the Loan Estimate, determine whether:
a. the creditor clearly and conspicuously states on the first page, in no smaller than 12-point font, “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan,” and b. the estimate does not use a format or content substantially similar to the Loan Estimate (form H-24 of Appendix H).
Please refer to the TILA examination procedures, Pre-Disclosure Activity, for more information. 2. Determine whether the creditor or mortgage broker imposed a fee (other than for a credit report) before the consumer received the Loan Estimate and indicated intent to proceed with the transaction. Please refer to the TILA examination procedures, Pre-Disclosure Activity, for more information.
Timing (12 CFR 1026.19(e)(1)(iii)) 1. Determine whether the Loan Estimate was delivered or placed in the mail no later than three business days after receipt of the consumer’s application. Please refer to the TILA examination procedures, Mortgage Loans Secured by Real Property – Early Disclosures (Loan Estimate), 12 CFR 1026.19: Timing, for more information. 2. Determine whether the Loan Estimate was delivered or placed in the mail no later than seven business days before consummation of the transaction (other than a timeshare transaction).Please refer to the TILA examination procedures, Mortgage Loans
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 28 Secured by Real Property – Early Disclosures (Loan Estimate), 12 CFR 1026.19: Timing, for more information.
3. If the consumer waived the seven business day waiting period, determine whether the creditor obtained a dated written statement describing the personal financial emergency, modifying or waiving the waiting period, and containing signatures by all consumers who are primarily liable on the obligation. Please refer to the TILA examination procedures, Mortgage Loans Secured by Real Property – Early Disclosures (Loan Estimate), 12 CFR 1026.19: Timing, for more information.
Accurate Completion of the Loan Estimate (12 CFR 1026.37) 1. Determine whether the creditor accurately disclosed the Loan Estimate disclosures on Page 1 of the Loan Estimate. Please refer to the TILA examination procedures, Loan Estimate, 12 CFR 1026.37(a), for more information.
2. Determine whether the creditor has accurately calculated, including compliance with rounding rules, and completed the Loan Terms table on Page 1 of the Loan Estimate. Please refer to the TILA examination procedures, Loan Terms – 12 CFR 1026.37(b) and Form of Disclosures, 12 CFR 1026.37(o), for more information. 3. Determine whether the creditor has accurately calculated, including compliance with rounding rules, and completed the Projected Payments table on Page 1 of the Loan Estimate. Please refer to the TILA examination procedures, Projected Payments, 12 CFR 1026.37(c) and Form of Disclosures, 12 CFR 1026.37(o), for more information. 4. Determine whether the creditor has accurately completed the Costs at Closing table on Page 1 of the Loan Estimate. If reviewing a transaction without a seller, determine whether the creditor or mortgage broker used the alternative Cash to Close table. Please refer to the TILA examination procedures, Costs at Closing, 12 CFR 1026.37(d), for more information.
5. Determine whether the creditor discloses that the consumer may obtain general information and tools on the Bureau’s website and has included a link to the site specified in 12 CFR 1026.37(e). Please refer to the TILA examination procedures, Website Disclosure, 12 CFR 1026.37, for more information.
6. Determine whether the creditor accurately itemized, including compliance with rounding rules, the transaction’s loan closing costs on Page 2 of the Loan Estimate. Please refer to the TILA examination procedures, Closing Cost Details: Loan Costs, 12 CFR 1026.37(f) and Form of Disclosures, 12 CFR 1026.37(o), for more information. 7. Determine whether the creditor accurately itemized, including compliance with rounding rules, the transaction’s other closing costs on Page 2 of the Loan Estimate. Please refer to the TILA examination procedures, Closing Cost Details: Other Costs, 12 CFR 1026.37(g) and Form of Disclosures, 12 CFR 1026.37(o), for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 29 8. Determine whether the creditor accurately itemized, including compliance with rounding rules, the amount of cash or funds required from the consumer at closing on Page 2 of the Loan Estimate. Please refer to the TILA examination procedures, Closing Cost Details: Calculating Cash to Close, 12 CFR 1026.37(h) and Form of Disclosures, 12 CFR 1026.37(o), for more information.
9. For a transaction without a seller, determine whether the creditor used the alternative Cash to Close table. If so, please refer to the TILA examination procedures, Closing Cost Details: Alternative Calculating Cash to Close Table for Transactions without a Seller, 12 CFR 1026.37(h)(2), for more information.
Adjustable Payment (12 CFR 1026.37(o)) 1. If the loan includes an adjustable payment feature (e.g., interest only, optional payments, step or seasonal payments), determine whether the creditor included and accurately completed, including compliance with rounding rules, the adjustable payment table. Please refer to the TILA examination procedures, Closing Cost Details: Adjustable Payment (AP) Table, 1026.37(i) and Form of Disclosures, 12 CFR 1026.37(o), for more information. Adjustable Rate Mortgage (12 CFR 1026.37(j)) 1. If the loan includes an adjustable interest rate, determine whether the creditor included and accurately completed the adjustable interest rate table. Please refer to the TILA examination procedures, Closing Cost Details: Adjustable Interest Rate (AIR) Table, 12 CFR 1026.37(j), for more information.
NMLSR Information (12 CFR 1026.37(k)) 1. Determine whether the creditor correctly completed the NMLSR information for the transaction including information for the individual loan originator who is the primary contact for the consumer at the mortgage broker if the consumer is uses a mortgage broker. Please refer to the TILA examination procedures, Additional Information About This Loan, 12 CFR 1026.37(k), for more information.
2. Determine whether the creditor accurately calculated and itemized, including compliance with rounding rules, the appropriate comparison information. Please refer to the TILA examination procedures, Additional Information About This Loan: Comparisons, 12 CFR 1026.37(l) and Form of Disclosures, 12 CFR 1026.37(o), for more information. Additional Disclosures on the Loan Estimate (12 CFR 1026.37(m)) 1. Determine whether the creditor has provided the disclosures regarding appraisal, assumption, homeowner’s insurance, late payments, refinancing, servicing of the loan, liability after foreclosure, and construction loans. Please refer to the TILA examination procedures, Additional Information About This Loan: Other Considerations, 12 CFR 1026.37(m) for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 30 Confirmation of Receipt (12 CFR 1026.37(n)) 1. Assess whether the creditor has chosen to have the consumer sign the receipt of the Loan Estimate. Determine whether the creditor has included all required language. If the creditor has not chosen to include a signature line, determine whether the creditor has included the label “Loan Acceptance” and the appropriate language. Please refer to the TILA examination procedures, Additional Information About This Loan: Confirm Receipt, 12 CFR 1026.37(n) for more information.
Revised Loan Estimate (12 CFR 1026.19(e)(3)(iv)) 1. If a revised or corrected Loan Estimate(s) was provided to the consumer, determine whether an appropriate changed circumstance occurred that affects settlement charges; the consumer’s eligibility; credit terms or settlement as requested by the consumer; points or lender credits due to rate lock; or because the initial Loan Estimate expired. Please refer to the TILA examination procedures, Revised Loan Estimates, for more information. Interest Rate Lock (12 CFR 1026.19(e)(3)(iv)(D)) 1. If the interest rate was locked, determine whether the creditor provided a revised Loan Estimate, including the revised interest rate, any points paid to reduce the interest rate, lender credits, and any other interest rate dependent charges and terms within three business days after the rate has been locked. Please refer to the TILA examination procedures, Revised Loan Estimates, for more information.
Timing Prior to Closing (12 CFR 1026.19(e)(4)) 1. If a revised Loan Estimate(s) was provided to the consumer, determine whether it was provided after a consumer received a Closing Disclosure form. Determine whether the revised or corrected Loan Estimate was delivered or placed in the mail no later than four business days before consummation of the transaction. Please refer to the TILA examination procedures, Provision and Receipt of Revised Disclosures for more information.
Closing Disclosure TILA, Regulation Z Timing (12 CFR 1026.19(f)(1)) 1. Determine whether the Closing Disclosure (form H-25 of Appendix H) was delivered or placed in the mail no later than three business days before consummation of the consumer’s transaction. Please refer to the TILA examination procedures, Mortgage Loans Secured by Real Property – Final Disclosures (Closing Disclosures), 12 CFR 1026.19(f), for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 31 2. If the consumer waived the three-business-day waiting period, determine whether the creditor obtained a dated written statement describing the personal financial emergency, modifying or waiving the waiting period, and containing signatures by all consumers who are primarily liable on the obligation. Please refer to the TILA examination procedures, Mortgage Loans Secured by Real Property, Final Disclosures (Closing Disclosures), 12 CFR 1026.19(f), for more information.
Accurate Completion of Closing Disclosure (12 CFR 1026.38) 1. Determine whether the creditor accurately disclosed the Closing Information disclosures on Page 1 of the Closing Disclosure. Please refer to the TILA examination procedures, Closing Information, 12 CFR 1026.38(a)(3), for more information. If a transaction does not have a seller, determine whether the creditor included the appraised property value, using the term “Estimated Prop. Value.”
2. Determine whether the creditor accurately disclosed the Transaction Information disclosures on page 1 of the Closing Disclosure. Please refer to the TILA examination procedures, Transaction Information, 12 CFR 1026.38(a)(4), for more information. 3. Determine whether the creditor accurately disclosed the Loan Information disclosures on page 1 of the Closing Disclosure. Please refer to the TILA examination procedures, Loan Information, 12 CFR 1026.38(a)(5), for more information. 4. Determine whether the creditor has accurately calculated, including compliance with rounding rules, and completed the Loan Terms table on Page 1 of the Closing Disclosure. Please refer to the TILA examination procedures, Loan Terms, 12 CFR 1026.38(b) and Form of Disclosures, 12 CFR 1026.38(t), for more information. 5. Determine whether the creditor has accurately calculated, including compliance with rounding rules, and completed the Projected Payments table on Page 1 of the Closing Disclosure. Please refer to the TILA examination procedures, Projected Payments, 12 CFR 1026.38(c) and Form of Disclosures, 12 CFR 1026.38(t), for more information. 6. Determine whether the creditor has accurately completed the Costs at Closing table on Page 1 of the Closing Disclosure. If reviewing a transaction that does not have a seller, determine whether the creditor chose to use the alternative calculating Cash to Close table and accurately determined the amount due from or to the consumer. Please refer to the TILA examination procedures, Costs at Closing, 12 CFR 1026.38(d), for more information. 7. Determine whether the creditor accurately disclosed all loan costs associated with the loan transaction. Costs must be noted as either being paid at or before closing and whether they were paid by the borrower, the seller, or others. Please refer to the TILA examination procedures, Closing Costs Details: Loan Costs, 12 CFR 1026.38(f), for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 32 8. Determine whether the creditor accurately disclosed all other costs associated with the loan transaction. Costs must be noted as either being paid at or before closing and whether they were paid by the borrower, the seller, or others. Please refer to the TILA examination procedures, Closing Costs Details: Other Costs, 12 CFR 1026.38(g), for more information.
9. Determine whether the creditor accurately disclosed the borrower’s total closing costs. The creditor must disclose the total closing costs, the closing costs subtotals, and any applicable lender credits. Lender credits must be displayed as a negative number. Please refer to the TILA examination procedures, Closing Costs Details: Total Closing Costs, 12 CFR 1026.38(h), for more information.
10. Determine whether the creditor accurately compares the final amounts listed in the Calculating Cash to Close table to amounts previously disclosed and includes a notation of whether the amount changed prior to closing. Please refer to the TILA examination procedures, Calculating Cash to Close, 12 CFR 1026.38(i), and Form of Disclosures, 12 CFR 1026.38(t), for more information.
11. For a transaction that does not involve a seller, determine whether the creditor used the alternative Calculating Cash to Close table on the Loan Estimate. If so, determine whether the creditor accurately compares the amounts listed in the alternative Calculating Cash to Close table. Please refer to the TILA examination procedures, Alternative Cash to Close Table for Transactions Without a Seller, 12 CFR 1026.38(e) and Form of Disclosures, 12 CFR 1026.38(t), for more information.
12. Determine whether the creditor accurately completes the summary of the borrower’s transaction and that all amounts are correct. Please refer to the TILA examination procedures, Summaries of Transactions: Borrower’s Transaction, 12 CFR 1026.38(j), for more information.
13. Determine whether the creditor accurately completes the summary of the seller’s transaction and that all amounts are correct. Please refer to the TILA examination procedures, Summaries of Transactions: Seller’s Transaction, Section 12 CFR 1026.38(k), for more information. 14. For a transaction that does not involve a seller, determine whether the creditor used the optional Payoffs and Payments table and accurately completed the table to reflect the amounts paid to other parties from the loan proceeds. Please refer to the TILA examination procedures, Payoffs and Payments table for Transactions without a Seller, 12 CFR 1026.38(t)(5)(vii)(B), for more information.
15. Determine whether the creditor completes accurately all required components under the Loan Disclosures section. Please refer to the TILA examination procedures, Additional Information About This Loan: Loan Disclosures, 12 CFR 1026.38(l), for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 33 Adjustable Payment Table (12 CFR 1026.38(t)) 1. If the loan includes an adjustable payment feature (e.g., interest only, optional payments, step or seasonal payments), determine whether the creditor included and accurately completed, including compliance with rounding rules, an Adjustable Payment (AP) Table as disclosed on the Loan Estimate. Please refer to the TILA examination procedures, Additional Information About This Loan: Adjustable Payment (AP) Table, 12 CFR 1026.38(m) and Form of Disclosures, 12 CFR 1026.38(t), for more information. Adjustable Interest Rate Table (12 CFR 1026.38(n), (o)) 1. If the loan includes an adjustable interest rate, determine whether the creditor included and accurately completed the Adjustable Interest Rate (AIR) Table as disclosed on the Loan Estimate. Please refer to the TILA examination procedures, Additional Information About This Loan: Adjustable Interest Rate (AIR) Table, 12 CFR 1026.38(n), for more information.
2. Determine whether the creditor accurately calculated and completed the Loan Calculations section on page 5 of the Closing Disclosure. Please refer to the TILA examination procedures, Loan Calculations, 12 CFR 1026.38(o), for more information. Other Disclosures (12 CFR 1026.38(p)) 1. Determine whether the creditor includes the disclosures required in the Other Disclosures section on page 5 of the Closing Disclosure, including the consumer’s liability after foreclosure, and as required, the appropriate loan acceptance language. Please refer to the TILA examination procedures, Other Disclosures, 12 CFR 1026.38(p), for more information. Questions (12 CFR 1026.38(q)) 1. Determine whether the creditor includes a separate questions notice, containing all the information required and formatted per the regulation. Please refer to the TILA examination procedures, Questions Notice, 12 CFR 1026.38(q). NMLSR (12 CFR 1026.38(r)) 1. Determine whether the creditor provides contact and NMLSR information for all relevant parties, including, as applicable, the Lender, the Mortgage Broker, the Real Estate Broker(s) and the Settlement Agent. Please refer to the TILA examination procedures, Contact Information, 12 CFR 1026.38(r), for more information. Confirm Receipt (12 CFR 1026.38(s)) 1. Assess whether the creditor has chosen to have the consumer sign the receipt of the Loan Estimate. Determine whether the creditor has included all required language. Please refer to the TILA examination procedures, Confirm Receipt, 12 CFR 1026.38(s), for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 34 Revised Closing Disclosure (12 CFR 1026.19(f)(2)) 1. Determine whether a revised or corrected Closing Disclosure was provided to the consumer due to an inaccurate APR, a change to the loan product, or the addition of a pre-payment penalty. Confirm that the consumer received the revised or corrected Closing Disclosure three business days prior to consummation of the transaction. Please refer to the TILA examination procedures, Subsequent Changes, for more information. If the consumer waived the three-business-day waiting period, confirm that the creditor received a written statement of a bona-fide personal emergency. Please refer to the TILA examination procedures, Provision of Closing Disclosures, for more information. 2. If a revised or corrected Closing Disclosure was provided to the consumer for any other changes in loan terms or costs, confirm that the creditor provided the revised or corrected disclosure at or before consummation. Please refer to the TILA examination procedures, Subsequent Changes, for more information.
3. Confirm that the creditor does not exceed acceptable tolerance limits for the closing costs disclosed in the Closing Disclosure. Please refer to the TILA examination procedures, Subsequent Changes, for more information.
Tolerance Cure (12 CFR 1026.19(f)(2)(v)) 1. If closing costs exceed acceptable tolerances, determine whether the creditor provided refunds to the consumer within 60 calendar days after consummation. Please refer to the TILA examination procedures, Subsequent Changes, for more information. Providing a refund within 60 calendar days cures the tolerance violation. Revised or Corrected Closing Disclosure (12 CFR 1026.19(f)(2)(iii)) 1. Determine whether the creditor was required to provide a revised or corrected Closing Disclosure within 30 calendar days after consummation due to an inaccuracy or change in amount paid by the consumer. Please refer to the TILA examination procedures, Subsequent Changes, for more information.
Additional Disclosures TILA, Regulation Z 1. If the creditor allows consumers to shop for settlement services, determine whether the creditor provided the consumer with a written list of available settlement service providers within three business days after receipt of the consumer’s application. Please refer to the TILA examination procedures, Shopping for Settlement Service Providers, for more information. 2. Determine whether each borrower received two (2) copies of the notice of the right to rescind required by Regulation Z for a non-purchase money loan secured by a principal dwelling. Please refer to the TILA examination procedures, Closed-End Credit Transactional Testing Procedures and Open-End Credit Transactional Testing Procedures for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 35 3. If reviewing a purchase transaction, determine whether the creditor or mortgage broker provided the consumer with the “Your home loan toolkit: A step-by-step guide” within three business days of receiving the consumer’s application. If the application was denied before the end of the three-day period, providing the booklet is not required. 4. If reviewing an adjustable rate mortgage, determine whether the creditor or mortgage broker provided the consumer with the Consumer Handbook on Adjustable Rate Mortgages (CHARM) booklet.
RESPA, Regulation X 1. For mortgage lenders, determine whether the lender complies with RESPA List of Homeownership Counseling Organizations requirements. Please refer to the RESPA examination procedures, 12 CFR 1024.20, for more information. 2. For any person making a referral to an entity that is part of an affiliated business arrangement, determine whether the entity complies with RESPA requirements for affiliated business arrangements. Please refer to the RESPA examination procedures, 12 CFR 1024.15, for more information.
Homeowners Protection Act 1. Determine whether the entity provided a notice to the borrower of the borrower’s ability to terminate private mortgage insurance. Please refer to the examination procedures regarding the Homeowners Protection Act for more information. Loans Terms TILA, Regulation Z 1. Determine whether agreements for consumer transactions secured by a dwelling contain terms that require arbitration or whether terms have been applied or interpreted to bar a consumer from bringing a claim in court. Please refer to TILA examination procedures on Prohibition on Mandatory Arbitration Clauses and Waiver of Certain Consumer Rights, 12 CFR 1026.36(h).
2. Determine whether a creditor finances, directly or indirectly, premiums or fees for credit insurance. Please refer to TILA examination procedures on Prohibition on Financing Credit Insurance, 12 CFR 1026.36(i).
Other Risks to Consumers 1. Compare Loan Estimates and Closing Disclosures for evidence of misrepresentations or other unfair, deceptive, or abusive acts or practices related to the interest rate, points, closing costs, the loan product, or the loan’s features. Please refer to the UDAAP examination procedures, Availability of Terms or Services as Advertised, for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 36 2. Determine whether there are instances where consumers lose their rate locks prior to their expiration, resulting in the consumer being placed in more expensive mortgage products, despite obtaining a rate lock and submitting all required documentation within required time frames. Please refer to the UDAAP examination procedures, Availability of Terms or Services as Advertised, for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 37 Module 5 – Loan Disclosures and Terms - Other Residential Mortgage Loans This module focuses on the disclosures required for closed- and open-end residential transactions that are not subject to the TILA-RESPA Integrated Disclosure rule. These transactions include reverse mortgages, HELOCs, and chattel-dwelling loans (e.g., loans secured by a mobile home or by a dwelling that is not attached to real property).They also include closed-end residential mortgages where the application was received prior to October 3, 2015, the effective date for the TILA-RESPA Integrated Disclosure requirements. The disclosures required for these loans include TILA disclosures, GFEs, HUD-1/HUD-1-A, the affiliated business arrangement disclosure, and servicing transfer notices. During transaction testing, examiners should identify acts, practices, and materials that indicate potential violations of federal consumer financial laws. Transaction Testing Disclosures TILA, Regulation Z 1. For closed-end transactions, determine whether TILA disclosures are timely provided. Please refer to the TILA Examination Procedures, Disclosures, Generally – Timing, for more information.
2. For open-end transactions, determine whether the TILA disclosures are timely provided. Please refer to the TILA examination procedures, Timing Requirements – Open-End Credit, for more information.
3. For reverse mortgages, determine whether TILA disclosures are timely provided. Please refer to the TILA examination procedures, Timing Requirements – Closed-End Credit Secured by a Dwelling, for more information.
4. Assess whether the creditor has accurately calculated and disclosed the amount financed as required pursuant to 12 CFR 1026.18(b). Please refer to the TILA narrative, Subpart C, Finance Charge, Amount Financed and APRs for more information. 5. Assess whether the creditor has accurately calculated and disclosed the finance charge. Please refer to the TILA narrative, Subpart C, Finance Charge, Amount Financed and APRs for more information.
6. Assess whether the creditor has accurately calculated and disclosed the annual percentage rate (APR). Please refer to the TILA narrative, Subpart C, Finance Charge, Amount Financed and APRs; and the TILA examination procedures, Closed-End Transactions Not Subject to 12 CFR 1026.19(e) and (f), for more information. 7. Assess whether the creditor has accurately completed all payment schedules, rate schedules, and/or payment summary tables, as applicable. Please refer to the TILA narrative, Subpart
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 38 C, Finance Charge, Amount Financed and APRs and the TILA examination procedures, Closed-End Transactions Not Subject to 12 CFR 1026.19(e) and (f), for more information.
8. Determine whether each borrower received two (2) copies of the notice of the right to rescind required by Regulation Z for a non-purchase money loan secured by a principal dwelling. Please refer to the TILA examination procedures, Closed-End Credit Transactional Testing Procedures and Open-End Credit Transactional Testing Procedures for more information.
RESPA, Regulation X Under RESPA and its implementing regulation, Regulation X, the lender/creditor is responsible for providing the Good Faith Estimate (GFE) and the “Your home loan toolkit: A step-by-step guide” (Settlement Cost Booklet) (see 12 CFR 1024.6). The regulations permit the mortgage broker to provide the disclosures, but the lender must ascertain whether the GFE has been provided.
1. During an examination of a mortgage broker, examiners should determine whether it has agreed to provide the GFE and Booklet and if so, whether it is doing so. 2. For mortgage lenders, determine whether the lender complies with RESPA GFE requirements. Please refer to the RESPA examination procedures, 12 CFR 1024.7, for more information.
3. For mortgage lenders, determine whether the creditor or mortgage broker provided the consumer financing a home purchase with the “Your home loan toolkit: A step-by-step guide” within three business days of receiving the consumer’s application. If the application was denied before the end of the three-day period, providing the booklet is not required. Please refer to the RESPA examination procedures, 12 CFR 1024.6, for more information.
4. Assess whether the consumer has been charged a fee for an appraisal, inspection, or other similar settlement service prior to receiving the GFE and indicating an intention to proceed with the transaction. Please refer to the RESPA narrative, GFE Application Requirements, for more information.
5. For mortgage lenders, determine whether the lender complies with RESPA List of Homeownership Counseling Organizations requirements. Please refer to the RESPA examination procedures, 12 CFR 1024.20, for more information. 6. For any person making a referral to an entity that is part of an affiliated business arrangement, determine whether the entity complies with RESPA requirements for affiliated business arrangements. Please refer to the RESPA examination procedures, 12 CFR 1024.15, for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 39 7. For mortgage lenders, brokers, or dealers, determine whether the entity complies with RESPA requirements for providing the notice stating whether the servicing of the loan may be transferred. Please refer to the RESPA examination procedures, 12 CFR 1024.33, for more information.
8. Review the final settlement statement (HUD-1 or HUD-1A) and assess compliance with RESPA disclosure requirements and tolerance limits on settlement charges. Please refer to the RESPA examination procedures, 12 CFR 1024.8, for more information. 9. If escrow accounts were established, determine whether the borrower received an initial escrow account statement. Please refer to the RESPA examination procedures, 12 CFR 1024.17, for more information.
Homeowners Protection Act 1. Determine whether the entity provided a notice to the borrower of the borrower’s ability to terminate private mortgage insurance (PMI). Please refer to the examination procedures regarding the Homeowners Protection Act for more information. Reverse Mortgages 1. If the entity originates reverse mortgage loans, assess compliance with TILA provisions concerning those mortgage loans. Please refer to the TILA examination procedures for Reverse Mortgages, 12 CFR 1026.33, for more information. Loans Terms 1. Determine whether agreements for consumer transactions secured by a dwelling contain terms that require arbitration or whether terms have been applied or interpreted to bar a consumer from bringing a claim in court. Please refer to TILA examination procedures on Prohibition on Mandatory Arbitration Clauses and Waiver of Certain Consumer Rights, 12 CFR 1026.36(h).
2. Determine whether a creditor finances, directly or indirectly, premiums or fees for credit insurance. Please refer to TILA examination procedures on Prohibition on Financing Credit Insurance, 12 CFR 1026.36(i).
Other Risks to Consumers 1. Compare the initial and subsequent GFEs and TILA disclosures with final HUD-1 settlement statements and final TILA disclosures for any evidence of unfair, deceptive, or abusive acts or practices with respect to the interest rate, points, closing costs, or the loan product or loan features. Please refer to the UDAAP examination procedures, Availability of Terms or Services as Advertised for more information.
2. Determine whether there are instances where consumers lose their rate locks prior to their expiration, resulting in the consumer being placed in more expensive mortgage products,
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 40 despite obtaining a rate lock and submitting all required documentation within required time frames. Please refer to the UDAAP examination procedures, Availability of Terms or Services as Advertised, for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 41 Module 6 - Appraisals This module focuses on an entity’s practices in connection with appraisals. Examiners should focus their transaction testing on whether an entity is meeting compliance obligations related to required appraisals for certain types of loans.
Transaction Testing TILA, Regulation Z 1. For higher-priced mortgages that are not exempt from the appraisal requirement, determine whether the creditor obtained a written appraisal performed by a certified or licensed appraiser prior to consummation of the transaction. Please refer to the TILA examination procedures, Higher-Priced Mortgage Loans: Appraisals, for more information. 2. For certain higher-priced mortgage loans, determine whether the creditor properly assessed and, if required, obtained two written appraisals before consummation of the transaction. Please refer to the TILA examination procedures, Higher-Priced Mortgage Loans: Appraisals, for more information.
3. Determine whether the creditor provides a copy of each written appraisal no later than three business days prior to consummation of the loan or, if the loan is not consummated, no later than 30 days after that determination is made. Please refer to the TILA examination procedures, Higher-Priced Mortgage Loans: Appraisals, for more information. 4. Determine whether the lender complies with the Regulation Z requirements for valuation independence. Please refer to the TILA examination procedures, Valuation Independence, 12 CFR 1026.42, for more information.
ECOA, Regulation B 1. Determine whether the regulated entity provides copies of appraisals and other written valuations developed in connection with an application for credit to be secured by a first lien on a dwelling to applicants in accordance with Regulation B, 12 CFR 1002.14. Please refer to the ECOA examination procedures, 12 CFR 1002.14(a), for more information. Other Risks to Consumers 1. Determine whether practices of the mortgage lender or its employees undermine appraisal independence. Please refer to the UDAAP examination procedures, Employees and Third Parties Interacting with Consumers, for more information. 2. Confirm that the entity maintains adequate oversight of the appraisers it uses (including termination where necessary) and safeguards against appraisal fraud. Please refer to the UDAAP examination procedures, Employees and Third Parties Interacting with Consumers, for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 42 Module 7 – Underwriting This module focuses on an entity’s underwriting practices. Examiners should focus their transaction testing on whether an entity is meeting ability-to-repay (ATR) underwriting obligations—specifically, the institution made a reasonable, good faith determination of a reasonable consumer’s ability to repay the loan according to its terms. Examiners should be prepared to confirm an institution’s reliance on third-party records to verify ability-to-repay factors. Examiners should also determine if high-cost or higher-priced mortgages are being made and assess the origination of these loans for compliance with the TILA. Transaction Testing This section of the Procedures applies only to mortgage lenders, not mortgage brokers. TILA, Regulation Z Ability-to-Repay Mortgages (12 CFR 1026.43(c)) 1. Determine whether the lender meets the requirement to consider ATR for consumer-purpose, closed-end loans secured by a dwelling. Review the documentation used to make underwriting decisions, including applications, tax returns, verifications of income, assets, and employment, credit reports, and all other required documentation. Please refer to the TILA examination procedures, Minimum Standards for Transactions Secured by a Dwelling, 12 CFR 1026.43, and Ability to Repay, 12 CFR 1026.43(c), for more information.
2. Review a sample of loans that have been indemnified, repurchased, determined unsalable, or rejected during the review period. Assess the loans for compliance with ability-to-repay requirements. Please refer to the TILA examination procedures, Ability-to-Repay, 12 CFR 1026.43(c), for more information.
3. Review a sample of loans that have become delinquent within the first year during the review period. Assess the loans for compliance with ability-to-repay requirements. Please refer to the TILA examination procedures, Ability-to-Repay, 12 CFR 1026.43(c), for more information.
4. For loans made using automated underwriting systems, determine whether the originator entered the correct inputs and that all of the conditions on the feedback certificate were satisfied and documented before the loan was funded.
Qualified Mortgages (QMs) (12 CFR 1026.43(e)) 1. If the creditor originates General QMQM loans as a way to meet TILA’s ability-to-repay requirements, determine whether these loans directly meet the ATR requirements under 12 CFR 1026.43(c), or
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 43 a. Determine whether the QM loans contain all terms necessary for qualified mortgages and no prohibited terms. Please refer to the TILA examination procedures, Qualified Mortgages 12 CFR 1026.43(e), for more information;
b. Assess whether the points and fees are within the required limits. Please refer to the TILA examination procedures, Qualified Mortgages, 12 CFR 1026.43(e), for more information;
c. Determine whether the annual percentage rate does not exceed the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set by the amounts specified in 12 CFR 1026.43(e)(2)(vi). Please refer to the TILA examination procedures, Qualified Mortgages, 12 CFR 1026.43(e), for more information.13 2. If the creditor originates Agency QM loans, determine: a. Whether there is evidence in the loan file that the loan is eligible for purchase, insurance, or guarantee by (1) the GSEs (if operating under conservatorship and the consumer application is received by the creditor prior to October 1, 2022) or (2) the appropriate government agency. Please refer to the TILA examination procedures for Qualified Mortgages – Other Agencies, 12 CFR 1026.43(e)(4) and Qualified Mortgages, 12 CFR 1026.43(e), for more information;
b. Whether the loans contain any prohibited terms. Please refer to the TILA examination procedures for Qualified Mortgages – Other Agencies, 12 CFR 1026.43(e)(4) and Qualified Mortgages 12 CFR 1026.43(e), for more information; c. Whether the loans meet the requirements of 12 CFR 1026.43(e)(2)(i) through (iii) (i.e., have substantially equal, periodic payments; restrictions on loan features; a maximum 30-year term; and points and fees—generally limited to a 3 percent threshold). Please refer to the TILA examination procedures for Qualified Mortgages – Other Agencies, 12 CFR 1026.43(e)(4) and Qualified Mortgages, 12 CFR 1026.43(e), for more information; d. Whether any Agency QM loans that the creditor is required to indemnify or repurchase after consummation met the ATR requirements. Please refer to the TILA examination procedures, Ability-to-Repay, 12 CFR 1026.43(c), for more information. 3. For qualified mortgages consummated on or before January 10, 2021, where the points and fees exceeded the applicable threshold and the creditor attempted to cure the error, determine that the creditor reimbursed the appropriate amount
13 This subsection applies if the creditor chooses to rely on the price-based QM definition, which becomes compulsory for purposes of the General QM definition on October 1, 2022. Prior to that date, at the creditor’s discretion, it may choose to rely on the previous debt-to-income based General QM definition, under which the ratio of the consumer’s total monthly debt to total monthly income, at the time of consummation, does not exceed 43 percent in accordance with former Appendix Q.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 44 a. within 210 days after consummation and b. prior to the consumer instituting an action in connection with the loan, or c. prior to the consumer providing written notice to the creditor of the error, or d. prior to the consumer becoming 60 days past due on the legal obligation. Please refer to the TILA examination procedures, Qualified Mortgages, 12 CFR 1026.43(e), for more information related to various QM categories, including Seasoned QM loans. High-Cost Mortgages14 (12 CFR 1026.32) 1. If the entity originates high-cost mortgage loans, assess compliance with TILA provisions concerning those mortgage loans. Please refer to the TILA examination procedures for High-Cost Mortgages, 12 CFR 1026.32, for more information. Higher-Priced Mortgage Loans15 (12 CFR 1026.35) 1. If the entity originates higher-priced mortgage loans, assess compliance with TILA provisions concerning those mortgage loans. Please refer to the TILA examination procedures for Higher-Priced Mortgage Loans – 12 CFR 1026.35, for more information.
2. Determine whether the entity originates higher-priced mortgage loans as defined under Regulation Z, 12 CFR 1026.35, and if so, whether these are not qualified mortgages as defined under Regulation Z, 12 CFR 1026.43, or other rules issued by HUD, USDA, or VA. Please refer to the TILA examination procedures for Higher-Priced Mortgage Loans – 12 CFR 1026.35 and Qualified Mortgages – 12 CFR 1026.43(e) for more information.
14A “high-cost” loan is a consumer credit transaction secured by the consumer’s principal dwelling, in which either: • The APR at consummation will exceed by more than 6.5 percentage points for first-lien mortgage loans, or by more than 8.5 percentage points for subordinate-lien mortgage loans, the average prime offer rate (APOR); or • The total points and fees (as defined in the regulation) payable by the consumer at or before loan closing will exceed the greater of 5 percent of the total loan amount or, for transactions of less than $20,000, the lesser of $1,000 or 8 percent of the loan amount; or • There is a prepayment penalty over 2 percent of the amount prepaid that can be charged more than 36 months after consummation or account opening.
See the FFIEC rate spread calculator: http://www.ffiec.gov/ratespread/newcalc.aspx,andtheAPORspreadsheet at: http://www.ffiec.gov/ratespread/aportables.htm.
15A “higher-priced” mortgage loan is a consumer credit transaction secured by the consumer’s principal dwelling with an APR that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by: • 1.5 or more percentage points for loans secured by a first lien on a dwelling; • 2.5 or more percentage points for loans secured by a first lien with a principal obligation at consummation that exceeds the limit in effect as of the date the transaction's interest rate is set for the maximum principal obligation eligible for purchase by Freddie Mac; or • 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 45 3. Determine whether the entity established an escrow account prior to consummation of the higher-priced mortgage loan transaction. Please refer to the TILA examination procedures, Higher-Priced Mortgage Loans: Escrow Accounts for more information. 4. Determine whether the creditor structures a higher-priced mortgage loan as an open-end plan to evade the requirements of Regulation Z. Please refer to the TILA examination procedures on Evasion of Minimum Standards for Loans Secured by a Dwelling – 12 CFR 1026.43(h).
Home Equity Lines of Credit (HELOCs) (12 CFR 1026.40) 1. Determine for all home equity plans with a variable rate that the APR is based on an independent index. Further, ensure home equity plans are terminated or terms changed only if certain conditions exist. (12 CFR 1026.40(f)) 2. Determine that, if any consumer rejected a home equity plan because a disclosed term changed before the plan was opened, all fees were refunded. Verify that non-refundable fees were not imposed until three business days after the consumer received the required disclosures and brochure. (12 CFR 1026.40(g) and (h)) 3. Additional variable rate testing: Verify that when accounts were opened or loans were consummated, the loan contract terms were recorded correctly in the financial institution’s calculation systems (e.g., its computer). Determine the accuracy of the following recorded information:
a. Index value, b. Margin and method of calculating rate changes, c. Rounding method, and d. Adjustment caps (periodic and lifetime).
Evasion 1. Determine whether the creditor structures a mortgage loan as an open-end plan to evade the requirements of Regulation Z. Please refer to the TILA examination procedures on Evasion of Minimum Standards for Loans Secured by a Dwelling – 12 CFR 1026.43(h). Other Risks to Consumers 1. Review communication logs or notes in the mortgage loan files, and interview sales and production staff of the mortgage lender or broker to determine the independence of underwriters from the sales or production unit, with an emphasis on any influence mortgage loan originators may have over underwriters. Please refer to the UDAAP examination procedures, Employees and Third Parties Interacting with Consumers, for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 46 2. Review the loan file to determine whether loan documentation, including income documentation, has been altered or forged. Any indications of fraud should be handled in accordance with CFPB internal consultation procedures, and examiners should refer them to other authorities as appropriate.
3. Determine whether the compensation systems for underwriters (whether in-house or contracted) affect their incentives concerning the speed and quality of their underwriting. Please refer to the UDAAP examination procedures, Employees and Third Parties Interacting with Consumers, for more information. 4. If the lender offers non-traditional or subprime loan products: a. Determine if underwriting standards take adjusted payments into account in considering borrower ability to repay at expected payment change dates. b. If the lender offers loans that have two or more risky characteristics (called “risk layering”), determine whether risk layering is taken into account as part of the underwriting policies, whether any mitigating factors are required for approval, and whether actual underwriting practices conform with policies. Risky characteristics are any of the following:
i.
Limited or no documentation of income, assets, and/or employment; ii.
Simultaneous second lien;
iii.
Negative amortization, option payment, or interest-only features; iv.
Introductory rate 200 basis points or more below fully-indexed rate; v.
Borrowers with subprime characteristics;
vi.
No escrow for property taxes and homeowner’s insurance; vii. Extended amortization period or extended loan terms; or viii. Balloon clauses.
c. Determine whether a customer is referred up to a prime loan if he qualifies for a prime loan and whether the referral is structured or framed to discourage the customer from applying for a prime loan.
Please refer to the UDAAP examination procedures for more information. Record Retention (12 CFR 1026.25) 1. Assess whether the lender verifies and maintains a record of the information relied on for all ATR loans (QM and non-QM) for a period of three years. Please refer to the TILA examination procedures, General Procedures, for more information.
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Mortgage Examination Procedures Origination CFPB December 2021 Procedures 47 Module 8 – Examiner Conclusions and Wrap-Up To conclude this supervisory activity, examiners must complete all steps under this section, regardless of the entity’s risk profile.
1. Summarize the findings, supervisory concerns, and regulatory violations. 2. For the violations noted, determine the root cause by identifying weaknesses in internal controls, audit and compliance reviews, training, management oversight, or other factors. Determine whether the violation(s) are pattern or practice, or isolated. 3. Identify actions needed to correct violations and weaknesses in the institution’s compliance management system that were identified during the examination, as appropriate. 4. Discuss all examination findings with the institution’s management, including violations, recommendations and conclusions about risks and risk management. If necessary, obtain commitments for corrective action.
1. Compose conclusion comments, highlighting any issues that should be included in the Report of Examination or Supervisory letter. If necessary, compose a Matters Requiring Attention (MRA) comment.
2. Record violations according to Bureau policy in the Report of Examination or Supervisory Letter and CFPB’s electronic database system to facilitate analysis and reporting. 3. If the examiner believes enforcement action may be appropriate, contact appropriate agency personnel for guidance.
4. Prepare a memorandum for inclusion in the work papers and CFPB’s official system of record that outlines planning and strategy considerations for the next examination and, if appropriate, interim follow-up.
5. Update, organize and reference workpaper documentation in accordance with Bureau policy. 6. Ensure any paper or electronic media that contain sensitive entity sensitive or customer information are appropriately disposed of or secured.
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CFPB January 2023 Procedures 1 Mortgage Servicing After completing the risk assessment and examination scoping, examiners should use these procedures to conduct a mortgage servicing examination in conjunction with the compliance management system review procedures. The examination procedures contain a series of modules, grouping similar requirements together. Depending on the scope, each examination will cover one or more of the following modules: Routine Servicing Module 1 Servicing and Loan Ownership Transfers Module 2 Payment Processing, Account Maintenance, and Optional Products Module 3 Error Resolution, Consumer Inquiries, and Complaint Procedures Module 4 Maintenance of Escrow Accounts and Insurance Products Module 5 Consumer Reporting Module 6 Information Sharing and Privacy Default Servicing Module 7 Collections and Accounts in Bankruptcy Module 8 Loss Mitigation, Early Intervention, and Continuity of Contact Foreclosure Module 9 Foreclosures Conclusions Module 10 Examiner Conclusions and Wrap-Up
Exam Date:
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CFPB January 2023 Procedures 2 Examination Objectives To assess the quality of the regulated entity’s compliance risk management systems, including internal controls and policies and procedures, for preventing violations of Federal consumer financial law in its mortgage servicing business.
To identify acts or practices that materially increase the risk of violations of Federal consumer financial law in connection with mortgage servicing.
To gather facts that help determine whether a regulated entity engages in acts or practices that are likely to violate Federal consumer financial law in connection with mortgage servicing. To determine, in consultation with Headquarters, whether a violation of a Federal consumer financial law has occurred and whether further supervisory or enforcement actions are appropriate. Background A servicer may service loans on behalf of itself or an affiliate. It may service as a contractor of the trustee where a mortgage is included in a mortgage-backed security, or it may service whole loans for an outside third-party investor.1 A servicer may sell the rights to service the loan separately from any ownership transfers. This is because some entities have expertise in payment processing and other servicing responsibilities, while others seek to invest in the underlying mortgages. These procedures apply whether the servicer obtained the servicing rights from another entity or the servicing responsibility is transferred within a company from the origination platform to the servicing platform. Servicers must comply with various laws to the extent that the law applies to the particular servicer and its activities:
• The Real Estate Settlement Procedures Act (RESPA) and its implementing regulation, Regulation X, impose requirements for servicing transfers, written consumer information requests, resolution of notices of error, force-placed insurance, early intervention and continuity of contact for delinquent borrowers, loss mitigation procedures, general servicing policies and procedures, and escrow account maintenance.
• The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, impose requirements on servicers regarding periodic billing statements, crediting of payments, imposition of late fee and delinquency charges, provision of payoff statements with respect to closed-end consumer credit transactions secured by a principal dwelling, and disclosures regarding rate changes for adjustable rate mortgages. For open-end mortgages, Regulation Z provisions related to payment crediting and error resolution apply to the extent that the servicer is a creditor. Additionally, TILA and Regulation Z generally impose requirements on loan owners for loan ownership transfers.
1 If the owner is a separate entity, the servicer generally has contractual commitments to the owner of the loan. In the private securitization market, the contracts generally are called Pooling and Servicing Agreements or PSAs. If Fannie Mae or Freddie Mac owns the loan, the commitments are set forth in the company’s seller/servicer guides.
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CFPB January 2023 Procedures 3 • The Electronic Funds Transfer Act (EFTA) and its implementing regulation, Regulation E, impose requirements if servicers within the scope of coverage obtain electronic payments from borrowers. • The Fair Debt Collection Practices Act (FDCPA) governs collection activities and prohibits deceptive, unfair, and abusive collection practices. The FDCPA applies to entities that constitute “debt collectors” under the Act, which generally includes: (1) third parties such as servicers, collection agencies, debt buyers, and collection attorneys that collect debts on behalf of lenders if they obtain the debt at a time when it is already in default; and (2) lenders collecting their own debts using an assumed name. The FDCPA applies to debts incurred or allegedly incurred primarily for the consumer’s personal, family or household purposes. • The Homeowners Protection Act (HPA) limits private mortgage insurance that can be assessed on consumer accounts.
• The Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V, impose requirements on servicers regarding the accuracy and integrity of information that they furnish to consumer reporting agencies. Additionally, the FCRA and Regulation V impose requirements on furnishers to investigate disputes concerning the accuracy of any information contained in a consumer report related to the account or other relationship the furnisher has or had with the consumer. The FCRA also limits certain information sharing between company affiliates. • The Gramm-Leach-Bliley Act (GLBA) requires servicers within the scope of coverage to provide privacy notices and limit information sharing in particular ways. • The Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, apply to those servicers that are creditors, such as those who participate in a credit decision about whether to approve a mortgage loan modification. The statute makes it unlawful to discriminate against any borrower with respect to any aspect of a credit transaction: o On the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract);
o Because all or part of the applicant’s income derives from any public assistance program; or o Because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.2 Examiners should consult the following bulletins and guidance as they assess compliance with Federal consumer financial laws:
• CFPB Bulletin 2012-03: Service Providers (April 13, 2012), http://files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf.
2 The Consumer Credit Protection Act, 15 U.S.C. 1601 et seq., is the collection of federal statutes that protects consumers when applying for or receiving credit. The Act includes statutes that have dispute rights for consumers, such as the Fair Credit Reporting Act. The ECOA prohibits discriminating against an applicant who has exercised a dispute right pursuant to one of the statutes outlined in the Act.
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CFPB January 2023 Procedures 4 • Interagency Guidance on Mortgage Servicing Practices Concerning Military Homeowners with Permanent Change of Station Orders (June 21, 2012), http://files.consumerfinance.gov/f/201206_cfpb_PCS_Orders_Guidance.pdf. • CFPB Bulletin 2013-07: Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts (July 10, 2013), http://files.consumerfinance.gov/f/201307_cfpb_bulletin_unfair-deceptive-abusive-practices.pdf. • CFPB Bulletin 2013-09: The FCRA’s requirement to investigate disputes and review “all relevant” information provided by consumer reporting agencies (CRAs) about the dispute (September 4, 2013), http://files.consumerfinance.gov/f/201309_cfpb_bulletin_furnishers.pdf. • CFPB Bulletin 2013-12: Implementation Guidance for Certain Mortgage Servicing Rules (October 15, 2013), http://files.consumerfinance.gov/f/201310_cfpb_mortgageservicing_bulletin.pdf.
• CFPB Bulletin 2014-01: The FCRA’s requirement that furnishers conduct investigations of disputed information (February 27, 2014), http://files.consumerfinance.gov/f/201402_cfpb_bulletin_fair-credit-reporting-act.pdf. • CFPB Bulletin 2014-01: Compliance Bulletin and Policy Guidance: Mortgage Servicing Transfers (August 19, 2014), http://files.consumerfinance.gov/f/201408_cfpb_bulletin_mortgage-servicing-transfer.pdf. • CFPB Bulletin 2015-03: Private Mortgage Insurance Cancellation and Termination (August 4, 2015), http://files.consumerfinance.gov/f/201508_cfpb_compliance-bulletin_private-mortgageinsurance-cancellation-and-termination.pdf.
• CFPB Bulletin 2015-06: Requirements for Consumer Authorizations for Preauthorized Electronic Fund Transfers (November 23, 2015), http://files.consumerfinance.gov/f/201511_cfpb_compliance-bulletin-2015-06-requirements-forconsumer-authorizations-for-preauthorized-electronic-fund-transfers.pdf. • CFPB Bulletin 2016-01: The FCRA’s Requirement that Furnishers Establish and Implement Reasonable Written Policies and Procedures Regarding the Accuracy and Integrity of Information Furnished to all Consumer Reporting Agencies (February 3, 2016), http://files.consumerfinance.gov/f/201602_cfpb_supervisory-bulletin-furnisher-accuracyobligations.pdf.
• CFPB Bulletin 2017-01: Phone Pay Fees (July 31, 2017), https://files.consumerfinance.gov/f/documents/201707_cfpb_compliance-bulletin-phone-payfee.pdf.
• CFPB Bulletin 2020-02: Compliance Bulletin and Policy Guidance: Handling of Information and Documents During Mortgage Servicing Transfers (April 24, 2020), https://files.consumerfinance.gov/f/documents/cfpb_policy-guidance_mortgage-servicingtransfers_2020-04.pdf.
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CFPB January 2023 Procedures 5 • CFPB Bulletin 2021-02: Compliance Bulletin and Policy Guidance: Supervision and Enforcement Priorities Regarding Housing Insecurity (March 31, 2021), https://files.consumer finance.gov/f/documents/cfpb_bulletin-2021-02_supervision-and-enforcement-prioritiesregarding-housing_WHcae8E.pdf.
• CFPB Advisory Opinion: Equal Credit Opportunity (Regulation B); Revocations or Unfavorable Changes to the Terms of Existing Credit Arrangements (May 18, 2022), https://files.consumer finance.gov/f/documents/cfpb_revoking-terms-of-existing-credit-arrangement_advisoryopinion_2022-05.pdf.
• CFPB Circular 2022-07: Reasonable Investigation of Consumer Reporting Disputes (November 10, 2022), https://files.consumerfinance.gov/f/documents/cfpb_reasonable-investigation-ofconsumer-reporting-disputes_circular-2022-07.pdf.
Examiners should also review the following COVID-19 related temporary regulatory changes: • CFPB Interim Final Rule, Treatment of Certain COVID-19 Related Loss Mitigation Options Under the Real Estate Settlement Procedures Act (RESPA), Regulation X (June 23, 2020), https://files.consumerfinance.gov/f/documents/cfpb_interim-final-rule_respa_covid-19-relatedloss-mitigation-options.pdf.
• CFPB Final Rule, Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X (June 25, 2021), https://files.consumerfinance.gov/f/documents/cfpb_covid-mortgage-servicing_final-rule_2021- 06.pdf.3 To carry out the objectives set forth in the Examination Objectives section, the examination process also will include assessing other risks to consumers that are not governed by specific statutory or regulatory provisions. These risks may include potentially unfair, deceptive, or abusive acts or practices (UDAAPs) with respect to servicers’ interactions with consumers.4 Collecting information about risks to consumers, whether or not there are specific legal guidelines addressing such risks, can help inform the Bureau’s policymaking. The standards the CFPB will use in assessing UDAAPs are:
• A representation, omission, act, or practice is deceptive when: 1. the representation, omission, act, or practice misleads or is likely to mislead the consumer;
3 The provisions in 12 CFR 1024.39(e) enhancing the live contact requirements for borrowers experiencing COVID-19-related hardships were in effect from August 31, 2021 through October 1, 2022. The provisions in 12 CFR 1024.41(f)(3) providing special procedural foreclosure protections for certain delinquent borrowers were in effect from August 31, 2021 through December 31, 2021. The streamlined loss mitigation application provisions in 12 CFR 1024.41(c)(2)(v)-(vi) apply to certain loss mitigation programs made available to consumers experiencing a “COVID-19-related hardship.” See 12 CFR 1024.31 for definition (generally, a financial hardship due, directly or indirectly, to the declared COVID-19 national emergency). The reasonable diligence requirements described in comment 41(b)(1)-4.iv apply to certain short-term payment forbearance programs made available to consumers experiencing a “COVID-19-related hardship.”
4 Dodd-Frank Act, Sec. 1036, PL 111-203 (July 21, 2010) (12 U.S.C. 5531, 5536).
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CFPB January 2023 Procedures 6 2. the consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and 3. the misleading representation, omission, act, or practice is material. • An act or practice is unfair when:
1. it causes or is likely to cause substantial injury to consumers; 2. the injury is not reasonably avoidable by consumers; and 3. the injury is not outweighed by countervailing benefits to consumers or to competition. • An abusive act or practice:
1. materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service or 2. takes unreasonable advantage of – a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
the inability of the consumer to protect its interests in selecting or using a consumer financial product or service; or the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
The particular facts in a case are crucial to a determination of unfair, deceptive, or abusive acts or practices. As set out in the Examination Objectives section, examiners should consult with Headquarters to determine whether the applicable legal standards have been met before a violation of any federal consumer financial law could be cited, including a UDAAP violation.
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CFPB January 2023 Procedures 7 Compliance Management System 1. Review the entity’s compliance management system using the Compliance Management Review section of the CFPB examination procedures.
RESPA/Regulation X Service Provider Oversight Depending on the facts and circumstances, mortgage servicers may be legally responsible for the activities of service providers. Examiners should ensure that such entities appropriately manage their relationships with service providers. Examiners should evaluate policies, procedures, complaints, and copies of any agreements between entities and service providers acting on behalf of the entity for purposes of assessing risks to consumers.
2. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Accessing and Providing Timely and Accurate Information provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(a) and (b)(1), for more information.
3. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Facilitating Oversight of, and Compliance by, Service Providers provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(a) and (b)(3), for more information.
As a framework for the analysis of whether the servicer’s policies and procedures are reasonably designed to achieve the objective of facilitating oversight of, and compliance by, service providers, please refer to CFPB Bulletin 2012-03 (April 13, 2012) regarding service providers.5 Assess the level of risk of consumer injury presented by a service provider and then determine whether the servicer has policies and procedures6 that achieve the required objectives related to service provider oversight for each major service provider, as appropriate based on risk assessments and other circumstances.
Record Retention and Servicing File 4. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Record Retention provision. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(c)(1), for more information.
5 CFPB issued a bulletin highlighting its expectation that supervised banks and nonbanks oversee their business relationships with service providers in a manner that ensures compliance with Federal consumer financial law. See CFPB Bulletin 2012-03, Service Providers (April 13, 2012), http://files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf. 6 For each reference to the procedures required by Regulation X (12 CFR 1024.38) in this section and subsequent modules, the term “procedures” refers to the actual practices followed by a servicer for achieving the objectives set forth in 12 CFR 1024.38(b) (12 CFR part 1024 Supplement I, Comment 1024.38(a)-2).
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CFPB January 2023 Procedures 8 5. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Servicing File provision. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(c)(2), for more information.
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CFPB January 2023 Procedures 9 Module 1 – Servicing and Loan Ownership Transfers Examiners should engage in several steps to assess potential violations of law in connection with servicing and loan ownership transfers. First, examiners should review policies and procedures and obtain a sample of servicing records, for loans transferred within the previous year. Examiners also may need to review copies of the electronic and paper documents transferred from the prior servicer. Additionally, they should review relevant records such as copies of monthly statements sent to consumers, copies of the RESPA disclosures, and evidence of delivery. If consumer complaints or document review indicate potential violations in these areas, examiners also should conduct interviews of consumers from the sample and ask questions relevant to each topic area below. For more information, please also refer to CFPB Bulletin 2014-01 (August 19, 2014) and CFPB Bulletin 2020-02 (April 24, 2020) regarding servicing transfers.7 RESPA/Regulation X Servicing Transfers 1. Assess compliance with the Regulation X Mortgage Servicing Transfers provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.33, for more information. 2. Assess compliance with the Regulation X Error Resolution Procedures and Requests for Information provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.35 and .36, for more information.
3. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Accessing and Providing Timely and Accurate Information and Facilitating Transfer of Information During Servicing Transfers provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(a), (b)(1)(i), (b)(1)(ii), and (b)(4), for more information.
4. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Record Retention provision. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(c)(1), for more information.
Escrow Transfers To assess whether the servicer is complying with obligations under Regulation X to notify consumers of changes in the escrow account requirements resulting from a transfer of servicing, examiners should sample from the list of loans transferred within the previous year that included escrow accounts. For
7 CFPB issued a bulletin highlighting its expectations of supervised banks and nonbanks for mortgage servicing transfers in accordance with Regulation X. See CFPB Bulletin 2014-01, Compliance Bulletin and Policy Guidance: Mortgage Servicing Transfers (August 19, 2014), http://files.consumerfinance.gov/f/201408_cfpb_bulletin_mortgage-servicing-transfer.pdf. Because supervisory examinations conducted after the publication of Bulletin 2014-01 continued to uncover inadequacies in servicers’ policies and procedures for transferring all the loan information and documents to the new servicer in a timely and accurate manner, the CFPB issued another bulletin highlighting its expectations for the handling of information and documents during mortgage servicing transfers. See CFPB Bulletin 2020-02, Compliance Bulletin and Policy Guidance: Handling of Information and Documents During Mortgage Servicing Transfers (April 24, 2020), https://files.consumerfinance.gov/f/documents/cfpb_policy-guidance_mortgage-servicing-transfers_2020- 04.pdf.
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CFPB January 2023 Procedures 10 the loans in the sample, examiners should review copies of consumer disclosures regarding the escrow accounts and evidence of delivery.
5. Assess compliance with the Regulation X Escrow Accounts provisions. Please refer to the examination procedures regarding RESPA, 12 CFR 1024.17(e) and (i)(4), for more information. FDCPA 6. Assess compliance with the FDCPA provisions regarding Notice of Debt and Disputed Debts provisions. Please refer to the examination procedures regarding debt collection, 15 U.S.C. 1692g(a) and (b), for more information.
Other Risks to Consumers 7. Determine whether the servicer takes steps to facilitate the transfer of the consumer’s automated clearing house (ACH) payments in connection with the transfer of servicing rights. For example, determine whether the servicer takes steps, including making disclosures, so that consumers do not inadvertently fail to make a timely mortgage payment or make a double mortgage payment following the transfer.
8. Determine whether a servicer who receives servicing transfers complies with the terms of loss mitigation agreements entered into by the borrower and the prior servicer. TILA/Regulation Z Ownership Transfer Examiners should determine whether the servicer is required to transmit the loan ownership transfer notice. The institution would have this obligation if it acquired legal title to more than one mortgage loan debt obligation, whether through a purchase, an assignment, or other transfer, in any twelvemonth period. A mortgage loan is defined as a closed-end consumer credit loan secured by a dwelling or real property and an open-end consumer credit loan that is secured by the principal dwelling of a consumer. (12 CFR 1026.39(a)(1) and (2)).8 To assess whether the servicer is complying with obligations under Regulation Z to notify consumers of changes in the loan ownership, examiners should sample from the list of loans in which the servicer acquired legal title to the mortgage loan within the previous year. For the loans in the sample, examiners should review copies of consumer disclosures regarding loan ownership and evidence of delivery.
8 A servicer of a mortgage loan is not treated as an owner of the obligation if the servicer holds title to the loan, or title is assigned to the servicer, solely for the administrative convenience of the servicer in servicing the obligation. Contractually, the loan owner may have delegated the Regulation Z obligation to the servicer. Although the loan owner cannot delegate its obligation under law, examiners should assess whether the servicer is fulfilling its commitment, if applicable.
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CFPB January 2023 Procedures 11 9. Assess compliance with the Regulation Z Mortgage Transfer Disclosures provisions. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.39, for more information.
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CFPB January 2023 Procedures 12 Module 2 – Payment Processing, Account Maintenance, and Optional Products To assess payment processing, account maintenance, and optional product posting and fee practices, examiners should review policies, procedures, complaints, and a sample of servicing records from consumer accounts including periodic statements, consumer payment records, and bills from vendors documenting any services related to the consumer’s loan account. If consumer complaints or document review indicates potential violations in these areas, examiners also should conduct interviews of consumers from the sample and ask questions relevant to each topic area below. Payment Processing TILA/Regulation Z 1. Assess compliance with the Regulation Z Payment Processing and No Pyramiding of Late Fees provisions. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.36(c)(1) and (2), for more information.
2. Assess compliance with the Regulation Z Payments provisions for open-end mortgages. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.10, for more information.
Other Risks to Consumers 3. Determine whether payments are applied and fees are assessed according to the terms of the note. 4. Determine whether the servicer charges fees for making payments (such as phone or online payment fees).
a. Determine whether the servicer discloses any fees for making payments before charging the fees.
b. Determine whether any such disclosures, whether oral or in writing, are clear, prominent, and specific to the transaction type.
c. Determine whether the servicer advises consumers of available payment method alternatives with lower fees before accepting payments via methods with higher fees. d. Determine whether the servicer accepts referral fees from third-party companies in connection with processing payments.
5. Determine whether the servicer monitors failed electronic fund transfers and refrains from initiating transfers to a particular depository account after receiving notice that the specific account was closed.
6. Determine whether the servicer charges fees for activities required by the loan owner/investor (such as home inspection and Broker Price Opinion fees) that exceed the expenses incurred to engage in the activity.
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CFPB January 2023 Procedures 13 Optional Products and Services 7. Determine whether the servicer offers optional products or services (such as debt cancellation, biweekly payment plans, payment protection, or credit protection) and, if so, which products and/or services the servicer offers.
ECOA 8. Determine whether each such optional product or service is offered and provided in a manner consistent with ECOA. Targeted marketing of these products on the basis of race, for example, may indicate an increased risk of potential ECOA violations and require further inquiry. In consultation with Headquarters, assess whether marketing is targeted on such a basis to particular consumers or in particular areas.
Other Risks to Consumers 9. Review marketing materials, whether they are telemarketing scripts, direct mail, web- based, or other media, and determine whether each optional product’s costs and terms are clearly and prominently disclosed. If consumer complaints or document review indicates potential violations in these areas and the servicer engages in telemarketing, monitor call center activity, and statements of representatives marketing the products. If the servicer engages in web-based marketing, monitor Internet communications related to the marketing. 10. Determine whether the servicer added on optional products or services without obtaining explicit authorization from the consumer. If the servicer obtains written authorization, review records of consumers who received additional products or services to ensure that written authorization has been provided and retained.
11. For bi-weekly payment plan solicitations, determine whether the servicer clearly and conspicuously explains the terms and conditions, including, where applicable, whether the servicer will be crediting payments bi-weekly or only monthly. 12. In assessing risks to consumers, examiners may find evidence of violations of—or an absence of compliance policies and procedures with respect to—other laws, in which case examiners should identify such matters for appropriate actions, such as, where authorized, possible referral to other regulators. For example, the Servicemembers Civil Relief Act requires a servicer to reduce the interest rate that a servicemember must pay on private and federal student loans to 6 percent upon receiving a written request and a copy of the servicemember’s military orders calling them into military service. The servicer must reduce the servicemember’s interest rate to 6 percent when: • The loan is a pre-service obligation – entered into prior to the borrower entering military service;
• The borrower has submitted a written request to the servicer; and • The borrower has provided a copy of their military orders to the servicer.
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CFPB January 2023 Procedures 14 Periodic Statements and Other Disclosures Examiners must review the servicer’s policies, procedures, and systems to assess the adequacy of periodic statements and other required disclosures, including whether applicable disclosures are furnished when required by Regulation Z. Examiners also should review a sample of periodic statements and other required disclosures.
RESPA/Regulation X and TILA/Regulation Z Periodic Statements 13. Assess compliance with the Regulation Z General Disclosure Requirements and Periodic Statements provisions for open-end mortgages. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.5 and .7, for more information. 14. Assess compliance with the Regulation Z General Rules and Periodic Statements for Residential Mortgage Loans provisions and the Regulation X General Servicing Policies, Procedures, and Requirements – Accessing and Providing Timely and Accurate Information provisions. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.31 and .41 and Regulation X, 12 CFR 1024.38(a) and (b)(1)(i), for more information. 15. Assess compliance with the Regulation Z General Rules and Requirements for Home Equity Plans provisions. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.31 and .40, for more information.
Adjustable Rate Mortgage Disclosures 16. Assess compliance with the Regulation Z General Disclosure Requirements and Initial Rate Adjustment provisions and the Regulation X General Servicing Policies, Procedures, and Requirements – Accessing and Providing Timely and Accurate Information provisions. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.17 and .20(d), and Regulation X, 12 CFR 1024.38(a) and (b)(1)(i), for more information. 17. Assess compliance with the Regulation Z General Disclosure Requirements and Rate Adjustments with a Corresponding Change in Payment provisions and the Regulation X General Servicing Policies, Procedures, and Requirements – Accessing and Providing Timely and Accurate Information provisions. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.17 and .20(c), and Regulation X, 12 CFR 1024.38(a) and (b)(1)(i), for more information. See also CFPB Bulletin 2013-12 (October 15, 2013), providing implementation guidance for certain mortgage servicing rules.9 EFTA/Regulation E and RESPA/Regulation X 18. If the servicer is within the scope of coverage and obtains electronic payments from borrowers, assess compliance with the Regulation E Electronic Fund Transfers provisions and the Regulation X General Servicing Policies, Procedures, and Requirements – Accessing and Providing Timely
9 See CFPB Bulletin 2013-12: Implementation Guidance for Certain Mortgage Servicing Rules (October 15, 2013), http://files. consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
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CFPB January 2023 Procedures 15 and Accurate Information provisions. Please refer to the examination procedures regarding Regulation E, 12 CFR 1005 and Regulation X, 12 CFR 1024.38(a) and (b)(1)(i), for more information. See also CFPB Bulletin 2015-06 (November 23, 2015) regarding preauthorized electronic fund transfers.10 Payoff Statements TILA/Regulation Z 19. Assess compliance with the Regulation Z General Rules and Payoff Statements provisions. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.31 and .36(c)(3), for more information.
Treatment of Credit Balances TILA/Regulation Z 20. Assess compliance with the Regulation Z Treatment of Credit Balances provisions. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.11 and .21, for more information.
Changes to Existing Credit Arrangements ECOA/Regulation B 21. Determine whether the servicer’s procedures for maintaining or modifying existing credit arrangements are consistent with ECOA/Regulation B anti-discrimination requirements. See also CFPB Advisory Opinion (May 18, 2022) regarding revocations or unfavorable changes to the terms of existing credit arrangements.11 22. Assess compliance with the ECOA/Regulation B adverse action notification provisions. Please refer to the examination procedures regarding Regulation B, 12 CFR 1002.9, for more information. See also CFPB Advisory Opinion (May 18, 2022) regarding revocations or unfavorable changes to the terms of existing credit arrangements.12
10 CFPB issued a bulletin highlighting its expectations of supervised banks and nonbanks for preauthorized electronic fund transfers. See CFPB Bulletin 2015-06: Requirements for Consumer Authorizations for Preauthorized Electronic Fund Transfers (November 23, 2015), http://files.consumerfinance.gov/f/201511_cfpb_compliance-bulletin-2015-06-requirements-for-consumer-authorizations-forpreauthorized-electronic-fund-transfers.pdf.
11 See CFPB Advisory Opinion: Equal Credit Opportunity (Regulation B); Revocations or Unfavorable Changes to the Terms of Existing Credit Arrangements (May 18, 2022), https://files.consumerfinance.gov/f/documents/cfpb_revoking-terms-of-existingcredit-arrangement_advisory-opinion_2022-05.pdf.
12 See id.
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CFPB January 2023 Procedures 16 TILA/Regulation Z 23. Assess compliance with the Regulation Z limitations on modifying a home equity plan. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.40(f), for more information.
Successors in Interest RESPA/Regulation X 24. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Accessing and Providing Timely and Accurate Information provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(a) and (b)(1)(vi), for more information. See also CFPB Bulletin 2013-12 (October 15, 2013) providing implementation guidance for certain mortgage servicing rules.13
13 See CFPB Bulletin 2013-12: Implementation Guidance for Certain Mortgage Servicing Rules (October 15, 2013), http://files. consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
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CFPB January 2023 Procedures 17 Module 3 – Error Resolution, Consumer Inquiries, and Complaint Procedures Examiners should review notices of error, consumer inquiries (including requests for information), and complaints and call specific complaining consumers to interview them regarding their experiences. Examiners should listen to live calls and taped calls to assess the quality and training of call center personnel. Examiners should determine the root cause of notices of error, consumer inquiries, and complaints, whether they were resolved adequately (including appropriate remediation for all consumers affected by the root cause), whether they were resolved in a timely manner. In addition to reviewing individual notices of error, inquiries, and complaints, examiners should review the related policies and procedures. As part of this review, examiners should assess whether complaints drive adjustments to business practices, where appropriate. Examiners should also review the escalation paths available to borrowers, including those available for borrowers facing imminent foreclosure. RESPA/Regulation X Error Resolution Procedures 1. Assess compliance with the Regulation X Error Resolution Procedures provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.35, for more information. Requests for Information 2. Assess compliance with the Regulation X Requests for Information provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.36, for more information. Policies and Procedures 3. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Accessing and Providing Timely and Accurate Information provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(a), (b)(1)(ii) and (b)(1)(iii), for more information. See also the Consumer Complaint Response part of the Compliance Management Review section of the CFPB examination procedures. 4. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Informing Borrowers of the Written Error Resolution and Information Request Procedures provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(a) and (b)(5), for more information.
TILA/Regulation Z Billing Error Resolution 5. Assess compliance with the Regulation Z Billing Error Resolution provisions for open-end mortgages. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.13, for more information.
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CFPB January 2023 Procedures 18 Other Risks to Consumers 6. Determine whether the servicer has an adequate process to identify and escalate requests for information, notices of error, or complaints that may involve regulatory compliance issues. 7. Where the borrower is facing imminent foreclosure, determine whether the servicer has an adequate process for expedited evaluation and resolution of requests for information, notices of error, or complaints that may involve regulatory compliance issues. Such an adequate process could include a dedicated phone line that connects directly to a live representative or another path for borrowers or borrower advocates to resolve identified regulatory compliance issues in advance of an imminent foreclosure.
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CFPB January 2023 Procedures 19 Module 4 – Maintenance of Escrow Accounts and Insurance Products Examiners should review policies and procedures and obtain a sample of servicing records. For the loans in the sample, examiners should assess whether the servicer is complying with the law in the areas listed below. If the file review indicates potential risks, examiners also should conduct interviews of a sample of consumers and staff, if appropriate, to assess consumer experiences with escrow accounts, force-placed insurance products, and private mortgage insurance. RESPA/Regulation X and TILA/Regulation Z Escrow Account Requirements 1. Assess compliance with the Regulation X Escrow Accounts provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.17, for more information. 2. Assess compliance with the Regulation X Timely Escrow Payments and Treatment of Escrow Account Balances provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.34, for more information.
3. Assess compliance with the Regulation Z Escrow Account Cancellation Notice for Certain Mortgage Transactions provisions. Please refer to the examination procedures regarding Regulation Z, 12 CFR 1026.20(e), for more information.
Force-Placed Insurance 4. Assess compliance with the Regulation X Escrow Accounts (Timely Payment of Hazard Insurance) provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.17(k)(5), for more information.
5. Assess compliance with the Regulation X Force-Placed Insurance provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.37, for more information. Policies and Procedures 6. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Accessing and Providing Timely and Accurate Information provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(a) and (b)(1)(i), for more information.
Other Risks to Consumers 7. Determine whether the servicer informs delinquent consumers that they will receive a refund of escrow surplus where the servicer does not plan to send a refund. 8. Determine whether the servicer correctly disburses funds from escrow accounts and refrains from using funds from particular consumers’ escrow accounts to pay home insurance premiums owed by other consumers.
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CFPB January 2023 Procedures 20 Homeowners Protection Act of 1998 Treatment of Private Mortgage Insurance 9. Assess compliance with Homeowners Protection Act. Please refer to the examination procedures regarding the HPA, 12 U.S.C. 4902, 4903(a)(3), and 4904 for more information. See also CFPB Bulletin 2015-03 (August 4, 2015) regarding private mortgage insurance.14 Policies and Procedures 10. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Accessing and Providing Timely and Accurate Information provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(a) and (b)(1)(i), for more information.
Other Risks to Consumers 11. Determine whether the servicer informs borrowers of private mortgage insurance cancellation standards that are inconsistent with the HPA.
12. Determine whether the servicer accurately represents the reason(s) consumers are ineligible to cancel private mortgage insurance.
14 CFPB issued a bulletin highlighting its expectation of supervised banks and nonbanks for private mortgage insurance cancellation and termination. See CFPB Bulletin 2015-03: Private Mortgage Insurance Cancellation and Termination (August 4, 2015), http://files. consumerfinance.gov/f/201508_cfpb_compliance-bulletin_private-mortgage-insurance-cancellation-and-termination.pdf.
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CFPB January 2023 Procedures 21 Module 5 – Consumer Reporting Examiners should review policies, procedures, direct disputes, indirect disputes, complaints, and obtain a sample of loan servicing records. For the loans in the sample, compare the information in the servicer’s system of record with the information reported to the consumer reporting agencies. Particular concerns in the mortgage servicing context include ensuring that servicers report short sales accurately, instead of reporting transactions as resulting in a foreclosure when they actually resulted in a short sale, and ensuring that servicers report loan modification outcomes accurately. If consumer complaints or document review indicates potential FCRA violations, examiners also should conduct interviews of consumers from the sample.
FCRA/Regulation V Furnisher Requirements 1. Assess compliance with the FCRA/Regulation V Furnisher Requirements. Please refer to the FCRA examination procedures, 12 CFR 1022.40-43 and 15 U.S.C. 1681s-2, for more information. See also CFPB Bulletin 2013-09 (September 4, 2013) regarding furnishers’ responsibilities to investigate disputes, CFPB Bulletin 2014-01 (February 27, 2014) and CFPB Circular 2022-07 (November 10, 2022) regarding investigations of disputed information, and CFPB Bulletin 2016- 01 (February 3, 2016) regarding required policies and procedures.15
15 CFPB has issued three bulletins and one circular highlighting its expectations of supervised banks and nonbanks with respect to certain FCRA compliance issues, see:
• CFPB Bulletin 2013-09: The FCRA’s Requirement to Investigate Disputes and Review “All Relevant” Information Provided by Consumer Reporting Agencies (CRAs) About the Dispute (September 4, 2013), http://files.consumer finance.gov/f/201309_cfpb_bulletin_furnishers.pdf;
• CFPB Bulletin 2014-01: The FCRA’s Requirement that Furnishers Conduct Investigations of Disputed Information (February 27, 2014), http://files.consumerfinance.gov/f/201402_cfpb_bulletin_fair-credit-reporting-act.pdf; and • CFPB Bulletin 2016-01: The FCRA’s Requirement that Furnishers Establish and Implement Reasonable Written Policies and Procedures Regarding the Accuracy and Integrity of Information Furnished to all Consumer Reporting Agencies (February 3, 2015), http://files.consumerfinance.gov/f/201602_cfpb_supervisory-bulletin-furnisher-accuracy-obligations.pdf. • CFPB Circular 2022-07 Reasonable Investigation of Consumer Reporting Disputes (November 10, 2022), https://files. consumerfinance.gov/f/documents/cfpb_reasonable-investigation-of-consumer-reporting-disputes_circular-2022-07.pdf.
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CFPB January 2023 Procedures 22 Module 6 – Information Sharing and Privacy Privacy Notices 1. Assess compliance with Privacy of Consumer Financial Information Regulation that implements the GLBA. Please refer to the GLBA examination procedures, 12 CFR 1016.4 and.5, for more information.
Information Sharing With Affiliates 2. Assess compliance with the FCRA Affiliate Marketing Rule. Please refer to the FCRA examination procedures, 12 CFR 1022.21, for more information.
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CFPB January 2023 Procedures 23 Module 7 – Collections and Accounts in Bankruptcy Examiners should review policies, procedures, complaints, and obtain a sample of servicing records of consumers in default, including a sufficient number of loans in which the consumer has filed for bankruptcy, to assess collection practices. Examiners should obtain collection call records and listen to a sample of collection calls. If consumer complaints or document review indicates potential violations in these areas, examiners also should conduct interviews of consumers from the sample and ask questions relevant to each topic area below. In connection with these steps, examiners should evaluate the following.
Under the FDCPA, a “debt collector” is defined as any person who regularly collects, or attempts to collect, consumer debts for another person or institution, or uses interstate commerce or the mail in a business the principal purpose of which is consumer debt collection, or uses some name other than its own when collecting its own consumer debts, with certain exceptions. The definition includes, for example, an institution that regularly collects debts for an unrelated institution. The debt collector definition has an exception that frequently applies to mortgage servicing: an institution is not a debt collector under the FDCPA when it collects debts that were not in default when they were obtained by the servicer.16 Thus, a servicer that purchases the servicing rights for a portfolio of loans will be a debt collector to the extent it meets the general definition of debt collector only for loans that were in “default” when the servicer obtained them.17 Examiners should obtain a sample of collection call records and assess whether collectors complied with the requirements listed in the debt collection examination procedures. Examiners should also assess collection activities and listen to a sample of collection calls to identify potential risks to consumers where the FDCPA may not apply. For more information, please also refer to CFPB Bulletin 2013-07 (July 10, 2013), which provides guidance on unfair, deceptive, or abusive acts or practices in the collection of consumer debts.18 FDCPA 1. Assess compliance with the FDCPA. Please refer to the examination procedures regarding debt collection for more information.
Other Risks to Consumers 2. Determine whether the servicer contacts borrowers in an appropriate manner:
16 15 U.S.C. 1692a (6)(F)(iii).
17 The FDCPA itself does not contain a definition of the term “default.” In determining whether a debt is in default, the following factors, among others, are generally considered: the creditor’s customary policies and practices; terms of the contract; determinations by the originator; and State law.
18 See CFPB Bulletin 2013-07: Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts (July 10, 2013), http://files.consumerfinance.gov/f/201307_cfpb_bulletin_unfair-deceptive-abusive-practices.pdf.
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CFPB January 2023 Procedures 24 a. Employees and third-party contractors clearly indicate to consumers that they are calling about the collection of a debt.
b. Employees and third-party contractors do not disclose the existence of a consumer’s debt to the public without the consent of the consumer, except as permitted by law. c. The entity has policies on avoiding repeated telephone calls to consumers that annoy, abuse, or harass any person at the number called.
3. Determine whether the servicer’s representatives make misrepresentations or use deceptive means to collect debts.
4. Determine whether collections staff transfer borrowers to loss mitigation staff, in accordance with the institution’s policies and procedures, to discuss forbearances, loan modifications (including streamlined modifications), and other loss mitigation alternatives. Bankruptcy Other Risks to Consumers 5. Determine whether the servicer properly identifies accounts as being in active bankruptcy to ensure that the servicer provides protection from foreclosure or collections to which the borrower is entitled under federal bankruptcy law.
6. For consumers who have filed for bankruptcy, determine whether the servicer informs the debtor of the total amount due, including principal, interest, fees, expenses, or other charges, as of the date the debtor filed for bankruptcy, and whether the servicer provides the debtor with an escrow account statement prepared as of the date the debtor filed for bankruptcy. 7. For consumers who have filed for chapter 13 bankruptcy, determine whether the servicer provides notice of any change in the payment amount due, including any change that results from an interest rate or escrow account adjustment, to the debtor, the debtor’s counsel, the bankruptcy trustee, and the court, before a payment in the new amount is due.
8. For consumers who have filed for chapter 13 bankruptcy, determine whether the servicer provides notice of fees or other amounts charged to the account to the debtor, the debtor’s counsel, the bankruptcy trustee, and the court during the pendency of the bankruptcy case. 9. Determine whether payments received from a consumer or bankruptcy trustee are properly applied to the consumer’s account.
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CFPB January 2023 Procedures 25 Module 8 – Loss Mitigation, Early Intervention, and Continuity of Contact Examiners should review policies, procedures, complaints, and obtain a sample of servicing records of consumers who are delinquent or at imminent risk of default to assess loss mitigation activity. If consumer complaints or document review indicates potential concerns in these areas, examiners also should conduct interviews of consumers from the sample who sought loss mitigation in the prior year and ask questions relevant to each topic area below. For more information, please also refer to CFPB Bulletin 2013-12 (October 15, 2013), which provides implementation guidance for certain mortgage servicing rules.19 RESPA/Regulation X Early Intervention Requirements for Certain Borrowers 1. Assess compliance with the Regulation X Early Intervention Requirements for Certain Borrowers – Live Contact provisions. Please refer to examination procedures regarding Regulation X, 12 CFR 1024.39(a), for more information. See also CFPB Bulletin 2013-12 (October 15, 2013) providing implementation guidance for certain mortgage servicing rules.20 2. Assess compliance with the Regulation X Early Intervention Requirements for Certain Borrowers – Written Notice provisions. Please refer to examination procedures regarding Regulation X, 12 CFR 1024.39(b), for more information.
Continuity of Contact 3. Assess compliance with the Regulation X Continuity of Contact provisions. Please refer to examination procedures regarding Regulation X, 12 CFR 1024.40, for more information. Loss Mitigation Procedures 4. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Properly Evaluating Loss Mitigation Applications provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(a) and (b)(2), for more information.
5. Assess compliance with the Regulation X Receipt of a Loss Mitigation Application provisions. Please refer to examination procedures regarding Regulation X, 12 CFR 1024.41(b), for more information.
19 See CFPB Bulletin 2013-12: Implementation Guidance for Certain Mortgage Servicing Rules (October 15, 2013), http://files. consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf. 20 See CFPB Bulletin 2013-12: Implementation Guidance for Certain Mortgage Servicing Rules (October 15, 2013), http://files. consumerfinance.gov/f/201310_cfpb_mortgage-servicing_bulletin.pdf.
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CFPB January 2023 Procedures 26 6. Assess compliance with the Regulation X Evaluation of Loss Mitigation Applications provisions. Please refer to examination procedures regarding Regulation X, 12 CFR 1024.41(c), for more information.
7. Assess compliance with the Regulation X Denial of Loan Modification Options provisions. Please refer to examination procedures regarding Regulation X, 12 CFR 1024.41(d), for more information.
8. Assess compliance with the Regulation X Borrower Response provisions. Please refer to examination procedures regarding Regulation X, 12 CFR 1024.41(e), for more information. 9. Assess compliance with the Regulation X Appeal Process provisions. Please refer to examination procedures regarding Regulation X, 12 CFR 1024.41(h), for more information. Other Risks to Consumers Application Process 10. Determine whether information provided to consumers about forbearances, loan modifications (including streamlined modifications), and other loss mitigation alternatives is clear, prominent, and readily understandable.
11. Determine whether any information is provided to consumers about the servicer’s participation in homeowner assistance programs (such as the Homeowner Assistance Fund) and, if such information is provided, determine whether the information is accurate. 12. Determine whether the servicer sends loss mitigation offer letters with response deadlines that had already passed or were about to pass by the time consumers received the letters. 13. Determine whether the servicer is providing military homeowners who have informed the servicer that they have received military Permanent Change of Station orders with accurate, clear, and readily understandable information about available assistance options for which the consumer may qualify.21 14. Determine whether the servicer advises consumers to stop payments in order to qualify for loss mitigation relief.
15. Determine whether the servicer timely converts consumers who successfully complete trial modifications to permanent modifications.
Appeals Process 16. Determine whether the servicer sends loss mitigation denial notices with appeal deadlines that are less than fourteen days from the day consumers received the notices.
21 See Interagency Guidance on Mortgage Servicing Practices Concerning Military Homeowners with Permanent Change of Station Orders (June 21, 2012), http://files.consumerfinance.gov/f/201206_cfpb_PCS_Orders_Guidance.pdf.
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CFPB January 2023 Procedures 27 Consequences of Loss Mitigation 17. Determine whether the servicer discloses any rescheduling of payments that may occur under an existing obligation in a clear, prominent, and understandable manner, and whether the payment due dates on consumer communications align with the due dates in the servicer’s system. 18. Determine whether the servicer discloses any material negative consequences that may occur as a result of the borrower’s failing to make payments during the loss mitigation process. 19. Determine whether the servicer discloses any material negative consequences that may occur as a result of a forbearance or loan modification (e.g., decreased credit score, income tax implications if principal reduction is offered, and any increase in monthly payment amount). 20. Determine whether the servicer discloses future changes in the modified loan terms (e.g., with respect to any principal forbearance or temporary interest rate reductions). 21. Determine whether the servicer asks consumers to waive their legal rights under the Servicemembers Civil Relief Act or any other law as a prerequisite to the servicer either providing information to the consumer about available options or evaluating the consumer’s eligibility for assistance.
22. Determine whether the servicer includes any waiver of legal rights in its loan modification or other foreclosure alternative agreements.
23. Determine whether the servicer accurately captures escrow amounts due when evaluating borrowers for loss mitigation.
24. Determine whether the servicer applies payments and assesses fees according to the terms of loss mitigation agreements.
Forbearances 25. Determine whether the servicer accurately represents the payment amounts, if any, required for consumers to accept deferral offers or other permanent loss mitigation options at the end of forbearance periods.
Short Sales 26. If the servicer is offering short sales as a loss mitigation tool, determine whether it provides clear, timely disclosures to the consumer about the process.
27. If the servicer demands deficiency payments upon agreeing to a short sale to recoup any principal not recovered through the short sale, determine whether the servicer discloses in a clear, prominent, and understandable manner that it or an investor will demand a deficiency payment or related cash contribution and the approximate amount of that deficiency. Deeds In Lieu of Foreclosures 28. If the servicer offers deeds in lieu of foreclosures, determine whether it provides clear, timely disclosures about requirements and cost to the consumer.
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CFPB January 2023 Procedures 28 ECOA Providing Appraisals and Other Valuations 29. Assess compliance with the Regulation B Providing Appraisals and Other Valuations provisions. Please refer to examination procedures regarding Regulation B, 12 CFR 1002.14(a)(1) and (2), for more information.
Disparate Treatment in Loss Mitigation As discussed above, examiners should obtain a sample of servicing records of consumers in default or at imminent risk of default to assess loss mitigation activity. While conducting the review of the servicer’s loss mitigation activities discussed above, examiners must be mindful of activities that may indicate disparate treatment of consumers in violation of the ECOA on the bases of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); because all or part of the applicant’s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. An examination of whether a servicer’s loss mitigation program involves disparate treatment of consumers in violation of the ECOA will rely on procedures outlined in the CFPB’s ECOA Examination Program Manual, including the ECOA Baseline Review Modules, and the Interagency Fair Lending Examination Procedures.
Examiners should:
30. Determine whether the file documents indicate that decisions were made based upon any protected status.
31. Determine whether there were clear policies and procedures for making loss mitigation decisions or whether there was broad employee discretion. If employees have discretion, determine whether the procedures, controls, and monitoring that govern the exercise of discretion are adequate to mitigate the risk of disparate treatment.
32. Assess policies and procedures for assessing fees, with a specific focus on discretion. 33. Determine whether there were adequate processes and controls for policy exceptions and adequate documentation of decisions.
34. Review complaints of discrimination and litigation alleging discrimination. 35. Review any internal fair lending audits or reports.
36. Assess policies and procedures for considering various types of income of an applicant or the spouse of an applicant.
37. Assess policies and procedures for servicing loans held by borrowers with limited English proficiency (LEP borrowers). Among other things, assess whether the institution (a) identifies borrowers that may require non-English language assistance; (b) provides an option for customer service calls in a language other than English; (c) has customer service personnel available to provide assistance in languages other than English and, if so, (i) whether they are dedicated service
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CFPB January 2023 Procedures 29 personnel and (ii) whether they receive the same training, and have the same authority, as other customer service personnel; and (d) provides translations of English language documents to LEP borrowers.
Disparate Impact in Loss Mitigation An examination of whether a servicer’s loss mitigation program results in adverse impact on a prohibited basis group will rely on procedures outlined in the CFPB’s ECOA Examination Program Manual, including the ECOA Baseline Review Modules, and the Interagency Fair Lending Examination Procedures.
Examiners, in consultation with Headquarters, should:
38. Obtain information sufficient to determine whether loss mitigation workouts have been provided to consumers in compliance with ECOA and Regulation B. For example, this may involve an analysis of the distribution of members of a particular prohibited basis group in the pool of delinquent borrowers versus the distribution receiving a range of loss mitigation outcomes, including: reinstatement, repayment plan, forbearance, loan modification, short sale, deed-in-lieu, and foreclosure.
39. Obtain information sufficient to determine whether loan modifications have been provided in compliance with ECOA and Regulation B. For example, this may involve an analysis of processing times and loan modification attributes including interest rate, principal, and monthly payment reductions for members of a particular prohibited basis group compared to other borrowers.
40. Obtain information sufficient to determine whether the rate and timing of foreclosures are in compliance with ECOA and Regulation B. For example, this may include analyzing the representation of members of particular prohibited basis groups among seriously delinquent borrowers versus their representation among borrowers who lose their homes to foreclosure. To complete a disparate impact analysis of a servicer’s loss mitigation program, and determine whether a facially neutral policy or practice that has an adverse effect on a prohibited basis group meets a legitimate business need that cannot reasonably be achieved by a less discriminatory alternative, refer to Section B of the CFPB’s Fair Lending Examination Procedures and consult with Headquarters.
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CFPB January 2023 Procedures 30 Module 9 – Foreclosures Examiners should review policies, procedures, complaints, and obtain a sample of servicing records of consumers whose loans have been referred to foreclosure. For the loans in the sample, examiners should focus on whether the consumer is in fact in default and whether all amounts due are correct. Examiners should review amounts set forth in foreclosure affidavits, compare them to amounts recorded in the servicer’s primary computer system, and compare them to all statements made in communications from the borrower, including consumer complaints. In appropriate cases, examiners should compare the filing dates reflected in the servicer’s records to the dates identified in public records. Examiners also should review all complaints of consumers whose loans were referred to foreclosure in the prior year. In reviewing foreclosure practices, examiners should focus on the following areas:
RESPA/Regulation X Dual Tracking 1. Assess compliance with the Regulation X Prohibition on Foreclosure Referral provisions. Please refer to examination procedures regarding Regulation X, 12 CFR 1024.41(f), for more information. 2. Assess compliance with the Regulation X Prohibition on Foreclosure Sale provisions. Please refer to examination procedures regarding Regulation X, 12 CFR 1024.41(g), for more information. 3. If the servicer is a small servicer, assess compliance with Regulation X Small Servicer Requirements. Please refer to examination procedures regarding Regulation X, 12 CFR 1024.41(j).
Policies and Procedures 4. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Accessing and Providing Timely and Accurate Information provisions. Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(a), (b)(1)(ii), (b)(1)(iv), and (b)(1)(v), for more information.
5. Assess compliance with the Regulation X General Servicing Policies, Procedures, and Requirements – Facilitating Oversight of, and Compliance by, Service Providers provisions (including both service providers performing foreclosure-related services and service providers performing other services). Please refer to the examination procedures regarding Regulation X, 12 CFR 1024.38(a) and (b)(3), for more information.
Other Risks to Consumers 6. Determine whether the servicer has foreclosed on any consumers paying on a trial modification agreement, permanent modification agreement, forbearance agreement, or other similar agreement. 7. Determine whether the servicer has foreclosed on any consumer with whom the servicer had agreed to a modification agreement, forbearance agreement, or other similar agreement, but the first payment was not yet due.
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CFPB January 2023 Procedures 31 8. Determine whether the servicer has initiated any foreclosure actions where the servicer has represented to consumers that it would not initiate foreclosure actions or would not initiate foreclosure actions during a specific time period.
9. Determine whether the servicer represents to consumers that they will begin foreclosure or that foreclosure will occur before the servicer actually intends to initiate foreclosure. 10. Determine whether the servicer has initiated any foreclosure actions where the servicer knew or should have known that a prior servicer waived the charges that caused the consumer’s default. 11. In assessing risks to consumers, examiners may find evidence of violations of—or an absence of compliance policies and procedures with respect to—other laws, in which case examiners should identify such matters for appropriate actions, such as, where authorized, possible referral to other regulators. For example, the Servicemembers Civil Relief Act prohibits servicers from foreclosing on any active duty military consumer, or any consumer within one year of active duty servicer, with pre-service obligations, unless the servicer satisfies certain requirements. Examiners should determine whether compliance policies and procedures include checking the Department of Defense’s Manpower Database prior to completing a foreclosure and documenting the results. Walkaways 12. Evaluate the servicer’s process for informing consumers about changes in the foreclosure process, including decisions not to go forward.
13. Evaluate the servicer’s process for informing consumers about determinations to charge off loans for accounting purposes or to release liens but not related debts prior to full repayment of the loan. ECOA 14. See above, Module 8. Examiners should collect information sufficient to determine whether there has been disparate treatment discrimination in violation of the ECOA and Regulation B in the servicer’s foreclosure processing as part of the file review. Examiners should consult with Headquarters to determine whether there has been disparate impact discrimination in foreclosure processing as part of the loss mitigation data analysis discussed above.
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CFPB January 2023 Procedures 32 Module 10 – Examiner Conclusions and Wrap-Up To conclude this supervisory activity, examiners must complete all steps under this section, regardless of the entity’s risk profile.
1. Summarize the findings, supervisory concerns, and regulatory violations. 2. For the violations noted, determine the root cause by identifying weaknesses in internal controls, audit and compliance reviews, training, management oversight, or other factors. Determine whether each violation is a pattern or practice, or an isolated situation that occurred despite appropriate controls.
3. Identify action needed to correct violations and weaknesses in the institution‘s compliance management system, as appropriate.
4. Discuss findings with the institution’s management and, if necessary, obtain a commitment for corrective action 5. Record violations according to Bureau policy in the Report of Examination/Supervisory Letter and CFPB’s electronic database system to facilitate analysis and reporting. 6. If the examiner believes enforcement action may be appropriate, contact appropriate agency personnel for guidance.
7. Prepare a memorandum for inclusion in the work papers and CFPB’s official system of record that outlines planning and strategy considerations for the next examination and, if appropriate, interim follow-up.
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CFPB January 2023 Procedures 33 GLOSSARY BPOs: broker price opinions, which provide estimates of the property value. Consumer Reporting Agency: a person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.
Deed in Lieu of Foreclosure: a foreclosure alternative in which the consumer voluntarily transfers the property title to the servicer in exchange for cancellation of the remainder of the debt. Escrow Account: an account the servicer maintains to pay property taxes and insurance on behalf of the borrower.
Forbearance: a foreclosure alternative in which the servicer reduces or suspends the consumer’s mortgage payments for an agreed period of time. At the end of that time, the consumer resumes making the regular payments as well as a lump sum payment or additional monthly payments to bring the loan current. Forbearance may be an option if the consumer’s income is reduced temporarily and the mortgage is affordable. Borrowers with federally backed mortgages who affirm they are experiencing a financial hardship during the COVID-19 national emergency have the right to request and obtain forbearance for up to 180 days and to request and obtain an extension for another 180 days (for a total of 360 days) under the CARES Act.22 Force-Placed Insurance: an insurance policy taken out by a lender or creditor when it determines that a consumer has breached the mortgage contract by failing to carry appropriate insurance on the home that is collateral for the mortgage.
Foreclosure Trustee: an individual or company chosen to administer the assets of the beneficiary and facilitate the foreclosure process.
Loan Instruments: the promissory note and the security instrument that detail the rights and obligations of the parties.
Loan Modification: a foreclosure alternative in which the servicer changes one or more of the terms of the mortgage contract, typically to lower the monthly payments. Modifications may include reducing the interest rate, extending the term of the loan, or adding missed payments to the loan balance. A modification also may involve reducing the amount of money the consumer owes by forgiving a portion of the mortgage debt, which is known as “principal forgiveness.” Loss Mitigation: a process for considering alternatives to foreclosure when consumers fall behind on their mortgage payments or are at risk of default.
PITI Payment: principal, interest, taxes, and insurance payment
22 Pub. L. 116-136, § 4022(c)(1), 134 Stat. 281, 490 (Mar. 27, 2020).
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CFPB January 2023 Procedures 34 Promissory Note: a document that evidences the debt and the promise to repay. Property Inspection Fees: fees for inspections of the property so that the servicer can make sure that it is occupied and not abandoned.
Property Preservation Fees: fees for services purchased to maintain the property in good condition and typically include lawn mowing, winterizing, and making repairs. Proprietary Loan Modifications: loan modifications other than HAMP modifications. The eligibility requirements and structure of these modifications depend on the servicer and the investor that owns the particular loan.
Reinstatement: a process by which, after going into default, the consumer pays the loan servicer the entire past-due amount, plus any late fees or penalties, by an agreed date. This option may be appropriate if the consumer’s problem paying the mortgage is temporary. Repayment Plan: a foreclosure alternative in which the servicer allows the consumer a fixed amount of time to repay the amount he is behind by adding a portion of what is past due to the regular payment. This option may be appropriate if the consumer has missed a small number of payments and can afford the mortgage.
Security Instrument: a document that evidences the lien on the property. Depending on the state, the security instrument is called either a deed of trust or mortgage deed. Short Sale: a foreclosure alternative in which the servicer allows the consumer to sell the home for less than the mortgage balance before it forecloses on the property and may agree to forgive any shortfall between the sale price and the mortgage balance.
Streamlined Modification: a loan modification that servicers may offer to borrowers who meet certain requirements without requiring borrowers to submit complete financial or hardship documentation. A Flex Modification, available on government-sponsored enterprise loans, is an example.
Suspense Account: an account holding funds that are earmarked for — but not immediately credited to — the consumer’s loan account. Also called an unapplied funds account. Uniform Instruments: form instruments developed by Fannie Mae and Freddie Mac that are used to document the large majority of mortgage loans.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 1 Prepaid Account Examination Procedures These procedures should be used to examine institutions that offer prepaid accounts for compliance with required disclosures and protections afforded to prepaid account holders (including government benefit accounts and payroll card accounts). Examiners should complete a risk assessment, conduct necessary scoping, and use these procedures, in conjunction with the compliance management system review procedures, to conduct a prepaid examination. These prepaid account procedures include guidance for all types of covered prepaid accounts, including government benefit accounts and payroll card accounts. The examination procedures contain a series of modules, grouping similar requirements together. Depending on the scope of the examination, and in conjunction with the compliance management system and consumer complaint responses review procedures, each examiner will cover parts of one or more of the following modules. Module 8 – UDAAP and Examiner’s Summary is a required module and must be completed. The modules include:
1. Pre-Acquisition Disclosures
2. Initial Disclosures
3. Periodic Statements and the Periodic Statement Alternative
4. Error Resolution and Limitations on Liability
5. Receipts at electronic terminals, Preauthorized EFTs, and Access Devices
6. Compulsory Use, Submission of Agreements, and Record Retention
7. Overdraft Credit Features
8. UDAAP and Summary
Exam Date:
[Click&type] Exam ID No.:
[Click&type] Prepared By:
[Click&type] Reviewer:
[Click&type] Docket #:
[Click&type] Entity Name:
[Click&type] Event #:
[Click&type]
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 2 Prepaid Account Examination Objectives 1. To assess the quality of the regulated entity’s compliance risk management systems, including internal controls and policies and procedures, for preventing violations of Federal consumer financial law in its prepaid account business.
2. To identify acts or practices that materially increase the risk of violations of Federal consumer financial law and associated harm to consumers in connection with prepaid accounts.
3. To gather facts that help to determine whether a supervised entity engages in acts or practices that are likely to violate Federal consumer financial law in connection with prepaid accounts.
4. To determine, in consultation with CFPB headquarters, whether a violation of a Federal consumer financial law has occurred and whether further supervisory or enforcement actions are appropriate.
Background Regulatory History On October 5, 2016, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a final rule to create comprehensive protections for prepaid accounts under Regulation E, which implements the Electronic Fund Transfer Act (EFTA), and Regulation Z, which implements the Truth in Lending Act (TILA) (2016 Final Rule) (81 FR 83934) (November 22, 2016). On April 20, 2017, the Bureau issued a final rule delaying the general October 1, 2017 effective date in the 2016 Final Rule to April 1, 2018 (the April 2017 Effective Date Delay) (82 FR 18975) (April 25, 2017). On January 25, 2018, the Bureau issued a final rule amending and clarifying certain provisions of Regulation E and Regulation Z related to prepaid accounts and extending the 2016 Final Rule’s effective date to April 1, 2019 (the 2018 Prepaid Amendments) (83 FR 6364) (February 13, 2018). Collectively, the 2016 Final Rule, the April 2017 Effective Date Delay, and the 2018 Prepaid Amendments are referred to as the Prepaid Rule. Effect of the Prepaid Rule on Prepaid Practices The Prepaid Rule generally extends the requirements set forth in Subpart A of Regulation E to prepaid accounts with some modifications. The rule adds the term “prepaid account” to the definition of “account” in Regulation E. The Prepaid Rule also adds tailored provisions governing disclosures, limited liability and error resolution, and access to account information specifically for prepaid accounts, along with new requirements regarding the posting and submission of prepaid account agreements. In addition, the Prepaid Rule addressed regulation of credit features that institutions may offer under certain circumstances in conjunction with prepaid accounts and creates new requirements that apply to hybrid prepaid-credit cards.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 3 Additional guidance and citations are provided in the Supplemental Information attached to these procedures.
Consumer Risks Addressed Outside the Prepaid Rule To carry out the objectives set forth in the Examination Objectives section, the examination process should also include assessing consumer risks addressed outside the Prepaid Rule. These risks may include potentially unfair, deceptive, or abusive acts or practices (UDAAPs). Examiners should refer to the procedures that address UDAAPs for information about the relevant legal standards and the CFPB’s approach to examining for UDAAPs. Because the particular facts and circumstances in a case are crucial to the determination of UDAAPs, examiners should consult with CFPB Headquarters to determine whether the applicable legal standards have been met before a UDAAP violation is cited. In addition, examiners should consider whether an entity has complied with privacy provisions enacted as part of the Gramm-Leach-Bliley Act (GLBA) and implemented through Regulation P. These provisions impose limitations on when financial institutions can share nonpublic personal information with third parties. They also require under certain circumstances that financial institutions disclose their privacy policies and permit customers to opt out of certain sharing practices with unaffiliated entities.
Management and Policy-Related Examination Procedures 1. Through a review of all available information (e.g., board minutes, management reports, monitoring reports, etc.) and discussions with management, determine that the board and management have set clear expectations about compliance with Federal consumer financial law, including Regulation E and Regulation Z (as applicable), not only within the entity but also concerning key business partners, agents, correspondent banks, and software providers, to the extent relevant.
[Click&type] 2. Through a review of all available information (e.g., written policies and procedures, management’s self-assessments, customer complaints, prior examination reports, and any compliance audit material, including workpapers and reports), determine whether: a. There are any weaknesses or other risks in the business model. b. The scope of the audit addresses all provisions of Regulation E and Regulation Z (as applicable).
c. The scope of the audit addresses all key business processes and functions, including those carried out by third-party service providers or key business partners, as appropriate. d. Management has taken corrective actions to follow up on previously identified deficiencies.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 4 e. As applicable, testing includes risk-based samples covering product types and decision centers.
f. There is an audit trail that supports the findings and conclusions of the work performed. g. Significant deficiencies and their causes are included in reports to management and/or to the board of directors or principal(s).
h. The frequency of review is appropriate.
[Click&type] 3. Through discussions with management and review of available information, determine whether the entity’s internal controls are adequate to ensure compliance with respect to the Regulation E and Regulation Z (as applicable) area(s) under review. Consider among other things:
a. Organizational charts;
b. Process flowcharts;
c. Board minutes, annual reports, or equivalent to the extent available; d. Relevant management reporting;
e. Policies and procedures;
f. Periodic review, reporting cycles;
g. Account (if applicable) and transaction documentation; h. Checklists;
i. Computer program documentation; and j. Complaints.
[Click&type] 4. Through a review of the entity’s training materials and discussions with management, determine whether:
a. The entity provides appropriate training to employees and other persons responsible for Regulation E and Regulation Z (as applicable) compliance and operational procedures. b. The training is comprehensive and covers the sections of Regulation E and Regulation Z (as applicable) that apply to the individual entity’s prepaid product offerings and operations including, to the extent appropriate, those functions carried out by third-party service providers or other business partners, such as agents and correspondent banks.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 5 [Click&type] Transaction-Related Examination Procedures As applicable, conduct transaction testing using the following examination procedures: Obtain all available information as it relates to the entity’s prepaid account program. Examples of this include but are not limited to:
a. List of divisions or departments involved in offering or providing prepaid accounts (e.g., retail, high net worth, bill payment, payroll card, online or mobile banking, government benefits, and foreign exchange and/or treasury departments); b. Prepaid account products offered;
c. Disclosure forms (short and long forms and initial disclosures) in all languages (as applicable);
d. List of all third-party service providers or business partners involved in prepaid accounts, including correspondent banks, payment networks, payment processors, software providers, program managers, retail sales agents, agents in the U.S., or similar entities; e. Change-in-terms notices;
f. Applicable documentation related to prepaid account operations (e.g., transaction logs, periodic statement or periodic statement alternative, service provider agreements (including those allocating compliance responsibilities), advertising and marketing material including any done in foreign languages, and overdraft credit feature disclosures / details (as applicable));
g. Procedural manuals and written policies;
h. Error resolution files (including limited liability files); i. Foreign language prepaid services and products; and j. Consumer complaint files.
[Click&type] Definition of Prepaid Account Confirm that the product in question meets the definition of “prepaid account” in the Prepaid Rule. A consumer asset account that is established primarily for personal, family, or household purposes and is not held by a financial institution under a bona fide trust agreement is a prepaid account if it meets any of the following four tests:
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 6 a. It is a “payroll card account,” which is an account that is directly or indirectly established through an employer and to which electronic fund transfers (EFTs) of the consumer's wages, salary, or other employee compensation (such as commissions), are made on a recurring basis, whether the account is operated or managed by the employer, a thirdparty payroll processor, a depository institution or any other person (1005.2(b)(3)(A)); b. It is a “government benefit account,” which is an account established by a government agency for distributing government benefits to a consumer electronically, such as through automated teller machines or point-of-sale terminals, but does not include an account for distributing needs-tested benefits in a program established under state or local law or administered by a state or local agency (1005.2(b)(3)(B), 1005.15(a)(2)); c. It is an account that is marketed and labeled as “prepaid” and that is redeemable upon presentation at multiple, unaffiliated merchants for goods or services or usable at automated teller machines (1005.2(b)(3)(C)); or d. It is an account: (1) that is issued on a prepaid basis in a specified amount or not issued on a prepaid basis but capable of being loaded with funds thereafter; (2) whose primary function is to conduct transactions with multiple, unaffiliated merchants for goods or services, or at automated teller machines, or to conduct personal transfers; and (3) that is not a checking account, share draft account, or negotiable order of withdrawal account. NOTE: There are a number of exceptions to the third and fourth tests (1005.2(b)(3)(ii)). A product that meets one of these exceptions may instead be subject to 1005.20, which contains requirements for gift cards and gift certificates as defined in that section. Module 1 - Pre-Acquisition Disclosures 5. Obtain and review a sample of the entity’s pre-acquisition disclosure forms (short form and long form for the entity’s various prepaid account products. Include disclosures as provided through various channels (e.g., retail acquisitions, other in-person acquisitions, through a website, by telephone, through a mobile phone application, or a text message). Verify that: a. Disclosures are in the appropriate form (written, unless the prepaid account is acquired through electronic means or telephone), and are clear and conspicuous (1005.18(b)(6)(i)(B));
b. Text used is in a single, easy-to-read type that is all black or one color on a background that provides a clear contrast to the easy-to-read type (1005.18(b)(7)(ii)(A)); c. Pre-acquisition disclosures are given prior to acquiring a prepaid account, with limited exceptions (1005.18(b)(1))1;
1 These exceptions, where the long form disclosure is not required to be provided prior to the consumer acquiring the prepaid account include the “retail location exception” and prepaid accounts acquired orally by telephone (1005.18(b)(1)(ii) and (iii)).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 7 NOTE: For payroll accounts, the disclosures must be given prior to the consumer electing to be paid via the prepaid card, however it is acceptable for the consumer to have been given the access device (the physical card) earlier (comment 1005.18(b)(1)(i)- 1(i)(B)).
d. Copies of scripts used for oral disclosures comply with the content requirements of the pre-acquisition disclosures; and e. The disclosures are in a form that a consumer can keep (with limited exceptions for accounts acquired orally or via the “retail location exception,” as set forth below) (1005.18(b)(6)(ii)).
[Click&type] 6. For oral disclosures, verify that the entity provides the short form disclosure and the information required outside but in close proximity to the short form disclosure at the time the consumer acquires a prepaid account by telephone, unless previously provided in writing to that consumer (1005.18(b)(6)(i)(C)).
[Click&type] 7. For accounts acquired orally, verify that the entity makes the information in the long form disclosure available both by telephone and on a website and orally discloses this availability to each consumer before acquiring the account while also providing the long form disclosure after the consumer acquires the account (1005.18(b)(1)(iii)). [Click&type] 8. For accounts satisfying the “retail location exception” (1005.18(b)(1)(ii) and (b)(2)(xiii)), verify that the prepaid account access device is contained inside the packaging materials; the short form disclosure is provided on or is visible through the packaging; the short form includes a telephone number and website URL that a consumer may use to access the long form; the long form disclosure is available orally at that telephone number and via the website; and the long form is provided post-acquisition in writing or electronically. (1005.18(b)(6)(i)(C)).
[Click&type] 9. For pre-acquisition disclosures provided electronically, verify that the disclosures are viewable regardless of screen size; use machine readable text that is accessible via web browsers or mobile applications, and via screen readers; and are provided in a manner that is reasonably expected to be accessible to the consumer given the way the consumer is
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 8 acquiring the prepaid account (1005.18(b)(6)(i)(B)).2 Verify that the consumer must view the webpage contained the short form and long form disclosures before choosing to accept the prepaid account (1005.18(b)(1)(i)-2).
[Click&type] 10. Verify that the short form and long form disclosures are segregated from other information and contain only information that is required or specifically permitted (1005.18(b)(7)(iii)). NOTE: These disclosures can be on the same page or in the same document as other disclosures or information.
[Click&type] 11. Verify that fee names and other terms are used consistently within and across all preacquisition disclosures for each prepaid account program (1005.18(b)(8)). [Click&type] 12. Verify that an entity provides pre-acquisition disclosures in a foreign language if the entity uses that same foreign language in connection with the acquisition of the prepaid account in any of the following circumstances:
a. The entity principally uses a foreign language on the prepaid account packaging material, as determined with regard to the specific packaging material (1005.18(b)(9)(i)(A)); b. The entity principally uses a foreign language to advertise, solicit, or market a prepaid account and provides a means in the advertisement, solicitation, or marketing material that the consumer uses to acquire the prepaid account by telephone or electronically (1005.18(b)(9)(i)(B)); or c. The entity provides a means for the consumer to acquire a prepaid account by telephone or electronically principally in a foreign language (1005.18(b)(9)(i)(C)).3 [Click&type] Short Form Disclosure 13. Verify that the short form disclosure includes the name of all “static fees” (explained below) even if the feature for which the fee is charged is not offered or there is no cost to the
2 See comment 1005.18(b)(6)(i)(B)-1 for more on reasonable expectations and -2 for more on small screen allowances. 3 Foreign language disclosures are not required for payroll card or government benefit accounts where the foreign language is offered by telephone via a real-time language interpretation service provided by a third-party or by the employer or government agency on an informal or ad hoc basis as an accommodation to the prospective payroll card account or government benefit account holders.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 9 consumer associated with that feature. If the feature is not offered, the entity must disclose the fee amount as “N/A;” if it is offered and there is no charge, entities must disclose the fee amount as zero dollars (comment 1005.18(b)(2)-1). If the fees for any feature could vary, the entity must disclose the highest amount the entity could charge for the feature.4 Except with regard to the cash reload fee, the short form disclosure must not include third-party fees (1005.18(b)(3)(iv) and (v)). The static fees are:
a. Periodic fee – the fee for holding the prepaid account for a specific time period, using “Monthly fee,” “Annual fee,” or a substantially similar term. b. Per purchase fee – the fee for making a purchase with the prepaid account using “Per purchase” or a substantially similar term (1005.18(b)(2)(ii)). c. ATM withdrawal fees – the two fees for withdrawing cash in the United States: the fee charged for such a withdrawal at an ATMs located within the entity’s network, using “ATM withdrawal” and “in-network” or substantially similar terms and the fee charged for such a withdrawal at an ATM outside the entity’s network using “out-of-network” or a substantially similar term (1005.18(b)(2)(iii)).5 d. Cash reload fee – the fee for reloading funds in the form of cash into the prepaid account using “Cash reload” or a substantially similar term (1005.18(b)(2)(iv)). The fee may be disclosed using “Cash deposit” if the entity does not permit cash reloads via a third-party reload network but instead permits cash deposits as, for example, in a bank branch (1005.18(b)(2)(iv)-2). The cash reload fee must include the total of all charges that the entity and any third party may charge for a cash reload (1005.18(b)(2)(iv)).6
4 Generally, the fee amount must be followed by a symbol, such as an asterisk, linked to the statement “This fee can be lower depending on how and where this card is used” or substantially similar language (1005.18(b)(3)(i) and (ii)). The entity must use the same symbol and statement for all fees that could vary, except for a variable periodic fee. For a periodic fee that may vary, the entity may alternatively disclose the highest periodic fee followed by a symbol that is different from the one used for other fees that may vary, such as a dagger, that links to a separate statement disclosing the waiver or reduced fee amount and circumstances under which the reduction or waiver could occur (1005.18(b)(3)(ii)). The linked separate statement, if used, must appear above or in place of the linked statement for other variable fees and may not take up more than one line of text (comment 1005.18(b)(3)(ii)-1).
5 If the entity charges the same amount for all withdrawals at ATMs located in the United States it can disclose one fee amount and does not need to include the two tiers “in-network” and “out-of-network” in the short form disclosure (1005.18(b)(3)(iii); comment 1005.18(b)(3)-1.i).
6 The cash reload fee includes the cost of adding cash to a prepaid account at a point of sale (POS) terminal, the cost of purchasing an additional card or other device on which cash is reloaded and then transferred to the prepaid account, or any other method a consumer may use to reload cash into the prepaid account (comment 1005.18(b)(2)(iv)-1). Because it is only for cash reloads, it does not include fees for reloading the prepaid account electronically or by check (comment 1005.18(b)(2)(viii)(A)- 2.i).
NOTE: An entity is not required to revise its short form disclosure to reflect changes in a third party’s cash reload fee until the entity manufactures, prints, or otherwise produces new prepaid account packaging materials or otherwise updates its short form disclosure (comment 1005.18(b)(3)(v)-1).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 10 e. ATM balance inquiry fees – the two fees for checking prepaid account balances at ATMs in the United States, one disclosing the fee charged for a balance inquiry at an ATM within its network or affiliated network, using “ATM balance inquiry” and “in-network” or substantially similar term and one disclosing a fee charged at an ATM outside its network using “out-of-network” or substantially similar term (1005.18(b)(2)(v)).7 f. Customer service fees – the two fees for calling the financial institution about the prepaid account, using “Customer service” or a substantially similar term; and then, for calling an IVR system, “automated” or a substantially similar term; and, for calling a live customer service agent, “live agent” or a substantially similar term. The short form disclosure must also inform the consumer that the fee is charged for each call, using “per call” or a substantially similar term (1005.18(b)(2)(vi)).8 g. Inactivity fee – the fee charged for non-use, dormancy, or inactivity of the prepaid account using the term “Inactivity” or substantially similar term while also disclosing the conditions under which the fee will be imposed (1005.18(b)(2)(vii)). [Click&type] 14. Verify that the short form disclosure includes the following information on additional fee types:
a. Disclosure of the number of additional fee types –“We charge [x] other types of fees” or substantially similar language (1005.18(b)(2)(viii)(A)).9 If there are no additional fee types, the entity must disclose “0.”
b. Transitional statement – If the entity disclosed any additional fees types (pursuant to 1005.18(b)(ix)), the statement “Here are some of them” or substantially similar language after, but on the same line as, the disclosure of the number of additional fee types (1005.18(b)(2)(viii)(B)).
7 If the entity charges the same amount for all ATM balance inquiries located in the United States, it can disclose one fee amount and does not need to include the two tiers “in-network” and “out-of-network” in the short form disclosure (1005.18(b)(3)(iii)). 8 If the entity charges the same amount for IVR and live agent calls, it can disclose one fee amount without including the two tiers in the short form disclosure (1005.18(b)(3)(iii)). If the entity is providing a short form disclosure for multiple service plans, it only needs to disclose the fee for calling the live agent customer service, using the term “Live customer service” or a substantially similar term and “per call” or substantially similar term (1005.18(b)(2)(vi) and (b)(6)(iii)(B)(2)). 9 See comment 1005.18(b)(2)(viii)(A)-2 for more information on what constitutes “additional fee types” and for examples of “additional fee types.”
NOTE: The disclosure of the number of additional fee types, as well as the disclosure of the additional fee types themselves (pursuant to 1005.18(b)(2)(ix(A)), exclude: static fees (i.e., fees disclosed pursuant to 1005.18(b)(2)(i)-(vii)), fees disclosed outside the short form pursuant to 1005.18(b)(5), and any finance charges imposed in connection with a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in 12 CFR 1026.61 (1005.18(b)(2)(viii) and (ix) and1005.18(b)(3)(vi)).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 11 c. Listing of the fees –the two additional fee types that generate the highest revenue from consumers for the prepaid account program or across prepaid account programs that share the same fee schedule during the appropriate 24-month period (1005.18(b)(2)(ix)(A)).10 [Click&type] 15. Verify that the additional fee types listed are the two highest revenue-generating fees within the last 24-month period and if any updates are required. Verify that the additional fee type disclosures are updated within three months of the end of the 24-month period (1005.18(b)(2)(ix)(A) and (E)(1) and (2)).11 Check to see if the “update printing exception” applies if the disclosures are not updated timely (1005.18(b)(2)(ix)(E)(4)). An entity may update more frequently but still must use 24 consecutive months of data and update the disclosure within three months (1005.18(b)(2)(ix)(E)(2); comment 1005.18(b)(2)(ix)(E)(2)- 2).
NOTE: A fee schedule change resets the 24-month period for reassessment. The entity must conduct a reassessment prior to implementing a fee schedule change and determine whether it “reasonably anticipates” that the additional fee types will remain compliant. If not, the entity must update the disclosures at that time (1005.18(b)(2)(ix)(E)(3); comment 1005.18(b)(2)(ix)(E)(3)-1).
[Click&type] 16. Verify that the listing of the additional fee types is consistent with the requirements of the Prepaid Rule based on how many fee variations are within the additional fee type and whether the financial institutions is providing the short form disclosure for multiple service plans from one of these options, depending on the fees (1005.18(b)(2)(ix)(C)): a. One fee variation charged under an additional fee type – must disclose the name of the additional fee type and fee amount. The entity may choose to also disclose the name of the one fee variation (comment 1005.18(b)(2)(ix)(C)-2).
10 If any entity does not charge any fees other than the ones listed in the static fees, it will not list any additional fees types in the short form disclosure. Further, the Prepaid Rule does not require the entity to include in its determination of additional fee types any fee types that generated less than five percent of total revenue from consumers for the prepaid account program or across prepaid account programs that share the same fee schedule during the relevant period, so it is possible the entity will be required to list fewer than two additional fee types (1005.18(b)(2)(ix)(A) and (B)). An entity may list two fee types, at its election, if less than two fee types generate at least five percent of the total revenue from consumers for the prepaid account program or across prepaid account programs that share the same fee schedule during the relevant period (1005.18(b)(2)(ix)(B); comment 1005.18(b)(2)(ix)(B)-1). Note that, hereafter, each time this guide references the highest revenue-generating fees it refers to total revenue from consumers for the particular prepaid program or across prepaid account programs that share the same fee schedule during the relevant time period.
11 For prepaid account programs created after April 1, 2019 or that lack 24 months of fee revenue data, the entity must disclose the two additional fee types based on the revenue it “reasonably anticipates” the program will generate during the first 24 months (1005.18(b)(ix)(D)(2) and (3)). Existing prepaid account programs must disclose additional fee types based on a 24-month period that begins no earlier than October 1, 2014 (1005.18(b)(ix)(D)(1)).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 12 b. Two fee variations charged under an additional fee type – if exactly two variations, the entity must disclose the name of the additional fee type as well as the names and amounts of both fee variations in a format substantially similar to the two-tiered disclosure of the two fees under ATM withdrawal and Customer service (1005.18(b)(2)(ix)(C) and comment 1005.18(b)(ix)(C)-1.i). If the charge for the two variations is the same, see comment 1005.18(b)(ix)(C)-1.iii and 1005.18(b)(3)(iii). c. More than two fee variations charged under an additional fee type – The entity must either:
i.
Disclose the name of the additional fee type and the highest fee amount among the fee variations followed by a symbol linked to a statement explaining that the fee could be lower depending on how and where the card is used (1005.18(b)(2)(ix)(C) and comment 1005.18(b)(2)(ix)(C)-1.ii), or ii.
Consolidate the fee variations into two categories and disclose the names of those two categories and fee amounts in a format substantially similar to the two-tiered disclosure of the two fees under ATM withdrawal and Customer service (1005.18(b)(2)(ix)(C); comment 1005.18(b)(ix)(C)-1.i). NOTE: If the entity provides the short form disclosure for multiple service plans, the entity must disclose the name of the additional fee type and the highest fee amount among the variations (comment 1005.18(b)(2)(ix)(C)-1.iv). [Click&type] 17. Verify that the short form disclosure states either, “You may be offered overdraft/credit after [x] days. Fees would apply” or “No overdraft/credit feature” or substantially similar language depending on if a consumer may be offered a separate credit feature at any point in connection with the prepaid account (1005.18(b)(2)(x)). [Click&type] 18. Verify that the short form disclosure includes a statement that: a. Informs a consumer about whether the prepaid account program is set up to be eligible for FDIC deposit insurance or NCUA share insurance; and b. Directs a consumer to register the prepaid account for insurance and other protections (if applicable).
1005.18(b)(2)(xi) This language should use the appropriate model language or substantially similar language, which depends on the specific scenario offered with the product, as found in 1005.18(b)(2)(xi)(A) through (E).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 13 [Click&type] 19. Verify that the short form disclosure includes the statement “For general information about prepaid accounts, visit cfpb.gov/prepaid” or substantially similar language (1005.18(b)(2)(xii)).
[Click&type] 20. Verify, after determining if the entity is relying on the retail location exception or not, the short form disclosure includes a statement directing the consumer to the long form disclosure:
a. If the prepaid product is not relying on the retail location exemption – “Find details and conditions for all fees and services in [location]” or substantially similar language. b. If the prepaid product is relying on the retail location exemption – “Find details and conditions for all fees and services inside the package, or call [telephone number], or visit [website]” or substantially similar language. If an SMS code also fits on the same line of text, an entity may also disclose an SMS code at the end of the statement. i.
Verify that the telephone number provided in the statement above provides direct access, for example, if the consumer only navigates one or two prompts to reach the oral version of the long form disclosure (comment 1005.18(b)(2)(xiii)-1). ii.
Verify that the website URL provided in the statement above provides direct access to an electronic version of the long form disclosure. The website URL must not exceed 22 characters and must be meaningfully named (1002.18(b)(2)(xiii)). Direct access is not achieved, for example, if the consumer must navigate various other webpages before viewing the long form disclosure (comment 1005.18(b)(2)(xiii)-2). [Click&type] 21. For short form disclosures provided as part of a payroll card account, verify the disclosure includes one of the following statements, or a substantially similar statement, and appears above the static fees section and in a minimum type size of eight points (or 11 pixels) and appears in a type size no larger than that used for the static fee headings: a. Option 1 – “You do not have to accept this payroll account. Ask your employer about other ways to receive your wages.”
b. Option 2 – “You have several options to receive your wages: [list of options available to consumer]; or this payroll card. Tell your employer which option you choose.” 1005.18(b)(2)(xiv)(A) and 1005.18(b)(7)(2)(B)(iii)
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 14 NOTE: In either option, the entity is permitted to provide more specificity as to whom a consumer must ask or inform of his or her choice of wage payment method (comment 1005.18(b)(2)(xiv)(A)-1).
ALSO NOTE: The entity may also choose for payroll card accounts to include a statement in its short form disclosure a statement, up to one additional line of text, directing a consumer to a particular location outside the short form disclosure for information on ways the consumer may access payroll card account funds and balance information for free or for a reduced charge (1005.18(b)(2))(xiv)(B)). This statement must be located below the statements disclosed pursuant to 1005.18(b)(3)(i) and (ii) or, if there are no such statements, above the statement required by 1005.18(b)(2)(x).
[Click&type] 22. For short form disclosures provided for a government benefit account, verify the disclosure includes one of the following or a substantially similar statement and appears above the static fees section and in a minimum type size of eight points (or 11 pixels) and appears in a type size no larger than that used for the static fee headings: a. Option 1 – “You do not have to accept this benefits card. Ask about other ways to receive your benefits.”
b. Option 2 – “You have several options to receive your payments: [list of options available to consumer]; or this benefits card. Tell the benefits office which option you choose.” 1005.15(c)(2)(i) NOTE: For government benefit accounts, a government agency can choose to include in its short form disclosure a statement, up to one additional line of text and directly below the linked statement for fees that can vary in amount or directly above the statement regarding overdraft/credit features if no linked statement, directing a consumer to a particular location outside the short form disclosure for information on ways the consumer may access government benefit account funds and balance information for free or for a reduced charge (1005.15(c)(2)(ii)).12 [Click&type] 23. Verify that written and electronic short form disclosures are in the required format to include:13
12 See Model Form A-10(a) for an illustration of the disclosure. https://www.consumerfinance.gov/documents/1043/102016_cfpb_PrepaidDisclosures.pdf 13 See https://www.consumerfinance.gov/documents/6332/cfpb_prepaid_guide-to-short-form-disclosure.pdf.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 15 a. Disclosing the static fees and all disclosures regarding additional fee types in the form of a table (1005.15(c)(3); 1005.18(b)(6)(iii)).14 b. Specific type size, grouping, and other formatting requirements for the short form disclosure as set forth in 1005.18(b)(6) and (7), including, but not limited to: i.
Single, easy-to-read type that is all back or one color and printed on a background that provides a clear contrast (1005.18(b)(7)(ii)(A)); ii.
Contains only information that is required or specifically permitted by the Prepaid Rule and segregated from other information (1005.18(b)(7)(iii)); iii.
Minimum type size (1005.18(b)(7)(ii)(B)(1) and (2)); iv.
Tabular format that is substantially similar to the model form (1005.18(b)(6)(iii)(A)); v.
Groupings (A-D) as specified (1005.18(b)(7)(i)(A)).
c. For multiple service plans, the entity may use the regular short form disclosure format for the service plan in which a consumer is initially enrolled (1005.18(b)(6)(iii)(B)(1). Alternatively, for multiple service plans, an entity can make the required fee disclosures in the form of a table with separate columns for each service plan (1005.18(b)(6)(iii)(B)(2)).15 NOTE: A loyalty plan, where a consumer receives preferred rates or fees for using a nonprepaid service, qualifies as a multiple service plan. Pricing variations based on whether a consumer chooses to use a particular feature of a prepaid account, such as direct deposit, does not qualify as a multiple service plan (comment 1005.18(b)(6)(iii)(B)(2)-1). [Click&type] Information Required to be Disclosed Outside but in Close Proximity to the Short Form Disclosure 24. Verify that the entity, at the time that it provides the short form disclosure to the consumer, it also discloses:
a. Financial institution’s name;16
14 Unless an entity is disclosing multiple service plans in a single form, the short form disclosure must be provided in a form substantially similar to Model Forms A-10(a) through (d), as applicable. 15 If an entity elects to use the separate-column option in the short form disclosure, it must be substantially similar to Model Form A-10(e) (1005.18(b)(6)(iii)(B)(2)).
16 For government benefit accounts, the name of the entity that directly holds the account or issues the account’s access device must be disclosed (comment 1005.15(c)-4).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 16 b. Name of the prepaid account program;
c. Purchase price for the prepaid account (if any); and d. Activation fee (if any).
1005.18(b)(5) NOTE: An entity may also choose to disclose the name of the program manager or other service provider involved in the prepaid account program (comment 1005.18(b)(5)-1). [Click&type] 25. Verify the information in procedure #24 is in close proximity to the short form disclosure, for example:
a. If the entity provides the short form disclosure online, the information appears on the same web page as the short form disclosure.
b. If the entity offers the prepaid account in its own branch locations, it provides the information and the short form disclosure on the exterior of a prepaid card’s preprinted packaging materials.
c. If the entity provides written short form disclosures in a manner other than on preprinted packaging materials, such as on paper, the information is on the same piece of paper. d. If the entity provides the short form disclosures orally, the information is provided immediately before or after disclosing the fees and information required to be included in the short form disclosure.
Comment 1005.18(b)(5)-2 [Click&type] 26. Verify, for prepaid accounts sold pursuant to the retail location exception, that the purchase price is disclosed either on the exterior of or in close proximity to the access device’s packaging material.17 The other information, discussed in procedure #24, must be disclosed on the exterior of the access device’s packaging materials (1005.18(b)(5) and comment 1005.18(b)(5)-2).
[Click&type]
17 Disclosure of the purchase price on or near the sales rack or display for the packaging material is in close proximity to the short form disclosure (comment 1005.18(b)(5)-2).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 17 Long Form Disclosure18 NOTE: The long form disclosure is the companion to the short form disclosure and provides more comprehensive fee information, including a list of all fees that may be imposed in connection with the prepaid account.
27. Verify that the first line of the long form disclosure is a title or heading that states the name of the prepaid account program and tells a consumer that the long form disclosure contains a list of all fees for the prepaid account program (1005.18(b)(4)(i) and (b)(7)(i)(B)). [Click&type] 28. Review the long form disclosure to ensure that it includes all fees that may be imposed in connection with a prepaid account. Verify that the long form disclosure: a. Discloses the amount of each fee that may be imposed; b. Discloses the conditions, if any, under which the fee may be imposed, waived, or reduced;19 c. Does not use any symbols, such as an asterisk, to explain conditions under which any fee may be imposed;
d. Includes finance charges imposed on the prepaid account in connection with a covered separate credit feature;20 e. Includes third-party fee amounts known to the entity. If the entity knows that a thirdparty fee may apply but it does not know the amount of that fee, the entity must include a statement indicating that the third-party fee may apply without specifying the fee amount;21 f. Includes the same information about FDIC or NCUA insurance and registration that is included in the short form disclosure (procedure #18) for the prepaid account program
18 See generally the sample long form disclosure, Sample Form A-10(f), available at: https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/102016_cfpb_PrepaidDisclosures.pdf. Note that there is a sample form, not a model form, for the long form disclosure. 19 An entity need not disclose individual fee waivers or reductions granted to a particular consumer or group of consumers on a discretionary or case-by-case basis (comment 1005.18(b)(4)(ii)-2). 20 Finance charges imposed on the covered separate credit feature itself are not included in the long form disclosure’s fee table (comment 1005.18(b)(4)(ii)-1).
21 An entity is not required to revise the long form disclosure to reflect a change to a third-party fee until it manufactures, prints or otherwise produces new prepaid account packaging materials or otherwise updates the long form disclosure (1005.18(b)(4)(ii)).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 18 and, in addition, includes an explanation of FDIC or NCUA insurance coverage and the benefit of such coverage or the consequence of the lack of such coverage, as applicable; g. Includes the same statement about overdraft credit features that is included in the short form disclosure (procedure #17) for the prepaid account program;22 h. Includes a statement directing consumers to a telephone number, mailing address, and website for the person or office that a consumer may contact to learn about the prepaid account’s terms and conditions, to obtain prepaid account balance information, to request an account transaction history (if the entity does not provide periodic statements), or to notify the entity when the consumer believes an unauthorized EFT has occurred; i. Includes a statement with the following or substantially similar language: “For general information about prepaid accounts, visit cfpb.gov/prepaid. If you have a complaint about a prepaid account, call the Consumer Financial Protection Bureau at 1-855-411-2372 or visit cfpb.gov/complaint”; and j. Includes the Regulation Z application and solicitation disclosures required by 12 CFR 1026.60(e)(1) if, at any point, a covered separate credit feature may be offered in connection with the prepaid account.23 NOTE: An entity may also choose whether to disclose any service or feature it provides or offers at no charge to the consumer.
1005.18(b)(4)(ii)-(vii) [Click&type] 29. Verify the long form disclosure, when provided in writing or electronically, discloses the fees and conditions under which they may be imposed in the form of a table24 (1005.18(b)(6)(iii)(A)), which includes verifying that:
22 “You may be offered overdraft/credit after [x] days. Fees would apply” or “No overdraft/ credit feature” or substantially similar language depending on whether a consumer may be offered a separate credit feature at any point in connection with the prepaid account (1005.18(b)(2)(x)).
23 If these Regulation Z disclosures are required to be included, they must appear below the statements directing the consumer to the Bureau’s website and telephone number (comment 1005.18(b)(5)-2) and must be provided in accordance with the requirements for such disclosures set forth in 12 CFR 1026.60 and, to the extent possible, on the same page as the other fees and statements in the long form disclosure (1005.18(b)(4)(vii); comment 1005.18(b)(4)(vii)-1). Also, an entity is not required to revise the long form disclosure to reflect a change in the fees or other terms included in the Regulation Z disclosures until it manufactures, prints or otherwise produces new prepaid account packaging materials or otherwise updates the long form disclosure (1005.18(b)(4)(vii)).
24 If providing a long form disclosure for multiple service plans, the entity must present the fees and conditions under which each fee may be imposed in the form of a table for all service plans (1005.18(b)(6)(iii)(B)(3)).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 19 a. The fees and conditions under which they may be imposed are generally grouped together;
b. The fees are organized under subheadings by the “categories of functions” for which they may be imposed;
c. The conditions are disclosed in close proximity to the fee amount; d. The statements are generally grouped together and appear below the table containing the fees and conditions; and e. The minimum type size is eight points (or 11 pixels). 1005.18(b)(7)(i)(B) and (b)(7)(ii)(C) [Click&type] Disclosures on the access device 30. Verify that the entity includes the following two disclosures on the card or other access device:25 a. The entity’s name. For a government benefit account, the name of the entity that directly holds the account or issues the account’s access device is disclosed (comment 1005.15(f)- 1); and b. A telephone number and a website URL that the consumer can use to contact the entity about the prepaid card (e.g., to learn about the terms and conditions, obtain account balance information, request an account transaction history, or notify the entity of an unauthorized transaction) (comment 1005.18(f)-3).
1005.18(f)(3) NOTE: If an entity does not provide a physical access device for a prepaid account, these disclosures must appear on the website, mobile application, or other entry point that a consumer must visit to access the prepaid account electronically (1005.18(f)(3)). [Click&type]
25 Placing these disclosures on the packaging or other material (such as terms and conditions document) that accompanies the card or device or on a sticker or label affixed to the card or device is not sufficient (comment 1005.18(f)-3).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 20 Module 2 - Initial Disclosures and Change-in-Terms Notices Initial Disclosures 31. Verify that the entity provides the Regulation E initial disclosures in writing (or electronically if the entity complies with the E-Sign Act) that are clear, readily understandable, and provided in a form the consumer may keep, at the time a consumer contracts for an EFT service or before the first EFT is made involving the consumer’s account (1005.4(a)(1) and 1005.7(a)).
[Click&type] 32. Verify that the content of the initial disclosures includes all of the information required in the long form disclosure for the prepaid account as well as the information required to be included in the initial disclosures for other accounts subject to Regulation E, including: a. Liability of consumers for unauthorized EFTs – a summary of the consumer’s liability for unauthorized EFTs (1005.7(b)(1)).26 NOTE: For prepaid account programs that do not have a consumer identification and verification process, describe its error resolution process and limitations on consumers’ liability for unauthorized transfers or, if none, state that there are no such protections, the entity is required only to comply with the process (if any) it discloses (1005.18(d)(1)(ii)).
b. Telephone number and address – the telephone number and address of the person or office to be notified when the consumer believes an unauthorized EFT has been or may be made on the prepaid account (1005.7(b)(2)).
c. Business days – the entity’s business days (1005.7(b)(3)). d. Types of EFTs the consumer may make and limitations on frequency and dollar amount of EFTs (1005.7(b)(4)).
e. Fees and other information required to be in the long form disclosure – for prepaid accounts, initial disclosures must include all of the information required to be included in the long form disclosure (procedure #28), including all fee information (i.e., information about all fees that the entity may charge, not just fees for EFTs or the right to make EFTs) (1005.7(b)(5); 1005.18(f)(1); comment 1005.18(f)-1). f. Documentation – a summary of the consumer’s right to receipts and periodic statements and notices regarding preauthorized EFTs under Regulations E (1005.7(b)(6)).
26 If the entity does not impose any liability on the consumer, it does not need to provide the liability disclosure. If it later decides to impose liability, it must first disclose a summary of the consumer’s liability (comment 1005.7(b)(1)-1).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 21 g. Stop Payment – a summary of the consumer’s right to stop payment of a preauthorized EFT and the procedure for placing a stop-payment order (1005.7(b)(7)). h. Liability of institution – a summary of the entity’s liability to the consumer under section 910 of EFTA for failure to make or to stop certain EFTs (1005.7(b)(8)). i. Confidentiality – the circumstances under which, in the ordinary course of business, the entity may provide information concerning the consumer’s account to third parties, including the entity’s affiliates (1005.7(b)(9)).
j. Error Resolution – an error resolution notice that is substantially similar to Model Form A-3.
NOTE: For prepaid accounts that do not have a consumer identification and verification process, the entity must provide a description of any error resolution process that applies to the prepaid account. If the entity does not provide any error resolution protections, the initial disclosures must state that there are no such protections (1005.18(d)(1)(ii)). k. ATM fees – a notice that a fee may be imposed by an ATM operator for an EFT or for a balance inquiry, and by any network used to complete the transaction (1005.7(b)(11)). [Click&type] 33. Determine if the entity relies on the alternative to providing periodic statements for prepaid accounts. If the entity uses the alternative to providing periodic statements, verify that the initial disclosures inform the consumer how to access prepaid account information and includes:
a. A telephone number that a consumer may call to obtain the account balance; b. The means by which a consumer can obtain an electronic account transaction history, such as the address of a website; and c. A summary of a consumer’s right to receive written account transaction history upon request, including a number to call to request a history. 1005.18(d)(1)(i) NOTE: For prepaid accounts other than government benefits accounts, an entity may make these modified disclosures by providing a notice substantially similar to Model Clauses A- 7(a) (1005.18(d)(1)(i)). For government benefit accounts, the government agency may make these disclosures by providing a notice substantially similar to Model Clauses A-5(a) (1005.15(e)(1)(i)).
[Click&type]
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 22 34. If the entity uses the alternative to providing periodic statements, verify that it provides a modified error resolution notice substantially similar to the notice contained in Model Clauses A-7(b) (1005.18(d)(1)(ii)).
NOTE: For government benefit accounts, the government agency must provide a notice that is substantially similar to the notice in Model Clauses A-5(b) (1005.1(e)(1)(ii)). [Click&type] Change-in-terms notices 35. Determine if the entity mailed or delivered a change-in-terms notice, as required, to the consumer when:
a. A term or condition required to be disclosed in the initial disclosures (including any of the information required in the long form disclosure changes); and b. The change results in any of the following:
i.
Increased fees for the consumer. The Prepaid Rule requires that the initial disclosures for a prepaid account include all of the information required to be disclosed in the long form disclosure. As a result, a change-in-terms notice for a prepaid account is required under Regulation E if an entity adds or increases a fee (1005.18(f)(1) and (2)).27 ii.
Increased liability for the consumer.
iii.
Fewer types of available EFTs.
iv.
Stricter limitations on the frequency or dollar amounts of EFTs. 1005.8(a)(1) and 1005.18(f)(2); 1005.15(f) for government benefit accounts [Click&type] 36. Verify that the entity mailed or delivered in writing, or electronically if it complies with the E-Sign Act, any change-in-terms notice required under Regulation E (procedure #35) at least
27 The Prepaid Rule does not require an entity to provide a change-in-terms notice under Regulation E solely to reflect a change to a third-party fee, though fees charged by a service provider for a service performed on behalf of the entity are not third-party fees (comment 1005.18(b)(4)(ii)-4). Similarly, if the entity is required to include Regulation Z disclosures for a separate covered credit feature in the long form disclosure and initial disclosures, the entity is not required to provide a change-in-terms notice under Regulation E solely to reflect a change in the fees or terms imposed on the separate credit feature, unless a finance charge imposed on the prepaid account is added or increased; however, a change-in-terms notice may otherwise be required under Regulation Z (comment 1005.18(b)(4)(ii)-1 and (f)-2).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 23 21 days before the effective date of the change in a clear and readily understandable form the consumer can keep (1005.8(a)(1) and 1005.4(a)(1)).28 NOTE: The notice may appear on a periodic statement, or can be given by sending a copy of a revised disclosure statement if the entity directs the consumer’s attention to the change or changes (comment 1005.8(a)-1).
NOTE ALSO: The cancelation of an access device, such as a prepaid card, or the closing of some of the financial institution’s ATMs does not require a change-in-terms notice under Regulation E (comment 1005.8(a)-2).
[Click&type] Module 3 - Periodic Statements and the Periodic Statement Alternative 37. Determine if the entity either provides a periodic statement (procedure #38) or makes certain account information available to consumers under the periodic statement alternative (procedure #40) (1005.9(b); 1005.18(c)(1)).
[Click&type] 38. If the entity provides a periodic statement, verify that it is in writing, and sent for each monthly cycle in which an EFT has occurred and at least quarterly if no EFT has occurred (1005.9(b)).29 [Click&type] 39. Verify the periodic statement includes, as applicable: a. For each EFT occurring during the statement cycle:
i.
The amount of the EFT;
ii.
The date the EFT was credited or debited to the prepaid account; iii.
The type of EFT and type of account to or from which the funds were transferred;
28 If an immediate change in the terms or conditions is necessary to maintain or restore the security of a prepaid account or an EFT system, an entity does not need to give prior notice of the change. If the entity makes the change permanent and disclosure would not jeopardize the security of the account or system, the entity must notify the consumer in writing of the change on or with the next regularly scheduled periodic statement or within 30 days of making the change permanent (1005.8(a)(2)). 29 An entity may comply with the “in writing” requirement by providing an electronic statement to the consumer provided that the entity also complies with the E-Sign Act (1005.4(a)(1)).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 24 iv.
If the EFT (other than a deposit of cash or check, a draft, or similar paper instrument) was initiated by the consumer at an electronic terminal, the terminal location (or an identification such as a code or terminal number) where the EFT was initiated; and v.
The name of any third party to or from whom funds were transferred (1005.9(b)(1)). b. The prepaid account number (1005.9(b)(2)).
c. The amount of any fee assessed against the prepaid account during the statement cycle (1005.9(b)(3); 1005.18(c)(4)).30 d. The balance in the account at the beginning of the statement period and the balance at the end of the statement period (1005.9(b)(4)).
e. The address and telephone number that a consumer can use for inquiries or notices of error. The address and phone number must be preceded by “Direct inquiries to” or similar language (1005.9(b)(5)).
f. If an entity uses the telephone notice option for preauthorized EFTs pursuant to 1005.10(a)(1)(iii), a telephone number that the consumer can call to determine if preauthorized EFTs to the prepaid account have occurred (1005.9(b)(6)). g. A summary total of the account of all fees assessed by the entity against the consumer’s prepaid account for the prior calendar month and for the calendar year to date (1005.18(c)(5)).31 [Click&type] 40. If the entity does not furnish a periodic statement for a prepaid account, verify that it instead makes available or provides (as applicable) all of the following:32
30 Unlike the Regulation E requirement for other accounts, the requirement to include the amount of any fee assessed against a prepaid account during the statement cycle is not limited to fees for EFTs, fees for the right to make EFTs, or account maintenance fees.
31 These totals must be displayed on any periodic statements as well as on any account transaction histories an entity provides or makes available (1005.18(c)(5)). An entity may, but is not required to, include third-party fees in the summary totals and may choose to inform consumers of third-party fees such as by providing a disclaimer that the summary does not include certain thirdparty fees, or to explain when third-party fees may occur, or through some other method (comment 1005.18(c)-8.ii). An entity also may choose to include sub-totals of the types of fees that make up the summary totals, as long as it also presents the combined totals of all fees (comment 1005.18(c)-9).
32 If, on April 1, 2019, an entity does not have readily accessible data necessary to make available or provide an account transaction history for 12 or 24 months (as applicable), it can instead make available or provide the history for the time period it has until it has accumulated the data necessary to comply in full with the rule. All entities must comply no later than April 1, 2020 for electronic account transaction history and no later than April 1, 2021 for written account transaction history (comment 1005.18(h)-6.i). For summary totals, if the entity does not have the data necessary to calculate the summary totals of fees, it may use the data it has until it accumulates the data necessary to display the summary totals as required by 1005.18(c)(5) (comment 1005.18(h)-6.ii). For year-to-date totals in 2019, the entity may use April 1, 2019 as the year-to-date, rather than January 1, 2019,
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 25 a. Account balance information – the entity must make a consumer’s prepaid account balance available through a readily available telephone line (1005.18(c)(1)(i)). NOTE: For government benefit accounts, the account balance must also be made available at a terminal, such as by providing balance information at a balance inquiry terminal, or providing it, routinely or upon request, on a terminal receipt (1005.15(d)(1)(i)).
b. Electronic account transaction histories – the entity must make available an electronic account transaction history that covers at least 12 months preceding the date on which the consumer electronically accesses the prepaid account (1005.18(c)(1)(ii); for government benefit accounts 1005.15(d)(1)(ii)).33 NOTE: Electronic account transaction histories must display all of the information required to be included in periodic statements for prepaid accounts, including the amount of any fees assessed against the account and the summary totals of all fees assessed by the entity against the account for the prior calendar month and calendar year to date (see procedure #39; 1005.18(c)(3) through (5)). The electronic history must be made available in a form consumers may keep. Financial institutions may satisfy this requirement if they make the electronic history available in a format that is capable of being retained, such as on a website in a format that is capable of being printed or stored electronically using a web browser (comment 1005.18(c)-2). c. Written account transactions histories – the entity must provide a written account transaction history for a prepaid account promptly in response to the consumer’s oral or written request, covering at least 24 months preceding the date the entity receives the consumer’s request for the written account history, and that displays all of the information required to be included in periodic statements (see procedure #39; 1005.18(c)(1)(iii); for government benefit accounts 1005.15(d)(1)(iii)).34 NOTE: For prepaid accounts other than payroll card accounts and government benefit accounts, an entity is not required to provide a written account transaction history for a
provided this is disclosed to the consumer. Starting January 1, 2020, year-to-date fees must be displayed for the calendar year (comment 1005.18(h)-6.ii).
33 If a prepaid account has been open for fewer than 12 months, the entity need only provide the electronic history for the period since the time of account opening. If a prepaid account is closed or becomes inactive, as defined by the entity, the entity does not need to make an electronic account history available for that prepaid account. However, if an inactive prepaid account becomes active, the entity must again make available 12 months of electronic account transaction history (comment 1005.18(c)-4). 34 An entity may provide fewer than 24 months of written account transaction history if a consumer requests a shorter time period or if the account has been open for fewer than 24 months, providing only the written history for the period since account opening. Even if a prepaid account is closed or becomes inactive, an entity must continue to provide a written account transaction history covering at least 24 months prior to the date the entity receives the consumer’s request. However, when the account has been closed or inactive for 24 months or longer, an entity is no longer required to provide written account transaction histories (comment 1005.18(c)-5).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 26 prepaid account if the entity has not completed its consumer identification and verification process for that prepaid account (1005.18(c)(2)). NOTE ALSO: An entity may only charge a fee if the consumer’s request exceeds the requirements of the Prepaid Rule (e.g., an account history for longer than 24 months; automatic mailing of written account transaction histories on a periodic basis; multiple requests within a single month (for the subsequent requests) (comment 1005.18(c)-3). [Click&type] Module 4 - Error Resolution and Limitations on Liability 41. Determine if the entity has a consumer identification and verification process for the prepaid account program. If it does not have this process, the program is not a payroll card account or government benefit card account program, and the program: a. Provides the alternative initial disclosure required pursuant to the Prepaid Rule (procedure #32; 1005.18(d)(1)(ii); (e)(ii)(C)) and, b. Complies with the error resolution process and limitations on liability (if any) it has disclosed (procedure #32; 1005.18(e)(3)(ii)(C)).
The entity is not required to comply with the error resolution and limitations on liability provisions of Regulation E with respect to that program. Document this fact and skip the rest of this Module for that program.
[Click&type] If the entity is required to comply with the error resolution and limitations on liability provisions of Regulation E, complete procedures #42-49. NOTE: For an individual account, the entity is not required to comply with Regulation E’s error resolution and limitation of liability provisions until it has successfully completed its consumer identification and verification process for that account (1005.18(e)(3)). An entity that collects and verifies consumer identifying information, or that obtains such information after it has been collected and verified by a third party, prior to or as part of the account acquisition process, is deemed to have successfully completed its consumer identification process with respect to that account (comment 1005.18(e)-6). 42. Verify the entity does not delay completing its consumer identification and verification process or refuse to verify a consumer’s identity based on the consumer’s assertion of an error (comment 1005.18(e)-5).
[Click&type]
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 27 Limited Liability 43. Review the entity’s policies and procedures on limited liability to ensure compliance either with 1005.6(b) timing requirements35 and notice to the entity or (if the entity has provided the periodic statement alternative disclosures described in 1005.18(c)(1)) by limiting the consumer’s liability for any unauthorized EFT reported by the consumer within 120 days after the EFT was credited or debited to the consumer’s prepaid account (1005.18(e)(1); for government benefit accounts 1005.15(e)(3)). Verify, through transaction testing, that policies and procedures are followed.36 NOTE: For prepaid accounts that are not payroll card accounts or government benefit accounts, the entity is not required to comply with the liability limits in 1005.6 for any prepaid account for which it has not successfully completed its consumer identification and verification process (1005.18(e)(3)).
[Click&type] 44. Verify the entity has provided the following written (or electronic, if the entity complies with the E-Sign Act) disclosures, required as part of the initial disclosures (procedure #5), to the consumer in order to impose any consumer liability for an unauthorized EFT: a. A summary of the consumer’s liability for unauthorized EFTs; b. A telephone number and address for reporting that an unauthorized EFT has been or may be made; and c. The entity’s business days.
1005.6(a), 1005.7(b)(1)-(3) If the unauthorized EFT involved an access device, such as a prepaid card, verify two additional conditions are met for those transactions before the entity imposes liability on the consumer:37
35 Generally the 60- day period for reporting is the earlier of (a) the date the consumer electronically accesses the consumer’s account, provided that the electronic history made available to the consumer reflects the untheorized, or (b) the date the entity sends a written history of the consumer’s account transactions requested by the consumer in which the unauthorized transfer is first reflected (1005.18(e)(1)).
36 An entity that follows the periodic statement alternative and chooses to investigate notices of error provided up to 120 days from the date a transaction has posted to a consumer’s account may still disclose the error resolution time period otherwise required by the Prepaid Rule (as set forth in paragraph (b) of Model Clauses A-7). Similarly, the summary of the consumer’s liability in the initial disclosures may disclose that liability is based on the consumer providing notice of error within 60 days of the consumer electronically accessing an account or receiving a written history reflecting the error, even if, for some or all transactions, the entity allows a consumer to assert a notice of error up to 120 days from the date of posting of the alleged error (comment 1005.18(e)-1).
37 Also consult procedure #55 as it relates to the issuance of an access device.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 28 a. The access device is an accepted access device – an access device becomes an accepted access device when the consumer requests and receives the access device, signs it, or uses (or authorizes someone else to use) it to transfer money or obtain money, property, or services. An access device also becomes an accepted access device when the consumer requests validation of an access device issued on an unsolicited basis or received an access device in renewal of or substitution for an accepted access device from either the entity that initially issued the device or a successor (1005.2(a)(2)). b. The entity provided a means to identify the consumer to whom the access device was issued – an entity may use various means for identifying the consumer, such as electronic or mechanical confirmation (e.g., a PIN) or comparison of the consumer’s signature, fingerprint or photograph (comment 1005.6(a)-1). 1005.6(a) [Click&type] Procedures for resolving errors 45. Review the entity’s policies and procedures on error resolution ensuring compliance including investigating and responding to a “notice of error” about a consumer’s account within certain timeframes (1005.11). Verify, through transaction testing, that policies and procedures are followed.
[Click&type] 46. Verify that an entity initiates an investigation of “errors.” An error includes any of the following:
a. An unauthorized EFT.38 b. An incorrect EFT to or from a consumer’s account (e.g., transfer for an incorrect amount).
c. Omission of an EFT from a periodic statement.
d. An entity’s computational or bookkeeping error relating to an EFT. e. A consumer’s receipt of an incorrect amount of money from an electronic terminal (e.g., an ATM).
f. An EFT not identified in accordance with Regulation E.
38 An entity is required to comply with the error resolution procedures when a consumer reports a lost or stolen access device if the consumer also alleges possible unauthorized use as a consequence of the loss or theft (comment 1005.11(a)-3).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 29 g. A consumer’s request for certain documentation required under Regulation E (e.g., a periodic statement, receipt, written account transaction history), or for additional information or clarification concerning an EFT.
1005.11(a)(1)39 [Click&type] 47. Verify that the entity initiates an investigation once it has received a notice that satisfies all of the following:
a. Enables the entity to identify the consumer’s name and account number; b. Indicates why the consumer believes an error exists and includes, to the extent possible, the type, date, and amount of the error; and c. Is received within the time period specified in Regulation E. i.
If an entity provides periodic statements for a prepaid account, it must comply with Regulation E’s error resolution procedures if it receives notice not later than 60 days after sending the periodic statement first reflecting the alleged error (1005.11(b)(1)(i)).
ii.
If the entity relies on the periodic statement alternative for a prepaid account, it must comply with Regulation E’s error resolution procedures if it receives notice by the earlier of:
i. 60 days after the date a consumer electronically accesses the consumer’s account, provided that the electronic account transaction history made available to the consumer reflects the alleged error.40 ii. 60 days after the date the entity sends, in response to a consumer’s request, the first written account transaction history reflecting the alleged error.
1005.18(e)(2)(i) iii.
Alternatively, an entity that relies on the periodic statement alternative may choose to comply with amended Regulation E by investigating notices of error received within 120 days after the EFT allegedly in error was credited or debited
39 See 1005.11(a)(2) for examples of what the term “error” does not include. 40 See comment 1005.18(e)-2 for specifics on what does and does not constitute “electronically accessing” the consumer’s prepaid account.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 30 to the consumer’s prepaid account (1005.18(e)(2)(ii); for government benefit cards 1005.15(e)(4)).
iv.
When a notice of error is based on documentation or clarification that the consumer previously requested under Regulation E’s error resolution procedures, the consumer’s notice of error is timely if the entity receives it no later than 60 days after the entity sent the documentation or clarification that the consumer requested (1005.11(b)(3)).
NOTE: The Prepaid Rule modifies Regulation E to specify timeframes that apply if an entity relies on the periodic statement alternative and to provide an alternative “safe harbor” timeframe for an entity that relies on the periodic statement alternative, as described above. An entity may disclose to prepaid account holders the entity will investigate any notice of error provided within 60 days or provide that liability be limited for notices of error received within 60 days, even if for some or all transactions, the entity allows a consumer to assert a notice of error up to 120 days from the date of positing of the alleged error (comment 1005.18(e)-1).
[Click&type] 48. Verify that after receiving a proper notice of error from a consumer, the entity does all of the following:
NOTE: For prepaid accounts that are not payroll card accounts or government benefit accounts, the entity is not required to comply with the error resolution requirements in 1005.11 for any prepaid account for which it has not successfully completed its identification and verification process with respect to the prepaid account (1005.18(e)(3)). a. Promptly investigates the oral or written notice of error – the entity must investigate to determine whether an error occurred and may not delay initiating or completing an investigation pending receipt of written confirmation of an oral notice of error (1005.11(c); comment 1005.11(b)(1)-2).
b. Within the required timeframe, completes its investigation and determines whether an error occurred – generally the entity must complete its investigation and determine whether an error occurred within 10 business days (1005.11(c)(1)). However: i.
The entity may take up to 45 days to complete its investigation if it: Provisionally credits the amount of the alleged error to the consumer’s account within 10 business days of receiving the notice of error, including interest where applicable;41
41 An entity can withhold a maximum of $50 if it has a reasonable basis for believing an unauthorized EFT has occurred and the entity has provided the required disclosures. If the unauthorized EFT involved an access device, the access devices must be an
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 31 Informs the consumer, within two business days after the provisional crediting, of the amount and date of the credit; and Gives the consumer full use of the funds during the investigation.42 1005.11(c)(2) c. Correct the error, if any, within one business day after determining that an error has occurred – including crediting of interest and refunding of fees, if applicable (1005.11(c)(1); comment 1005.11(c)-6).
d. Report the results of its investigation to the consumer within three business days after completing its investigation – including if the provisional credit has been made final, should the entity determine the alleged error occurred, as applicable (1005.11(c)(2)(iii) and (iv)). If the entity determines no error occurred or the error occurred in a different manner or amount, the entity must also include a written explanation of its findings and a notice of the consumer’s right to request the documents upon which the entity relied in making its determination. Upon request, the entity must promptly provide those documents to the consumer (1005.11(d)).43 Additionally, if the entity debits a provisionally credited amount, it must notify the consumer of the date and amount of the debit and of the fact that the entity will honor checks, drafts, or similar instruments payable to third parties and preauthorized EFTs from the consumer’s account for five business days after the notification (1005.11(d)(2)).44 [Click&type] 49. Verify that the entity mails or delivers to a consumer, at least once each calendar year, an error notice substantially similar to the applicable Model Form (see below for details) for accounts to or from which EFTs can be made (1005.8(b)). a. If the entity provides periodic statements, the notice must be substantially similar to paragraph (a) of Model Form A-3.
accepted device, and the entity must provide a means to identify the consumer in order for the entity to withhold $50 (1005.11(c)(2); 1005.6(a)).
42 A entity need not provisionally credit the prepaid account to take up to 45 days to complete its investigation if the entity requires but does not receive written confirmation of an oral notice of error within 10 business days, or if the alleged error involves an account subject to Regulation T, 12 CFR part 220 (credit by brokers and dealers) (1005.11(c)(2)(i)). 43 See 1005.11(e) for additional information on reinvestigation requirements. 44 Alternatively, an entity may notify the consumer that the consumer’s account will be debited five business days from the transmittal of the notice, provided that the notice tells the consumer the calendar date that the entity will debit the amount (comment 1005.11(d)(2)-1).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 32 b. If the entity relies on the periodic statement alternative (see procedure #40) and the account is a government benefit account, the notice must be substantially similar to paragraph (b) of Model Clauses A-5 (1005.15(e)(2)).
c. If the entity relies on the periodic statement alternative (see procedure #40) and the account is any other type of prepaid account (i.e., not a government benefit account), the notice must be substantially similar to paragraph (b) of Model Clauses A-7 (1005.18(d)(2)).
d. An entity may, alternatively, provide an abbreviated notice on each periodic statement or on each electronic account transaction history and written account transaction history provided it is substantially similar to the abbreviated notice in paragraph (b) of Model Form A-3. If the entity relies on the periodic statement alternative, the abbreviated notice must be modified as necessary to reflect the applicable error resolution procedures (1005.15(e)(2); 1005.18(d)(2)).
[Click&type] Module 5 - Receipts at Electronic Terminals, Preauthorized EFTs, and Access Devices Receipts at electronic terminals 50. Verify that the entity makes a receipt available to a consumer who initiates an EFT to or from a prepaid account at an electronic terminal in an amount of more than $15 (1005.9(a) and (e)).45 The receipt must be made available at the time the consumer initiates the EFT and must include the following, as applicable:
a. The amount of the EFT.
b. The date the consumer initiates the EFT.
c. The type of EFT and the type of account to or from which the funds are transferred.46 d. A number or code that identifies the consumer’s account(s), or the access device used to initiate the EFT (the number or code need not exceed four digits or letters). e. The terminal’s location, or an identification such as a code or terminal number. f. The name of any third party to or from who funds are transferred.
45 An account-holding institution may make receipts available through third parties such as merchants or other entities (comment 1005.9(a)-2).
46 The type of account may be omitted if the access device used is able to access only one account at that terminal.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 33 1005.9(a) [Click&type] Preauthorized EFTs 51. Verify that for any prepaid account that receives a preauthorized EFT at least once every 60 days, the entity that holds the prepaid account:
a. Provides notice to the consumer, unless the payor initiating the EFT notifies the consumer, that the EFT has been initiated (1005.10(a)(1) and (2)) through either: i.
Oral or written notice within two business days after the EFT occurs or the date on which the EFT was scheduled to occur if it does not occur (1005.10(a)(1)(i) and (ii)), or ii.
Providing a readily available telephone line that the consumer can call to determine if the EFT occurred, provided the telephone number is disclosed in the initial disclosures and on each periodic statement, or, if the entity relies on the periodic statement alternative, in each account transaction history (1005.9(a)(1)(iii)). [Click&type] 52. Verify that the entity that receives a preauthorized EFT credits the amount of the EFT to the consumer’s prepaid account as of the date the funds are received (1005.10(a)(3)). [Click&type] 53. Verify that for any preauthorized EFT from a consumer’s account: a. The consumer signed or similarly authenticated an authorization, in writing, for the preauthorized EFT (1005.10(b));47 b. The person that obtained the authorization from a consumer provided the consumer with a copy of the authorization (1005.10(b)); and c. The payee or the entity provided additional notice to the consumer when a preauthorized EFT under the same authorization varies in amount by either: i.
Sending the consumer a written notice of the amount and date of an EFT that varies in amount from the preauthorized amount of the previous EFT at least 10 days before the scheduled date of the EFT (1005.10(d)(1)), or
47 The authorization may be obtained electronically if the E-Sign Act’s consumer consent and other applicable requirements are met (comment 1005.10(b)-5).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 34 ii.
Providing the consumer with the option of receiving notice only when an EFT is outside of a specified range or varies from the most recent EFT by more than an agreed-upon amount, provided the payee or entity also informed the consumer that it has the right to receive a notice for all varying EFTs (1005.10(d); (d)(2)). [Click&type] 54. Verify that the entity stops any preauthorized EFT from a prepaid account when it is notified orally or in writing at least three business days before the scheduled EFT and is consistent with the entity’s policy and procedures (1005.10(c)(1)).48 [Click&type] Issuance of an Access Device 55. Verify that the entity only issues an access device, defined as a card (such as prepaid card), code, or other means of access to a consumer’s account that may be used to initiate EFTs when one or both of the following apply, unless it complies, alternatively, with the requirements for an unsolicited access device (procedure #56) (1005.2(a)(1)): a. The entity is issuing the access device in response to an oral or written request for the device – a consumer is deemed to request an access device for a prepaid account when, for example, the consumer acquires a prepaid account in a retail location or applies for a prepaid account by telephone or online (comment 1005.18(a)-1). NOTE: For government benefit accounts, a consumer is deemed to request an access device when the consumer applies for government benefits that the government agency disburses or will disburse by means of an EFT (1005.15(b)). For payroll card accounts, a consumer is deemed to request an access device when the consumer chooses to receive salary or other compensation through a payroll card account (comment 1005.18(a)-1). b. The entity is issuing the access device as a renewal of, or in substitution for, an accepted device issued by the entity or a successor – an access device becomes an accepted access device when the consumer requests and receives the access device, signs it, or uses (or authorizes someone else to use) it to transfer money between account or obtain money, property, or services. The access device also becomes an accepted access device when the consumer requests validation of an unsolicited access device or receives an access device in renewal or substation for an accepted access device (1005.2(a)(2)).49
48 If the consumer notifies the entity orally, the entity may require the consumer to provide written confirmation within 14 days of the oral notice. The oral notice ceases to be binding after the 14-day period if the consumer fails to provide the written confirmation (1005.10(c)(2)).
49 Only one renewal or substitution card or device may replace a previously issued device. An entity may provide additional devices at the time of renewal or substation, provided the institution complies with the requirements for issuing an unsolicited access device for the additional devices (comments 1005.5(a)(2)-1 and 1005.5(b)-5).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 35 1005.5(a) [Click&type] 56. If the entity issues an unsolicited access device, verify that the access device is: a. Not validated, meaning that the entity has not performed all the procedures that would enable a consumer to initiate an EFT using the access device; b. Accompanied by a clear explanation that the access device is not validated and how the consumer may dispose of the device if validation is not desired; c. Accompanied by initial disclosure of the consumer’s rights and liabilities under Regulation E that will apply if the device is validated; and d. Validated only in response to the consumer’s oral or written request for validation, after the entity as verified the consumer’s identity by a reasonable means.50 1005.5(b) NOTE: If credit is offered in connection with a prepaid account, an access device for the prepaid account may also be subject to Regulation Z. For issuance rules that apply under Regulation Z if an access device is a hybrid prepaid-credit card, see 1026.12(a) and the related commentary.
NOTE ALSO: If an access device for a prepaid account is issued on an unsolicited basis where the prepaid account is used for disbursing funds to a consumer, and the entity or a third party making the disbursement does not offer any alternative means for the consumer to receive those funds in lieu of accepting the prepaid account, in order to satisfy 1005.5(b)(2) the entity must inform the consumer that the consumer has no other means by which to initially receive the funds in the prepaid account other than by accepting the access device, as well as the consequences of disposing of the access device (comment 1005.18(a)-1). [Click&type]
50 For purposes of this requirement, the entity may use any reasonable means to verify the consumer’s liability. However, even if reasonable means were used, if the institution failed to verify correctly the consumer’s identity and an imposter succeeds in having the access device validated, the consumer is not liable for any unauthorized transfers from the account (comment 1005.5(b)-4).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 36 Module 6 - Compulsory Use, Submission of Agreements, and Record Retention Compulsory use prohibition 57. Verify that the financial institution does not require compulsory use of EFTs, except as authorized (12 CFR 1005.10(e)).51 [Click&type] Submission and posting of prepaid account agreements The term “issuer,” as used here and below, is the entity to which the consumer is legally obligated or would be obligated, under the terms of the prepaid agreement (1005.19(a)(4)).52 58. Verify that the issuer has made the required (agreement or notice of withdrawal) submission no later than 30 days after a triggering event for any prepaid account it offers, unless it falls under one of the two exceptions described below (1005.19(b)(1)).53 NOTE: An issuer no longer offers a prepaid account agreement when it no longer allows a consumer to activate or register a new prepaid account in connection with a given prepaid account agreement (comment 1005.19(b)(3)-1).
[Click&type] 59. A “prepaid account agreement” includes:
a. The written document or documents evidencing the terms of the legal obligation (or prospective legal obligation) between an issuer and a consumer of a prepaid account;54 b. The short form disclosure for the prepaid account; and
51 A government agency or employer may require direct deposit by electronic means if the consumer is allowed to choose the institution that will receive the direct deposit. However, state law may affect which alternatives must be offered. 52 The issuer generally may use a third-party service provider to satisfy its obligations under 1005.19, provided that the issuer acts in accordance with regulatory guidance regarding use of third-party service providers and other applicable regulatory guidance (comment 1005.19(a)(4)-2).
53 A triggering event is when an issuer offers a new prepaid account agreement (1005.19(a)(5)), substantively amends a prepaid account agreement (1005.19(a)(2) and 1005.19(b)(2)), or ceases to offer or withdraws a prepaid agreement (1005.19(b)(3)). (See also comment 1005.19(a)(2)-1 for examples of substantive changes and comment 1005.19(a)(2)-2 for examples of nonsubstantive changes). The issuer “offers” a prepaid account agreement if the issuer markets, solicits applications for, or otherwise makes available a prepaid account that would be subject to the agreement. It is not relevant here whether the issuer offers the prepaid account agreement to the general public (1005.19(a)(5)). 54 An agreement may consist of several documents that, taken together, define the legal obligations between the parties. Each document is part of the “prepaid account agreement” (comment 1005.19(a)(1)-1).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 37 c. The fee information and statements required to be disclosed in the long form disclosure for the prepaid account.
1005.19(a)(1) and (a)(3)55 An issuer is not required to make submissions to the Bureau if qualifies for either of these two exceptions:
f. De minimis exception – The issuer has fewer than 3,000 open prepaid accounts on the last day of each calendar quarter (1005.19(b)(4)(i))56, or g. Product testing exception –The agreement:
a. Is offered as part of a product test offered only to a limited group of consumers for a limited period of time;
b. Is used for fewer than 3,000 open prepaid accounts; and c. Is not offered other than in connection with such product test. 1005.19(b)(5)57 If the entity is required to make prepaid account agreement submissions to the CFPB, or has previously submitted prepaid account agreements, complete procedures #60-66, if not document that fact and move on.
[Click&type] 60. Verify that the issuer has submitted agreements to the CFPB for all the prepaid account programs that it offers. This includes the applicable agreements: a. As of May 1, 2019, b. New agreements after May 1, 2019, c. Amended existing agreements, and
55 See 1005.19(b)(6)(i)(C) for items deemed not to part of the prepaid agreement. 56 If an issuer previously qualified for the de minimis exception but later ceases to qualify, it must begin making submissions to the Bureau no later than 30 days after the last day of the calendar quarter in which it ceases to qualify. It does not matter if the issuer had fewer than 3,000 open prepaid accounts during the calendar quarter. If the issuer previously made submissions to the Bureau but now qualifies for this exception, it can either notify the Bureau that it is withdrawing the prepaid account agreements it previously submitted and stop making submissions, or it can continue to make rolling submissions as otherwise required under the Prepaid Rule (1005.19(b)(4); comment 1005.19(b)(4)-5). 57 If the agreement fails to meet any of these criteria as of the last day of a calendar quarter, the issuer must submit the prepaid card agreement no later than 30 days after the last day of the calendar quarter (1005.19(b)(5)(i)).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 38 d. Withdrawn agreements.
1005.19(b) [Click&type] 61. Verify that the total agreement submitted to the CFPB, as described below, each contain the provisions of the agreement (procedure #59) and the fee Information in effect at the time of submission, in the form and manner specific by the CFPB, to the Bureau58 and contains, as applicable:
a. Identifying information about the issuer that must include the issuer’s name, address, and identifying number (such as an RSSD ID number or tax identification number); b. Any prepaid account agreement offered by the issuer that has not been previously submitted to the Bureau;
c. Any prepaid account agreement previously submitted to the Bureau that has been amended;
d. Identifying information about the prepaid account agreement(s) that the issuer is submitting including:
i.
The effective date of each prepaid account agreement;
ii.
The name of the program manager, if any, for each agreement; and iii.
The names of other relevant parties, if applicable, for each agreement (e.g., an employer for a payroll card program or the agency for a government benefit program);59 and e. Notification regarding any prepaid account agreement previously submitted to the Bureau that the issuer is withdrawing.
1005.19(b)(1) f. And does not include any personal identifiable information relating to any consumer, such as name, address, telephone number, or account number (1005.19(b)(6)(i)(B)).
58 1005.19(b)(6)(i)(A).
59 Section 1005.19(b)(2)(ii) permits an issuer to delay making a submission to the CFPB regarding a change in the list of other relevant parties to a particular agreement until the earlier of when the issuer is otherwise submitting an amended agreement or changes to other identifying information about the issuer and its submitted agreements pursuant to 1005.19(b)(1)(i); or May 1 of each year, for any updates to the list of names of other relevant parties that occurred between the issuer’s last submission of relevant party information for that agreement and April 1 of that year. This ensures the CFPB has a list of names of other relevant parties for all submitted agreements that is up-to-date as of April 1 of each year. See 1005.19(b)(2)(ii) for examples.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 39 NOTE: The fee information for prepaid accounts under the same program may vary from one consumer to another based on the consumer’s state of residency or other factors. In these cases, the variations do not constitute separate prepaid account agreements and the issuer must submit one prepaid account agreement with fee information that lists the possible fee variations and includes relevant information about the variations (comment 1005.19(b)(6)- 2).
[Click&type] 62. Verify that the issuer posts and maintains all prepaid account agreements on a publically available website in a prominent location that is readily accessible to the public without the submission of personally identifiable information when:60 a. The issuer is required to submit the agreement to the Bureau, and b. The prepaid account agreement is offered to the general public.61 1005.19(c)(1) NOTE: Prepaid account agreements posted on the publicly available portion of the issuer’s website cannot contain any personally identifiable information. (1005.19(b)(6)(i)(B)). However, an issuer may include personal identifiable information on other prepaid agreements, such as those provided to individual consumers or posted on a portion of the issuer’s website that is not publically available, provided the issuer takes appropriate measures to make that agreement accessible only to the consumer or other authorized persons (1005.19(d)(2)(iii)).
[Click&type] 63. Verify that the issuer posts and updates prepaid card agreements on its publically available website as frequently as the issuer is required to submit new or amended agreements to the CFPB, generally no later than 30 days after the issuer offers or amends the agreement, as applicable (1005.19(c)(3)).
[Click&type]
60 1005.19(c)(4). See also comment 1005.19(c)-2 and comment 1005.19(a)(4)-3 for additional information on the use of a third party’s website to satisfy the posting requirements.
61 A prepaid account agreement is offered to the general public even if the issuer markets, solicits applications for, or otherwise makes the account available to the general public, even if the account is available only to a limited group of people (1005.19(a); comment 1005.19(a)(6)-1). However, it is not offered to the general public when it is only offered by virtue of a consumer’s relationship with a third party, such as agreements for government benefit accounts, payroll accounts, and prepaid accounts used to disburse student financial aid or insurance proceeds (comment 1005.19(a)(6)-2).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 40 64. For all open prepaid accounts, verify that the entity either:62 a. Posts and maintains the consumer’s prepaid account agreement on the issuer’s website (procedure # 59; 1005.19(d)(1)(i)) – by posting the agreement on a publically available website or elsewhere on the entity’s website after the consumer logs in, including updating it as frequently as the issuer is required to submit amended agreements to the Bureau (1005.19(d)(2)(v)) or, if not posted on a website, b. Promptly provides a copy of the consumer’s prepaid account agreement to the consumer upon the consumer’s request – If the issuer elects this options it also must: i.
Allow the consumer to request a copy by telephone (1005.19(d)(1)(ii)); ii.
Send a copy of the agreement no later than five business days after the receiving the request (comment 1005.19(d)-2); and iii.
Provide the agreement in paper form, unless the consumer agrees to receive it electronically (1005.19(d)(2)(vi)).
NOTE: The prepaid agreements posted or sent to the consumer must set forth the specific provisions and fee information applicable to the particular consumer and must conform to the form and content requirements for agreements submitted to the Bureau (1005.19(d)(2)(i) and (iv)).
[Click&type] 65. If an entity ceases to offer a prepaid account agreement previously submitted to the Bureau, verify that the entity submitted a notification of withdrawal no later than 30 days after it ceases to offer the agreement (1005.19(b)(3)).
[Click&type] 66. Verify for those prepaid account card agreements in which the entity has submitted a notification of withdrawal the accounts are no longer offered to consumers (1005.19(b)(3)). [Click&type]
62 A prepaid account is an “open prepaid account” if (1) there is an outstanding balance on the account, (2) a consumer can load funds to the account even if the account does not currently have a balance, or (3) a consumer can access credit from a covered separate credit feature in connection with the account, regardless of whether the issuer considers the account inactive or if the prepaid account has been suspended temporarily (1005.19(a)(7); comment 1005.19(a)(7)-1).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 41 Record Retention 67. Verify the entity has maintained evidence of compliance for at least two years from the date a disclosure is required to be made or action is required to be taken (1005.13(b)(1)).63 [Click&type] 68. Verify that to the extent the entity has actual notice that it is the subject of an investigation or enforcement proceeding by its enforcement agency, or has been served with notice of an action filed under sections 910, 916, or 917(a) of EFTA, the entity has retained the records that pertain to the investigation, action, or proceeding until final disposition of the proceeding unless an earlier time is allowed by court or agency order (1005.13(b)(2)). [Click&type] Module 7 - Overdraft Credit Features 69. Determine if the entity offers any overdraft credit on its prepaid cards such that the prepaid card is a hybrid prepaid-credit card. A prepaid card is a hybrid prepaid-credit card with respect to a separate credit feature if all the following criteria are met: a. The prepaid card is a single device that can be used from time to time to access credit from the separate credit feature (1026.61(a)(2)(i)(A)) – a prepaid card that can only be used to access credit on a single occasion does not qualify (comment 1026.61(a)(1)-3). A card that can be used to access credit from time to time qualifies even if the person that can extend credit through that credit feature does not agree in writing to extend the credit, the person retains discretion not to extend credit, or the person does not extend credit once the consumer has exceeded a certain amount of credit (comment 1026.61(a)(1)-1). b. The prepaid card can be used to draw, transfer, or authorize the draw or transfer of credit from the separate credit feature in the course of authorizing, settling, or otherwise completing transactions conducted with the card to obtain goods or services, to obtain cash, or to conduct P2P transfers (1026.61(a)(2)(A)(1) – The “course of authorizing, settling, or otherwise completing” means if it occurs during the authorization phase of the transaction or in later periods up to the settlement of the transaction (comment 1026.61(a)(2)-2).
c. The separate credit feature that the prepaid card can access is offered by the prepaid account issuer, its affiliate, or its business partner (1026.61(a)(2)(i)(A)(2) – The prepaid account issuer is the financial institution (as defined by Regulation E) with respect to the
63 The entity need not retain records that it has given disclosures and documentation to each consumer. It need only retain evidence demonstrating that its procedures reasonably ensure the consumers’ receipt of required disclosures and documentation. Evidence of compliance can be retained electronically if the electronic system accurately reproduces the information (comment 1005.13(b)-1).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 42 prepaid account (1026.61(a)(5)(vi)). An affiliate is any company that controls, is controlled by, or is under common control with another company as set forth in the Bank Holding Company Act of 195664 (1026.61(a)(5)(i)). A business partner is a person (other than the prepaid account issuer or its affiliates) that can extend credit through a separate credit feature where the person or its affiliate has an “arrangement,” as set forth in Regulation Z, with the prepaid account issuer or its affiliate (1026.61(a)(5)(iii)).65 NOTE: If these criteria are met with respect to a separate credit feature, that separate credit feature is a “covered separate credit feature” under the Prepaid Rule. (1026.61(a)(2)(i); comments 1026.61(a)(2)-1.i. and 1026.61(a)(2)-4.) If one or more of the criteria is not met with respect to a separate credit feature, that separate credit feature is a “non-covered separate credit feature” (1026.61(a)(2)(ii); comment 1026.61(a)(2)-5). A prepaid card may be a hybrid prepaid-credit card when accessing certain credit features and not when accessing others (comment 1026.61(a)(2)-6.) It is important to review access to each credit feature separately.
[Click&type] 70. Verify that an entity is not offering credit through a negative balance on a prepaid account’s asset feature except in the circumstances described below (see 1026.61(a)(3)(ii), (a)(4), and (b)). Determine if the entity falls into the permissible circumstance for offering credit through a negative balance on a prepaid account’s asset feature if all three conditions are met, and thus the prepaid card is not a hybrid prepaid-credit card with respect to credit extended through a negative balance on the prepaid account’s asset feature and the entity is not a creditor and therefore not subject to Regulation Z with respect to the credit extended through the negative balance on the asset feature of the prepaid account, but generally covered under Regulation E (see comments 1026.2(a)(15)-2.ii.F; 1026.61(a)(4)-1.v). a. The entity has an established policy and practice of either: i.
Declining to authorize transactions where it reasonably believes the consumer has insufficient or unavailable funds in the prepaid account’s asset feature to cover the transaction at the time it is authorized; or ii.
Declining to authorize transactions except when: (A) the amount of the transaction will not cause the asset feature balance to be negative by more than $10 at the time of authorization (aka the “purchase cushion”); or (B) the transaction is conducted when incoming deposits are pending and the transaction
64 12 USC 1841 et seq.
65 See 1026.61(a)(5)(iii)(A)-(C) and comment 1026.61(a)(5)(iii)-2 for specifics of what constitutes a “business partner” and 1026.61(a)(5)(iii)(D) and its related commentary, and comment 1026.61(a)(5)(iii)-1 for what does not constitute a “business partner.”
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 43 will not cause the prepaid account to be negative at the time of authorization by more than the amount of the pending deposit (aka the “delayed load cushion”).66 1026(a)(4)(ii)(A)67 b. The entity does not charge credit-related fees on the prepaid account asset feature including:68 i.
Fees or charges for opening, issuing, or holding a negative balance on the asset feature, or the availability of credit (1026.61(a)(4)(ii)(B)(1)). ii.
Fees or charges that are imposed on the prepaid account’s asset feature only when credit is extended on the asset feature or when there is a negative balance on the asset feature (1026.61(a)(4)(ii)(B)(2)).69 iii.
Fees or charges on prepaid account’s asset feature that are higher when credit is extended on the asset feature or when there is a negative balance on the asset feature (1026.61(a)(4)(ii)(B)(3)).
NOTE: A fee or charge does not become a credit-related fee simply because there are insufficient or unavailable funds in the asset feature of the prepaid account to pay the fee when it is imposed (1026.61(a)(4)(ii)(C); comment 1026.61(a)(4)(ii)(C)-1).
AND c. The prepaid card cannot access credit from a covered separate credit feature that is offered by a prepaid account issuer or its affiliate (1026.61(a)(4)(i)). NOTE: If the above three conditions are met and the prepaid card can access credit from a covered separate credit feature that is offered by a business partner, then prepaid card is a hybrid prepaid-credit card with respect to the covered separate credit feature but is not a hybrid prepaid-credit card with respect to credit extended by the entity through the negative balance that meets the conditions discussed above or with respect to a non-covered separate credit feature (comment 1026.61(a)(4)-1.ii).
66 For the delayed load cushion, the entity must have received either an instruction or confirmation from an incoming EFT from a separate asset account to load funds to the prepaid account or a request from the consumer to load funds to the prepaid account from a separate asset account. In either case, the funds must not have settled yet (1026.61(a)(4)(ii)(A)(2)). 67 These two circumstances are not mutually exclusive and therefore an issuer could adopt the $10 purchase cushion and the delayed load cushion (comment 1026.61(a)(4)(ii)(A)-4). 68 This condition does not prohibit the entity from imposing different terms on different prepaid account programs (comment 1026.61(a)(4)(ii)(B)-1).
69 Credit related fees do not include fees or charges for the actual costs of collecting the credit extended if otherwise permitted by law (comment 1026.61(a)(4)(ii)(B)(2)-1).
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 44 [Click&type] 71. If the circumstances described in procedure #69 are not met, verify that the entity does not allow the asset feature of a prepaid account to become negative. The credit must instead be structured as a separate credit feature, either as a separate credit account or as a separate credit subaccount (1026.61(a)(3)(ii), (a)(4), 1026.61(b)). If the circumstances described in procedure #69 are not met, verify that the entity has set up the hybrid prepaid-credit card so that:
a. If, at the time a prepaid card transaction is initiated, there are insufficient or unavailable funds in the asset feature of the prepaid account to complete the transaction, credit is drawn, transferred, or authorized to be drawn or transferred from the covered separate credit feature at the time the transaction is authorized. The card issuer may not allow the asset feature to become negative and must comply with applicable provisions of Regulation Z with respect to the credit extension from the time the prepaid card transaction is authorized.
b. For transactions where there are insufficient of unavailable funds in the asset feature of the prepaid account to cover that transaction at the time it settles and the prepaid transaction either was not authorized in advance or the transaction was authorized and there was sufficient of available funds in the prepaid account at the time of authorization to cover the transaction, credit must be drawn from the covered separate credit feature to settle these transactions. The card issuer may not allow the asset feature on the prepaid account to become negative. The card issuer must comply with the applicable provisions of Regulation Z from the time the transaction is settled. c. If a negative balance would result on the asset feature in circumstances other than those described in (a) or (b) above, credit must be drawn from the covered separate credit feature to avoid a negative balance. The card issuer may not allow the asset feature to become negative and must comply with applicable provisions of Regulation Z with respect to the credit extension from the time credit is drawn from the covered separate credit feature.
Comment 1026.61(b)-2 [Click&type] 72. If the entity offers a covered separate credit feature with any of its prepaid card accounts, continue. Only complete the remainder of this section for those prepaid accounts that offer a covered separate credit feature. If the entity does not offer any covered separate credit feature, skip and move on.
[Click&type] 73. Verify that if the prepaid program includes both prepaid accounts with a covered separate credit feature and prepaid accounts without a covered separate credit feature, the entity
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 45 generally provides to any prepaid account without a covered separate credit feature the same account terms, conditions, and features on the asset feature of the prepaid account that it provides on prepaid accounts in the same program that have such a credit feature (1005.18(g); comment 1005.18(g)-2; comment 1005.18(g)-5; for government benefit cards 1005.15(g)). The entity, however, may impose a higher fee or charge on the asset feature of a prepaid account with a covered separate credit feature than the amount of a comparable fee or charge that is imposes on any prepaid account in the same prepaid account program that does not have such a credit feature. The account terms, conditions and features subject to this requirement include, but are not limited to:
a. Interest (if any) paid on funds deposited into the asset feature of the prepaid account; b. Fees or charges imposed on the asset feature of the prepaid account; c. The type of access device provided to the consumer (i.e., an institution may not provide a PIN-only card on prepaid accounts without a covered separate credit feature while providing a prepaid card with both PIN and signature-debit functionality for prepaid accounts in the same prepaid account program with such a credit feature); d. Minimum balance requirements on the asset feature of the prepaid account; and e. Account features offered in connection with the asset feature of the prepaid account, such as online bill payment services.
Comment 1005.18(g)-4 NOTE: The requirement to provide the same terms, conditions, and features only applies to prepaid accounts in the same prepaid account program. The terms, conditions, and features could differ between a prepaid account program where a covered separate credit feature is not offered in connection with any prepaid accounts within the program, and a prepaid account program where a covered separate credit feature may be offered to some consumers in connection with their prepaid accounts (comment 1005.18(g)-3). [Click&type] 74. Verify that the entity has treated a prepaid card that is a hybrid prepaid-credit card as a credit card under Regulation Z with respect to the covered separate credit feature and complied with the applicable requirements of Regulation Z, as amended by the Prepaid Rule (1026.2(a)(15)(i); 1026.61(a)(1)).
NOTE: If the covered separate credit feature is offered by the prepaid account issuer, the prepaid account issuer is a card issuer and creditor under Regulation Z. If the covered separate credit feature is offered by an affiliate or business partner, that entity would also have responsibilities under Regulation Z as a card issuer and creditor (1026.2(a)(7); 1026(a)(17)(iii); comment 1026.2(a)(7)-1.ii).
[Click&type]
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 46 75. Verify that the entity does not require by electronic means on a preauthorized, reoccurring basis repayment of credit extended under a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in 1026.61 (1005.10(e)(1)). NOTE: The prohibition applies to any credit extended under such a credit feature including preauthorized checks (comment 61(a)(1)-3).
[Click&type] 76. Verify that the entity does not, within 30 days of successfully completing the registration process, or opening of, the prepaid account, whichever is later: a. Open a covered separate credit feature that could be accessible by the hybrid prepaidcredit card;
b. Make a solicitation or provide an application to open a covered separate credit feature that could be accessible by the hybrid prepaid-credit card70; or c. Allow an existing credit feature that was opened prior to the consumer obtaining the prepaid account to become a covered separate credit feature accessible by the hybrid prepaid-credit card.
1026.61(c); comment 1026.61(c)-1 [Click&type] Module 8 – UDAAP and Summary 77. Using the examination procedures that address unfair, deceptive, or abusive acts or practices (UDAAPs), consider whether any aspect of the entity’s prepaid account programs and operations constitute unfair, deceptive or abusive acts or practices. The particular facts and circumstances in a case are crucial to the determination of UDAAPs. Examiners should consult with headquarters to determine whether the applicable legal standards have been met before a UDAAP violation is cited.
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70 See 1026.60(a)(1) for the definition of solicitation as used here.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 47 Examiner’s Summary, Recommendations, and Comments To conclude this supervisory activity, examiners must complete all steps under this section, regardless of entity’s risk profile.
1. Summarize the findings, supervisory concerns, and regulatory violations.
2. For the violations noted, determine the root cause by identifying weaknesses in internal controls, audit and compliance reviews, training, management oversight, or other factors. Determine whether the violation(s) are pattern or practice, or isolated.
3. Identify action needed to correct violations and weaknesses in the entity’s compliance management system, as appropriate.
4. Discuss findings with the institution’s management and, if necessary, obtain a commitment for corrective action.
5. Record violations according to CFPB policy in the Report of Examination/Supervisory Letter and CFPB’s electronic database system to facilitate analysis and reporting.
6. If the examiner believes enforcement action may be appropriate, contact appropriate CFPB personnel for guidance.
7. Prepare a memorandum for inclusion in the work papers and CFPB’s official system of record that outlines planning and strategy considerations for the next examination and, if appropriate, interim follow-up.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 48
SUPPLEMENTAL INFORMATION
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 49 Preemption The EFTA and Regulation E preempt inconsistent state laws, but only to the extent of the inconsistency. The CFPB is given the authority to determine whether or not a state law is inconsistent. An entity, state, or other interested party may request the CFPB to make such a determination. A state law will not be deemed inconsistent if it is more protective of the consumer than the EFTA or Regulation E. Upon application, the CFPB has the authority to exempt any state from the requirements of the EFTA or the regulation for any class of EFTs within a state, with the exception of the civil liability provision. (EFTA Section 922 and 12 CFR 1005.12(b) and (c)).
Administrative Enforcement and Record Retention Section 918 of the EFTA sets forth the federal agencies responsible for enforcing compliance with the provisions of the law and its implementing regulation. Record retention Any person subject to the EFTA and Regulation E must maintain evidence of compliance with the EFTA and Regulation E for at least two years from the date the disclosures are required to be made or action is required to be taken. The agency supervising the person may extend this period. The period may also be extended if the person is subject to an action filed under Sections 910, 915 or 916(a) of the EFTA, which generally apply to the person’s liability under the EFTA and Regulation E. Persons subject to the EFTA who have actual notice that they are being investigated or are subject to an enforcement proceeding must retain records until disposition of the proceeding (12 CFR 1005.13). Records may be stored on microfiche, microfilm, magnetic tape, or in any other manner capable of accurately retaining and reproducing the information.
Miscellaneous The EFTA contains several additional provisions that are not directly reflected in the language of Regulation E. Most significantly, 15 U.S.C. 1693l provides that the consumer may not waive by agreement any right conferred, or cause of action created, by the EFTA. However, an agreement may grant a consumer greater consumer protections or additional rights or remedies than those provided by the EFTA. In addition, the consumer may sign a waiver in settlement of a dispute. If a third-party payee has agreed to accept payment by EFT, the consumer’s obligation to pay is suspended during any period in which a system malfunction prevents an EFT from occurring (15 U.S.C. 1693j). However, the payee may avoid that suspension by making a written request for payment by means other than EFT.
Failure to comply with the requirements of the EFTA can result in civil and criminal liability, as outlined in 15 U.S.C. 1693m and 15 U.S.C. 1693n. Financial institutions may also be liable for damages under 15 U.S.C. 1693h due to failure to complete an EFT or failure to stop a preauthorized transfer when instructed to do so.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 50 Other Risks to Consumers 1. The Gramm-Leach-Bliley Act (GLBA) and its implementing regulations, subject to certain exceptions, prohibit financial institutions from disclosing nonpublic personal information about a consumer to nonaffiliated third parties, unless the institution satisfies various notice and opt-out requirements, and provided that the consumer has not elected to opt out of the disclosure. They further require financial institutions to provide notice of their privacy policies and practices to their customers.
2. The Dodd-Frank Act prohibits unfair, deceptive, or abusive acts or practices (UDAAPs) including those that involve prepaid account providers’ interactions with consumers. To assess such practices, the CFPB will apply the following standards: a. A representation, omission, act, or practice is deceptive when: i.
The representation, omission, act, or practice misleads or is likely to mislead the consumer;
ii.
The consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and iii.
The misleading representation, omission, act, or practice is material. b. An act or practice is unfair when:
i.
It causes or is likely to cause substantial injury to consumers; ii.
The injury is not reasonably avoidable by consumers; and iii.
The injury is not outweighed by countervailing benefits to consumers or to competition.
c. An abusive act or practice:
i.
Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or ii.
Takes unreasonable advantage of – a) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; b) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or c) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 51 Examiners should refer to the CFPB’s examination procedures regarding UDAAPs for more information about these legal standards and the CFPB’s approach to examining for UDAAPs. The particular facts in a case are crucial to a determination of unfair, deceptive, or abusive acts or practices. Consequently, examiners should consult with headquarters to determine whether the applicable legal standards have been met before a UDAAP violation is cited. Model clauses and forms - Appendix A Appendix A of Regulation E contains model clauses and forms that entities may use to comply with the disclosure requirements of Regulation E. Subject to specific requirements of the Prepaid Rule, use of the model clauses and forms is optional and an institution that uses these clauses accurately to reflect its service is protected from civil and criminal liability under Sections 916 and 917 of the EFTA.
The model clauses and forms specifically for prepaid accounts are: A-5 – Model Clauses for Government Agencies (1005.15(e)(1) and (2)) A-7 – Model Clauses for Financial Institutions Offering Prepaid Accounts (1005.18(d) and (e)(3)) A-10(a) – Model Form for Short Form Disclosures for Government Benefit Accounts (1005.15(c) and 1005.18(b)(2), (3), (6), and (7)) A-10(b) – Model Form for Short Form Disclosures for Payroll Card Accounts (1005.18(b)(2), (3), (6), and (7)) A-10(c) – Model Form for Short Form Disclosures for Prepaid Accounts Example 1 (1005.18(b)(2), (3), (6), and (7)) A-10(d) – Model Form for Short Form Disclosures for Prepaid Accounts Example 2 (1005.18(b)(2), (3), (6), and (7)) A-10(e) – Model Form for Short Form Disclosures for Prepaid Accounts With Multiple Service Plans (1005.18(b)(2), (3), (6), and (7)) A-10(f) – Sample Form for Long Form Disclosures and Prepaid Accounts (1005.18(b)(4), (6), (6), and (7))
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CFPB Prepaid Examination Procedures Accounts CFPB March 2019 Procedures 52 References Laws 15 U.S.C. 1601 et seq.
Truth in Lending Act 15 U.S.C. 1693 et seq.
Electronic Fund Transfer Act 15 U.S.C. 7001 et seq.
Electronic Signatures in Global and National Commerce 15 U.S.C. 6802-6809 Sections 502 through 509 of the Gramm-Leach-Bliley Act, except for section 505 as it applies to section 501(b) 12 U.S.C. 5531 and 5536 Unfair, deceptive, or abusive acts or practices Consumer Financial Protection Bureau Regulations (12 CFR) Part 1005 Electronic Fund Transfers (Regulation E) Part 1026 Truth in Lending (Regulation Z)
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CFPB Examination Procedures Remittance Transfer CFPB February 2022 Procedures 1 Remittance Transfer Examination Procedures These procedures should be used to examine institutions that provide remittances in the normal course of business for compliance with protections afforded consumers in the United States who send remittances to individuals and businesses in foreign countries (including to accounts abroad). Examiners should complete a risk assessment, conduct necessary scoping, and use these procedures, in conjunction with the compliance management system review procedures, to conduct a remittance transfer examination.
Examination Objectives 1. To assess the quality of the regulated entity’s compliance risk management systems in its remittance transfer business.
2. To identify acts or practices that materially increase the risk of violations of federal consumer financial law and associated harm to consumers in connection with remittance transfers.
3. To gather facts that help to determine whether a supervised entity engages in acts or practices that are likely to violate Federal consumer financial law in connection with remittance transfers.
4. To determine, in accordance with CFPB internal consultation requirements, whether a violation of a federal consumer financial law has occurred and whether further supervisory or enforcement actions are appropriate.
Background Regulatory History The Wall Street Reform and Dodd-Frank Act amended the Electronic Fund Transfer Act (EFTA) and created a new system of consumer protections for remittance transfers sent by consumers in the United States to individuals and businesses in foreign countries. In December 2011, the CFPB restated the Board’s implementing Regulation E at 12 CFR Part 1005 (76 Fed. Reg. 81020) (December 27, 2011). In February 2012, the CFPB published Subpart B (Requirements for Remittance Transfers) to Regulation E to implement the new remittance protections set forth in the Dodd-Frank Act (77 Fed. Reg. 6194) (February 7, 2012).1 Following a series of amendments published later in 2012 and early 2013, the Bureau published another amendment in May 2013 to, among other things, establish a new effective date of October 1 The amendment designated 12 CFR 1005.1 through 1005.20 as Subpart A. Exam Date:
[Click&type] Exam ID No.
[Click&type] Prepared By:
[Click&type] Reviewer:
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[Click&type] Entity Name:
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CFPB Examination Procedures Remittance Transfer CFPB February 2022 Procedures 2 28, 2013 (78 Fed. Reg. 30661) (May 22, 2013). In 2014, the Bureau extended a temporary exception within the remittance rule (that has since expired) and provided some basic clarifications and technical corrections to the rule effective November 17, 2014 (79 Fed. Reg. 55970)(September 18, 2014). Minor clerical and non-substantive edits were made in 2016, effective November 14, 2016 (81 Fed. Reg. 70319)(October 12, 2016).
The Bureau further amended Regulation E in November 2016. These amendments were finalized and effective as of April 1, 2019 (83 Fed. Reg. 6364) (February 13, 2018). The latest amendments to Regulation E occurred in May 2020 further amending Subpart B, effective July 21, 2020 (85 Fed. Reg. 34870 (June 5, 2020).
Effect of Remittance Rules on Transaction Practices A “remittance transfer” is an electronic transfer of money from a consumer in the U.S. to a person or business in a foreign country. It can include transfers from retail non-depository “money transmitters” as well as banks and credit unions that transfer funds through wire transfers, automated clearing house transactions, or other methods. The rule requires providers to disclose to consumers who send these transfers, certain fees, the exchange rate, and an indication of the amount to be received by the recipient. Disclosures must generally be provided when the consumer first requests a transfer and again when payment is made. The rule also contains specific provisions applicable to transfers that consumers schedule in advance and for transfers that are scheduled to recur on a regular basis. In addition, the rule also generally requires that:
1. Consumers receive the opportunity to cancel a transfer and get their money back. 2. Companies investigate if a consumer reports a problem with a transfer. For certain errors, consumers can generally get a refund or have the transfer sent again free of charge if the money did not arrive as promised.
3. Companies that provide remittance transfers are responsible for mistakes made by certain people who work for them.
Additional guidance in the form of a narrative summary of the remittance transfer rule and an examiner checklist are provided in the Supplemental Information attached to these procedures.
Consumer Risks Addressed Outside the Remittance Rule To carry out the objectives set forth in the Examination Objectives section, the examination process should also include assessing consumer risks addressed outside the remittance rules. These risks may include potentially unfair, deceptive, or abusive acts or practices (UDAAPs). Examiners should refer to the procedures that address UDAAPs for information about the relevant legal standards and the CFPB’s approach to examining for UDAAPs. Because the particular facts and circumstances in a case are crucial to the determination of UDAAPs,
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CFPB Examination Procedures Remittance Transfer CFPB February 2022 Procedures 3 examiners should consult with Headquarters to determine whether the applicable legal standards have been met before a UDAAP violation is cited.
Moreover, examiners should ensure that the Remittance Transfer Provider’s account agreement does not waive the consumer’s rights under the Electronic Funds Transfer Act (EFTA) or Regulation E. Section 914 of EFTA (15 USC 1693l) provides that an agreement or writing between the consumer and the institution cannot contain language that constitutes a waiver of any consumer’s right or cause of action created by EFTA or Regulation E. An example of this, which has been cited on previous deposits examinations, is including a requirement that the consumer must agree to “cooperate” with an investigation before the institution will conduct an error investigation.
Further, examiners should consider whether a remittance provider has complied with privacy provisions enacted as part of the Gramm-Leach-Bliley Act (GLBA) and implemented through Regulation P. These provisions impose limitations on when financial institutions can share nonpublic personal information with third parties. They also require under certain circumstances that financial institutions disclose their privacy policies and permit customers to opt-out of certain sharing practices with unaffiliated entities.
Scoping Considerations The remittance transfer protections provided by Regulation E apply to entities that offer remittances as part of their “normal course of business.” Under Regulation E, entities that provide 500 or fewer remittance transfers in the relevant time frame fall outside this definition. Instead, they fall within a 500-transfer “safe harbor.” For an entity to qualify for this “safe harbor,” it must have provided 500 or fewer remittance transfers in both the current calendar year and the previous calendar year. If an entity sends more than 500 transfers either in the previous calendar year or the current calendar year, it no longer qualifies for the “normal course of business” safe harbor, and therefore, generally, it must begin complying with the rule within a reasonable period of time (not to exceed six months).
Examiners should consider the volume of remittance transfers that an entity provides before proceeding further. Only entities that provide more than 500 remittance transfers in the relevant time frame should be examined for compliance with the remittance transfer rules. Management and Policy-Related Examination Procedures 1. Through a review of all available information (e.g., board minutes, management reports, monitoring reports, etc.) and discussions with management, determine that the board and management have set clear expectations about compliance with federal consumer financial law, including Regulation E, not only within the entity but also concerning key business partners, agents, correspondent banks, and software providers, to the extent relevant.
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CFPB Examination Procedures Remittance Transfer CFPB February 2022 Procedures 4 2. Through a review of all available information (e.g., written policies and procedures, management’s self-assessments, customer complaints, prior examination reports, and any compliance audit material, including workpapers and reports), determine whether: a.
There are any weaknesses or other risks in the business model; b. The scope of the audit addresses all provisions of Regulation E as applicable; c.
The scope of the audit addresses all key business processes and functions, including those carried out by third-party service providers or key business partners, as appropriate;
d. Management has taken corrective actions to follow up on previously identified deficiencies;
e.
As applicable, testing includes risk-based samples covering product types and decision centers;
f.
There is an audit trail that supports the findings and conclusions of the work performed;
g.
Significant deficiencies and their causes are included in reports to management and/or to the board of directors or principal(s); and h. The frequency of review is appropriate.
[Click&type] 3. Through discussions with management and review of available information, determine whether the entity’s internal controls are adequate to ensure compliance with respect to the Regulation E area under review. Consider among other things: a.
Organizational charts;
b. Process flowcharts;
c.
Policies and procedures;
d. Account (if applicable) and transaction documentation; e.
Checklists; and f.
Computer program documentation.
[Click&type] 4. Through a review of the entity’s training materials and discussions with management, determine whether:
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CFPB Examination Procedures Remittance Transfer CFPB February 2022 Procedures 5 a.
The entity provides appropriate training to employees and other persons responsible for Regulation E compliance and operational procedures; and b. The training is comprehensive and covers the sections of Regulation E that apply to the individual entity’s product offerings and operations including, to the extent appropriate, those functions carried out by third-party service providers or other business partners, such as agents and correspondent banks. [Click&type] Transaction-Related Examination Procedures As applicable, conduct transaction testing using the following examination procedures: Obtain all available information as it relates to the provider’s remittance program. Examples of this include but are not limited to:
a. List of divisions or departments involved in offering or providing remittance transfers (e.g., retail, high net worth, prepaid cards, bill payment, online or mobile banking, foreign exchange and/or treasury departments);
b. Remittance transfer products offered;
c.
Disclosure forms in all languages (as applicable); d. List of foreign countries to which the provider sends remittance transfers, if available; e.
List of all foreign currencies in which remittance transfers sent by the provider may be received where there are limitations on such currencies, and identification of the currencies in which the provider controls the exchange rate; a. List of all third-party service providers or business partners involved in remittance transfers, including correspondent banks, payment networks, payment processors, software providers, foreign currency providers, agents in the U.S. or abroad, or similar entities;
b. Locations of U.S. and foreign agents;
c. Applicable documentation related to remittance transfer operations (e.g., transaction logs, agent/correspondent agreements, advertising and marketing material including any done in foreign languages, and documentation regarding calculation or estimates of fees, taxes, exchange rates, and dates included on disclosures); d. Procedural manuals and written policies;
e.
Error resolution files;
f.
Form letters used in case of errors or questions concerning a remittance transfer (including any provided in foreign languages);
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CFPB Examination Procedures Remittance Transfer CFPB February 2022 Procedures 6 g.
Any agreements with third parties allocating compliance responsibilities; and h. Consumer Complaint Files.
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CFPB Examination Procedures Remittance Transfer Module 1 CFPB February 2022 Procedures 7 Module 1: Disclosures General Form of Disclosures – 12 CFR 1005.31 1. Obtain and review a sample of the provider’s disclosure forms for the provider’s various remittance transfer products. Include disclosures as provided for various products and through various channels (e.g., in person, through a website, by telephone, through a mobile phone application, or a text message, or through online bill pay). Verify that: a. Disclosures are in the appropriate form, and are clear and conspicuous (for transfers conducted online or by telephone via mobile application, determine which screen(s) shown to the consumer are the provider’s disclosures); Note: It may be helpful to request a walkthrough of the remittance provider’s product to understand where and at what time consumers encounter the required disclosures.
b. Written and electronic disclosures are in a retainable form (except where expressly permitted not to be retainable);
c. Pre-payment disclosures match figures disclosed on receipts and match those actually applied to the transfer;
d. The provider’s policy for providing oral disclosures is appropriate for the related transactions;
e. Copies of scripts used for oral disclosures comply with the regulation; f.
Disclosures comply with the format requirements regarding the grouping of like items, proximity, prominence and size, and segregation from other information; and g. Disclosure of amounts required to be disclosed under 12 CFR 1005.31 (b) (1), (2), and (3), use the appropriate terms (e.g., transfer amount, transfer taxes, currency), or substantially similar terms.
[Click&type] 2. If applicable, determine whether the provider complies with the foreign language disclosure requirements as outlined under 12 CFR 1005.31(g). [Click&type] Pre-payment Disclosures – 12 CFR 1005.31(b)(1) 3. Based on a review of the provider’s policies and, if appropriate, sampled transactions, determine that it appropriately categorizes third-party fees as covered or non-covered. [Click&type]
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CFPB Examination Procedures Remittance Transfer Module 1 CFPB February 2022 Procedures 8 4. Based on a review of the provider’s policies on pre-payment disclosures and, if appropriate, sampled pre-payment disclosures and related documentation, determine whether the provider appropriately calculates and discloses: a. In the currency in which the remittance transfer is funded: i. The amount that will be transferred to the designated recipient, using the term, “Transfer Amount” or a substantially similar term;
ii. Fees imposed and taxes collected on the remittance transfer by the provider, using the terms, “Transfer Fees” and “Transfer Taxes,” or substantially similar terms; and iii.
The total amount of the transaction using the term, “Total,” or a substantially similar term;
b. The exchange rate used by the provider for the remittance transfer using the term “Exchange Rate” or a substantially similar term; c. In the currency in which the funds will be received by the designated recipient:
i. The transfer amount in the currency, but only if covered third-party fees are imposed using the term, “Transfer Amount,” or a substantially similar term;
ii. Any covered third-party fees imposed on the remittance transfer using the term, “Other Fees,” or a substantially similar term; iii.
The amount that will be received by the designated recipient (total amount of the transaction minus covered third-party fees) using the term, “Total to Recipient,” or a substantially similar term; and iv. If applicable, a statement that non-covered third-party fees or taxes collected on the remittance transfer by a third person may apply to the remittance transfer and result in the designated recipient receiving less than the amount disclosed.
[Click&type] NOTE: The exchange rate used to calculate the amounts under (c) is prior to any rounding. Receipt Disclosures – 12 CFR 1005.31(b)(2) 5. Review policies on receipt disclosures, sample receipts, and related documentation to determine whether the provider appropriately calculates and discloses: a. Information disclosed in the pre-payment disclosure;
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CFPB Examination Procedures Remittance Transfer Module 1 CFPB February 2022 Procedures 9 b. The date in the foreign country on which funds will be available to the designated recipient, using the term “Date Available” or a substantially similar term; c. The name and, if provided by the sender, the telephone number and/or address of the designated recipient, using the term “Recipient” or a substantially similar term; d. A statement about the rights of the sender regarding the resolution of errors and cancellation (unless the transfer is conducted entirely by mobile application, then this statement must be provided prior to payment of the remittance transfer); e. The name, telephone number(s), and website of the remittance transfer provider; and f.
A statement that the sender can contact the Consumer Financial Protection Bureau (CFPB) and, if applicable, the state agency that licenses or charters the remittance transfer provider with respect to the remittance transfer and for questions or complaints about the remittance transfer provider, as well as their telephone number(s), and website addresses.
[Click&type] NOTE: For any remittance transfer scheduled by the sender at least three business days before the date of the transfer, the statement about the rights of the sender regarding cancellation must state that the sender must request the cancellation at least three business days before the next scheduled transfer. The statement must also note that the request must enable the provider to identify the sender’s contact information and the particular transfer to be canceled.
Combined Disclosures – 12 CFR 1005.31(b)(3) NOTE: Complete this section only if the provider provides combined disclosures as an alternative to the pre-payment and receipt disclosures. 6. Review policies on combined disclosures, sample disclosures and related documentation to:
a. Determine that they contain all the information required for the pre-payment disclosure and receipt disclosure as described above; b. Determine that the provider provides proof of payment after payment is made for each transaction; and c. Determine that the proof of payment is clear and conspicuous, provided in writing or electronically, and provided in a retainable form. [Click&type]
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CFPB Examination Procedures Remittance Transfer Module 1 CFPB February 2022 Procedures 10 Accuracy and Timing – 12 CFR 1005.31(e) and (f) 7. Review, as appropriate, all available information including transactions or investigation/trace logs/records or similar documents to verify (subject to the disclaimer statement with respect to non-covered third-party fees and third-party taxes) the accuracy of disclosures provided to consumers:
a.
In instances in which pre-payment disclosures and receipts are provided that do not contain estimates, confirm with respect to any transaction for which payment was made, that the information on the most recent pre-payment disclosure for that transaction and the information on the receipt for that transaction are the same; b. For amounts that are not estimates, confirm that the disclosed amounts were accurate at the time that payment was made;
c.
For amounts that are estimates, determine whether the estimates were calculated correctly, in accordance with the applicable bases outlined in 12 CFR 1005.32; and d. In the case of estimates pursuant to 1005.32(b)(1), (b)(2), (b)(4) and (b)(5) that are based on an approach that is not one of the listed bases in 1005.32(c), determine that the recipient received the same, or greater, amount of funds than what was disclosed.
[Click&type] 8. Review processes and procedures or records, as appropriate, to determine whether the required disclosures are provided in accordance with the timing requirements in 12 CFR 1005.31(e).
a.
Determine whether pre-payment disclosures are provided when the sender requests the remittance transfer, but prior to payment; and b. Determine whether receipts are provided when payment is made, or in accordance with 1005.31(e)(2) for transactions conducted by telephone. [Click&type] Long-form Error Resolution and Cancellation Notice – 12 CFR 1005.31(b)(4) 9. Determine the provider’s policy for providing long-form error resolution and cancellation notices to senders upon request.
[Click&type] 10. Review the provider’s records of senders’ requests and determine that a longform error resolution and cancellation notice is promptly provided in response
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CFPB Examination Procedures Remittance Transfer Module 1 CFPB February 2022 Procedures 11 to each request.
[Click&type] 11. Review sample notices to determine that they use the language set forth in Model Form A-36 (Model Form for Error Resolution and Cancellation Disclosures (Long) of Appendix A to Subpart B), or substantially similar language.
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CFPB Examination Procedures Remittance Transfer Module 2 CFPB February 2022 Procedures 12 Module 2: Estimates Temporary Exception for Insured Institutions – 12 CFR 1005.32(a) 12. The temporary exception for insured institutions expired on July 21, 2020. Procedures relating to 12 CFR 1005.32(a)(1) have been removed. Permanent Exception for Transfers to Certain Countries– 12 CFR 1005.32(b)(1) 13. Review and assess the adequacy of the provider’s policy for determining that: a.
The laws of the recipient country do not permit a determination of the exact amount; or b. The methods by which transactions are made in the recipient country do not permit such determination.
[Click&type] 14. Review the provider’s transaction log/records to identify remittance transactions that were sent to countries on the list provided by the CFPB for which estimates may be provided on remittance transfer-related disclosures to determine if the provider properly relied on the list in making estimates.
[Click&type] 15. Determine whether the provider gave estimates for transactions to a country that is not on the list provided by the CFPB. Review related documentation to confirm that the recipient country does not legally permit, or the method by which transactions are conducted in that country does not permit determination of exact amounts. [Click&type] 16. Review records to determine:
a. The bases used for the estimates under 12 CFR 1005.32(c) and their appropriateness:
i. If estimates were provided in accordance with one of the bases listed in 12 CFR 1005.32(c), review documentation to confirm that inputs to estimates are appropriate; or ii. If estimates are based on an approach that is not one of the listed bases, determine as appropriate, that the designated recipient received the same
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CFPB Examination Procedures Remittance Transfer Module 2 CFPB February 2022 Procedures 13 amount as, or a greater amount than, the amount of funds that the remittance transfer provider disclosed.
b. That the estimated amounts are appropriately labeled with the term “Estimated” or a substantially similar term, placed in close proximity to the term described. [Click&type] Permanent Exception for Transfers Scheduled Before the Date of Transfer – 12 CFR 1005.32(b)(2) 17. Review and assess the adequacy of the provider’s policy and procedures for using estimates in the case of transfers scheduled five or more business days before the date of transfer.
[Click&type] 18. Review and assess transactions for which estimates were used, as well as related disclosures (required by 12 CFR 1005.36(a)), and any other relevant documentation, as appropriate, to determine compliance with 12 CFR 1005.32(b)(2). [Click&type] Permanent Exception for Estimation of the Exchange Rate by an Insured Institution – 12 CFR 1005.32(b)(4) 19. Determine that the remittance transfer provider is an insured institution within the definition provided in 12 CFR 1005.32(a)(3).
a. If the remittance transfer provider is not an insured institution, skip this section. [Click&type] 20. Review the appropriate information including transaction log/records, etc., to identify and create a list of remittance transfer transactions that were sent from the following: a. The sender’s account with the institution, excluding prepaid accounts, unless that prepaid account is a payroll card account or a government benefit account. [Click&type] 21. From the list identified in 20, identify transactions for which estimates were used. [Click&type] 22. For each transaction identified in 21 for which estimates were used:
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CFPB Examination Procedures Remittance Transfer Module 2 CFPB February 2022 Procedures 14 a. Determine whether the designated recipient of the remittance received funds in the country’s local currency;
b. Determine whether the insured institution could not determine the exact exchange rate required to be disclosed under 12 CFR 1005.31(b)(1)(iv) for that remittance transfer at the time the insured institution must provide, as applicable, the disclosure required by 12 CFR 1005.31(b)(1) through (3) or 12 CFR 1005.36(a)(1) or (2); and c. Determine whether the insured institution made 1,000 or fewer remittance transfers in the prior calendar year to the particular country for which the designated recipients of those transfers received funds in the country’s local currency.
[Click&type] NOTE: An insured institution acting as an agent on behalf of another in connection with a remittance transfer is not a remittance transfer provider. Permanent Exception for Estimation of Covered Third-party Fees by an Insured Institution – 12 CFR 1005.32(b)(5) 23. Determine that the remittance transfer provider is an insured institution within the definition provided in 12 CFR 1005.32(a)(3).
a. If the remittance transfer provider is not an insured institution, skip this section. [Click&type] 24. Review the appropriate information including transaction log/records, etc., to identify and create a list of remittance transfer transactions that were sent from the following: a. The sender’s account with the institution, excluding prepaid accounts, unless that prepaid account is a payroll card account or a government benefit account. [Click&type] 25. From the list identified in 24, identify transactions for which estimates were used. [Click&type] 26. For each transaction identified in 25 for which estimates were used: a. Determine whether the insured institution could not determine the exact covered third-party fees required to be disclosed by 12 CFR 1005.32(b)(1)(vi) at the time the insured institution must provide, as applicable, the disclosure required by 12 CFR 1005.31(b)(1) through (3) or 12 CFR 1005.36(a)(1) or (2).; and
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CFPB Examination Procedures Remittance Transfer Module 2 CFPB February 2022 Procedures 15 b. Either determine whether the provider made 500 or fewer remittance transfers in the prior calendar year to the designated recipient’s institution; or c. Determine whether the institution identified a United States Federal statute or regulation prohibiting the insured institution from being able to determine the exact covered third-party fees required to be disclosed. If so, determine whether you agree.
[Click&type] NOTE: Your OSP point of contact can help evaluate whether the statute or regulation is applicable.
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CFPB Examination Procedures Remittance Transfer Module 3 CFPB February 2022 Procedures 16 Module 3: Error Resolution Procedures for Resolving Errors – 12 CFR 1005.33 27. Review the provider’s policies and procedures on error resolution. [Click&type] 28. Review relevant error resolution statements/files, consumer complaints, form letters, etc., used in addressing errors or questions concerning remittance transfer transactions. [Click&type] 29. Assess the provider’s compliance program to determine whether it has developed and maintains adequate written policies and procedures designed to ensure compliance with the error resolution requirements applicable to remittance transfers. Consider: a. The procedures for receiving complaints of error from branches, agents or other locations where a consumer may lodge a complaint;
b. The procedures for identifying complaints alleging “errors” as identified in 12 CFR 1005.33(a); and c. The procedures for investigating, responding to, and resolving complaints. [Click&type] 30. Determine the extent of the provider’s compliance with its policies and procedures on error resolution.
[Click&type] 31. Determine the provider’s compliance with the regulatory requirements regarding the investigation of alleged errors, and notification of consumers within the allotted time frames.
[Click&type] 32. Determine the timeliness and adequacy of remedies the provider uses to address identified errors.
a. For errors under 12 CFR 1005.33(a)(1)(iv) other than those that occurred because the sender provided incorrect or insufficient information, consider:
i.
If the provider gave the sender notice regarding the error investigation;
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CFPB Examination Procedures Remittance Transfer Module 3 CFPB February 2022 Procedures 17 ii.
If the sender requested a remedy, determine whether the provider provides the remedy selected by the sender. If a default remedy is provided, determine whether the sender had a reasonable time to designate a remedy after receiving a report of the error; iii.
If the remedy is delivery of the amount appropriate to correct the error, determine whether the provider corrects the error within one business day, or as soon as reasonably practicable, applying the same exchange rate, fees, and taxes stated in the disclosure provided in connection with the remittance transfer with respect to which the error was made; iv. If the remedy is a refund, determine whether the provider refunds the appropriate amount within one business day or as soon as reasonably practicable thereafter.
b. If the provider determines that an error occurred that relates to: i. An incorrect amount paid by the sender;
ii. A computational or bookkeeping error made by the remittance transfer provider; or iii. Failure to make the amount of currency stated in the disclosures available to the designated recipient.
[Click&type] Remedies – 12 CFR 1005.33(c)(2) 33. Determine whether the provider either:
a. Refunds the amount of funds provided by the sender (in case of a transaction that was not properly transmitted), or the amount appropriate to resolve the error; or b. Makes available to the designated recipient, the amount appropriate to resolve the error without additional cost to the sender or the designated recipient.
c. If the error relates to the failure to make funds available to the designated recipient by the disclosed date of availability (other than an error resulting from incorrect or insufficient information provided by the sender), determine whether the provider:
i. Either:
1. Refunds the amount of funds that was not properly transmitted, or the amount appropriate to resolve the error to the sender; or
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CFPB Examination Procedures Remittance Transfer Module 3 CFPB February 2022 Procedures 18 2. Makes available to the designated recipient the amount appropriate to resolve the error; and ii.
Refunds to the sender any fees and, to the extent not prohibited by law, taxes collected on the remittance transfer. d. In the case of errors involving incorrect or insufficient information provided by the sender for the transfer:
i. Determine whether the provider refunds to the sender the amount of funds that was not properly transmitted, or the amount appropriate to resolve the error, the fees and taxes paid by the sender in connection with the remittance transfer, and only deducts those fees actually deducted by a person other than the provider and (where not prohibited by law) taxes actually collected for the original unsuccessful transaction, within three business days of providing the written explanation of findings; or ii.
Alternatively, if the provider has not yet processed a refund and agrees to the sender’s request to apply the funds towards a new remittance transfer, instead of a refund, determine whether the provider treats the request as a new remittance transfer, provides the appropriate disclosures, and only deducts those fees actually deducted by a person other than the provider and (where not prohibited by law) taxes actually collected for the original unsuccessful transaction. [Click&type] Record Retention – 12 CFR 1005.33(g) & 12 CFR 1005.13 34. Determine that the provider is maintaining records of compliance for a period of not less than two years from the date a notice of error was submitted to the provider or action was required to be taken by the provider.
[Click&type]
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CFPB Examination Procedures Remittance Transfer Module 4 CFPB February 2022 Procedures 19 Module 4: Cancellation and Refunds Procedures for Cancellation and Refund of Remittance Transfers – 12 CFR 1005.34 and 12 CFR 1005.36(c) 35. Review and assess the provider’s policies and procedures regarding cancellation and refund of remittance transfer transactions, including: a.
The procedures for receiving requests of cancellation from branches, agents, or other locations where a consumer may request cancellation; b. The procedures for identifying which transactions are eligible for cancellation; and c.
The procedures for issuing refunds.
[Click&type] 36. Determine the extent of the provider’s compliance with its own policies and procedures on cancellation and refund.
[Click&type] 37. Determine the provider’s compliance with the regulatory requirements regarding senders’ requests for cancellation and refund.
[Click&type] 38. Determine whether the provider complies with any oral or written request to cancel any remittance transfer scheduled by the sender at least three business days before the date of the remittance transfer.
[Click&type]
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CFPB Examination Procedures Remittance Transfer Module 5 CFPB February 2022 Procedures 20 Module 5: Agents Acts of Agents – 12 CFR 1005.35 NOTE: Complete this section if the provider uses agent(s) to conduct any element of remittance transfer transactions.
39. Review the provider’s agreements with agents used for remittance transfers to determine whether they are appropriate for the activities delegated. [Click&type] 40. Determine whether the provider has established appropriate internal controls and review procedures in relation to the work done by agents on its behalf to ensure compliance with the regulatory requirements. Consider:
a.
The extent to which the provider has established and maintained policies or procedures for compliance, including policies, procedures, or other appropriate oversight measures designed to assure compliance by an agent or authorized delegate acting for such provider including: i. The degree of control the agent exercises over the remittance transfer activities performed on the provider’s behalf; ii. The quality and frequency of training provided to ensure that agents are aware of the regulatory requirements and the provider’s internal policy guidelines; and iii. The adequacy of the provider’s oversight of agents’ activities. [Click&type] 41. Select a sample of agents used by the provider and review their records in addition to relevant records held by the provider directly to determine that the activities performed by the agent on the provider’s behalf are in compliance with the regulatory requirements. [Click&type]
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CFPB Remittance Transfer Examination Procedures Module 6 Module 6 CFPB February 2022 Procedures 21 Module 6: Pre-scheduled Transfers Transfers Scheduled Before the Date of Transfer – 12 CFR 1005.36 42. Review and assess the adequacy of the provider’s policies and procedures regarding transfers scheduled before the date of transfer.
[Click&type] 43. As appropriate, select a sample of records of transfers scheduled before the date of transfer to determine whether the provider complies with the timing of disclosures, the accuracy of disclosures (and estimates pursuant to 1005.32(b)(2)) and the sender’s request for cancellation. Use the same methods identified in the sections above, regarding other disclosures. Consider the following:
a.
For one-time transfers scheduled five or more business days before the date of transfer or for the first in a series of preauthorized remittance transfers, determine whether the provider offers either a pre-payment disclosure and a receipt or a combined disclosure at the time the sender requests the transfer but prior to payment;
NOTE: If any of the disclosures provided contain estimates as permitted by 12 CFR 1005.32(b)(2), the provider must mail or deliver an additional receipt no later than one business day after the date of the transfer. If the transfer involves the transfer of funds from the sender’s account held by the provider, this additional receipt may be provided on or with the next periodic statement for that account, or within 30 days after the date of the transfer if a periodic statement is not provided. b. For each subsequent preauthorized remittance transfer, determine whether the provider gives an updated receipt if any of the information (other than temporal disclosures or disclosures that are permitted to be estimated) on the most recent receipt is no longer accurate;
NOTE: The receipt must clearly and conspicuously indicate that it contains updated disclosures and must be mailed or delivered to the sender within a reasonable time prior to the scheduled date of the next subsequent preauthorized remittance transfer. A disclosure that is mailed no later than ten business days or hand or electronically delivered no later than five business days is deemed to have been provided within a reasonable time.
c.
If there is no updated information and the remittance transfer does not involve the transfer of funds from the sender’s account held by the provider, determine whether the provider mails or delivers a receipt to the sender no later than one business day after the date of the transfer for each subsequent preauthorized transfer;
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CFPB Remittance Transfer Examination Procedures Module 6 Module 6 CFPB February 2022 Procedures 22 d. If there is no updated information and the remittance transfer involves the transfer of funds from the sender’s account held by the provider, determine whether the receipt is provided on or with the next periodic statement for that account, or within 30 days after the date of the transfer if a periodic statement is not provided; and e.
For any subsequent transfer in a series of preauthorized remittance transfers, determine whether the provider discloses the information required by 12 CFR 1005.36(d)(1) no more than 12 months and no less than five business days prior to the date of the subsequent preauthorized remittance transfer. [Click&type] NOTE: While the rule generally provides flexibility as to when and where future transfer dates may be disclosed, for any subsequent preauthorized remittance transfer for which the date of transfer is four or fewer business days after the date payment is made, the disclosure must generally be provided on or with the receipt for the initial transfer in that series.
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CFPB Examination Procedures Remittance Transfer Module 7 CFPB February 2022 Procedures 23 Module 7: Other Risks to Consumers To carry out the objectives set forth in the Examination Objectives section, examiners also should assess the other consumer risks described below.
44. Determine whether the entity’s privacy and information-sharing practices are consistent with the requirements of Sections 502 to 509 of the Gramm-Leach-Bliley Act (15 USC 6802-09) and Regulation P (12 CFR Part 1016), to the extent they apply. Refer to the Privacy of Consumer Financial Information examination procedures for more information. [Click&type] 45. Determine whether any agreement or writing between the consumer and institution contains language that may constitute a waiver of any right or cause of action created by EFTA (15 USC 1693) or Regulation E (12 CFR Part 1005). Consider the institution’s account agreement with consumers.
[Click&type] 46. Using the examination procedures that address unfair, deceptive, or abusive acts or practices (UDAAPs), consider whether any aspect of the provider’s remittance practices and operations constitute unfair, deceptive or abusive acts or practices. The particular facts and circumstances in a case are crucial to the determination of UDAAPs. Examiners should consult with headquarters to determine whether the applicable legal standards have been met before a UDAAP violation is cited.
[Click&type]
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CFPB Remittance Tr Remittance Transfer Examination Procedures Module 8 CFPB February 2022 Procedures 24 Module 8: Examination Conclusions and Wrap-Up To conclude this supervisory activity, examiners must complete all steps under this section, regardless of the entity’s risk profile.
47. Summarize the findings, supervisory concerns, and regulatory violations. [Click&type] 48. For the violations noted, determine the root cause by identifying weaknesses in internal controls, audit and compliance reviews, training, management oversight, or other factors. Determine whether the violation(s) are pattern or practice, or isolated. [Click&type] 49. Identify action needed to correct violations and weaknesses in the institution’s compliance management system, as appropriate.
[Click&type] 50. Discuss findings with the institution’s management and, if necessary, obtain a commitment for corrective action.
[Click&type] 51. Record violations according to agency policy in the Report of Examination/Supervisory Letter and the CFPB’s electronic database system to facilitate analysis and reporting. [Click&type] 52. Determine if enforcement action is appropriate. If so, contact appropriate agency personnel for guidance.
[Click&type] 53. Prepare a memorandum for inclusion in the workpapers and CFPB’s official system of record that outlines planning and strategy considerations for the next examination and, if appropriate, interim follow-up.
[Click&type]
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CFPB remittance transfers transfer Remittance Examination Procedures transfers Transfer CFPB February 2022 Procedures 25 SUPPLEMENTAL INFORMATION
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 26 Subpart B of Regulation E — Requirements for Remittance Transfers Subpart B of Regulation E provides disclosures, error resolution, and cancellation and refund rights to consumers who send remittance transfers to be received by other consumers or businesses in a foreign country.
I.
Definitions – 12 CFR 1005.2 and 30 The definitions in Subpart A of Regulation E (12 CFR 1005.2) also apply to Subpart B unless specifically modified or limited by Subpart B.
Key Definitions in Subpart A — 12 CFR 1005.2 Access device is a card, code, or other means of access to a consumer’s account or a combination of these used by the consumer to initiate EFTs. Access devices include debit cards, personal identification numbers (PINs), telephone transfer and telephone bill payment codes, and other means to initiate an EFT to or from a consumer account (12 CFR 1005.2(a)(1) and 12 CFR Part 1005, Supp. I, Comment 2(a)-1). Access devices do not include either of the following: a.
Magnetic tape or other devices used internally by a financial institution to initiate electronic transfers; or b. A check or draft used to capture the MICR (Magnetic Ink Character Recognition) encoding or routing, account, and serial numbers to initiate a one-time ACH debit (Comments 2(a)-1 and 2(a)-2). Accepted access device is an access device that a consumer: a.
Requests and receives, signs, or uses (or authorizes another to use) to transfer money between accounts or to obtain money, property, or services; b. Requests to be validated even if it was issued on an unsolicited basis; c.
Receives as a renewal or substitute for an accepted access device from either the financial institution that initially issued the device or a successor (12 CFR 1005.2(a)(2)).
Account includes the following:
a. A demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes (12 CFR 1005.2(b)(3)(ii)(A)).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 27 b. The term includes a prepaid account which includes the following: i.
A “payroll card account,” which is an account that is directly or indirectly established through an employer and to which electronic fund transfers of the consumer’s wages, salary, or other employee compensation (such as commissions) are made on a recurring basis, whether the account is operated or managed by the employer, a third-party payroll processor, a depository institution, or any other person (1005.2(b)(3)(A)); or ii.
A “government benefit account,” which is an account established by a government agency for distributing government benefits to a consumer electronically, such as through automated teller machines or point-of-sale terminals, but does not include an account for distributing needs-tested benefits in a program established under state or local law or administered by a state or local agency (1005.2(b)(3)(B), 1005.15(a)(2));); or iii.
An account that is marketed or labeled as “prepaid” and that is redeemable upon presentation at multiple, unaffiliated merchants for goods or services or usable at automated teller machines (1005.2(b)(3)(C)); or iv.
An account:
1. That is issued on a prepaid basis in a specified amount or not issued on a prepaid basis but capable of being loaded with funds thereafter; 2. Whose primary function is to conduct transactions with multiple, unaffiliated merchants for goods or services, or at automated teller machines, or to conduct person-to-person transfers; and 3. That is not a checking account, share draft account, or negotiable order of withdrawal account.
NOTE: There are a number of exceptions to the third and fourth tests (1005.2(b)(3)(ii)). A product that meets one of these exceptions may instead be subject to 1005.20, which contains requirements for gift cards and gift certificates as defined in that section. An account does not include:
a.
An account held by a financial institution under a bona fide trust agreement (12 CFR 1005.2(b)(2);
b. Profit-sharing and pension accounts established under a bona fide trust agreement (12 CFR 1005.2(b), Comment 2(b)-2.i);
c.
Escrow accounts such as for payments of real estate taxes, insurance premiums, or completion of repairs (12 CFR 1005.2(b), Comment 2(b)- 2.ii); or
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 28 d. Accounts for purchasing U.S. savings bonds (12 CFR 1005.2(b), Comment 2(b)-2.iii).
A payroll card account does not include a card used:
a.
Solely to disburse incentive-based payments (other than commissions when they represent the primary means through which a consumer is paid) that are unlikely to be a consumer’s primary source of salary or other compensation; b. Solely to make disbursements unrelated to compensation, such as petty cash reimbursements or travel per diem payments; or c.
In isolated instances to which an employer typically does not make recurring payments (Comment 2(b)(3)(i)-2).
Activity means any action that results in an increase or decrease of the funds underlying a certificate or card, other than the imposition of a fee, or an adjustment due to an error or a reversal of a prior transaction (12 CFR 1005.20(a)(7)). ATM operator is any person that operates an ATM at which a consumer initiates an EFT or a balance inquiry and that does not hold the account to or from which the transfer is made or about which the inquiry is made (12 CFR 1005.16(a)).
Dormancy fee and inactivity fee mean a fee for non-use of or inactivity on a gift certificate, store gift card, or general-use prepaid card (12 CFR 1005.20(a)(5)). Electronic check conversion (ECK) transactions are transactions where a check, draft, or similar paper instrument is used as a source of information to initiate a one-time electronic fund transfer from a consumer’s account. The consumer must authorize the transfer (12 CFR 1005.3(b)(2)). Electronic fund transfer (EFT) is a transfer of funds initiated through an electronic terminal, telephone, computer (including online banking) or magnetic tape for the purpose of ordering, instructing, or authorizing a financial institution to debit or credit a consumer’s account. EFTs include, but are not limited to, point-of-sale (POS) transfers; automated teller machine (ATM) transfers; direct deposits or withdrawals of funds; transfers initiated by telephone; and transfers resulting from debit card transactions, whether or not initiated through an electronic terminal (12 CFR 1005.3(b)).
Electronic terminal is an electronic device, other than a telephone call by a consumer, through which a consumer may initiate an EFT. The term includes, but is not limited to, point-of-sale terminals, automated teller machines, and cash-dispensing machines (12 CFR 1005.2(h)). Exclusions from gift card definition. The following cards, codes, or other devices are excluded and not subject to the substantive restrictions on imposing dormancy, inactivity, or service fees, or on expiration dates, if they are: (12 CFR 1005.20(b)) a.
Useable solely for telephone services;
b. Reloadable and not marketed or labeled as a gift card or gift certificate. For
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 29 purposes of this exception, the term “reloadable” includes a temporary nonreloadable card issued solely in connection with a reloadable card, code, or other device;
c.
A loyalty, award, or promotional gift card (except that these must disclose on the card or device itself, information such as the date the funds expire, fee information and a toll-free number) (12 CFR 1005.20(a)(4) and (c)(4)); d. Not marketed to the general public;
e.
Issued in paper form only; or f.
Redeemable solely for admission to events or venues at a particular location or group of affiliated locations, or to obtain goods or services in conjunction with admission to such events or venues, at the event or venue or at specific locations affiliated with and in geographic proximity to the event or venue. General-use prepaid card is a card, code, or other device: a.
Issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount, whether or not that amount may be increased or reloaded, in exchange for payment; and b. That is redeemable upon presentation at multiple, unaffiliated merchants for goods or services, or that may be usable at automated teller machines (12 CFR 1005.20(a)(3)). See “Exclusions from gift card definition.” Gift certificate is a card, code, or other device issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount that may not be increased or reloaded in exchange for payment and redeemable upon presentation at a single merchant or an affiliated group of merchants for goods or services (12 CFR 1005.20(a)(1)). See “Exclusions from gift card definition.”
Loyalty, award, or promotional gift card is a card, code, or other device (1) issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in connection with a loyalty, award, or promotional program; (2) that is redeemable upon presentation at one or more merchants for goods or services, or usable at automated teller machines; and (3) that sets forth certain disclosures, including a statement indicating that the card, code, or other device is issued for loyalty, award, or promotional purposes (12 CFR 1005.20(a)(4)). See “Exclusions from gift card definition.” Overdraft Services. A financial institution provides an overdraft service if it assesses a fee or charge for paying a transaction (including a check or other item) when the consumer has insufficient or unavailable funds in the account to pay the transaction. However, an overdraft service does not include payments made from the following: a.
A line of credit subject to Regulation Z, such as a credit card account, a home equity line of credit, or an overdraft line of credit;
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 30 b. Funds transferred from another account held individually or jointly by the consumer; or c.
A line of credit or other transaction from a securities or commodities account held by a broker-dealer registered with the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) (12 CFR 1005.17(a)).
Preauthorized electronic fund transfer is an EFT authorized in advance to recur at substantially regular intervals (12 CFR 1005.2(k)).
Service fee means a periodic fee for holding or use of a gift certificate, store gift card, or general- use prepaid card. A periodic fee includes any fee that may be imposed on a gift certificate, store gift card, or general-use prepaid card from time to time for holding or using the certificate or card (12 CFR 1005.20(a)(6)). For example, a service fee may include a monthly maintenance fee, a transaction fee, an ATM fee, a reload fee, a foreign currency transaction fee, or a balance inquiry fee, whether or not the fee is waived for a certain period of time or is only imposed after a certain period of time. However, a service fee does not include a one-time fee or a fee that is unlikely to be imposed more than once while the underlying funds are still valid, such as an initial issuance fee, a cash-out fee, a supplemental card fee, or a lost or stolen certificate or card replacement fee (Comment 20(a)(6)-1). State means any state, territory, or possession of the U.S.; the District of Columbia; the Commonwealth of Puerto Rico; or any of their political subdivisions (12 CFR 1005.2(l)). Store gift card is a card, code, or other device issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount, whether or not that amount may be increased or reloaded, in exchange for payment, and redeemable upon presentation at a single merchant or an affiliated group of merchants for goods or services (12 CFR 1005.20(a)(2)). See “Exclusions from gift card definition.” Unauthorized electronic fund transfer is an EFT from a consumer’s account initiated by a person other than the consumer without authority to initiate the transfer and from which the consumer receives no benefit. This does not include an EFT initiated in any of the following ways: a.
By a person who was furnished the access device to the consumer’s account by the consumer, unless the consumer has notified the financial institution that transfers by that person are no longer authorized;
b. With fraudulent intent by the consumer or any person acting in concert with the consumer; or c.
By the financial institution or its employee (12 CFR 1005.2(m)).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 31 The following definitions in Subpart B (12 CFR 1005.30) are applicable only to Subpart B.
Agent is an agent, authorized delegate, or person affiliated with a remittance transfer provider, as defined under state or other applicable law, when that person acts for a remittance transfer provider. A person is not deemed a remittance transfer provider when that person performs activities as an agent on behalf of a remittance transfer provider (Comment 30(f)-1). A business day is any day that the offices of a remittance transfer provider are open to the public for carrying on “substantially all business functions.” Pre-authorized remittance transfer is a remittance transfer authorized in advance to recur at substantially regular intervals.
Remittance transfer is an electronic transfer of funds requested by a consumer in a state to a designated recipient that is sent by a remittance transfer provider. The term applies whether or not the consumer holds an account and whether or not the transfer is an electronic fund transfer.
An electronic transfer of funds occurs when:
a.
A provider makes an electronic book entry between different settlement accounts to make the remittance transfer.
b. A payment is made under a bill-payment service available to a consumer via computer or other electronic means, except in certain circumstances where a check, draft or similar paper instrument drawn on a consumer’s account under the bill-payment service is mailed abroad.
An electronic transfer of funds does not occur where a sender mails funds directly to a recipient, or funds are provided to a courier for delivery to a foreign country (Comment 30(e)- (1)).
Transactions of $15 or less and certain transactions in connection with securities and commodities transfers that are excluded from the definition of an EFT are not remittance transfers (12 CFR 1005.30(e)(2) and 12 CFR 1005.3(c)(4)). Remittance transfers include:
a.
Transfers in cash or by another method conducted through a money transmitter or a financial institution;
b. Consumer wire transfers conducted by a financial institution upon a sender’s request to wire money from the sender’s account to a designated recipient; c.
An addition of funds to a prepaid card by a participant in a prepaid card program, such as a prepaid card issuer or its agent, that is directly engaged with the sender to add these funds, where the prepaid card is sent or was previously sent by a
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 32 participant in the prepaid card program to a person in a foreign country, even if a sender retains the ability to withdraw such funds;
d. International ACH transactions sent by the sender’s financial institution at the sender’s request; and e.
Online bill payments and other electronic transfers that a sender schedules in advance, including preauthorized remittance transfers, made by the sender’s financial institution at the sender’s request to a designated recipient (Comment 30(e)-3).
Sender is a consumer in a state, who requests a remittance transfer primarily for personal, family, or household purposes. For account-based transfers, the location of the consumer’s account will determine whether the consumer is located in a state. A sender located on a U.S. military installation that is physically located in a foreign country is located in a State. For transfers not made from an account that are requested by telephone or electronically, the remittance transfer provider may make the determination of whether a consumer is located in a state based on information provided by the consumer and any records associated with the consumer (Comment 30(g)-1).
A designated recipient is any person identified by the name provided by a sender to receive a remittance transfer at a location in a foreign country. A designated recipient can be either a natural person or an organization such as a corporation (Comment 30(c)-1). Similar to the definition of “sender,” for transfers to a designated recipient’s account where funds are to be received depends on where the recipient’s account is located. If the funds will be received at a location on a U.S. military installation that is physically located in a foreign country, the transfer will be received in a State. Remittance transfer provider or provider is any person that provides remittance transfers for a consumer in the normal course of business, regardless of whether the consumer holds an account with such person (12 CFR 1005.30(f)(1)).
Whether a person provides remittance transfers in the “normal course of business” depends on the facts and circumstances, including the total number and frequency of remittance transfers sent by the provider. The rule also provides a safe harbor for a person that provided 500 or fewer remittance transfers in the previous calendar year and provides 500 or fewer remittance transfers in the current calendar year (a total via all channels). Such a person is deemed not to be providing remittance transfers in the normal course of business and is therefore not subject to the rule’s requirements. In determining whether a person qualifies for the safe harbor, any transfers that are excluded from the definition of “remittance transfer” such as small value transactions or certain securities and commodities transfers are excluded. If a person exceeds the safe harbor criteria and is providing remittance transfers for consumers in the normal course of business, that person has a reasonable period of time, not to exceed six months, to begin complying with Subpart B (12 CFR 1005.30(f)(2) and Comment 30(f)-2). Covered third-party fees means any fees that are imposed on the remittance transfer by a person other than the remittance transfer provider that are not non-covered third-party fees.
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 33 Fees imposed on the remittance transfer include only those fees that are charged to the designated recipient and are specifically related to the remittance transfer (Comment 30(h)-1). Examples include fees imposed on a remittance transfer by intermediary institutions in connection with a wire transfer (sometimes referred to as “lifting fees”) and fees imposed on a remittance transfer by an agent of the provider at pick-up for receiving the transfer (Comment 30(h)-2).
Non-covered third-party fees means any fees imposed by the designated recipient’s institution for receiving a remittance transfer into an account except if the institution acts as an agent of the remittance transfer provider. For example, a fee imposed by the designated recipient’s institution for receiving an incoming transfer into an account is a non-covered third-party fee, if the institution is not acting as the agent of the remittance transfer provider. A designated recipient’s account does not include a credit card, prepaid card, or a virtual account held by an Internet-based or mobile telephone company that is not a bank, savings association, credit union or equivalent institution (Comment 30(h)-3).
II.
Disclosures — 12 CFR 1005.31 Providers must give senders disclosures at certain stages of the remittance transfer process. The rule requires providers to give senders a pre-payment disclosure when a transfer request is made, but prior to payment for the transfer. Providers must also provide a receipt when payment is made for the transfer. Model disclosure forms are provided in Appendix A. General Form of Disclosures — 12 CFR 1005.31(a) Required disclosures or optional disclosures permitted by 12 CFR 1005.31(b)(1)(viii) or 12 CFR 1005.33(h)(3) must be clear and conspicuous and generally be provided to the sender in writing. Disclosures may contain commonly accepted or readily understandable abbreviations or symbols. Disclosures are clear and conspicuous if they are readily understandable and, in the case of written and electronic disclosures, the location and type size are readily noticeable to senders. Oral disclosures are clear and conspicuous when they are given at a volume and speed sufficient for a sender to hear and comprehend them (12 CFR 1005.31(a); Comments 31(a)(1)-1 and 31(a)(2)-2).
Pre-payment disclosures may be provided electronically without E-SIGN consent if the sender electronically requests the provider to send the transfer. However, the receipt for the transaction may be provided electronically only with E-SIGN consent (12 CFR 1005.31(a)(2); Comment 31(a)(2)-1).
Written and electronic disclosures generally must be made in a retainable form. Pre-payment disclosures provided via mobile application or text message (to the extent permitted by the rule) need not be retainable. In some cases, disclosures may be disclosed orally. For example, prepayment disclosures may be disclosed orally if the transaction is conducted orally and entirely by telephone and the remittance transfer provider complies with certain other disclosure requirements. A Remittance Transfer Provider may treat a written or electronic communication as an inquiry when it believes that treating the communication as a request would be impractical
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 34 and thus may comply with oral disclosure requirements instead of the written requirements discussed above (12 CFR 1005.31(a)(2), (a)(3), and (a)(3)-2). For purposes of disclosures required to be provided pursuant to 1005.31 or 1005.36, disclosures provided by facsimile transmission (i.e., fax) are considered to be provided in writing (12 CFR 1005.31(a)(2)-5).
Additional requirements apply for certain transfers scheduled at least three days before the date of transfer that are conducted orally over the telephone or by mobile application or text messaging (12 CFR 1005.31(a)(3)(iv) and (a)(5)(iv)).
Disclosure Requirements — 12 CFR 1005.31(b) Disclosures are provided as applicable. The required disclosures need to be provided only to the extent applicable. A remittance transfer provider may choose to omit an item of information if it is inapplicable to a particular transaction. Alternatively, a provider may disclose a term and state that an amount or item is “not applicable,” “N/A,” or “None” (Comment 31(b)-1). Substantially similar terms, language, and notices. Certain disclosures must be described using the terms set forth in 12 CFR 1005.31(b) or substantially similar terms. Terms may be more specific than those provided. For example, a remittance transfer provider sending funds may describe fees imposed by an agent at pick-up as “Pick-up Fees” in lieu of describing them as “Other Fees.” Foreign language disclosures must contain accurate translations of the required terms, language, and notices as well as the disclosures permitted by 1005.31(b)(1)(viii) and 1005.33(h)(3) (Comment 31(b)-2). Pre-payment Disclosures — 12 CFR 1005.31(b)(1) A remittance transfer provider must provide the pre-payment disclosure when the sender requests the remittance transfer, but prior to payment for the transfer. The provider must disclose:
a. The amount to be transferred (transfer amount);
b. Front-end fees imposed by the provider and any taxes collected on the remittance transfer by the provider (transfer fees and transfer taxes); c. Total amount of the transaction (the sum of the transfer amount and front-end fees and taxes);
d. The exchange rate;
e. Any covered third-party fees (other fees);
f.
The total amount to be received by the designated recipient (total amount of the transaction minus covered third-party fees); and g. A statement that non-covered third-party fees or taxes collected on the remittance transfer by a third person may apply to the remittance transfer and result in the
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 35 designated recipient receiving less than the amount disclosed. In this statement, a provider also may, but is not required to, disclose in the currency in which the funds will be received, any applicable non-covered third-party fees or taxes collected by a person other than the provider.
Transfer amount. Two transfer amount disclosures are required in the pre-payment disclosures.
1. The transfer amount in the currency in which the sender funds the remittance transfer to show the calculation of the total amount of the transaction. 2. The transfer amount in the currency in which the funds will be made available to the designated recipient. This second transfer amount need not be disclosed if covered third- party fees are not imposed on the remittance transfer. The terms used to describe each transfer amount should be the same (Comment 31(b)(1)-2). Fees and taxes. Fees imposed and taxes collected on the remittance transfer by a provider must be disclosed in the currency in which the transaction is funded, as applicable. Taxes collected on the remittance transfer by the provider include taxes imposed on the remittance transfer by a state or other governmental body (Comment 31(b)(1)-1(i)). The fees and taxes required to be disclosed by 12 CFR 1005.31(b)(1)(ii) include all fees imposed and all taxes collected on the remittance transfer by the provider and include only those that are specifically related to the remittance transfer. For example, a provider must disclose any service fees imposed by an agent at the time of the transfer, and any state taxes collected on the remittance transfer (Comment 31(b)(1)-1(ii)). Applicable exchange rate. If the designated recipient will receive funds in a currency other than the currency in which the remittance transfer is funded, a remittance transfer provider must disclose the exchange rate to be used by the provider for the remittance transfer (Comment 31(b)(1)(iv)-1).
Rounding. The exchange rate disclosed for the remittance transfer is required to be rounded on the disclosure. The provider may round to two, three, or four decimal places, at its option, but this must be done consistently for each currency (Comment 31(b)(1)(iv)-2). However, the exchange rate used to calculate: (a) the transfer amount; (b) the fees and taxes imposed on the remittance transfer by a person other than the provider; and (c) the amount received by the designated recipient, is prior to any rounding. If an exchange rate need not be rounded, a provider must use that exchange rate to calculate these disclosures (Comment 31(b)(1)-3). Exchange rate used. The exchange rate used by the provider for the remittance transfer need not have been set by the provider. For example, an exchange rate set by an intermediary institution and applied to the remittance transfer would be the exchange rate used for the remittance transfer and must be disclosed by the provider (Comment 31(b)(1)(iv)-3).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 36 Disclosure of Covered Third-Party Fees. Covered third-party fees must be disclosed in the currency in which the funds will be received by the designated recipient, using the applicable exchange rate, or an estimated exchange rate to the extent permitted, prior to any rounding of the exchange rate. If a provider does not have specific knowledge regarding the currency in which the funds will be received, the provider may rely on a sender’s representation as to the currency in which funds will be received. If a sender does not know the currency in which funds will be received, the provider may assume that the currency in which funds will be received is the currency in which the remittance transfer is funded (Comment 31(b)(1)(vi)-1). Amount Received. The remittance transfer provider is required to disclose the amount that will be received by the designated recipient in the currency in which the funds will be received. The amount received must reflect the exchange rate, all fees imposed and all taxes collected on the remittance transfer by the remittance transfer provider, as well as any covered third-party fees required to be disclosed. The disclosed amount received must be reduced by the amount of any fees or taxes (except non-covered third-party fees or taxes collected on the remittance transfer by a person other than the provider) imposed on the remittance transfer that affects the amount received even if that amount is imposed or itemized separately from the transaction amount (Comment 31(b)(1)(vii)-1). Required disclaimer when non-covered third-party fees and taxes collected by a person other than the provider may apply. The provider is required to include a disclaimer that non-covered third-party fees or taxes may apply to the remittance transfer if such taxes and fees apply to a particular transfer or the provider does not know whether they apply. This disclosure may only be provided to the extent applicable. For example, if the designated recipient’s institution is an agent of the provider and thus, non-covered third-party fees cannot apply to the transfer, the provider must disclose all fees imposed on the remittance transfer and may not provide the disclaimer regarding non-covered third-party fees (Comment 31(b)(1)(viii)-1).
Optional disclosure of non-covered third-party fees and taxes collected by a person other than the provider. The provider is permitted to disclose any non-covered third-party fees or taxes collected on the remittance transfer by a person other than the provider that will apply to a particular transaction if it knows the amount of such fees and taxes. Additionally, the provider is permitted to disclose an estimate of such fees and taxes, provided any estimates are based on a reasonable source of information (Comment 31(b)(1)(viii)-2; 12 CFR 1005.32(b)(3) and Comment 32(b)(3)-1).
Receipt – 12 CFR 1005.31(b)(2) When payment is made, a remittance transfer provider must provide a receipt to a sender disclosing all applicable information required in the pre-payment disclosure. The receipt must also disclose, as applicable:
a.
The date of availability of the funds (date available);
b. The name and, if provided by the sender, the telephone number and/or address of the designated recipient (recipient);
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 37 c.
A statement about the sender's error resolution and cancellation; d. Specified contact information for the remittance transfer provider; and e.
The transfer date for remittance transfers scheduled at least three business days in advance, or the first transfer in a series of preauthorized transfers. The provider must also provide a statement that the sender can contact the state agency that licenses or charters the remittance transfer provider with respect to the particular transfer (if there is such a state agency), and the Consumer Financial Protection Bureau (CFPB) for questions or complaints about the remittance transfer provider. The statement must include the name of the agency(ies), telephone number(s), and website address(es). Date funds will be available. The provider must disclose the date in the foreign country on which the funds will be available to the designated recipient, using the term “Date Available” or a substantially similar term. If a provider does not know the exact date on which funds will be available, the provider may disclose the latest date on which the funds will be available. The provider may also disclose that funds “may be available sooner” or use a substantially similar term to inform senders that funds may be available to the designated recipient on a date earlier than the date disclosed (Comment 31(b)(2)-1). Agencies required to be disclosed. The provider must disclose information about a state agency that licenses or charters the provider with respect to the particular remittance transfer. If a financial institution is solely regulated by a federal agency, the institution does not need to disclose information about a state agency. However, information about the CFPB must be provided whether or not the CFPB is the provider’s primary federal regulator (Comment 31(b)(2)-2). If a provider is licensed in multiple states, and the state agency that licenses the provider with respect to the remittance transfer is determined by the sender’s location, a provider may make the determination of the sender’s state based on information provided by the sender and on any records associated with the sender. A state-chartered bank must disclose information about the state agency that granted its charter, regardless of the location of the sender (Comment 31(b)(2)-3).
Date of transfer on receipt. For remittance transfers scheduled at least three business days in advance, or the first transfer in a series of preauthorized transfers, the date of transfer for the remittance transfer must be disclosed on the receipt. Additional disclosures apply to subsequent preauthorized remittance transfers, as described below regarding 12 CFR 1005.36(d) (Comments 31(b)(2)-4).
Cancellation Disclosure. The provider may provide the three-business-day right to cancel notice (for transfers scheduled three or more business days before the transfer date) and the 30minute right to cancel notice (for transfers scheduled fewer than three business days in advance), on the same disclosure, with a checkbox or other method to clearly designate the applicable cancellation period. For transfers scheduled three or more business days before the transfer date, the cancellation disclosure should be phrased and formatted in such a way that it is clear to the sender which cancellation period is applicable to the date of transfer disclosed on the receipt (Comment 31(b)(2)-6).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 38 Combined Disclosure — 12 CFR 1005.31(b)(3) As an alternative to providing separate pre-payment and receipt disclosures, a remittance transfer provider may provide the information in the receipt in a single disclosure when the sender requests the remittance transfer, but prior to payment for the transfer. If this combined disclosure is provided and the sender completes the transfer, the remittance transfer provider must provide the sender with proof of payment when payment is made for the remittance transfer. For one-time transfers scheduled at least five business days in advance, or for the first in a series of preauthorized transfers, the provider may provide confirmation that the transaction has been scheduled in lieu of the proof of payment if payment is not processed at the time the remittance transfer is scheduled. No further proof of payment is required when payment is later processed.
Proof of payment/confirmation of scheduling. The proof of payment or confirmation of scheduling must be clear and conspicuous, provided in writing or electronically, and provided in a retainable form. The proof of payment for the transaction may be provided on the same piece of paper as the combined disclosure or on a separate piece of paper. A provider may also provide this additional information to a sender on a separate piece of paper when payment is made (12 CFR 1005.31(b)(3)(ii) and Comment 31(b)(3)-1).
Long-Form Error Resolution and Cancellation Notice — 12 CFR 1005.31(b)(4) At the sender’s request, a remittance transfer provider is required promptly to provide a notice describing the sender’s error resolution and cancellation rights, using the language set forth in Model Form A-36 of Appendix A or substantially similar language. For any remittance transfer scheduled by the sender at least three business days before the date of the transfer, the description of the rights of the sender regarding cancellation must instead reflect the requirements of 12 CFR 1005.36(c).
Specific Format of Disclosures — 12 CFR 1005.31(c) Grouping of disclosed information. Disclosures related to transfer amount, transfer fees and taxes imposed by the provider, and the total amount of the transaction generally must be grouped together. Similarly, disclosures related to the transfer amount in the currency to be made available to the designated recipient, covered third-party fees, taxes collected on the remittance by the provider, the total amount to be received by the designated recipient, and the disclaimer statement generally must be grouped together. Information is grouped together if multiple disclosures are in close proximity to one another and a sender can reasonably calculate the total amount of the transaction and the amount that will be received by the designated recipient (12 CFR 1005.31(c)(1) and Comment 31(c)(1)-1). Proximity of disclosed information. The exchange rate used for the remittance transfer generally must be disclosed in close proximity to the other information required in the prepayment disclosure. Disclosures on error resolution and cancellation rights generally must be disclosed in close proximity to the other disclosures required on the receipt (12 CFR 1005.31(c)(2)).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 39 Prominence and size of disclosures. Disclosures required by Subpart B or permitted by 12 CFR 1005.31(b)(1)(viii) that are provided in writing or electronically, other than disclosures permitted to be provided via mobile application or text message, must be in a minimum of eight-point font and in equal prominence to each other. They must be provided on the front of the page on which the disclosures are printed (12 CFR 1005.31(c)(3)). Segregation of disclosures from other information. Disclosures that are provided in writing or electronically, other than disclosures permitted to be provided via mobile application or text message, must be segregated from everything else and must contain only information that is “directly related” to the disclosures (12 CFR 1005.31(c)(4)). The following is “directly related” information:
a.
The date and time of the transaction;
b. The sender’s name and contact information;
c.
The location at which the designated recipient may pick up the funds; d. The confirmation or other identification code;
e.
A company name and logo;
f.
An indication that a disclosure is or is not a receipt or other indicia of proof of payment;
g.
A designated area for signatures or initials;
h. A statement that funds may be available sooner;
i.
Instructions regarding the retrieval of funds, such as the number of days the funds will be available to the recipient before they are returned to the sender; j.
A statement that the provider makes money from foreign currency exchange; and k. Disclosure of any non-covered third-party fees and any taxes collected by a person other than the provider (Comment 31(c)(4)-2). Terms used in the case of estimated disclosures. A remittance transfer provider may provide estimates of the amounts required to be disclosed in the pre-payment disclosure, receipt, and combined disclosure to the extent permitted by 12 CFR 1005.32. An estimate must be described using the term “Estimated” or a substantially similar term in close proximity to the estimated term or terms. For example, a remittance transfer provider could describe an estimated disclosure as “Estimated Transfer Amount,” “Other Estimated Fees and Taxes,” or “Total to Recipient (Est.)” (12 CFR 1005.31(d) and Comment 31(d)-1). Request to send a remittance transfer. Determining whether a consumer has requested a remittance transfer depends on the facts and circumstances. A sender that asks a provider to send a remittance transfer, and provides transaction-specific information to the provider in order to send funds to a designated recipient, has requested a remittance transfer. On the other hand, a
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 40 consumer who solely inquires about that day’s rates and fees to send to a particular country has not requested the provider to send a remittance transfer (Comment 31(e)-1). When payment is made. Payment is made when a sender provides cash to the remittance transfer provider or when payment is authorized (Comment 31(e)-2). Disclosures related to mobile application and text message transactions. If a transaction is conducted entirely by telephone via mobile application or text message, a receipt may be mailed or delivered to the sender pursuant to the timing requirements for transfers conducted entirely by telephone (Comment 31(e)-4).
Accuracy of disclosures - when payment is made. Disclosures required by Subpart B or permitted by 12 CFR 1005.31(b)(1)(viii) must be accurate when a sender makes payment for the remittance transfer, except to the extent estimates are permitted. A remittance transfer provider is not required to guarantee the terms of the remittance transfer in the pre-payment disclosures for any specific period of time. However, if any of these disclosures are not accurate when a sender makes payment for the remittance transfer, the provider must give new disclosures before accepting payment (12 CFR 1005.31(f) and Comment 31(f)-1). Foreign Language Disclosures Written and electronic disclosures required by Subpart B or permitted by 12 CFR 1005.31(b)(1)(viii) generally must be provided in English and in each foreign language principally used to advertise, solicit, or market remittance transfer services at the office in which a sender conducts a transaction or asserts an error. Alternatively, written and electronic disclosures can be provided in English and in the foreign language primarily used by the sender with the remittance transfer provider, provided such foreign language is principally used to advertise, solicit, or market remittance transfers at the office in which a sender conducts a transaction or asserts an error. For transfers requested orally, by text message, or mobile application, the disclosures must be in the language primarily used by the sender to communicate with the transfer provider (12 CFR 1005.31(g)). Number of foreign languages used in the written disclosure. There is no limit to the number of languages that may be used on a single document, but such disclosures must be clear and conspicuous. If the remittance transfer provider chooses to provide written and electronic disclosures in English and in the foreign language primarily used by the sender with the remittance transfer provider, it may provide disclosures in a single document with both languages or in two separate documents with one document in English and the other document in the applicable foreign language (Comment 31(g)-1).
Language “primarily used.” The language primarily used by the sender with the remittance transfer provider to conduct the transaction is the primary language used by the sender with the remittance transfer provider to convey the information necessary to complete the transaction. Similarly, the language primarily used by the sender with the remittance transfer provider to assert the error is the primary language used by the sender with the remittance transfer provider to provide the information required to assert an error (Comment 31(g)-2).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 41 Language “principally” used. Whether a foreign language is principally used by the remittance transfer provider to advertise, solicit, or market is determined from all relevant facts and circumstances, including:
a.
The frequency with which the foreign language is used in advertising, soliciting, or marketing of remittance transfer services at that office; b. The prominence of the advertising, soliciting, or marketing of remittance transfer services in that foreign language at that office; and c.
The specific foreign language terms used in the advertising, soliciting, or marketing of remittance transfer services at that office (Comment 31(g)(1)- 1(i)).
Language used to advertise, solicit, or market. Any commercial message in a foreign language, appearing in any medium, that promotes directly or indirectly the availability of remittance transfer services constitutes advertising, soliciting, or marketing in such foreign language (Comment 31(g)(1)-2).
Office. An office includes any physical location, telephone number, or website of a remittance transfer provider where a sender may conduct a remittance transfer or assert an error for a remittance transfer (Comment 31(g)(1)-3). At the office. Any advertisement, solicitation, or marketing is considered to be made at the office in which a sender conducts a transaction or asserts an error if it is posted, provided, or made: at a physical office; on a website of a remittance transfer provider that may be used by senders to conduct remittance transfers or assert errors; during a telephone call with a remittance transfer provider that may be used by senders to conduct remittance transfers or assert errors; or via mobile application or text message if the mobile application or text message may be used by senders to conduct remittance transfers or assert errors (Comment 31(g)(1)-4). III.
Estimates – 12 CFR 1005.32 Disclosures for which estimates may be used. Estimates may be used in certain circumstances for certain information required in pre-payment disclosures, receipts, and combined disclosures.
Temporary Exception for Insured Institutions — 12 CFR 1005.32(a) The temporary exception provision of the regulation expired on July 21, 2020. Insured Institution — 12 CFR 1005.32(a)(3) The term “insured institution” means insured depository institutions (which includes uninsured U.S. branches and agencies of foreign depository institutions) as defined in Section 3 of the Federal Deposit Insurance Act (12 USC 1813), and insured credit unions as defined in Section 101 of the Federal Credit Union Act (12 USC 1752).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 42 Permanent Exception for Transfers to Certain Countries — 12 CFR 1005.32(b)(1) Estimates may be provided in pre-payment disclosures, receipts, or combined disclosures for transfers to certain countries if a remittance transfer provider cannot determine the exact amounts at the time the disclosure is required either because: a.
The laws of the recipient country do not permit such a determination, or b. The method by which transactions are made in the recipient country does not permit such determination.
Laws of the recipient country. The laws of the recipient country do not permit a remittance transfer provider to determine exact amounts required to be disclosed when a law or regulation of the recipient country (e.g., currency exchange or certain privacy laws) do not allow the person making funds directly available to the designated recipient to determine the exact amounts at the time the disclosure is required. A typical example is where the law requires an exchange rate to be either:
a.
Set by the government of the recipient country after the remittance transfer provider sends the remittance transfer; or b. Set when the designated recipient receives the funds (Comment 32(b)(1)-1). Method by which transactions are made in the recipient country. The method by which transactions are made in the recipient country does not permit a remittance transfer provider to determine exact amounts required to be disclosed when transactions are sent via international ACH on terms negotiated between the U.S. government and the recipient country’s government, under which the exchange rate is a rate set by the recipient country’s central bank or other governmental authority after the provider sends the remittance transfer (Comment 32(b)(1)-3).
Safe harbor list. The remittance transfer provider may rely on a list of countries published by the CFPB to determine whether estimates may be provided for the exchange rate, the transfer amount, covered third-party fees and total amount to the recipient. If a country is on the CFPB’s list, the provider may give estimates under this section, unless it has information that a country on the list legally permits the provider to determine exact disclosure amounts. If a country does not appear on the CFPB’s list, the provider may give estimates if it determines that the recipient country does not legally permit or the method by which transactions are conducted in that country does not permit the provider to determine exact disclosure amounts (Comments 32(b)(1)-5 and 32(b)(1)-6).
Change in laws of the recipient country. If the laws of a recipient country change such that a remittance transfer provider can determine exact amounts, the remittance transfer provider must begin providing exact amounts for the required disclosures as soon as reasonably practicable. If the laws of a recipient country change such that the provider cannot determine
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 43 exact disclosure amounts, the provider may give estimates even if that country does not appear on the list published by the CFPB (Comment 32(b)(1)-7). Permanent Exception for Transfers Scheduled Before the Date of Transfer — 12 CFR 1005.32(b)(2) For remittance transfers scheduled five or more business days before the date of the transfer, estimates may be provided for the exchange rate, transfer amount, covered thirdparty fees (where the exchange rate is also estimated and affects such fees) and the total amount to the recipient, if at the time the sender schedules such a transfer, the provider agrees to a sender’s request to fix the amount to be transferred in the currency in which the remittance transfer will be received and not the currency in which it is funded. For example, if a sender schedules a wire transfer to be sent from the sender’s bank account denominated in U.S. dollars but to be paid to the recipient in Euro, the provider is allowed to estimate the transfer amount, front-end fees or taxes collected by the provider (if based on the amount transferred), and the total amount of the transaction. The provider is also allowed to estimate any covered third-party fees if the exchange rate is also estimated and the estimated exchange rate affects the amount of fees (12 CFR 1005.32(b)(2) and Comment 32(b)(2)-1).
Permanent Exception for Optional Disclosure of Non-Covered Third-Party Fees and Taxes Collected on the Remittance Transfer by a Person Other Than the Provider — 12 CFR 1005.32(b)(3) The remittance transfer provider may provide estimates (as part of the required disclaimer statement) for applicable non-covered third-party fees and taxes collected on the remittance transfer by a person other than the provider if such estimates are based on reasonable sources of information. Reasonable sources of information may include, for example: information obtained from recent transfers to the same institution or the same country or region; fee schedules from the recipient institution; fee schedules from the recipient institution’s competitors; surveys of recipient institution fees in the same country or region as the recipient institution; information provided or surveys of recipient institutions’ regulators or taxing authorities; commercially or publicly available databases, services or sources; and information or resources developed by international nongovernmental organizations or intergovernmental organizations (Comment 32(b)(3)-1).
Permanent Exception for Estimation of the Exchange Rate by an Insured Institution — 12 CFR 1005.32(b)(4) A remittance transfer provider that is an insured institution (as defined in Section 1005.32(a)(3)), may estimate the exchange rate for a remittance transfer to a particular country if all of the following conditions are met:
a.
the designated recipient will receive funds in the country’s local currency; b. the insured institution cannot determine the exact exchange rate for that particular remittance transfer at the time the Rule requires it to provide the
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 44 applicable exchange rate;
c.
the insured institution made 1,000 or fewer remittance transfers in the prior calendar year to that country when the designated recipient received funds in the country’s local currency; and d. the remittance transfer is sent from the sender’s account with the insured institution, excluding prepaid accounts unless the prepaid account is a payroll card account or a government benefit account. Determining the exact exchange rate. An insured institution meets the requirements in (b)(4)(i)(B) for being unable to determine the exact exchange rate if a person other than the insured institution sets the exchange rate for that transfer, except where that person has a correspondent relationship with the insured institution, that person is a service provider for the insured institution, or that person acts as an agent of the insured institution (Comment 32(b)(4)-1).
Threshold. Determining whether an insured institution made 1,000 of fewer remittance transfers in the prior calendar year to a particular country requires inquiring into what currency the recipient obtained the transfer. The number of remittance transfers does include those received in the country’s local currency, regardless of whether the exchange rate was estimated for those transfers. Conversely, the number of remittances transfers does not include transfers made to a country when the recipient did not receive the funds in the country’s local currency (Comments 32(b)(4)-2.i and 32(b)(4)-2.ii). Transition Period. If an insured institution did not exceed the 1,000 transfer threshold in the previous calendar year, but does in the current calendar year, the insured institution has a reasonable amount of time after exceeding 1,000 transfers to begin providing exact exchange rates in disclosures. The reasonable time must not exceed the later of six months or January 1 of the next year (Comment 32(b)(4)-3). Permanent Exception for Estimation of Covered Third-party Fees by an Insured Institution — 12 CFR 1005.32(b)(5) A remittance transfer provider that is an insured institution (as defined in Section 1005.32(a)(3), may estimate covered third-party fees (and other amounts affected by the estimation of such fees) when the following conditions are met:
a.
the insured institution cannot determine the exact covered third-party fees for a transfer to a particular designated recipient’s institution at the time the Rule requires it to provide the disclosures;
b. the insured institution made 500 or fewer remittance transfers to that designated recipient’s institution in the prior calendar year or a United States Federal statute or regulation prohibits the insured institution from being able
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 45 to determine the exact covered third-party fees; and c.
the remittance transfer is sent from the sender’s account with the insured institution, excluding prepaid accounts unless the prepaid account is a payroll card account or a government benefit account.
Determining the Exact Covered Third-Party Fees. An insured institution meets the requirements under (b)(5)(i)(B) for being unable to determine the exact covered thirdparty fees when 1) the insured institution does not have a correspondent relationship with the designated recipient’s institution; 2) the designated recipient’s institution does not act as an agent of the insured institution; 3) the insured institution does not have an agreement with the designated recipient’s institution with respect to the imposition of covered third-party fees on the remittance transfer; and 4) the insured institution does not know at the time disclosures are given that the only intermediary financial institutions that will impose covered third-party fees on the transfer are those institutions that have a correspondent relationship with or act as an agent for the insured institution, or have otherwise agreed upon the covered third-party fees with the insured institution. The insured institution may not use the exception if any of the above conditions are not met (Comments 32(b)(5)-1 and 32(b)(5)-2).
Threshold. Determining whether an insured institution made 500 or fewer remittance transfers in the prior calendar year should include transfers regardless of whether the covered third-party fees were estimated for those transfers. Moreover, the number of remittance transfers includes transfers regardless of whether the amount was received in the country’s local currency (unlike Section 1005.32(b)(4)). Further the number includes transfers provided to the designated recipient’s institution and any of its branches in the country to which the particular transfer is being sent (Comment 32(b)(5)-3). United States Federal Statute or Regulation. Even if the insured institution has sent more than 500 transfers to the designated recipient’s institution in the prior calendar year, an insured institution may still estimate covered third-party fees if a United States Federal statute or regulation prohibits it. The statute or regulation may either directly prohibit the insured institution from disclosing exact covered third-party fees in disclosures for transfers to a designated recipient’s institution or make it infeasible for the insured institution to form a relationship with the designated recipient’s institution and that relationship is necessary for the insured institution to be able to determine, at the time it must provide the applicable disclosures, exact covered third-party fees (Comment 32(b)(5)-4).
Transition Period. If an insured institution did not exceed the 500 transfer threshold to a particular designated recipient’s institution in the previous calendar year, but does in the current calendar year, the insured institution has a reasonable amount of time after exceeding 500 transfers to begin providing exact exchange rates in disclosures. The reasonable time must not exceed the later of six months or January 1 of the next year. This reasonable period assumes there is no United States Federal statute or regulation
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 46 that prohibits the insured institution from determining the exact covered third-party fees (Comment 32(b)(5)-5).
Bases for Estimates — 12 CFR 1005.32(c) and (d) If a remittance transfer provider qualifies for either the temporary or permanent exception, the rule allows two bases for estimating information in the disclosures: 1. The estimates must generally be based on any of the approaches listed in the rule (12 CFR 1005.32 (c)(1)).
2. Alternatively, the estimates may be based on an approach that is not listed, provided that the designated recipient receives the same or greater amount of funds than the remittance transfer provider disclosed.
For remittance transfers scheduled five or more business days before the date of the transfer, estimates must be based on the exchange rate or where applicable the estimated exchange rate that the provider would have used or did use that day to provide disclosures to a sender requesting such a remittance transfer to be made on the same day. Approaches Listed in the Rule Estimates of the exchange rate. For remittance transfers sent via international ACH, the estimate must be based on the most recent exchange rate set by the recipient country’s central bank or other governmental authority and reported by a Federal Reserve Bank. For any remittance transfers for which estimates are permitted, the exchange rate may be estimated based on the most recent publicly available wholesale exchange rate and any applicable spread that the remittance transfer provider or its correspondent typically applies for remittance transfers for that currency or the most recent exchange rate offered or used by the person making funds available directly to the designated recipient or by the person setting the exchange rate (12 CFR 1005.32(c)(1)).
Where the exchange rate for a remittance transfer sent via international ACH that qualifies for the permanent exception is set the following business day, the most recent exchange rate available for a transfer is the exchange rate set for the day that the disclosure is provided, i.e., the current business day’s exchange rate (Comment 32(c)(1)-1). Publicly available. Examples of publicly available sources of information containing the most recent wholesale exchange rate for a currency include U.S. news services, such as Bloomberg, the Wall Street Journal, and the New York Times; a recipient country’s national news services; and a recipient country’s central bank or other government agency (Comment 32(c)(1)-2).
Spread applied to the wholesale exchange rate. An estimate for disclosing the exchange rate based on the most recent publicly available wholesale exchange rate must also reflect any spread the remittance transfer provider typically applies to the wholesale exchange rate for remittance transfers for a particular currency (Comment 32(c)(1)-3).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 47 Most recent exchange rate. If the exchange rate with respect to a particular currency is published or provided multiple times throughout the day because the exchange rate fluctuates throughout the day, a remittance transfer provider may use any exchange rate available on that day to determine the most recent exchange rate (Comment 32(c)(1)-4). Estimates of the transfer amount and covered third-party fees in the currency in which funds will be received by the designated recipient. Estimates of the transfer amount in the currency in which the funds will be received by the designated recipient as well as covered third-party fees imposed as a percentage of the amount transferred must be based on the estimated exchange rate, prior to any rounding (12 CFR 1005.32(c)(2) and (3)(i)). Estimates of the fees imposed by the intermediary or final institution. Estimates for covered third-party fees imposed by intermediary or final institutions that act as intermediaries or by the designated recipient’s institution must be based on the remittance transfer provider’s most recent remittance transfer to the designated recipient’s institution, or a representative transmittal route identified by the remittance transfer provider (12 CFR 1005.32(c)(3)(ii).
Estimates of the amount of currency that will be received by the designated recipient. Estimates for the amount of currency that will be received by the designated recipient must be based on the estimates provided in accordance with 12 CFR 1005.31(c)(1) through (3) as applicable for the transaction (12 CFR 1005.32(c)(4)). IV.
Procedures for Resolving Errors — 12 CFR 1005.33 Definition of Error — 12 CFR 1005.33(a) In connection with an error asserted under 12 CFR 1005.33, the term error means: a.
Generally, an incorrect amount paid by a sender in connection with a remittance transfer;
b. A computational or bookkeeping error made by the remittance transfer provider relating to the remittance transfer;
c.
The failure, generally, to make available to a designated recipient the amount of currency required to be disclosed under 12 CFR 1005.31(b)(vii) and stated in the disclosure provided to the sender unless the disclosure stated an estimate of the amount paid and the difference results from application of the actual exchange rate, fees, and taxes, rather than any estimated amount; d. The failure, generally, to make funds available to a designated recipient by the date of availability stated in the disclosure provided to the sender; or
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 48 e.
The sender’s request for documentation required by 12 CFR 1005.31 or for additional information or clarification concerning a remittance transfer, including a request a sender makes to determine whether an error exists. (See more detailed discussion of errors and exceptions below.) Error due to incorrect amount of currency paid by sender. This type of error covers circumstances in which a sender pays an amount that differs from the total amount of the transaction, including fees imposed in connection with the transfer, stated in the receipt or combined disclosure provided. However, there is no error if the disclosure appropriately stated an estimate of the amount paid by the sender and the difference results from application of the actual exchange rate, fees, and taxes, rather than any estimated amounts (12 CFR 1005.33(a)(1)(i) and Comment 33(a)-1).
Error due to incorrect amount of currency received. This type of error covers circumstances in which the designated recipient receives an amount of currency that differs from the amount of currency identified on the disclosures provided to the sender. It also covers circumstances in which the remittance transfer provider transmits an amount that differs from the amount requested by the sender. There are three general exceptions to this. There is no error if:
a.
The disclosure appropriately, under one of the two exceptions in 12 CFR 1005.32, stated an estimate of the amount of currency to be received and the difference results from application of the actual exchange rate, fees, and taxes, rather than any estimated amounts;
b. The failure was caused by extraordinary circumstances outside the remittance transfer provider’s control; or c.
The difference results from the application of non-covered third-party fees or taxes collected on the remittance transfer by a person other than the provider and the provider provided the required disclaimer.
A designated recipient may receive an amount of currency that differs from the amount of currency disclosed and an error has occurred if, for example: 1. An exchange rate other than the disclosed rate is applied to the remittance transfer; or 2. The provider gives the sender a receipt stating an amount of currency that will be received by the designated recipient, which does not reflect additional covered third-party fees that are imposed by the receiving agent in the destination country. However, if the designated recipient will receive less than the amount of currency disclosed on the receipt due solely to the additional foreign taxes that the provider was not required to disclose, no error has occurred (Comment 33(a)-3(ii)). Exception for extraordinary circumstances outside the remittance transfer provider’s control. If the provider fails to make the amount of currency disclosed available to the
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 49 designated recipient, such an occurrence is not an error if such failure was caused by extraordinary circumstances outside the remittance transfer provider’s control that could not have been reasonably anticipated. Examples include, war or civil unrest, natural disaster, garnishment or attachment of some of the funds after the transfer is sent, and government actions or restrictions that could not have been reasonably anticipated by the remittance transfer provider, such as the imposition of foreign currency controls or foreign taxes unknown at the time the receipt or combined disclosure is provided (Comment 33(a)-4). Note that foreign taxes are not required to be disclosed. However, if a provider, believing that there is no applicable foreign tax, elects not to provide a disclaimer pursuant to 1005.31(b)(1)(viii), no error has occurred if a new tax is imposed that could not have been reasonably anticipated at the time the receipt or combined disclosure was required to be given. Error due to failure to make funds available by disclosed date of availability. This error generally covers disputes about the failure to make remittance transfer funds available to a designated recipient by the disclosed date of availability. Examples of errors for failure to make funds available by the disclosed date of availability include, late or non-delivery of a remittance transfer, delivery of funds to the wrong account, the fraudulent pick-up of a remittance transfer in a foreign country by a person other than the designated recipient, and the recipient agent or institution’s retention of the remittance transfer, instead of making the funds available to the designated recipient.
There is no error if funds were not made available by the disclosed date due to: a.
Extraordinary circumstances outside the remittance transfer provider’s control that could not have been reasonably anticipated;
b. Delays related to the remittance transfer provider’s fraud screening procedures or in accordance with the Bank Secrecy Act, Office of Foreign Assets Control requirements, or similar laws or requirements;
c.
The remittance transfer was made with fraudulent intent by the sender or any person acting in concert with the sender (i.e., friendly fraud); or d. The sender provided the remittance transfer provider an incorrect account number or recipient institution identifier for the designated recipient’s account or institution, and the remittance transfer provider:
i.
can demonstrate that the sender provided an incorrect account number or recipient institution identifier to the provider in connection with the remittance transfer;
ii.
prior to or when sending the transfer, used reasonably available means to verify (for recipient institution identifier errors only) that the recipient institution identifier provided by the sender corresponded to the recipient institution name provided by the sender;
iii.
provided notice to the sender (prior to payment for the remittance transfer)
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 50 that, in the event the sender provided an incorrect account number or recipient institution identifier, the sender could lose the transfer amount; iv.
the incorrect account number or recipient institution identifier resulted in the deposit of the remittance transfer into a customer’s account that is not the designated recipient’s account; and v.
promptly used reasonable efforts to recover the amount that was to be received by the designated recipient.
Account number or recipient institution identifier. Account number and recipient institution identifier refer to alphanumerical account or institution identifiers other than names or addresses, such as account numbers, routing numbers, Canadian transit numbers, International Bank Account Numbers, Business Identifier Codes, and other similar account or institution identifiers used to route a transaction. Designated recipient’s account refers to an asset account but does not include a credit card, prepaid card, or a virtual account held by an Internet-based or mobile telephone company that is not a bank, savings association, credit union or equivalent institution (Comment 33(a)-8).
Reasonable methods of verification. Reasonably available means may include accessing a directory of Business Identifier Codes and verifying that the code provided by the sender matches the provided institution name, and if possible the specific branch or location provided by the sender. A provider may also rely on other commercially available databases or directories to check other recipient institution identifiers. The requirement to verify would be met if no reasonably available means exist to verify the accuracy of the recipient institution identifier if the other conditions are satisfied (Comment 33(h)-1). Reasonable efforts. Whether a provider has used reasonable efforts does not depend on whether the provider is ultimately successful in recovering the amount that was to be received by the designated recipient. If the remittance transfer provider is requested to provide documentation or other supporting information in order for the pertinent institution or authority to obtain the proper authorization for the return of the incorrectly credited amount, reasonable efforts to recover the amount include the timely provision of any such documentation to the extent that it is available and permissible under law (Comment 33(h)-2). Promptness of Reasonable Efforts. Whether a provider acts promptly to use reasonable efforts depends on the facts and circumstances. For example, if before the disclosed date of availability the sender informs the provider that the sender provided a wrong account number, the provider will have acted promptly if it attempts to contact the recipient’s institution before the date of availability (Comment 33(h)-3).
Failure to make funds available by disclosed date of availability due to circumstances outside the remittance transfer provider’s control. A remittance transfer provider’s failure to deliver or transmit a remittance transfer by the disclosed date of availability is not an error if such failure was caused by extraordinary circumstances outside the remittance transfer provider’s control that could not have been reasonably anticipated. Examples of such circumstances include war or civil
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 51 unrest, natural disaster, garnishment or attachment of funds after the transfer is sent, and government actions or restrictions that could not have been reasonably anticipated by the remittance transfer provider, such as the imposition of foreign currency controls (Comment 33(a)-6).
Failure to make funds available by disclosed date of availability - fraud and other screening procedures. A remittance transfer provider's failure to deliver funds by the disclosed date of availability is not an error if such delay is related to the provider's or any third party's investigation necessary to address potentially suspicious, blocked or prohibited activity, and the provider did not and could not have reasonably foreseen the delay so as to enable it to timely disclose an accurate date of availability when providing the sender with a receipt or combined disclosure. However, if a delay could have been reasonably foreseen, the exception in § 1005.33(a)(1)(iv)(B) would not apply (Comment 33(a)-7). Issues that are not considered errors under Subpart B The following are not errors:
a.
An inquiry about the status of a remittance transfer except where the funds from the transfer were not made available to a designated recipient by the disclosed date of availability;
b. A request for information for tax or other recordkeeping purposes; c.
A change requested by the designated recipient that the remittance transfer provider or others involved in the remittance transfer decide to accommodate; or d. A change in the amount or type of currency received by the designated recipient from the amount or type of currency stated in the disclosure provided to the sender if the remittance transfer provider relied on information provided by the sender (12 CFR 1005.33(a)(2) and Comment 33(a)-10)). Notice of Error from Sender — 12 CFR 1005.33(b) Person asserting or discovering error. The error resolution procedures apply only when a notice of error is received from the sender (Comment 33(b)-1). Timing of error notice. The notice of error must be received by the remittance transfer provider within 180 days of the disclosed date of availability of the remittance transfer (12 CFR 1005.33(b)(1)). But if the notice of error is based on documentation, additional information, or clarification provided by the remittance transfer provider, then notice is timely if it is received by the remittance transfer provider the later of:
a.
180 days after the disclosed date of availability of the remittance transfer, or b. 60 days after the provider sent the documentation, information, or clarification that had been requested (12 CFR 1005.33(b)(2)).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 52 Content of error notice. Errors may be reported orally or in writing. The notice of error is effective so long as the remittance transfer provider is able to identify: a.
The sender’s name and telephone number or address (or email address); b. The recipient’s name and, if known, telephone number and address; c.
The remittance transfer to which the notice of error applies; and d. Why the sender believes an error exists and if possible the type, date, and amount of the error, except for errors involving requests for documentation, additional information or clarification.
For example, the sender could provide the confirmation number or code that would be used by the designated recipient to pick up the transfer, or other identification number or code supplied by the remittance transfer provider in connection with the transfer, if the number or code is sufficient for the remittance transfer provider to identify the sender (and contact information), designated recipient, and the transfer in question (Comment 33(b)-2 and 3). Effect of late notice. A remittance transfer provider is not required to comply with the error resolution requirements for any notice of error from a sender that is received more than 180 days from the disclosed date of availability of the remittance transfer or, if applicable, more than 60 days after a provider sent documentation, additional information, or clarification requested by the sender (Comment 33(b)-4).
Notice of error provided to the agent. A notice of error provided by a sender to an agent of the remittance transfer provider is deemed to be received by the provider when the agent receives it (Comment 33(b)-5).
Consumer notice of error resolution rights. In addition to the requirement to provide an abbreviated notice of the consumer’s error resolution rights on the receipt or combined notice, the remittance transfer provider must make available to a sender, upon request, a notice providing a full description of the sender’s error resolution rights, using the language set forth in Appendix A (Model Form A-36) or substantially similar language (Comment 33(b)-6). Time Limits and Extent of Investigation — 12 CFR 1005.33(c) A remittance transfer provider must investigate promptly and determine whether an error occurred within 90 days of receiving a notice of error. The remittance transfer provider must report the results to the sender within three business days after completing its investigation and include notice of any remedies available for correcting any error that the provider determines has occurred. If the remittance transfer provider determines during its investigation that an error occurred as described by the sender, the remittance provider may inform the sender of its findings either orally or in writing. However, if the provider determines that no error or a different error occurred, the provider must provide a written explanation of the findings and note the sender’s right to request the documents on which the provider relied in making its determination (Comment 33(c)-1).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 53 Remedies. If the remittance transfer provider determines an error (as defined in Subpart B) occurred and the error relates to:
a.
an incorrect amount paid by the sender;
b. a computational or bookkeeping error made by the remittance transfer provider; or c.
failure to make the amount of currency stated in the disclosures available to the designated recipient;
then the provider must either:
a.
refund the amount of funds provided by the sender in connection with a remittance transfer which was not properly transmitted, or the amount appropriate to resolve the error; or b. make available to the designated recipient, the amount appropriate to resolve the error without additional cost to the sender or the designated recipient (12 CFR 1005.33(c)(2)(i)).
If the error relates to a sender’s request for documentation or additional information or clarification to determine whether an error exists, the remittance transfer provider must provide the requested information (12 CFR 1005.33(c)(2)(iv)). Remedy in the case of failure to make funds available by the disclosed date of availability.
1. Where failure to make funds available by the disclosed date of availability occurred due to incorrect or insufficient information provided by the sender: The remittance transfer provider is required to refund to the sender the amount of funds that was not properly transmitted, or the amount appropriate to resolve the error and any fees and taxes paid by the sender in connection with the remittance transfer, within three business days of providing the written explanation of findings. However, the provider may agree to the sender’s request, upon receiving the results of the error investigation, to apply the funds towards a new remittance transfer, rather than be refunded, if the provider has not yet processed a refund. The provider may deduct from the amount refunded or applied towards a new transfer any fees actually deducted by a person other than the provider (except those that will ultimately be refunded to the provider) on or, to the extent not prohibited by law, taxes actually collected on the remittance transfer as part of the first unsuccessful remittance transfer attempt and inform the sender of the deduction and reason. The agreement to apply the funds towards a new transfer is treated as a new remittance transfer and the provider must provide new disclosures in accordance with 12 CFR 1005.31 and all other applicable provisions of Subpart B (12 CFR 1005.33(c)(2)(iii)) and Comments 33(c)-11 and -12).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 54 2. All other instances of failure to make funds available by the disclosed date of availability: As applicable, the remittance transfer provider must either: i.
Refund to the sender, the amount of funds which was not properly transmitted or the amount appropriate to resolve the error; or ii.
Make available to the designated recipient the amount appropriate to resolve the error without additional cost to the sender or to the designated recipient; and Refund to the sender any fees imposed and, to the extent not prohibited by law, taxes collected on the remittance transfer (12 CFR 1005.33(c)(2)(ii). Designation of requested remedy. The provider may request that the sender indicate the preferred remedy when providing the notice of the error. If the provider does so, it should indicate that a resend remedy may be unavailable if the error occurred because the sender provided incorrect or insufficient information. If the sender does not indicate the desired remedy at the time of providing notice of error, the remittance transfer provider must notify the sender of any available remedies in the written explanation of findings (Comment 33(c)- 3).
Default remedy (except where the sender provided incorrect or insufficient information). The provider may set a default remedy that the remittance transfer provider will use if the sender does not designate a remedy within a reasonable time after receiving the written explanation of findings. If a default remedy is provided, the remittance transfer provider must correct the error within one business day or as soon as reasonably practicable, after the reasonable time for the sender to designate the remedy has passed. For purposes of designating a remedy, 10 days is deemed a reasonable time (Comment 33(c)-4). Amount appropriate to resolve the error. The amount appropriate to resolve the error is the specific amount of transferred funds that should have been received if the remittance transfer had taken place without error. It does not include consequential damages (Comment 33(c)-5). Form of refund. Where a refund may be issued, a remittance transfer provider may generally, at its discretion, issue a refund either in cash or in the same form of payment that was initially provided by the sender for the remittance transfer (Comment 33(c)-6). Remedies for the incorrect amount paid. If an error relates to the payment of an incorrect amount, the sender may request a refund of the amount necessary to resolve the error or request that the remittance transfer provider make the amount necessary to resolve the error available to the designated recipient at no additional cost (Comment 33(c)-7). Correction of an error if funds were not available by disclosed date. If the remittance transfer provider determines an error related to failure to make funds available by the disclosed date occurred, it must correct the error and refund any fees imposed by the provider or a third party involved in sending the transfer, such as an intermediary bank involved in
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 55 sending a wire transfer or the institution from which the funds are picked up (unless the sender provided incorrect or insufficient information to the remittance transfer provider in connection with the remittance transfer) (Comment 33(c)-8).
Charges for error resolution. If an error occurred, whether as alleged or in a different amount or manner, the remittance transfer provider may not impose a charge related to any aspect of the error resolution process (including charges for documentation or investigation) (Comment 33(c)-9).
Correction without investigation. A remittance transfer provider may correct an error, without investigation, in the amount or manner alleged by the sender, or otherwise determined, to be in error, but must comply with all other applicable requirements (Comment 33(c)-10).
Procedures if Remittance Transfer Provider Determines No Error or Different Error Occurred — 12 CFR 1005.33(d) If the remittance transfer provider determines that no error occurred or that an error occurred in a manner or amount different from that described by the sender, its report of the results of the investigation must include a written explanation of the provider’s findings and shall note the sender’s right to request the documents on which it relied in making its determination. The explanation should also address the specific complaint of the sender. Upon the sender’s request, the remittance transfer provider must also promptly provide copies of the documents on which it relied to make its error determination (12 CFR 1005.33(d)). Error different from that alleged. If a remittance transfer provider determines that an error occurred in a manner or amount different from that described by the sender, it must comply with the requirements of both 12 CFR 1005.33(c) (concerning the investigation) and (d) (procedures if remittance transfer provider determines no error or different error occurred), as applicable. The provider may give the notice of correction and the explanation separately or in a combined form (Comment 33(d)-1).
Reassertion of Error — 12 CFR 1005.33(e) A remittance transfer provider that has fully complied with the error resolution requirements of this section generally has no further responsibilities should the sender later reassert the same error, except in the case of an error asserted by the sender following receipt of additional information requested from the provider (12 CFR 1005.33(e)). Withdrawal of error; right to reassert. The remittance transfer provider has no further error resolution responsibilities if the sender voluntarily withdraws the notice alleging an error. A sender who has withdrawn an allegation of error has the right to reassert the allegation unless the remittance transfer provider had already complied with all of the error resolution requirements before the allegation was withdrawn. The sender must do so, however, within the original 180- day period from the disclosed date of availability or, if applicable, the 60-day period for a notice of error based on documentation or clarification that the sender previously requested (Comment 33(e)-1).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 56 Relation to Other Laws — 12 CFR 1005.33(f) Relation to Regulation E for incorrect EFTs from a sender’s account – 12 CFR 1005.11). If an alleged error involves an incorrect electronic fund transfer from a sender’s account in connection with a remittance transfer, and the sender provides a notice of error to the account-holding institution, the requirements of 12 CFR 1005.11 governing error resolution apply if the account-holding institution is not also the remittance transfer provider. However, if the remittance transfer provider is also the account holding institution, then the error-resolution provisions of 12 CFR 1005.33 apply when the sender provides such notice of error (12 CFR 1005.33(f)(1)).
Concurrent error obligations. A remittance transfer provider that holds the sender’s account may have error obligations under both 12 CFR 1005.11 and 1005.33, depending on the relationship with the sender and the nature of the error. For example, if a sender asserts an error under 12 CFR 1005.11 with a remittance transfer provider that holds the sender’s account, and the error is not also an error under 12 CFR 1005.33 (such as the omission of an EFT on a periodic statement), then the error-resolution provisions of 12 CFR 1005.11 exclusively apply to the error. However, if a sender asserts an error under 12 CFR 1005.33 with a remittance transfer provider that holds the sender’s account, and the error is also an error under 12 CFR 1005.11 (such as when the amount the sender requested to be deducted from the sender’s account and sent for the remittance transfer differs from the amount that was actually deducted from the account and sent), then the error-resolution provisions of 12 CFR 1005.33 exclusively apply to the error (Comment 33(f)-1). Relation to Truth in Lending Act and Regulation Z. If an alleged error involves an incorrect extension of credit in connection with a remittance transfer, an incorrect amount received by the designated recipient that is an extension of credit for property or services not delivered as agreed, or the failure to make funds available by the disclosed date of availability that is an extension of credit for property or services not delivered as agreed, and the sender provides a notice of error to the creditor extending the credit, the error resolution provisions of Regulation Z, 12 CFR 1026.13 apply to the creditor, rather than the requirements of 12 CFR 1005.33, even if the creditor is the remittance transfer provider. However, if the creditor is the remittance transfer provider, the error resolution requirements of 12 CFR 1005.33(b) will apply instead of 12 CFR 1026.13(b). If the sender instead provides a notice of error to the remittance transfer provider that is not also the creditor, then the error-resolution provisions of 12 CFR 1005.33 apply to the remittance transfer provider (12 CFR 1005.33(f)(2)).
Unauthorized remittance transfers. If an alleged error involves an unauthorized electronic fund transfer for payment in connection with a remittance transfer, 12 CFR 1005.6 and 1005.11 apply with respect to the account-holding institution. If an alleged error involves an unauthorized use of a credit account for payment in connection with a remittance transfer, the provisions of Regulation Z, 12 CFR 1026.12(b), if applicable, and 12 CFR 1026.13, apply with respect to the creditor (12 CFR 1005.33(f)(3)).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 57 Holder in due course. The error resolution provisions in Subpart B do not affect a sender’s rights to assert claims and defenses against a card issuer concerning property or services purchased with a credit card under Regulation Z, 12 CFR 1026.12(c)(1), as applicable (Comment 33(f)-2).
Assertion of the same error with multiple parties. If a sender receives credit to correct an error of an incorrect amount paid in connection with a remittance transfer from either the remittance transfer provider or account-holding institution (or creditor), and subsequently asserts the same error with another party, that party has no further responsibilities to investigate the error if the error has been corrected. In addition, nothing prevents an accountholding institution or creditor from reversing amounts it has previously credited to correct an error if a sender receives more than one credit to correct the same error (Comment 33(f)-3). Error Resolution Standards and Recordkeeping Requirements — 12 CFR 1005.33(g) Compliance program. A remittance transfer provider must develop and maintain written policies and procedures that are designed to ensure compliance with the error resolution requirements applicable to remittance transfers.
Policies and procedures must address the retention of records related to error investigations (12 CFR 1005.33(g)(1) and (2)).
Record retention requirements. Remittance transfer providers are subject to the record retention requirements under Subpart A (12 CFR 1005.13 and Comment 33(g)-1). See also, section XVIII below.
V.
Procedures for Cancellation and Refund of Remittance Transfers — 12 CFR 1005.34 Sender’s Right of Cancellation and Refund Except for certain remittance transfers scheduled in advance subject to 12 CFR 1005.36(c), a remittance transfer provider generally must comply with any oral or written request to cancel a remittance transfer from the sender that is received by the provider no later than 30 minutes after the sender makes payment in connection with the remittance transfer if: a.
The request to cancel enables the provider to identify the sender’s name and address or telephone number and the particular transfer to be cancelled; and b. The transferred funds have not been picked up by the designated recipient or deposited into an account of the designated recipient (12 CFR 1005.34(a)). Content of cancellation request. A request to cancel a remittance transfer is valid so long as the remittance transfer provider is able to identify the remittance transfer in question (Comment 34(a)-1).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 58 Notice of cancellation right. A remittance transfer provider is required to include an abbreviated notice of the sender’s right to cancel a remittance transfer on the receipt or combined disclosure provided to the sender. In addition, the remittance transfer provider must make available to a sender upon request, a notice providing a full description of the right to cancel a remittance transfer (Comment 34(a)-2). See also Model Form 36 in Appendix A. Thirty-minute cancellation right. Except for certain remittance transfers scheduled in advance subject to 12 CFR 1005.36(c), a remittance transfer provider must comply with the cancellation and refund requirements if the cancellation request is received no later than 30 minutes after the sender makes payment (Comment 34(a)-3). Cancellation request provided to agent. A cancellation request provided by a sender to an agent of the remittance transfer provider is deemed to be received by the provider when received by the agent (Comment 34(a)-4).
Time Limits and Refund Requirements If a sender provides a timely request to cancel a remittance transfer, a remittance transfer provider must, within three business days of receiving the request, refund all funds provided by the sender in connection with the remittance transfer, including any fees and, to the extent not prohibited by law, taxes that have been imposed for the transfer, whether the fee or tax was assessed by the provider or a third party, such as an intermediary institution, the agent or bank in the recipient country, or a state or other governmental body (12 CFR 1005.34(b) and Comment 34(b)-2).
Form of refund. A remittance transfer provider generally may issue a refund either in cash or in the same form of payment that was initially provided by the sender for the remittance transfer (Comment 34(b)-1).
VI.
Acts of Agents — 12 CFR 1005.35 A remittance transfer provider is strictly liable for a violation by an agent when such agent acts on its behalf. Remittance transfer providers must comply with the requirements of Subpart B, even if an agent or other person performs functions for the remittance transfer provider, and regardless of whether the provider has an agreement with a third party that transfers or otherwise makes funds available to a designated recipient (12 CFR 1005.35 and Comment 35- 1).
Agencies responsible for enforcing the requirements of EFTA Section 919 and Subpart B of Regulation E may consider, in any action or other proceeding against a remittance transfer provider, the extent to which the provider had established and maintained policies or procedures for compliance, including policies, procedures, or other appropriate oversight measures designed to assure compliance by an agent or authorized delegate acting for such provider (EFTA Section 919(f)(2)).
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 59 VII.
Transfers Scheduled Before the Date of Transfer — 12 CFR 1005.36 Applicability of Subpart B. The requirements set forth in Subpart B apply to remittance transfers scheduled before the transfer date, unless modified by 12 CFR 1005.36. For example, the foreign language disclosure requirements apply to disclosures provided in connection with transfers scheduled in advance (Comment 36-1).
Timing — 12 CFR 1005.36(a) For one-time transfers scheduled five or more business days in advance or for the first in a series of transfers authorized in advance to recur at substantially regular intervals (preauthorized remittance transfers), the remittance transfer provider must provide either a prepayment disclosure and a receipt or a combined disclosure at the time the sender requests the transfer but prior to payment. If any of the disclosures provided contain estimates, the provider must mail or deliver an additional receipt no later than one business day after the date of the transfer. If the transfer involves the transfer of funds from the sender’s account held by the provider, this additional receipt may be provided on or with the next periodic statement for that account, or within 30 days after the date of the transfer if a periodic statement is not provided.
Subsequent Preauthorized Remittance Transfers. For each subsequent preauthorized remittance transfer, the provider must provide an updated receipt if any of the information (other than temporal disclosures) on the most recent receipt is no longer accurate for reasons other than as permitted in the estimates provision of 12 CFR 1005.32. The receipt must clearly and conspicuously indicate that it contains updated disclosures and must be mailed or delivered to the sender within a reasonable time prior to the scheduled date of the next subsequent preauthorized remittance transfer. If the disclosure is mailed no later than ten business days or delivered by hand or electronically no later than five business days before the scheduled date of the transfer, the provider is deemed to have provided the disclosure within a reasonable time (12 CFR 1005.36(a)(2)(i) and Comments 36(a)(2)-1, -2, and -3). For each subsequent preauthorized transfer, the remittance transfer provider must mail or deliver to the sender a receipt no later than one business day after the date of the transfer. This is not required in situations where an updated receipt that contained no estimates was provided prior to the scheduled date of the next subsequent preauthorized remittance transfer. If the remittance transfer involves the transfer of funds from the sender’s account held by the provider, the receipt may be provided on or with the next periodic statement for that account, or within 30 days after the date of the transfer if a periodic statement is not provided (12 CFR 1005.36(a)(2)(ii)).
Accuracy — 12 CFR 1005.36(b) For a one-time transfer scheduled five or more business days in advance or for the first in a series of preauthorized remittance transfers, disclosures provided must be accurate when a sender makes payment except to the extent estimates are permitted. Unless estimates are
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 60 permitted, for each subsequent preauthorized remittance transfer, the most recent receipt provided must generally be accurate as of when such transfer is made except to the extent estimates are permitted. Temporal elements in the disclosures like the date of availability and the transfer date must only be accurate if the transfer is the first transfer after the disclosure was provided (12 CFR 1005.36(b)).
Cancellation — 12 CFR 1005.36(c) Cancellation of transfers scheduled at least three days in advance. A remittance transfer provider must comply with any oral or written request to cancel any remittance transfer scheduled by the sender at least three business days before the date of the remittance transfer if the request to cancel:
a.
Enables the provider to identify the sender’s name and address or telephone number and the particular transfer to be cancelled; and b. Is received by the provider at least three business days before the scheduled date of the remittance transfer (12 CFR 1005.36(c)).
The right of cancellation applies when a remittance transfer is scheduled by the sender at least three business days before the date of the transfer, regardless of whether the sender schedules a preauthorized remittance transfer or a one-time transfer. For transfers scheduled less than three business days before the date of transfer the 30-minute cancellation deadline in 12 CFR 1005.34 applies (Comment 36(c)-1).
Cancelled preauthorized remittance transfers. For preauthorized remittance transfers, the provider must assume the request to cancel applies to all future preauthorized remittance transfers, unless the sender specifically indicates that it should apply only to the next scheduled transfer (Comment 36(c)-2).
Concurrent cancellation obligations. A financial institution that is also a remittance transfer provider may have both stop payment obligations under 12 CFR 1005.10 and cancellation obligations under 12 CFR 1005.36. If a sender cancels a remittance transfer under 12 CFR 1005.36 with a remittance transfer provider that holds the sender’s account, and the transfer is a preauthorized transfer, 12 CFR 1005.36 applies exclusively (Comment 36(c)-3).
Additional Requirements for Subsequent Preauthorized Remittance Transfers — 12 CFR 1005.36(d) Disclosure requirement. For any subsequent transfer in a series of preauthorized remittance transfers, the remittance transfer provider must disclose: a.
The date of the subsequent transfer using the term “Future Transfer Date” or a substantially similar term;
b. A statement of the sender’s cancellation rights; and
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 61 c.
The name, telephone number(s), and website of the remittance transfer provider (12 CFR 1005.36(d)(1)).
The disclosures must be provided no more than 12 months, and no less than five business days prior to, the date of the subsequent preauthorized remittance transfer. For any subsequent preauthorized remittance transfer for which the date of transfer is four or fewer business days after the date payment is made, the disclosure must generally be provided on or with the receipt for the initial transfer in that series (12 CFR 1005.36(d)(2)). A remittance transfer provider has some flexibility in determining how and when the disclosures required by 12 CFR 1005.36(d)(1) may be provided to senders. They may be provided as a separate disclosure, or on or with any other disclosure required by Subpart B related to the same series of preauthorized remittance transfers, provided that the disclosure and timing requirements in 12 CFR 1005.36(d)(2) and other applicable provisions in Subpart B are satisfied (Comment 36(d)-1).
If any of the information provided in these disclosures change, the provider must provide an updated disclosure with the revised information that is accurate as of when the transfer is made (12 CFR 1005.36(d)(1) and (4) and Comments 36(d)-2, 3 and 4). For any subsequent preauthorized remittance transfer, the future date of transfer must be provided on any receipt provided for the initial transfer in that series of preauthorized remittance transfers. If the provider discloses the dates of subsequent preauthorized remittance transfers and the applicable cancellation period on either the receipt provided when payment is made or on a second receipt, the disclosure must be phrased and formatted in such a way that it is clear to the sender which cancellation period is applicable to any date of transfer on the receipt (Comments 31(b)(2)-4 and -5).
VIII.
Preemption The EFTA and Regulation E preempt inconsistent state laws, but only to the extent of the inconsistency. The CFPB is given the authority to determine whether or not a state law is inconsistent. An entity, state, or other interested party may request the CFPB to make such a determination. A state law will not be deemed inconsistent if it is more protective of the consumer than the EFTA or Regulation E. Upon application, the CFPB has the authority to exempt any state from the requirements of the EFTA or the regulation for any class of EFTs within a state, with the exception of the civil liability provision. (EFTA Section 922 and 12 CFR 1005.12(b) and (c)).
IX.
Administrative Enforcement and Record Retention — 12 CFR 1005.13 Section 918 of the EFTA sets forth the federal agencies responsible for enforcing compliance with the provisions of the law and its implementing regulation. Record retention. Any person subject to the EFTA and Regulation E must maintain evidence of compliance with the EFTA and Regulation E for at least two years from the date the
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 62 disclosures are required to be made or action is required to be taken. The agency supervising the person may extend this period. The period may also be extended if the person is subject to an action filed under Sections 910, 915 or 916(a) of the EFTA, which generally apply to the person’s liability under the EFTA and Regulation E. Persons subject to the EFTA who have actual notice that they are being investigated or subject to an enforcement proceeding must retain records until disposition of the proceeding (12 CFR 1005.13 and 1005.33(g)). Records may be stored on microfiche, microfilm, magnetic tape, or in any other manner capable of accurately retaining and reproducing the information. X.
Miscellaneous The EFTA contains several additional provisions that are not directly reflected in the language of Regulation E. Most significantly, 15 USC 1693l provides that the consumer may not waive by agreement any right conferred, or cause of action created, by the EFTA. However, the consumer and another person may provide by agreement greater consumer protections or additional rights or remedies than those provided by the EFTA. In addition, the consumer may sign a waiver in settlement of a dispute.
If a third-party payee has agreed to accept payment by EFT, the consumer’s obligation to pay is suspended during any period in which a system malfunction prevents an EFT from occurring (15 USC 1693j). However, the payee may avoid that suspension by making a written request for payment by means other than EFT.
Failure to comply with the requirements of the EFTA can result in civil and criminal liability, as outlined in 15 USC 1693m and 15 USC 1693n. Financial institutions may also be liable for damages under 15 USC 1693h due to failure to complete an EFT or failure to stop a preauthorized transfer when instructed to do so.
XI.
Other Risks to Consumers 1. The Gramm-Leach-Bliley Act (GLBA) and its implementing regulations, subject to certain exceptions, prohibit financial institutions from disclosing nonpublic personal information about a consumer to nonaffiliated third parties, unless the institution satisfies various notice and opt-out requirements, and provided that the consumer has not elected to opt out of the disclosure. They further require financial institutions to provide notice of their privacy policies and practices to their customers. 2. The Dodd-Frank Act prohibits unfair, deceptive, or abusive acts or practices (UDAAPs) including those that involve remittance transfer providers’ interactions with consumers. To assess such practices, the CFPB will apply the following standards:
a.
A representation, omission, act, or practice is deceptive when: I.
The representation, omission, act, or practice misleads or is likely to mislead the consumer;
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 63 II.
The consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and III.
The misleading representation, omission, act, or practice is material. b. An act or practice is unfair when:
I.
It causes or is likely to cause substantial injury to consumers; II.
The injury is not reasonably avoidable by consumers; and III.
The injury is not outweighed by countervailing benefits to consumers or to competition.
c.
An abusive act or practice:
I.
Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or II.
Takes unreasonable advantage of:
i.
a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; ii.
the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or iii.
the reasonable reliance by the consumer on a covered person to act in the interests of the consumer. Examiners should refer to CFPB’s examination procedures regarding UDAAPs for more information about these legal standards and the CFPB’s approach to examining for UDAAPs. The particular facts in a case are crucial to a determination of unfair, deceptive, or abusive acts or practices. Consequently, examiners should consult with headquarters to determine whether the applicable legal standards have been met before a UDAAP violation is cited. Model Disclosure Clauses and Forms — 12 CFR 1005, Appendix A Appendix A of Regulation E contains model clauses and forms that entities may use to comply with the requirement disclosure requirements of Regulation E. Use of the model forms is optional and an entity may make certain changes to the language or format of the model forms without losing the protection from civil and criminal liability under Sections 915 and 916 of the EFTA.
The model forms for remittance transfers are:
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CFPB Examination Procedures Remittance Transfer Requirements CFPB February 2022 Procedures 64 A-30(a) – Model Form for Pre-Payment Disclosures for Remittance Transfers Exchanged into Local Currency including a disclaimer where non-covered third-party fees and foreign taxes may apply (12 CFR 1005.31(b)(1)) A-30(b) – Model Form for Pre-Payment Disclosures for Remittance Transfers Exchanged into Local Currency including a disclaimer with estimate for non-covered third-party fees (12 CFR 1005.31(b)(1) and 12 CFR 1005.32(b)(3)) A-30(c) – Model Form for Pre-Payment Disclosures for Remittance Transfers Exchanged into Local Currency including a disclaimer with estimate for foreign taxes (12 CFR 1005.31(b)(1) and 12 CFR 1005.32(b)(3)) A-30(d) – Model Form for Pre-Payment Disclosures for Remittance Transfers Exchanged into Local Currency, including a disclaimer with estimates for non-covered third-party fees and foreign taxes (12 CFR 1005.31(b)(1) and 12 CFR 1005.32(b)(3)) A-31 – Model Form for Receipts for Remittance Transfers Exchanged into Local Currency (12 CFR 1005.31(b)(2)) A-32 – Model Form for Combined Disclosures for Remittance Transfers Exchanged into Local Currency (12 CFR 1005.31(b)(3)) A-33 – Model Form for Pre-Payment Disclosures for Dollar-to-Dollar Remittance Transfers (12 CFR 1005.31(b)(1)) A-34 – Model Form for Receipts for Dollar-to-Dollar Remittance Transfers (12 CFR 1005.31(b)(2)) A-35 – Model Form for Combined Disclosures for Dollar-to-Dollar Remittance Transfers (12 CFR 1005.31(b)(3)) A-36 – Model Form for Error Resolution and Cancellation Disclosures (Long) (12 CFR 1005.31(b)(4)) A-37 – Model Form for Error Resolution and Cancellation Disclosures (Short) (12 CFR 1005.31(b)(2)(iv) and (b)(2)(vi)) A-38 – Model Form for Pre-Payment Disclosures for Remittance Transfers Exchanged into Local Currency – Spanish (12 CFR 1005.31(b)(1)) A-39 – Model Form for Receipts for Remittance Transfers Exchanged into Local Currency – Spanish (12 CFR 1005.31(b)(2)) A-40 – Model Form for Combined Disclosures for Remittance Transfers Exchanged into Local Currency – Spanish (12 CFR 1005.31(b)(3)) A-41 – Model Form for Error Resolution and Cancellation Disclosures (Long) – Spanish (12 CFR 1005.31(b)(4))
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CFPB Examination Procedures Remittance Transfer References CFPB February 2022 Procedures 65 References Laws 15 USC 1693 et seq.
Electronic Fund Transfer Act 15 USC 7001 et seq.
Electronic Signatures in Global and National Commerce 15 USC Sections 6802-6809 Sections 502 through 509 of the Gramm-Leach-Bliley Act, except for Section 505 as it applies to Section 501(b) 12 USC Sections 5531 and 5536 Unfair, deceptive, or abusive acts or practices Consumer Financial Protection Bureau Regulations (12 CFR) Part 1005 Electronic Fund Transfers (Regulation E) Part 1016 Privacy of Consumer Financial Information (Regulation P)
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CFPB Examination Procedures Remittance Transfer References CFPB February 2022 Procedures 66 This checklist can be used to review audit workpapers, evaluate the entity’s policies, perform transaction testing, and train as appropriate. Complete only those aspects of the checklist that specifically relate to the issue being reviewed, evaluated, or tested, and retain those completed sections in the workpapers.
When reviewing audits, evaluating the entity’s policies, or performing transaction testing, a “No” answer indicates a possible exception/deficiency, and you should explain it in the workpapers. If a line item is not applicable within the area you are reviewing, indicate by using “NA.” Requirements for Remittance Transfers Yes No NA 1.
Does the provider offer remittance transfers in the normal course of business? 2.
If the provider deems itself to not offer remittance transfers in the normal course of business as a result of the 500-transfer safe harbor, are the provider’s methods for counting transfers appropriate and properly documented? Complete the rest of the checklist if the provider offers remittance transfers in the normal course of business 3.
Does the provider have written policies and operating procedures that govern its remittance transfer operations? 4.
Do these policies and procedures adequately address the requirements of Subpart B? 5.
Are the provider’s personnel who are involved in remittance transfer operations knowledgeable about the requirements of Subpart B? Disclosures — 12 CFR 1005.31 (Unless otherwise indicated, the disclosure requirements apply to all remittance transfer transactions, including those scheduled before the date of transfer.) 6.
Does the provider provide pre-payment disclosures and receipts or combined disclosures to its remittance transfer customers (12 CFR 1005.31(b)(1), (2), and (3))? NOTE: specific content of disclosures is addressed below 7.
Are written disclosures:
in the appropriate form (12 CFR 1005.31(c)); clear and conspicuous (12 CFR 1005.31(a)(1)); in retainable form (12 CFR 1005.31(a)(2))?
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CFPB Examination Procedures Remittance Transfer References CFPB February 2022 Procedures 67 Yes No NA 8.
Are written and electronic disclosures provided in compliance with the foreign language requirements of 12 CFR 1005.31(g)? 9.
If the provider uses scripts to provide oral disclosures for remittance transfer transactions and error resolution procedures conducted over the telephone, do the contents of the scripts comply with the requirements of 12 CFR 1005.31(a)(3) and (a)(4)? 10.
Do disclosures related to telephone, mobile application, or text message transactions comply with the disclosure requirements with respect to foreign languages and notice of cancellation rights (12 CFR 1005.31(g)(2) and 12 CFR 1005.31(b)(2)(iv)? 11.
Does information in written or electronic disclosures comply with the grouping requirements of 12 CFR 1005.31(c)(1)? 12.
Is the exchange rate used for the remittance transfer generally disclosed in close proximity to the other information in the prepayment disclosures (12 CFR 1005.31(c)(2))? 13.
In case of a disclosure that includes the disclaimer statement under 12 CFR 1005.31(b)(1)(viii), is the disclaimer in close proximity to the total to recipient (12 CFR 1005.31(c)(2))? 14.
Are disclosures on error resolution and cancellation rights generally disclosed in close proximity to the other disclosures on the receipt (12 CFR 1005.31(c)(2))? 15.
Are disclosures that are provided in writing or electronically provided in a minimum of eight-point font, in equal prominence to each other, and on the front of the page on which the disclosures are printed (12 CFR 1005.31(c)(3))? 16.
For disclosures that are provided in writing or electronically: do they contain only information directly related to the disclosures; and are they segregated from other items that may be disclosed (12 CFR 1005.31(c)(4))? 17.
Are estimated amounts in the disclosures appropriately described using the term “estimated” or a substantially similar term in close proximity to the term described (12 CFR 1005.31(d))? 18.
Are disclosures provided in compliance with the timing requirements of 12 CFR 1005.31(e)?
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CFPB Examination Procedures Remittance Transfer EFTA Checklist CFPB February 2022 Procedures 68 Yes No NA 19.
Do disclosures comply with the accuracy requirements of 12 CFR 1005.31(f)? NOTE: For a one-time transfer scheduled five or more business days in advance or for the first in a series of preauthorized remittance transfers, disclosures must be accurate when a sender makes payment except to the extent estimates are permitted. For any subsequent transfer in a series of preauthorized remittance transfers, disclosures must be accurate as of the date the preauthorized remittance transfer to which it pertains is made. (12 CFR 1005.36(b)). Pre-payment Disclosures — 12 CFR 1005.31(b)(1) 20.
Does the provider appropriately distinguish between covered and non-covered third-party fees? 21.
Do the provider’s pre-payment disclosures appropriately disclose to the recipient the following information as applicable, using the terms in quotes (or substantially similar terms) listed below:
“Transfer Amount” both in the currency in which transaction is funded and in the currency in which the funds will be made available to the recipient; “Transfer Fees” and “Transfer Taxes;” “Other Fees;”
“Exchange Rate;”
“Total to Recipient;” and If applicable, a disclaimer statement that noncovered third- party fees or taxes collected on the remittance transfer by a third person may apply, resulting in the designated recipient receiving less than the amount disclosed (12 CFR 1005.31(b)(1))? If the provider includes in the disclaimer statement required by 12 CFR 1005.31(b)(1)(viii), an optional estimated disclosure of applicable non-covered third-party fees or taxes, are the estimates based on reasonable sources of information? (12 CFR 1005.32(b)(3))?
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CFPB Examination Procedures Remittance Transfer EFTA Checklist CFPB February 2022 Procedures 69 Receipt — 12 CFR 1005.31(b)(2) Yes No NA 22.
Do the provider’s receipts appropriately calculate and disclose to the recipient the following information as applicable, using the terms in quotes (or substantially similar terms) listed below, as applicable: All the information required to be provided in the pre- payment disclosure;
“Date Available”;
“Recipient”
A statement about the sender’s error resolution and cancellation rights, using language set forth in Model Form A-37 of Appendix A or substantially similar language;
NOTE: If the transfer is scheduled at least three business days before the date of the transfer, the statement about the sender’s cancellation rights should reflect the requirements of 12 CFR1005.36(c);
Name, telephone number(s) and if applicable, the website of the provider;
A statement that the sender can contact the state agency that licenses or charters the remittance transfer provider with respect to the particular transfer (if applicable) and the Consumer Financial Protection Bureau, for questions or complaints about the remittance transfer provider using language set forth in Model Form A-37 of Appendix A or substantially similar language; and NOTE: The statement must include the name, telephone number(s) and website of the state agency and the name, toll-free telephone number(s) and website of the CFPB. The transfer date (only for transfers scheduled at least three business days in advance, or the first transfer in a series of preauthorized remittance transfers)?
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CFPB Examination Procedures Remittance Transfer EFTA Checklist CFPB February 2022 Procedures 70 Combined Disclosure — 12 CFR 1005.31(b)(3) Complete this section only if the provider gives combined disclosures as an alternative to separate pre-payment disclosures and receipts. Yes No NA 23.
Does the combined disclosure contain all the information required to be provided on the receipt? 24.
Does the provider offer the combined disclosure when the sender requests the remittance transfer, but prior to payment for the transfer; and provide proof of payment when payment is made for the transfer? NOTE:
1. The proof of payment must be clear and conspicuous, provided in writing or electronically, and provided in a retainable form. 2. For one-time transfers scheduled five or more business days in advance or for the first in a series of preauthorized transfers, the provider may give confirmation that the transaction has been scheduled in lieu of the proof of payment if payment is not processed at the time the remittance transfer is scheduled. No further proof of payment is required when payment is later processed.
Long-form Error Resolution and Cancellation Notice — 12 CFR 1005.31(b)(4) 25.
Does the provider promptly give, at the sender’s request, a notice describing the sender’s error resolution and cancellation rights, using the language set forth in Model Form A-36 of Appendix A or substantially similar language? (12 CFR 1005.31(b)(4)).
NOTE: For a remittance transfer scheduled at least three business days before the date of the transfer, the description of the rights of the sender regarding cancellation must instead reflect the requirements of 12 CFR 1005.36(c).
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CFPB Examination Procedures Remittance Transfer EFTA Checklist CFPB February 2022 Procedures 71 Estimates — 12 CFR 1005.32 Permanent Exception for Transfers to Certain Countries – 12 CFR 1005.32(b)(1) Yes No N/A 26.
Does the provider appropriately rely on the most recent list provided by the CFPB when using estimates under the permanent exception set forth under 12 CFR 1005.32(b)(1) for transactions to those countries? 27.
If the provider offers estimates for transactions in a country that does not appear on the safe harbor list published by the CFPB, does the entity appropriately determine that the laws of or the method by which transactions are conducted in the recipient country do not permit the determination of exact amounts. (12 CFR 1005.32(b)(1)(ii) and Comment 32(b)-5)? NOTE: A provider cannot rely on the CFPB list if it has information that the laws of a country on the list permit exact disclosures.
Permanent Exception for Transfers Scheduled Before the Date of Transfer – 12 CFR 1005.32(b)(2) 28.
For transfers scheduled five or more business days before the date of the transfer for which estimates may be provided, does the provider comply with the requirements of 12 CFR 1005.32(b)(2)? Permanent Exception for Transfers Scheduled Before the Date of Transfer – 12 CFR 1005.32(b)(2) 29.
If the remittance transfer provider is an insured institution (as defined by 12 CFR 1005.32(a)(3)), does the institution use estimates in its disclosures for transactions sent from the sender’s account with the institution, except for a prepaid account unless that prepaid account is a payroll card account or a government benefit account? 30.
If so, is the provider using the exception only in
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CFPB Examination Procedures Remittance Transfer EFTA Checklist CFPB February 2022 Procedures 72 situations where it cannot determine the exact amounts for reasons beyond its control because a person other than the institution or with which the institution has no correspondent relationship sets the exchange rate required to be disclosed or imposes a fee required to be disclosed? (12 CFR 1005.32(b)(4) and Comment 32(b)(4)-1.i) 31.
Did the provider make 1,000 or fewer transfers in the prior calendar year? counting only transfers that were received in the local currency? (Comments 32(b)(4)-2.i, 32(b)(4)-2.ii) Permanent Exception for Insured Institutions for Covered Fees Estimates – 12 CFR 1005.32(b)(5) Yes No NA 32.
If the remittance transfer provider is an insured institution (as defined by 12 CFR 1005.32(a)(3)), does the institution use estimates in its disclosures for transactions sent from the sender’s account with the institution, except for a prepaid account unless that prepaid account is a payroll card account or a government benefit account? 33.
If so, is the provider using the exception only in situations where it cannot determine the exact amounts for reasons beyond its control because a person other than the institution or with which the institution has no correspondent relationship and is not acting as agent of the institution, sets the third-party fees required to be disclosed and has no agreement with the insured institution? (Comments 32(b)(5)-1.i, 32(b)(5)-1.ii, 32(b)(5)(iii)) 34.
Did the provider make 500 or fewer transfers in the prior calendar year? including non-estimated transfers to the recipient
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CFPB Examination Procedures Remittance Transfer EFTA Checklist CFPB February 2022 Procedures 73 institution? (Comment 32(b)(5)-3.i) including to any branches of the recipient institution within that country? (Comment 32(b)(5)-3.iii) 35.
Does a Federal Statute or Regulation prevent the institution from determining the exact amount of covered third-party fees? Bases for Estimates – 12 CFR 1005.32(c) 36.
Are the bases used to derive the estimates under 12 CFR 1005.32(a), (b)(1), and (b)(2) in compliance with the method for disclosing estimates set forth in 12 CFR 1005.32(c)? NOTE: For transfers scheduled five or more business days before the date of the transfer for which estimates may be provided, the requirements of 12 CFR 1005.32(d) apply.
Yes No NA 37.
Does the provider use the approaches listed in the rule to estimate:
exchange rate;
transfer amount in which funds will be received; covered third-party fees; and the amount of currency that will be received by the designated recipient? 38.
If estimates are based on an approach that is not one of those listed, does the designated recipient receive the same, or greater, amount of funds than the remittance transfer provider disclosed? Procedures for Resolving Errors — 12 CFR 1005.33 39.
Does the provider have adequate policies and procedures to address the error resolution requirements applicable to remittance transfers (12 CFR 1005.33(g))? 40.
Do the policies and procedures adequately state what constitutes an error and what does not as defined in 12
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CFPB Examination Procedures Remittance Transfer EFTA Checklist CFPB February 2022 Procedures 74 CFR 1005.33(a)? Yes No NA 41.
Do the policies and procedures specifically address: timing and content of the sender’s notice of error (12 CFR 1005.33(b)(1));
provider’s request for additional information or clarification (12 CFR 1005.33(b)(2)); time limits for investigation, reporting results, and correcting an error (12 CFR 1005.33(c));
sender’s request for documentation that the provider relied on to make a decision (12 CFR 1005.33(d)); and the retention of records related to error investigations (12 CFR 1005.33(g)(2) and (12 CFR 1005.13))? 42.
Does the provider complete its investigation of alleged errors and determine whether an error occurred within 90 days of receiving notice of the error (12 CFR 1005.33(c))? NOTE: Discussions on the quality, or lack thereof, of an investigation can be had with your OSP counterparts. There is not a specific requirement that an error investigation must be reasonable in the regulation, unlike Regulation Z. Evaluate whether a determination was made at the first instance.
Yes No NA 43.
Does the provider report investigation results to the sender within three business days after completing its investigation and include notice of any remedies available for correcting any error determined to have occurred and provide remedy within one business day (12 CFR 1005.33(c))? NOTE: The provider can ask the sender to designate a preferred remedy at the time the sender provides notice of the error but must indicate that a resend remedy may be unavailable if the error occurred because the sender provided incorrect or insufficient information.
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CFPB Examination Procedures Remittance Transfer EFTA Checklist CFPB February 2022 Procedures 75 Yes No NA 44.
If the sender provided an incorrect account number or recipient institution identifier, does the provider comply with the requirements of 12 CFR 1005.33(h) before determining that no error occurred? 45.
If the provider determines that no error or a different error occurred, does it provide a written explanation of the findings, and note the sender’s right to request the documents upon which the provider relied in making its determination (12 CFR 1005.33(d))? 46.
If the provider offers a default remedy, does it correct the error within one business day or as soon as reasonably practicable, after the reasonable time (deemed to be ten business days) or the sender designates that the remedy has passed? NOTE: A default remedy is not applicable where the sender provided incorrect or insufficient information. 47.
If the sender requests a refund (for errors other than those related to failure to deliver by the disclosed date where the sender provided incorrect or insufficient information), does the provider refund within one business day or as soon as reasonably practicable thereafter (12 CFR 1005.33(c)(2)(A))? NOTE: The provider may generally, at its discretion, issue a refund either in cash or in the same form of payment that was initially provided by the sender for the remittance transfer.
48.
If the sender requests delivery of the amount appropriate to correct the error and the error did not occur because the sender provided incorrect or insufficient information, does the provider correct the error within one business day, or as soon as reasonably practicable, applying the same exchange rate, fees, and taxes stated in the disclosure provided in connection with the unsuccessful remittance transfer attempt (Comment 33(c)-3)? 49.
In the case of errors involving incorrect or insufficient information provided by the sender for the transfer, does the provider comply with the requirements of 12 CFR 1005.33(c)(2)(iii)?
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CFPB Examination Procedures Remittance Transfer EFTA Checklist CFPB February 2022 Procedures 76
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CFPB Examination Procedures Remittance Transfer EFTA Checklist CFPB February 2022 Procedures 77 Yes No NA 50.
If the provider determines that an error occurred that relates to: an incorrect amount paid by the sender; a computational or bookkeeping error made by the remittance transfer provider; or failure to make the amount of currency stated in the disclosures available to the designated recipient;
does the provider either:
refund the amount of funds provided by the sender (in case of a transaction that was not properly transmitted);
refund the amount appropriate to resolve the error; or make available to the designated recipient the amount appropriate to resolve the error without additional cost to the sender or the designated recipient (12 CFR 1005.33(c)(2)(i))? 51.
If the error relates to the failure to make funds available to the designated recipient by the disclosed date of availability (except in cases where the sender provided incorrect or insufficient information), does the provider: either (i) refund the amount of funds that was not properly transmitted or the amount appropriate to resolve the error to the sender; or (ii) make available to the designated recipient the amount appropriate to resolve the error and refund to the sender any fees and, to the extent not prohibited by law, taxes imposed for the remittance transfer (12 CFR 1005.33(c)(2)(ii))? 52.
If an error occurred, does the provider impose a charge related to any aspect of the error resolution process (including charges for documentation or investigation) (Comment 33(c)-9)? (12 CFR 1005.33(c))?
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CFPB Examination Procedures Remittance Transfer EFTA Checklist CFPB February 2022 Procedures 78 Yes No NA 53.
Does the provider retain policies and procedures and documentation, including those related to error investigations, for a period of not less than two years from the date a notice of error was submitted to the provider or action was required to be taken by the provider (12 CFR 1005.33(g) and 1005.13)? Procedures for Cancellation and Refund of Remittance Transfers – 12 CFR 1005.34 54.
Does the provider comply with any oral or written request to cancel a remittance transfer (except for transfers scheduled three or more business days before the date of transfer) from the sender that is received no later than 30 minutes after the sender makes payment in connection with the remittance transfer (12 CFR 1005.34(a))? NOTE: The request to cancel must enable the provider to identify the sender’s name and address or telephone number and the particular transfer to be cancelled; and the transferred funds must not have been picked up by the designated recipient or deposited into an account of the designated recipient (12 CFR 1005.34(a)(1) and (2)). 55.
If a sender provides a timely request to cancel a remittance transfer, does the provider refund all funds provided by the sender in connection with the remittance transfer at no additional cost to the sender, within three business days of receiving the request (12 CFR 1005.34(b))? NOTE: The funds to be refunded include any fees and, to the extent not prohibited by law, taxes that have been imposed for the transfer, whether the fee or tax was assessed by the provider or a third party, such as an intermediary institution, the agent or bank in the recipient country, or a state or other governmental body (12 CFR 1005.34(b)).
Acts of Agents — 12 CFR 1005.35 56.
Has the provider established and maintained policies or procedures, including policies, procedures for
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