CFPB discovers lingering servicing compliance issues
Many nonbanks lack robust compliance systems
Some bank and nonbank servicers continue to fall short of compliance expectations, the Consumer Financial Protection Bureau said Wednesday.
The regulator, which was created to see a large swath of the servicing and lending space, warned in a comprehensive report that many nonbank firms do not possess the compliance management systems needed to comply with federal servicing rules.
At the same time, the bureau understands why nonbank firms are falling behind. The agency explained that nonbanks have "not been subject to examinations at the federal level for compliance with Federal consumer financial laws prior to the bureau’s existence."
The bureau is warning nonbank lenders to recognize where they may fall short. "The CFPB has identified one or more instances of nonbanks that lack formal policies and procedures, have not developed a consumer compliance program, or do not conduct independent consumer compliance audits," the bureau said in its study. "Lack of an effective CMS has, in a number of instances, resulted in violations of federal consumer financial laws."
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB inspects depository institutions and credit unions with total assets or more than $10 billion, and their affiliates.
The bureau is also authorized to overlook nonbanks, regardless of size in certain specific markets. These markets are payday lenders, private education lenders and mortgage companies that include originators, brokers and servicers. The CFPB has the authority to supervise “larger participants” that are considered nonbank markets for consumer financial products or services.
As directed by Dodd-Frank, the bureau must define such larger participants by rule. As of today, the agency has issued rules for debt collection practices and credit reporting markets.
The latest servicing compliance report highlights findings from examinations that occurred between November 2012 and June 2013.
Since the inception of its supervision program, the CFPB has placed much of its focus on mortgage servicing. In supervising both bank and nonbank servicers, examiners at the CFPB have revealed problems that can be harmful to consumers, which include sloppy account transfers, poor payment processing and loss mitigation mistakes.
“Our examinations of banks and nonbanks allow us to correct problems before more consumers are affected,” said CFPB Director Richard Cordray. “Today’s report highlights both the mortgage servicing problems throughout the industry and the challenges of making sure that nonbanks are following federal law. Fixing both is a priority for us.”
In situations where the CFPB found mortgage servicing problems, examiners alerted the affected parties and remedial measures were taken. In some cases, when appropriate, CFPB investigations were opened for potential enforcement action. When correcting an issue, the CFPB focuses on helping servicers improve their policies and procedures when it comes to handling loans and loss mitigation procedures. The bureau also aims to help the firms better understand and follow the applicable laws, the agency said.
The CFPB asked impacted servicers to engage in corrective actions, such as reviewing loss mitigation decisions and related fees; conducting periodic testing to monitor areas of concern; and providing progress reports to the bureau on their completion of assigned corrective actions.