CFPB Supervisory Highlights, Issue 25 (Fall 2021)

Summary

Issue 25 (Fall 2021) of Supervisory Highlights, published in 2021 by the Consumer Financial Protection Bureau under 12 U.S.C. §§ 5511(c)(4), 5514(b) and 5515(b). The report summarizes supervisory examination findings completed between January 2021 and June 2021 across credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts and remittance transfers, along with supervisory program developments and public enforcement actions. In its remedial actions section, the report notes action against LendUp for failing to provide timely adverse-action notices within 30 days under the Equal Credit Opportunity Act for over 7,400 loan applicants and issuing over 71,800 inaccurate adverse-action notices under ECOA and Regulation B, following a 2021 Military Lending Act judgment.

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Cite this document

“CFPB Supervisory Highlights, Issue 25 (Fall 2021).” Original at files.consumerfinance.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/cfpb-supervisory-highlights-issue-25-fall-2021-f8d1bc7cf1/, SHA-256 78c1abeaff43c61eff6a97512c6f75408b65af41237e9fd3f25c949f1839b6b1.

Full text

CONS UMER FINANCIAL P ROTECTION BUREAU | DE CEMBER 2021

Supervisory Highlights
Issue 25, Fall 2021
SUPERVISORY HIGHLIGHTS, ISSUE 25 (FALL 2021)

Table of contents
Table of contents ..............................................................................................................1

1. Introduction ................................................................................................................2

2. Supervisory Observations .......................................................................................3

2.1 Credit Card Account Management............................................................ 3
2.2 Debt Collection .......................................................................................... 4

2.3 Deposits...................................................................................................... 5
2.4 Fair Lending............................................................................................... 7

2.5 Mortgage Servicing .................................................................................... 9
2.6 Payday Lending.........................................................................................13

2.7 Prepaid Accounts ..................................................................................... 14

2.8 Remittance Transfers ...............................................................................17

3. Supervisory Program Developments ...................................................................19

4. Remedial Actions.....................................................................................................21

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1. Introduction
A key function of the Consumer Financial Protection Bureau (CFPB or the Bureau) is to
supervise the institutions subject to its supervisory authority.1 The CFPB helps consumers take
control over their economic lives through its supervision program by making consumer financial
markets more transparent and competitive. To accomplish this, the CFPB examines institutions
to assess compliance with Federal consumer financial law, obtain information about compliance
management systems (CMS), and detect and assess risks to consumers and markets for
consumer financial products and services. 2 The CFPB’s supervision program is focused on
preventing violations of law and consumer harm before they occur.

The findings included in this report cover examinations completed between January 2021 and
June 2021 in the areas of credit card account management, debt collection, deposits, fair
lending, mortgage servicing, payday lending, prepaid accounts, and remittance transfers. To
maintain the anonymity of the supervised institutions discussed in Supervisory Highlights,
references to institutions generally are in the plural and the related findings may pertain to one
or more institutions. This edition of Supervisory Highlights also summarizes recent
developments in the Bureau’s supervision program and remedial actions.

The CFPB publishes Supervisory Highlights to help institutions and the general public better
understand how we examine institutions for compliance with Federal consumer financial laws.
Supervisory Highlights summarizes existing legal requirements and violations identified in the
course of the Bureau’s exercise of supervisory and enforcement authority.3

We invite readers with questions or comments about Supervisory Highlights to contact us at
CFPB_Supervision@cfpb.gov.

1 12 U.S.C. § 5511(c)(4).
2 12 U.S.C. §§ 5514(b) and 5515(b).
3 If a supervisory matter is referred to the Office of Enforcement, Enforcement may cite additional violations based on

these facts or uncover additional information that could impact the conclusion as to what violations may exist.

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2. Supervisory Observations
2.1 Credit Card Account Management
The Bureau assessed the credit card account management operations of supervised institutions
for compliance with applicable Federal consumer financial laws. Examinations of these
institutions identified violations of Regulation Z and deceptive acts or practices prohibited by
the Consumer Financial Protection Act (CFPA).

2.1.1 Billing error resolution violations
Regulation Z contains billing error resolution provisions with which a creditor must comply
following receipt of a billing error notice from a consumer. Examiners found that creditors
violated the following provisions of Regulation Z:

• 12 C.F.R. § 1026.13(c)(2) by failing to resolve a dispute within two complete billing
cycles after receiving a billing error notice regarding the failure to credit a payment that the
consumer made;

• 12 C.F.R. § 1026.13(e)(1) by failing to reimburse a consumer for a late fee after the
creditor determined a missing payment had not been credited to the consumer’s account, as the
consumer had asserted; and

• 12 C.F.R. § 1026.13(f) by failing to conduct reasonable investigations after receiving
billing error notices related to a missing payment and unauthorized transactions.

In response to these findings, the creditors are implementing plans to identify and remediate
affected consumers. They are also developing and providing training to employees on
Regulation Z’s billing error resolution requirements and relevant policies and procedures.

2.1.2 Deceptive marketing of credit card bonus offers
Sections 1031 and 1036 of the CFPA prohibit deceptive acts or practices. 4 An act or practice is
deceptive when: (1) it misleads or is likely to mislead the consumer; (2) the consumer’s

4 12 U.S.C. §§ 5531 and 5536(a)(1)(B).

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interpretation is reasonable under the circumstances; and (3) the misleading act or practice is
material.

Examiners found that credit card issuers engaged in deceptive acts or practices by advertising to
certain existing customers that they would receive bonus offers if they opened a new credit card
account and met certain spending requirements. A consumer could reasonably conclude that an
issuer would perform according to the plain terms of its advertisement. The bonus offers were
material because they were central characteristics of the credit card advertisements. In fact, the
issuers misled consumers because they failed to provide the advertised bonuses to customers
who satisfied these requirements. And the issuers failed to ensure that their employees followed
procedures for making correct system entries when enrolling existing consumers.

Examiners also found that the credit card issuers engaged in deceptive acts or practices by
advertising to other consumers that they would receive certain bonuses if they opened new
credit card accounts in response to the advertisements and met certain spending requirements.
The issuers, however, failed to disclose or adequately disclose that consumers must apply online
for the new credit card to receive the bonus. In fact, if the consumers otherwise satisfied the
requirements but applied through a different channel, the credit card issuers failed to provide
the bonus, as promised. The advertising’s overall net impression misled or was likely to mislead
consumers who could reasonably conclude that they needed only to satisfy the specified
spending requirements, as the application channel was not disclosed or was inadequately
disclosed. The representation regarding the bonus offer terms was material because it related to
a core feature of the product. Thus, the credit card issuers’ failure to adequately disclose the
online limitation in light of the representation constituted a deceptive act or practice.

In response to these findings, the issuers are modifying applicable advertisements and
undertaking remedial and corrective actions.

2.2 Debt Collection
The Bureau has supervisory authority to examine certain institutions that engage in consumer
debt collection activities, including nonbanks that are larger participants in the consumer debt
collection market and nonbanks that are service providers to certain covered persons. 5 Recent

5 12 U.S.C. § 5514(e).

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examinations of larger participant debt collectors identified risks of violations of the Fair Debt
Collection Practices Act (FDCPA).

2.2.1 Risk of a false representation or deceptive means to
collect or attempt to collect a debt
Section 807(10) of the FDCPA prohibits the use of any false representation or deceptive means
to collect or attempt to collect any debt. 6 Examiners found that debt collectors discussed
restarting a payment plan with consumers and represented that improvements to the
consumers’ creditworthiness would occur upon final payment under the plan and deletion of the
tradeline. However, numerous factors influence an individual consumer’s creditworthiness,
including potential tradelines previously furnished by prior owners of the same debt. As a
result, such payment may not improve the credit score of the consumers to whom the
representation is made. Examiners found that such representations could lead the least
sophisticated consumer to conclude that deleting derogatory information would result in
improved creditworthiness, thereby creating the risk of a false representation or deceptive
means to collect or attempt to collect a debt in violation of Section 807(10). In response to these
findings, the collectors revised their FDCPA policies and procedures. They also enhanced
training and monitoring systems to prevent, identify, and address risks to consumers that may
arise from deceptive statements by collection agents and third-party service providers about the
effects of payment or non-payment on consumer credit, credit reporting, or credit scoring.

2.3 Deposits
The CFPB examines institutions for compliance with Regulation E, 7 which implements the
Electronic Fund Transfer Act (EFTA). 8 The CFPB also examines for compliance with other
relevant statutes and regulations, including Regulation DD, 9 which implements the Truth in
Savings Act, 10 and the CFPA’s prohibition on unfair, deceptive, and abusive acts or practices
(UDAAPs). 11 Examiners found that institutions violated Regulation E.

6 15 U.S.C. § 1692e(10).
7 12 C.F.R. § 1005 et seq.
8 15 U.S.C. § 1693 et seq.
9 12 C.F.R. § 1030 et seq.
10 12 U.S.C. § 4301 et seq.
11 12 U.S.C. §§ 5531, 5536.

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2.3.1 Regulation E error resolution for misdirected payments
Supervision conducted examinations of institutions in connection with the provision of person-
to-person digital payment network services. Regulation E defines the term “error” to include,
among other things, “[a]n incorrect electronic fund transfer to or from the consumer’s
account.” 12 Regulation E requires institutions to investigate promptly and determine whether
an error occurred. 13 Examiners found that, in certain cases, due to inaccurate or outdated
information in the digital payment network directory, consumers’ electronic fund transfers
(EFTs) were misdirected to unintended recipients, even though the consumer provided the
correct identifying token information for the recipient, i.e., the recipient’s current and accurate
phone number or email address. These misdirected transfers are referred to as “token errors.”
Token errors are incorrect EFTs because the funds are not transferred to the correct account. 14
Examiners found that institutions violated Regulation E by failing to determine that token
errors constituted “incorrect” EFTs under Regulation E.

Additionally, institutions violated Regulation E by failing to conduct reasonable error
investigations when the institutions received error notices from consumers that alleged that the
consumers had sent funds via a person-to-person payment network, but that the intended
recipients had not received the funds. 15 The institutions reviewed only whether they processed
the transactions in accordance with the sender’s payment instructions and not whether the
transfer went to an unintended recipient due to a token error. The institutions did not consider
relevant information in their own records, or information that they reasonably could obtain
during their investigation, to consider whether the consumer’s error notice constituted an error
under Regulation E.

These violations caused monetary harm to consumers. As a result of these findings, the
institutions are revising their policies and procedures, are conducting lookbacks, and will
provide remediation to injured consumers.

12 12 C.F.R. § 1005.11(a)(1)(iii).
13 12 C.F.R. § 1005.11(c).
14 12 C.F.R. § 1005.11(a)(1)(ii).
15 12 C.F.R. § 1005.11(c)(1).

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2.4 Fair Lending
The Bureau’s fair lending supervision program assesses compliance with the Equal Credit
Opportunity Act (ECOA) 16 and its implementing regulation, Regulation B, 17 as well as the Home
Mortgage Disclosure Act (HMDA) 18 and its implementing regulation, Regulation C, 19 at
institutions subject to the Bureau’s supervisory authority. Examiners found lenders violated
ECOA and Regulation B.

2.4.1 Pricing Discrimination
ECOA prohibits a creditor from discriminating against any applicant, with respect to any aspect
of a credit transaction, on the basis of race or sex. 20

Examiners observed that mortgage lenders violated ECOA and Regulation B by discriminating
against African American and female borrowers in the granting of pricing exceptions based
upon competitive offers from other institutions. The failure of the lenders’ mortgage loan
officers to follow the lenders’ policies and procedures with respect to pricing exceptions for
competitive offers, the lenders’ lack of oversight and control over their mortgage loan officers’
use of such exceptions, and managements’ failure to take appropriate corrective action
surrounding self-identified risks all contributed to the observed pricing disparities.

The examination team observed that lenders maintained policies and procedures that permitted
mortgage loan officers to provide pricing exceptions for consumers, including pricing exceptions
for competitive offers, but did not specifically address the circumstances when a loan officer
could provide pricing exceptions in response to competitive offers. Rather, the lenders relied on
managers to promulgate a verbal policy that a consumer must initiate or request a competitor
price match exception.

The examination team identified lenders with statistically significant disparities for the
incidence of pricing exceptions for African American and female applications compared to
similarly situated non-Hispanic white and male borrowers. Examiners did not identify evidence

16 15 U.S.C. §§ 1691-1691f.
17 12 C.F.R. pt. 1002.
18 12 U.S.C. §§ 2801-2810.
19 12 C.F.R. pt. 1003.
20 15 U.S.C. § 1691(a)(1). ECOA also prohibits a creditor from discriminating against any applicant, with respect to
any aspect of a credit transaction, on the basis of color, religion, national origin, 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, 15 U.S.C. § 1691(a).

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that explained the disparities observed in the statistical analysis. Instead, examiners identified
instances where lenders provided pricing exceptions for a competitive offer to non-Hispanic
white and male borrowers with no evidence of customer initiation. Furthermore, examiners
noted that lenders failed to retain documentation to support pricing exceptions. Also, lenders’
fair lending monitoring reports and business line personnel raised fair lending concerns
regarding the lack of documentation to support pricing exception decisions. Despite such
concerns, lenders did not improve the processes or document customer requests to match
competitor pricing during the review period. In response to these findings, lenders plan to
undertake remedial and corrective actions regarding these violations, which are under review by
the Bureau.

2.4.2 Religious Discrimination
ECOA prohibits discrimination on the basis of religion 21 and its implementing Regulation B
states: “A creditor shall not inquire about the race, color, religion, national origin, or sex of an
applicant or any person in connection with a credit transaction.” 22 Regulation B also states that
“a creditor shall not take a prohibited basis [including religion] into account in any system of
evaluating creditworthiness of applicants.” 23

Examiners found that lenders violated ECOA and Regulation B by improperly inquiring about
small business applicants’ religion and by considering an applicant’s religion in the credit
decision. For religious institutions applying for small business loans, lenders utilized a
questionnaire which contained explicit inquiries about the applicant’s religion. Examiners
determined that lenders also denied credit to an applicant identified as a religious institution
because the applicant did not respond to the questionnaire.

In response to these findings, lenders updated the questionnaire to ensure compliance with
ECOA and Regulation B. In addition, lenders also identified affected applicants and provided an
offer for each identified applicant to reapply for a small business loan.

21 15 U.S.C. § 1691(a)(1). ECOA also prohibits a creditor from discriminating against any applicant, with respect to
any aspect of a credit transaction, on the basis of race, color, sex, national origin, 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, 15 U.S.C. § 1601, et. seq. 15 U.S.C. § 1691(a).
22 12 C.F.R. pt. 1002.5(b).
23 12 C.F.R. pt. 1002.6(b)(1).

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2.5 Mortgage Servicing
The Bureau is prioritizing mortgage servicing supervision work in light of the increase in
borrowers needing loss mitigation assistance this year. 24 Recent mortgage servicing
examinations have identified various Regulation Z and Regulation X violations, as well as unfair
and deceptive acts or practices prohibited by the CFPA. Under Sections 1031 and 1036 of the
CFPA, an act or practice is unfair when: (1) it causes or is likely to cause substantial injury; (2)
the injury is not reasonably avoidable by consumers; and (3) the substantial injury is not
outweighed by countervailing benefits to consumers or to competition.

Examiners found that mortgage servicers engaged in the following unfair acts or practices:

• charging delinquency-related fees to borrowers in Coronavirus Aid, Relief, and
Economic Security (CARES) Act forbearances;
• failing to terminate EFTs after receiving notice that the consumer’s bank account had
been closed and an insufficient fund (NSF) fee had been assessed; and
• assessing fees for services that exceeded the actual cost of the services performed.

Additionally, examiners found that mortgage servicers engaged in deceptive acts or practices by
incorrectly disclosing transaction and payment information in borrowers’ online mortgage loan
accounts.

Examiners also found violations of Regulation X requirements to evaluate borrowers’ complete
loss mitigation applications within 30 days of receipt, Regulation Z requirements relating to
overpayments to borrowers’ escrow accounts, and Homeowners Protection Act (HPA)
requirements to automatically terminate private mortgage insurance (PMI) pursuant to the
applicable deadline.

2.5.1 Charging delinquency-related fees to borrowers in
CARES Act forbearances
Examiners found that mortgage servicers engaged in unfair acts or practices by charging late
fees and default-related fees to borrowers in CARES Act forbearances. Section 4022(b)(3) of the
CARES Act prohibits a mortgage servicer from imposing “fees, penalties, or interest beyond the
amounts scheduled or calculated as if the borrower made all contractual payments on time and

24 See CFPB Bulletin 2021-02, “Supervision and Enforcement Priorities Regarding Housing Insecurity” (Mar. 31,

2021).

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in full under the terms of the mortgage contract” in connection with a CARES Act forbearance. 25
Examiners found that, due to human and system errors, mortgage servicers charged late fees
and default-related fees to borrowers in violation of this provision of the CARES Act. Borrowers
experienced substantial injury in the form of illegal fees, which were significant, especially for
consumers experiencing economic hardship from the COVID-19 pandemic. The mortgage
servicers failed to refund some of the fees until almost a year later. Borrowers likely suffered
further harm if they could not pay other expenses because of the fees. The injury was also
widespread and impacted a large number of borrowers. Borrowers could not reasonably avoid
the injury because they could not anticipate that the mortgage servicers would assess unlawful
fees and borrowers had no reasonable means to avoid imposition of the fees. Charging the
illegal fees did not provide any countervailing benefit to consumers or competition. In response
to these findings, the mortgage servicers remediated impacted borrowers and corrected credit
reporting to accurately reflect the current balance and amount past due. The mortgage servicers
also corrected the underlying system errors.

2.5.2 Failing to terminate preauthorized EFTs
Examiners found that mortgage servicers engaged in unfair acts or practices by failing to
terminate preauthorized EFTs resulting in repeated NSF fees for failed preauthorized EFTs
where the consumer’s account was closed. Examiners found that mortgage servicers, despite
receiving notice of account closures, continued to initiate EFTs from the closed accounts each
month after the initial NSF until the consumer affirmatively canceled the preauthorized EFT
arrangement. Borrowers experienced substantial injury because the mortgage servicers’
practices resulted in repeated NSF fees. Borrowers could not reasonably avoid the injury
because they could not anticipate that the mortgage servicers would continue to attempt the
EFTs, particularly where, in some cases, the EFT agreement disclosed that the EFTs would
terminate when the relevant account closes. The continued attempts to withdraw payment from
closed accounts and fees associated with the subsequent NSF transactions did not provide any
countervailing benefit to consumers or competition. In response to these findings, the mortgage
servicers remediated impacted borrowers and are changing their practices so that they cancel
preauthorized EFTs upon receiving notice of a failed draw attempt tied to a closed account.

2.5.3 Charging consumers unauthorized amounts
Examiners found that mortgage servicers engaged in unfair acts or practices by overcharging
consumers for services rendered by a service provider. Examiners found that the mortgage

25 15 U.S.C. § 9056(b)(3).

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servicers overcharged borrowers between $3 and $15 more than the actual cost of home
inspection and Broker Price Opinion fees. The mortgage servicers caused substantial injury to
consumers by collecting or attempting to collect fees in excess of the expenses actually incurred.
In some instances, borrowers paid money they were not obligated to pay under the loan notes.
Consumers could not reasonably avoid the injury because the fees were not disclosed to
consumers. The injury resulting from the overcharges was not outweighed by countervailing
benefits to consumers or competition. Examiners found that the lack of Board and management
oversight, training, and monitoring and audit helped enable this unfair practice. In response to
these findings, the mortgage servicers are providing remediation to affected borrowers and have
changed their practices.

2.5.4 Misrepresenting mortgage loan transaction and
payment history in online accounts
Examiners found that mortgage servicers engaged in deceptive acts or practices by providing
inaccurate descriptions of payment and transaction information in borrowers’ online mortgage
loan accounts. The inaccurate description and information were likely to mislead borrowers
because the information was false. It was reasonable for borrowers to rely on their mortgage
servicers to report accurate mortgage payments and account transaction histories. The
inaccurate descriptions and information were material because they were likely to affect
borrowers’ conduct regarding their mortgage payments. In response to these findings, the
mortgage servicers are implementing corrective actions to ensure the accuracy of account
information. The mortgage servicers will also communicate website changes to borrowers and
provide access to customer service representatives. Finally, the mortgage servicers are
providing remediation to affected borrowers.

2.5.5 Failing to evaluate complete loss mitigation
applications within 30 days
Regulation X generally requires servicers to provide consumers with a written notice within 30
days of receiving the complete loss mitigation application that states the servicers’
determination of which loss mitigation options, if any, they will offer the consumer. 26
Examiners found that mortgage servicers violated Regulation X because the servicers did not
evaluate the borrowers’ complete loss mitigation applications and provide a written notice
stating the servicers’ determination of available loss mitigation options within 30 days of

26 12 C.F.R. § 1024.41(c)(1). This notice is only required if the servicer receives a loss mitigation application more

than 37 days before a foreclosure sale.

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receiving the complete loss mitigation applications. The mortgage servicers indicated that the
delays were partly attributable to increased borrower assistance requests, lack of availability of
key vendors, and a slowdown in economic activity due to shelter-in-place requirements.
Examiners found that the mortgage servicers had not engaged in good faith efforts to comply
with the 30-day timeline. In response to these findings, the mortgage servicers implemented
additional controls and increased staffing to help ensure timely evaluation of complete loss
mitigation applications.

2.5.6 Incorrect handling of partial payments
Regulation Z contains certain requirements for treatment of partial payments. Servicers can
take any of the following actions when receiving a partial payment: (i) credit the partial payment
upon receipt, (ii) return the partial payment to the consumer, or (iii) hold the payment in a
suspense or unapplied funds account. 27 Regulation Z requires servicers that retain partial
payments in a suspense or unapplied funds account to: (i) disclose to the consumer the total
amount of funds being held on periodic statements (if periodic statements are required) and
(ii) on accumulation of sufficient funds to cover a periodic payment treat such funds as a
periodic payment received. 28

Examiners found that mortgage servicers violated Regulation Z by applying payments in excess
of the amount due to the borrowers’ escrow accounts, rather than handling them in accordance
with the requirements in 12 C.F.R. § 1026.36(c)(1)(ii). In situations where the excess payments
were less than $100, the mortgage servicers attempted to refund the excess payment by applying
them to the borrowers’ escrow accounts. However, these amounts remained in the escrow
accounts and the mortgage servicers failed to either return them to the borrowers or
alternatively credit the payment to the borrowers’ next regularly scheduled monthly payment.
In response to these findings, the mortgage servicers have changed their practices to apply
excess payments as specified in the underlying loan note in compliance with Regulation Z.

2.5.7 Failing to automatically terminate PMI timely
The HPA requires that servicers automatically terminate PMI when the principal balance of the
mortgage loan is first scheduled to reach 78 percent of the original value of the property based
on the applicable amortization schedule, as long as the borrower is current. 29 Examiners found
that mortgage servicers violated the HPA when they failed to terminate PMI on the date the

27 12 C.F.R. § 1026.36(c)(1)(ii), Supp. I, Comment 36(c)(1)(ii)-1.
28 12 C.F.R. § 1026.36(c)(1)(ii).
29 12 U.S.C. § 4902(b)(1).

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principal balance of the mortgage was first scheduled to reach 78 percent loan-to-value on a
mortgage loan that was current. The root cause of the issue was human error, which resulted in
inaccurate data in the mortgage servicers’ PMI termination report. In response to these
findings, the mortgage servicers have corrected their PMI termination reports and implemented
a quality control process to help ensure timely PMI terminations in the future.

2.6 Payday Lending
The Bureau’s Supervision program covers institutions that offer or provide payday loans.
Examinations of these lenders identified unfair and deceptive acts or practices and violations of
Regulation E under EFTA.

2.6.1 Erroneous debiting and misrepresentations
surrounding failure to honor loan extensions
Examiners found that lenders engaged in unfair acts or practices when they debited or
attempted to debit from consumer’s accounts the remaining balance of their loans on the
original due date after the consumers (1) applied for a loan extension, and (2) received a
confirmation email stating that only an extension fee would be charged on the due date. The
practice caused or was likely to cause substantial injury in the form of unexpected debits of the
full loan balance, as well as possible bank fees. The injury was not reasonably avoidable because
consumers were not informed in advance that remitting a payment or otherwise having their
account balance altered would result in cancellation of a loan extension, and received
communications indicating that the loan extension had been granted and that only an extension
fee would be charged on the original due date. The substantial injury was not outweighed by
countervailing benefits to consumers or to competition.

Based on similar facts, examiners found that lenders engaged in deceptive acts or practices
when they misrepresented in loan extension confirmation e-mails to consumers that consumers
would pay only extension fees on the original due dates of their loans. The misrepresentations
were likely to mislead a reasonable consumer into believing that the extensions were
consummated and only the extension fees would be debited on the due date. The
misrepresentations were material because the possibility of debiting the full loan amount was
likely to affect a consumer’s payment decisions. In response to these findings, lenders plan to
undertake remedial and corrective actions regarding these violations, which are under review by
the Bureau.

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2.6.2 Unauthorized, duplicate debits and failure to retain
records
Examiners found that lenders engaged in unfair acts or practices when they debited or
attempted one or more additional, identical, unauthorized debits from consumers’ bank
accounts after consumers called to authorize a loan payment by debit card and lenders’ systems
erroneously indicated the transactions did not process. In other instances, lenders debited or
attempted one or more duplicate, unauthorized debits on consumer accounts due to a coding
error. Both types of acts or practices caused or were likely to cause substantial injury because
they deprived consumers of access to their funds and created significant risks that consumers
would be charged bank fees. Consumers could not reasonably avoid the resulting substantial
injury because they had no reason to anticipate debits or attempted debits they had not
authorized and could not prevent them from occurring. The substantial injury was not
outweighed by countervailing benefits to consumers or to competition. The lenders’ cost to fix
the problem would not outweigh the injury to consumers.

Based on the same facts, lenders violated Regulation E, 30 when they failed to retain, for a period
of not less than two years, evidence of compliance with the requirements imposed by EFTA. 31 In
response to these findings, lenders plan to undertake remedial and corrective actions regarding
these violations, which are under review by the Bureau.

2.7 Prepaid Accounts
The Bureau now examines financial institutions who issue prepaid accounts and their service
providers, such as program managers, for compliance with Regulation E, 32 which implements
EFTA, 33 in connection with prepaid accounts. The Bureau also examines for compliance with
other relevant statutes and regulations, including Regulation Z, 34 which implements the Truth
in Lending Act, 35 and the CFPA’s prohibition on UDAAPs 36 related to prepaid accounts.
Examiners identified violations of Regulation E and EFTA.

30 12 C.F.R. § 1005.13(b)(1).
31 12 C.F.R. § 1005.10(b).
32 12 C.F.R. pt. 1005.
33 15 U.S.C. § 1693 et seq.
34 12 C.F.R. pt. 1026.
35 15 U.S.C. § 1601 et seq.
36 12 U.S.C. §§ 5531, 5536.

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2.7.1 Prepaid account stop payment and waiver violations
Examiners found violations related to stop-payment waivers at financial institutions. EFTA and
Regulation E provide that a consumer “may stop payment of a preauthorized electronic fund
transfer from the consumer’s account by notifying the financial institution orally or in writing at
least three business days before the scheduled date of the transfer.” 37 Under EFTA, the right to
stop such payments cannot be waived in writing or through any other agreement. 38 Examiners
found that financial institutions included language in their Terms of Use agreements that
waived a consumer’s rights under both EFTA and Regulation E. The Terms of Use required
consumers to first notify the merchants in order to exercise, through the financial institutions,
the consumers’ right to stop a pre-authorized payment. This is inconsistent with the consumers’
rights set forth under both EFTA and Regulation E and a violation of EFTA. 39

Relatedly, examiners found that financial institutions enforced the provisions of the Terms of
Use and failed to honor stop-payment requests that they received either orally or in writing at
least three business days before the scheduled date of the transfer, as required by Regulation
E. 40 Their service providers improperly required consumers to first contact the merchant before
they would process any stop-payment requests. And, in certain cases, their service providers
also subsequently failed to process stop-payment requests due to system limitations, even after a
consumer had contacted the merchant. Therefore, examiners concluded that the financial
institutions had violated Regulation E. 41

In response to these findings, the financial institutions are developing and implementing
comprehensive CMS for their service providers and ceasing and desisting from violating EFTA
and Regulation E.

2.7.2 Prepaid account notice of error investigation violations
As noted in the Summer 2020 edition of Supervisory Highlights, 42 both EFTA section 908(a)
and Regulation E require a financial institution investigating an alleged EFT error, when it
determines that no error or a different error occurred, to communicate certain information to
consumers. This information includes the investigation determination and an explanation of

37 12 C.F.R. § 1005.10(c)(1); see also 15 U.S.C. § 1693e(a).
38 15 U.S.C. § 1693l.
39 15 U.S.C. § 1693l.
40 12 C.F.R. § 1005.10(c).
41 12 C.F.R. § 1005.10(c).
42 Supervisory Highlights, Issue 22 (Summer 2020). Available at:

https://www.consumerfinance.gov/f/documents/cfpb_supervisory-highlights_issue-22_2020-09.pdf.

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the determination. 43 To give purpose to both obligations, the meaning of an “explanation” is not
synonymous with that of a “determination.” Financial institutions must go beyond just
providing their findings and actually explain those findings. Examiners found that financial
institutions failed to explain their determinations within the report of results, in violation of
Regulation E.

In response to these findings, financial institutions are developing and implementing
comprehensive CMS programs capable of ensuring compliance with all of EFTA and Regulation
E’s requirements. 44

Similarly, and as discussed in the deposits section of the Summer 2021 edition of Supervisory
Highlights, 45 if a financial institution is unable to complete its investigation within 10 business
days of receiving a notice of error, Regulation E provides that a financial institution may take up
to 45 days from receipt of the error notice to investigate and determine if an error occurred, as
long as the financial institution, among other things, provisionally credits the consumer’s
account in the amount of the alleged error (including interest where applicable) within 10
business days of receiving the error notice. 46

If the alleged error involves an EFT that was not initiated within a state, resulted from a point-
of-sale debit card transaction, or occurred within 30 days after the first deposit to the account
was made, the applicable time for provisional credit is 20 business days instead of 10 business
days and the financial institution may take up to 90 days, instead of 45 days, to investigate and
determine whether an error occurred, provided the institution otherwise complies with the
requirements of Regulation E. 47

Examiners found that financial institutions violated Regulation E by failing to: (i) promptly
begin their investigations upon receipt of an oral error notice, (ii) complete investigations of
disputed point-of-sale debit transactions within 90 days of the initial error notice, after issuing
provisional credit where required, and (iii) report the investigation results in the determination
letter sent to consumers. 48

43 12 U.S.C. §§ 1693f(a) and 1693f(d) and 12 C.F.R. § 1005.11(d)(1).
44 12 C.F.R. § 1005.11(d)(1).
45 Supervisory Highlights, Issue 24 (Summer 2021). Available at: https://www.consumerfinance.gov/data-
research/research-reports/supervisory-highlights-issue-24-summer-2021/.
46 12 C.F.R. § 1005.11(c)(2).
47 12 C.F.R. § 1005.11(c)(3). See also 12 C.F.R. § 1005.2(l).
48 12 C.F.R. § 1005.11(c)(1)-(3).

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In response to these findings, the financial institutions are enhancing their CMS to ensure
compliance with the requirements of EFTA and Regulation E applicable to prepaid accounts. 49

2.8 Remittance Transfers
The Bureau continues to examine institutions under its supervisory authority for compliance
with Regulation E, Subpart B (Remittance Rule). 50 The Bureau also reviews for any UDAAPs in
connection with remittance transfers. Examiners identified violations of Regulation E.

2.8.1 Failure to investigate notice of errors
Section 1005.33(c)(1) of the Remittance Rule states that “a remittance transfer provider shall
investigate promptly and determine whether an error occurred within 90 days of receiving a
notice of error.” The investigation required under 12 C.F.R. § 1005.33(c)(1) must also include an
effort to determine the amount of any required monetary remediation. Among other things,
section 1005.33(c)(2)(ii)(B) of the Remittance Rule requires that, in the event of an error for
failure to make funds available by the disclosed date of availability, a remittance transfer
provider must “[r]efund[] to the sender any fees imposed and, to the extent not prohibited by
law, taxes collected on the remittance transfer.” A remittance transfer provider must refund any
fees charged in connection with the remittance transfer unless the provider investigates and
determines that fees were not “imposed . . . on the remittance transfer.” 51 A deduction imposed
by a foreign recipient bank may constitute a fee that must be refunded to the sender subject to
the requirements of the Remittance Rule. Comment 33(c)-10 of the Official Interpretation of
Regulation E, however, provides that “[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 of § 1005.33.”

Examiners found that providers violated section 1005.33(c) of the Remittance Rule. These
providers received notices of errors alleging that remitted funds had not been made available to
the designated recipient by the disclosed date of availability. The providers then failed to
investigate whether a deduction imposed by a foreign recipient bank constituted a fee that the
institutions were required to refund to the sender, and subsequently did not refund that fee to
the sender. These violations deprived consumers of their rights under the Remittance Rule. In
response to these findings, the providers are revising their policies and procedures to comply

49 12 C.F.R. § 1005.11(c)(1)-(3).
50 See: 78 Fed. Reg. 30662 (May 22, 2013), as amended (codified at 12 C.F.R. §§ 1005.30 through 1005.36).
51 12 C.F.R. § 1005.33(c)(2)(ii)(B).

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with the fee-refund provisions of the Remittance Rule and are conducting lookbacks. The
providers also will remediate consumers who did not receive fee refunds that were due to them.

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3. Supervisory Program
Developments
3.1.1 Joint Statement on Supervisory and Enforcement
Practices Regarding the Mortgage Servicing Rules in
Response to the Continuing COVID-19 Pandemic and
CARES Act
On November 10, 2021, the Board of Governors of the Federal Reserve, the CFPB, the Federal
Deposit Insurance Corporation, the National Credit Union Administration, the Office of the
Comptroller of the Currency, and the state financial regulators (collectively, agencies) issued a
joint statement to communicate to mortgage servicers the agencies’ supervisory and
enforcement approach as risks associated with the Coronavirus Disease (COVID-19) pandemic
continue to change. 52

On April 3, 2020, the agencies issued the “Joint Statement on Supervisory and Enforcement
Practices Regarding the Mortgage Servicing Rules in Response to the COVID-19 Emergency and
the CARES Act” (April 2020 Joint Statement) to clarify the application of the Regulation X
mortgage servicing rules and explain the agencies’ approach to supervision and enforcement of
the rules in response to the COVID-19 pandemic. In the April 2020 Joint Statement, the
agencies announced that until further notice, they would not take supervisory or enforcement
action against mortgage servicers for failing to meet certain timing requirements under the
mortgage servicing rules as long as the servicers made good faith efforts to provide those
required notices or disclosures and took the related actions within a reasonable period of time.

While the COVID-19 pandemic continues to affect consumers and mortgage servicers, the
agencies determined that the temporary flexibility described in the April 2020 Joint Statement
is no longer necessary because servicers have had sufficient time to adjust their operations by,
among other things, taking steps to work with consumers affected by the COVID-19 pandemic
and developing more robust business continuity and remote work capabilities. Accordingly, the
temporary supervisory and enforcement flexibility announced in the April 2020 Joint Statement
no longer applies and the agencies will apply their respective supervisory and enforcement

52 The joint statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules in

Response to the Continuing Covid-19 Pandemic and CARES Act is available at:
https://files.consumerfinance.gov/f/documents/cfpb_mortgage-servicing-rules_joint-statement_2021-11.pdf

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authorities, where appropriate, to address any noncompliance or violations of the Regulation X
mortgage servicing rules, as described in the statement. 53

3.1.2 CFPB publishes CMS-IT procedures
On September 21, 2021, the Bureau published examination procedures for Compliance
Management System – Information Technology (CMS-IT). 54 The CMS-IT procedures are
designed to assess supervised institutions’ use of IT and associated IT controls that support
consumer financial products and services. D ef iciencies in IT and IT systems can pose a risk
to consumers and may be the root cause of Federal consumer financial law violations. The
procedures utilize the fundamental elements of CMS to review the controls implemented by
institutions to manage IT and IT systems that are supporting consumer financial operations.
The new procedures are expected to help examiners understand the controls for institutions to
manage risks and comply with Federal consumer financial laws.

3.1.3 CFPB issues rules to facilitate a smooth transition as
federal foreclosure protections expire
On June 28, 2021, the CFPB finalized amendments to the federal mortgage servicing regulations
to reinforce the ongoing economic recovery as the federal foreclosure moratoria are phased
out. 55 The rules will help protect mortgage borrowers from unwelcome surprises as they exit
forbearance. The amendments will support the housing market’s smooth and orderly transition
to post-pandemic operation. The rules establish temporary special safeguards to help ensure
that borrowers have time before foreclosure to explore their options, including loan
modifications and selling their homes. The rules cover loans on principal residences, generally
exclude small servicers, and took effect on August 31, 2021.

53 This includes the Protections for Borrowers Affected by the COVID-19 Emergency Under the Real Estate

Settlement Procedures Act (RESPA), Regulation X (86 FR 34848), which became effective on August 31, 2021.
Though the temporary supervisory and enforcement flexibility announced in the April 2020 Joint Statement no
longer applies, guidance in the April 2020 Joint Statement generally explaining the application of the CARES Act
and interaction with the Regulation X mortgage servicing rules in effect at that time remain in place.
54 The CMS-IT procedures are available at: https://files.consumerfinance.gov/f/documents/cfpb_compliance-
management-review-information-technology_examination-procedures.pdf.
55 The rule is available at: https://files.consumerfinance.gov/f/documents/cfpb_covid-mortgage-servicing_final-

rule_2021-06.pdf

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4. Remedial Actions
The Bureau’s supervisory activities resulted in or supported the following public enforcement
actions.

4.1.1 CFPB sues LendUp Loans for violating a 2016
consent order and deceiving borrowers
On September 8, 2021, the CFPB filed a lawsuit in federal district court accusing LendUp Loans,
LLC (Lend Up) of violating a 2016 consent order and deceiving tens of thousands of
borrowers.56 In 2016, the Bureau had ordered LendUp to pay $1.83 million in consumer redress
and a $1.8 million civil penalty, and to stop misleading consumers with false claims about the
cost of loans and the benefits of repeated borrowing. In the complaint, the CFPB alleges that, in
violation of the 2016 order, LendUp has continued with much of the same illegal and deceptive
marketing. The CFPB also alleges that LendUp illegally failed to provide timely and accurate
notices to consumers whose loan applications were denied.

LendUp, headquartered in Oakland, California, offers single-payment and installment loans to
consumers and presents itself as an alternative to payday lenders. A central component of
LendUp’s marketing and brand identity is the “LendUp Ladder.” LendUp told consumers that
by repaying loans on time and taking free courses offered through its website, consumers would
move up the “LendUp Ladder” and, in turn, receive lower interest rates on future loans and
access to larger loan amounts.

According to the CFPB’s complaint, LendUp was not telling consumers the truth. The CFPB’s
investigation found that 140,000 repeat borrowers were charged the same or higher interest
rates for loans after moving up to a higher level on the LendUp Ladder. The investigation also
found that many borrowers had their maximum loan size reduced, even after reaching the
highest level on the ladder.

The CFPB alleges that LendUp violated the CFPB’s 2016 consent order, the CFPA, ECOA, and
ECOA’s implementing regulation, Regulation B. Specifically, the CFPB alleges that LendUp:

• Deceived consumers about the benefits of repeat borrowing: LendUp
misrepresented the benefits of repeatedly borrowing from the company by advertising

56 A copy of the complaint is available at:

https://files.consumerfinance.gov/f/documents/cfpb_lendup-loans-llc_complaint_2021-09.pdf.

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that borrowers who climbed the LendUp Ladder would gain access to larger loans at
lower rates when, in fact, that was not true for tens of thousands of consumers.

• Violated the CFPB’s 2016 consent order: The CFPB’s 2016 consent order prohibits
LendUp from misrepresenting the benefits of borrowing from the company. LendUp’s
continued misrepresentations about the LendUp Ladder violate this order.

• Failed to provide timely and accurate adverse action notices: Adverse action
notices inform consumers why they were denied credit, and timely and accurate notices
are vital to maintaining a transparent underwriting process and protect consumers
against credit discrimination. LendUp failed to provide adverse-action notices within
the 30 days required by ECOA for over 7,400 loan applicants. LendUp also issued over
71,800 adverse-action notices that failed to accurately describe the main reasons why
LendUp denied the application as required by ECOA and Regulation B.

The CFPB is seeking an injunction, damages or restitution to consumers, disgorgement of ill-
gotten gains, and the imposition of a civil money penalty.

LendUp is also subject to a 2021 stipulated final judgment that resolved the CFPB’s claims that
LendUp violated the Military Lending Act in connection with its extensions of credit. 57

57 The stipulated final judgment can be found at: https://www.consumerfinance.gov/about-us/newsroom/consumer-

financial-protection-bureau-settles-with-lendup-loans-llc-for-military-lending-act-violations/.

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