The Consumer Financial Protection Bureau’s (CFPB) most recent Supervisory Highlights report identified a number of areas of non-compliance by credit card issuers that were confidentially resolved in the supervisory process. These periodic reports are intended to identify potential areas of non-compliance observed in the marketplace by the CFPB during its examinations and may serve as a warning for other institutions that they should determine whether they may be engaged in the same practices. Below we identify notable findings from the report related to credit card issuers and other consumer financial products and services. We also reproduce data from the CFPB on the outcome of matters that are referred internally to the Action Review Committee (ARC) for a determination of whether the matter should remain within the supervision division and be resolved confidentially or referred to the enforcement division for potential public enforcement action.
Supervisory Findings Related to Credit Cards.
The CFPB observed the following non-compliant practices by certain credit card issuers:
- Failing to send account opening disclosures. Tabular disclosures required to be provided at account opening were not provided, in violation of Regulation Z, as a result of an employee error, inadequate controls to detect errors, and non-existent independent disclosure review.
- Inadequate disclosure of pay-by-phone options. Consumers calling credit card issuers to make a payment were only informed of free pay by phone payment options after authorizing an expedited phone payment for a fee, which amounted to an implied misrepresentation that that all pay by phone services carried a fee and findings of deception by the CFPB. Bulletin 2017-01 was issued on this topic in July 2017.
- Deceptive marketing and sales of debt protection add-on products. When selling credit card debt protection products over the phone, customer service representatives failed to follow scripts, to correct inaccurate assumptions about the product benefits, and misrepresented the potential fees from the product and its impact on late fees and other penalties, resulting in a finding of deceptive marketing and sales practices.
- Noncompliance with billing error resolution and unauthorized use requirements. The CFPB found that credit card issuers relying on third party service providers to resolve billing error and unauthorized use claims failed to satisfy the prescriptive requirements these tasks entail under Regulation Z. Non-compliant practices included: failing to acknowledge billing error notices in writing; not properly limiting cardholder liability in the event of unauthorized use; furnishing adverse credit report information if a consumer failed to pay an amount in dispute (or related finance charges); and failing to timely investigate, resolve, and correct billing errors. Credit card issuers were also found to have performed inadequate due diligence of the third parties performing these services and failing to properly monitor them.
- Impermissible debt collection activities in connection with authorized users. Credit card issuers were found to violate the Fair Debt Collection Practices Act (FDCPA) by discussing credit card debts with authorized users that were not financially responsible for the debt and deceptively implying that the authorized user was obliged to repay the debt. Other findings related to the FDCPA included false representation about the effect on a consumer’s credit score of repaying a credit card debt in full versus settling the debt for a lesser amount, and contacting consumers outside the hours of 8am to 9pm and at other inconvenient times.
Supervisory Findings Related to Other Consumer Financial Products and Services.
The CFPB’s latest Supervisory Highlights report is unique compared to past reports because of the large number of unfair, deceptive, or abusive acts or practices (UDAAPs) it identifies. Three notable UDAAP findings related to other consumer financial products and services follow.
- Including an inapplicable arbitration provision in a residential loan document. Residential loan documents containing arbitration clauses were found to be deceptive where the arbitration provision was void under Regulation Z, and the existence of the inapplicable provision could make consumers believe their claims were actually subject to arbitration.
- Marketing misrepresentations regarding credit checks and comparisons for short term small dollar loans. Marketing claims by small dollar lenders stating that a credit check would not be conducted were found to be deceptive when the lenders actually obtain consumer reports from specialty consumer reporting companies. Marketing claims that a product had substantially lower fees than competitor products were found to be deceptive because they lacked adequate substantiation (substantiation was based on out of date internal analyses of a small number of products).
- Misrepresentations about fee waivers for deposit products and overdraft protection products. Banks offering deposit products provided consumers inaccurate information with respect to when checking account fees would apply and with respect to overdraft protection products.
Data on ARC Decisions – When Matters are Sent from Supervision to Enforcement.
The Supervisory Highlights report provides data on the outcome of matters referred to the CFPB’s ARC (described above) for a determination from 2012 to 2016, which is summarized in the table below. It’s notable that, from 2012 to 2016, almost 64% of matters were determined by the CFPB to be appropriate for resolution through confidential supervisory action.