CFPB prioritizes small dollar loans
Fall surveillance highlights came out this month and present the Bureau’s findings on reviews conducted between January 2021 and June 2021. CFPB publishes surveillance highlights to help institutions better understand how the CFPB reviews and monitors compliance with federal consumer finance laws. CFPB examiners often find problems during supervisory reviews that are resolved without enforcement action and the findings provide information to other financial institutions. Among other things, the fall monitoring highlights clarify the Bureau’s concerns about payday loans (low value loans). Earlier this year, the CFPB indicated its intention to focus on the small dollar lending business and expressed concern about “the business model of any lender that depends on the inability of consumers to repay their loans.” .
The latest CFPB surveillance highlights have revealed UDAAP and EFTA violations in small dollar lending. In particular, he challenged the mismanagement by lenders of consumer loan extensions. The CFPB found that lenders improperly debited consumer bank accounts and engaged in deceptive acts or practices by debiting or attempting to debit consumers’ accounts for the remaining balance of their loans at the original due date. , instead of just the extension fee, even after the consumer had been granted a time limit for payment. The Bureau considered that the practice caused significant harm to consumers by causing unforeseen debits of the total loan balance and possible bank charges. In addition, the CFPB considered that the practice was a misrepresentation to consumers and therefore would cause additional substantial harm to consumers, as the ability to debit the full loan amount would likely affect a consumer’s payment decisions. The Bureau is currently reviewing these actions and promises to take corrective and corrective actions regarding these violations.
The CFPB discovered another UDAAP problem related to poor management of consumer payments. Lenders erred by debiting or attempting unauthorized or identical debits from consumers’ bank accounts due to a coding error or after consumers called to authorize a debit card loan payment and the Lender systems incorrectly indicated that payments had not been processed. Here too, the CFPB found that both practices caused substantial harm to consumers as they deprived consumers of access to funds and exposed them to possible bank charges. Importantly, the CFPB found that the cost of fixing the problem would not outweigh the damage to consumers.
Finally, the CFPB found that the lenders had violated EFTA by not having kept for a sufficient period (two years) the evidence of compliance with the requirements of the rule. The Bureau has stated that it will take corrective and corrective action regarding these violations. A good record retention policy is essential to ensure that lenders comply with all federal record retention time limits, as well as to educate all management and staff of this important issue.
A strong compliance management system is needed to avoid the above pitfalls related to managing consumer payments, record retention, and related violations of federal laws. Consistent monitoring and auditing of your compliance management system and payments policies are essential to avoid future violations of UDAAP or other laws. Third-party legal audits can also help lenders see what they’re sometimes missing.
© 2021 Bradley Arant Boult Cummings LLPRevue nationale de droit, volume XI, number 356