CFPB Fall Supervisory Highlights Shed Light on Agency Priorities – Small Dollar LendingThe Fall Supervisory Highlights came out this month and reports the Bureau’s findings of examinations completed between January 2021 and June 2021. The CFPB publishes the Supervisory Highlights to help institutions better understand how the CFPB examines and monitors compliance with federal consumer financial laws. CFPB examiners often find problems during supervisory examinations that are resolved without an enforcement action and findings provide insight to other financial institutions. Among other things, the Fall Supervisory Highlights elucidate the Bureau’s concerns regarding payday lending (small dollar lending). Earlier this year, the CFPB indicated its intention to focus on small dollar lending activity and expressed a concern for “any lender’s business model that is dependent on consumers’ inability to repay their loans.”

The latest CFPB’s Supervisory Highlights found violations of UDAAP and EFTA in small dollar lending. In particular, it took issue with lenders’ improper handling of consumer loan extensions. The CFPB found lenders had improperly debited consumer bank accounts and engaged in deceptive acts or practices by debiting, or attempting to debit, from consumers’ accounts the remaining balance on their loans on the original due date, instead of just the extension fee, even after the consumer had been granted a payment extension. The Bureau considered the practice to cause substantial injury to consumers by causing unexpected debits to the full loan balance and possible bank fees. Moreover, the CFPB found that the practice was a misrepresentation to consumers and thus would cause further substantial injury to consumers because the possibility of debiting the full loan amount would likely affect a consumer’s payment decisions. The Bureau is now reviewing these actions and promises to take remedial and corrective actions regarding these violations.

The CFPB found another UDAAP issue 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 loan payment by debit card and the lenders’ systems erroneously indicated that the payments had not processed. Here too, the CFPB found that both practices caused substantial injury to consumers because it deprived consumers of access to funds and exposed them to possible bank fees. Importantly, the CFPB found that the cost of solving the problem would not outweigh injury to consumers.

Finally, the CFPB found lenders in violation of the EFTA for failure to retain for the adequate amount of time (two years) evidence of compliance with the requirements of the rule. The Bureau stated it will take remedial and corrective actions pertaining these violations. A good record retention policy is key to ensure lenders are complying with all federal record retention time limits, as well as to notify all management and staff of this important issue.

A robust compliance management system is needed to avoid the above pitfalls related to management of consumer payments, record retention and the related violations of federal laws. Consistent monitoring and auditing of your compliance management system and your policies related to payments are key to avoiding future UDAAP or other law violations. Third-party legal audits can also help lenders see what they sometimes miss. For more on small dollar lending, please see our Bradley Small Dollar and Unsecured Consumer Lending team page. For more information about the Fall Supervisory Highlights, please refer to the CFPB Fall Supervisory Highlights Shed Light on Agency Priorities, and subscribe to Bradley’s Financial Services Perspective blog.

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Photo of Jennifer L. Galloway Jennifer L. Galloway

Jennifer Galloway’s practice is dedicated to helping financial services clients successfully navigate increasingly complex regulatory and business environments. She is co-chair of Bradley’s Small Dollar and Unsecured Consumer Lending team and focuses on consumer financial services laws and regulations affecting banks, non-depository banks…

Jennifer Galloway’s practice is dedicated to helping financial services clients successfully navigate increasingly complex regulatory and business environments. She is co-chair of Bradley’s Small Dollar and Unsecured Consumer Lending team and focuses on consumer financial services laws and regulations affecting banks, non-depository banks and other financial institutions. Jennifer provides skilled regulatory guidance and detailed knowledge of the laws impacting both traditional and innovative lenders in the consumer financial services market, with considerable experience in online consumer lending. Her compliance work includes assisting clients with developing, implementing and maintaining compliance management systems, performing internal compliance audits for clients, preparing clients for outside audits, as well as preparing related lending documents and disclosures. She also counsels financial services companies regarding CFPB preparedness, implementation and operational strategies for complying with the CFPB’s regulations, and assists in defending regulatory enforcement actions.

Photo of Jessie Manzewitsch Jessie Manzewitsch

Jessie Manzewitsch is an associate in the Banking and Financial Services Practice Group.

Prior to joining Bradley, Jessie was a fall clerk for the Hon. David Hittner of the United States District Court for Southern District of Texas. Jessie received a J.D. (…

Jessie Manzewitsch is an associate in the Banking and Financial Services Practice Group.

Prior to joining Bradley, Jessie was a fall clerk for the Hon. David Hittner of the United States District Court for Southern District of Texas. Jessie received a J.D. (summa cum laude) from the University of Houston Law Center, where she was involved with the Houston Journal of International Law and Labor & Employment Law Society. She also participated in the University of Houston’s Civil Law Clinical program.

She has a Bachelor of Law degree from Universidad Católica de Argentina. While in Argentina, she clerked for the Nicholson & Cano law firm in the tax law department.