CFPB Report Finds 'Systemic' Problems at Nonbanks

WASHINGTON — Some nonbanks are exhibiting "systemic flaws in their compliance management systems" dealing with debt collection and resolving consumer disputes, according to a Consumer Financial Protection Bureau report released Thursday.

The agency's "Supervisory Highlights" report largely focused on a slew of problems and federal violations that the agency found while examining payday lenders, debt collectors and consumer reporting agencies from November 2013 until February. The CFPB ultimately charged these entities with $70 million in remediation actions that have not been previously publicized.

"For the first time at the federal level, nonbank financial institutions are subject to supervisory oversight that holds them accountable for how they treat consumers," CFPB Director Richard Cordray said in a press release. "The CFPB's oversight of banks and nonbanks alike is exposing risky practices and getting results for consumers. We are pleased that our supervision program has been able to return more than $70 million to consumers in recent months."

The report breaks down key areas of concern within each of the three nonbank groups. For payday lenders, examiners said some lenders were illegally threatening lawsuits, harassing borrowers by phone or at their workplace, or getting a third party to do the same.

There were similar findings during exams of debt collectors. The report said some debt collectors were illegally filing lawsuits, failing to investigate disputes and going beyond federal parameters for how many times and when they could call a debtor. In one case, the CFPB said a debt collector had violated federal law by contacting more than 1,000 consumers as much as 20 times in two days.

Lack of a good consumer management system was a key focus for examiners, particularly in their review of consumer reporting agencies like credit bureaus, where the agency cited several instances of mishandling complaints. The report also said at least one agency did not have a chief compliance officer or someone with a comparable role to perform company-wide compliance oversight. In another case where an agency did have a chief compliance officer, CFPB examiners "found little evidence" that person was reporting compliance risks and resolutions to the board or any of its committees, the report said.

The CFPB conducted more than 100 supervisory activities last year that included full-scale reviews and follow-up exams. The report said the agency plans to conduct about 150 such activities this year based on where it sees the greatest risks of consumer harm.

"A conscious focus on consumer compliance management is now tending to converge across the bank/nonbank divide. And that is the right way to look at things from the consumer perspective also — it should not and typically does not matter to individual consumers whether they are being mistreated by a chartered entity such as a bank, a credit union, or a thrift, or instead by any kind of nonbank corporation, partnership, or other type of venture," Cordray said in remarks before the Federal Reserve Bank of Chicago on May 9. "Without regard to these organizational niceties, we are now in position to hold any and all of these entities accountable for their conduct that harms consumers."

The report said the agency is hoping other financial companies will use the study and anecdotes on violations as a cautionary tale to keep their systems in compliance, even if some of the violations were at a "small number" of companies.

"We have made it a point to publish periodic documents known as 'Supervisory Highlights,' which describe problems and remedial actions to the rest of the market without identifying the underlying institutions," said Cordray in Chicago prior to the study's release. "By these means, we intend and expect to gain an important deterrent effect and to provide a road map to companies that will foster industry-wide compliance on legal issues more immediately."