Civil penalties warning in federal report on ‘significant’ regulatory violations by mortgage lenders, credit card companies, other financial firms

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Perhaps the financial services industry doesn’t get it, doesn’t want to get it, or just sees paying hundreds of millions of dollars in consumer restitutions and fines as the cost of doing business.

Years after the onset of the financial industry’s regulatory overhaul, too many mortgage originators continue to violate federal laws that regulate mortgage cost disclosures, fair lending practices and lending activity report requirements, according to the first federal regulatory compliance report from the Consumer Financial Protection Bureau (CFPB).

Some of the violations are the kind of behavior that came with hawking predatory, toxic mortgages, behavior that trashed the economy and dumped the nation into the Great Recession.

Along with violations in the mortgage industry, the bureau found other financial service companies violating fair credit reporting laws and credit card disclosure regulations.

Baring teeth sharpened by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the federal consumer watchdog’s first “Supervisory Highlights: Fall 2012,” also warns violators they are subject to the same enforcement actions CFPB recently filed against American Express, Discover Bank and Capital One.

The companies were charged and fined in separate cases, but together CFPB and other regulatory agencies ordered them to pay a total of $435 million to customers and $101.5 million in civil penalties.

“In addition to supervisory actions, the Bureau may also take public enforcement actions to obtain compliance with the law,” the report warns.

The consumer watchdog recently came under fire from dozens of consumer advocacy agencies for having a bark that is worse than it’s bite, when it comes to mortgage industry regulations.

“Through our supervision process, we are bringing heightened oversight to the consumer financial markets,” said CFPB Director Richard Cordray.

“This report underscores our work to address practices that are risky to consumers, as well as our continued commitment to making sure that institutions are following the law,” Cordray added.

CFPB’s report details the three settled cases, but doesn’t name names or tally a count of additional violators or violations – other than repeatedly calling them “substantial.”  However, CFPB directed violators to clean up their act and correct errant business practices to comply with federal law. Financial companies also have the opportunity to file an appeal through the bureau’s appeals process.

If companies don’t toe the line, the CFPB says it’s ready to do more than just woof.

‘Significant non-compliance’

The bureau’s first-ever supervisory highlights report found:

• Mortgage originator violations. Violations included failures to provide clear, accurate and timely disclosures about the nature and costs of the real estate settlement process, typically disclosed through the Good Faith Estimate and HUD-1 Settlement Statement.

Violations also included failure to provide accurate disclosures of interest rates, payment amounts, and payment schedules.

The actions violate the federal Real Estate Settlement Procedures Act (RESPA) or the federal Truth in Lending Act (TILA) or both.

“CFPB has noted instances of significant non-compliance with these statutes. Where appropriate, the CFPB has directed that consumers receive a corrected HUD-1. Where customers are improperly charged, the financial institution has been directed to provide reimbursement,” the report says.

The bureau also found “significant error rates” in mortgage originators’ Home Mortgage Disclosure Act (HMDA) reports. HMDA requires certain lenders to report specific information about their mortgage lending activity to regulators and the public. HMDA data helps federal agencies guard against Fair Credit Reporting Act (FCRA) violations and illegal discrimination.

• Credit reporting errors. Under-trained or untrained employees at some financial institutions reported inaccurate information to consumer credit bureaus, a violation of FCRA. Inaccurate information on a consumer’s credit record can cause a consumer to get rejected for credit or pay more for credit than necessary.

“Such failures caused the financial institutions to be unaware of and therefore repeatedly fail to respond to communications from consumers about their accounts,” the report says.

This year, CFPB took regulatory control of the credit reporting industry and earlier this month opened the federal government’s first-ever, individual-level, consumer credit report complaint assistance.

• Credit card violations.
In addition to the three cases settled with American Express, Discover Bank and Capital One, the bureau found instances of credit card issuers raising credit limits without proper disclosure and non-compliance with rate reevaluation requirements.

Both are violations of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act).

Along with mortgage services, credit cards and credit reporting, CFPB also oversees a host of other consumer financial services including, credit cards, bank accounts, debt collectors; auto, student and other consumer loans, as well as financial issues that impact women, minorities, military personnel, and older Americans.

While CFPB’s largely Republican Party critics would leash the watchdog as too protective, the bureau’s roles as rules enforcer and consumer advocate are designed to prevent the kind of behavior that drove the nation to financial ruin.

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