Account servicing has been an ongoing focus for several years
and some of the issues that regulators have identified include
undesirable practices around administration of add-on products,
bonus/rewards programs, student loan servicing, automobile loan
servicing, and of course mortgage servicing. The Consumer Financial Protection Bureau (CFBP) in its Supervisory Highlights
issuances, and prudential regulators through their examinations,
have identified several areas where fair servicing is a concern.
Servicing requirements come from a number of rules and regulations. Banks should review their servicing functions and make
sure these failures are not an issue.
■ ■ ■ Online bill payment—Failure to clearly notify customers (
payors) that their online bill payments may be debited to their
account on a date sooner than the date selected if a paper
check is issued because the payee does not accept electronic
checks. The payee may cash the paper check on a date sooner
than the scheduled online payment date causing the payor to
incur overdrafts and overdraft fees.
■ ■ ■ Deposit account maintenance—Failure to ensure customer communication and disclosures accurately reflect available funds and
account balance information. Disclosures and deposit systems
must also accurately reflect the proper order of transaction
posting within deposit accounts in order for customers to avoid
excessive overdrafts and related fees.
■ ■ ■ Payment processing—Failure to obtain proper authorization to
debit loan payments from a borrower’s bank account. Special
attention should be given to this during collections and loss
■ ■ ■ Late Fees—Failure to assess late fees properly, in alignment
with disclosures. Improperly assessing late fees as a percentage of principal, interest, taxes, and insurance instead of only
principal and interest as stated in the loan agreement. Failure
to ensure systems are programmed to assess fees only, as a
percentage of the installment of principal and interest that is
overdue, but not more than a stated dollar amount (e.g., 5% of
the installment of principal and interest overdue, but not more
than $15.00). Failure to ensure late fees are within maximum
limits allowable under applicable state laws.
■■ ■ Interest rates and application of introductory rates—Failure
to properly assess advertised interest rates for introductory
periods and balance transfers. Failure to properly administer
bonus offers. Failure to correctly calculate interest by including
add-on fees and costs with the principal balance.
■ ■ ■ Credit Reporting—Failure to obtain consumer reports with a
permissible purpose as required by the Fair Credit Reporting
Act; furnishing inaccurate consumer credit information to
credit reporting agencies (CRAs); failing to promptly update
or correct information furnished to CRAs, providing information to CRAs without providing notice that the information
was disputed by the consumer; and failing to implement written policies and procedures to support accurate information
provided to CRAs.
■ ■ ■ Collections—Failure to calculate the correct amount due; claim-
ing collateral that is not associated with the loan; and threat-
ening action that is not contractually legal. Failure to comply
with the requirements of the Fair Debt Collection Practices
Act (FDCPA). Even banks that collect their own loans with
no third-party debt collection vendors should ensure FDCPA
requirements are followed as best practices.
■ ■ ■ Add-on products—Failure to ensure the customer receives services that are commensurate with the fees charged for an add-on
product such as identity theft protection or debt cancellation,
and failure to implement procedures to monitor activities of
third-party add-on providers.
■ ■ ■ Loss mitigation/workout—Failure to offer all available options
to a borrower and failure to communicate what is required to
successfully process the loss mitigation option requested. Failure
to implement compensation programs for loss mitigation per-
sonnel that ensure personnel are not incented to encourage loss
mitigation options that are not in the borrower’s best interest.
■ ■ ■ Servicing Transfers—Demonstrating that comprehensive proce-
dures are in place, have been validated and are transparent to the
borrower, is critical. Verifying that loans in loss mitigation at the
time of the servicing transfer are properly identified and flagged
for follow-up is crucial for preventing dual tracking situations
and potential borrower harm. (These are also referred to as also
referred to as “in-flight”, where underwriting of the loss mitiga-
tion application is in process and a decision is pending, or the
loan is currently in a temporary or permanent repayment plan.)
■ ■ ■ Language barriers—In November 2017, the CFPB issued its Spot-
light on serving limited English proficient (LEP) consumers to
address language access in the consumer financial marketplace.
Although the CFPB has not yet issued official guidance on this
topic, failure of banks to understand the market demographics
and make-up of its customer
base may create fair servicing
risk. Based on the size of the
institution and its geographic
reach, consideration should
HOW TO MAINTAIN FAIR AND RESPONSIBLE SERVICING PRACTICES