• CFPB Publishes Version 1.0 of its Supervision and Examination Manual
  • November 8, 2011 | Author: Jeffrey T. Powell
  • Law Firm: Jones, Walker, Waechter, Poitevent, Carrère & Denègre L.L.P. - Birmingham Office
  • On October 13, 2011, the Consumer Financial Protection Bureau (“CFPB”) released Version 1.0 of its Supervision and Examination Manual (the “Manual”). Currently, the CFPB’s examination authority extends to banks, thrifts, and credit unions with over $10 billion in assets and their affiliates. However, once a director is confirmed, the CFPB will expand its supervisory reach to include certain non-depository financial service providers, such as mortgage lenders, payday lenders, finance companies, and other entities. Furthermore, the Manual offers insight as to how the CFPB plans to police and enforce federal consumer financial law.

    It is also important to note that while the CFPB does not hold exclusive examination authority over depository institutions with less than $10 billion in assets, the CFPB holds the authority to join the primary regulators of those institutions for examinations in order to assess compliance with federal consumer financial law. Although the primary regulator maintains enforcement authority over these institutions, the CFPB may notify the regulators of violations and recommend appropriate actions. The primary regulators must then respond to the CFPB as to their decision to enforce or not enforce any perceived violation. Given this structure, institutions with less than $10 billion in assets may see heightened security with compliance of federal consumer financial laws.

    The Manual consists of three parts. Part I describes the CFPB’s general supervision and examination process. The CFPB will (1) focus on an institution’s ability to detect, prevent, and correct practices that present higher potential risks to consumers; (2) use data from multiple sources, including information obtained from the entity through examinations, from consumer complaints, and from other federal and state agencies; and (3) apply consistent standards to the supervision of both bank and non-bank entities.

    Generally, the CFPB will notify entities of examinations in advance and will coordinate its examinations with state and federal regulators. In addition to scheduled examinations, the CFPB will conduct “targeted reviews” of institutions with numerous complaints or other causes for concern, as well as “horizontal reviews” of multiple entities to examine specific products or practices. The CFPB holds broad enforcement powers and may bring administrative actions or civil actions in Federal court, though the CFPB does not have criminal enforcement authority.

    Part II sets forth the procedures for examining an entity’s compliance management system. The CFPB requires that each entity have an effective compliance management system tailored to its business. The Manual identifies four elements in the establishment of effective compliance management systems: (1) adequate board/management oversight; (2) a sound compliance program; (3) a responsive and responsible process for handling consumer complaints and questions; and (4) an independent audit program. The board of directors for each entity is expected to develop and administer effective compliance management systems, and the CFPB will hold the directors and senior management ultimately responsible for the system.

    Part III contains templates for examination reports, risk assessments, institution profiles, and examination summary and supervision plan reports.

    The CFPB has announced that the initial focus of its examinations will be the mortgage-servicing industry, and the Manual provides detailed procedures for conducting examinations in this area.