CFPB Planning Big Changes to Exam, Rulemaking Process

Mortgage & Real Estate

The Consumer Financial Protection Bureau is prepping a massive overhaul to its exam procedures designed to make it faster and free up enforcement personnel to pursue their own investigations outside of exams.

The agency revealed one major switch last week by saying it would no longer send enforcement attorneys to regular on-site exams beginning Nov. 1, much to the relief of bankers who have been complaining that their presence made the process unnecessarily hostile. But the biggest changes are still to come as the agency revamps its supervision, enforcement and fair lending division, according to Steven Antonakes, the CFPB’s No. 2.

In an exclusive sit-down interview with American Banker, Antonakes said the agency wants to get exam reports to companies faster; give enforcement attorneys more time to focus on taking actions; and allow them more time to go after other markets, industries or larger participants that require greater oversight. Following is an edited QA about what the agency is planning:

What caused the CFPB to stop sending enforcement attorneys to on-site exams?
Antonakes: We’ve been at this for a couple years now and we’ve had the time to assess the effectiveness and efficiency of the operation. From the beginning, we intentionally grouped our supervision, enforcement and fair lending offices together because we wanted them to be integrated and familiar with the work that each office was doing. The integrated model was intended to ensure supervision and enforcement work very closely together. We found over time that the most efficient way of accomplishing that goal did not require the enforcement attorneys to accompany the examiners on site. We believe we can still maintain the goals of integration by having communication electronically off-site, and managed through our office of supervision policy.

Some bankers and consultants have said in the past that it feels intimidating when a fleet of enforcement attorneys come into the examination with the examiner. Did that have any influence on your decision to pull the enforcement attorneys out?
It really was about efficiency at the end of the day and how we thought we could be better at our work. Moreover, there’s a degree of hyperbole here as well. I don’t believe we ever sent a ‘fleet’ of enforcement attorneys into an exam. In most cases, it was either one or two from enforcement. It was never meant to foreshadow that enforcement was likely or even being considered. As a matter of fact, the vast majority of examinations we have conducted thus far have not resulted in formal enforcement actions. So again, it was a means of ensuring that there was strong communication throughout the examination process between our supervision and enforcement teams.

Was there ever any intention to be intimidating in this process?
No, never at all. Absolutely not.

Last year the CFPB Ombudsman’s Office listed the use of enforcement attorneys at examinations among the agency’s “systemic issues” and the Federal Reserve Office of Inspector General was also reviewing the process. The Fed’s OIG report is expected to come out soon. Did that have any influence on the CFPB changing its policy before the report is released?
No. We have been aware of concerns that have been raised by others, but more than anything, we were looking internally in terms of how to be most effective and efficient in achieving our goals.

How involved were the enforcement attorneys during an examination? Was there some conversation that occurred?
There wasthey were there to provide support to the examination team. In some respects, we thought by having them introduce themselves it was more transparent than having them behind the curtain.

What are those enforcement attorneys going to do now with that extra time of not having to be physically on-site for an exam?
Our goal is for the enforcement attorneys to have line of sight throughout the beginning, middle, and end of the exam process. We believe we can still achieve that objective without having the enforcement attorneys on site. Our enforcement team serves many functions, and supporting examinations is just one. They also conduct independent investigations and they have done a great deal of this type of work thus far. The recent action against the debt-settlement payment processor Meracord is just one example of an independent investigation our enforcement team conducted completely outside of the supervisory process.

With the enforcement attorneys not having to be at exams physically does this mean we will see more actions?
Here’s how I would describe how I would want our supervision, enforcement and fair lending division to function: we are data driven, we are tough minded, but ultimately, we’re fair and reasonable. We are not afraid to engage in difficult discussions if that’s what is warranted. That being said, if entities are complying with the law then it’s time for us to move on and take a look at where we believe risks may arise. I can’t say whether this will result in more or fewer enforcement actions. I believe it’s just an efficient way of getting our work done to protect consumers.

How many exams has the CFPB completed to date, whether that’s bank or nonbank exams?
We’ve completed a substantial number of exams to date. A specific charge of the bureau is to attempt to level the playing field between banks and nonbank entities relative to compliance with federal consumer financial laws. This dual authority provides the Bureau with the opportunity to oversee consumer financial products and services across charters and business models. Consequently, charter or license type is becoming less relevant in determining how we will prioritize and schedule our examinations.

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