CFPB Releases Guidance on Newly Supervised Institutions
On January 9, 2023, the Consumer Financial Protection Bureau (CFPB) published an article letting new institutions know what they can expect from a CFPB supervisory role.
The Consumer Financial Protection Act of 2010 (CFPA) identified the purposes of CFPB’s supervision, which includes: “(a) assessing compliance with Federal consumer financial law; (B) obtaining information about a supervised institution’s activities and compliance systems and procedures; and (C) detecting and assessing risks to consumers and to markets for consumer financial products and services.” The CFPB’s supervisory activities can recognize issues at their core before they become systemic. The CFPB believes success is contingent on transparency, cooperation, and communication between the company staff and the CFPB.
CFPB uses a “prioritization” system, which focuses on risks to consumers rather than companies. By focusing on individual product lines at an institution, the CFPB is able to gage the risk to consumers “in all product lines at all stages of a product’s life cycle, including product development and implementation.” The CFPB uses its findings to decide which entities require their supervision and has released a general overview of how its examiners typically come to their conclusions.
Though it warns that the guide should not be used in lieu of a legal reference, the CFPB provides institutions with the “Supervision and Examination Manual” used by its examiners.[1] During examinations, CFPB examiners typically do the following:
“Collect and review available information from within the CFPB, other Federal and state agencies, and public sources, consistent with statutory requirements;
Review documents and information obtained through information requests sent to supervised entities;
Conduct onsite (or virtual) portions of exams to observe, conduct interviews, review additional documents and information, transaction test, and assess compliance management;
Consult within the CFPB on legal issues arising from an examination, including legal violations;
Draw preliminary conclusions about the regulated entity’s compliance management and its statutory and regulatory compliance after internal consultation;1
Consult within the CFPB about examination work product and any corrective actions that the institution should take;
Send the supervisory communication to the supervised entity.”
After the exam’s completion, the CFPB provides its findings in an exam report to the institution , which may consist of goals to address violations of the law, risks of violations of the law, other shortcomings, and other required corrective actions. In some cases, they also include a supervisory agreement or other formal enforcement action.
[1] https://files.consumerfinance.gov/f/documents/cfpb_supervision-and-examination-manual_2022-09.pdf