CFPB Examinations and Enforcement
The CFPB is the new regulator on the block. Republicans in Congress continue to try to strangle the CFPB from exercising its legal authorities. The re-election of President Obama ensured that the CFPB will continue to enforce federal consumer protection laws.
In its first eighteen months, the CFPB has been active, asserting jurisdiction and launching investigations against large banks, student loan companies, mortgage servicing, debt collectors, money transmitters, debt relief companies and prepaid cards. This year, the CFPB is expected to assert jurisdiction over auto lenders.
Aside from its aggressive regulatory and enforcement mission, the CFPB is launching a substantial supervision and examination program to conduct audits and assess compliance with federal consumer laws.
The CFPB issued a 920-page supervision and examination manual which outlines the procedures the CFPB will use in conducting its examinations. The general procedures manual includes specific procedures to be used in examining mortgage service companies. Building on this, the CFPB issued specific supervision and examination manuals for student loan companies and debt collectors.
Companies in the target industries need to prepare for these examinations. Compliance programs need to be revisited and mock audits should be conducted before the CFPB arrives at your doorstep.
The CFPB has emphasized the importance of a company’s compliance management system. An “effective” compliance management system has four essential components:
- Board and management oversight
- Compliance program
- Responding to consumer complaints
- Compliance audit
A company’s compliance program should include written policies and procedures, training programs, monitoring of compliance and policies for correcting issues. A company needs to make sure that its compliance program is comprehensive and being followed. Procedures for monitoring and auditing the program should be documented as well as any other compliance performance measures (e.g. hotline reports). Consumer complaints and responses to consumer complaints should be collected, measured and documented. The CFPB expects that businesses should conduct compliance audits. The audit program has to be conducted by independent evaluators and the results reported to the board and appropriate board committee.
A company has to adopt an examination protocol. In-house or outside counsel should be present during the entire examination to represent the company. Individual officers or senior employees should be designated to participate in appropriate portions of the examination. A senior officer or employee should coordinate the collection of requested information and documents. Personnel and office space should be assigned for the examination process. Electronic records and data should be available to facilitate responses to specific CFPB requests.
Some companies are conducting mock audits in advance which are keyed to the supervision and examination guidelines. A self-evaluation audit can help to identify possible weaknesses and remediation before the CFPB conducts its own examination.