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From Banking and Finance Law Daily, September 27, 2018

CFPB alters how it communicates supervisory expectations to financial institutions

By Thomas G. Wolfe, J.D.

The Consumer Financial Protection Bureau is changing the way it articulates its "supervisory expectations" to financial institutions. In issuing a bulletin, the Bureau notes that it will continue to communicate its findings to financial institutions by way of written examination reports and supervisory letters, but, "[e]ffective immediately," these reports and letters will "include two categories of findings that convey supervisory expectations:" (1) Matters Requiring Attention (MRAs); and (2) Supervisory Recommendations (SRs). According to the Sept. 25, 2018, bulletin, "Changes to Types of Supervisory Communications" (BCFP Bulletin 2018-01), while the CFPB will take an institution’s response to the MRAs or SRs into account, the Bureau does not consider the MRAs or SRs themselves to be "legally enforceable."

MRAs. In connection with MRAs, the Bureau will continue communicating to a financial institution’s board of directors and/or senior management about "specific goals to be accomplished" to correct federal consumer-financial law violations, provide remediation for harmed consumers, and address weaknesses in an institution’s compliance management system that examiners have found to be "directly related" to the law violations. The MRAs will include pertinent timeframes for reporting and implementation.

SRs. According to the CFPB, the SRs will be used when the Bureau has not identified a violation of federal consumer-financial law but still has observed weaknesses in an institution’s compliance management system. The Bureau will use SRs to recommend actions to company management "to consider taking if it chooses to address the Bureau’s supervisory concerns" regarding the institution’s compliance management system.

Although SRs will not include provisions for periodic reporting nor expected timelines for implementation, the Bureau, in keeping with its monitoring function, will review "the steps institutions have taken to address SRs, including any information that institutions may provide regarding actions taken."

Responding to MRAs, SRs. Although the CFPB bulletin indicates that "[n]either MRAs nor SRs are legally enforceable," the Bureau emphasizes that it will consider a financial institution’s response to the MRAs or SRs in addressing: (i) identified violations of federal consumer-financial law; (ii) weaknesses in the institution’s compliance management system; (iii) "noted concerns" when the Bureau assesses an institution’s compliance rating; or (iv) risks that the institution poses to consumers and markets, and the Bureau may consider these risks when prioritizing future supervisory work or evaluating the need for any enforcement action.

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