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From Banking and Finance Law Daily, July 6, 2015

CFPB communication with prudential regulators could use some clarity

By Katalina M. Bianco, J.D.

The Office of the Inspector General for the Federal Reserve Board and Consumer Financial Protection Bureau has concluded its study of the CFPB’s communications with prudential regulators with respect to supervisory activities and reports that the bureau’s approach should be clarified and documented. The OIG concluded that greater clarity would help ensure that bureau communications about material violations consistently are provided to the prudential regulators—the Fed, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and National Credit Union Administration.

Background. Section 1026(d) of the Dodd-Frank Act requires communications about potential material violations be shared between the CFPB and the prudential regulators. Section 1026 applies to insured depository institutions and credit unions with total assets of $10 billion or less, referred to as “other” institutions. Minus a limited number of exceptions, Section 1026(d) provides that the prudential regulators retain enforcement authority pertaining to “other” institutions. If the CFPB has reason to believe that such an institution violated a federal consumer financial law in a material manner, the CFPB is required to notify the relevant prudential regulator and recommend appropriate action. The communication must be in writing, and the prudential regulators must respond to that communication within 60 days.

Joint OIG study. Last month, the OIGs for the prudential regulators conducted a joint review of the coordination between the CFPB and the prudential regulators. The OIGs reported that the bureau and the prudential regulators generally were coordinating their regulatory oversight activities in a manner consistent with the Dodd-Frank Act but that opportunities for enhanced coordination exist, an opportunity for the CFPB to develop a standard process for notifying the prudential regulators of federal consumer financial law violations by institutions with $10 billion or less in total assets (see Banking and Finance Law Daily, June 5, 2015).

OIG findings. The Fed/CFPB OIG reported that it could not determine whether the CFPB consistently complied with the Dodd-Frank Act’s requirement that the bureau notify prudential regulators of potential material violations in writing. The OIG could not determine the frequency with which the bureau identified potential violations and shared the information with prudential regulators because of the lack of documentation. This lack of documentation also means that the OIG was unable to assess whether the regulators responded to the bureau’s communications within the recommended 60 days.

Recommendation. The OIG recommends that the CFPB’s Deputy Director and Associate Director for Supervision, Enforcement, and Fair Lending, Steven Antonakis, develop and implement a policy that:

  1. outlines the process for assessing the materiality of a violation and provides guidance on determining whether a written notification or recommendation is necessary; and

  2. requires the tracking of written notifications and recommendations to the prudential regulators and the corresponding written responses received from them.

Actions taken. The OIG reported that after discussing its findings with the CFPB, the bureau finalized a policy that outlines an escalation and approval process that precedes a written notification and a tracking process for written notifications and recommendations. While written notifications are to be tracked in an existing CFPB database, the policy does not address the tracking of corresponding responses received from prudential regulators. The OIG said that such a process will allow the CFPB to monitor whether it is receiving timely responses to its written notifications and to follow up with the relevant prudential regulator in the absence of a timely response.

The OIG concluded its report by observing that the CFPB’s actions “appear to be responsive” to the OIG’s recommendations.

MainStory: TopStory CFPB DoddFrankAct PrudentialRegulation

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