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From Banking and Finance Law Daily, May 7, 2014

CFPB outlines expectations when exams reveal compliance violations

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau has announced implementations to its Examination Reports and Supervisory Letters sent to supervised entities after bureau reviews of their compliance with federal consumer financial laws. The key change is a new section that includes all of the items that the CFPB expects the institution to address when a bureau review identifies violations of law or weaknesses in compliance management. The CFPB said that the section will be referred to as “Matters Requiring Attention,” regardless of whether the bureau is requiring specific attention by an entity’s board of directors.

History. The bureau published its Winter 2013 Supervisory Highlights in January, 2014. The report focused on unfair and deceptive practices in the mortgage servicing market that the CFPB’s supervisory program encountered in 2013, and included supervision work completed between July and October 2013. The report highlighted instances where the bureau contends that mortgage servicers violated the Dodd-Frank Act’s prohibition against unfair, abusive, or deceptive acts and practices. The CFPB noted that the bureau made it a priority in 2013 to address mortgage servicing problems through its supervision program. Under the Dodd-Frank Act, the CFPB supervises depository institutions and credit unions with total assets of more than $10 billion, and their affiliates. The bureau also has authority to supervise certain nonbanks, regardless of size, like mortgage companies, including originators, brokers, and servicers, and those nonbanks it defines as “larger participants.”

In the issue of Supervisory Highlights, the bureau also described other significant compliance issues found and addressed during supervision work completed between July and October 2013 and provided updates on public enforcement actions resulting from or supported by supervision, and relevant guidance issued during this period. The bureau now is highlighting an aspect of the report that the CFPB sees as significant for supervised institutions.

Examination reports and supervisory letters. Beginning in January 2014, the bureau began changing the format of the Examination Reports and Supervisory Letters (reports) that it sends to supervised entities after reviews of their compliance with federal consumer financial laws. The actual templates for the reports are part of the Supervision and Examination Manual.

The changes to the CFPB templates are intended to:

  • facilitate drafting by examiners;

  • simplify reports and reduce repetition; and

  • facilitate follow-up reporting by supervised entities about actions they take to address compliance management weaknesses or legal violations found at CFPB reviews.

The CFPB said in its report that it believes that that these changes will reduce the amount of time necessary to finalize reports, enabling the bureau to more efficiently provide reports to supervised entities.

Key changes to template. The bureau outlined the main changes it has made to its template to put its intentions into play. These changes are:

  1. elimination of recommendations—recommendations for improving currently satisfactory processes will be provided orally when examiners are on-site;

  2. elimination of the list of CFPB team members participating in a review—reports will continue to be signed by the Examiner in Charge and provide regional management contact information; and

  3. creation of a single section in the report that includes all of the items that the bureau expects the entity to address when the review identifies violations of law or weaknesses in compliance management (“Matters Requiring Attention”).

The report will no longer include “Required Corrective Actions.” The bureau expects that the institution receiving the report will furnish periodic progress reports to the CFPB about all “Matters Requiring Attention.” The frequency of reporting will be tailored to the specific matters in a report.

Examiners began using the new report format for reviews with an on-site review start dates of Jan. 2, 2014, or later. The bureau noted that examiners also may use the new format for reviews that started before Jan. 2, 2014, but for which report drafting started after that date.

MainStory: TopStory CFPB Loans Mortgages

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