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The Consumers' Role in CFPB Supervision

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Recently, the Consumer Financial Protection Bureau (CFPB) released Version 1.0 of its Supervision and Examination Manual. The Manual represents perhaps the single most important document that will be issued by the new CFPB. In many respects, the Manual is the roadmap for how, when, where and why the CFPB will deploy its formidable supervisory and examination resources to carry out its consumer protection mission. A cursory review of the Manual reveals more than 500 pages of policies, procedures and protocol for examining and assessing risks posed by and compliance of consumer financial products and services with a host of federal consumer protection laws.

Not surprisingly, the CFPB Exam Manual bears substantial similarity to the consumer compliance examination manuals of the federal banking agencies, including the Federal Reserve Board, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. One of the first things evident in a closer look at the Manual is that it provides for consistent oversight and supervision of both banks (and their extensive and highly specialized compliance programs) and nonbank financial service companies offering consumer financial products and services. Consistency is highlighted in the Manual as one of the three main principles guiding the CFPB's supervision process. The other two principles are maintaining a focus on consumers and relying on data analysis from a wide range of sources to drive the agency's supervisory and exam process.

The CFPB has already deployed numerous examiners to banks and some nonbank financial companies. Generally, the entities that the CFPB can currently examine include large banks (with consolidated assets greater than $10 billion), mortgage companies, payday lenders and private education lenders. The CFPB is also considering including in this list consumer credit reporting agencies, debt collection companies, debt management and settlement companies, consumer credit and finance companies, money transmission and check cashing companies, and companies offering prepaid card products. However, the CFPB cannot regulate any on the list currently under review until the agency issues a final rule providing the details on which product markets in each of these categories it will regulate and the so-called "larger participants" in each product market that will be subject to its jurisdiction. A final rule is not expected until the CFPB gets a Senate-confirmed presidential appointee to serve as the agency's Director. The CFPB's current head of Enforcement, Richard Cordray, is awaiting Senate confirmation for this position.

Generally, the CFPB is likely to get a familiar, if not welcoming, reception from banks regarding the agency's exams and general oversight of the bank consumer financial compliance function. In contrast, nonbank financial institutions currently subject to the CFPB's jurisdiction (mortgage companies, payday lenders and private education lenders) can be expected to be much less comfortable, more uncertain and significantly more constrained in their initial dealings with the CFPB. While this is to be expected given the lack of previous federal compliance oversight, it could present challenges both for the agency and the companies. As these companies become more familiar with the exam process, however, this will be rectified. At the same time, the CFPB's relations with large banks could eventually become strained, particularly if a perception emerges that there is a higher standard for bank compliance versus nonbank compliance with the CFPB's examination and supervision program.

One of the most important highlights of the CFPB Manual is the breadth and extent of the agency's powers to examine and oversee bank and nonbank consumer financial products and services. Eliminating any doubt, the CFPB clearly spells out a compliance regime that includes extensive investigative powers to examine and enforce federal consumer protection laws. In addition to regular examinations, the agency's powers include the ability to conduct "Target and Horizontal Reviews." As described in the Manual, a Target Review will "involve a single entity and will focus on a particular situation, such as significant volume of particular customer complaints or a specific concern" that has come to the agency' attention. A Horizontal Review will "look across multiple entities to examine issues arising from particular products or practices" to determine whether supervisory or enforcement action is warranted. Evident in these descriptions and throughout the Manual is the considerable influence that the agency's consumer complaint process will have on CFPB examinations and supervision. While the federal banking agencies have historically looked at consumer complaints as a factor in tailoring their consumer compliance supervision and oversight, the CFPB's direct emphasis and reliance on consumer complaints for exams and supervision appears to differ markedly with the banking agency approach.

Among the consumer financial protection laws that may generate the most consumer complaints and, thus, most extensive CFPB examiner scrutiny, are federal privacy laws, federal mortgage-related laws and federal credit card-related laws highlighted in the Exam Manual, as well as the Fair Debt Collection Practices Act, Fair Credit Reporting Act, and federal fair lending laws. While it will take time to understand the full impact of the CFPB's consumer complaint process on the agency's examination and supervisory approach, it appears that consumers may, at least indirectly, have considerable influence over the CFPB's examination program and processes.

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