On October 13, 2011, the Consumer Financial Protection Bureau (CFPB) released a supervisory manual. The Manual provides the CFPB’s examiners with guidelines for determining whether entities providing consumer financial products and services are complying with the consumer protection laws subject to the CFPB’s jurisdiction. Consistent with the purpose of the agency, and not surprisingly, the Manual indicates that when the CFPB examines an institution, it will focus on the risk to consumers.
The Manual incorporates exam procedures developed by the Federal Financial Institutions Examination Council for many of the federal consumer financial laws now enforced by the CFPB. The exam structure and approach presented in the Manual is generally similar to that of the other federal banking agencies (indeed, it was drafted based largely on guidance issued by the other agencies). There are, however, aspects that are new and significant. For example, the Manual includes detailed exam procedures for mortgage servicing, which is an indication that the agency plans to devote a great deal of attention to that area.
Under the CFPB’s new procedures, mortgage servicers will be subject to nine exam “modules": (1) servicing and loan-ownership transfers; (2) payment processing and account maintenance; (3) customer inquiries and complaints; (4) maintenance of escrow accounts and insurance products; (5) credit reporting; (6) information sharing and privacy; (7) collections; (8) loss mitigation; and (9) foreclosures.
In addition, the Manual states that the CFPB expects each entity it regulates to have an effective compliance management system. An effective compliance management system commonly has the following four components: (1) board management and oversight; (2) a compliance program comprised of policies, procedures, training, and monitoring and corrective action; (3) a system for responding to consumer complaints; and (4) a compliance audit program.
The Manual specifies that every exam will include a review of the entity’s compliance management system, as well as a review for any potential unfair, deceptive, or abusive practice (UDAAP), and regulatory compliance matters presenting risks to consumers. The Manual also provides that every exam covering lending activities must include a review for discrimination and fair lending compliance.
Notably, the Manual’s provisions relating to UDAAP do not provide any insight as to how the term “abusive” will be interpreted and applied in practice. In a departure from the normal exam process of the other federal banking agencies, the Manual also instructs examiners to interview consumers, as necessary, if the examiner uncovers a potential UDAAP issue.
The CFPB has indicated that in the coming months it will release additional guidelines, like these mortgage servicing modules, organized by product and line of business. If the mortgage servicing procedures are any guide, the forthcoming guidance will likely be more detailed than that currently used by the other federal banking agencies. As the CFPB updates the Manual and shifts its regulatory focus to new products and business lines, regulated entities may wish to review and enhance corporate compliance policies to directly address the agency’s new priorities and areas of concern.
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