CFPB Publishes Supervisory Highlights, Appeals Process and update on Examination

On October 31, 2012 the Consumer Financial Protection Bureau (CFPB) released its first Supervisory Highlights fall 2012 report highlighting problems CFPB examiners discovered through the agency’s supervision process. The Bureau also released an appeals policy for supervised institutions as well as an updated version of the CFPB Supervision and Examination Manual, a field guide used by examiners.

Selected excerpts of key points follow:

Compliance Management Systems

  •  A critical component of a well-run financial institution is a robust and effective compliance management system (CMS), designed to ensure that the financial institution’s policies and practices are in full compliance with the requirements of Federal consumer financial law
  • The CFPB understands that compliance management will be handled differently by large, complex financial organizations at one end of the spectrum, and small entities that offer a narrow range of financial products and services at the other end. While the characteristics and manner of organization will vary from entity to entity, the CFPB expects compliance management activities to be a priority and to be appropriate for the nature, size, and complexity of the financial institution’s consumer business.
  • A financial institution’s CMS is inadequate where appropriate policies have been adopted, but management fails to take measures to ensure compliance with those policies
  • The CFPB has found one or more situations in which the financial institution had articulated many elements of an appropriate compliance policy, but the policy was not followed

Vendor Management

  • The CFPB has noted instances in which a financial institution has failed to establish a comprehensive service provider management program or failed to effectively manage service providers acting on its behalf to ensure compliance with Federal consumer financial law.
  • Programs typically include consistent, risk-based procedures governing the retention and monitoring of service provider relationships, as well as policies and procedures to monitor and test for compliance with Federal consumer financial law by service providers acting on behalf of the financial institution

Fair Lending Programs – Deficiencies found as follows:

  • An up-to-date fair lending policy statement;
  • Regular fair lending training for all employees involved with any aspect of the institution’s credit transactions, as well as all officers and Board members;
  • Ongoing monitoring for compliance with fair lending policies and procedures;
  • Ongoing monitoring for compliance with other policies and procedures that are intended to reduce fair lending risk (such as controls on loan originator discretion);
  • Review of lending policies for potential fair lending violations, including potential disparate impact;
  • Depending on the size and complexity of the financial institution, regular statistical analysis of loan data for potential disparities on a prohibited class basis in pricing, underwriting, or other aspects of the credit transaction, and including both mortgage and non-mortgage products, such as credit cards, auto lending, and student lending;
  • Regular assessment of the marketing of loan products; and
  • Meaningful oversight of fair lending compliance by management and where appropriate, the financial institution’s board of directors.

Mortgage Originator Violations

  • Violations under RESPA have included failures to make proper and complete disclosures to consumers of costs and other terms of a transaction due to inadequate or improper completion of the Good Faith Estimate and the HUD-1 settlement statement
  • Violations under TILA have included failures to provide accurate interest rate disclosures, and payment amounts and schedules, as well as disclosures regarding late payments, security interests, and assumption policies


  • HMDA plays a key role in the work of the CFPB’s examination teams and its Office of Fair Lending and Equal Opportunity, as well as other regulatory agencies
  • The CFPB expects financial institutions to have strong systems in place to ensure HMDA compliance.
  • The CFPB has also directed financial institutions to improve their HMDA data collection and reporting systems, for example, by modifying policies and procedures to provide proper guidance to employees who prepare and submit HMDA data.

Financial service providers under the CFPB’s jurisdiction may request a review of a less than satisfactory compliance rating or any underlying adverse finding set forth in the relevant examination report, or adverse findings conveyed in a supervisory letter. CFPB Appeals Process

In conjunction with the report and appeals policy, the Bureau published the second version of the 2012 CFPB Examination Manual v2. The updated manual incorporates procedures released for such markets as mortgage origination and servicing, payday lending, consumer reporting, and consumer debt collection. The manual has also been revised to reflect the renumbering republication in the Code of Federal Regulations of those regulations that fall under the Bureau’s rulemaking authority, among other updates.