CFPB Issues Examination Guidelines

October 20, 2011

The Consumer Financial Protection Bureau (CFPB) issued the first edition of a CFPB Supervision and Examination Manual (Manual) to provide guidance to examiners in the oversight of companies that offer consumer financial products and services.

The CFPB also issued Mortgage Servicing Examination Procedures (Procedures). The CFPB advised that “over the coming weeks and months” it will release additional guides that explain specific examination procedures organized by product and line of business. The CFPB initially plans to use the Manual to examine large depository institutions (such as institutions with total assets exceeding $10 billion) that are subject to CFPB supervision.

The CFPB will examine large depository institutions on a “continuing basis” and other depository institutions “periodically.” When the CFPB is “ready, [its] examiners will also use [the Manual] as a tool to look at other providers of consumer financial products and services that are not depository institutions, such as mortgage lenders, payday lenders, and private education lenders.”

The Manual contains three parts. Part I, “Compliance Supervision and Examination,” describes the examination and supervision process. Part II, “Examination Procedures,” includes general instructions and procedures for determining compliance with specific regulations. Many of the procedures should look familiar to financial institutions, as the CFPB incorporated examination procedures developed by the Federal Financial Institutions Examination Council (FFIEC) to assess compliance with various consumer financial protection laws. Part II also includes procedures regarding the assessment of acts or practices that may be unfair, deceptive or abusive. Part III, “Examination Process Templates,” includes templates for documenting information about supervised entities and the examination process. Unfortunately, except for Part III, the Manual was not made available in PDF format.

With regard to the rating of companies, the CFPB advises in the Manual that it adopted the FFIEC Uniform Consumer Compliance Rating System. Under the system, companies will be assigned a confidential consumer compliance rating of one to five, with “one” being the highest rating, and lowest level of supervisory concern, and “five” being the lowest rating that would reflect a critically deficient level of performance and highest level of supervisory concern. Ratings of “three” or lower are unsatisfactory ratings.

The Procedures include three main sections—“Routine Servicing,” “Default Servicing” and “Foreclosure.” The “Routine Servicing” section contains six modules that focus on (1) servicing transfers, loan ownership transfers and escrow disclosures; (2) payment processing and account maintenance; (3) customer inquiries and complaints; (4) maintenance of escrow accounts and insurance products; (5) credit reporting; and (6) information sharing and privacy. The "Default Servicing" section contains two modules that focus on (1) collections and accounts in bankruptcy and (2) loss mitigation. The "Foreclosure" section contains only a single module addressing foreclosures.

Under the Procedures, the CFPB will assess compliance with specific statutory or regulatory provisions, as well as risks to consumers not governed by such provisions, such as potentially unfair, deceptive or abusive acts or practices. In the Procedures, the CFPB notes that “[c]ollecting information about risks to consumers, whether or not there are specific legal guidelines addressing such risks, can help inform the [CFPB’s] policymaking.”

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