Earlier this week, the results of an evaluation of the CFPB’s supervision program conducted by the Office of Inspector General (OIG) that the CFPB shares with the Fed were released in a report entitled “The CFPB Can Improve the Efficiency and Effectiveness of Its Supervisory Activities.” The report is based on data in the CFPB’s Supervisory Examination System (SES) database as of July 31, 2013. As of that date, the CFPB had completed 82 examinations (excluding baseline reviews), which resulted in 35 reports of examination and 47 supervisory letters. 63 of the completed examinations were of depository institutions and 19 were of nondepository institutions.
The report begins with a background discussion that serves as a useful primer on the operation of the CFPB’s supervision program. For example, the OIG details the types of exams conducted by the CFPB, the “products” that result from an exam (i.e. report or supervisory letter), and the process for exam scheduling, planning, execution, and reporting.
The background discussion is followed by 8 findings, with each finding accompanied by recommended actions for the CFPB to take to address the finding and the CFPB’s response. Key findings include the OIG’s conclusion that:
The CFPB did not meet its internal timeliness requirements for exam reporting, with nearly 60% of the 82 drafts submitted to headquarters by regional exam teams not meeting the CFPB’s requirement for submission within 30 days of fieldwork completion and 90% of the drafts that received headquarters approval not meeting the 30-day requirement for such approval. The report notes that several exams have been outstanding for more than a year “indicating that the agency is not providing timely written feedback to the institutions it supervises.” It also observes that “[t]he CFPB’s inability to provide examination reports to institutions in a timely manner creates uncertainty for supervised institutions.”
The CFPB did not consistently use standard compliance rating definitions. In two out of eight sampled examination products, CFPB staff had edited standard definitions to omit information and add qualifying language to the assessment of discriminatory acts or practices. More specifically, in one examination that included ECOA compliance, the CFPB altered the FFIEC’s definition for a 3 rating to state that no “overt” discriminatory acts or practices were evidenced. The examiners had identified the discretion given to the institution’s customer service representatives to grant fee waivers as a situation that created a risk of ECOA violations. While the CFPB required the institution to create policies and procedures limiting such discretion, the report did not indicate “whether the CFPB identified any discriminatory acts or practices, suggesting that the CFPB did not reach a definitive conclusion as to whether fee waivers had been granted on a discriminatory basis.” The OIG found that by adjusting the standard definition to insert “overt,” the CFPB had created “the appearance that the CFPB deviated from the standard template language to qualify its rating of the supervised institution, calling into question the appropriateness of the assigned rating.” A second examination team that had also added the word “overt” had copied such language from the other report rather than from the CFPB’s template.
The CFPB’s examination reporting policy has not been updated to reflect the December 2012 reorganization of the CFPB’s supervision offices or the current definition of fieldwork completion (which initiates the reporting process). The OIG found the outdated definition to be a potential source of confusion among staff responsible for drafting and reviewing examination reports and that the entry of incorrect dates by examiners into SES could impact the CFPB’s ability to track performance against reporting milestones.
The CFPB did not have a consistent approach to scheduling or tracking examination staff hours. The OIG observed that the lack of a policy for scheduling or tracking “hinders the CFPB’s ability to hold staff and regions accountable for the staff resources allocated and time expended on examinations.”
The CFPB has not yet finalized its commissioning program for new examiners and lacks a formal, centralized process to track examiners’ completion of on-the-job modules. The CFPB has a smaller proportion of commissioned examiners to noncommissioned examiners than peer federal regulators.
The OIG indicates that since completing its field work in October 2013, it has been told by senior CFPB officials that various measures have been taken to address certain findings in the report, including streamlining the report review process and reducing the number of examination reports that have not been issued. As part of its follow-up activities, the OIG plans to assess whether such measures and the other planned measures that the CFPB outlined in its responses address the OIG’s findings and recommendations.
In his remarks yesterday to the Consumer Bankers Association, Steven Antonakes, CFPB Deputy Director, said that the CFPB is 80% staffed insofar as examiners are concerned and that he expects the examination staff to be fully-staffed within a year. He also expects that the CFPB will be meeting its deadlines for issuing exam reports within the same time frame. Mr. Antonakes did not mention the OIG report.