Effective this past November 1, the CFPB ended its controversial practice of having enforcement attorneys regularly participate in examinations of supervised entities. Since first learning of the CFPB’s practice, we had expressed our deep concern about the practice’s inhibiting effect on free and open communications between the CFPB and supervised entities and urged the CFPB to reconsider the practice. When the CFPB announced that was ending its practice, we commented that it was probably not completely coincidental that the CFPB did this about face when the Fed’s Office of Inspector General (OIG) was poised to issue a report about the practice. Now that we have seen the OIG’s highly critical report, it seems our suspicions were well-founded.
The OIG made the following key findings:
The CFPB’s supervision and enforcement staff had varying levels of awareness of the CFPB’s policy for how and when enforcement attorneys were to interact with the CFPB’s examination teams during the examination process and did not receive formal training on the policy. Because the CFPB’s policy did not provide sufficient detail, the staff’s understanding and execution of the policy varied considerably, as demonstrated by the inconsistent involvement of enforcement attorneys in the various phases of an examination and the inconsistent messages delivered to supervised entities about the role of enforcement attorneys in examinations.
The CFPB did not formally train enforcement attorneys on the CFPB’s examination process.
The CFPB did not have a policy on the ability of enforcement attorneys to access a supervised entity’s systems during examinations, with the OIG learning that some enforcement attorneys had obtained direct access to supervised entities’ systems containing personally identifiable customer information.
The concerns raised by the above findings are now generally eliminated as a result of the CFPB’s decision to no longer have enforcement attorneys participate in examinations. However, the OIG’s fourth finding that the CFPB has not provided clear guidance to staff regarding the process for resolving legal questions that arise during examinations continues to be a concern. In the second annual report of the CFPB’s Ombudsman Office issued earlier this month, the Ombudsman indicated that while enforcement attorneys “will no longer participate in the on-site part of the examination… we understand that [they] will continue to be integrated on examinations through regular meetings with examination staff convened by Supervision headquarters staff.”
According to the OIG’s report, the CFPB does not want its examiners to obtain guidance from its enforcement attorneys on laws or regulations unrelated to enforcement issues. Instead, to ensure that legal interpretations are consistent, the CFPB wants its examiners to obtain legal guidance from points of contact in the CFPB’s Office of Supervision Policy, who in turn, should obtain guidance from the CFPB’s Legal Division. In its letter responding to the OIG’s report, the CFPB indicated that it concurred with the OIG’s recommendation that the CFPB define the roles and responsibilities of all relevant parties with regard to addressing legal questions from examination staff. The CFPB indicated that it “is addressing the concerns raised in this recommendation through its new policy on enforcement attorney integration into examinations.”
The OIG commented that it plans to follow up on the CFPB’s actions to ensure that its recommendation is fully addressed. We will be watching for the OIG’s follow up. We will also be watching for what the CFPB’s “new policy on enforcement attorney integration into examinations” actually means.
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