be ready when examination comes - cfpb examinations of financial service providers
TRANSCRIPT
Eric L. Johnson, Hudson CookJustin B. Hosie, Hudson Cook
August 16, 2014
CFPB Examinations of Financial Service Providers:
Be Ready When the Time Comes
Financial Service Centers of Mississippi Annual ConferenceAugust 14-16, 2014
Biloxi, MS
What are we talking about?
• CFPB Examination Procedures• Preparing• Measures to Reduce Problems
What are the CFPB Exam Procedures?
• The larger exam manual: http://www.consumerfinance.gov/guidance/supervision/manual/
• The guide examiners use to oversee financial service providers
• 924 pages• Describes exam process and procedures, product
based procedures, federal alphabet soup, then exam process templates
What are the CFPB Exam Procedures?
• The small dollar lending exam manual: http://www.consumerfinance.gov/f/201309_cfpb_payday_manual_revisions.pdf
• Addresses “payday lending”• 19 pages – constant references to 924 page manual• Includes overview, then modules on marketing,
application and origination, payment processing and sustained use, collections/default and consumer reporting, and service providers.
What are the CFPB Exam Procedures?
• The letter – Short timing – appx 60 days– Cease document destruction (like a litigation hold)– Confidential– You can call your attorney– Quickly compile tons of documents - Over 65 categories
of documents requested.
What are the CFPB Exam Procedures?
• Meet and greet• The Visit:
– Several federal examiners (enforcement attorneys should not be present , but may be on speed-dial)
– Several weeks– Interviews and observations– Exit interview
What are the CFPB Exam Procedures?
• Exam report– Prohibits disclosure under 12 CFR Part 1070– Conclusions and Comments
• Risk Assessment Score• Consumer Compliance Rating• Matters Requiring Attention: Immediate to 180 Days
– Review and Findings• Assessment of risks• Areas reviewed in detail
– General Information
What are examiners looking for?
• Have you done a risk assessment?• Do you have a comprehensive compliance management system overseen
by senior management and with sufficient resources and authority?• Do you monitor consumer complaints to detect potential problems?• Do you have adequate personnel control? Hiring, training, supervision,
auditing, compensation, disciplinary system• Do you manage your vendors? Like your own employees• Do all parts of the business, including your affiliates, sales offices, and
vendors, comply with all consumer financial protection laws (including UDAAP)?
How do we prepare?
• CMS – Its more than a policy sitting on the shelf– Once your policies and procedures are right,
critical functions include:• Oversight• Training• Auditing, and • Updating
– Complaints: tracking, analyzing, and updating policies
What happens after the exam?
• Make the changes required• Respond on time
– to matters requiring attention– to undated requirements
• Factual confirmation often requested• Sometimes receive a “Notice and Opportunity to Respond
and Advise” (NORA)• Await possible negotiations on a Memorandum of
Understanding, possible Civil Investigative Demand, or enforcement action (lawsuit)
• Some hear very little until the next exam
How can we reduce problems?
• Know which laws apply to you and how to comply:– Advertising Rules– ECOA– EFTA– GLBA– FDCPA (you probably think it doesn’t apply)– TILA– UDAAP
How can we reduce problems?
• Monitor CFPB website for “supervisory highlights” and fix problems in your organization. Examples:
• Spring 2014: http://www.consumerfinance.gov/f/201405_cfpb_supervisory-highlights-spring-2014.pdf
• Summer 2013: http://www.consumerfinance.gov/f/201308_cfpb_supervisory-highlights_august.pdf
• Winter 2013: http://files.consumerfinance.gov/f/201401_cfpb_supervisory-highlights-winter-2013.pdf
• Fall 2012: http://www.consumerfinance.gov/f/201210_cfpb_supervisory-highlights-fall-2012.pdf
How can we reduce problems?
• Some examples noted in some of the supervisory highlights:– Good compliance policies, but no follow-through– inadequate resources for compliance department– lack of communication to personnel– lack of training– lack of Board supervision– Operations policies don’t match compliance policies– No comprehensive service provider management
program– Deficient fair lending compliance program; employee
discretion problem– Failure to provide NOAA– FDCPA and Third-Party Collections
How can we reduce problems?
• Be aware of other typical problems:– CMS insufficiency– Marketing issues
• No credit checks (Teletrack and databases count)
– Application and Origination – • Keeping proper denial notices• Proper record retention
periods– Payment Processing
• Misleading debit authorizations
• Unfair debiting practices• Inaccurate TILA disclosures
– Collections• Field visits to employers• Misleading statements• Sense of Urgency• Others from ACE
– Third Party Oversight• Due diligence, contract
provisions, training, monitoring
• Other issues we’ve seen
How can we reduce problems?
• Complaints– Don’t just solve on an ad hoc basis– Track and determine cause– Respond by changing policies, training, and audits
• Monitor CFPB Activity to Date– Actions against similar companies:
• ACE• Cash America
– Emerging UDAAP standards– General concepts that could be applied to your business
How can we reduce problems?
• Other considerations– Mystery shopping to see if your employees really
follow training– Self testing encouraged under some federal laws,
such as the ECOA– Self reporting: CFPB has indicated penalties are
less for issues you self report - - difficult to quantify
How can we reduce problems
• Final Checklist:– Conduct a pre-exam risk assessment – know where your risks are in
advance– Have a compliance management plan in place to remedy those risks– Be prepared from staffing standpoint (expect disruption)– Review documents and plan for interviews– Maintain a single point of contact to be present at all CFPB
interviews – Be prepared to produce documents electronically– Review your operations materials, training, and actual employee
behavior as much if not more than legal/compliance policies– Schedule is generally 6-weeks or longer (will not be cut short)
Questions
?
Contact Information
Justin B. Hosie, Partner
Hudson Cook, LLP
6005 Century Oaks Drive, Suite 500
Chattanooga, TN 37416 (423) 490-7564 (423) 584-1583 [email protected]
Eric L. Johnson, Partner
Hudson Cook, LLP
8524 S. Western, Suite 114
Oklahoma City, OK 73139 (405) 602-3812 (405) 590-9920 [email protected]