A Quick Guide to the CFPB's Supervisory Highlights Report

The Consumer Financial Protection Bureau's Supervisory Highlights report provides valuable insight into what they're seeing in their compliance supervision activities. Here, we'll provide a summary of the report in an effort to understand the regulatory direction, and share 5 hints for how to manage the new ECOA baseline exam that is being employed.

The CFPB regularly releases their Supervisory Highlights report, which includes findings obtained from exam and supervisory activities.  With this report, the CFPB provides the financial services industry insight into patterns they're seeing, and helps to clarify the regulatory priorities.

At TRUPOINT, we use the Supervisory Highlights report to help us understand the areas of focus and direction of the regulators. First, we'll quickly summarize the items identified by the CFPB in the most recent edition, then we'll share 5 hints about how to effectively manage the new ECOA Baseline review.

Related: FDIC Supervisory Insights for Summer 2017: Focus on BSA

6 Key Priorities Identified by the CFPB's Winter 2016 Supervisory Highlights Report

1. Consumer Reporting: The CFPB states that one “common area for improvement is the accuracy of information about consumers that is supplied to consumer reporting agencies.”  In particular, financial institutions should have policies and procedures regarding information furnished to the consumer reporting agencies. For more detail, here is March 2016 bulletin that provides additional guidance.

2. Debt Collections: Debt collection continues to be a priority. The CFPB’s supervision includes bank and nonbank creditors who originate and collect their own debt, as well as the larger non-bank third-party debt collectors. Examiners have identified UDAAP violations, including failing to honor consumers’ requests to cease communication and using false, deceptive or misleading representations. Again, the CFPB points back to a recently issued bulletin for guidance.

3. Mortgage Origination: The CFPB continues to consider absence of written policies and procedures and deficiencies with Compliance Management Systems a problem in mortgage originations. Some examples of Compliance Management Systems deficiencies include: failure to allocate resources to compliance, insufficient preventative controls to ensure compliance, and incorrect implementation of established policies and procedures.

4. International Money Transfers (or remittances): The CFPB's Remittance Rule provided new protections, including disclosure requirements, and error resolution and cancellation rights to consumers who send remittance transfers.  Examiners found violations of the Remittance Rule, and entities were asked to augment compliance management systems to prevent future violations and, where appropriate, to remediate consumers for harm they experienced. 

5. Student Loan Servicing: The CFPB issued a joint statement of Principles on Student Loan Servicing as a framework to improve student loan servicing practices, promote borrower success and minimize defaults.  Examiners have found UDAAP and Regulation V violations, indicating that policies and procedures were insufficient.  

6. Fair Lending: This edition provides an update on Fair Lending enforcement settlement administration (examples include Ally Bank for indirect auto, and Synchrony Bank for credit card). In addition, the Supervisory Highlights also review recent consent orders including Fifth Third Bank settlement (indirect auto) and Hudson City Savings Bank (Redlining). 

5 Hints for How to Manage New ECOA Baseline Reviews

In addition, the CFPB also discussed updated ECOA baseline review modules from October 30, 2015.  Each ECOA Baseline Review module below identifies specific matters to review and assess:

1. Fair Lending Supervisory History
   • Hint: Review your internal and external history associated with ECOA/Regulation B violations.  What has been your effort to address the concerns? Has there been any recent M&A or new product launches?  Complaints?
2. Fair Lending Compliance Management Systems (CMS)
   • Hint: Review your board and management oversight, policies and procedures, training, monitoring, audit, complaints, service provider oversight and corrective action.  Where are your current gaps?
3. Fair Lending Risks Related to Origination
   • Hint: Review your marketing and advertising efforts, explore sales management, underwriting, and pricing procedures. How do your numbers compare to underlying census and market benchmark data?
4. Fair Lending Risks Related to Servicing
   • Hint: Review current personnel training, compare options provided to consumers with Limited English Proficiency, and compare loss mitigation options. Are you tracking service fee waivers and analyzing beneficiaries?
5. Fair Lending Risks Related to Models
   • Hint: Does your financial institution use models to make credit decisions and automate pricing?  Has there been periodic review of models? Are there any areas with discretion? What does your exception management process and monitoring look like?

These modules are consistent with and cross-reference the FFIEC's Interagency Fair Lending Examination Procedures.

TRUPOINT Viewpoint: Financial institutions should continue to use guidance and resources like the Supervisory Highlights to understand the various regulatory hot topics. These areas of focus outlined by the CFPB should help you prioritize your time and limited resources, particularly if you know that you may have inherent risks in these areas. 

If Fair Lending is a priority for you in 2016, as it is for the regulators, you may enjoy this free Fair Lending 101 info kit: