The CFPB released their first Supervisory Highlights last week that reveals the issues and risky practices their examiners have found between July and September of 2012. The CFPB states that it is committed to periodically issuing perspectives on their examination program, found concerns, and the suggested remedies. To facilitate financial institutions’ compliance with Federal consumer financial law, the CFPB intends to be transparent about the goals of its supervision program and the steps being taken to achieve those goals, while protecting the confidentiality of the underlying financial institution-specific information. While most banks do not fall under the direct supervision of the CFPB, the report provides us with insights regarding the focus of Washington and the regulators. More specifically, they have provided us a solid road map for a successful Fair Lending Compliance Management Program in 2013.
The recently released Supervisory Highlights: Fall 2012 document provides us four important perspectives:
- GUIDING PRINCIPLES: CFPB maintains three principles that guide the CFPB supervisory process:
- Focus on Consumers – Detect, prevent and correct practices that present a significant risk of violating law and causing consumer harm.
- Data Driven – The supervision function “rests firmly on analysis of available data” of the entities it supervises and the markets in which they operate.
- Consistency – Apply consistent standards to its supervision and use the same procedures in each exam.
- CONCLUSION 1: THE REGULATORS ARE DATA CENTRIC AND ARE INVESTING IN ADDITIONAL TECHNOLOGY AND PROCESSES TO CONTINUE THIS FOCUS.
- COMPLIANCE MANAGEMENT PROGRAMS: Provides an overview of the issues and problems discovered through the CFPB exams:
- Deficient Comprehensive Compliance Management Systems Found: policies, procedures, practices with internal controls...including monitoring and risk assessments.
- Lack of Specific Third-Party Service Provider Oversight: weak processes to manage the risks of third party relationships.
- Deficient Fair Lending Compliance Programs: lack of fair lending policies, procedures and internal controls commensurate with the size and complexity of the financial institution and its lines of businesses.
- CONCLUSION 2: A STRONG COMPLIANCE MANAGEMENT PROGRAM IS CRITICALLY IMPORTANT (POLICIES, PROCEDURES AND PRACTICE MANAGEMENT)
- SIGNIFICANT VIOLATIONS: Significant violations were found and highlighted in the following areas:
- Credit Card Issuers: examples of deceptive marketing, misleading consumers, retaining consumers who have tried to cancel, enrolling consumers without their knowledge, unlawful discrimination against certain applicants, deceptive debt collections.
- Credit Reporting; violations related to the lack of employee training and familiarity with requirements.
- Mortgage Originators: A summary of violations included RESPA, TILA, and other statutes.
- CONCLUSION 3: THE CFPB HAS STARTED TO EXPAND THEIR REACH BEYOND BANKS.
- FAIR LENDING COMPLIANCE PROGRAM DEFINED: "While the appropriate program will vary from financial institution to financial institution, the CFPB's examiners have found the following common features at financial instittuions with well developed fair lending compliance programs:"
- An up-to-date fair lending policy statement;
- Regular fair lending training for all employees involved with any aspect of the institution’s credit transactions, as well as all officers and Board members;
- Ongoing monitoring for compliance with fair lending policies and procedures;
- Ongoing monitoring for compliance with other policies and procedures that are intended to reduce fair lending risk (such as controls on loan originator discretion);
- Review of lending policies for potential fair lending violations, including potential disparate impact;
- Depending on the size and complexity of the financial institution, regular statistical analysis of loan data for potential disparities on a prohibited class basis in pricing, underwriting, or other aspects of the credit transaction, and including both mortgage and non-mortgage products, such as credit cards, auto lending, and student lending;
- Regular assessment of the marketing of loan products; and
- Meaningful oversight of fair lending compliance by management and where appropriate, the financial institution’s board of directors.
- CONCLUSION 4: FAIR LENDING REMAINS THE TOP PRIORITY OF THE CFPB, BASED ON THE RESOURCES, TIME AND ATTENTION THE REGULATORS ARE INVESTING IN THE SUBJECT. THESE EIGHT ELEMENTS PROVIDE THE INDUSTRY A ROAD MAP THAT COMPLEMENTS THE INTERAGENCY FAIR LENDING EXAMINATION PROCEDURES.
GOOD NEWS: The CFPB is clearly signaling to financial institutions “the kinds of activities that should be carefully scrutinized for compliance within the law. The CFPB believes that the Supervisory Highlights will help providers of financial products and services better understand the CFPB’s supervisory expectations so they can take action to comply with Federal consumer financial laws and serve their customer in a fair and transparent way.” Specifically in relation to Fair Lending, they are not just pointing out what is wrong, but there is a road map for what looks right! History and experience tells us that regulatory compliance gets easier when there is a clear road map to follow.
BOTTOM LINE: The CFPB has made it clear that Data Analytics, Sound Compliance Management Systems and Fair Lending should remain areas of focus for financial institutions as we head into 2013.
Related: FDIC Supervisory Insights for Summer 2017: Focus on BSA
MORE GOOD NEWS: Everyday, TRUPOINT Partners helps our clients efficiently and proactively manage the eight Fair Lending elements the CFPB outlined above. We empower over 300 financial institutions succeed with Fair Lending Risk Assessments & Data Analytics, HMDA and CRA geo-analysis to name a few. How can we help you follow the Fair Lending road map? Regardless of the path you take, a quick risk review will help you with the right direction.
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