Consumer Protection Cops Prep for Bank Examinations
The shape of the new Consumer FinancialrnProtection Bureau (CFPB) began to emerge yesterday as its chief architect ElizabethrnWarren, Special Advisor to the Secretary of the Treasury, announced itsrnapproach to bank supervision. Under thernDodd-Frank Wall Street Reform Act, the oversight of consumer protection atrnlarge banks has been consolidated from seven different regulatory agencies intornthe CFPB. </p
The examination program, which willrnbegin on July 21, will include 111 depository institutions each of which haverntotal assets over $10 billion, their subsidiaries and affiliates. These institutions collectively holdrnmore than 80 percent of banking industry’s assets. </p
“Thernnew consumer agency is here to make sure that markets work for Americanrnfamilies, and our bank supervision program is a big part of that,” Warren said.rn”Starting on July 21, we will be a cop on the beat – examining banks andrnprotecting consumers.” </p
CFPBrnwill operate the examination program out of satellite offices in Chicago, NewrnYork, San Francisco, and Washington, DC. rnThe regionalization is designed to allow examiners to understand “the businessrnpractices and dynamics in different markets throughout the country,” the Bureau’srnpress release said. It is anticipatedrnthat the examiners will spend much of their time working in the offices ofrndepository institutions and other consumer financial services companies.</p
ThernCFPB will be acquiring over 100 staff members directly from the regulatoryrnagencies that used to be responsible for the consumer protection functionrnincluding the Federal Deposit Insurance Corporation, the Federal ReservernSystem, the Office of the Comptroller of the Currency, and the Office of ThriftrnSupervision. The CFPB expects eventually to have several hundred examiners onrnboard, coming from a variety of backgrounds, including state regulatoryrnagencies and industry. Whether new to consumer protection or experiencedrnin that area, examiners will receive appropriate technical and professionalrntraining. </p
Asrncurrently designed, the supervision will consist of pre-examination review ofrninformation, data analysis, on-site examinations, and follow-uprnmonitoring. Most depository institutionsrnwill be examined on a periodic basis but the largest and most complex will bernsubject to year-found supervision that is “customized to reflect the consumerrnprotection and fair lending risk profile of the organization.”</p
CFPBrnexaminations will consist of an assessment of the institutions internal abilityrnto detect, prevent, and correct violations that may harm consumers both throughrna review of procedures and interviews with personnel. Examiners will look at products and servicesrnspecifically to identify consumer risk and the institutions compliance withrnrequirements for developing, marketing, and managing those products throughrntheir lifetime. Policies and proceduresrnwill be reviewed for compliance with fair lending guidelines and financialrnprotection laws and regulations. ThernBureau says that the monitoring will be constructive and where necessary CFPBrnwill seek corrective actions which can include a revision of programs andrnprocesses or other appropriate enforcement actions to address harm tornconsumers. Consumer information will be analyzed on an institution-centricrnbasis, i.e. lending activities, fee structures, and marketing practices, and onrna market level. This will allow thernBureau to detect and address risks as they develop. Institutions will generally be given advancernnotice of examinations and be kept up to date on their status.</p
ThernBureau has already begun reviewingrninformation about the institutions it will be monitoring and over the next fewrnweeks will complete this review, coordinate its efforts with federal and staternregulatory agencies, finalize the examination and supervision plans and beginrnconducting the first round of on-site examinations. The proposed Examination Manual for both banksrnand other financial services companies will be posted on CFPB’s websiternand stakeholders including regulated institutions, state and federal agencies,rnconsumer groups and the general public will be invited to provide feedback andrnmake comments. CFPB will also conductrninformational roundtables with the depository institutions starting in earlyrnAugust.</p
WhilernCFPB is transitioning into full operation, it is still without a permanentrndirector. Congressional Republicans havernflatly stated that they will oppose any nominee for the position and have alsornthreatened to eliminate funding for its operation. President Obama has been under considerablernpressure from progressive groups and from the blogosphere to name Warren to thernposition, possibly as a recess appointment, but has made little recent commentsrnabout the issue. At the same time therernis considerable organized activity in Massachusetts to draft Warren as arncandidate for the Senate seat currently held by Scott Brown and she is said tornbe considering it.
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