Exam Issues Addressed: CFPB
CFPB spokesman Sam Gilford responded Thursday to reports an examiner told Congress bureau officials promoted results-oriented exams, saying the bureau's Office of the Inspector General conducted a year-long review of its supervision program, reporting its findings and recommendations in March.
"The report, based on information as of July 31, 2013 acknowledges the Bureau’s significant progress in developing our supervision program since launching in July 2011, and lays out recommendations for improvement. The Bureau has made substantial progress in addressing and implementing those recommendations," Gilford said.
CFPB examiner Ali Naraghi told a congressional subcommittee Wednesday the bureau’s enforcement lawyers discussed plans to bring actions against regulated entities prior to examiners finishing their work or even discovering a violation.
“Others in my team were told to expand their sample size if no violations are identified in their initial sample. This is contrary to sampling procedures of the FFIEC and prudential regulators. There is no statistically sound rationale in conducting examinations in this manner," he told the House Financial Services Oversight and Investigations subcommittee.
The CFPB Inspector General's office reported it reviewed eight sampled exams, and found two instances in which CFPB staff edited the rating definitions in the report of FFIEC-approved examination templates to omit information and to add qualifying language to the assessment of discriminatory acts or practices.
In the two cases, the exams included a review of the institutions’ compliance with the Equal Credit Opportunity Act. At one institution, the CFPB’s examination detected significant weaknesses in the fair lending program, noting several situations that created ECOA violation risk. One specific risk involved the discretion afforded to customer service representatives to grant fee waivers. To control this risk, the CFPB required the institution to create policies and procedures that limit the discretion of customer service representatives to grant fee waivers.
"The report does not indicate whether the CFPB identified any discriminatory acts or practices, suggesting that the CFPB did not reach a definitive conclusion as to whether fee waivers had been granted on a discriminatory basis," the report said. "In this context, the adjustment to the standard definition of inserting the word “overt” creates the appearance that the CFPB deviated from the standard template language to qualify its rating of the supervised institution, calling into question the appropriateness of the assigned rating."
In response to the IG's findings, CFPB management said it conducted a comprehensive internal review of all completed exam reports in order to determine the extent to which those reports contained modified ratings definitions that deviated from the standard definition. The CFPB also reviewed the two instances of modified ratings definitions identified by OIG, but determined no ratings adjustments were warranted.
The IG answered the management report, saying the actions appeared to be responsive to its recommendations; however, the IG's office also said it would follow up on management to ensure each recommendation was fully addressed.