Compliance Blog

Written by Michael Coleman, Regulatory Compliance Counsel

Last week we blogged about the CFPB’s release of their second Supervisory Highlights Report, which concerns exams completed between November 2012 and June 2013. As the CFPB’s press release noted, the Supervisory Highlights focuses on issues with mortgage servicing and non-bank compliance management systems, here is an excerpt from the press release quoting CFPB Director Richard Cordray:

“Our examinations of banks and nonbanks allow us to correct problems before more consumers are affected,” said CFPB Director Richard Cordray. “Today’s report highlights both the mortgage servicing problems throughout the industry and the challenges of making sure that nonbanks are following federal law. Fixing both is a priority for us.”

Today we’d like to take a closer look at some of the content of the report, specifically the section of the report which deals with the CFPB’s supervisory observations regarding:

• Compliance Management Systems;
• Mortgage Servicing;
• Fair Lending – Provision of Adverse Action Notices; and
• Significant Violations Detected.

We’ll take a closer look at the mortgage servicing section in a future blog post, but I wanted to pull out a couple of things the Supervisory Highlights report has to say about compliance management systems and fair lending issues involving the provision of adverse action notices (AANs). The report section on compliance management systems summarizes the CFPB’s findings, noting that non-banks are more likely to lack a robust compliance management system (CMS) as their compliance activities have not been subject to examination at the federal level (until now). However, the CFPB also noted that supervised banks also lacked one or more of what the CFPB considers the components of an effective CMS. The report notes on page 8 that although the CFPB does not require any specific CMS structure, they believe that effective CMS has four independent control components, which are:

1. Board of directors and management oversight;

2. A compliance program;

3. A consumer complaint management program; and

4. An independent compliance audit.

The CMS section goes on to describe these control components and what the CFPB expects they should be comprised of, it is an interesting read (and it contains some familiar information I am sure for all you compliance professionals).

The CFPB also had this to say with regard to adverse action notices in the section devoted to fair lending:

“The CFPB has noted that some lenders are not complying with various aspects of the adverse action notification requirements under ECOA and Regulation B. ECOA requires creditors to provide notification of any adverse action taken on an application, unless the applicant is currently delinquent or in default. Furthermore, ECOA requires that the creditor provide or make available a specific statement of reasons for such action. Finally, a creditor must send an adverse action notice to an applicant within 30 days of receipt of a completed application. The CFPB has found instances where supervised entities violated ECOA and Regulation B by failing to comply with either the provision, content, or timing requirements for adverse action notices.

In such instances, the CFPB has directed the entities to develop and implement plans to ensure that the appropriate monitoring and internal controls are in place to detect and prevent future violations. Supervised entities should maintain compliance management systems that ensure notifications are sent to consumers with the appropriate content and within the timeframes required under Regulation B.”

Fair lending is definitely a hot topic for the CFPB, and for the NCUA (see this blog for some NCUA fair lending resources), and I think it’s safe to say that we should expect this focus to continue.

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New NCUA Board Member. On Friday, August 23, Rick Metsger was officially sworn in as a new National Credit Union Administration Board member. Metsger, a Democrat, was nominated to the NCUA Board May 16. His nomination was approved by the Senate Banking Committee June 27, and the full Senate confirmed him Aug. 1. He succeeds former NCUA Board Member Gigi Hyland, who left the board last Oct. 5. His term continues through Aug. 2, 2017.