Promontory Sightlines

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Promontory Sightlines: Consumer Financial Protection Developments

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October 22, 2013

Dear Clients and Friends,

The Consumer Financial Protection Bureau has amassed a steady string of firsts since its inception two years ago. The recent announcement that the bureau’s enforcement attorneys would no longer participate directly in examinations brought another — its first major policy reversal.

Assigning an enforcement attorney to support every exam was the CFPB’s most meaningful break from the practices of its prudential peers as it forged its own interdisciplinary approach to consumer protection. But this practice drew immediate, withering criticism and consistently ranked as industry’s most sought-after change in the bureau’s approach to its work.

In removing enforcement lawyers from exam support, the CFPB may score the rarest of wins: a move that stakeholders and staff will embrace with equal gusto. Notwithstanding the very real relief that this policy change will bring to firms of all sizes, it likely does not augur significant change in how the bureau’s exams diagnose risks of consumer harm or in how it responds to them.

The decision to remove enforcement attorneys from exams is an important step in the evolution of a supervision program that is the subject of sustained concerns about its efficiency in performing routine activities, including delivering exam reports. The presence of enforcement personnel during exams is also the subject of an imminent report from the Federal Reserve Board’s inspector general. Judged in this context, the bureau could send no more visible signal about its intention to shore up its largest operating unit than to end this practice.

Supervised firms will no doubt cheer the policy change, but they should not confuse it with a shift in the CFPB’s overall enforcement posture and its willingness to seek public orders and fines. The bureau’s examiners will continue to see public enforcement actions — and the threat thereof — as important levers to affect compliance with consumer-protection requirements of all kinds. And because supervision, enforcement, and fair lending are integrated into a single division, they operate with shared strategic priorities and collaborate to review and respond to exam findings. Where the CFPB pursues public remedies, the matter will formally shift to enforcement, as it has in the past.

Enforcement’s involvement in exams weighed most heavily on the bureau’s examiners, whose requests were often delayed pending review by counsel — or rebuffed altogether because of perceived risks related to releasing information for review by attorneys. The bureau’s about-face removes the largest single obstacle to healthy dialogue during exams, but it remains to be seen how firms will invest in supervisory relationships that are still taking shape. Will they, for example, respond in kind — by ending the involvement of their own attorneys in CFPB exams — or continue to manage all supervisory interactions with the bureau as inherently high risk?

The end of exam support means that enforcement lawyers will now have substantially more time to focus on the work that they most want to do — civil litigation. How and when their efforts ripen into public view may do much to inform the final judgment on the bureau’s decision to sever the tie between supervision and enforcement in the conduct of exams.

Yours truly,

Linda Gallagher
Managing Director
lgallagher@promontory.com
+1 202 370 0411

P-R Stark
Senior Principal
prstark@promontory.com
+1 202 370 0392

P-R Stark

P-R Stark
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CFPB Student Loan Ombudsman Releases Annual Report

On Oct. 16 the CFPB’s student loan ombudsman released an annual report analyzing and discussing the 3,800 private-student-loan complaints submitted by consumers from October 1, 2012 through September 30, 2013. According to the bureau’s press release, the top three complaints highlighted by the report were prepayment stumbling blocks, difficulties in making partial payments, and various issues arising from less-than-seamless servicing transfers.

CFPB Releases Guidance on Mortgage Servicing Rules

The CFPB on Oct. 15 released guidance to clarify mortgage servicing rules. The clarifications address “communications with family members after a borrower dies, contact with delinquent borrowers, and treatment of consumers who have filed for bankruptcy or invoked certain protections under the Fair Debt Collection Practices Act,” the bureau said in a press release.

CFPB Fines Two Companies for Defective HMDA Filings

The CFPB announced Oct. 9 that it ordered Mortgage Master to pay $425,000 and Washington Federal to pay $34,000 in civil penalties, respectively, for alleged violations of the Home Mortgage Disclosure Act. Both were charged with “significant data errors” in HMDA filings reported for 2011. The bureau also released a bulletin intended to put “mortgage lenders on notice about the importance of submitting correct mortgage loan information under HMDA.”

Federal Reserve Board Asserts Authority of OIG in Oversight of CFPB

The Federal Reserve Office of Inspector General wrote an Oct. 3 letter in response to the Bipartisan Policy Center’s recent report that, among other things, advocated for an independent inspector general for the CFPB. The report said that the Federal Reserve’s inspector general, which also has responsibility for the CFPB, “lacks some of the authority of other inspectors general.” The Federal Reserve’s response noted that “the Dodd-Frank Act ensured that our office has ‘all of the authorities and responsibilities provided by [the Inspector General] Act with respect to the Bureau of Consumer Financial Protection, as if the Bureau were part of the Board of Governors of the Federal Reserve System.’” The letter requested a correction to the report.

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Promontory's Consumer Protection Team includes:

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P-R Stark

Konrad Alt
Managing Director
kalt@promontory.com
+1 415 986 4160

P-R Stark

Michael Dawson
Managing Director
mdawson@promontory.com
+1 202 384 1080

P-R Stark

Linda Gallagher
Managing Director and Global Head
of the Consumer Protection Practice

lgallagher@promontory.com
+1 202 370 0411

P-R Stark

Simon McDougall
Managing Director
smcdougall@promontory.com
+44 207 377 2367

P-R Stark

BJ Sanford
Managing Director
bsanford@promontory.com
+1 202 384 1020

P-R Stark Julie Williams
Managing Director and
Director of Domestic Advisory Practice

juwilliams@promontory.com
+1 202 384 1087
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Promontory Sightlines Consumer Financial Protection Developments

 
EDITOR IN CHIEF

P-R Stark

GLOBAL HEAD OF THE
CONSUMER PROTECTION PRACTICE

Linda Gallagher

FOUNDER AND CEO
Eugene A. Ludwig

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801 17th Street, N.W.
Suite 1100
Washington, DC 20006

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