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CFPB Report Highlights Problems in Market Discovered Through Supervisory Actions

Bureau Publishes Supervision Appeals Process and Updated Examination Manual

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today released its first Supervisory Highlights report highlighting problems CFPB examiners discovered through the agency’s supervision process. The Bureau also released an appeals policy for supervised institutions as well as an updated version of the CFPB Supervision and Examination Manual, a field guide used by examiners.

“Through our supervision process, we are bringing heightened oversight to the consumer financial markets,” said CFPB Director Richard Cordray. “This report underscores our work to address practices that are risky to consumers, as well as our continued commitment to making sure that institutions are following the law.”

The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the CFPB the authority to supervise both bank and nonbank financial institutions to assess whether or not they are following federal consumer financial law, to assess supervised institutions’ compliance systems, and to detect and assess risks to consumers.

Through its supervision program, the Bureau can examine: banks with over $10 billion in assets, and their affiliates; nonbanks of all sizes that offer or provide mortgages and related services, private education loans, and payday loans; larger participants in other markets, as defined by the Bureau; and other nonbanks the Bureau finds are engaged in conduct that poses a risk to consumers. The CFPB has already issued rules defining larger participants in the consumer reporting and debt collection markets.

Today’s report highlights supervision work completed between July 21, 2011 and September 30, 2012. Through the supervision process, the Bureau found problems such as:

  • Credit Cards: Bureau examiners found instances where the credit limit of a consumer who was under 21, but whose account was associated with a consumer 21 or older, was raised without consent of the co-applicant. The Bureau found that these violations typically occurred when an institution did not have proper procedures in place to ensure that credit line increase requests are sent to the co-applicant for approval.
  • Reporting to Credit Bureaus: The Bureau found that not all relevant employees at supervised institutions had sufficient training to comply with fair credit reporting requirements, which sometimes resulted in inaccurate information about consumer’s accounts being reported to credit bureaus. Inaccurate information in a consumer’s credit record may cause a consumer to pay more for credit than would otherwise be the case or be unjustifiably denied credit altogether.
  • Mortgages: The CFPB found violations of federal consumer financial law by financial institutions. These violations include failure to provide borrowers with clear and timely disclosures regarding the nature and costs of the real estate settlement process, such as through inaccurate Good Faith Estimates or HUD-1 forms. Violations also included failure to provide accurate disclosures of interest rates, payment amounts, and payment schedules.

The CFPB also assessed institutions’ efforts to develop and maintain effective compliance management systems. To do so, CFPB examiners evaluated the quality of the policies and practices that institutions have implemented to ensure that they are acting in accordance with federal consumer financial law. The CFPB also examined whether institutions have developed compliance management programs that ensure that their service providers are not violating federal consumer financial law. When examiners identify violations or compliance management deficiencies, institutions are expected to take corrective action.

In addition to supervisory actions, the Bureau may also take public enforcement actions to obtain compliance with the law. Such actions have been taken against Capital One, Discover, and American Express for deceptive practices that harmed consumers. Through these enforcement actions, the Bureau and other agencies have been able to obtain approximately $435 million in refunds to 5.7 million consumers.

Today the Bureau also released its appeals policy for supervised entities. Financial service providers under the CFPB’s jurisdiction may request a review of a less than satisfactory compliance rating or any underlying adverse finding set forth in the relevant examination report, or adverse findings conveyed in a supervisory letter. Appeals will be handled by a committee that includes management at CFPB headquarters in Washington, D.C. and representatives of regional offices that were not involved in the matter under review.

In conjunction with the report and appeals policy, the Bureau published the second version of the CFPB Supervision and Examination Manual. The updated manual incorporates procedures released for such markets as mortgage origination and servicing, payday lending, consumer reporting, and consumer debt collection. The manual has also been revised to reflect the renumbering republication in the Code of Federal Regulations of those regulations that fall under the Bureau’s rulemaking authority, among other updates.

The Supervisory Highlights report can be found at:

The Appeals Bulletin can be found at:

The updated CFPB Supervision and Examination Manual can be found at: