Prepared Remarks by Peggy L. Twohig at the NMLS Users Conference

Prepared Remarks by Peggy L. Twohig
Assistant Director, Office of Nonbank Supervision
Consumer Financial Protection Bureau
NMLS Users Conference
Scottsdale, Arizona
February 7, 2012


Good Morning. I would like to thank the Conference of State Bank Supervisors, the SRR Board, and the leadership of the NMLS for inviting me to speak about the Consumer Financial Protection Bureau.

I had the pleasure of speaking at this conference last year ̶ and what a difference a year makes! Certainly, 2012 is off to an exciting start. As I am sure you know, President Obama appointed Richard Cordray as the first Director of the CFPB on January 4th. Now that we have a Director, the CFPB is using its full authority on behalf of American consumers.

One of our top priorities as we launch our nonbank supervision program is to continue to build our partnership with state regulators. Together over the last year, we have laid the groundwork for those partnerships, and have stepped up those efforts now that we are able to begin our nonbank supervision work.

Today, I will spend most of my time providing an update on where we stand in developing our bank and nonbank supervision programs. But first, a quick overview of the difference a year has made in the life of our new agency.

The CFPB Then and Now

When I spoke at this conference last year, we were still the “CFPB Implementation Team” and could hold “all hands” meetings in a large conference room in our temporary office space at 1801 L Street in Washington, D.C. Now, we have grown to a group of more than 800 employees, with staff located all across the country and in 4 different buildings in DC. For our most recent “all hands” meeting for headquarters staff, we had to trek to the Commerce Department auditorium to hear Director Rich Cordray address CFPB staff, with our field staff attending by phone.

A year ago, we had just launched a website — Now, through that website, consumers can submit credit card and mortgage complaints and find information on a variety of topics, including student loans and our initiatives to help our military.

In the last year, we have also:

  • Launched three Know Before You Owe initiatives to simplify mortgage disclosures, credit card agreements, and student loan information.
  • Published an initial request seeking public comment to address regulations that are outdated, unnecessary, or unduly burdensome.
  • Published a final rule addressing certain practices in the remittance market, and we’re hard at work on several other rulemaking initiatives.
  • Conducted numerous outreach events with members of industry, consumer and civil rights organizations, and other stakeholders ̶ including community banks in all 50 states. We have had outreach events in many cities, including Chicago, Minneapolis, Philadelphia, Cleveland, and Los Angeles. Most recently, we conducted our first field hearing on payday lending last month in Birmingham, Alabama.
  • And launched both our Large Bank and Nonbank Supervision programs – which will be the focus of my remarks today.

In short, we have come a long way in the last year. We still, of course, have much to do, and with the recent appointment of Director Cordray, we are pushing forward on all fronts.

Implementing CFPB Supervision Program

CFPB’s Supervision program is already well underway supervising large banks and credit unions under the leadership of Steve Antonakes. As you know, last July 21st, the CFPB assumed authority to supervise depository institutions with assets of more than $10 billion and their affiliates for compliance with federal consumer financial laws.

In the last year, one of our priorities was to recruit and hire the staff for this work, and now we have almost 300 supervision staff working all across the country, reporting through our four regional offices – covering the Northeast, Southeast, Midwest, and West.

Since July, Large Bank Supervision and our staff in the field have been hard at work. We have started examination work in each of our four regions. We have had initial meetings with institutions to obtain a better understanding of how those companies approach compliance. We have been engaged with our partners at the prudential regulators and the states to ensure open lines of communication and information sharing. For the largest and most complex banks and credit unions in the country, the Bureau is implementing a year-round supervision program customized to address the consumer protection risk profile of the organization. For other companies that the CFPB supervises, we will conduct periodic examinations and other reviews as appropriate.

We also published both our general examination procedures and specific modules covering particular types of products or services, such as mortgage servicing.

Launch of Nonbank Program

In the meantime, we were busy planning our nonbank supervision program, and on January 5, the day after the appointment of Director Cordray, we launched that program.

In the last few weeks, we have taken the first steps in initiating our program, which will start with supervision of nonbank mortgage originators, mortgage servicers, and payday lenders. As part of this launch, we published specific exam procedures for mortgage origination and short-term, small dollar loans (covering both payday and deposit advance products).

We have also been starting to plan for our first set of nonbank exams. This planning includes our assessment of risks posed to consumers, which will guide our priorities in implementing our program. When considering whether and how to supervise particular nonbanks, the Dodd-Frank Act requires the CFPB to consider several relevant factors, including the nonbank’s volume of business, the risks to consumers created by the provision of products and services, and the extent of state oversight.

The NMLS not only provides a licensing platform for the mortgage industry and regulators alike but also provides important data for state regulators to conduct supervisory analysis and make critical decisions. We at the CFPB share the same dedication to being data-driven. Nonbank Supervision will use a data-driven approach, collecting information about both the market as well as individual entities, when analyzing all relevant factors and assessing risks posed to consumers.

Based on the data currently available, one of the main factors in our risk assessment is size, in that, as a general matter, larger companies have a greater impact on consumers than smaller companies because of the volume of transactions. However, we also recognize that risks to consumers are not a simple matter of size. Patterns of consumer complaints, for example, may be a good risk indicator that will help determine how we deploy our resources. State oversight and results of recent state examinations also are important factors to assess as we work to schedule examinations. Over time, we will further develop our risk assessment process as we gather additional data and information, including through the results of our own examinations.

Finally – and critically important in launching our program – we have stepped up our efforts to reach out to many of your state regulatory agencies so that we can coordinate the exam work we are now planning. As you know, we started to lay the groundwork for this collaboration over a year ago when we entered into an information sharing Memorandum of Understanding with CSBS. To date, 54 state regulatory agencies in 47 states and territories have joined the MOU, in addition to five state regulator associations. We now look forward to coordinating our work so that the combined federal and state supervision resources will be used to maximize supervisory capacity and effectiveness and minimize regulatory burden.

CFPB Supervision Process

Since the launch of our Nonbank Supervision program, we have received many questions about what supervision means. What will our approach be to examining the nonbanks that we will supervise?
The answer is that our approach will be the same for banks and nonbanks.

Indeed, one of our primary goals is to implement a consistent approach to the supervision of banks and nonbanks. This principle informs every aspect of our supervisory approach and will help create a more level playing field for all market participants.

To ensure that we implement a consistent approach, CFPB examiners will examine both banks and nonbanks, and use the same examination procedures for the same products and services. That means our mortgage servicing procedures we published last October will be used as we expand our program to cover independent nonbank mortgage servicers, and the mortgage origination procedures we published a few weeks ago will guide our examiners reviewing depository and nondepository originators.

Likewise, CFPB’s short term, small dollar lending procedures, which will be used to examine both payday loans made by nonbanks and deposit advance products offered by banks because these products have many of the same characteristics, and as such, they should be reviewed using a consistent set of procedures.

Consistency, however, does not dictate complete uniformity in supervisory expectations. While all the firms under our jurisdiction must follow the law, we understand that the means that they use to reach that goal will differ. Our supervisory expectations are principles-based, and we recognize that large, complex entities may well have different compliance oversight and management systems than much smaller entities or those offering a more limited number of products and services.

Now, what about the supervision process itself? It will also be the same: supervision will be an on-going process of pre-examination review of information and scoping, on-site examinations, regular communication with regulated entities, and follow-up monitoring.

Through the supervision program, examiners will evaluate the institution’s products, services, policies, and practices to ensure compliance with Federal consumer financial laws. If a company is not complying with the law, the CFPB will seek corrective actions to strengthen the company’s programs and processes to ensure that such violations do not recur. At all stages of this process, the supervision, enforcement, and fair lending staffs will work closely together to ensure consistency across program areas and across examinations. We will accomplish this goal through assignment of enforcement attorneys at the initiation of the exams so that they are apprised of the issues we will be examining and how the examination is proceeding.

Our evaluation of entities may occur through monitoring of data and other information as well as on-site examinations. An examination starts before examiners arrive at a company. Examiners typically will contact the company and engage in an initial conference with management and perhaps an initial request for information. Through these discussions and initial information review, examiners will then “scope” out what they plan to review while on-site at the institution. Examiners may scope an exam to evaluate a financial product or service that could be a potential risk to consumers, or examiners could scope an exam to review a product or service simply because it has not been reviewed in the past.

Once scoping is complete, the CFPB’s field staff will coordinate with the company for examination fieldwork on-site at the institution. During fieldwork, examiners will have discussions with management to better understand processes and procedures, review loan files for technical compliance with federal consumer financial laws, and evaluate the company’s compliance management systems.

Every CFPB examination will look at the entity’s Compliance Management Systems. We expect every entity under our supervisory authority to have controls in place to prevent violations of federal consumer financial laws. The CFPB also expects that entities have processes in place to identify potential violations of law, and if an actual violation has occurred, to ensure that the right steps are taken to provide redress to consumers and prevent future violations. As with our bank examinations, our process of nonbank examinations will include issuing confidential examination reports and compliance ratings.

We intend to be transparent about our expectations and will not be implementing a “gotcha” approach to supervision. We believe that working constructively with institutions to address consumer risk is the best way to ensure consumers are adequately protected from violations of federal consumer financial laws.

Nonbank Mortgage Examinations

As I mentioned, we have now begun our mortgage supervision program for both depositories and independent lenders and servicers. Given the significance and importance of the mortgage market, this industry is a key priority for our supervision program. We look forward to working closely with the states through the Multistate Mortgage Committee as we do this important work.

There is one topic in particular I wanted to highlight related to mortgage examinations, and that is the CFPB’s focus on fair lending. Through our Office of Fair Lending and Equal Opportunity, we will monitor fair lending risks across the industry. One key part of our mortgage lending exams will be monitoring compliance with the Home Mortgage Disclosure Act, called HMDA, an important law that requires certain lenders to report specific information about their lending activity. If lenders do not accurately report data as HMDA requires, it hinders regulators’ and the public’s ability to compare HMDA data across the industry in a meaningful way. Failure to capture and accurately report HMDA data is a violation of regulatory requirements, and it also can indicate a weak compliance management system. We expect banks and nonbanks alike to have strong systems in place to ensure HMDA compliance, and we will be working to ensure that’s the case through our examinations.


I wanted to close by again thanking you for the opportunity to come to the conference and speak with you today.

The CFPB’s vision is to have a consumer financial marketplace where customers can see prices and risks up front and where they can easily make product comparisons; in which no one can build a business model around unfair, deceptive, or abusive practices; and that works for American consumers, responsible providers, and the economy as a whole.

We have a big task ahead of us, but we are ready for the challenge. We are excited to get started and to work with you over the coming year. CFPB will continue to stress the importance of ensuring that all financial companies, whether bank or nonbank, are treated consistently, both in how they will be examined, as well as what is expected of them. We will continue to work with state regulators and other stakeholders to be fair, efficient, and effective.

Thank you, and I look forward to taking your questions.