CFPB's Peggy Twohig Responds to Banks' Supervisory Exam Frustrations

Stephanie Eidelman

Yesterday at CBA Live, the annual conference of the Consumer Bankers Association, I attended a session geared to bankers called “Understanding the CFPB’s Supervisory Program.” The panel included Peggy Twohig, Assistant Director, Office of Supervision Policy at the CFPB, and Konrad Alt, Managing Director, Promontory Financial Group. The discussion was moderated by Benjamin Saul, Partner at Goodwin Procter, LLP.

Peggy Twohig made it clear from the start to this group of retail bankers that the CFPB is organized by product type (i.e. mortgage origination, mortgage servicing, or debt collection) rather than group supervised (i.e. 1^st party vs 3^rd party collectors). She said that they now can say they review supervisory priorities on an annual basis and adjust as appropriate to address the highest risk areas to consumers.

Konrad Alt, who advises large banks on regulatory matters, said that when counseling clients dealing with the CFPB he first tries to remove hysteria from the process. Many come to him with the impression that the Bureau has an unlimited budget and therefore vast supervisory resources. He explained that he’ll first raise the fact that the CFPB’s total budget of $600 million, half of which is devoted to supervision, is a lot less than what other prudential regulators spend on supervision. Therefore, he says that their activities must be more surgical and focus on known issues.

This doesn’t quite seem to line up with the scope of investigation reported by 3^rd party collection agencies over the past year, as many have claimed far reaching requests for information. Perhaps this will begin to narrow once CFPB examiners gain more experience in this market, and they feel they’ve sent the proper message to collectors, who haven’t previously been subject to Federal supervision, as have their bank clients.

Ms. Twohig also mentioned that there are efforts to communicate and coordinate exam activity with prudential regulators. Alt noted that this coordination seems to be a “work in progress.”

Benjamin Saul, the moderator, raised the challenge he has heard of uneven supervision exams; similar fact patterns receiving different treatment in different by different examiners. Twohig said they are trying to coordinate to minimize this, and that the structure of the organization by product versus location is helping to provide the needed expertise to oversee the process. She also did recognize that examiners have different backgrounds, skills, and approaches – which they are working to address in a variety of ways (i.e. consistent training, headquarters review before exam reports are published, and publishing supervisory highlights on a regular basis in an attempt to add transparency to the process while also maintaining confidentiality) – but that this can also be a positive, as it’s not their intention to approach supervision as it has always been approached in the past.

Promontory’s Alt described the advice he gives to clients prior to an exam:

Get your facts straight. Before the exam, know the inherent opportunities for risk in your own institution. Understand and be able to explain how those risks are managed by the organization (through org structure, policies & procedures, etc.). And be able to communicate what you are learning; where are the weaknesses, and how are they being addressed.
Prepare to tell your story. What are the facts? Who are the people who will be communicating with regulators? Are they effective in telling the story, and do they have the right temperament (i.e. are they people who easily become defensive or impatient)? Ask questions of the examiner in advance in order to fully understand what is expected.
Meet frequently. He suggests setting up regular (weekly or bi-weekly) meetings during the exam to review progress and issues, and to show responsiveness to issues that are raised.

Twohig agreed that this is good advice and reinforced that communication is key. She said that companies should have 60-90 days notice, and that her team encourages examiners to be responsive to questions in advance. She also noted that following the exam, a letter now goes (is this a new practice?) to the institution summarizing issues and findings, and will note whether enforcement is being considered by the Bureau. This is an opportunity for the institution to respond, clear up facts, and address the issues – and the company’s reaction can help to determine whether the matter will move to Enforcement, or whether it gets handled in a less public manner.

Alt also commented that some clients are frustrated by the time delay between the end of an exam and receipt of the final report. Twohig responded that they are working on the process, but also pointed to the bottleneck that can be caused by headquarters review. While the delay can be frustrating, this review is one way they can help to avoid the other frustration; inconsistent treatment of similar fact patterns across regions or examiners.

Finally, Saul asked both panelists to give their thoughts/predictions on Supervision for 2014. Alt felt that we would see exams become further routinized, and that the hysteria will slowly recede from the process. Twohig outlined the 2014 supervisory priorities: