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Gotcha-free exams

Posted in CFPB Exams

I am at the ABA Consumer Financial Services Committee’s meeting in Naples, Florida.  (There is record attendance at this year’s meeting—nearly 225 consumer financial services lawyers.  I am sure that the CFPB deserves some credit for this.)  And yesterday morning, I listened to a panel on CFPB exams and enforcement actions on which Calvin Hagins, the leader of the CFPB’s examination staff, spoke.  

Mr. Hagins shed some light on how exams are conducted that, if true, should be comforting to our clients.  Mr. Hagins emphasized that exams “are not an exercise of gotcha” and that “there should not be any surprises” in final exam reports.  He indicated that examiners should be discussing findings with the institution during the course of the exam.  He also said that, when an issue is uncovered and brought to the institution’s attention, the CFPB “prefers to get buy in on corrective action” from the institution and should not have to rely on a more heavy-handed approach to ensure compliance unless the institution fails to modify its practices. 

Mr. Hagins also suggested that CFPB’s exam approach relies more on interviews of and discussions with an institution’s senior managers than the exam approaches of the prudential regulators. 

When asked about the CFPB’s long delay in conducting exit interviews and issuing exam reports following non-bank exams, Mr. Hagins explained that “the process is long because lots of internal review takes place.”  He said the agency is seeking to ensure consistency as to its guidance and conclusions across institutions, geographic areas and products.  These comments seemed to imply that the delay is not due to the CFPB’s preparing to drop the hammer on those whose exams were conducted months ago. 

Assuming that the long delay in concluding exams is not a harbinger of bad things, our experiences with CFPB exams are generally consistent with what Mr. Hagins describes.  To the extent an exam is not proceeding in this manner, Mr. Hagins invited institutions to contact him directly.