Within a few hours of their arrival, Jeff Asher knew his institution’s experience being among the first banks visited by Consumer Financial Protection Bureau examiners was going to be very different. Exam team members came to him that first day and told him they had some concerns with the company’s Spanish-language website.
“We had never had a single word about this with our former consumer compliance regulators,” said Asher, senior vice-president at FirstBank Holding Co., Lakewood, Colo.
“Prepare to be shocked,” Asher told bankers attending ABA’s Regulatory Compliance Conference, where he was a speaker. CFPB examiners had done their homework before arriving at $12.1 billion-assets FirstBank, having visited the bank’s website and Facebook page, as well as having checked out its call center.
“They are going to use the ‘grandmother test’ on you,” warned Asher, emphasizing the team’s consumer orientation. “They want to know how are you facing customers? Is what you do understandable? Is it transparent?”
Brainy bunch arrives at your door
Tina Shaver at FirstMerit Bank, N.A., was surprised by the high level of experience on the CFPB team. She said 11 people were in the initial team visiting the bank over a six-month period, with most of the group staying on throughout that period. Every member of the core group had 20 years or more experience with a banking agency, said Shaver, senior vice-president and corporate compliance manager for the $14.7 billion-assets institution, based in Akron, Ohio. This was no trainee crew.
Matthew Neels, a veteran compliance officer, found the expertise level of the team that worked at $298 billion-assets Capital One was beyond impressive. One member of the CFPB team “was scary knowledgeable,” said Neels, senior vice-president and chief corporate compliance officer. “He had [virtually] memorized every regulation, including the footnotes. When he said something, we just agreed, ‘Yeah, that’s right’.”
Welcome to the new world of consumer compliance. In all three cases the bankers were still awaiting formal reports of examination, but had learned plenty already.
Experts believe CFPB teams will set the tone for compliance exams, though they only examine a fraction of the industry. As noted, when CFPB arrives, the team will already know a good deal about your bank. Capital One’s Neels, for example, noted how bank branches frequently show up in Google Maps and how people can post comments on a branch’s Maps page. CFPB will have seen such comments, he said--and will expect your bank to have seen them too.
But while there are surprises at the edge, as described, Neels said one thing he’s learned in years of compliance holds true for CFPB as well: “Very rarely do things come out of the blue. They are usually signaled well in advance.” Much of what he’s seen in his bureau experiences jibes with what’s in the CFPB exam manual, in documents on its website, and the bureau’s published regulatory agenda.
Bankers ought to visit www.cfpb.gov daily and read everything new they find there, said Neels. “Make it like vitamins,” he said. “Just take it.”
Neels and his fellow speakers gave additional pointers for their peers. You’ll find these at http://tinyurl.com/cfpbpointers along with coverage of other conference sessions.
Advance preparation and early days
Experience with bureau advance request lists—a common practice when exam teams plan a visit—varied somewhat, possibly indicating the newness of the process for both sides.
Shaver received the request list the day the exam team arrived. It became apparent that the team’s four priorities were compliance management, fair lending, overdraft, and Unfair and Deceptive Acts and Practices. Other requests for additional materials came through later, covering “everything else in the exam manual,” said Shaver, because the team did an extensive overview of the bank’s compliance, with substantial “drill down.”
Neels found the depth of the CFPB’s request letter deeper than any regulatory want list that he’d seen before. He said it reflected the agency’s “data driven” philosophy. Asher said his exam team requested most of what it needed on site.
Neels warned bankers that CFPB teams will have reviewed the bank’s complaint records and will expect the bank to be able to report on the status of pending complaints and the results of resolved ones.
More broadly, the bankers suggested being open and forthcoming from the beginning of the exam on.
“I would rather communicate my bank’s state of compliance to a third party,” said Neels, “than have that third party communicate my state of compliance to me.”
Volunteering information was stressed. “Every step you take starts building your credibility,” said Asher.
In spite of exam teams tendency to arrive well-briefed, bankers noted that sometimes there were holes in their knowledge of the bank, or a missing sense of the “overall” that examined institutions need to correct as soon as they appear. For instance, Shaver took pains to sketch out her bank’s compliance program. While a bank can assume some familiarity with its ways when a prudential regulator’s team shows up for the latest in a series of exams, CFPB teams and their banks begin afresh.
Asher found that the team visiting his bank had formed a different impression of what FirstBank was about than what it is, and he spent much time putting them in the picture. The exam kickoff meeting, set originally for 15 minutes, grew to hours as the gap became obvious. Early on, Asher found that the CFPB examiners were expecting a very “siloed” bank team, which isn’t the case at FirstBank.
Heart of the exam
The sheer depth of the exams impressed all three bankers. A surprise was the presence of CFPB enforcement staff at two of the exams. This controversial practice has been characterized as backgrounding and training for enforcement staff. At Shaver’s bank, no enforcement representatives attended personally. Instead, they held two conference calls with the bank and the in-bank exam team, one talking about fair-lending matters and the other regarding overdrafts. Both concerned explanations and background, not enforcement.
Bankers began to get a better idea of what CFPB is looking for, beyond the obvious point that it is laser-focused on the consumer experience.
Shaver found that while her bank does extensive analysis of lending patterns for HMDA-covered credit, the bureau expects similar analyses for other loan categories as well. Asher said his exam team seemed to expect the bank to have extensive policy manuals on nearly everything, which wasn’t the case.
The drill-down by CFPB teams was a surprise to banks that are used to more of an emphasis on reviews of management structures, and sampling of customer files by prudential regulators.
“This caused us to up our game,” said Capital One’s Neels, “which is not necessarily a bad thing.”
Overall, the bankers said, CFPB is very transaction oriented. This is where it will be looking for UDAP and UDAAP issues, and relates to the bureau’s interest in not only official complaints but also feedback received from call centers, branches, and more.
Neels also warned bankers not to forget that some of what CFPB is seeing will also be of interest to traditional prudential examiners.
After the exam
After all the preparation and activity, exams typically come down to an exit meeting and a final report.
Shaver said FirstMerit’s exit meeting occurred as a teleconference, with no board involvement, which surprised her. She asked a representative of the Comptroller’s Office, the bank’s prudential regulator, to attend.
Asher said FirstBank’s exit meeting, while face-to-face, was quite informal: the examiner in charge, the bank’s CEO, and Asher.
Shaver told listeners not to be afraid to push back, when warranted. Her team’s examiners were very open to that.