If you’re caught in the sights of the Consumer Finance Protection Bureau — or if you’re hoping to avoid the regulator’s scrutiny altogether — here’s what you need to know in 2021.
The regulator is no longer “taking it easy” on consumer financial services firms in light of the pandemic, said Jeffrey Naimon, a partner at Buckley LLP, one of three compliance experts who gave a virtual CFPB exam prep during the Mortgage Bankers Association’s spring 2021 virtual conference.
Naimon said that with the new presidential administration, he’s noticed there is a “lower bar” for enforcement actions.
“They’re looking to pin some heads on the wall, to show that there’s a new cop on the beat,” said Naimon. “They want to make examples.”
Earlier this year, the regulator rescinded seven of its temporary COVID-19 policies, and said it intends to exercise the full scope of its supervisory and enforcement authority provided under the Dodd-Frank Act. Just this week, news got out that the CFPB had opened investigations into several unnamed mortgage servicers related to forbearance policies.
Before preparing for a CFPB examination, ideally, firms have already looked through internal complaints to identify negative feedback and correct issues ahead of a formal complaint. There can be serious consequences for lenders that don’t, said Nanci Weissgold, who co-leads Alston and Bird‘s financial services and products group and consumer financial services team.
“It’s absolutely critical,” said Weissgold. “We know the CFPB loves to turn complainants into witnesses. Whether it’s a single issue or systemic, understanding your data is really important.”
Once an examination is underway, if it includes interviews with stakeholders, it’s important to choose the interviewees carefully, said Krista Cooley, a partner at Mayer Brown.
“They can’t be too junior or too senior,” said Cooley. “And you have to prepare them for the audit, so they understand what the examination is about, what types of information are being requested, and how they will need to respond to questions.”
Although in-person site visits have been ruled out by COVID-19, they’re likely to resume as the vaccination effort progresses. If originators/servicers are expecting an on-site visit from the CFPB, it’s important to have the “space prepared to welcome the examiners,” Cooley said, and that doesn’t mean freshening up the flowers in the lobby.
“Try to isolate the workspace and limit contact of examiners with employees while on-site so you can really control the flow of information as part of that process,” said Cooley.
Sometimes firms under the magnifying glass get lucky, however.
The CFPB is “not omniscient,” said Naimon. Firms may be relieved when the CFPB doesn’t turn up everything they could have.
“Oh, we whistled past the graveyard on X or Y issue — it happens,” said Naimon. “But why not have a project to fix all those things you were worried they would find and didn’t? Because the next examiner may not miss it.”