CFPB Report: 2013-AE-C-021 December 16, 2013
The CFPB's guidance on the process for resolving certain legal questions that arise during examinations is not sufficiently clear. The examination support policy provides some guidance on resolving legal questions that arise during examinations; however, we believe that the guidance should be strengthened. In December 2012, the CFPB's supervision function completed a reorganization and established points of contact within the Office of Supervision Policy to address legal questions that arise during examinations, in part to ensure more consistent interpretations of applicable laws and regulations across the agency. However, the examination support policy has not been updated to describe the role of these points of contact. We found that examination staff sometimes contacted the enforcement attorneys assigned to their examinations to resolve legal questions unrelated to enforcement issues, which could prevent management's desired legal expert from responding to the question. A senior official expressed concern that examiners may then act on the enforcement attorneys' interpretations, which may differ from those of the Office of Supervision Policy.
According to the examination support policy, the examination team should engage the assistance of the assigned enforcement attorneys in resolving their "non-routine" legal questions. The policy also states that these questions ultimately should be referred to "Supervision supervisory personnel" for final resolution, but does not define the employees who constitute "Supervision supervisory personnel." Further, the examination support policy does not describe the types of legal questions that are considered "non-routine" and does not contain any guidance regarding the resolution of routine legal questions. In our opinion, the examination support policy's language regarding the resolution of legal questions provides unclear guidance to staff that leaves substantial room for staff interpretation.
In December 2012, the CFPB reorganized its supervision function into the Office of Supervision Policy and the Office of Supervision Examinations. The Office of Supervision Policy seeks to ensure that supervision decisions are consistent with applicable laws and the CFPB's mission. CFPB senior officials informed us that the reorganization established points of contact in the Office of Supervision Policy, who are responsible for addressing examiners' legal questions and carefully considering the CFPB's existing analysis to ensure that interpretations of applicable laws or regulations are consistent. However, we found that since its issuance, the examination support policy has not been updated to describe the role of the points of contact, leading to potential confusion among examination staff as to whom they should contact with legal questions.
Several interviewees informed us that examiners continue to contact the enforcement attorney assigned to their examinations regarding the interpretation of laws or regulations unrelated to enforcement issues. One enforcement attorney noted that his role included "providing legal interpretation services as a sort of 'lawyer on call.'" A field manager described the reasoning for this practice, noting that "enforcement attorneys are part of the examination team, and therefore, it is easier for examiners to get in contact with them than supervision contacts in headquarters."
However, a senior CFPB official informed us that enforcement attorneys should not provide guidance to examiners regarding legal questions unrelated to enforcement issues. This official explained that examiners should obtain legal guidance from the points of contact in the Office of Supervision Policy, who in turn should obtain guidance from the CFPB's Legal Division. The official acknowledged that the process for resolving legal questions was not clearly communicated to staff and could be open to interpretation. Some interviewees indicated that when examination staff seek advice from enforcement attorneys instead of from the designated Office of Supervision Policy points of contact, they may receive interpretations which are not consistent with the agency's intended posture on the matter. Examiners may then act on the enforcement attorneys' interpretations, which could expose the CFPB to reputational risk.
We recommend that the Deputy Director and Associate Director for SEFL
Regarding recommendation 7, the Deputy Director and Associate Director for SEFL stated the following:
We concur with this recommendation, and the CFPB is addressing the concerns raised in this recommendation through its new policy on enforcement attorney integration into examinations. The new CFPB policy defines the roles and responsibilities of the CFPB Office of Supervision Policy points of contact and enforcement attorneys with regard to addressing different types of legal questions from examination staff. The policy also defines roles and responsibilities for CFPB's Office of Fair Lending in resolving fair-lending-related legal questions that arise during examinations. The new CFPB policy requires the Office of Supervision Policy or the Office of Fair Lending to consult with other internal parties, including the CFPB's Legal Division, as appropriate.
In our opinion, the actions described by the Deputy Director and Associate Director for SEFL appear to be responsive to our recommendation. We plan to follow up on the CFPB's actions to ensure that the recommendation is fully addressed.
