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March 24, 2014
VIA ELECTRONIC MAIL
Senior OIG Manager for Supervision and Regulation
Office of Inspector General
Board of Governors of the Federal Reserve System
Consumer Financial Protection Bureau
Washington, DC 20551
RE: CFPB Response to OIG Draft Report entitled, “The CFPB Can Improve the Efficiency and Effectiveness of Its Supervisory Activities” dated March 13, 2014 (Report)
Dear Mr. VanHuysen:
Thank you for the opportunity to respond to the above-referenced Report. The Report acknowledges the CFPB’s significant progress in establishing its supervision program. Since it commenced operations in July 2011, the CFPB has designed, developed, and implemented the nation’s first comprehensive federal nationwide supervision program for depository and nondepository institutions. Many of the financial institutions now supervised by the CFPB have never before been subject to regular federal supervision. On a combined basis, the depository institutions supervised by the CFPB account for $10 trillion in assets or nearly 80 percent of the nation’s banking market. In addition, the Bureau has supervisory authority over nonbank mortgage originators and servicers, payday lenders, private education lenders, debt collectors, consumer reporting agencies, and student loan servicers. The nonbank entities subject to the Bureau’s supervisory jurisdiction number in the thousands. CFPB’s supervisory program helps level the playing field for all industry participants, and creates a fairer marketplace for consumers and the responsible businesses that serve them.
The Report contains specific suggestions regarding additional policies, reporting metrics, and other enhancements to the CFPB’s supervisory process. We concur with the recommendations made in the Report. As detailed below, the CFPB has made significant progress in addressing the recommendations since the close of the evaluation review period in July 2013. We will be taking steps to adopt and implement all of them as we move forward in developing and expanding our new supervisory program.
Below are CFPB management’s responses to each of the Evaluation Report’s specific recommendations.
CFPB Management Response to Recommendations #1-2:
Recommendation #1: We will include a new metric in the regular reports currently provided to senior management regarding examination timeliness that specifically measures the status of report drafts against the internal requirements established by applicable CFPB policies. While the necessary information to determine examination timeliness is already in the reports, we agree that including a more salient measurement against the self-imposed policy requirements would be helpful.
We appreciate the Report’s acknowledgement of the extensive efforts currently underway at the CFPB to increase the effectiveness and efficiency of CFPB report preparation and review processes, including our efforts to address the numerous novel issues that often arise in CFPB examinations without sacrificing consistency across regions and types of institutions. These efforts have resulted in a substantial reduction since July 2013 in the number of outstanding CFPB examination reports.
As part of these overall efforts, the CFPB will be reevaluating its earlier June 2012 policy and the internal requirements established in that policy. Any new reporting metrics adopted will conform with the requirements established in any revised policies and procedures.
Recommendation #2: As discussed in the Report, CFPB senior management is focused on maintaining an effective, efficient, and consistent supervision and examination process. The Report recognizes several of the various initiatives the CFPB has undertaken as we have continued to improve the timeliness of our report issuance process. We agree that adoption of a formal plan would be an effective tool in connection with these efforts, and would help memorialize many of the steps the CFPB has already taken. We will incorporate such a plan into our existing report review processes.
CFPB Management Response to Recommendations #3-5:
Recommendation #3: As suggested in the Report, we have conducted a comprehensive internal review of all completed reports of examination in order to determine the extent to which those reports contained modified ratings definitions that deviated from the standard definition. We have also reviewed the two instances of modified ratings definitions identified by OIG. As a result of that review, we have determined that no ratings adjustments are warranted.
Recommendation #4: We have reinforced the appropriate use of ratings definitions through in-person meetings with headquarters staff and through written and telephone briefings with staff in the field.
Recommendation #5: We are implementing additional internal review processes to ensure appropriate use of ratings definitions.
CFPB Management Response to Recommendation #6:
Recommendation #6: The CFPB will establish appropriate guidelines regarding timely data entry by examination staff and will develop appropriate training materials in connection with those guidelines, taking into account as applicable the technological constraints imposed by the CFPB’s existing Supervision and Examination System and other related systems. We note that the CFPB continues to develop and expand these systems in order to maximize the effectiveness of our supervisory work.
CFPB Management Response to Recommendation #7:
As part of its ongoing quality assurance measures incorporated into supervisory processes, the CFPB will refine its internal process to ensure accurate documentation of communications with the prudential regulators, which have occurred as required.
CFPB Management Response to Recommendation #8:
As noted in the Report, CFPB senior management is currently reevaluating certain aspects of the existing internal examination report review process. Following the completion of those efforts, we will revise the June 2012 CFPB Process for Reviewing Supervisory Letters, Examination Reports, and Supervisory Actions discussed in the Report as necessary to reflect the earlier reorganization of CFPB’s supervision offices as well as relevant changes to the CFPB’s internal processes for examination report review.
CFPB Management Response to Recommendation #9:
The CFPB will, as recommended, evaluate the current processes for coordinating examination staff scheduling across regions, identify areas of potential inconsistency regarding regional staff scheduling, and enhance and/or harmonize those processes as needed to manage staff workload and identify future staffing requirements.
Since July 2013 the CFPB has substantially enhanced its existing processes and systems regarding tracking of examination staff hours. We will continue to develop and refine an associated policy.
CFPB Management Response to Recommendations #10-11:
Recommendation #10: We share the OIG’s appreciation of the critical role training plays in enhancing the overall effectiveness of CFPB’s supervisory operations, and we have expended considerable resources in developing training for supervisory staff that reflects the needs and mission of our newly-created agency.
Our examiners possess deep and varied experiences. Our goal remains to recruit high quality talent and to develop future generations of examiners. Given the startup nature of the Bureau, we previously relied exclusively on classes offered by our fellow banking regulators and on-the-job training. This past year, however, we delivered 24 sections (25 to 30 seats each) of three distinct course offerings to our examiners. This represents a new point in the maturation of our internal training and development program.
As part of its comprehensive examiner training strategy, the CFPB has established an Examiner Commissioning Program (ECP) that includes classroom training courses, rotational assignments, access to online training modules, case studies, and a comprehensive commissioning examination. We have developed and fully implemented multiple new classroom courses in areas including operations and deposits, prepaid products, lending principles, fair lending, and other areas.
As the Report notes, we have implemented an interim commissioning program; all commissions issued under this program require the approval of the Associate Director for Supervision, Enforcement, and Fair Lending. The CFPB’s comprehensive commissioning examination is undergoing multiple rounds of content validation and is scheduled to be finalized during the fall of 2014. As noted in the Report, the CFPB is targeting the last quarter of the 2014 calendar year to have all components of the commissioning program fully implemented.
Recommendation #11: The CFPB will enhance our existing monitoring processes to ensure we accurately track completion of OJT modules. In addition, the CFPB is expanding implementation of its formal Learning Management System (LMS) to enable more centralized and automated training documentation.
CFPB Management Response to Recommendation #12:
The CFPB shares the OIG’s conviction that full and timely exchange of information between federal banking regulators improves the effectiveness of supervisory activity for all of the agencies, enhances protections for American consumers, and is consistent with the cooperative relationship between the agencies envisioned in the Dodd-Frank Act. As noted in the Report, the CFPB has acted in this spirit of cooperation and complied with all of the requirements and arrangements outlined in the Interagency MOU on Supervisory Coordination dated May 16, 2012 (Interagency MOU)—an agreement that resulted from a multi-agency decision-making process including the CFPB, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency.
The Report concludes that an opportunity exists to broaden and enhance the exchange of supervisory information among the agencies party to the Interagency MOU. The CFPB has already begun discussions with the other agencies that are party to the Interagency MOU in order to explore potential opportunities to enhance information-sharing, and will pursue the specific discussions suggested in the Report.
Very truly yours,
Steven L. Antonakes
Deputy Director and Associate Director,
Supervision, Enforcement, and Fair Lending