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CFPB Report: 2014-AE-C-005 March 27, 2014

The CFPB Can Improve the Efficiency and Effectiveness of Its Supervisory Activities

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Finding 8: An Opportunity Exists to Enhance Coordination Between the CFPB and the Prudential Regulators

In May 2012, the CFPB entered into an MOU with the prudential regulators (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) to fulfill the supervisory coordination requirements outlined in the Dodd-Frank Act. As part of this MOU, the five agencies agreed to share reports of examination prior to issuance and allow the receiving agency 30 days to comment. Our evaluation demonstrated that the CFPB complies with the requirements of the interagency MOU by sharing its reports of examination in a timely manner. Our results also indicate that the CFPB has taken a significant number of supervisory actions in supervisory letters that are not subject to the coordination requirements of the MOU. Such supervisory actions would only be shared on a delayed basis as part of sharing full-scope reports that summarize previously issued supervisory letters for institutions subject to continuous monitoring. Therefore, we believe that an opportunity exists to broaden the scope of the MOU to include supervisory letters to foster enhanced and timelier coordination between the CFPB and the prudential regulators.

The CFPB and the Prudential Regulators Do Not Formally Share Supervisory Actions Documented Outside a Report of Examination

In May 2012, the CFPB entered into an MOU with the prudential regulators to fulfill the supervisory coordination requirements outlined in the Dodd-Frank Act. As part of this MOU, the agencies collectively agreed to share reports of examination prior to issuance and allow the receiving agency 30 days to comment. Our evaluation demonstrated that the CFPB complies with the requirements of the interagency MOU by sharing its reports of examination in a timely manner.

However, we believe that the agenciesí collective decision to exclude additional supervisory outputs, such as supervisory letters, from the requirements outlined in the MOU prevents specific institutionsí regulators from receiving prior notice and the opportunity to comment on certain supervisory actions. We found that as of July 2013, 49 percent of the CFPBís closed examinations of depository institutions resulted in supervisory letters, 32 percent resulted in baseline reviews, and only 19 percent resulted in reports of examination. In addition, of the CFPBís examinations of depository institutions that resulted in a matter requiring attention, only 30 percent were documented in reports of examination. The remaining 70 percent of matters requiring attention were documented in supervisory letters or baseline reviews and, therefore, were not formally shared with the prudential regulators.

For institutions subject to continuous monitoring, the CFPB intends to summarize supervisory letters in the full-scope reports of examination that will be shared with the prudential regulator at the end of the examination cycle. However, as of July 2013, none of the continuous full-scope examinations had been finalized or shared with the prudential regulators. We believe this approach increases the risk that regulators do not receive important information documented in supervisory letters in a timely manner, which may lead to inefficiencies in the examination planning process and potential duplication of efforts across the regulatory agencies.

In conjunction with the Inspectors General of the Federal Deposit Insurance Corporation, the U.S. Department of the Treasury, and the National Credit Union Administration, we intend to conduct an evaluation of the coordination efforts of the CFPB and the prudential regulators. The review will seek to determine the extent to which coordination is occurring and has been effective in avoiding duplication of efforts among the regulators.

Recommendation

We recommend that the Associate Director for SEFL

  1. Pursue negotiations with the prudential regulators with the goal of formally sharing all supervisory materials that result in supervisory actions prior to their issuance.

Managementís Response

Regarding recommendation 12, the Deputy Director and Associate Director for SEFL stated the following:

The CFPB shares the OIGís 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)óan 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.

Managementís full response is included as appendix B.

OIG Comment

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 CFPBís actions to ensure that the recommendation is fully addressed.