Office of Inspector General Recommends Improvement to CFPB Risk Assessments
Report shows increased preliminary research by the bureau to determine if institutions are subject to its supervision, including in the debt collection market.
4/4/2019 11:30 AM
The Consumer Financial Protection Bureau is charged with doing more research to determine if financial institutions are subject to its supervisory examinations, notably in the debt collection market, according to a report from the Office of the Inspector General (OIG) for the Board of the Governors Federal Reserve System.
The Dodd-Frank Act authorizes the bureau to supervise all depository institutions with more than $10 billion in total assets and their affiliates, along with thousands of non-depository institutions. Because the number of institutions and product lines under the bureau’s supervisory authority significantly exceeds the agency’s capacity to conduct its oversight activities, it seeks to prioritize its examination activities based on an annual assessment of risk posed to consumers, according to the report, which evaluated the effectiveness of this approach.
The CFPB’s oversight authorities also include thousands of institutions, many that offer more than one product line subject to its supervision.
The OIG found, in interviews with the bureau’s Division of Supervision, Enforcement and Fair Lending (SEFL) representatives, that in some cases it is difficult to assess whether debt collectors meet the Larger Participant Rule because collection of certain types of debt, such as medical debt, does not contribute to meeting the rule’s $10 billion threshold. And, information on the types of debt collected by an institution is often not publicly available.
In two instances during the OIG’s review period, (including the 2017 and 2018 supervisory planning cycles), the bureau canceled scheduled examinations with debt collectors after learning they did not meet the Larger Participant Rule through a pre-examination questionnaire completed by the companies.
Letters from SEFL to companies before an examination often request a debt collector’s annual receipts, including medical debt, for each of the last five years.
“A bureau official noted the importance of limiting the reporting burden placed on institutions by using this request letter approach only when absolutely necessary. Further, officials stated that SEFL has sent these information request letters with increased lead time before scheduled examinations during the most recent examination cycle to avoid abrupt, late-stage cancellations. Our review of each of these information request letters sent from November 2015 to October 2018 confirmed that additional lead time before scheduled examinations had been provided during the most recent examination cycle,” according to the report.
Among the recommendations in the report related to institutions supervised by the bureau, the OIG states the bureau should, “increase the lead time for preliminary research on supervised institutions when verifying whether an institution is subject to the bureau’s supervision and the location of the operations to be examined.”
The recommendation is based on the OIG’s review of documentation and conversations with senior officials and findings that the SEFL inadvertently scheduled examinations at institutions that are outside its supervisory jurisdiction because it did not have enough information about those institutions.
Insufficient research before an examination also resulted in examinations scheduled in the incorrect region because SEFL had not verified the location of the institution’s relevant operations.
“We understand that the regional offices verify the location of the institution’s relevant operations just before beginning an examination. SEFL sometimes schedules examinations in the incorrect region because of a lack of information and insufficient research performed before scheduling those examinations,” according to the report.
The bureau said it concurs with the recommendations in the report and has addressed several of the recommendations to date.
For example, SEFL has already started sending information request letters to institutions with increased lead time before scheduled examinations to avoid abrupt, late-stage cancellations.
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