Fed Inspector General to evaluate CFPB enforcement attorneys at bank examinations

Last week, the Fed’s Office of Inspector General decided it will evaluate the presence of CFPB enforcement attorneys at bank examinations. A practice which has worried banks since the Bureau’s creation, industry advocates have argued it inhibits open communication because it implies the CFPB will use the examination as a stepping stone to enforcement actions.  

At the end of last year, the CFPB’s 2012 Ombudsman’s Report raised concerns about the Bureau’s practice and suggested review of this examination policy. (CFPB Journal reported on it here.)

Now the practice will be reviewed by an external office. The Dodd-Frank Wall Street Reform and Consumer Protection Act established the Fed’s OIG as the independent oversight authority for the Bureau. OIG can conduct audits, investigations, and other reviews of CFPB’s programs and functions. What effect could evaluation have? According to the Inspector General Act of 1978, which was extended by Dodd Frank to the CFPB, the OIG’s purpose is to “provide a means for keeping the head of the establishment and Congress fully and currently informed about problems and deficiencies relating to the administration of such programs and… the necessity for and progress of corrective action.”

So, while OIG does not have the authority to suspend the Bureau’s practice, a negative review by OIG will be put in front of the President and Congress.

For now, the OIG will assess (1) the potential risks associated with this examination approach and (2) the effectiveness of any safeguards that the CFPB has adopted to mitigate the potential risks associated with this examination approach. The review will be completed by the end of June, 2013.