David Stein, a former attorney with the Federal Reserve and the Consumer Financial Protection Bureau, offers this “heads up” to non-bank “larger participants” in the consumer financial services marketplace. Stein, a director at Promontory Financial Group, notes that companies fearing eventual supervision by the CFPB may be able to learn from the Bureau’s interest in consumer reporting companies. The CFPB began supervising such companies on Sept. 30.
The Dodd-Frank Act grants the CFPB authority to define its scope of authority by identifying for supervision companies that significantly impact the consumer financial marketplace. The CFPB identified consumer reporting companies with more than $7 million in annual revenues as its first target beyond the traditional banking and financial services arena.
“The CFPB’s examination procedures for consumer reporting…provide valuable information about its supervisory efforts” Stein says. “Though designed for a market of nonbanks, the thematic approach of the procedures is, quite frankly, bank-like. We expect initial examinations to focus on compliance-management systems.”
He said such companies should document their organizational structure, internal controls, policies and procedures, training programs, computers systems, audit and compliance monitoring, and relationships with various affiliates and service providers. “Companies that review, document and as necessary upgrade compliance management in advance of their first examination will be in the best position to meet the CFPB’s expectations,” Stein said. He urged that companies create a compliance department headed by a chief compliance officer.
UDAAP – unfair, deceptive, abusive acts and practices – falls under the supervision of the CFPB. The Bureau has the opportunity to wield incredible discretionary authority under this provision in the law. The term “abusive” remains undefined in the law and the CFPB has the opportunity to look for abusive practices in any firm that comes under its supervision. Stein suggests that companies should consider whether current or past conduct and business practices might raise red flags as potentially unfair, deceptive or abusive.