On October 9, 2013, the Consumer Financial Protection Bureau (“CFPB”) announced enforcement actions, including civil money penalties against a bank and a nonbank for violating the Home Mortgage Disclosure Act (“HMDA”), a law that requires certain mortgage lenders to accurately collect and report data about home mortgage loans. Although the actions ultimately arose from CFPB examinations of the companies, the CFPB’s examination of the nonbank in particular was done in close collaboration with the Massachusetts Division of Banks which had also identified serious errors in the company’s filings.
In addition to sending “a strong signal” against “mislead[ing] the public with erroneous data” (as stated in the CFPB’s press release), these actions demonstrate that the CFPB is increasingly coordinating its supervisory activities with state regulators, as required under Dodd-Frank and outlined in the 2013 CFPB-State Supervisory Coordination Framework (“Framework”).
As a result of the Framework and the CFPB’s recent enforcement actions, many financial entities, in particular nonbanks, will need to prepare for a new supervisory environment. This means improving overall compliance management systems as well as optimizing internal processes for responding to and monitoring regulatory examinations.
The Framework establishes a process for coordinating federal and state supervision and enforcement activities for entities subject to supervision by both the CFPB and state financial regulators. The purpose of the Framework is to promote examination efficiencies and avoid duplication of supervisory activities.
While the Framework may seem like inside baseball, interesting only to the CFPB and state regulators, the recent enforcement actions highlight the considerable impact that coordination will have on regulated companies. Understanding this impact is important because (1) it will bring some companies into CFPB’s direct line of sight for the first time; (2) some companies will face different compliance standards than what they have been accustomed to; (3) state regulators are heightening their compliance focus (even when not coordinating with the CFPB); (4) the CFPB’s initial picture of companies will be influenced by state regulators’ views; and (5) examination logistics will become more challenging.
This Financial Services Regulatory Brief analyzes the Framework’s impact on regulated companies in each of these five respects, and provides strategic guidance.