CFPB Deputy Director Steve Antonakes Discusses the CFPB’s Supervisory Program - Receivables Management Association International

April 19, 2013

On April 17th, Acting CFPB Deputy Director Steve Antonakes spoke to the American Bankers Association Government Relations Summit. During his remarks, he discussed the CFPB’s supervisory program. Click here to read the full text of his comments.

Below are some excerpts from his remarks:

Since before we opened our doors, many have asked how we will be different. Will our approach bear any resemblance to work done previously? Certainly there are similarities. Our examiners conduct on-site examinations, review files, transaction test, and interview personnel. We issue examination reports and utilize the existing interagency rating system. As findings warrant, our examination reports include necessary corrective action. Moreover, we utilize informal and formal enforcement actions when necessary.

Our examinations are intended to be rigorous and heavy on data analysis, with the important goal of also being fair and reasonable. We will focus on substantive consumer harm and, as such, ensure that our response to more technical violations is appropriate. Our examination process will strive for transparency, efficiency, and fairness. It will not be about “gotcha” or issues du jour. We communicate with institutions throughout the examination cycle. In most instances, institutions are advised of upcoming examinations well in advance of the start of our examinations. We also will work to keep the institution informed of the examination’s status and findings during the course of our review.

There are two key differences in our approach that I would like to highlight. First given the mission of the Bureau, our focus is on potential risk to consumers rather than risk to institutions. Second, eventually, our oversight work will become increasingly product-centric.

The Bureau’s jurisdiction is also unlike any traditional prudential bank regulatory agency. We have regulatory oversight for banks, thrifts, and credit unions with assets over $10 billion. These institutions and their smaller depository affiliates total less than 200 but on a combined basis account for $10 trillion in assets or nearly 80 percent of the nation’s banking market. The number of non-bank entities that eventually could be subject to the Bureau’s supervisory jurisdiction will likely number in the thousands.

A specific charge of the Bureau is to attempt to level the playing field between banks and non-bank entities relative to compliance with federal consumer financial laws. This dual authority provides the Bureau with the opportunity to oversee consumer financial products and services across charters and business models. Consequently, charter or license type is becoming less relevant in determining how we will prioritize and schedule our examinations and investigations.

Accordingly, we have begun to implement a prioritization framework that allocates our examination, investigation, and fair lending resources across product types. This strategy intentionally moves us away from static examination cycles.

In terms of our supervisory approach, it encompasses an assessment of potential consumer risk, as well as a number of quantitative and qualitative factors. These factors include: (1) the size of the overall market in which a regulated entity’s product line operates; (2) the potential for consumer risk related to a particular product market; (3) a regulated entity’s level of activity in the marketplace, or more specifically, its market share; and (4) field and market intelligence that encompasses a range of issues including, but not limited to, the quality of a regulated entity’s management, the existence of other regulatory actions, default rates, and consumer complaints.

We are also very much committed to coordinating our examinations with other regulators to reduce the burdens on supervised entities for their time, space, and resources. Some of that is prescribed by law, and some of it is good old-fashioned common sense. To this end, we have executed appropriate information-sharing agreements and communicate regularly with federal and state regulators about the scheduling of examinations and other supervisory activity. We will continue to coordinate closely with our fellow regulators above and beyond the minimum requirements.

Given the early stages of our supervisory program, we have intentionally employed a strong quality control function. In some instances, we have sacrificed timeliness in favor of consistency. But we are making progress and, importantly, we are hiring more staff. Simply put, our initial goal for our supervisory program was to do credible work. Going forward, we expect to see significant increases in efficiency while maintaining the quality of our supervisory findings.

As for the examiners themselves, we continue to build our staff toward a steady state. In doing so, we have hired – and continue to hire – people who bring valuable expertise and a broad range of transferable skills to their work, including considerable experience in examination processes and expert knowledge of consumer protection laws and regulations. We also continue our aggressive efforts to recruit new examiners from various backgrounds, from junior-level examiners to more senior-level candidates with prior regulatory or industry experience.

Right now, we have nearly 325 examiners. A significant majority of them have experience in examinations at the federal or state level or from private industry. Over 100 are commissioned. All are supervised by our headquarters and regional management teams, which include more than 50 people with significant experience in consumer protection.

We understand that no matter how qualified our exam staff may be when they arrive, they can always learn more and improve, particularly as the markets we regulate evolve over time. Since we launched our Supervision program, we have spent significant time and resources on training, including introductory training for new employees, training on applicable federal statutes and regulations, updates on internal processes, and other relevant topics. We are also developing our own commissioning program similar to those provided by the prudential regulators.

Finally, our approach of having enforcement personnel involved in the examination process has garnered a great deal of attention. So I will take a moment to address that specifically. Our Division of Supervision, Enforcement, Fair Lending and Equal Opportunity was strategically built to integrate the examination, enforcement, and fair lending functions. We have intentionally developed a coordinated approach to ensure that we get the best results for consumers, are as efficient as possible, create consistency in our approach to interpreting legal standards among our offices, and reduce unnecessary burden on the entities we supervise by consolidating their interactions with the Bureau.

This division works toward comprehensive integration by assigning Enforcement attorneys to support the work of each examination team, as well as by assigning Fair Lending attorneys to participate in examinations as appropriate. This physical presence is generally limited and intended to enhance coordination, as well as to ensure that our attorneys have a first-hand understanding of the issues arising in examinations. The presence of attorneys is not intended to be taken as a signal that an enforcement action is planned or even likely. Similarly, when enforcement matters arise out of examination activity, the supervision staff who conducted the underlying examination will remain involved to provide continuity and share relevant knowledge about the institution and its compliance history.

As noted, consistency is an important priority for the Bureau, which is why we have spent significant time and resources on training, on reviewing examination reports, and on establishing an Office of Supervision Policy, which provides guidance to examiners and ensures greater consistency across regions, markets, products, and firms. To the extent that more efforts at uniformity are necessary, we are open to suggestions and are committed to this goal.