The Office of Inspector General for the Federal Reserve and Consumer Financial Protection Bureau sent a memorandum to the bureau which follows up on a report issued last month regarding the extent to which the bureau and other prudential regulations were coordinating their supervisory activities and avoiding duplication of regulatory oversight responsibilities.
The report found that although the CFPB and other prudential regulators generally coordinated their regulatory oversight activities, there were still multiple areas for improvement. In regards to the CPPB, the OIG found that the bureau needed to provide more notice to other regulators when finding a violation. The memo notes that there already have been three instances in which the bureau has notified prudential regulators of a potential material violation by a smaller institution and, as a result, smaller institutions should expect to see more such notifications.
The memo, entitled “The CFPB Can Enhance Its Process for Notifying Prudential Regulators of Potential Material Violations,” states that it was unable to verify that the CFPB has been consistently complying with Section 1026(d) of Dodd-Frank, requiring the bureau to notify relevant prudential regulators in writing and recommend appropriate action if it has reason to believe that one of the regulated institutions has committed a material violation of a federal consumer financial law.
Additionally, Section 1026(d) requires regulators to respond in writing within 60 days. However, the OIG found that the CFPB did not have a policy requiring the tracking of such written notifications and recommendations or responses and further did not have guidelines outlining the factors to be considered when assessing the materiality of a violation, detailing any approvals needed for such a determination or describing when a written notification or recommendation is necessary.
The memo recommends that the CFPB develop and implement a policy that outlines the process for assessing the materiality of a violation and provides guidance on determining whether a written notification or recommendation is necessary. In addition, the memo advises the bureau to come up with a policy requiring the tracking of such written notifications and recommendations and responses.
The OIG has already has discussed the recommendations with the bureau, and the bureau has finalized a policy outlining an escalation and approval process that precedes a written notification and tracking process for written notifications and recommendations. CFPB Deputy Director Steven Antonakes also indicated that the CFPB plans to track written responses received from prudential regulators.
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