While the Consumer Financial Protection Bureau has yet to examine financial institutions with less than $10 billion of assets, debt-collection agencies ― and seemingly, by extension, independent auto finance companies ― can already get a sense for what to expect.
“When we look at large banks, we look at first-party collections and the extent to which they oversee the debt collectors they hire,” said Peggy Twohig, the CFPB’s assistant director of nonbank supervision, during an address at the ACA International conference. “In that sense, debt collection is already part of our program.”
Auto finance companies, too, should be able to look to CFPB audits being done on $10 billion banks for guidance on what to expect at their own firms.
At the conference, Twohig fleshed out the CFPB’s approach to supervision of “nonbank” financial institutions, those that offer consumer financial products or services but lack bank, thrift, or credit union charters. “What will our approach be to supervising nonbanks?” she asked. “The same as for banks.”
The reason is simple, she explained. “One of our goals is to implement a consistent approach,” to ensure that banks and nonbanks comply with the same procedures, she said.
With its examinations, the CFPB will analyze whether consumers are being put at risk in their financial transactions. Twohig defined “risk” as “risk of injury to consumers.”
“That could be monetary risk, or harm to consumers that comes from a law violation,” she said. “It could be a market practice that puts them at a disadvantage so they don’t understand prices or terms.”
“A lot of that is guided by the laws we have in place,” she added.
Examiners will also review companies’ compliance with federal laws. In the case of debt collectors, Twohig’s core audience, those regulations include the Fair Debt Collections Practices Act and the Fair Credit Reporting Act. “We not only look for compliance, but we look to understand the products and services so we can understand the risk to consumers,” she said.
Twohig then outlined the exam process. For starters, the CFPB will contact companies and request “basic information” to determine where examiners should focus their efforts to maximize their time on-site. Specifically, examiners will work to determine the systems and controls that companies have in place to manage compliance.
“We do expect that every company has the appropriate controls to avoid violations of the law,” she said. “We have to go in and test that robust compliance system, though, to see if it’s working, not just on paper.”
For debt-collection companies, for instance, examiners might listen in on some consumer calls.
Once the exam is complete, the CFPB will issue a report and a rating. “If we find problems, we’ll let them know what we think they need to do,” she said. “If there were law violations, we’ll let them know.”
Even with violations, the CFPB might not take public enforcement action, she added.
Not all small companies are happy to fall under the CFPB’s exam radar. Some, in fact, are worried that larger companies will gain a marketing advantage by touting positive examination outcomes, said a session attendee.
His question to Twohig: Can smaller companies volunteer for a CFPB exam?
Twohig’s response: “There is something very significant in your comments to take into consideration,” she said.
The issue of voluntary exams will likely boil down to available resources, though. Under the Dodd-Frank Act, the CFPB is required to examine certain nonbanks. “There very well might be room on a voluntary basis if folks want examiners to come in and give feedback,” she said. “But it might be a resources issue for us.”