The Four Stages of a CFPB Exam

For many nonbank auto finance companies, an examination by the Consumer Finance Bureau will be a new and perhaps frightening experience. Legal experts David A. Luigs, Liz Alspector and Naeha Prakash of Debevoise & Plimpton LLP offer up some insight on what to expect.

There are two types of examinations to expect.

Compliance management systems examinations are usually first. The exam will assess an institution’s overall compliance with federal consumer financial protection laws by reviewing, for example,  the institution’s policies and procedures, compliance governance structure and consumer complaint system.

There’s also what’s called targeted examinations. With these, CFPB may take a long look at specific substantive areas within the operation. Usually, targeted examinations are scheduled after an institution’s CMS examination, as CMS examinations influence the scope of targeted examinations. Targeted examination information requests will clearly identify the area to be examined.

CFPB exams usually operate in four stages; Scoping, examination, exam conclusion and monitoring. Typically, they last two to three months, with about half of that time conducted on site at the firm. The timeframe may vary, depending on the institution’s size and on the exam’s scope.

Scoping.  An institution can expect to receive a “First Day” letter from the examiner-in-charge, also known as the EIC, between one and three months prior to an on-site review, which will explain the scope and type of exam and include a detailed information request.

Examination; While on site, examiners will interview employees and/or management, compare policies to day-to-day operations or, for targeted exams, review consumer loan files. Examiners may also conduct transaction testing by examining specific transactions for compliance. After the on-site work, the examination team may continue its assessment off site.

Exam Conclusion: At the examination’s end, the examiners may conduct an exit meeting with the institution, outlining findings and recommendations including any expected corrective action. Ultimately, the institution will get an examination report, potentially including matters identified for correction, as well as a compliance rating.

Monitoring;  After an examination, the CFPB is likely to continue monitoring it. This monitoring can influence its supervision priorities for upcoming examination schedules.