Regulators Detail Criteria For Subprime Lender Examinations

When regulators examine lenders for compliance with ancillary products, they consult with the lender’s “business people” — employees on the front lines who deal with those products — to determine the validity of the addons, said Calvin Hagins, deputy assistant director for originations at the Consumer Financial Protection Bureau, during an AFS session last week.

“We want to understand the thinking behind what the decision to insert this add-on versus that add-on, and what’s the business sense to get out of a particular add-on product,” Hagins said. “So we’re talking to business people, not necessarily the compliance people.”

Separately, Hagins said that in the subprime space, the CFPB is not concerned with whether a lender is labeled as subprime; the agency just wants to know how consumers were treated, regardless of the product they were served.

“We do not issue advisory guides about what is and is not subprime,” Hagins said. “We ask questions about it in the context of an examination, and we don’t single out institutions who may have the label as a subprime lender.”

Jon Seward, deputy chief in the housing and civil enforcement section of the Civil Rights Division of the Department of Justice, added that in the cases where the DOJ had to examine allegations that a lender was steering into subprime, the agency uses the lender’s guidelines.