CFPB Compliance Examination Objectives and Procedures - Manual Excerpt, Part III

  • Written by Collection Advisor

cfpb logoPeriodically reacquainting oneself with important information is always a good idea. In the spirit of such a truth, presented are the CFPB’s examination objectives and procedures for a debt collection entity as listed in the “CFPB Supervision and Examination Manual, Version 2,” pages CMR 7 - CMR 13.

Consumer Complaint Response
An effective compliance management system should ensure that a supervised entity is responsive and responsible in handling consumer complaints and inquiries. Intelligence gathered from consumer contacts should be organized, retained, and used as part of an institution’s compliance management system.

Consumer Complaint Response – Examination Objectives
Examiners will consider consumer complaints to determine whether:

1. Consumer complaints and inquiries, regardless of where submitted, are appropriately recorded and categorized.
2. Complaints and inquiries, whether regarding the entity or its service providers, are addressed and resolved promptly.
3. Complaints that raise legal issues involving potential consumer harm from unfair treatment or discrimination, or other regulatory compliance issues, are appropriately escalated.
4. Complaint data and individual cases drive adjustments to business practices as appropriate.
5. Consumer complaints result in retrospective corrective action to correct the effects of the supervised entity’s actions when appropriate.
6. Weaknesses in the compliance management system exist, based on the nature or number of substantive complaints from consumers.

Consumer Complaint Response – Examination Procedures
Examiners should review records, interview management, and contact consumers if needed to evaluate this consumer response component of the compliance management system. Examiners should:

1. Obtain and review records of recent consumer complaints and inquiries received by CFPB about the entity and its service providers.
2. Review industry or other benchmarking complaint data collected by CFPB.
3. To the extent available, obtain and review records of recent consumer complaints against the institution from the prudential regulator, from state regulators, from state attorneys general offices or licensing and registration agencies, and from private or other industry sources.
4. Request and review from the institution being examined its policies and procedures for receiving, escalating, and resolving consumer complaints and inquiries.
5. Request and review the record of consumer complaints and inquiries received by the institution for a specific recent period of time.
6. Identify complaints alleging deception, unfair treatment, unlawful discrimination, or other significant consumer injury; and review some or all of those complaints for handling, timeliness, disposition, and any prospective and retrospective corrective actions.
7. Determine whether corrective action is offered or taken for any complaint resulting in a conclusion of violation of law or regulation.
8. Determine whether complaints involving service providers or other third parties referring business to the supervised entity receive prompt and appropriate handling and follow-up by the entity.
9. If a supervised entity maintains multiple consumer response centers or units, determine whether it employs a common set of best practices as applicable.
10. Determine whether evaluations of consumer contacts are shared within the supervised entity and included in compliance management reporting to the Board and senior management, and whether such information is used in modifying policies, procedures, training, and monitoring.
11. Draw preliminary conclusions regarding the strength, adequacy, or weakness of the supervised entity’s response to consumer issues and concerns, and identify business conduct areas, specific regulations, or organizational units for more detailed review.

Compliance Audit
Audit coverage of compliance matters is the fourth component of an effective compliance management system. The audit function should review an institution’s compliance with Federal consumer financial laws and adherence to internal policies and procedures and be independent of both the compliance program and business functions that include customer sales or service.

A compliance audit program provides a board of directors or its designated committees with a determination of whether policies and standards adopted by the board to guide risk management are being implemented to provide for the level of compliance and consumer protection established by the board. The audit should also identify any significant gaps in board policies and standards.

Compliance Audit – Examination Objectives
Examiners will seek to determine whether:

1. The audit program is sufficiently independent and reports to the board or a committee of the board.
2. The audit program addresses compliance with all applicable Federal consumer financial laws.
3. The schedule and coverage of audit activities is appropriate to the size of the entity, its consumer financial product offerings, and its manner of conducting its consumer financial products business.
4. All appropriate compliance and business unit managers receive copies of audit reports in a timely manner.
5. Audit results lead to appropriate, timely corrective action.

Compliance Audit – Examination Procedures
Examiners will review records of the compliance audit program and discuss the audit methods, results, and reporting with audit managers. Examiners should:

1. Request the supervised entity’s audit plans and schedules for the prior year, current year, and the following year.
2. If compliance audit is performed by a third party, request and review the engagement letters or contracts covering the prior year and the current year.
3. Determine the basis for the audit plan and schedule and whether reporting is to the board of directors or to an audit committee or other committee of the board.
4. Request and review all compliance audit reports for a specified period of time, including any fair lending audit reports.
5. Determine whether written audit reports identify the scope, sampling techniques, findings/deficiencies, recommendations for corrective action, and management responses with time frames for corrective action.
6. Determine whether audit scopes include previous audit, and examination findings, new requirements, new products and channels, and self-identified higher risk areas of the supervised entity’s operations.
7. Request and review audit workpapers for a sample of audits covering fair lending laws and regulations; potential unfair, deceptive, or abusive practices; or other areas that may pose heightened risks to consumers.
8. Determine whether corrective actions are tracked and any delay in appropriate management response or lack of corrective action is escalated.
9. Determine whether the supervised entity’s chief compliance officer and appropriate business unit head(s) receive copies of audit reports, so that adjustments can be made to compliance program elements in a timely manner.
10. Review audit function structure and policies and procedures to ensure that the audit function, whether internal or external, is sufficiently independent of the business line and compliance management function.
11. Draw preliminary conclusions about the strength, adequacy, or weakness of the compliance audit component of the compliance management system, and identify areas for further review based on gaps in audit coverage or to confirm the accuracy of audit findings and reporting.

Monitoring and Corrective Action – Examination Objectives
Monitoring is a compliance program element that seeks, in an organized and risk-focused way, to identify procedural or training weaknesses in an effort to provide for a high level of compliance by promptly identifying and correcting weaknesses. Monitoring and testing is generally more frequent and less formal than compliance audit coverage and reporting, may be carried out by the business unit, and does not require the same level of independence from the business or compliance function that an audit program does.

Examiners should evaluate monitoring and audit programs to determine whether, considered together, they are adequate and comprehensive. Examiners review of compliance monitoring and testing should determine whether:

1. Monitoring is scheduled and completed and leads to timely corrective actions where appropriate.
2. The supervised entity is determining that transactions and other consumer contacts are handled according to the entity’s policies and procedures.
3. Monitoring and testing consider the results of risk assessments or other guides for prioritizing reviews.
4. Monitoring addresses deficiencies identified in internal or external audits, and the board’s or management’s directives on resolving the deficiencies.
5. Findings are escalated to management and to the board of directors if appropriate.

Monitoring and Corrective Action – Examination Procedures
Examiners should review monitoring, testing, and corrective action reports; sample supporting documents; and interview individuals responsible for compliance monitoring, testing, and corrective action. Examiners should:

1. Determine the chief compliance officer’s role in the compliance monitoring element of the compliance program.
2. Request and review the monitoring and testing schedule for the current year or next 12 months, and review the currency of reviews in process against the current schedule.
3. Request and review the risk assessments or other documents that led to the monitoring and testing program plan, including any fair lending risk assessments.
4. Discuss with the compliance officer or monitoring manager the coverage of service providers that have contact with consumers.
5. Determine whether and to what extent monitoring includes calculation tools, the content of consumer disclosures and notices, marketing materials, and scripts or guides for employee contacts with consumers.
6. Request and review all compliance monitoring, testing and corrective action reports completed during a specific period of time. Include reports related to fair lending compliance, such as fair lending “self-evaluations.” (But do not request reports of fair lending “self-tests” that meet the strict requirements set forth in 12 CFR 1002.15.)
7. Review reports for indications of systemic weaknesses, repeat violations of law and resulting risks or harms to consumers, or other matters of significant concern such as potential discriminatory effects of policies or procedures or particular business units with continuing or high levels of non-compliance.
8. Review a sample of reports and supporting documents covering potential unfair, deceptive, or discriminatory practices or related matters that pose heightened risks to consumers for thoroughness of review, accuracy of findings, and appropriateness of recommendations.
9. Determine whether monitoring results in corrective action that is timely and appropriate in size and scope.
10. Draw a preliminary conclusion regarding the strength, adequacy, or weakness of the monitoring and corrective action element of the compliance program, and select areas for further review either because of lack of coverage by the monitoring program or to confirm monitoring or corrective action findings.

Training – Examination Objectives
Education of an entity’s board of directors, management, and staff is essential to maintaining an effective compliance program. Board members should receive sufficient information to enable them to understand the entity’s responsibilities and the commensurate resource requirements. Management and staff should receive specific, comprehensive training that reinforces and helps implement written policies and procedures. Requirements for compliance with Federal consumer financial laws, including prohibitions against unlawful discrimination and unfair, deceptive, and abusive acts and practices, should be incorporated into training for all relevant officers and employees, including audit personnel. Examiners should seek to determine whether:

1. Compliance training is current, complete, directed to appropriate individuals based on their roles, effective, and commensurate with the size of the entity and nature and risks to consumers presented by its activities.
2. Training is consistent with policies and procedures and designed to reinforce those policies and procedures.
3. Compliance professionals have access to training that is necessary to administer a compliance program that is appropriate for that supervised entity and its business strategy and operations.

Training – Examination Procedures
Examiners should request and review training records and interview management and staff as appropriate to evaluate this element of the compliance program and to refine and focus the examination. Examiners should:

1. Request and review the schedule, record of completion, and materials for recent compliance training of board members and executive officers.

2. Determine the involvement of compliance officer(s) in selecting, reviewing, or delivering training content.

3. Request and review policies, standards, schedules, and records of completion for compliance-specific training of compliance professionals, managers, and staff, and documents demonstrating that service providers who have consumer contact or compliance responsibilities are appropriately trained.

4. Request and review samples of the content of training materials and comprehension tests, including training related to fair lending, new regulatory requirements, new products or channels of distribution, and marketing (including scripts).

5. Request and review training developed as a result of management commitments to address monitoring, audit, or examination findings and recommendations or issues raised in consumer complaints and inquiries.

6. Determine whether the program is designed to provide training about the specific regulatory requirements relevant to the functions of particular positions for loan officers, such as the Truth in Lending Act and the Equal Credit Opportunity Act.

7. Review records of follow-up, escalation, and enforcement for units with training completion rates that do not meet the supervised entity’s standards or deadlines.

8. Request and review the supervised entity’s plans for additions, deletions, or modifications to compliance training over the next 12 months and any plans for changes to the overall training resources and compare actual training activities to prior plans.

9. Draw preliminary conclusions about the strength, adequacy, or weakness of the training element of the compliance program, and select lines of business, organizational units, or other areas for more detailed review and testing.