The Consumer Financial Protection Bureau (CFPB), Week in Review: May 20 - 24, 2013
CFPB Approves Use of Uniform State Test for Mortgage Loan Originators
On May 20, 2013, the CFPB issued Bulletin 2013-05, which, among other things, approved the use of a Uniform State Test (UST) developed by the Nationwide Mortgage Licensing System and Registry to test the qualifications of state-licensed mortgage originators. 1 Specifically, Section 1505(d) of the SAFE Act requires state-licensed mortgage originators to pass a “qualified written test” encompassing ethics, as well as relevant state and federal laws and regulations applicable to mortgage origination. The CFPB indicated that states may administer the UST if “it adequately tests required laws and regulations.” Nothing in the bulletin, however, precludes a state from developing its own test that addresses all subject matters required by the SAFE Act. The Mortgage Bankers Association (MBA) had previously urged the CFPB in February to sanction the UST as an acceptable means of mortgage loan origination testing.
CFPB Establishes Framework to Enhance Cooperation with State Regulators
On May 21, 2013, the CFPB and the Conference of State Bank Supervisors (CSBS) published a “Coordination Framework” to enhance state and federal collaboration in supervisory and enforcement matters for covered depositary and nondepositary institutions where the CFPB and one or more state regulatory entities share concurrent jurisdiction.2 The nonbinding framework is predicated on a 2011 Memorandum of Understanding between the CFPB, CSBS and various state financial regulatory authorities.
The CFPB and state regulators intend for the framework to: (1) govern examinations of large multi-state entities; (2) not interfere with the various regulators’ ability to conduct independent examinations when necessary; and (3) facilitate the sharing of proposed examination schedules by the regulators in order to minimize the regulatory burden and duplication of examinations. The framework also urges the CFPB and state regulators to share information and consult prior to commencing corrective action against covered depositary or nondepositary institutions. The CFPB and regulators are encouraged to share this information in a “reasonable time prior to the commencement of any corrective action.” The framework further stresses that the CFPB and regulators should develop processes to promote uniformity and consistency in the examination process including “wherever possible . . . standardized documents, forms, templates and worksheets.”
The framework represents an olive branch by the CFPB and the various state regulators to address growing concerns regarding the patchwork of examinations that has overwhelmed many in the industry since the creation of the CFPB. However, it remains to be seen, given the nonbinding nature of the framework, if its implementation will mollify these concerns or add to the confusion of the existing examination process.
CFPB Solicits Feedback on its Proposal to Supervise Certain Nonbank Student Loan Servicers
On May 23, 2013, the CFPB issued a request for input on its proposed larger participant rule in the nonbank private student lending market. Specifically, on March 14, 2013, the CFPB released its proposed regulation defining larger nonbank participants as entities that service more than one million borrower accounts.3 The proposed regulation purports to cover the seven largest servicers of private and federal student loan debt, which service a total of 49 million borrower accounts and represents the third largest participant rule issued by the CFPB. The 60-day public comment period on the proposed regulation expired on May 28, 2013.
By sending out a separate notice seeking comment on its larger participant rule for non-bank student loan servicers, the CFPB is clearly suggesting that it intends to aggressively remedy, in the coming months, what it perceives as a lack of supervision in the private student lending market.
Office of Inspector General Releases Semiannual Report to Congress
On May 24, 2013, the Federal Reserve Board’s Office of Inspector General (OIG) published its semiannual report to Congress highlighting its work with the CFPB and the Board of Governors for the reporting period of October 1, 2012 – March 31, 2013.4 The semiannual report summarizes the OIG’s completed audit of the CFPB’s information security programs and security controls for its Consumer Response System, and provides an update with respect to pending audits of the CFPB’s travel card and purchase card programs for its employees. The report also summarizes the OIG’s completed evaluation of the CFPB’s contract solicitation and selection processes and provides an update with respect to several ongoing inspections.
Of note, the OIG indicates that it expects in the next semiannual reporting period to complete its evaluation of the CFPB’s use of enforcement attorneys at supervisory exams, including “the potential risks associated with this approach to conducting examinations.”
The OIG also expects in the next semiannual reporting period to issue its report on assessing CFPB compliance with the Small Business Regulatory Enforcement Fairness Act, which requires the CFPB to assess a proposed rule’s economic impact and cost of credit for small entities.
2The framework is available here.
4 A complete copy of the OIG’s report is available here.