This week, the Consumer Financial Protection Bureau released its second update to its examination procedures. Specifically, these focused on the new rules going into effect relating to the Real Estate Settlement Procedures Act and the Truth in Lending Act. Everyone should take a look at the rules because they provide a good overview of the new regulations set to go into effect in January. Just as important, however, the rules provide a roadmap for how the CFPB is going to evaluate compliance with these and other laws. Knowing the CFPB’s roadmap can assist companies in reverse engineering their policies, procedures, training and practices to avoid compliance deficiencies.
For instance, in evaluating compliance with section 8 of RESPA, the CFPB is going to rely on interviews with management and lending personnel, verified by examination of HUD-1s and the financial statements of common settlement service providers to examine whether there were any kickbacks in violation of the statute. In the case of disclosed or formalized relationships, the CFPB will examine audit papers and other financial documentation to ensure that the parties’ conduct was consistent with the expressed intent of the arrangement.
Interestingly, in regard to compliance with the new TILA laws, the CFPB’s focus is going to be placed on management and the implementation of an effective and appropriate compliance management system. Indeed, the CFPB will go so far as examining compliance audit and work-papers to ensure appropriate and on-going attention is placed upon compliance and a proper infrastructure is in place. Interestingly, the exam procedures are notably light on detailed specifics in terms of how the CFPB intends to audit compliance with the new LO compensation laws. Rather, it appears the agency is (1) inherently relying upon its prior general comments that it would compare compensation formulas to the actual compensation to audit compliance; and (2) evaluate TILA compliance with a focus on the compliance infrastructure and record-keeping practices to ensure the new regulations are being followed.
Once again the CFPB is reminding us of its focus upon internal corporate methodology. It is beyond obvious at the this point that the CFPB is more interested in the manner in which an entity has set itself up to routinely behave, as opposed to particular errors or mistakes. The good news is that if a company does heed the agency’s advice and set up its internal controls appropriately, it may have less to worry about in terms of rogue employees and honest good faith mistakes than we might have initially believed.