The CFPB Will Not Think You Are Too Small to Matter

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For those entities that believe they are too small to be impacted by the Consumer Financial Protection Bureau, think again. Two days ago, the CFPB released the State Coordinated Coordination Framework. In this document, the CFPB officially sets forth the manner in which it will coordinate with states to extend the impact of its regulatory reach.

Of particular importance, the purpose of the coordination is to avoid duplication of effort by sharing regulatory audit findings, coordinating examination schedules, and coordinate and consult on the identification and supervision of entities, including non-depositories.  In other words, those entities fortunate enough to fall below the CFPB’s radar (single state, non-depository institutions) will face additional audits by state agencies whose resources will be shifted away from multi-state lenders, which will typically be subject to the CFPB and/or their home state regulator. 

Moreover, the CFPB and state regulators will develop processes, procedures and standards for “uniformity, standardization, consistency, and effectiveness” related to standard supervision. For those entities considered larger multi-state lenders, the CFPB will coordinate with states on examination guidelines, risk assessments, monitoring and reporting to achieve “coordinated supervision.” In the event of corrective actions, states will coordinate and consult with the CFPB prior to taking corrective action. 

Events of the past few days demonstrate these are not merely words on a page. Just last week, the CFPB announced it had fined a small Texas builder over $100,000 for what it considered illegal kickbacks under RESPA Section 8. The CFPB concluded that a purported joint venture was in substance merely a cover for illegal referral payments and initiated an enforcement action despite the fact only 32 loans were involved. 

Moving forward financial institutions of all sizes and structures are directly or indirectly going to feel the effects of the CFPB. No one is going to fall below the collective radar of state and federal regulators, and due to coordination efforts, it is unlikely that there will be a substantially weak link in the regulatory fence lenders will now be forced to navigate. Put another way, companies will simply not be able to assume they can skate under the radar and ignore compliance obligations due to their size.