CFPB Closing Out Hundreds of Bank Exam Red Flags as Firings Loom

The Consumer Financial Protection Bureau has closed out virtually all pending regulatory issues flagged by the agency’s bank examiners as Trump-appointed leaders prepare to fire most remaining staff members.

The CFPB had around 2,000 open “matters requiring attention” in June as Trump-appointed leadership ordered exam teams to prepare memos justifying the to-do items. As many as 99% of all outstanding MRAs are now set to be closed by the end of this week, according to multiple people familiar with the issue who requested anonymity to discuss internal developments.

A matter requiring attention is a supervisory term for a compliance problem that a company can address confidentially before it’s referred for an enforcement action.

Some inside the CFPB referred to the documents they prepared as “death memos,” alluding to the potential fate of outstanding red flags at supervised companies as well as agency leadership’s push to terminate nearly 90% of the workforce.

It’s common for new leaders at federal banking agencies to review outstanding supervisory and enforcement matters. But what’s happening at the CFPB is different.

One person familiar with the matter said it felt like examiners were preparing for their own reduction-in-force—a distinct possibility after a federal appeals court this month paved the way for mass layoffs to proceed.

The CFPB didn’t immediately respond to a request for comment.

One Direction

Financial companies under the CFPB’s purview can face matters requiring attention—or matters requiring “immediate” attention—when examiners spot compliance problems. Top executives and a company’s board of directors are typically notified about the compliance issues.

Examiners can require companies to send remediation payments to harmed consumers and fix internal policies and procedures. Companies must prove they made those fixes before the matters are fully closed.

But company verification isn’t happening in most of the recent closeouts, which are being done without even consulting the front-line examiners, people familiar with the matter said.

CFPB political leadership is closing out MRAs in some instances after fielding requests from the targeted companies, multiple people said.

In other instances, companies are making token changes. But the CFPB’s “death memo” process can only move in one direction—closing any outstanding MRAs, one person with knowledge of the matter said.

The CFPB under acting chief Russell Vought is also cutting back on the scope of companies it oversees.

The 2010 Dodd-Frank Act gave the CFPB the power to supervise banks with banks over $10 billion in assets and other consumer finance companies. The agency can also designate the largest players in other markets not specified in the law for regular visits from agency examiners.

But the CFPB this month kicked off a rulemaking process to shrink the number of auto finance, international money transfer, debt collection, and consumer credit reporting companies under its supervision. Those industries have been operating under CFPB “larger participant” rules since as early as 2012.

CPFB leaders in April had previously directed examiners to slash the number of supervision “events” by 50% and to shift attention toward traditional banks.

Coming Layoffs

The exam closeouts come as the CFPB prepares to fire most of its employees.

The US Court of Appeals for the District of Columbia Circuit on Aug. 15 lifted a stay that had prevented Vought’s CFPB from eliminating nearly all of the agency’s workforce. The CFPB at one point planned to fire more than 400 staff members in the exam unit, leaving only 50 remaining, according to exhibits filed in litigation challenging the moves.

Even if Vought is ultimately blocked on his mass layoff plans, the Republican-only budget reconciliation measure signed by President Donald Trump on July 4 (Public Law 119-21) slashed the amount of money the CFPB can request from the Federal Reserve by around half. The CFPB gets its funding from the Fed rather than the congressional appropriations process.

The CFPB was already running out of money, and with the new cap on its funding transfers, it’s unlikely the agency can maintain a significant examination force moving forward.