How to Ace a CFPB Exam

While no banker likes exams, the ones by the Consumer Financial Protection Bureau are arguably the most fraught.

Nearly five years after the agency opened its doors, many companies view CFPB exams as akin to litigation, which can result in higher chance of an enforcement action, according to some former examiners.

That's something that needs to change, they said, while also pointing out other ways in which banks could perform better during their next assessment.

"Cooperation will help you ace an exam," said Molly Calkins, a lawyer at Akerman and a former CFPB enforcement attorney. "You and your company may feel that the examiner is your enemy, but that's not an effective attitude. Instead, you might think of the examiner as the good cop who is allowing you to do things the easy way rather than the hard way — with an enforcement action being the hard way."

To be sure, the CFPB may have set the tone for the adversarial nature of exams when it initially sent enforcement attorneys to take part as a routine practice. After the industry strongly objected, the CFPB finally halted the practice in late 2013.

"That highlighted the bureau's recognition that exams are not inherently adversarial, and now the bureau encourages examiners to approach exams neutrally," Calkins said.

Here are suggestions from Calkins and other former examiners on what bankers should do during an exam to ensure a good score.

Give examiners the documents they want
It sounds simple, but many former examiners said institutions will act as if they are in litigation, treating requests for materials as if it were a court case. That type of attitude is counterproductive, said Calkins, who minced no words in explaining the CFPB's authority.

"The CFPB's right to documents is not just broad, it is unfettered," she said. "You must produce what the CFPB asks for. Refusing to produce requested information will have negative consequences that will taint the entire exam, and it will increase the odds of a low compliance rating."

Further, failing to provide any requested information without a solid basis for protecting it "wears away at a company's credibility and supervisory profile," she said.

"When the CFPB asks for information, hand it over, even if it is potentially damaging," Calkins said. "If violations are found, your company will be in a better negotiating position as to what the bureau will do about the violations if your company has been forthcoming."

Make it easy for examiners to access documents through a data portal
The CFPB does not want to deal with paper files. Instead, institutions should ensure there is a data access point that is limited to exam materials.

Similarly, banks should not deluge the portal with too much information, but make sure it is relevant to what the examiner is seeking.

"Don't give the examiners everything plus the kitchen sink," said Nicole Anderson, director of the financial services regulatory practice at PwC and a former examiner at the Federal Reserve Bank of Cleveland. "To be cooperative, give them what they ask for and have another set of eyes to ensure the materials going to them are complete and accurate."

Self-police potential violations
The CFPB has made it clear that to minimize the risk of an enforcement action, a bank should attempt to find any potential violations on its own. If it does find them, it should report them to the CFPB and remediate any harm quickly. The best banks will cooperate with the bureau "above and beyond" what is required.

Designate an exam representative from the bank
Former examiners said banks should create an exam management team and designate one person to act as a quarterback to track examiner requests and set a timetable for responses. That person can also report on the status of the exam to executives and business partners.

If there are too many people involved from the bank, it can be difficult to keep track of what the institution still needs to turn over or for examiners to know whom they should speak with for more information.

Give examiners a separate space to work
Many examiners are tired and travel-weary when they arrive at a bank, often coming from another exam. Former examiners recommended giving them a private area where the can access documents, discuss findings, issue requests and complete their work.

"I've spent my time in basements set up at card tables. It happens and it's not fun," Anderson said. "It would be nice to get examiners a real chair and a real phone that they can use."

Use examiners as a resource
Regulators see a lot of different institutions of varying sizes, complexities and geographies. Institutions should ask examiners what they are seeing at other companies in order to be better prepared for the next exam.

When challenging a finding, be professional
Former examiners suggested that banks should challenge an examiner's finding if they feel it's in error, but be sure to do so in a way that's respectful.  

"Examiners are people. They sometimes make mistakes, sometimes they get it wrong," Anderson said. "If they got it wrong, part of the dialogue is to have the discussion with a level head. Have a well-reasoned rationale for why you disagree with any finding. "

Above all, banks should not reflexively treat examiners as the enemy.

"Do not be adversarial," Anderson said.