During prepared remarks covering an array of topics, Consumer Financial Protection Bureau director Kathleen Kraninger revisited a subject particularly important to auto finance companies — how in-person, onsite examinations might unfold.
Kraninger told attendees at an event hosted by the Bipartisan Policy Center: “To quote one of the bureau staff in New York — people act differently when they know there is a regulator who will be checking their work.”
Last week’s public appearance was one of only a handful Kraninger has made since being officially installed as the agency’s leader last December. She appeared during hearings orchestrated by both the House and Senate in March and reflected on those events during her time with the Bipartisan Policy Center, which is a Washington, D.C.-based think tank.
Kraninger emphasized that the bureau possesses supervision authority that can prevent violations of laws and regulations from happening.
“Bureau examiners can review compliance management systems at an institution to assess whether the institution is taking its obligations seriously, and whether it has a culture of compliance that tries to prevent harm in the first instance,” she said, according to the remarks shared by the bureau.
“Supervision can uncover inattention to compliance and other internal controls that, if unaddressed, might lead to future violations. We can then suggest ways the institution can make improvements that might stop this from happening,” Kraninger continued.
“In fact, traditional banking institutions and non-bank lenders alike have noted the value of the exam process in supporting their compliance efforts — I heard it repeatedly in my conversations over the listening tour. Heading trouble off at the pass may not grab big headlines, but it will prevent a lot of headaches for the consumers we serve,” she went on to say.
To reinforce her point, Kraninger recapped how she recently joined examiners at an onsite investigation. She said the examiners explained the systems they use, the information requests they sent, the data they received back and the steps they take to evaluate whether an institution is complying with its legal obligations.
“They talked about how they review an institution’s compliance management systems,” Kraninger said. “I was encouraged to hear their focus on working with the institution to prevent consumer harm, and I will encourage and expect this productive focus going forward.”
Perhaps as a response to critics on Capitol Hill and within the consumer advocate community, Kraninger also stressed the CFPB still has a significant percentage of its personnel and resources dedicated to conducting exams.
“I am focused on ensuring we use this tool as effectively and efficiently as possible to prevent consumer harm,” she told the Bipartisan Policy Center.
Kraninger elaborated about that particular point in light of her being director for only a few months.
“Focused on these goals for supervision, I have challenged the staff to take a fresh look at the entire process — the prioritization and frequency of exams, the size of the exam teams, the days spent onsite, the systems and job aids that support the work, the time it takes to complete an exam and deliver a report and how we empower examiners to provide input on the exam process, among other things.
“From a substantive standpoint, to ensure a culture of compliance means working confidentially in a back-and-forth process with a financial institution to prevent consumer harm until the institution demonstrates that process won’t work for them. That institution needs to self-examine, self-report and provide restitution where appropriate,” she continued.
“Given the pace of the world today, that institution — and consumers — expect agility from the bureau in terms of how quickly we can adjust to address changing risks, including how promptly we acknowledge that actual or potential harm has been addressed,” Kraninger went on to say.
The CFPB leader closed this segment of her prepared remarks by acknowledging that the bureau is not the only regulator watching what finance companies and other participants in the automotive space might be doing. Kraninger also mentioned she recently became chair of the Federal Financial Institutions Examination Council, a group of federal and state agencies that regulate financial institutions.
“Financial institutions in this country are subject to myriad laws and regulations, all while being examined by a variety of federal and state regulators. In my short tenure, I have gotten to know my federal counterparts and am building strong relationships with them,” she said. “I have also prioritized meeting and speaking with state attorneys general and commissioners at every opportunity.
“As (Federal Financial Institutions Examination Council chair), my focus will be on strengthening coordination and collaboration with our sister regulators who review the same or similar information at the same institutions, albeit for different reasons,” Kraninger continued.
“It is incumbent upon us to ensure that we do not impose unmanageable burdens while performing our duties. A more efficient and effective deployment of resources toward monitoring and addressing the risks will help all agencies do their jobs better and will help the bureau to prevent harm to consumers and address violations where they occur,” she went on to say.