CFPB Revises the Supervisory Appeals Process for Financial Institutions

On February 16, 2024, the Consumer Financial Protection Bureau (CFPB) issued its revised rule addressing how financial institutions can appeal their compliance ratings or adverse material findings by the Bureau. The rule is an update to the Bureau's November 2015 revisions.

In the rule's summary, the Bureau highlights several "main changes" in the revised appeals process:

1) CFPB managers not involved in the underlying examination may sit as members of the appeals committee to advise the Supervision Director on resolution of the appeal.

Building for Consumer Financial Protection Bureau2) The Bureau adds the ability to remand the appeal to the Supervision staff for reconsideration and a possible new finding.

3) Financial Institutions may now appeal any compliance rating they receive.

We discuss these changes, plus other changes to consider, below.

Appeals of Compliance Rating Scores

The Bureau uses an adapted version of the Federal Financial Institutions Examination Council (FFIEC) Uniform Consumer Compliance Rating System (CC Rating System) to determine a numerical rating of the examined institution's content management system (CMS). This system ranges from "1" (satisfactory or higher CMS) to "5" (critically deficient CMS).

Previously, the Bureau allowed institutions to appeal "adverse" ratings of "3," "4," or "5," as well as adverse findings identified in a supervisory letter. The new rule expands the appeals process, allowing institutions to appeal findings even if not adverse under the CC Rating System.

Non-Appealable Matters

The Bureau's new rule leaves the list of matters not subject to the appeals process largely the same. It continues to exclude from the appeals process:

  • preliminary supervisory matters,
  • enforcement-related actions and decisions,
  • adverse findings or ratings related to recommended or pending investigations or enforcement actions, and
  • referrals of information to regulatory agencies.

However, it also adds that referrals of information to "other law enforcement" agencies are also included in this list, making it clear that examinees cannot question the CFPB's decision to provide its findings to, for example, the Department of Justice or the U.S. Attorney General's Office.

The Appeals Process

The Bureau also makes several changes to its procedural requirements. In addition to requiring a description of the issues in dispute, a summary of informal efforts made to resolve it, and requiring entities to request an oral presentation, the new rule requires more participation from the entity's board of directors or principal(s).

Once the new rule is effective, examinees must be prepared to provide a board resolution or "other appropriate formal document issued by the entity's board of directors or principal(s)" authorizing the filing of an appeal. Additionally, the Bureau clarifies that the request for an oral presentation must come from the board of directors or principal(s). That member of the board or principal must participate in and lead the oral presentation.

What's Next?

The new rule does not yet have an effective date. Once effective, supervised institutions will want to understand and carefully consider their options with respect to appeals.

Hinshaw & Culbertson LLP has experience assisting a wide variety of financial institutions and is here to help you navigate regulatory examinations and enforcement actions.