U.S. CFPB examiners adopt lighter oversight in consumer finance reviews

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CFPB lighter consumer finance oversight

Highlights

Over half of CFPB examinations completed earlier this year used expedited reviews, identifying only minor lapses and rarely escalating cases, per sources.
The CFPB selected about 70 companies for examination in 2024, roughly half the usual number, and paused plans to cut two thirds of its workforce pending new leadership.
Former CFPB officials warn the surge in expedited reviews and reduced nonbank oversight may leave significant consumer risks unaddressed in the financial sector.

Spring reviews show narrower supervisory approach

As first reported by Reuters, more than half of the CFPB examinations completed earlier this year go through an expedited review process, meaning supervisors identify at most only minor lapses with little risk of consumer harm, according to people familiar with the matter.

Those reviews are more lenient and have historically been rare, the people say. They add that the agency's new political leadership makes clear through policy changes and other communications that deeper scrutiny is unwelcome and that examiners' jobs are at risk.

The administration says financial industry oversight becomes too onerous and weighs on lending and the broader economy, while consumer advocates dispute that view. Russell Vought, the CFPB's former acting director, tells lawmakers in July that the agency shifts its supervisory approach with the aim of doing "as little damage as possible," while saying that does not mean doing as little as possible.

After initially vowing to abolish the CFPB, the administration tries to cut roughly two thirds of its workforce, including most supervisory staff, although those plans are now on pause pending confirmation of a new director. The agency also says last year it would cut the number of exams by half, move focus away from areas such as student loans and medical debt, and direct more attention to mortgages and redress for military service members.

Risks for consumer finance oversight

This year, roughly 70 companies are selected for examination, about half the usual number, according to people with knowledge of the matter. Reuters cannot determine exactly how many firms are examined in the spring, but the cases are scheduled roughly evenly across four quarters.

Under normal practice, examiners review records and speak with company employees before deciding whether possible violations warrant legal analysis or enforcement action. In most spring cases, however, examiners determine the inspections are clean under agency guidelines and do not escalate them to legal or enforcement teams, the people say.

Former CFPB officials and supervisory experts say the high share of expedited reviews could leave serious problems unaddressed. Austin Hinkle, a former senior counsel in the CFPB's supervision division, says a significant number of expedited reviews suggests either that leadership selects the wrong companies for review or that career staff are told to back off when violations are found.

Larry Lee, a former CFPB attorney who leaves the agency in August and now leads consumer financial protection policy at Better Markets, says staff have little incentive in the current climate to search diligently for violations. Lorelei Salas, who resigns last year as the agency's supervision chief after the division's work is halted, says the retreat from nonbank oversight ignores companies posing the highest risks to consumers.

Our earlier article covered the widening questions around Manchester City’s financial reporting, including a 2018 HMRC civil inquiry into the club’s tax affairs after leaked internal emails. It also outlined how an independent commission later alleged the club inflated its finances through sham commercial deals, increasing pressure on regulators while the club appeals the findings.

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