United States: The Increasing Influence Of The CFPB On Community Banks

Title X of the Dodd-Frank Act, entitled the Consumer Financial Protection Act of 2010 (CFP Act), established the Consumer Financial Protection Bureau (CFPB). The CFPB enjoys rulemaking, enforcement and supervisory powers over many consumer financial products and services, as well as the entities that sell them. The CFP Act transferred to the CFPB the primary rulemaking authority over many federal consumer protection laws that were enacted prior to the Dodd-Frank Act.

The CFP Act significantly alters the consumer financial protection landscape by consolidating rulemaking authority and, to a lesser extent, supervisory and enforcement authority, in one federal regulator – the CFPB. With its broad rulemaking mandate, it is clear that the CFPB maintains heightened jurisdiction over consumer protection regulations not previously held by the prudential banking regulators. In addition to its rulemaking authority, the CFPB was bestowed with supervisory authority over banks with more than $10 billion in assets, meaning that the CFPB has visitorial powers over these larger depositories. Although institutions with less than $10 billion in assets are not subject to the CFPB's direct supervision, what is becoming increasingly apparent is the growing influence of the CFPB on community banks. Since the creation of the CFPB, the prudential banking regulators have not only intensified their focus on consumer compliance, but are also now modeling their examinations and enforcement strategies after the CFPB. In short, the CFPB is having a real influence on the daily operations of community banks, regardless of size.

Community banks should be thinking proactively and broadly about this shift in supervisory philosophy toward consumer compliance. Gone are the days when a prescriptive, rules-based approach to compliance would suffice. The principle-based approach to enforcement adopted by the CFPB is fast becoming the new normal for consumer compliance enforcement and examination. The "unfair, deceptive, or abusive acts or practices," or UDAAP, provision under Dodd-Frank is a prime example of how a broad regulatory provision, combined with the CFPB's principle-based approach to consumer compliance, warrants a thorough, top-down examination of community banks' consumer compliance structure. Technical compliance with consumer protection regulations, although necessary, is not sufficient. As the CFPB states in its Supervision and Examination Manual, "a transaction that is in technical compliance with other federal or state laws may nevertheless violate the prohibition against UDAAPs. For example, an advertisement may comply with TILA requirements, but contain additional statements that are untrue or misleading, and compliance with TILA's disclosure requirements does not insulate the rest of the advertisement from the possibility of being deceptive."

Although the CFPB does not have direct supervisory authority over community banks, the prudential regulators appear to be taking cues from the CFPB. The FRB, for one, has showcased a broad-based enforcement approach to UDAAP rules and regulations and some high expectations for how banks should be identifying and resolving complaints involving abusive or deceptive practices. Some recently cited violations include underwriters inflating the income lines on residential real estate applications or charging sham origination points; abusive overdraft and billing practices; and being deceptive in the manner in which deposit products are priced. The consequences for these violations can be harsh: MOUs, downgrades of compliance and CRA ratings, and even criminal prosecutions. Some of the violations appear in response to banks making moves to offset recent margin pressure and cutting corners on compliance. Regulators have indicated that they view as red flags those banks pushing new or modified products and services to generate revenue, especially if done in conjunction with third-party vendors where fees are shared. Although revenue growth is desirable, there is also a need to ensure there is compliance with UDAAP and consideration of UDAAP risk. Some of the actions community banks should consider to manage the UDAAP risk include:

  • Conduct internal reviews. Incorporate UDAAP review into the life cycle of a product or service and determine whether any product or service could be considered unfair or deceptive.
  • Review customer complaints and identify trends.
  • Review advertising and marketing, considering how cost, value, availability, alternatives, benefits or terms are represented. Consider whether the terms advertised are actually available to most consumers.
  • Review loan officer compensation and assess whether the compensation program incentivizes behaviors or practices that increase UDAAP risk.
  • Review all third-party vendors that offer or service any aspect of any product or service; review policies and processes for selecting and managing third-parties; how third-parties are compensated; assess third-party activities to verify compliance with technical consumer compliance requirements and UDAAP.

UDAAP is just one area of consumer compliance focus. Fair lending, BSA/AML, indirect auto finance and the ability to repay/qualified mortgage rules are other hot-button compliance issues. Each of these distinct areas of consumer compliance require a rigorous review and assessment, not only by the employees specifically charged with consumer compliance, but also by the bank's board of directors and management. Regulators are increasingly holding directors and management accountable for consumer compliance lapses.

A trend is emerging in recent settlements with large, multi-national financial institutions and other regional institutions where regulators are insisting on higher-level involvement of bank officials and the board of directors in BSA/AML compliance. As part of a consent agreement to settle BSA/AML compliance issues last year, Citibank agreed to establish and maintain a board-level compliance committee including at least two outside directors, to ensure the bank was effectively implementing the law. The agreement includes a "Management and Accountability" section, requiring the bank to maintain "clear lines of authority and responsibility" for its BSA/AML activities, and "competent and independent" management to be in-place on a full-time basis. In 2012, First Bank of Delaware was stripped of its state charter and penalized $15 million for failing to implement an effective AML program. More and more, community banks are having to confront the increased regulatory scrutiny on BSA/AML policies and procedures.


Managing compliance effectively and successfully is now more critical than ever. Size does not matter – prudential regulators are getting tougher on everyone. Under the current regime, if the CFPB takes a different stand on an issue than a prudential regulator, the CFPB prevails. Therefore, all banks, not only the large banks directly supervised by the CFPB, must follow developments at the CFPB closely and take note of emerging issues. In order to exercise appropriate oversight over the affairs of a bank, directors must have a fulsome understanding of the risks associated with the business of the bank and establish a risk management program to mitigate those risks. To do this, directors will necessarily need to be more knowledgeable about banking and will be expected to undertake whatever is necessary in order to become better informed.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Michael Mancusi
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions