The CFPB recently revised its policy on Appeals of Supervisory Matters. Supervisory appeals are an avenue for supervised entities to obtain a second opinion from CFPB headquarters about examiners’ findings. However, the Bureau’s policy excludes the most significant matters — specifically, all aspects of enforcement — from this process.
In 1994, Congress required the federal prudential regulators to establish “an independent intra-agency appellate process” that is “available to review material supervisory determinations,” with “appropriate safeguards … for protecting the appellant from retaliation by agency examiners.”
Although the Bureau is not expressly subject to this congressional mandate, it established a similar appeals process in 2012. The Bureau’s policy allows entities to appeal less-than-satisfactory compliance ratings (a 3, 4, or 5) and adverse findings in a supervisory letter or examination report, but not the supervisory letter or examination report itself.
None of the regulators allow a supervised entity to use the appeals process to contest the decision to pursue an enforcement action. But in the case of the OCC, “[w]hile banks may not appeal a decision by [examiners] to pursue a formal enforcement-related action, banks may appeal conclusions in” an exam report that underlies a potential enforcement action.
By contrast, the CFPB has revised its appeals policy to make clear that “adverse findings or an unsatisfactory rating contained in a supervisory letter or examination report related to a recommended or pending investigation or public enforcement action” are excluded from the CFPB’s appeals process until after an investigation or enforcement action has been resolved. The CFPB policy also expressly excludes appeals of CFPB decisions to make referrals to other agencies — including referrals to the U.S. Department of Justice under the Equal Credit Opportunity Act. Moreover, examiners’ decisions to initiate “supervisory measures,” such as memoranda of understanding, are also excluded from the appeals process.
The CFPB also revised its appeals policy to include, for the first time, a standard of review for determining appeals: “The committee will review the supervisory letter or examination report for consistency with the policies, practices, and mission of the CFPB and the overall reasonableness of the examiners’ determinations, and support offered for, the supervisory findings.”
While having a standard of review is welcome, the specific standard selected by the Bureau seems opaque. Pursuant to the policy, entities are limited to appealing either a compliance rating or adverse findings contained in a supervisory letter or examination report. The announced standard of review, however, talks instead about the appellate committee reviewing the “supervisory letter or examination report” itself (as opposed to the rating or findings contained therein). Moreover, the standard says the supervisory letter or examination report will be reviewed “for consistency with the policies, practices, and mission of the CFPB.” Presumably, that portion of the standard relates to appeals of ratings as opposed to findings, and is intended to convey that the assigned rating will be assessed to see whether it comports with how the CFPB assigns ratings generally, but that is not at all clear. The next aspect of the standard makes reference to the “overall reasonableness of the examiners’ determinations” — but it is again not clear if that reasonableness standard is intended to apply to appeals of ratings, findings, or both. Finally, with respect to adverse findings, the standard notes that the appellate body will review the “support offered” for such findings. Although helpful, that, in itself, does not constitute a standard of review. Notably, the standard does not speak to whether findings of legal violations actually have a legal basis, but one hopes that such a determination is subsumed within the reasonableness analysis or the “support offered” prong of the standard. The revised policy does make clear that the appealing entity bears the “burden to show that the contested supervisory findings should be modified or set aside.” It is unclear whether that same burden applies to contested ratings, but we are guessing that it does. In sum, the CFPB’s announced standard lacks clarity as to how it applies to the review of ratings and findings, which are the only matters that the policy allows an entity to appeal.
The CFPB made various other revisions to its appeals policy, including to the composition of the committee that will determine such appeals. Interestingly, although neither the prior nor the revised policy specifies how many members that committee will have, in announcing the new policy, the CFPB noted that the revised policy “[p]ermits an odd number of appeal committee members in order to facilitate resolution of appeals.” One can only guess as to why the CFPB chose to highlight this fact, but it might provide some insight into the impetus behind the revised policy and may suggest that a tie vote occurred in the past, or at least that the Bureau considers a tie vote to be possible.
The CFPB’s appeals policy is something for supervised entities to keep in mind if they’re not able to resolve issues with examiners. But at times when it really counts, because the examination report or supervisory letter is related to a recommended or pending investigation or public enforcement action, the appeals process isn’t an option.