On February 16, 2024, the Consumer Financial Protection Bureau (CFPB) announced what it heralded as a significant update to its Supervisory Appeals Process. The first of its kind since 2015, this revision introduced a seemingly more inclusive and flexible approach to how financial entities can contest supervisory findings. The appeals process is intended to promote a constructive relationship between the CFPB and the entities it regulates. To better achieve that goal, the recent updates to the appeals process include (1) changes in the eligible members of the appeals committee, (2) an additional option for the appeals committee to remand a matter, and (3) the extension of the appeals process to include appeals of any compliance rating issued by the CFPB.
Main Changes to the Appeals Process
First, the revision expands the pool of appeals committee members. Before this revision, only managers from the CFPB’s Supervision division could serve on the appeals committee. Under the update, any CFPB manager with relevant expertise who did not participate in the supervisory matter is eligible. The CFPB is promoting this change as a move that ensures a broader perspective in the appeals deliberation process; however, even though the pool itself is expanded by this revision, the Supervision director still maintains complete control over who is selected to serve.
Second, the revision creates an additional option permitting the appeals committee to remand the supervisory finding to Supervision staff for consideration of a modified finding. The previous process was more binary in nature, affording the appeals committee options only to uphold or rescind the supervisory finding. Under the new appeals process, the option of a modified finding is now available. While this third option provides the appeals committee with more flexibility, the CFPB’s guidance does not outline what merits remand or how the Supervision staff is expected to process a remanded supervisory finding and issue a modified finding.
Third, the revision allows supervised entities to appeal any compliance ratings it receives from the CFPB, not just an unsatisfactory rating. After an examination, the CFPB issues a compliance rating to supervised entities on a numerical scale from 1 to 5, with 1 being the highest rating and 5 the lowest. A rating of 1 or 2 is generally considered satisfactory, whereas a rating of 3, 4, or 5 is unsatisfactory. Under the prior version of the appeals process, an entity was only able to appeal “a less than satisfactory compliance rating (a 3, 4, or 5).” Now, the new appeals process does not limit a supervised entity’s ability to appeal a compliance rating, simply stating that the entity may appeal if it “disagrees with a compliance rating.” As a result, a supervised entity can now appeal any compliance rating issued by the CFPB.
Takeaways
These changes appear to bring the CFPB’s appeals process into alignment with the appeals processes of other regulators. For example, the Office of the Comptroller of the Currency (OCC) also provides supervised entities a broad basis to appeal “any agency decision or action” but simultaneously encourages the resolution of matters prior to appeal through informal discussions. The Federal Deposit Insurance Corporation (FDIC) also advises supervised entities to make “a good-faith effort” in resolving disputes in addition to its formal appeals process. Further, the CFPB, OCC, and FDIC all designate very similar matters as non-appealable, such as preliminary supervisory matters and enforcement-related actions.
Since the CFPB’s announcement of the update does not include an effective date, it is unclear when these changes will impact the industry. Industry participants should review the changes and assess any potential impact. It is important to note that, while the revision appears to improve the appeals process to the benefit of supervised entities, it does not go so far as to allow a supervised entity to appeal before the CFPB’s formal issuance of a compliance rating or “matter requiring attention.” As a result, entities subject to a CFPB examination will still bear the brunt of the examination with the only formal outlet for resolution of any disagreement coming after the fact.
