The Consumer Cost Of CFPB Compliance

Thoughts of tying up bank resources for a CFPB audit seem to hang over the industry. And no wonder: here is the 924 page exam manual, and the one for student loans appears to be 27 pages.

Anecdotal chatter suggests that although most lenders believe that they would pass an exam, the resources required going through one and being tied up in the process, or the possible penalties if they don’t sail through it, are making some owners ask: Is it really worth it?

But the more important question is: does it help the borrowers?

We’ll look at that in a moment. But first, let’s look at the current lack of actual mortgage banker fines. One reader wrote:

I have heard that the CFPB is accumulating a data base of the mortgage lender exams in an attempt to aggregate the findings and determine what infractions are commonplace and which ones are not. Of particular concern to the examiners, for example, is the lack of coherent branch manager agreements in non-depository lenders. Lenders with branch networks, where some branch managers own their own branch, or are owners in the company, or some combination of those two or an entirely different agreement, and raising eyebrows at the CFPB, especially if it impacts the motivation of the branch manager to incent LOs differently. And it seems that when the CFPB has a critical database of information it will commence levying fines and penalties with the severity based on whether or not something is the industry norm or not.

And since I seem to be asked about this link periodically, here is a reminder. A warning was issued by the CFPB in their February 2013 bulletin, to banks and non-bank servicers. The warning pertains to the servicers’ legal obligations to protect consumers during loan transfers. The bureau advises, when handing over the processing of loans, mortgage servicers should not lose paperwork, lose track of a homeowner’s loss mitigation plans, or hinder a consumer’s chances of saving their home from unnecessary foreclosure. Special thanks to Bankers Advisory for including a detailed “to-do” list for servicers in its compliance manual.

And now back to the question about the consumer cost of CFPB compliance.

I received a (somewhat) tongue-in-cheek note that gets to the issue:

Can a mortgage banker create a line item on the HUD 1 for a ‘compliance fee’ charged directly to homeowners? I am surprised no one has calculated out the cost per transaction to comply with all these government regulations. Measuring your cost per transaction on compliance not only seems like a practical idea, but also provides the public with awareness to the regulatory challenges the mortgage industry faces.

Indeed, the CFPB has embarked on a program to measure this. Whether or not it becomes a line item is not all that farfetched—like auto’s “gas guzzler” tax. And the fact that the CFPB is looking at this means they at least know that their rules have an unintended cost impact on the very consumers they’re trying to protect.

As they say in Washington: there is no perfect regulatory system.