The Consumer Financial Protection Bureau (CFPB) released a procedural rule updating its supervisory process for institutions seeking to appeal a compliance rating or an adverse finding. Although the appeals process remains opaque, we are aware of instances when appeal of supervisory examination findings related to matters of law and fact have been successful and have made a meaningful difference to supervised financial institutions. The updated supervisory appeal process became effective February 22, 2024.
This is the first substantive update of the CFPB's process for supervisory appeals since 2015. Updates and revisions concern what supervisory matters may be appealed, the composition of the appeals committee the CFPB assembles to review the appeal, and the powers of the appeal committee to dispose of an appeal. Conversely, the examination procedures regarding confidentiality, the role of the CFPB's Ombudsman Office, and the effect on the supervisory relationship remain unchanged from the 2015 appeals process.
Supervisory Matters Subject to Appeal
Under the revised appeal process, a supervised entity may now appeal any final CFPB compliance rating or underlying adverse finding, or an adverse finding conveyed to an entity in a supervisory letter. Previously, entities could only appeal final CFPB compliance ratings that were less than satisfactory, any underlying adverse findings, or adverse findings conveyed to an entity in a supervisory letter. Adverse findings are those that result in a matter requiring attention by the board of directors or principals of the entity.
Although the revised appeals process expands an entity's appeal rights, the CFPB's supervisory appeals process still does not allow appeals of:
- Preliminary supervisory matters (including preliminary findings)
- CFPB examiners' decisions to initiate supervisory measures, such as memoranda of understanding
- Enforcement-related actions and decisions, including cease-and-desist orders and determinations to proceed with an investigation or public enforcement action
- 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 or
- Referrals of information to other law enforcement and regulatory agencies
The CFPB also does not permit entities to appeal adverse findings or unsatisfactory ratings contained in a supervisory letter or examination report related to a recommended or pending investigation or public enforcement action. After an investigation or enforcement action has been resolved, however, the supervisory findings in a related supervisory letter or examination report may be appealed.
Appeal Submission
The main updates to the supervisory appeals process concern actions the CFPB will take after an appeal has been filed. As under the 2015 process, entities must file an appeal within 30 business days of the date of the CFPB's email transmitting an appealable examination report containing a compliance rating, or an appealable supervisory letter.
The procedural rule also requires the following materials to be submitted with an appeal request:
- A description of the issues in dispute and appropriate supporting information
- A summary of informal efforts taken to resolve the dispute with examiners or other CFPB Supervision staff
- A copy of the board resolution or other appropriate formal document issued by the entity's board of directors or principal(s) that authorized the filing of the appeal and
- A statement of whether the entity's board of directors or principal(s) requests an oral presentation to the CFPB. If an oral presentation is requested, a member of the board or principal must participate in and lead the oral presentation
The revised supervisory appeals process applies to any appeal pending with CFPB Supervision on the date the procedural rule is published in the Federal Register. The appeal submission must now include a copy of the board resolution or other document authorizing the appeal, instead of merely a statement that the entity's board of directors has authorized the filing.
Evaluating the Appeal Submission
The revised appeal process also changes the composition of the committee charged with reviewing appeal submissions. Previously, the committee was composed of three managers exclusively from the Supervision division. Going forward, the committee will be composed of three CFPB managers from any division who were not involved in the supervisory matter being appealed and who have relevant experience with the issue raised by the appeal. Additionally, the CFPB's general counsel must also designate legal counsel to advise the committee.
The committee's role remains unchanged from the 2015 appeal process, and the committee will:
- Review the supervised entity's written appeal, the examination report, or supervisory letter at issue, and supporting documentation for both
- If applicable, send a copy of the appeal to the prudential regulator of the appealing entity and solicit its views
- Solicit input from other CFPB personnel, such as examination staff and CFPB Headquarters staff (including those involved in the specific matter under appeal) and
- Hear a presentation from the appealing entity, if requested
The committee will review the supervisory letter or examination report for consistency with the policies, practices, and mission of the CFPB; the overall reasonableness of the examiners' determination; and support offered for the supervisory findings. The committee will consider only facts and circumstances upon which a supervisory finding was made. Upon conclusion of the review, the committee will advise the Supervision director in formulating a written decision on the appeal. The Supervision director may uphold or rescind a finding or, alternatively, under the revised appeal process, remand the finding to Supervision staff, who will consider the modified finding. Entities may not appeal again after a final determination is reached, although it is unclear whether additional appeals would be precluded, even after Supervision staff renders a new finding on remand.
What Does This Mean for Supervised Entities?
The CFPB's changes to the supervisory appeals process, although relating mainly to the CFPB's internal process, allow entities to appeal any final CFPB compliance rating or any underlying adverse finding. This provides an avenue to challenge the CFPB's supervisory findings if a supervised entity does not agree with them, and even if they do not result in a materially adverse finding requiring the attention of the board or principals of an entity. Supervised entities could not challenge these findings previously, so the revised process provides an avenue for supervised entities to ensure the CFPB is accurately assessing their compliance with consumer financial laws. Appealing supervisory findings may not stay action by the CFPB's enforcement arm, but the process is an important and often necessary part of the process of pushing back on adverse examination findings.
Interestingly, the CFPB did not highlight in the release accompanying the procedural rule the new requirement that a member of an entity's board of directors or a principal must participate in and lead any oral presentation to the CFPB requested during the supervisory process. This is a marked change from the previous requirement that an entity merely indicate that it wants to make an oral presentation to the CFPB. Board members or principals will now have to weigh the utility of an oral presentation to the CFPB—which may be an important source of advocacy during the supervisory process—against the fact that they must participate in and lead presentations to the CFPB. Supervised entities should carefully consider the use of oral presentations and engage outside counsel to assist with preparing both the presentation itself and preparing the board members or principals leading the presentation. This new requirement may have an immediate effect, as the procedural rule declares that the revised supervisory appeals process "applies to any appeal pending with Supervision on the date it is published in the Federal Register." This suggests that entities that have already submitted an appeal will have to comply with this new requirement. If so, entities with a pending appeal should consider this new requirement before requesting an oral presentation before the CFPB.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
