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CA 09-8

September 14, 2009

SUBJECT: Consumer Compliance Supervision Policy for Nonbank Subsidiaries of
Bank Holding Companies and Foreign Banking Organizations
This letter establishes, effective immediately, a policy for conducting risk-focused
consumer compliance supervision of, and the investigation of consumer complaints against,
nonbank subsidiaries of bank holding companies (BHCs) and foreign banking organizations
(FBOs) with activities covered by the consumer protection laws and regulations the Federal
Reserve has the authority to enforce 1. This policy is designed to enhance our understanding
of the consumer compliance risk profile of nonbank subsidiaries and to guide our
supervisory activities for these entities. It leverages existing consumer compliance
supervision policies and procedures as well as the existing prudential supervision processes
for Large Complex Banking Organizations (LCBOs), FBOs, Regional Banking
Organizations (RBOs), and Community Banking Organizations (CBOs) 2.
Updated or initial institutional profiles and consumer compliance risk assessments for
nonbank subsidiaries of LCBOs should be completed by the end of the fourth quarter of
2009 and supervisory plans for 2010 for these entities should be completed by the end of the
first quarter of 2010. Updated or initial institutional profiles and consumer compliance risk
assessments for nonbank subsidiaries of RBOs, CBOs, and non-LCBO FBOs should be
completed by the end of the first quarter of 2010 and necessary consumer compliance
supervisory work should be identified and scheduled by the end of the second quarter of
2010. It may be possible to develop an initial institutional profile and consumer compliance
risk assessment for some of these nonbank subsidiaries through activities conducted offsite; however, onsite discovery reviews may be needed in some cases to inform the
development of the institutional profiles and consumer compliance risk assessments.
Risk assessments and supervisory plans will be developed by consumer compliance
examiners who have the appropriate experience, training and expertise to do so. Likewise,
consumer compliance supervision of and the investigation of consumer complaints against
nonbank subsidiaries will be planned and executed by consumer compliance examiners with
the expertise to perform such supervision. Board staff will work closely with the appropriate
Management Groups to ensure that the consumer compliance supervision practices are
appropriately incorporated into the established supervision processes for LCBOs, FBOs,
RBOs and CBOs.

Supervisory activities will be planned based on the issues identified in the risk
assessments and through the investigation of consumer complaints. The activities will be
risk-focused and will include continuous monitoring, discovery reviews, target or full-scope
examinations with transaction testing, as appropriate, and the investigation of consumer
complaints. The guidance contained in existing supervision policies and procedures will be
used as a framework to carry out the supervision of nonbank subsidiaries during 2009 and
2010. As the program is implemented, the effectiveness of this framework will be assessed
and adjusted, and additional guidance will be issued, as necessary.
Consumer compliance target and full-scope examinations of nonbank subsidiaries will
result in ratings based on the Consumer Compliance Risk Management rating system
(Strong, Satisfactory, Fair, Marginal, or Unsatisfactory) that is included in the draft RiskFocused Consumer Compliance Supervision Program. The results of the target and fullscope examinations will be transmitted in writing to senior management of the nonbank
subsidiary and the bank holding company or the senior oversight function for any FBO's
U.S. operations. The written document will highlight any significant examination findings
and recommendations for corrective action. Additionally, the results of any consumer
compliance examinations conducted will be rolled up each calendar year and an overall
Consumer Compliance Risk Management rating will be assigned for each nonbank
subsidiary. The Consumer Compliance Risk Management rating system was designed to
align with the rating system used by safety and soundness examiners, and provides a solid
foundation to ensure that the consumer compliance findings are appropriately considered
when the Bank Holding Company rating or the U.S. Combined Assessment is assigned. As
such, it is critically important that the Central Points of Contact (CPCs) and any other
similarly designated responsible individuals be as informed about consumer compliance risk
as they are about credit, market/liquidity and operational risks.
For 2009 and 2010 Reserve Banks should rely on existing staff to implement the
consumer compliance supervision program for nonbank subsidiaries, and use the
established process for sharing resources across districts as much as possible to address
resource needs. Consumer compliance supervision of state member banks remains a high
priority. If necessary, and for the near term, we will consider well-supported requests to
delay mandated state member bank examinations in order to staff examinations of nonbank
We expect that the number and skill set of staff that will be required to maintain this
ongoing program will become clearer as we gain knowledge about the business models and
the control structures in place at each nonbank subsidiary. As such, we will provide
additional guidance for the 2011 budget process related to the permanent staffing additions
that will be necessary to sustain effective consumer compliance supervision of nonbank
subsidiaries of BHCs and FBOs, including the investigation of consumer complaints.
If you have any questions, please contact Phyllis Harwell, Manager, at (202) 452-3658
or Suzanne Killian, Assistant Director, at (202) 452-2090.
Sandra F. Braunstein
Division of Consumer and Community Affairs

1.   The Board has the legal authority to examine non-depository subsidiaries for compliance with the following

laws: 1) the Truth in Lending Act; 2) the Equal Credit Opportunity Act; 3) the Home Ownership and Equity
Protection Act; 4) the Fair Credit Billing Act; 5) the Consumer Leasing Act ; 6) the Fair Credit Reporting Act; 7)
the Fair Debt Collection Practices Act; 8) the Home Mortgage Disclosure Act; 9) the Truth in Savings Act ; 10)
any rules promulgated pursuant to the Federal Trade Commission Act (UDAP); and 11) the Real Estate
Settlement Procedures Act. Return to text
2.   References to LCBO include companies in the Large Financial Institution (LFI) and Large Banking

Organization (LBO) portfolios. Return to text

Supersedes: CA Letter 98-1

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Last update: September 16, 2009