Multi-State ExaminationsFact vs Fiction

And Why What You Do Every Day Matters

NACARA Annual Conference September 28-30, 2015Jedd Bellman Assistant Commissioner MD

John PrendergastVP Supervision

CSBS

What’s the point?

• Of this presentation?• Of a Multi-state Examination?

What is a Multi-State Examination

• States agree to engage in a coordinated fashion– How? Agreements

• Can be one examination all states sign off on– But can take other forms

• CFPB coordinated• State to State coordinated• Several state visitation or follow up

• The sharing of information from state to state• Solidifying relationships between:

– State regulators– Industry

Why Are We Doing This?

Why Are We Doing This?

• Lessons from the Crisis• Quickening pace of technology• More efficient for Regulatory agencies

– Human capital has finite physical limits– Accepting other states exams can satisfy mandates

• More efficient for Industry– One examination can satisfy 20 or more states– Cost savings are significant– Demands on staff are reduced

Why Are We Doing This

Commissioners have decided:

This is the future of State Regulation

Fiction vs Fact

Fiction• You cant do multi-state

exams due to their size• Companies don’t want

them• My examiners hate them• They take to long• They throw my

scheduling off

Fact• False Many have been

done successfully• False – Some actually

request them• TRUE!• Why?• Sometimes – But should

that matter?

Fiction vs Fact

Fiction• The EIC cant control the

crew due to size

• EIC cant hold other states accountable

Fact• False – The MMC has

determined success is attainable by highly organized EIC’s

• False but also True – EIC’s assign deadlines– MMC holds states

accountable– EIC’s need to report issues

to MMC

What Now?

Has Regulatory Action Changed Anything?

Regulatory Enforcement Process

– Exam– Orders– Multistate approach appropriate?

• Process of All States Calls• Commissioner approval

– Negotiations– Due process– Hearings– Final outcome

What Does Enforcement Look Like?

Aren’t you really in the business of………

Behavior Modification

Examinations

• “Check the Box” Compliance exams are a thing of the past

• Sampling sizes………..Do they make sense?– When should we take a bigger sample?

• Consumer Interviews………A must have!• Prudential Standards

– Is this company viable– Does their funding structure make sense?– Do their IT systems function as their policies say they should?

Examinations

• Are there significant problems here?Consumer harmDocumentation mismanagementDocumentation Fraud

What do the Lawyers Need??

Hmmmmmmm???????

Examinations

Examinations

• Lawyers need evidence– Documentation– Sufficient abundance………– If no documentation……

• Documentation why!– Emails– Dates– Timeframes

Examinations

• Lawyers are telling a story• Examiners give them the script

• WHEREAS, on or about January 8, 2013, the Commissioner commenced a routine regulatory examination of Ocwen through her examination staff, to ensure Ocwen’s compliance with the CRMLA and the California Homeowner Bill of Rights, a package of amendments to the California Civil Code that became law on January 1, 2013.

Examinations

• WHEREAS, as part of the regulatory examination, the Department made reasonable requests to Ocwen, including through a lawfully issued administrative subpoena duces tecum, for the production of information and documents for borrower loan files. On October 15, 2013, the Department made a request to Ocwen for documents and information for ten loan files. A second request was made on July 31, 2014 for 1200 loan files (“1200 loan sample”). A third request was made on August 5, 2014 for 120 loan files (“120 loan sample”).

• These requests were documented

Examinations

Don’t be afraid to ask for HELP!

Orders

• Who makes the call?

• “What do I care……..I’m just an examiner”

• If an order is contemplated– Documentation necessary?– Depositions?– Affidavits?

Orders

Two things critical to a successful order

1. TimingDetermines when the evidence is compiledAllows examiners to organize thoughts and evidence

2. CommunicationBetween Examiners and OfficeClarity on expectationsClarity on basis for action

Multi-state Approach / MMC Lessons Learned

What’s the Difference• Examination personnel is less accessible to EIC• Authority queasiness……EIC…..SPOC….Examiners• Dealing with people your not familiar with• Companies sometimes divide and conquor• Timeframes are generally longer• Companies play the “survivor game”

– Outplay– Outwit– Outlast

Multi-state Approach / MMC Lessons Learned

What’s the same?• Exam team follows EIC• Deadlines are expected• Assignments are made• Scope is defined• Timeframes are developed

Multi-state Approach / MMC Lessons Learned

Where do multi-state exams become problematic• EIC is not empowered• Communication between exam team is not consistent• Inadequate SPOC oversight• Coordination of exam material is more cumbersome• Direction to examiners and expectations are not clear• EIC’s are less likely to direct examiners to “do it this way”

Multi-state Approach / MMC Lessons Learned

Commissioners approve this approach by policyCFPB uses this approach by necessityDirected predominantly at the largest companies in the country

Model necessitates good communication• All States Calls among Commissioners• Guidance on Regulatory approach by Commissioners• Sign off on appropriate Regulatory Order• Approval of Negotiating terms

Negotiations

• What are they– Orders?– Agreements?

• Who does them– Lead state?– Team?– Home state

• How successful are they– What should result from a negotiation?

• Do they make a difference– Behavior Modification

New Day Financial

• Cheating plain and simple• Why were company actions not sufficient on their own• Trust and verify• Independence of audits or investigations • Company culture of non compliance• Pervasive

Regulatory Coordination

• MMC interacts with many different regulators and entities• Referral process from MTEB to MMC• From other states to MMC……..NH in the New Day case• Increased communication between agencies and

individual regulators now as opposed to the past

Tools at your disposal

• Books and records vs subpoena powers• Why use one over the other• When would the AG get involved• Non Public Order• Consent Order• Depositions……..When are they useful• Whistleblowers

Negotiate to Change Behavior

Negotiations are a message that the regulators believe the company is able to continue• This can change, depending on demeanor during the

process• What happens if the company refuses to negotiate• Why it is futile to stall during a negotiation• What the result of stalling may necessitate on the part of

the regulators Move to revoke Sends the message company is not serious

about moving forward

Questions and Discussion