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Banks Say New Agency's Oversight Is Slow, Costly

The CFPB has been supervising the institutions since July 2011 â¿¿ longer than any other group.

A core industry complaint relates to delays in receiving formal, written reports that summarize bank examiners' findings and identify problems that banks must address. These reports are taking nine months or more to process because the agency's Washington headquarters is putting them through an extra round of scrutiny, Hunt and others in the industry said.

While other banking regulators typically offer immediate feedback as examinations conclude, with the CFPB, "you have your exit interview, and things could be bad or they could be good," but it's not clear until the final report arrives, said Suzanne Garwood, a consumer banking attorney with the law firm Venable.

The slow, inefficient audits are making it tough for banks to decide what products they can offer consumers without drawing the ire of regulators, said Robert Kottler, head of retail and small business banking for IberiaBank Corp. in New Orleans.

When banks consider rolling out a new product, "one of the first things we talk about is what our regulators think," said Kottler, who also chairs the CBA's board. Because it is so difficult to know what the new agency will think of a given product or loan, banks are less likely to offer it, he said.

Delays and other growing pains at the agency threaten to undermine its consumer protection mission and reduce the number of financial products available to consumers, according to bank attorneys and former regulators.

"For the examination process to be effective, there can't be a nine-month time lag between the examination and the examination findings," said Mark Williams, a former Federal Reserve bank examiner who favors stricter oversight of the banking industry.

While it would be impossible for the new agency to "create a crackerjack exam team overnight," the slow turnaround times are "a warning sign of a system that needs to be corrected," said Williams, who currently teaches at Boston University.

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