Sen. Sherrod Brown (D-Ohio) said during a hearing of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection that more clarity is needed in the regulatory use of independent consultants in the financial services industry.
A report released by the Government Accountability Office last week found gaps in the quality of regulatory oversight of work completed by independent consultants hired to monitor the Independent Foreclosure Review Process undertaken after widespread mortgage servicing problems began to surface.
“The top consultants are staffed by scores of former regulators and big bank employees that reportedly charge as much as $1,500 per hour to give banks their expertise,” Brown said. “And because most consulting firms are private companies, there is little transparency – to the public or to Congress – and we can only speculate about the financial incentives and business relationships that consultants have.”
Additionally, Brown pointed to recent news that one of the consulting firms that participated in the IFR was given multiple written notices regarding opportunities to “improve” their performance, adding that while a number of discussions between the consultancy and regulators did occur, “the consultant in question had not cured its deficiencies at the time that the foreclosure review settlement was announced.”
Brown said that Currency Comptroller Thomas Curry wrote him a letter in January saying that “additional reporting will improve transparency and understanding of the IFR and [the IFR settlement] agreement” but added that the consultant’s identity is still unknown to Congress.
“This raises serious concerns about the ability of this consultant – and others – to provide thorough work that demands accountability from the banks that are paying their bills,” Brown said.
Witnesses at the meeting, including OCC Deputy Chief Counsel Daniel P. Stipano and Federal Reserve Deputy General Counsel Richard M. Ashton, acknowledged that while regulators do utilize independent consultants to assist in regulatory matters, the process does not always lead to the intended outcome.
“In retrospect, it is clear that our approach under the IFR process did not serve the agency’s objectives…” Stipano said in prepared testimony. “Our failure to fully appreciate the breadth, scale and complexity of the reviews and to define a comprehensive and effective project plan at the outset hampered the process. While the use of independent consultants can be an effective supervisory tool, there are certainly lessons to be learned from our experience, and we believe we can improve the process going forward.”