The Office of Inspector General for the Fed and CFPB has issued a report on the results of an evaluation it conducted to determine whether the CFPB effectively mitigates the risk of potential conflicts of interest associated with using vendors to support fair lending supervision and enforcement.  In addition to performing fair lending analysis internally, the CFPB contracts with outside vendors to conduct fair lending enforcement analysis and expert witness services.  The OIG focused its evaluation on the CFPB’s management of one fair lending enforcement vendor’s potential conflicts of interest after the CFPB had awarded a contract to that vendor.

The CFPB’s contracts for fair lending analysis require the vendor, before performing work on a new task order, to provide a detailed written disclosure of all actual conflicts, potential conflicts, or matters that may present the appearance of a conflict under the federal regulation that guides the acquisition of goods and services by executive agencies.  (Although the CFPB takes the position that it is not required to follow this regulation because it is an independent regulatory agency, it has made a policy decision to follow the regulation for its procurements.)  The contracts also require the vendor to provide a detailed written plan explaining the steps it will take to avoid or mitigate such conflicts.

For the vendor contract it evaluated, the OIG found that the CFPB did not obtain conflict of interest disclosures or mitigation plans in conjunction with each task order.  (It noted that two task orders did not identify the companies the vendor would analyze for fair lending compliance.)  The OIG attributed the lapse in documentation to inconsistent enforcement of conflict of interest contractual provisions, inconsistent task order requirements, and a lack of clear roles and responsibilities for enforcing contract provisions.  It commented that this weakness could expose the CFPB to reputational and operational risk if a potential conflict of interest is not identified or mitigated before the vendor begins performing work that presents an actual conflict or an appearance of a conflict.  The OIG noted, however, that it did not identify any actual conflicts of interest between the vendor and the companies it analyzed.

The report contains a series of recommendations for how the CFPB can strengthen its controls for identifying and avoiding potential conflicts of interest, including ensuring that vendors comply with existing documentation requirements.  The OIG also recommended that the CFPB evaluate the potential costs and benefits of performing more fair lending analysis internally.