Who is the CFPB?
The Consumer Finance Protection Bureau
(CFPB) was created and authorized by the Dodd-Frank Wall Street
Reform Act that passed in 2010 in response to the financial crises of
2008. The announcement on that date put financial institutions and
their service providers on notice with its publication titled CFPB
to Hold Financial Institutions and their Service Providers
Accountable. The publication went on to say that banks
and nonbanks must responsibly manage their service provider
relationships. That was 4 years ago.
Fast forward to May of 2016 and we see
just how much the CFPB has evolved and the impact that is already
being felt on the industry. We have all heard or read of the
substantial fines that have been handed down for failure to comply
with these federal regulations. Most in the industry are also
familiar with the CFPB’s Consumer Complaint database enabling
consumers to file online complaints regarding consumer financial
products. In many cases the monetary damage is outweighed by the
reputational damage that a financial institution incurs. There are
currently in excess of 541,000 complaints that have been filed and
forwarded to over 3000 companies for responses.
To get a better idea of the impact that
the CFPB has had in it’s fairly short existence here are the
numbers reported by the CFPB on July 15th, 2015.
Billion: Approx. amount of relief to consumers from CFPB
Million: Consumers who will receive relief from CFPB
$286 Million: Money ordered paid in civil penalties from CFPB enforcement activity.
Million: Monetary relief provided to consumers from CFPB supervisory actions.
Consumers who have received relief from CFPB
One may question what all of this
signifies to the asset recovery industry. The answer is quite simple.
If a repossession agency contracts with your financial institution, then that agency must also comply with the federal guidelines set forth by the
regulators. Title X of the Dodd-Frank Act authorizes the CFPB to (a)
obtain and examine reports from supervised banks and non-banks for
compliance with federal consumer financial law “and for other
related purposes,” and to exercise enforcement authority when
violations are identified; and (b) to exercise supervisory
and enforcement authority over supervised service providers,
including the authority to examine their operations on-site.
We must agree that
the practice of repossessing collateral carries a higher risk than
just about any other service contracted by a financial institution.
The face to face interaction with the consumer during and post
repossession increases the need to mitigate risk. These institutions
are expected to adopt risk management processes commensurate with the
level of risk and complexity of its third-party relationships. Over
the past 4 years, financial institutions have started implementing
their compliance monitoring systems which is evident from the
increase in lender site visits and the increased requests for
compliance related items. Routine sales calls have gone from one of a
repossession service provider selling his/her knowledge of
repossessing collateral to now having to demonstrate his/her
knowledge of compliance and demonstrating that they have a compliance
monitoring system in place for their agency. As was made clear over 3
years ago, during an industry webinar sponsored by VTS and presented
by Attorney Michael Dougherty of Weltman, Weinberg & Reis, Mr.
Dougherty said, “Folks, you now operate in a federally regulated
industry. It may take a few years before we see a direct impact on
the auto finance and repossession industry but it will be impacted.”He was spot on with his prediction.
(In Part 2: What does CFPB compliance of third party vendors mean for financial institutions?)
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