With recent CFPB enforcement actions coupled with an expansion of supervisory oversight to nonbank auto lenders, compliance concerns just got a bit more pronounced.
In one recent case resulting in a fine from the CFPB, the problem could be traced to flaws in the ways a vendor allegedly reported consumer data to credit reporting agencies. But though the blame could technically be assigned the vendor, it was the lender who took the flak from the government agency, and hence received a sizeable fine.
An attorney well-versed in compliance offered up a few pointers on both credit reporting and vendor monitoring.
Financial institutions should recognize that the days of outsourcing business operations and shifting the risk of potential consumer harm to vendors are gone. Instead, lenders are being held responsible for the proper treatment of the lenders’ customers, regardless of who performs the services in question.
Whether in the area of credit reporting, debt collection or other areas, lenders will be expected to have a solid vendor selection and monitoring program in place to identify compliance issues and resolve those issues in both the near term and long term, the attroney explained. Such a program may include (i) initial and periodic audits of the vendor’s compliance monitoring program, (ii) periodic internal audits of customer facing processes to identify potential issues, (iii) tracking of consumer complaints and monitoring for trends that may reveal compliance issues, and (iv) escalation and follow up to ensure identified issues are resolved.
As seen in the recent CFPB consent order, and regardless of where the issue resides, lenders are expected to correct those issues directly or by working with their vendors. Appropriate follow-up to ensure the corrections are made is a critical step, as is ensuring that actions giving rise to potential consumer harm stop until the issue is corrected.
And, with the expansion of CFPB oversight, more auto finance companies will fall under the larger participant rule, whether in the prime or subprime market. “We anticipate it will have a significant impact on the way those companies prepare for examinations, as well as their experience during the exam process,” the attorney said.