The Consumer Financial Protection Bureau, the Department of Justice, and other regulators have made it clear in recent weeks that they will continue to crack down on auto lending operations. While only a handful of financiers have been cited for alleged violations so far, plenty of other companies have acknowledged ongoing investigations. Time will tell how many lenders will face government-mandated penalties this year.
With these enforcement actions comes reputational risk ― the potential for a damaged brand and tarnished image among consumers and dealers. As lenders beef up compliance operations, it behooves them to revisit existing reputational risk policies, too.
In a Wall Street Journal article this week, Deloitte LLP Chief Risk Officer Chuck Saia offered some strategies for managing reputational risk. Here are some key pointers, adapted for the auto finance industry:
Be proactive. Rather than react to a public enforcement action ― or other potentially harmful scenarios, like data breaches, lawsuits, or negative ratings ― develop an enterprise-wide team comprised of brand, communications, and compliance experts. Meet at regular intervals to discuss developments and emerging risk issues.
Monitor social media. While auto finance companies often shy away from the social media limelight, Saia suggests leveraging real-time information sources to understand how your customers ― and your competitors’ customers ― react to potential risk issues.
Do scenario planning. Certainly, there are events that can catch companies off-guard, but it’s important to take time to think about potential scenarios and how best to deal with them. Brainstorm with senior executives for various business lines to sketch out potential risk issues. For instance, what could be the fallout from an enforcement action related to collection operations? What steps should you take in the case of a security breach?
Develop a plan. Don’t wait until the crisis happens to devise a response. Look at other companies ― both within and outside the industry ― to understand the impact reputation-damaging events have had on their businesses. Which strategies worked to stem brand damage? Which fell short?
Saia contends that a solid risk-management plan can bolster ― not just protect ― a company’s brand and reputation.
Reputational risk will be among the hot topics at the upcoming Auto Finance Risk & Compliance Summit, May 18-19 in San Diego.
