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Strictly Honest Business: Vetting Of Settlement Service Providers

By Erin Regan

In April 2012 the Consumer Financial Protection Bureau (“CFPB”) issued guidance (Bulletin 2012-03) for supervised banks and nonbanks regarding recommended oversight of third party service providers. This guidance, while not an official regulation, clearly presents a minimum standard which the CFPB concludes is necessary to qualify service providers and manage risk.

In an effort to reduce the potential for consumer harm as well as possible statutory and regulatory violations by third party service providers, the CFPB recommends the following:

  • Conducting thorough due diligence to verify that the service provider understands and is capable of complying with Federal consumer financial law;
  • Requesting and reviewing the service provider’s policies, procedures, internal controls and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities;
  • Including in the contract with the service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities, including engaging in unfair, deceptive, or abusive acts or practices;
  • Establishing internal controls and on-going monitoring to determine whether the service provider is complying with Federal consumer financial law; and
  • Taking prompt action to address fully any problems identified through the monitoring process, including terminating the relationship where appropriate.

The CFPB has not yet designated specific sanctions directly related to the failure to properly qualify and supervise service providers; however, it is clear that there is a minimum standard which it strongly recommends to be met. That being the case, banks and nonbanks alike should implement internal quality control policies based on these standards and maintain documentation supporting qualification and ongoing review. Although it is not necessary to retain the services of a vetting company dedicated to handling qualification and monitoring as it pertains to this guidance, it may be helpful for creditors who work with a great deal of third party service providers. Fortunately, the recommendations above provide a clear framework of the minimum policy requirements that creditors can use when developing adequate compliance procedures.

At Penner Law Firm we understand the importance of being able to trust the companies you work with. That’s why we strive to provide the most effective and efficient service while keeping careful mind of the ever changing regulatory environment. Let Penner Law Firm help you build better relationships today, so that you can keep an eye on your future.

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“It is difficult, but not impossible, to conduct strictly honest business.” – Mahatma Gandhi