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CFPB: The Past vs. Present

The new CFPB Rules have brought burdensome requirements that increase potential liability for lenders when working with third-party service providers. As one of the largest real estate law firms on the east coast, Penner Law Firm has dedicated significant resources to ensuring we are 100% CFPB and ALTA compliant.

Here is a quick snapshot of some of the legislative changes effective January 1st, 2014.

Past

  • Lenders were not liable for the conduct of their third-party service providers.
  • Lenders did not have to perform due diligence to confirm their service providers’ ability to comply with consumer law.
  • Lenders did not need to know the details of their service providers’ policies and procedures.
  • Lenders were not required to enter into contractual relationships with their service providers.
  • Lenders did not have to monitor work done by service providers.
  • Lenders did not have to take action to address issues that arose through monitoring of their service providers, because they were not required to monitor their service providers.
  • There was no federal agency that had supervisory powers over lenders’ relationships and management of their service providers.

Present

  • Lenders can be held liable for actions of their service providers. “Legal responsibility may lie with the supervised bank or nonbank as well as with the supervised service provider.” CFPB Bulletin 2012-3 (A) & (B); See Also 12 U.S.C. §§ 5531(A), 5536.
  • Lenders are mandated to perform “due diligence to verify service providers understand and are able to comply with federal consumer financial law.” CFPB Bulletin 2012-3 (C); CFPB Supervision And Examination Manual, Version 2 – October 2012, Part I.
  • Lenders are mandated to “request and review service providers’ policies, procedures, internal controls, and training materials...” CFPB Bulletin 2012-3 (c); see also CFPB Supervision and Examination Manual, supra, p.40, 41.
  • Lenders are mandated to enter into contractual relationships with their service providers, and include “clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities...” CFPB Bulletin 2012-3 (C); see also CFPB Supervision and Examination Manual, supra, p.36, 54, 111.
  • Lenders are “expected to manage relationships with service providers to ensure that [they] effectively manage compliance with federal consumer financial laws[,]” and mandated with “establishing internal controls and on-going monitoring to determine whether service provider is complying with federal consumer financial law.” CFPB Supervision and Examination Manual, supra, p.34; CFPB Bulletin 2012-3 (C); see also CFPB Supervision and Examination Manual, supra, p.42.
  • Lenders are mandated to take “prompt action to address fully any problems identified through the monitoring process, including terminating the relationship where appropriate.” CFPB Bulletin 2012-3 (c); see also CFPB Supervision and Examination Manual, supra, p.43, 54.
  • CFPB has “supervisory and enforcement authority over service providers, which includes the authority to examine the operations of service providers on site.” CFPB Bulletin 2012-3 (B); See Also 12 U.S.C. §§ 5514(E), 515(D) & 5516(E).